Need a hard push to make a big decision. Please help!

[wantingToGetOut]

Hi all,

Wonderful site you have here. Seems to be a lot of helpful people. Hopefully I can get some advice on my particular situation.

Ages: I am 42 and wife is 43. Our only child is 10

Wife retired a 18 months ago and I went to a part time status (32 hours) about a year ago.

I have been in engineering since I was 18 as a co-op student and I want out but I don't have the knowledge yet to know if it is safe to jump.

I want to go into a semi retirement mode with a non stressful, non technical job (grunt work would be fine). I currently make $95k on my part time status, but obviously if I am changing careers to a grunter and I am probably looking at maybe $15 to 20k a year, tops.

Here is some financial information:

1) We own our house outright. Valued at ~500k these days. We definitly intend to downsize but probably not for another 10 years or so. The downsizing will have a dual affect. It should lower our yearly expenses and add some cash to the coffers. We do not intend to move to a different part of the country though so the changes will be not huge.

2) Have $120k saved in a 529 plan for daughters college fund

3) Have ~$1.5M saved for retirement, spread out over IRA's, 401K and brokerage accounts. All of the money is in mutual funds, spread pretty evenly between growth and value, and between large, medium and small caps.

4) Last year we spent $42,500 to live on. This included every penny spent over the year, although their were no big purchases like a car. The only big non regular purchase was a $4.5k expenditure on a rock wall we needed fixing. It seems every year has something in this range so I think leaving it in is fine and assuming it is $42,500 for our living expenses. If I drop the job though, and get a new one with no benefits, we will need to have health care (unless the new health bill will some how help my situation). So I think I will need ~12k a year extra for a while until daughter is on her own.

Note: I believe I will need to withdraw more than 42.5+12 due to taxes but I am unsure how to calculate the correct amount.

5) We will receive a small lump sum pension in 2033 of $150k

6) We expect an inheritance of ~$200k in the future. Obviously this is the least certain fact and should probably be ignored for any planning but I wanted to mention it to be complete.



So my question is two fold.

1) Am I nuts to think I can move into semi retirement now, or should I just stay with my current job (which I hate more and more every day)? I am pretty conservative, so I know I would choose to stay at the current job unless the numbers indicate that I can switch to semi-retirement mode with relative safety

2) If by gods chance I could risk moving into semi retirement mode, how do I go about choosing a new career? I have not looked for a non engineering job since I was in high school. I know I don't want to deal with the general public if possible but work like auditing, data entry, inventory etc seems like a good fit. I do not want to be challenged, just want to put in a days work and head home with no worries.


Thank you for taking the time to read this. If you require extra information, please let me know.

 

[brewer12345]

Looks to me like you could check out entirely and stop working for good. What does firecalc say?

 

[wantingToGetOut]

Firecalc makes me nervous.

When I plug in the numbers as best I know how, it gives a 100% result.

However, it does not take much tweaking at all to get the numbers to crash to the 80% range by doing nothing more than saying inflation will be 1% higher than I originally calculated at.

Two items concern me when using firecalc:

1) I am also concerned about how to calculate spending when trying to factor in taxes. I know what I will need to spend, what I don't know is how taxes will affect that (ie I believe I will have to withdraw more money than I need to spend so that taxes are accounted for).

2) I am unsure how the new health care bill will affect me, if at all, as your expenses are such an important component to these retirement tools

 

[VaCollector]

I'm with Brewer....you look good!

Maybe you could TRY ER as you are young enough to pick up "grunt work" at
most any time....you are definitely able to....what's worst case?....bored to death?
....volunteering is also rewarding if you just need something to pass the time....although
there are several folks who seem to be able to spend their day right here

BTW - WELCOME!!

The years that you could spend with your 10 year old will go by fasssst....I know that you did not ask for it....but I vote GO FOR IT NOW!!

 

[ziggy29]

It looks doable to me, particularly if you don't think you'd have trouble getting a gig that can bring in another (say) $15K or so. Are you looking at using 72(t) for the income from your retirement investments?

As far as your tax worries, if you do this it sounds like you'd have an income of less than $60,000 before income tax exemptions and deductions. That puts you very solidly in the 15% tax bracket and probably not a target for tax increases. And I'd probably use some really high estimates for health insurance inflation (at least until 2014) to be safe. (I mean really high, like 15-20%.)

 

[REWahoo]

Firecalc makes me nervous.

When I plug in the numbers as best I know how, it gives a 100% result.

However, it does not take much tweaking at all to get the numbers to crash to the 80% range ...

I direct your attention to this FAQ section of the forum and suggest you take note of this quote from Bernstein (William, not Leonard ):

Thus, any estimate of long-term financial success greater than about 80% is meaningless.

 

[wantingToGetOut]

Thanks for the reply's, they have been helpful.

> Are you looking at using 72(t) for the income from your retirement investments?

Ziggy, I am unsure what this means. I don't remember seeing that selection in Firecalc so I likely did not choose it.

 

[Midpack]

If you haven't already read it, I'd check out Work Less, Live More by Bob Clyatt - it was written just for people exactly like you.

 

[wantingToGetOut]

If you haven't already read it, I'd check out Work Less, Live More by Bob Clyatt - it was written just for people exactly like you.

is this being suggested to show that my numbers are ok to semi retire or that my numbers are way off to semi retire?

I will look up the book on Amazon. Thank you for the suggestion

 

[Midpack]

is this being suggested to show that my numbers are ok to semi retire or that my numbers are way off to semi retire?

I will look up the book on Amazon. Thank you for the suggestion

The book talks about numbers, investing, etc. but there are loads of resources that do that. Where it's a better choice for you (and me) is the additional discussions on picking a second, scaled back career and sensible but not austere spending. From an author who did exactly that. You might be able to scan it at the library as I did, but I ended up buying it...very best of luck.

 

[MasterBlaster]

WantingtogetOut:

What if you work another decade or two (just to be safe). And then the earth is hit by an Asteroid/global war/famine/pestulance. Wouldn't that be a bummer.

Worse - What if you or the spouse comes down with a major illness and wished you had retired early instead of grinding away.

What does Firecalc say about that !

 

[CuppaJoe]

.... from Bernstein (William, not Leonard ):

If you haven't already read it, I'd check out Work Less, Live More by Bob Clyatt - it was written just for people exactly like you.

Welcome to the forum, Wantingtogetout. I'm sure someone will be along soon to suggest a wine to go along with listening to Leornard's Ode to Joy (Freedom) while reading Clyatt.

 

[wantingToGetOut]

WantingtogetOut:

What if you work another decade or two (just to be safe). And then the earth is hit by an Asteroid/global war/famine/pestulance. Wouldn't that be a bummer.

Worse - What if you or the spouse comes down with a major illness and wished you had retired early instead of grinding away.

I understand the comments but I my thought process has never looked like this. I understand that their are no guarantees in life no matter what you do but I still want to make a some what informed decision to enter this next phase of my life.

I realize their are likely people who jumped with worse numbers than me and did fine, just as I realize their are likely people who jumped with better numbers than me only to fail and have to go back to work in their 60's.

 

[ziggy29]

> Are you looking at using 72(t) for the income from your retirement investments?

Ziggy, I am unsure what this means. I don't remember seeing that selection in Firecalc so I likely did not choose it.

What I mean is, where is most of your retirement income going to come from? If it's from your retirement accounts (IRA or 401K), you'd need to use 72(t) to take distributions until age 59 1/2 to avoid penalties on early withdrawals. If all of the income from your investments until age 59 1/2 would come from taxable brokerage accounts, that might not apply.

So I guess my question, restated, is: Do you plan to need to tap your IRA or 401K assets before age 59 1/2 for retirement income?

 

[wantingToGetOut]

Since I am obviously hesitant, what do you guys think of using financial adviser to help me with some of my questions?

Do financial advisers even offer this type of service where they could look over every number I have a crank out a plan for me?

 

[ziggy29]

What if you work another decade or two (just to be safe). And then the earth is hit by an Asteroid/global war/famine/pestulance. Wouldn't that be a bummer.

Worse - What if you or the spouse comes down with a major illness and wished you had retired early instead of grinding away.

Well, this is the juggling act most prospective early retirees face. Many have a *chance* to "fail" in terms of running out of money before running out of life, but how much longer would one have to w*rk to reduce the risk?

Let's say we could reduce our "failure" chances from 5% to 2% by working one more year. That might be worth doing. That's a relatively small period of additional time to work in order to reduce the chance of failure by 60%.

But if it took another 10 years to reduce the failure chances from 2% to 1%? That's probably not worth it. And we'd probably *never* retire if we insisted on getting it down to 0.1%.

It's always a "leap of faith" to retire, particularly when personal investments are a part of needed retirement income. The trick is to make an educated, calculated leap of faith when you start seeing rapidly diminishing expected returns for sticking out "one more year."

 

[wantingToGetOut]

What I mean is, where is most of your retirement income going to come from? If it's from your retirement accounts (IRA or 401K), you'd need to use 72(t) to take distributions until age 59 1/2 to avoid penalties on early withdrawals. If all of the income from your investments until age 59 1/2 would come from taxable brokerage accounts, that might not apply.

So I guess my question, restated, is: Do you plan to need to tap your IRA or 401K assets before age 59 1/2 for retirement income?

Very roughly, $750k is in retirement and $750k is in taxable brokerage accounts.

I believe I will be draining the taxable brokerage accounts first. If they run out before 59.5, then I will need to tap into the 72(t).

On the other hand, if I have burned through 50% of my nest egg by the time I am 59.5, I will have a lot more problems to worry about I think

 

[wantingToGetOut]

What is a conservative number to use for X in the following equation

Investment return % - Inflation % = X %

I tend to use a number between 1 and 2 for X but I wonder if that is too aggressive for a retirement portfolio...

 

[audreyh1]

Since I am obviously hesitant, what do you guys think of using financial adviser to help me with some of my questions?

Do financial advisers even offer this type of service where they could look over every number I have a crank out a plan for me?

Read the recommended book first. Then come back and ask this question again if you still need to.

Audrey

 

[audreyh1]

What is a conservative number to use for X in the following equation

Investment return % - Inflation % = X %

I tend to use a number between 1 and 2 for X but I wonder if that is too aggressive for a retirement portfolio...

That method is too simplistic because it doesn't match how the real world works. Use FIRECalc instead which is based on historical data.

Audrey

 

[haha]

I think the amount you can count on is marginal at your age, with 2 adults and one child. I live as close to the bone as I can and spend only a few thousand less than you, on myself alone, though I do not own a home.

You will have health insurance for an entire family, plus daughters are expensive.

Ha

 

[MasterBlaster]

That method is too simplistic because it doesn't match how the real world works. Use FIRECalc instead which is based on historical data.

Audrey

To add to that, Even though historical market gains have been around 10% (or so). Were you to retire in say 1970 (for a bad example) you would find that successive down markets would wipe you out long before the markets recovered in the 80's.

Therefore the timing and sequence of markets is important. Firecalc attempts to model market behavior such as this. The relatively low SWR is to help you get through poor markets. In good markets hindsight shows that a much higher withdrawal rate could have been achieved. However since nobody knows the future the prudent thing is to stick to a modest SWR.

 

[wantingToGetOut]

That method is too simplistic because it doesn't match how the real world works. Use FIRECalc instead which is based on historical data.

Audrey

I disagree. This equation I asked about is paramount to running a conservative or aggressive firecalc model.

Controlling the size difference between inflation and investment growth leads directly to a conservative vs an aggressive run of Firecalc IMO.

 

[wantingToGetOut]

I think the amount you can count on is marginal at your age, with 2 adults and one child. I live as close to the bone as I can and spend only a few thousand less than you, on myself alone, though I do not own a home.

You will have health insurance for an entire family, plus daughters are expensive.

interesting. We do not live close to the bone at all. We eat out and have normal entertainment budgets. Daughters cost is well accounted for as we track every single penny.

Although if you do not own a home, you must live some where, are you paying rent? Since I don't have rent or a mortgage that could be a pretty big difference between us.

I did add in a $12k budget for health care which is typical for my area for the family in case I do jump ship to a job that does not have health insurance.

Also, my house is the biggest drain on my expenses. House taxes and insurance are accounting for over 9.5k of the $42k we spent last year. If and when we downsize in the future, hopefully this tax and insurance % of my over all expenses will drop a bit.

 

[wantingToGetOut]

Therefore the timing and sequence of markets is important. Firecalc attempts to model market behavior such as this. The relatively low SWR is to help you get through poor markets. In good markets hindsight shows that a much higher withdrawal rate could have been achieved. However since nobody knows the future the prudent thing is to stick to a modest SWR.

What is considered a modest SWR? Is 3% safe or is that too aggressive?