We're running out of steam at 38 and 40!

[medelste]

Hi, just discovered this forum. My wife and I are running out of steam after working very long hours for several years, and are looking for the light at the end of the tunnel. We've saved at a good rate all our working lives and we both keep maximizing our 401ks and non-deductible IRAs each year. The question: how soon do you estimate that we can we bail on the rat race?

Personal:
Me: 38, male, $200k/yr income
Wife: 40, female, $110/yr income
Home: Manhattan, NY
Spending: $120k/yr

Assets:
Tax-deferred (401k & IRA): $786k
Taxable: $345k
Home equity: $330k
No pensions

Allocation:
58% US Stocks
14% Foreign Stocks
7% REITS
16% Bonds
6% Cash
(all low-cost index funds)

Thank you!

 

[Midpack]

Welcome aboard. You've provided good information, but we'd have to guess your Soc Sec assumptions, and then many of us would just plug the info into FIRECalc: A different kind of retirement calculator for you. Might be a good place for you to start.

Cocktail napkin calc, without Soc Sec and based on a 3% WR (early retirement), $120K / .03 = $4M. How long will it take you to get from $1.1M (current, I wouldn't incl home equity) to $3-4M?

 

[Ally]

Welcome! One thought I had is that you may be able to retire earlier, if you are willing to move to a lower cost of living area of the country. I'm sure your expenses are much higher there than in many areas.

 

[brewer12345]

As Midpack has made clear, you are far, far away from being able to bail at your urrent spending level. Either greatly reduce your expenses, figure out how to generate the cash you need with a lower stress job (good luck with that), or get ready for another decade or more in the trenches. I tried the lower stress job thing and it has been a bust. As a result, I am taking advantage of the lower living costs of the area I moved to from the NYC area and semi-retiring next year, barring economic collapse between now and then.

 

[medelste]

Thanks for the super-fast responses, all!

@Midpack: Thanks for the back-of-the-napkin tip. So if we make no changes to our location or our savings rate, $4M is a good ballpark target number. Can you double-check my math from here? Let's say we aim to retire in 10 years. Sticking to back-of-the-napkin, if we keep saving at current rates, we'll conservatively stockpile another $500k in 10 years. So that's $1.1M today + $0.5M = $1.6M toward the target. That leaves $2.4M to occur through growth. That requires about a 115% cumulative return from where we are starting today, which I think is about 8%/yr average return. It would appear that we would require some good fortune in the markets to achieve that in 10 years, but it's not outside the realm of the possible.

@Ally: Very true, and I think we'll have to have that talk. Maybe when we hit $3M, and that could fund us at, say, $90k/yr.

@brewer: Good luck!

 

[heeyy_joe]

Thanks for the super-fast responses, all!

@Midpack: Thanks for the back-of-the-napkin tip. So if we make no changes to our location or our savings rate, $4M is a good ballpark target number. Can you double-check my math from here? Let's say we aim to retire in 10 years. Sticking to back-of-the-napkin, if we keep saving at current rates, we'll conservatively stockpile another $500k in 10 years. So that's $1.1M today + $0.5M = $1.6M toward the target. That leaves $2.4M to occur through growth. That requires about a 115% cumulative return from where we are starting today, which I think is about 8%/yr average return. It would appear that we would require some good fortune in the markets to achieve that in 10 years, but it's not outside the realm of the possible.

@Ally: Very true, and I think we'll have to have that talk. Maybe when we hit $3M, and that could fund us at, say, $90k/yr.

@brewer: Good luck!

Well, we are all surely rooting for 8% returns. Examine ways to regain your "steam" if you are indeed looking at several more years of work.

 

[haha]

So that's $1.1M today + $0.5M = $1.6M toward the target. That leaves $2.4M to occur through growth. That requires about a 115% cumulative return from where we are starting today, which I think is about 8%/yr average return. It would appear that we would require some good fortune in the markets to achieve that in 10 years, but it's not outside the realm of the possible.

While averaging 8% (real) per year is not "outside the realm of the possible" it is solidly in the realm of the extremely unlikely.

So good luck, but don't count on this.

Ha

 

[inky]

Welcome! According to this calculator

Savings & Investment Calculator |- MyCalculators.com

you'd need a return of 10.5% annually over the 10 years to reach $4M if you add 4,167.00 to your savings monthly (for a total of $50K savings annually).

Likewise, $3M after 10 years would require a return of 7.5%.

Rather than counting on an unrealistically high rate of return, I would suggest focusing on increasing your savings rate (you mentioned $50K a year was conservative) and reducing expenses.

 

[Midpack]

@Midpack: Thanks for the back-of-the-napkin tip. So if we make no changes to our location or our savings rate, $4M is a good ballpark target number. Can you double-check my math from here? Let's say we aim to retire in 10 years. Sticking to back-of-the-napkin, if we keep saving at current rates, we'll conservatively stockpile another $500k in 10 years. So that's $1.1M today + $0.5M = $1.6M toward the target. That leaves $2.4M to occur through growth. That requires about a 115% cumulative return from where we are starting today, which I think is about 8%/yr average return. It would appear that we would require some good fortune in the markets to achieve that in 10 years, but it's not outside the realm of the possible.

I'm not qualified to check your numbers, I wish I could. $4M was with nothing from Soc Sec, which seems unlikely. Again, I'd encourage you to play around with

FIRECalc: A different kind of retirement calculator.

It's very straightforward, and you can input Soc Sec, rate of return, inflation rate or asset allocation among other choices. It can be as simple as three inputs, or you can include many other inputs if you wish. Results can be success rate based on fixed inputs, or it can solve for nest egg required or annual spending based instead. Give it a try.

Like others have noted, we'll all be pleased if we see effectively 8% returns and it's certainly not impossible, but few of us plan on it (just hedging our plans to build a little safety factor).

 

[medelste]

Welcome! According to this calculator

Savings & Investment Calculator |- MyCalculators.com

you'd need a return of 10.5% annually over the 10 years to reach $4M if you add 4,167.00 to your savings monthly (for a total of $50K savings annually).

Likewise, $3M after 10 years would require a return of 7.5%.

Rather than counting on an unrealistically high rate of return, I would suggest focusing on increasing your savings rate (you mentioned $50K a year was conservative) and reducing expenses.

Wow, it looks like my back-of-the-napkin calculation was far off. Hitting our number in 15 years is more likely if we can't increase savings or reduce expenses (requires a 6.34% annual return). Oof.

 

[BigE]

Congratulations on saving so much and planning ahead. I assume you guys have no children (DINKs). I second what everyone else has said and would find a way to recharge and plow thru another decade. I think you will be surprised what you can do in another 10 years if you slightly scale back spending and ramp up savings. Good luck.

 

[utrecht]

With the kind of money you guys make you can save more than $50K per year. My wife and I make about half of what y'all make and we save more than that. But we are very dedicated and serious about retiring early. Only you can decide what your priorities are.

 

[Dawg52]

Simple answer, work longer and then move.

 

[MichaelB]

Wow, it looks like my back-of-the-napkin calculation was far off. Hitting our number in 15 years is more likely if we can't increase savings or reduce expenses (requires a 6.34% annual return). Oof.

Don't forget to add inflation. Your $120k spending, which translates to a $4M portfolio per Midpack's back of the envelop number, is what you would need today. In 10 or 15 years you'll need to add another 50% or so to that to compensate for the increased cost of living. FIRECalc can help with that calculation, and also the "what if" options others are rightfully bringing up - save more, spend less, look for ways to recharge.

 

[seraphim]

$310k income. $120k spending. That sounds like $190k annual investment.

Doing that for 10 years at a 4% annual return - combined with current assets - should exceed that $4M mark. (running figures through a standard financial calculator).

It's a question of discipline.

Or reduce your spending.

 

[Midpack]

$310k income. $120k spending. That sounds like $190k annual investment.

Doing that for 10 years at a 4% annual return - combined with current assets - should exceed that $4M mark. (running figures through a standard financial calculator).

It's a question of discipline.

Give or take taxes...

 

[seraphim]

Correction noted...

 

[daylatedollarshort]

If you want to retire sooner rather than later, with your numbers it would be easier to save money at your NY salary rate, then move some place cheaper from this list -

International Cost of Living April 2013

New York is number 18. You could save your money and move some place sunny in the 400 - 500 range. There are many parts of the US and EU with depressed real estate right now. If you pay cash for a house in a sunny location with a low cost of living and subsidized or universal health care, how much do you really need to live on after that to be happy? It doesn't cost much to go hiking or take a cooler and lounge chair to the beach along with a book from the library.

Alternatively, you could do the Millionaire Next Door model and look for a career / business you love so it doesn't seem like work. Or some combination of the two.

 

[uc_brian]

See if you can move out of Manhattan to reduce your cost after ER.

 

[daylatedollarshort]

House Hunter's just had a show on $900 monthly rent for a furnished 1 bedroom apartment at Lake Gardo, Italy. The renters had views like this from their windows:

https://www.google.com/search?q=lak...bRiwKzs4DIAQ&ved=0CAoQ_AUoAQ&biw=1280&bih=847

You can retire a lot sooner if you can lower your annual expenses in retirement:

$120K annual expenses X 40 years of retirement = $4.8M
$30K annual expenses X 40 years of retirement = $1.2M

 

[gocurrycracker]

NYC is definitely an expensive city. It is probably easy to lower your expenses than to save an additional 3 million

Another way to look at this is how much can you afford to spend if you quit your jobs right now, this very minute. At 4% swr, $4870 a month. At 3% swr, $3650 a month.

My wife and I (ages 38 and 34) are retired and spend less than that a month traveling the world, living in the lap of luxury.

 

[medelste]

My wife and I (ages 38 and 34) are retired and spend less than that a month traveling the world, living in the lap of luxury.

Thanks, I just looked up your blog and it sounds like you are living an envious life!

 

[obgyn65]

I agree with this piece of advice,

See if you can move out of Manhattan to reduce your cost after ER.