Would you FIRE in this scenario?

[coltsfan53]

I wanted to get some opinions on whether to FIRE or not from this fine community. Here is our current scenario:

Me - 44 years old, stressful sales job. I enjoy it but I could also see another mode of life being more fulfilling. Income 200k per year.
Wife - 35 years old. She has a job that she could take or leave. Makes around 50k per year.
We have no children and, barring a miracle, do not see any on the horizon.

Portfolio:
Cash: $50k
Taxable: $1MM
IRA: $655,000
401k: $303,000

Pensions: I have 2 vested at this point; will bring $24K (no COLA) at 65.

Spend:
$80-100K per year
Only debt is $315K left on mortgage ($1,800 a month for next 19 years); $235K in equity

I am a slight 4% SWR skeptic over a potential 50 year retirement; I am also more than clueless about taxes for the early retirement class.

Thanks for your input!

 

[scrabbler1]

Quick opinion is that you don't have nearly enough in non-retirement accounts to RE. If you can withdraw from your 401k at age 55 upon separation of service from your company, it looks like you will have new access to those presently locked-up funds.

 

[pb4uski]

You need to include SS and a reduction in spending once your mortgage ends, but you're right... your WR is likely to be 4%ish and is IMO too high to FIRE.

Do your expenses include income taxes and health insurance/health care?

Have you run your situation through Firecalc? If you do, exclude mortgage payments from spending, put in an off-chart spending for your annual mortgage payments on the Other Income/Spending tab and put in an offsetting pension for the same amount starting in the year your mortgage payments end. If you include your mortgage payments in your spending the program provides for mortgage payments, inflated, for the entire time horizon.

 

[coltsfan53]

Excellent point on the "Off chart" allocation of the mortgage payment in FIREcalc. I have never picked up on this rather obvious need. Much appreciated.

You need to include SS and a reduction in spending once your mortgage ends, but you're right... your WR is likely to be 4%ish and is IMO too high to FIRE.

Do your expenses include income taxes and health insurance/health care?

Have you run your situation through Firecalc? If you do, exclude mortgage payments from spending, put in an off-chart spending for your annual mortgage payments on the Other Income/Spending tab and put in an offsetting pension for the same amount starting in the year your mortgage payments end. If you include your mortgage payments in your spending the program provides for mortgage payments, inflated, for the entire time horizon.

 

[DrBrisket]

Quick opinion is that you don't have nearly enough in non-retirement accounts to RE. If you can withdraw from your 401k at age 55 upon separation of service from your company, it looks like you will have new access to those presently locked-up funds.

A Roth Conversion Ladder is a potential solution to tapping retirement accounts prior to 59.5 (or 55). Requires a 5 year planning horizon to execute without paying early withdrawal penalties. Properly executed with reasonably good projections of your expected tax situation, you may be able to greatly reduce or eliminate the taxes due on the Roth conversions.

As far as "ready to FIRE", one item I would consider to lower your WR would be to relocate (lower cost house in the same area or lower cost of living area) to kill off the the 19 years of $1800/month payments while leaving your liquid assets intact. No right or wrong answer here, just a matter of your own personal preferences. DW and I have had numerous productive conversations about what this avenue might hold for us (lower energy bills, possibly lower property taxes, lower insurance premium, lower maintenance costs, freed up capital to produce income, etc.). It doesn't have to be a "move right now" situation; for example, if you plan to move/downsize in 9 years, that would eliminate over $200k of payments from your future cash disbursements. As pb4uski noted, FIREcalc can let you run through different mortgage payment streams for your explorations.

IMHO, Healthcare cost projections are the big unknown assuming you are in the US. Right now, we are planning on paying full-freight until medicare which is a rather significant adder to the required nest egg. Hoping for some clarity on lowering these costs in the next year or two, but given the gravity of the situation, better to be overly conservative here IMHO.

 

[exnavynuke]

At your ages/situation (no non-investment income for decades), I'd probably max out considerations for withdrawal rates around 3.5%, and probably prefer to not plan for more than 3%. At 3%, you need about 3.3M in investments to support a $100k withdrawal rate before accounting for taxes.

SS is also likely to give you only a small boost (relative to your spending) because of retiring so early. It won't be near what your latest statement says to expect if you stop working in your mid-40's instead of your 60's as it assumes. There's a calculator you can use from SS and input your data and get revised numbers after showing zero's for future years instead of the assumed earnings.

 

[nash031]

OP - Go Colts! I'm from Indy myself, transplanted over the years, but still Colts and Pacers with family in Indy.

To answer your question, no, I wouldn't retire with a 4% spend and little pension income at your age. Others mentioned the SS disparity between the statement and what you'll actually get by retiring in your 40s. I generally plan for 0 SS and consider it a bonus. Might make me work an extra year, but considering our relatively early horizon for retirement, that's not so bad.

I'm planning a similar age retirement, but closer to a 3-3.5% spend with an immediate COLA pension that will make up 40-50% of our desired spend for a 50 year horizon.

In your shoes, I'd definitely aim for 3%, maybe 3.5%, and make sure you've got enough taxable assets you can access to cover the gap to when your retirement accounts open up. Explore 72t options otherwise, but that adds a level of complexity that I think is probably unnecessary when you've got substantial earning power and are still young.

Maybe consider a change of occupation? Find a (a)vocation that can pay you while you let your savings grow? Certainly, you're close. I'm planning to prioritize happiness and quality of life over my paycheck here in less than three years once we hit FI. That probably means finding a job I enjoy rather than one that pays me well.

My $0.02.

 

[NanoSour]

I would say you are good to pull the FIRE trigger if that is what you really want. If you are serious, I'd suggest investing in ESPlanner or another detailed retirement calculator. I retired at 49 with 3 teenagers, the first which will be starting college in the fall. I left with considerably less money than you have, but had a 38K gov't pension to rely on.

SS is a big part of your equation and depending how long you've been making 100K+, not working may not impact SS as much as you might think. ESP will give you the number based on your entire income history to include not working from this point on.

Also, I tend to buy into the Bernicke reduction in spending as one grows older. As I look around, there is no doubt that folks are spending considerably less in the their 70s & 80s.

Finally, I will caution you that the financial part of the equation will be the easiest concern. It's the emotional part that will weigh on the mind.

 

[Koolau]

Agree with most of what's been said so far. I suppose the single most important tool you need going forward is flexibility. If you pull the plug and hit a rough patch (financially), can you cut way back on spending for a year or two? If not, I think I'd either wait or keep some income flowing for a while. That $80K to $100K might have to drop to $50K or less for a while, so "know thyself" seems to apply here. Best of luck and keep in mind YMMV.

 

[brucethebroker]

Agree with most of what's been said so far. I suppose the single most important tool you need going forward is flexibility. If you pull the plug and hit a rough patch (financially), can you cut way back on spending for a year or two? If not, I think I'd either wait or keep some income flowing for a while. That $80K to $100K might have to drop to $50K or less for a while, so "know thyself" seems to apply here. Best of luck and keep in mind YMMV.

I agree.

A thought: what other career options do you have that might be less stressful/more satisfying? If, between yourself and your wife, you cut your income by 50%, would that make working another 10 years or so more appealing? Your savings/investments look great for someone your age, but maybe you just need to let them grow a little longer.

If you project the value of your nest egg at age 59 1/2, would you be OK to FIRE then? If so, (including paid off mortgage at that time), that would remove the pressure to save so much for retirement. Without those savings, and with the benefit of (possible) tax bracket savings with reduced earnings, it might be possible to live on less income without feeling much pain.

Of course, your immediate FIRE numbers would look better if you downsize or find other ways to greatly reduce outgo. Take a long hard look at your housing/transportation expenses. Those are the usual 'big spending" culprits.

 

[mrfeh]

Quick opinion is that you don't have nearly enough in non-retirement accounts to RE.

+1

It's really simple; given your age(s), annual spending and current balances, you just don't have enough saved.

 

[MrLoco]

Colts FAn,

I have to agree with others. You do not have anywhere close to what you would need to retire this early. Just where would the money come from to sustain your current annual rate of spending? Much of your assets are untouchable ( 401k, IRA) until later years.

Plus, the big elephant in the room is : Healthcare. You are 20 years away from Medicare....your wife 30 years. And I guarantee IF Medicare still exists when you reach 65, it will not look anything like it does today. Same for Social Security.

MAybe you could switch careers? Maybe do your homework and start your own business? Consulting? You need income. Preferably income with medical benefits included for many years to come. Just how I see it.

 

[VFK57]

You may want to consider to move to low living cost countries until you are 65. There are countries like Costa Rica, Ecuador, Panama etc where a couple could have a very nice standard of living on about $2,000 per month. This amount will include a nice neighborhood apartment rent, food, medical, dental, transportation, food, entertainment.

 

[Aiming_4_55]

Others have already commented, you can make it work but it depends on your expenses and healthcare/history.

Since you live in a low/reasonable cost of living area already, your current spend of $80-100k seem healthy with possible room to trim in lean years.

A consideration, take a sabbactical or leave of absence and test run/explore what else you might want to do.

With DW being 35 years old, you might be looking at a 60 - 65 year duration, so the SWR should be lower than the typical 4% that you may see.

 

[Cobra9777]

I just ran your numbers through FIRECalc and ******** and both tools returned a 72% success rate. ******** is a little easier with this many variables. For example, you don't have to do the workaround for the mortgage that pb4uski described. Assumptions included:

- both retire now
- 50 year retirement
- 100k initial spend adj for inflation
- 21.6k mortgage stops after 19 years
- 24k non-cola pension at 65
- no SS
- 1958k portfolio w/ default AA

When I changed the spending model in FIRECalc to Bernicke, the success rate went to 92%.

SS will improve this, but not sure what you have at this point, and it's a long way out. No kids translates into lots of flexibility to relocate and no college cost. Also $100k spend was at the top of your stated range. So, I don't see this as negatively as many who have posted.

You need to think more about health insurance, income tax, pre-59.5 IRA withdrawals, and spending flexibility. Then model your own scenarios, including one or both continuing to work for a while longer.

Congrats on what you've achieved so far. You're close.

 

[Fedup]

Most likely not. I think at your age, you need 20 more years before you get some sort of pension.