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Busabob 04-22-2012 09:14 PM

Anyone Want to Run the Numbers for me??
 
45, wife 45. Want to retire at 50, currently have 850k, project $1.2M at retirement of which I will have to pay gains on $850k (ISO's). I will have zero debt, property taxes and and insurance of $2800 year, plan to live 35 years, wife and I both will qualify for SS totaling $2,500 a month starting at 62. Plan on living on $78k year, am I in good shape??? :angel:

W2R 04-22-2012 09:22 PM

Quote:

Originally Posted by Busabob (Post 1187699)
45, wife 45. Want to retire at 50, currently have 850k, project $1.2M at retirement of which I will have to pay gains on $850k (ISO's). I will have zero debt, property taxes and and insurance of $2800 year, plan to live 35 years, wife and I both will qualify for SS totaling $2,500 a month starting at 62. Plan on living on $78k year, am I in good shape??? :angel:

What does FIRECalc say? FIRECalc: A different kind of retirement calculator That's a good starting point, often. :)

jclarksnakes 04-22-2012 09:32 PM

The 1.2 million at a SWR of 4% would yield 48K a year. The SS would be another 30K. That would make your 78K. BUT...... You would be short 30K a year from the time you retire till you start SS. Many people looking at retirement before SS or pensions start end up taking extra out of their portfolio as a bridge for those inbetween years. No room in your plan for that bridge so I would say you need to do something different. Either save more per year or work more years or reduce the budget in retirement. The good news is that you have time to make it happen one way or the other so that you can retire at least several years earlier than typical.

MooreBonds 04-22-2012 09:49 PM

Quote:

Originally Posted by jclarksnakes (Post 1187704)
The 1.2 million at a SWR of 4% would yield 48K a year. The SS would be another 30K. That would make your 78K. BUT...... You would be short 30K a year from the time you retire till you start SS. Many people looking at retirement before SS or pensions start end up taking extra out of their portfolio as a bridge for those inbetween years. No room in your plan for that bridge so I would say you need to do something different. Either save more per year or work more years or reduce the budget in retirement. The good news is that you have time to make it happen one way or the other so that you can retire at least several years earlier than typical.

But he mentions that the $1.2M contains $850k in (presumably) unrealized capital gains. Assuming he'll be selling the stock options at age 50, he'll owe taxes on $850k of gains (maybe $275k in taxes?), dropping the $1.2M portfolio to approximately $925k, or just $37k in annual withdrawals at 4%.

jclarksnakes 04-22-2012 10:17 PM

Quote:

Originally Posted by MooreBonds (Post 1187707)
But he mentions that the $1.2M contains $850k in (presumably) unrealized capital gains. Assuming he'll be selling the stock options at age 50, he'll owe taxes on $850k of gains (maybe $275k in taxes?), dropping the $1.2M portfolio to approximately $925k, or just $37k in annual withdrawals at 4%.


Yes, If he has to sell all at once the tax bite will be big. There is some time between now and then to figure out how to smooth the income out. He also did not say whether the 87K needed annually is before or after taxes. Either way his plan comes up short. I still think there is plenty of good news in his situation in spite of the fact that his numbers are not quite enough to do it the way he asked about.

Busabob 04-23-2012 06:43 AM

Thanks for the feedback. The $78,000 figure is before taxes. The ISO's will be paid out in 6 equal annual payments after I leave the company. I should also mention that I do plan to work part time and seasonally (getting the heck out of AZ in the summer!) from 50-62. Also, my wife has a private practice she could cherry pick a few clients. If we both committed to earn $15k annually until we started collecting SS we could make up the delta during the non SS years?

jwkde 04-23-2012 07:32 AM

another thing to consider is over the next 6 years tax rates are probably going to change <and not downward i believe>

pb4uski 04-23-2012 07:34 AM

What will you do for medical insurance? Is an adequate provision included in your $78k budget?

Midpack 04-23-2012 08:11 AM

Quote:

Originally Posted by jclarksnakes (Post 1187704)
The 1.2 million at a SWR of 4% would yield 48K a year. The SS would be another 30K. That would make your 78K. BUT...... You would be short 30K a year from the time you retire till you start SS.

Using 4% as a safe WR for someone retiring at age 50 is too aggressive IMO (4% SWR is based on retiring age 65 and a 30 year plan), though the OP states he only expects to live to 85. Unfortunately family history might make that a good assumption, but most people plan on age 95 or thereabouts in case they do live longer than average. CDC reports average US life expectancy is 78.5, so roughly 50% will live longer than that. Many here retiring at age 50 would plan on 2-3% or $24K-36K/yr. YMMV

4% WR from FIRECALC
YrsSuccessEnd Age
3094.6%80
3592.5%85
4584.4%95

jclarksnakes 04-24-2012 10:56 AM

I generally share Midpack's opinion that a 4% WR is too aggressive for someone at 50. OTOH, it seems to me that before the recent financial "meltdown" the 4% WR was generally considered safe for a retiree at that age by many of the posters on this forum. I think that as is usual human practice we overestimate the importance of more recent events and discount the importance of events from further back in history. It also does occur to me that many people really wanting to get out of the ratrace could be comfortable with the 92.5% probability of success that FIRECALC predicts running the OPs numbers for a 35 year trial. Some of those people would also be willing to cut back a bit on the spending if needed in a down market. In the end we all have to decide what numbers will work for us and dive into scenic lake retirement at sometime. Come to think of it some folks do even decide to work till they die.

walkinwood 04-24-2012 04:36 PM

Is the value of the ISO's guaranteed? To me, that is the biggest risk you face.

Midpack 04-24-2012 04:48 PM

Quote:

Originally Posted by jclarksnakes (Post 1188186)
I generally share Midpack's opinion that a 4% WR is too aggressive for someone at 50. OTOH, it seems to me that before the recent financial "meltdown" the 4% WR was generally considered safe for a retiree at that age by many of the posters on this forum. I think that as is usual human practice we overestimate the importance of more recent events and discount the importance of events from further back in history.

I can't speak to the consensus here, but the Bengen paper and the Trinity study (among others) concluded 4% was the SWR for a thirty year retirement. Recent events didn't change the rule, Bengen first wrote about it in 1994 and the Trinity study was published in 1998. If anything recent events have people looking at 3%, 2% as future safe withdrawal rates, especially for some retiring for more than 30 years, presumably like the OP.

jclarksnakes 04-24-2012 08:22 PM

Quote:

Originally Posted by Midpack (Post 1188379)
I can't speak to the consensus here, but the Bengen paper and the Trinity study (among others) concluded 4% was the SWR for a thirty year retirement. Recent events didn't change the rule, Bengen first wrote about it in 1994 and the Trinity study was published in 1998. If anything recent events have people looking at 3%, 2% as future safe withdrawal rates, especially for some retiring for more than 30 years, presumably like the OP.

So are you saying that you think 4% is safe for a 30 year retirement but that the safe WR for a 35 year retirement is 2 or 3 percent? BTW, that 4% figure for SWR dates back far earlier than 1994.

Midpack 04-25-2012 10:12 AM

Quote:

Originally Posted by jclarksnakes (Post 1188451)
So are you saying that you think 4% is safe for a 30 year retirement but that the safe WR for a 35 year retirement is 2 or 3 percent?

If you read my post #9, I was leaning toward 45 years for the OP.

Quote:

Originally Posted by jclarksnakes
BTW, that 4% figure for SWR dates back far earlier than 1994.

Thanks for further discounting your earlier recency phenomena POV.


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