Looking to retire next year at 47

[willowbeezer68]

Hi everyone and a big thanks to the advice given in this community. I am nearing the point where I am burning out at work and ER is looking very attractive.

I would love some thoughts / advice on whether we are able to ER next year.

Here are our stats...
house equity: $1.1m - no debt
non-retirement funds $1.2m
retirement funds $0.8m
529: $0.2m
kids: 3 ages 14, 8, 5
spouse: 45yrs old and retired
me: 46yrs and working my tush off :-(
debt: nil
company defined benefit pension from old employer: $1500/mth at 65yrs old

income: 2014 expect through next feb ($650k from employer incl equity grants, etc). 2015 is expected at $450k.

spending: about $60k / yr excluding income taxes (no mortgage payments)

After entering details into firecalc, it shows 100% chance of success (yeah!). However, I am wondering if I am entering the data correctly. When entering the spending levels, do you include income taxes?

I am trying to hang on through 2014 and, if needed, can stay on for another year (if my heart can take it). I doubt it that i will go cold turkey and may ease into ER by taking a less stressful job.

I would love anyone's feedback and counsel on my situation

Thanks to an awesome community!

 

[Turboslacker]

Numbers look doable to me. Yes include taxes in spending when using Firecalc. Fortunately taxes will be much more pleasant than you are currently experiencing with your high income.

Congrats and enjoy new life with your kids. What a positive difference that will be for them too.

 

[Symbiotic]

Me, too. Numbers look good.

You should be able to get your taxes very close to 0 in the first half of ER by spending out of your significant post-tax savings.

 

[dscott745]

Congrats on all of your success!

Your kids are going to have an experience that few do. That's awesome.

Have you given any thought to healthcare costs? Consider premiums and all of the out of pocket costs in addition to the premium.

Given all that has happened in the past and what could very well be in the future, I wouldn't count on any pension payments in 18 years. If it happens, that's icing on the cake. I know two people that went into retirement thinking they were good to go and had the rug pulled out from underneath them or had pension payments cut drastically. You may very well get those payments without a problem, but it may help not to include them in the equation. It will force greater efficiency onto your personal assets.

Another thing to consider is how you allocate the assets and what the mechanics of withdrawal are. The withdrawal piece is something that gets overlooked by the financial services industry. If you spend 60k/yr, think of how you would draw that from the portfolio in a way that ensures perpetuity and minimizes tax consequences.

 

[Fermion]

1.1 million dollar house is at least $15,000 or so a year in real estate taxes?

three kids not yet in college

 

[pb4uski]

IF your expenses are really only $60k then you should be fine but I'm skeptical that a family of 3 with a $1.1m house used to high earnings can really live on $60k a year. Do you currently live on $60k a year?

How sure are you of those numbers? Health care? Cars for the kids when the time comes? College? Weddings? Major home repairs? Periodic vehicle replacements?

I suggest that you do an analysis using Quicken Lifetime Planner using the same information as Firecalc with provisions for health care, college, weddings, etc and see what it says for you. Also, do some solid analysis of your actual spending for 2012 and 2013 to see how realistic the $60k a year is. If you're planning to proceed, try to live on $60k in 2014 and see how it goes.

 

[Live And Learn]

IF your expenses are really only $60k then you should be fine but I'm skeptical that a family of 3 with a $1.1m house used to high earnings can really live on $60k a year. Do you currently live on $60k a year?

How sure are you of those numbers? Health care? Cars for the kids when the time comes? College? Weddings? Major home repairs? Periodic vehicle replacements?

I suggest that you do an analysis using Quicken Lifetime Planner using the same information as Firecalc with provisions for health care, college, weddings, etc and see what it says for you. Also, do some solid analysis of your actual spending for 2012 and 2013 to see how realistic the $60k a year is. If you're planning to proceed, try to lie on $60k in 2014 and see how it goes.

I was thinking exactly the same thing. I make 200k, have a 200k house (no mortgage and no other debt) and my budget (for 2 - no kids) is 98k. Of that 30k is healthcare (because I assume I would not get any sort of ACA subsidy) and I assume I will hit the OOP max each year. I also have 5k for home maintenance (including accrual for roof, hot water heater HVAC replacement), and 4k for other replacements (car every 15 years, mattress every 10 years, Furniture every 15 years, TV every 7 years).

 

[willowbeezer68]

Thanks for the feedback. $60k (ex taxes) might be too optimistic and may have to raise it a bit - perhaps 75k.

My assumptions are:
RE taxes 12k and all other housing of 9k
Medical of 16k assuming subsidies (income will drop way down)
Auto of $6k (may need to up it as kids will need their own car at some point)
Food of about $9k
Recreation and other of 9k

At some point, i will downsize the house (way too big right now) but that wont happen until kids go to college (hopefully in canada to take advantage of low tuition)

I think the numbers will still work at 75k

 

[jon-nyc]

I'd be concerned about assuming you can adjust to that level of spending. Given your income and savings to date, you clearly have been spending more than that.

Can you try to live on that level of spending in 2014-15 to see how you do?

 

[REWahoo]

Thanks for the feedback. $60k (ex taxes) might be too optimistic and may have to raise it a bit - perhaps 75k.

My assumptions are:
RE taxes 12k and all other housing of 9k
Medical of 16k assuming subsidies (income will drop way down)
Auto of $6k (may need to up it as kids will need their own car at some point)
Food of about $9k
Recreation and other of 9k

At some point, i will downsize the house (way too big right now) but that wont happen until kids go to college (hopefully in canada to take advantage of low tuition)

I think the numbers will still work at 75k

Your comments to this point indicate a lot of "might be too optimistic", "about" and "may need" estimates. You don't want to bet your financial future on what appear to be back-of-the-envelope calculations regarding your expenses.

I suggest you take a long, hard look at http://www.early-retirement.org/for...-answer-before-asking-can-i-retire-69999.html and give special attention to #1, 3 & 4.

1. What are your expenses? No, your real expenses that you have tracked carefully over a period of at least two years, not some rough estimate that you just pulled out of thin air. If you don't know where your spending flow goes now, you've got no business turning off the income flow.

2. Are you sure those are your expected expenses in retirement? How will you pay for health care? And how much will you pay? Have you gotten any quotes? If you're accustomed to group health insurance through your employer, prepare to be shocked.

3. No, really, did you account for giving money to your children or grandchildren for college or a home or something like that? Or supporting your elderly parents? How about repainting the house, replacing the furnace or roof, buying a new car? If you live long enough, you'll likely do all of these things.

4. Do you plan on any major lifestyle changes? For instance, will you buy a vacation condo on Maui or take up Formula 1 racing? How will this affect your spending?

 

[walkinwood]

Thanks for the feedback. $60k (ex taxes) might be too optimistic and may have to raise it a bit - perhaps 75k.

My assumptions are:
RE taxes 12k and all other housing of 9k
Medical of 16k assuming subsidies (income will drop way down)
Auto of $6k (may need to up it as kids will need their own car at some point)
Food of about $9k
Recreation and other of 9k

At some point, i will downsize the house (way too big right now) but that wont happen until kids go to college (hopefully in canada to take advantage of low tuition)

I think the numbers will still work at 75k

You should track your spending for at least a year to understand just where it is going. You're planning a major life change, so best base it on some empirical data.
You'll also find that tracking your spending will influence how you spend your money.
All the best.

 

[jclarksnakes]

I think that what others have posted is great. Many retirees can live on 60K but 99.99% of them do not live in million dollar homes and have three school age kids. I think a much more important question than whether you can retire or not is why someone who can make 650K this year would want to start a VERY long retirement on 60-75K per year?

 

[NanoSour]

. I think a much more important question than whether you can retire or not is why someone who can make 650K this year would want to start a VERY long retirement on 60-75K per year?

I suppose he figured out that there's more to life than working your butt off and making $650K a year.

 

[daylatedollarshort]

While I can see the merit of tracking your spending, what we did one day was make a budget based on our investment / part time / future SS / pension income and just decided to live off that or less and not have either of us have to work full time any more.

I see a lot of posts here about I don't know what I'll spend in retirement. We have to spend what we budgeted (or less) or we'll run out of money, so for us it was a pretty easy answer. We did make sure we had enough to cover essential expenses like property taxes, food cooked at home, home repairs and insurance plus a reasonable amount for extras.

If you are making 650K now, you can probably find a way to do contract or consulting work part time and cover your essential expenses, with your portfolio income as back up or for non-essential expenses, like travel or toys.

Added after seeing traineeinvestor's post -

We have a very conservative portfolio, so we anticipate little sequence of returns risk. We just plan for at least a 1% real return on average, which currently and historically seems like a pretty safe target.

 

[JoeWras]

Medical worries me. Now you are talking about bumping income to $75k. Not sure your MAGI is going to work for a good subsidy. I.E. for a family plan, 16k may work if nobody gets sick, but you really need to budget for worst case scenarios (i.e. reaching a large out of pocket amount per year).

 

[Symbiotic]

On medical:

There's considerable slop in any multi-decade scenario. The fixed-percentage-WR model itself leaves plenty of room for one-off expenses, even as large as several percent of a portfolio in one year. And, he/she can go back to work if a black swan swims into the picture. I don't think the medical outlier scenarios represent much real, systemic risk. I would be more worried about liquidity issues (a lot of nw is tied up in that house) or pension risk, and I suspect those are probably also manageable as long as they don't all happen at the same time.

On budget being low:

I responded to this OP in part because his scenario is pretty close to mine. I live in a more expensive house, and I have a young kid, and my earnings are a little higher than his. My expenses are also much higher than they will be in ER, because I'm paying for someone else to do all kinds of stuff so I can maximize the value of each hour. But, like this poster, I'm projecting very similar "comfortable-but-not-extravagant" expenses in ER. That his numbers are in the same ballpark is reassuring to me. I do think he is a bit of a unicorn and that the typical family would have a much higher expense base, so you all are right to ask the question... but it's definitely in the realm of possibility. I hope!

 

[traineeinvestor]

I recently FIREd at 47 with young children so my situation might be similar.

Given the potential need for our retirement savings to last 50 years, I made very sure we had tracked our expenses for several years and that all adjustments made for the purposes of preparing a retirement budget (other than taxes) were upwards. If there are going to be any surprises, I want them to be good ones. Put differently, I don't want to have to deal with the stresses of discussing with DW and the kids what expenses we are going to cut if things don't go to plan.

Another thought: I assume that at least some of your savings are in US equities which have had a great run for the last few years. If you are relying on draw down of principal to fund retirement expenses, you may wish to look into the impact of sequence of returns on the sustainability of retirement funding:

Sequence of Returns Risk Misunderstood by Many Retirees

The short version: negative (or even below average) returns on your investments in the early years can wreck a retirement plan.

 

[Turboslacker]

Regardless if all our money crunching for ya, your opening statement is the number one priority that needs addressed...getting burned out! You are in a unique position than most of us with a nice nest egg and young kids. I only can relate being the same age as you and with young ones lol.

How about putting a real budget together and give it a try anyways? Forget the fear and go for it. You will know in one year how things FEEL then go from there. Treat it like a sabbatical Likely you can go back to a similar gig if you had too...but I feel you can be a successful ERr.

Sent from my HTC One using Early Retirement Forum mobile app

 

[Live And Learn]

How about putting a real budget together and give it a try anyways? Forget the fear and go for it. You will know in one year how things FEEL then go from there. Treat it like a sabbatical Likely you can go back to a similar gig if you had too

Excellent advice. Retirement shouldn't be about running away from a j*b. There are many alternatives to reduce w*rk stress. You could work part-time, or do consulting to cover your 60 or 75k budget and give yourself a couple of more years for your nest egg to settle and for you to get used to spending less than you are today.

 

[38Chevy454]

I would like to be in your shoes with the total amounts. One thing that I am concerned, in a similar situation to yours, is health costs. Being only 50 myself, that is really the big unknown for me. I can control my costs and have a lot of skills to fix my own stuff to save money when I am on less retirement income than working. I am really struggling with the health care portion and what to do for that. All I know from my life so far is that health care costs keep rising and becoming higher, even when factored against inflation.

Another thing that nobody has mentioned so far, but you alluded to is your house is paid for and you intend to downsize once kids out of the house. You should be able to get some cash out when downsizing which can be put back into investment for retirement. Worse case if you need money you can always get a HEL or refinance to get equity out of your house without having to move or downsize. Sure it causes a monthly payment, but if you need it, your house is a significant equity.

 

[Turboslacker]

I would like to be in your shoes with the total amounts. One thing that I am concerned, in a similar situation to yours, is health costs. Being only 50 myself, that is really the big unknown for me. I can control my costs and have a lot of skills to fix my own stuff to save money when I am on less retirement income than working. I am really struggling with the health care portion and what to do for that. All I know from my life so far is that health care costs keep rising and becoming higher, even when factored against inflation.

That was my biggest wildcard concern too until I discovered on this Forum how ERrs are utilizing ACA subsides. Now I have my solid FIRE in place with more confidence of making it a reality.

 

[Live And Learn]

That was my biggest wildcard concern too until I discovered on this Forum how ERrs are utilizing ACA subsides. Now I have my solid FIRE in place with more confidence of making it a reality.

Personally I am too conservative in my ER planning to count on getting subsidies. I can imagine a day when there is a net asset test to qualify and many of us would no longer be eligible.

 

[daylatedollarshort]

Personally I am too conservative in my ER planning to count on getting subsidies. I can imagine a day when there is a net asset test to qualify and many of us would no longer be eligible.

Even without the subsidies, the policy Anthem offered us post ACA was $700 cheaper a month than the old policy, plus it has an HSA and lower out of pocket maximums, so unless that changes drastically it still makes health insurance significantly more affordable than it was for us than last year.

 

[papadad111]

Not to bubble burst but the insurance industry is in a state of upheaval right now and I would not assume those "cheaper than last year" rates continue to apply. Rates can jump and policies can be cancelled on moments notice as we all have read about this year. Worse, no one really knows what will happen to the quality of US Medical Care as the system gets more and more regulated by a government who is looking out for us (NOT). I do think conservative medical cost estimates are essential - if nothing else, to be able to hop on a plane in some cases and seek better medical care or cheaper treatment or both - beyond the borders of the USA.

ACA is a mess. And with fewer young and healthy signing up...and more old and otherwise intelligible citizens signing up... We've not even begun to see the cost escalation on health insurance.

I think conservative estimates are essential to successful retirement plans.

 

[BigE]

Congratulations on the very nice net worth for age. I am 4 years your senior with commonalities of 3 kids (21,16,9) and a 1.2ish home (getting close to being paid for) and similar income. Based on the excellent info and recommendations of this site we are in month 8 of expense tracking and I think we are unfortunately going to come in at around 2 to 2.5 times what you estimate per year. Would have to echo what others have already said, to RE without knowing expenses is inviting disaster. The comments about your expenses based on your income may be a little off base since you have saved so much (ie, to have saved so much at your age means you were saving a great deal of that juicy income).
Couple of thoughts on your situation:
Age – I personally think cutting the cord completely before the age of 50 with nonworking spouse and 3 kids is really introducing too much risk unless your net worth is more significant than yours (as noted by PB, there are college costs, car costs, and weddings). I like your idea of easing into ER and maybe taking a less stressful job. For me, I’m shooting for 53-55 just to decrease this risk because once I leave, there ain’t no going back.
Medical – I too worry about this but since I’m in the medical field, I have a slight advantage with cost controls. I also believe that the subsidies cannot last in the current too good to be true form. But….if you are going to itemize using schedule A for federal taxes, you can deduct medical expenses greater that 10% AGI, something that no one seems to bring up. So while you are in the “big” house with real estate taxes, you might want to itemize (and bunch real estate taxes if possible). Please keep us posted on your progress and good luck.