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Would like to FIRE... any advice?
Old 10-13-2012, 10:19 AM   #1
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Would like to FIRE... any advice?

Hi all,

I'm 54 now, DW is 49. Our financial assets total $1.38M, not including real estate. Here's the break up:

Cash $250K (includes rainy day fund)
Investments $340K (60/40 stocks/bonds)
Annuity (post-tax) $205K (freeze period ends when Iím 59 Ĺ )
IRAs, Self & DW (Annuity) $250K (freeze period, see above)
529 Account (unused) $100K
401k (Self) $220K (60/25/15 - stocks/bonds/MM)
Roths, Self & DW $15K

Primary Residence (PR) is paid off. We also have rental properties. Equity in all properties including PR would total $270K although this is hard to gauge today, given the appraisal challenges due to foreclosures in my city . Would like to FIRE two years from now (late 2014). Iíll be maxing out my 401k including the catch up allowance till then.

1. I expect $65K in annual expenses, not including taxes. Including taxes, is $75K reasonable?

2. Any advice on how to re-align our investments to prepare for retirement in 2 years?

2. I keep hearing about changes to SS and Medicare for those 54 and younger, if Romney/Ryan win. Iím right on the cusp, so any advice to prepare or compensate for this?

3. What about LTCI? Should we consider starting a policy now before it becomes prohibitively expensive?
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Old 10-13-2012, 10:32 AM   #2
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1. Your taxes should be much less once you retire. Take your 2012 projected return (or 2011 actual return) and then adjust it for changes in retirement to see what your ER taxes will be. For me since I am living off taxable funds in ER, my taxes are almost nil until I factor in Roth conversions (which are discretionary).

2. IMO best practice is to look at asset allocation (aka "AA") across all your investments. While a target AA depends a lot on a person's risk tolerance, most ERs are between 40 stock/60 bond and 60 stock/40 bond. I'm a couple years older than you and I target 58% stock/38% bond and 4% cash, with the cash being a little over 1 year's living expenses.

2. I don't think there is much you can do on this at this stage since there is so much uncertainty as to who will win and what will happen.

3. It is probably too late as LTCi is already prohibitively expensive. It is really a personal decision and there are many pros and cons and there are numerous threads here that you can read to get more information. As for me, I think the cost exceeds the value but I know others feel differently - there is no right answer.
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Old 10-13-2012, 10:48 AM   #3
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The 529 account was set up for our kids' college expenses. We've been able to cover most of the expenses though ordinary income. So should I liquidate all or most of the 529, pay any penalties and add the money to our after tax investment?
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Old 10-13-2012, 11:07 AM   #4
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Your nest egg probably won't throw off the kind of income you need on a sustainable basis. It's possible Social Security will help. Did you try putting your numbers through FIRECalc?

My quick estimate is that 1.38 million at 3% withdrawal rate will be about 41k and change. Then keep in mind that some folks think 3% is a bit high. You're not near the numbers you want, and I'm not sure if a few years of catchup contributions will get you there.

Do the math, factor in healthcare expenses, and so on. I'm not sure you are in the green zone yet.

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Old 10-13-2012, 09:18 PM   #5
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What sort of cash flow do the rental properties generate including a reasonable provision for vacancies? That could make a substantial difference.

I have found Quicken Lifetime Planner to be a good, easy to use tool for retirement planning, supplemented by Firecalc. It is part of Quicken Deluxe or higher.
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Old 10-14-2012, 10:21 AM   #6
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Quote:
Originally Posted by goneboarding View Post
2. I keep hearing about changes to SS and Medicare for those 54 and younger, if Romney/Ryan win. I’m right on the cusp, so any advice to prepare or compensate for this?
Don't limit your concern to a Romney/Ryan win. SS and Medicare have been "going broke" for at least the last 40 years. With us baby boomers hitting the programs things will become more exciting financially. While trying to be non-partisan, there are going to be many uncertainties facing the future of entitlement programs and tax structure. No one has really said what they will do but the winner will definitely have to do something.

Why did you not drain the 529 plan when your kids were in school? If you don't have a future need for it, you should pay the penalty and move on. Your option would be to save it for possible grand children.

I suggest you run FireCalc as to whether you are in a position to retire. I suggest you look at funding a "comfortable" lifestyle with a comprehensive budget including healthcare, recreation and a contingency.

I personally don't have LTC insurance but I have a significant "reserve" that is available to cover LTC should it be needed.
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Old 10-14-2012, 10:36 AM   #7
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Have you tried Firecalc ?
Quote:
Originally Posted by goneboarding View Post
1. I expect $65K in annual expenses, not including taxes. Including taxes, is $75K reasonable?
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Old 10-14-2012, 10:39 AM   #8
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Quote:
Originally Posted by goneboarding View Post
1. I expect $65K in annual expenses, not including taxes. Including taxes, is $75K reasonable?
I think that is considerably more spending than your nestegg can support, but try FIRECalc (our free retirement calculator, link at the bottom of each page) and see what it says. If FIRECalc agrees with me, then my suggestion would be to cut back on your expenditures. Your house is already paid for, so you have no rent or mortgage to cover, and that is a good start.

Quote:
Originally Posted by goneboarding
2. Any advice on how to re-align our investments to prepare for retirement in 2 years?
The Bogleheads have compiled a great list of investment books, IMO:

Investment Books

Quote:
Originally Posted by goneboarding
2. I keep hearing about changes to SS and Medicare for those 54 and younger, if Romney/Ryan win. I’m right on the cusp, so any advice to prepare or compensate for this?
(Election politics are not permitted as a topic of discussion on this board.) You are 54, so you have time to save more before you retire if you wish. Also I would suspect that any changes for you (if any) will probably be pretty minimal compared with changes for those who are, say, in their 20's right now. As to the exact numbers, my crystal ball is not functioning well.

I do not have any answer for you on the LTCI question. Personally, I am self-insuring but I don't think any of us know what will happen with LTCI expenses and insurance in the years to come.

In general, I think most of us try to save a little more than what we absolutely need for a bare bones retirement, and that allows a bit of a buffer to take care of difficulties we cannot quite get a handle on, such as those you are asking about. My advice would be to both cut back on your spending substantially, and work for another 5 years or so while saving all the excess to beef up your retirement portfolio.
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Old 10-14-2012, 11:25 AM   #9
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Did some Firecalc calculations a few days ago. Wasn't sure I understood what Firecalc was showing me. I'll just have to spend a bit more time to figure things out. Also, I'm in the process of doing a Quicken Financial Planner calculation.

Thanks for the all the tips and pointers.
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Old 10-14-2012, 11:33 AM   #10
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Quote:
Originally Posted by goneboarding View Post
Did some Firecalc calculations a few days ago. Wasn't sure I understood what Firecalc was showing me. I'll just have to spend a bit more time to figure things out. Also, I'm in the process of doing a Quicken Financial Planner calculation.

Thanks for the all the tips and pointers.
Quicken gives you what is called a deterministic calculation since you provide and investment earnings rate assumption and it calculates the projected future values of your nestegg assuming you earn that return each year. IMO, Quicken is great for helping you organize your plan and making sure you are covering all your bases. In reality, your investment returns will vary and if the variances were the wrong way in the early years, that could be a problem.

Firecalc computes the future value of your nestegg using actual historical sequences of returns, which results in all the various lines that you see and tells you how many trials it was able to do, how many failed, the worst, average and best ending value of your nest egg, etc.
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Old 10-14-2012, 11:40 AM   #11
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$75K on 1.38M is a withdrawal rate of 5.4%. This is much higher than most people recommend for a sustained retirement (usual number is 4% for 30 years, maybe as low as 3% for ER).

However, I think the key is going to be your additional income streams from rentals and SS which could substantially reduce the draw needed on your portfolio. I would go to the SS .gov site and use their calculator to figure out how much you should get if you stop working. Also I would very conservatively estimate rental profit (make sure to account for long-term maintenance) to figure out how much you actually need to withdraw each year.

Note that FIRECALC lets you run scenarios where your SS will come online after your retirement. So you could set it to come online when you reach 62 or 67 or 70 etc.
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Old 10-18-2012, 11:48 AM   #12
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Not to jump in last minute. I am a very heavy quicken user at age 51 getting ready to retire in April 2014 based in the quicken retirement planner. I use very conservative estimates and have 0% soc sec factored in. Any Soc Sec at age 62 is a plus. However using the what if scenarios in QRP (Quicken Retirement Planner) is a big help. With respect to LTC we decided to take out a standard insurance policy to cover expenses after the fact. IMHO, LTC is required for 2-3 years then the insurance policy will pay out covering any expenses that were incurred.
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Old 10-18-2012, 12:48 PM   #13
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Quote:
Originally Posted by goneboarding View Post
Did some Firecalc calculations a few days ago. Wasn't sure I understood what Firecalc was showing me. I'll just have to spend a bit more time to figure things out. Also, I'm in the process of doing a Quicken Financial Planner calculation.

Thanks for the all the tips and pointers.
Maybe we can help you understand your FIRECALC results. I used it to back into your results (see Investigate page) and got:
Quote:
Originally Posted by FIRECALC
For a nest egg = $1.38M for 39 years (age 95): A spending level of $51,440 provided a success rate of 95.1% (102 total cycles, of which 5 failed). This spending level is 3.73% of your starting portfolio. (Your spending is assumed to come from any Social Security and pensions you entered, as well as from the portfolio.)

Or to generate an annual income of $75K/yr (plus inflation) for 39 years: A starting portfolio of $2,011,903 provided a success rate of 95.1% (102 total cycles, of which 5 failed).
Any help?
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Old 10-18-2012, 01:27 PM   #14
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Maybe we can help you understand your FIRECALC results. I used it to back into your results (see Investigate page) and got:
Any help?
I found when I did 40 year FireCalc runs a few years ago it actually had higher withdrawals than the same 95% success rate for 30 years. I'm not completely sure but I think that it is due to the poor returns from 2000 on don't get counted in as many cases in the 40 year periods as the 30 year periods.
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Old 10-18-2012, 03:24 PM   #15
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You state you are ready to retire in 2 years, does DW work? If so will she continue work for some years? That alone could be a huge help.

Rental income can be a biggie long term, if the rental is profitable. You also do not say if your expenses include the rental property expenses. Be sure you know if the rentals are making or taking money.

I agree that 1.3M with 75k in expenses might be tight, BUT that depends in part also on longevity, which of course is a best quess as well.

Quicken and FireCalc are great tools. But like any, they are only as good as the info you put in.
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Old 10-18-2012, 04:16 PM   #16
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Reading between the lines ... do you have health insurance as a benefit?

To have or not have is a big factor. Look around at some other threads for more info, otherwise, think 15k to 25k (depends on various factors) to add to your worst case yearly expenses.
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Appreciate the Input!
Old 10-18-2012, 05:47 PM   #17
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Appreciate the Input!

Since I'm new to this site, I've been trying to catch up on all the good stuff posted on the various forums.

Yes, I had figured health insurance into our annual expenses. Not as much as 25K, though. I'll have to re-think my expenses and work through some scenarios with higher medical expenses.

I've been spending a good bit of time running various scenarios through FIREcalc, Quicken and Fidelity. Bottom line, as you all have suggested, I need to start with $2M or thereabouts. So I'm working through various semi-retirement scenarios to figure out how to reach my target lifestyle as quickly as possible.

And thanks to everyone for the advice about FIREcalc... even running some of the scenarios for me. They really help... and keep the advice coming , it's only helping.
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Old 10-18-2012, 07:13 PM   #18
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With respect to LTC we decided to take out a standard insurance policy to cover expenses after the fact. IMHO, LTC is required for 2-3 years then the insurance policy will pay out covering any expenses that were incurred.
I've never heard of a policy like that. Can you tell us the company or give us a link to the details?
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Insurance policy
Old 10-18-2012, 07:29 PM   #19
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Insurance policy

Sorry I wasn't a little clearer. I purchased a fully paid up (until I am 110 years old) standard underfunded life insurance policy. I am assuming that I will have enough to cover expenses for a while or use either a reverse mortgage or borrowing off of the life insurance policy if needed. It will accomplish two concerns.

One if I die prematurely it will cover expenses for my wife. Two I can use it to pay off LTC debt if needed. From what I read LTC does not last that long 2-3 years average.
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