45 and Retire (or semi?)

[lordjust]

Hello all,

I am fairly new to the forum and am looking for some feedback/input.

I am 45 years old single male and am thinking about retiring. I have roughly $900k in ira/roth/403b/457 and another $650k in stocks and $250k in a 2.5% savings account. I am thinking of shuffling to 75% stock and 25% bonds (or cds) or just 100% all stock due to my age. I have a small pension i can collect at 65 that is $2k/mo. I also have a rental that provides me with $5k a year profit. I want to travel a bit and ONLY live off of my proceeds

I have a place that is paid for so only $500/mo in fees there and no car payments.

The bonds and how im thinking to invest if i got this route are below:

VWESX - light invest
DODIX - heavy invest
VBMFX- heavy invest, this one handled the downturns the best but didnt return a lot long term

My stock portfolio is heavily into (VGT, VIGAX, TRLGX).

I have done all the retire early calculators and have been hearing that i need 25x my desired retirement number for $100k per year.... that seems fairly steep to me but i do understand the logic.

The FIRE calculators show that $70k is in the 99/98 percentile and that is without the pension.

i would like to draw at least $70k a year but the goal is to draw $100k a year. That may take more time/money.

If I want to, my current job is allowing me to work from anywhere in the world @ $100k/year (spain/thaland etc).

How do those numbers look for me to retire at 45 and draw on $70k per year without the current job? Any investment suggestions or changes due to my age and dollar/travel requirements? I am really leaning toward almost 100% stocks (VYM) with a large percentage of those that pay dividends as the bonds look to yield poorly. I wish to travel and stay abroad for 1-3 months at a time. Would anyone advise a 72T if i stopped working or is it better to keep working? I realize some of this is my call (to work) but the current dollars and my "requirements" should be advisable ... appreciate any and all suggestions or questions especially from those that retired younger... (SCRABBLE?? ) Also, anyone that travels and lives abroad, are the finances a big concern based on what i have presented?

I think there is a lot here.. so.. again .. thanks!!!

 

[BeachOrCity]

I think you need to accumulate a bit more. For a guy in his forties 3.5 percent or even 3 percent is more appropriate.

You are MOST at risk of sequence of returns risk just before and after retirement. With that in mind consider a tax smart rebalance to a more conservative AA.

You are just going to have to be patient to do this conservatively, BUT IF YOU ARE WILLING TO RISK IT, you could retire and if things go south reenter the work force. If reentering the workforce is something you can’t do or won’t do, then keep at your job and saving.

 

[pb4uski]

Looks like you are probably ok according to FIRECalc ($1.8m portfolio, $70k spending, 45 year time horizon, $5k inf-adj pension for rental, $24k fixed pension starting in 2039, 75% stocks.... 96.2% success).... and that doesn't include anything for SS.

While having enough is one thing, having enough in the right places that you can access without penalty is a whole different thing.

Not sure what you mean by only live off proceeds.... please elaborate.

I'm liking CDs for fixed income these days.... some credit unions offer specials that are 3.0-3.2% for a 5 year CD.... at 25% fixed income you would only need to find a couple to stay under the NCUA limits.

.... If I want to, my current job is allowing me to work from anywhere in the world @ $100k/year (spain/thaland etc). ...

Would they let you work 3 days a week for 60% pay from anywhere in the world?

 

[scrabbler1]

Even though I retired at 45, 11 years ago, and am also single, our situations are not very similar beyond that.


I live on about $25k-$30k a year, less than half of your goal. I don't like to travel. But I own my own place which costs me $564 a month and have no debts.


I can tell that when I was doing my ER planning back in 2007-08, I split my homemade spreadsheet (I had never heard of FIRECALC and was not a member of this forum until after I retired) into two parts. The first part, and also the far more important part, was to get from age 45 to age ~59.5 using only my taxable account. Once I got there, things would get easier because my "reinforcements" would begin arriving: (1) unfettered access to my rollover IRA, (2) my frozen company pension, and (3) Social Security. Indeed, once I was able to use a retirement program (Fidelity's RIP program), it showed me that my financial picture vastly improves at age ~59.5. So, my main concern is to get to age ~59.5. Today, I am only ~3 years away from that age milestone. and everything is rolling along just fine, better than my projections from 10 years ago.


The biggest wild card over the years has been health insurance. Back in 2009, before the ACA's exchanges came into being, I faced some big increases in my individual HI premiums, 50% over 2 years (2010-2011). I actually went underinsured for a few years until the start of 2014 when the ACA's exchanges began. And in 2015, I had some health issues including a 12-day hospital stay which cost me a few thousand dollars in copays and deductibles.


It doesn't seem to me you will be able to qualify for any ACA premium subsides. I barely qualified for them from 2014-2016 before going over the subsidy cliff in 2017-2018, and that's with an income far less than yours. I budget for 10% increases per year although the last 2 years the increases have been more than that (but not as high as in 2010-2011). Make sure you are budgeting enough for HI.

 

[joeea]

I am 45 years old single male and am thinking about retiring. I have roughly $900k in ira/roth/403b/457 and another $650k in stocks and $250k in a 2.5% savings account.

Why so much in a savings account?

I have a small pension i can collect at 65 that is $2k/mo. I also have a rental that provides me with $5k a year profit. I want to travel a bit and ONLY live off of my proceeds

What does "only live off proceeds" mean? Why?

i would like to draw at least $70k a year but the goal is to draw $100k a year.

How do those numbers look for me to retire at 45 and draw on $70k per year without the current job?

Any Social Security benefits down the road?

It looks doable at $70k, moreso with SS.

 

[lordjust]

Looks like you are probably ok according to FIRECalc ($1.8m portfolio, $70k spending, 45 year time horizon, $5k inf-adj pension for rental, $24k fixed pension starting in 2039, 75% stocks.... 96.2% success).... and that doesn't include anything for SS.

While having enough is one thing, having enough in the right places that you can access without penalty is a whole different thing.

Not sure what you mean by only live off proceeds.... please elaborate.

Good point.. I mean that I didnt want to dip into my principal.. so .. sell stock or use bond yield/cd and dividend.

I'm liking CDs for fixed income these days.... some credit unions offer specials that are 3.0-3.2% for a 5 year CD.... at 25% fixed income you would only need to find a couple to stay under the NCUA limits.

You think that the 3-3.25% is enough ? I need to research NCUA limits.


Would they let you work 3 days a week for 60% pay from anywhere in the world?

doubtful.. but i guess i could ask.

 

[lordjust]

saving is high while i ask everyone here what to do

What does "only live off proceeds" mean? Why?

not dip into the principal.


Any Social Security benefits down the road? Sure, 62 yo and claim it ??

It looks doable at $70k, moreso with SS

Why so much in a savings account?

saving is high while i ask everyone here what to do

What does "only live off proceeds" mean? Why?

not dip into the principal.


Any Social Security benefits down the road? Sure, 62 yo and claim it ??

It looks doable at $70k, moreso with SS.

 

[lordjust]

I thought about $30-40k per year and living abroad in Spain using international health insurance. So you didnt choose to pull from your 401/ira early as an option?

Even though I retired at 45, 11 years ago, and am also single, our situations are not very similar beyond that.


I live on about $25k-$30k a year, less than half of your goal. I don't like to travel. But I own my own place which costs me $564 a month and have no debts.


I can tell that when I was doing my ER planning back in 2007-08, I split my homemade spreadsheet (I had never heard of FIRECALC and was not a member of this forum until after I retired) into two parts. The first part, and also the far more important part, was to get from age 45 to age ~59.5 using only my taxable account. Once I got there, things would get easier because my "reinforcements" would begin arriving: (1) unfettered access to my rollover IRA, (2) my frozen company pension, and (3) Social Security. Indeed, once I was able to use a retirement program (Fidelity's RIP program), it showed me that my financial picture vastly improves at age ~59.5. So, my main concern is to get to age ~59.5. Today, I am only ~3 years away from that age milestone. and everything is rolling along just fine, better than my projections from 10 years ago.


The biggest wild card over the years has been health insurance. Back in 2009, before the ACA's exchanges came into being, I faced some big increases in my individual HI premiums, 50% over 2 years (2010-2011). I actually went underinsured for a few years until the start of 2014 when the ACA's exchanges began. And in 2015, I had some health issues including a 12-day hospital stay which cost me a few thousand dollars in copays and deductibles.


It doesn't seem to me you will be able to qualify for any ACA premium subsides. I barely qualified for them from 2014-2016 before going over the subsidy cliff in 2017-2018, and that's with an income far less than yours. I budget for 10% increases per year although the last 2 years the increases have been more than that (but not as high as in 2010-2011). Make sure you are budgeting enough for HI.

 

[lordjust]

Hello all,

I am fairly new to the forum and am looking for some feedback/input.

I am 45 years old single male and am thinking about retiring. I have roughly $900k in ira/roth/403b/457 and another $650k in stocks and $250k in a 2.5% savings account. I am thinking of shuffling to 75% stock and 25% bonds (or cds) or just 100% all stock due to my age. I have a small pension i can collect at 65 that is $2k/mo. I also have a rental that provides me with $5k a year profit. I want to travel a bit and ONLY live off of my proceeds

I have a place that is paid for so only $500/mo in fees there and no car payments.

The bonds and how im thinking to invest if i got this route are below:

VWESX - light invest
DODIX - heavy invest
VBMFX- heavy invest, this one handled the downturns the best but didnt return a lot long term

My stock portfolio is heavily into (VGT, VIGAX, TRLGX).

I have done all the retire early calculators and have been hearing that i need 25x my desired retirement number for $100k per year.... that seems fairly steep to me but i do understand the logic.

The FIRE calculators show that $70k is in the 99/98 percentile and that is without the pension.

i would like to draw at least $70k a year but the goal is to draw $100k a year. That may take more time/money.

If I want to, my current job is allowing me to work from anywhere in the world @ $100k/year (spain/thaland etc).

How do those numbers look for me to retire at 45 and draw on $70k per year without the current job? Any investment suggestions or changes due to my age and dollar/travel requirements? I am really leaning toward almost 100% stocks (VYM) with a large percentage of those that pay dividends as the bonds look to yield poorly. I wish to travel and stay abroad for 1-3 months at a time. Would anyone advise a 72T if i stopped working or is it better to keep working? I realize some of this is my call (to work) but the current dollars and my "requirements" should be advisable ... appreciate any and all suggestions or questions especially from those that retired younger... (SCRABBLE?? ) Also, anyone that travels and lives abroad, are the finances a big concern based on what i have presented?

I think there is a lot here.. so.. again .. thanks!!!

Since I am learning how to reply with quotes and such... ill summarize some of the answers to the questions.

I would like to live strictly off dividends and not touch my principal. The issue I see is that a large chunk of my money is in a retirement account hence the question of the 72T option.

I have a large amount in the savings account so i can be ready to move it when i determine what my decision is.

Yes, I would collect SS as early as possible.

Curious what people think if the funds I selected?

 

[pb4uski]

...What does "only live off proceeds" mean? Why?

not dip into the principal. ....

If you plan to live only off of dividends then forget about it.... even if you went 100% stocks with a 2.2% dividend yield (market average) that would only be $40k of the $70k that you want. Since $70k is 3.9% of $1.8 million, there is no way to get that amount of yield without taking a lot of risk in this low interest rate environment.... so keep working.

If you're willing to consider a total return approach, then you have a good chance.

Now if you are willing to also cash in some appreciation each year, recognizing that in some bad years you may need to access prior year unrealized appreciation then that may be doable. IOW, if stock returns average 10% and dividends yields average 2%, then 8% of the 10% of the average return is appreciation.

IOW, if by principal you mean your original investment, then you're probably ok in that your account probably have appreciated significantly.

So for example, if $1m of your $1.8m is contributions/investment and $0.8m of unrealized appreciation you'll probably never be at risk of dipping into principal.

 

[joeea]

What does "only live off proceeds" mean? Why?

not dip into the principal.

If that's what you mean, then no. Without dipping into principal, you don't have enough.

Any Social Security benefits down the road? Sure, 62 yo and claim it ??

Have you looked into the numbers using something like https://opensocialsecurity.com to see if 62 is the optimal choice? (It's probably not).

 

[lordjust]

pb4uski,

You interpreted my request correctly when you stated that I would be willing to cash in some appreciation. My concern is that $900k is "technically" not touchable till i retire (IRA). The other $900k is sitting in equities and savings. Knowing that, would the correct course be to move the IRA into the 25% bonds and the remaining balance into 75% stocks?

Hopefully I have expressed my concern correctly, which is, which area (IRA vs liquid assets) to invest where or does it matter? Let me know if this has expanded past the "Hi, I am.." level of discussion.

 

[GenXguy]

As a single guy myself, I'm still not sure how I'm going to spend $50K/yr that I'm planning for drawdown, as over half of that will be discretionary spending, and my discretionary spending is close to $1000/yr in recent years. It's hard to imagine that I'll really step it up 25X to 30X that amount, even with the extra free time. So, I suspect I won't actually spend that $50K/yr that I should be able to spend. I'm not that into traveling. Anyway, follow where the math leads you.

 

[lordjust]

Joeea,

Would you mind showing me why i cannot do this without drawing off my original principal ? I would appreciate it as this is one of my main concerns.

 

[joeea]

Would you mind showing me why i cannot do this without drawing off my original principal ? I would appreciate it as this is one of my main concerns.

Original principal? I don't know what that is. Wouldn't that by definition be $0?

Let me know what amount you want to remain untouched indefinitely, and I'll reassess.

 

[lordjust]

The $900k in my IRA and $900k that I have as what I call "liquid" (stocks and savings). I would like to keep my original amount and be able to collect dividends as well as sell some appreciation each year (if necessary). I am really just trying to at a minimum draw $70k per year with what I currently have ($1.8M). It is IRA and liquid so that may create some challenges. Let me know if that doesnt make sense.

 

[scrabbler1]

I thought about $30-40k per year and living abroad in Spain using international health insurance. So you didnt choose to pull from your 401/ira early as an option?

I did not want to pull early from my rollover IRA. I had enough in my taxable account after cashing out my company stock in the 401k/ESOP plan when I left the company, using NUA to get it at lower tax rates. That large amount was 1/3 of my overall portfolio, with the (rollover) IRA from the 401k as another 1/3 and my existing taxable account the remaining 1/3. This instantly gave me 2/3 of my total portfolio in taxable.

I invested the ESOP's proceeds in a borderline junk bond fund (FHIFX, it invests in bonds at or slightly below investment grade)) whose NAV was at bargain basement prices in late 2008, allowing me to buy ~15% more shares than I had planned. At the time, with the low price and higher dividend yield than today, I was earning 6%-7% of what I paid. Today, the price is higher and the dividends are lower, so it pays closer to 4% (closer to 5% for me based on the low price I paid). If you invested your $900k in the fund, you would expect to earn about $36k per year. That's not enough to cover your $70k budget, but you only have to get from age 45 to age ~60 when you will be able to access in an unfettered manner your retirement accounts.

 

[lordjust]

scrabbler1,

Why did you go for FHIFX rather than SPY or VYM ? Not judging, just interested in your reasoning? Were you aiming for a higher return? If so, arent stocks typically higher?

Part of my problem is bonds (bond funds?) are supposed to return a set amount but even they can go down. So i am having difficulties rationalizing the bond purchase piece as a safe harbor. I want to hear the reasoning in case i am missing something.

 

[lordjust]

genxguy
the 25x is what you need in your portfolio in general terms. If you want $100k/yr you need $2.5M.

As others point out, you get older, you spend less but i say you dump a lot into healthcare as you get older. I havent seen this argument but im sure its out there. As I see a lot "it depends" but my gut says if you arent a big spender then $50k a year (net) is more than good for most single people.

 

[pb4uski]

pb4uski,

You interpreted my request correctly when you stated that I would be willing to cash in some appreciation. My concern is that $900k is "technically" not touchable till i retire (IRA). The other $900k is sitting in equities and savings. Knowing that, would the correct course be to move the IRA into the 25% bonds and the remaining balance into 75% stocks?

Hopefully I have expressed my concern correctly, which is, which area (IRA vs liquid assets) to invest where or does it matter? Let me know if this has expanded past the "Hi, I am.." level of discussion.

That is a whole separate question... tax-efficient placement of assets... but I agree, put half the IRA into fixed income and the rest into equities to end up with 75/25 overall. The $450k in fixed income could be a couple CD specials... which are currently about 3%.

Also see https://www.bogleheads.org/wiki/Tax-efficient_fund_placement

Since you are retiring so early and half your funds are still subject to penalty, you may want to look into a 72t.... the reduction in tax-deferred will likely be at a low tax cost and reduce RMDs later in life.

 

[joeea]

The $900k in my IRA and $900k that I have as what I call "liquid" (stocks and savings). I would like to keep my original amount and be able to collect dividends as well as sell some appreciation each year (if necessary). I am really just trying to at a minimum draw $70k per year with what I currently have ($1.8M). It is IRA and liquid so that may create some challenges. Let me know if that doesnt make sense.

So you want to preserve the $1.8 million for the remainder of your life, and live on whatever it throws off? I suppose it's possible, but it seems unlikely particularly given your young age.

If you were willing to spend down whatever portion of our principal was needed, you'd be more likely to succeed.

Remember that the "4% rule" assumes the willingness to spend the principal and is more applicable for a shorter retirement duration. Perhaps that's part of the confusion.

You could model this using a tool like Fire-calc or c-Fire-sim. You would likely see many iterations where at least partial depletion of the principal is required.

 

[pjigar]

For an early retiree in 40s, your SWR should be lot smaller than 4%. I plan to use 3% when I ER at 50 and I still worry it is too high.

There is no other way to ER at your age with your restrictions than to reduce the spending for life. I would rather keep working (from your favorite country like you mentioned) and let the nest egg grow for 5 year or so and then reassess using expenses and assets at that time. And PLEASE don't make rash investment decisions to increase cashflow or return because there is no free lunch.

PS: If you NEVER want to touch inflation-adjusted principal (or what I call perpetual retirement for generations) then your SWR needs to be less than 2.71%.

 

[joeea]

PS: If you NEVER want to touch inflation-adjusted principal (or what I call perpetual retirement for generations) then your SWR needs to be less than 2.71%.

Interesting! I've never heard that 2.71% figure before.

Do you have a source for that? Or can you show the assumptions and the math behind it?

Thanks!

 

[pjigar]

Interesting! I've never heard that 2.71% figure before.

Do you have a source for that? Or can you show the assumptions and the math behind it?

Thanks!

I think I derived the number from the following article and the associated google spreadsheet. The low SWR number had something to do with high PE ratio of today. I forgot the details but the number stuck in my head.

https://earlyretirementnow.com/2016...-2-capital-preservation-vs-capital-depletion/
https://earlyretirementnow.com/2017...uide-to-safe-withdrawal-rates-part-7-toolbox/

 

[joeea]

I think I derived the number from the following article and the associated google spreadsheet. The low SWR number had something to do with high PE ratio of today. I forgot the details but the number stuck in my head.

https://earlyretirementnow.com/2016...-2-capital-preservation-vs-capital-depletion/
https://earlyretirementnow.com/2017...uide-to-safe-withdrawal-rates-part-7-toolbox/

Okay. I didn't see 2.71% in that article and I'm always skeptical if a hard, precise number claims to rely on a "high PE ratio". I'll have to dig in deeper when I have the chance.

Thanks.