ER in 9 years and scared to death

[LivePassionately]

LONG Post so please be patient and really appreciate feedback from those who have blazed a path ahead of me. Reading this forum is like meditation for me because I really want to retire by 50 and here are my main concerns about doing this in 9 years. I am normally the one that’s the voice of reason always but I grew up with no money and even though I’m blessed now, I am scared sh*tless about retiring and not working(excuse my language). Its been ingrained in me that my value comes from working. However, with your help and suggestions, I am only at 80% scared sh*tless now and have 9 more years to get close to zero %. Here is my info below.
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My situation:
I am 41 with 2 kids (9 and 10) and amazing/loving DW

Finances
-------------------------
600K in equity in home (900K worth, 300K in loan)
$800K in stocks
$1 Million in Real Estate (will start earning about 80K/year nxt year)
$1.5 Million in Cash
$700K in combined 401k with DW
$Company I own/run is worth $2MM
$Wife and I earn about 800K/year combined with 450K Net after tax/retirement and spend 210K so save 240K a year.


Concern A. $1.5 Million is too much in cash but I’m afraid to invest in stocks. Last 2 years I haven’t invested as I kept waiting for market to go down. I am thinking of maybe investing several hundred thousand a year. Just worried putting money in and getting a big haircut right at the start. I am great at making money but so risk averse that I haven’t put enough in the market and keep a lot of cash. Any advices/suggestions ?


Concern B. I have ZERO life insurance. Is this dumb ? I had a key person policy that I let lapse but I’m in great health and wife and I both make good incomes so if something happens to one of us, it won’t be a burden and if both of us go, we have plenty in assets. Any thoughts/suggestions.

Concern C. Our spending is about 200-225K/year. We should have $8 Million by the time I retire and feel like we’ll still spend upto $250K a year as we want to vacation a LOT and take kids with us when we can. I have never flown first class even though I can afford it and feel like I will want to do this selectively and want to give gifts to kids,etc. I feel guilty and unsure having a high number such as this. Conservatively, 3% of $8Million will be 240K so I’m cutting it close. The only thing that makes me feel OK is that based on my plans, I am adding more RE and my cash-flow from that will be $150K by then hopefully with RE equity worth at least $2M, maybe 1.5M in house/cash and 4.5 in equities. So equities 4.5M in equities will only need to yield me about 100k. Let me know your thoughts on this.

Again, thank you all sincerely for sharing your experiences and advice.

 

[plex]

A) You need an investment adviser since it sounds like you don't have the time or the mindset to be investing on your own. 1.5M in cash is very bad, and your real estate has fairly low earnings considering it is worth that much. Learning to pick an adviser is not simple, you should do some reading on here/ask in this thread, as a really bad adviser is worse than no adviser.

B) Life insurance is somewhat necessary when you are the main income earner and have dependents. But, that is only when you haven't reached the point of being able to "self-insure," which is when you've saved enough assets for your dependents live on. I think you've about reached that point already.

C) Sounds like a good plan, as long as you are properly investing, and not jumping in and out of investments. That requires a strong mindset combined with knowledge, or a good investment adviser that isn't completely looking out for themselves rather than you.

 

[brucethebroker]

Congrats. Relax, you seem to be on the right track.

Re: life insurance. It is designed to provide tax free, immediate cash, at death. Will your spouse/estate need cash? Will your wife need to sell your business and real estate? If so, you might consider enough insurance to get her through a couple of years. Add up your continuing (on auto-pilot) income, plus SS widow/dependent monthly income, and add insurance for the shortfall, if any. If no shortfall, you can question having any.

 

[travelover]

Welcome. I think you need some perspective. No one expecting to have 8 million dollars should be scared to death of retirement. What would happen if you had to scrape by on less than $250K a year? Would you live under a bridge?

 

[LivePassionately]

@PLEX
Hi Plex - Thanks for the info. I feel like I can just put the money into Vanguard funds and feel like I don't need an advisor for actual investments. I just wanted to ask about putting it all in at once or over time and peoples thoughts. I will reach out though to a consultation with a professional advisor and see what they think as it can't hurt.

As far as the real estate - I actually invested only about 700K down in total and the equity is worth about $1.15 Million but I am just counting $1 Million as I'm always conservative. From the returns we see in NJ, even putting in 1 Million and getting 80K return to me is pretty good (at least in NJ area) as appreciation is higher here and real cap rates are like 5.5% and levered returns on good properties are 6.5% max. Note that I'm also building equity each year with the principal that gets paid off. Maybe I am mistaken - Can you elaborate more on what types of returns you think are average/good for real estate.

@Travellover
Yes - I agree and the more I read here, the calmer I'm getting. I think a good part of it is some psychological fear of poverty and I've overcome it to a large extent over the year but thoughts of ER are bringing out this fear once again. The other thing I have worked is that as a man, I felt my career/work was so closely attached to my sense of self worth. To combat this, I have hobbies I focus on more, have taken work slower (taking 7.5 weeks off starting this year vs. typical 4 weeks). I am also cultivating friendships more and taking time to get to know people. My wife and I are also spending a ton of time together (as if we were without the kids) and its really great. The advice on here has really helped me shape all these things as well and the more I do this, the more "freeing" it becomes.

@brucethebroker : Thanks for the info. Based on what you said, there will be no shortfall so in that case no insurance.

 

[Hamlet]

I have a few questions--

What kind of work do you do?

Do you like it?

Do you want to retire?

What do you want to do when you retire?

How does your wife feel about her job and retirement?

You two have all sorts of options available. Pick the path that is best for you, not the one you feel you "should" pick.

 

[DrRoy]

@PLEX
I feel like I can just put the money into Vanguard funds and feel like I don't need an advisor for actual investments. I just wanted to ask about putting it all in at once or over time and peoples thoughts.

From the returns we see in NJ, even putting in 1 Million and getting 80K return to me is pretty good.

Save the $ on a FI if you are willing. Add equal installments into a Vanguard index EFT over a 12 to 18 month period.

On the RE, 8% return is not bad in the current market/interest rate environment, and this seems to be in addition to rising equity and appreciation.

 

[Sunset]

Welcome. I think you need some perspective. No one expecting to have 8 million dollars should be scared to death of retirement. What would happen if you had to scrape by on less than $250K a year? Would you live under a bridge?

Probably the Golden Gate Bridge

 

[Sunset]

Save the $ on a FI if you are willing. Add equal installments into a Vanguard index EFT over a 12 to 18 month period.

.....

I agree here, since OP is scared of the market crashing, putting $100K in per month (or $25K per week) would be best.

As it stands OP, you have missed out on about $300K because you were sitting in cash over the past 2 years. Perhaps not quite so much as maybe the number built up to 1.5M during the past 2 years, but still a nice chunk of growth to miss.

Since your timeframe is about 10 years, expect the market to drop many times during that time, just leave it in, do not sell, and it will come back up.

 

[Pilot2013]

Some of you folks just crack me up!

 

[euro]

Concern C. Our spending is about 200-225K/year. We should have $8 Million by the time I retire and feel like we’ll still spend upto $250K a year as we want to vacation a LOT and take kids with us when we can. I have never flown first class even though I can afford it and feel like I will want to do this selectively and want to give gifts to kids,etc. I feel guilty and unsure having a high number such as this. Conservatively, 3% of $8Million will be 240K so I’m cutting it close.

Be aware that Uncle Sam is going to want some of 250K too, so if you truly need that much AFTER TAX, then you may have to up the 8mil or live with 4%+ SWR

 

[LivePassionately]

Thanks for all the comments:

A. I have realized I don't need life insurance as we have enough assets.
B. I have started putting 50K a month into Vanguard funds and will increase over time.
C. I realized that a lot of this is mental and I am very comfortable now. I don't like the 4% rule and would like to withdraw a max of 3% so trying to ensure the Real estate cashflow will be 150K or so by 50.
D. I do enjoy my job as I am the boss. I just hate the commute (about an hour in traffic). I will see if taking further time off can be an option and may even work longer or possibly hiring a chauffer. Second I think no matter what, you always worry about work when you are the owner. I think this is the real thing where I may want "freedom" from. I have a deep seated fear of death and that there has to be more to life than just working and why not just enjoy it without any work if I can. Only issue is my wife loves her job and does not really want to retire at 50 (physician - works about 32 hours a week). I will have to figure out how our lives will mesh because I really wanted us to travel the world for a few months very year. I guess its not "our" retirement and just "my" retirement. We have pledged to work together on this now and see if she can take more unpaid time off now (she has 5 weeks so and 2-3 more weeks so we both have 8 weeks off). She says she sees life as a marathon and not a sprint and keeps asking me Why I want to retire. She says that we travel and enjoy our lives now to their fullest so why retire. I don't have a great answer yet (other than that I don't want to die and live a life unlived and that I enjoy having zero work obligations). Will continue to talk so that we are on the same page

Thanks for your input. This thread has actually pushed me to really do some 10-year planning that I wouldn't have otherwise done that will get me closer towards ER. It has also pushed me to step back and think more about why I want this and who I am and who the heck I will be once I do retire.

 

[jzajzz]

1.5 million in cash is not bad as long as you have a plan on what to do with that money .. you say you have a company worth 2MM?? Can you reinvest cas in the company to earn more ? Are you planning on owning the company during Retirement? .. will you receive residual income .. if not .. how do you plan on offloading it. You said you had a key man policy? ... who was the beneficiary? Will anyone in your company plan to buy the business from you?

you should probably look into a adviser (and attorney) who specializes on Estate planning as well.

 

[LivePassionately]

1.5 million in cash is not bad as long as you have a plan on what to do with that money .. you say you have a company worth 2MM?? Can you reinvest cas in the company to earn more ? Are you planning on owning the company during Retirement? .. will you receive residual income .. if not .. how do you plan on offloading it. You said you had a key man policy? ... who was the beneficiary? Will anyone in your company plan to buy the business from you?

you should probably look into a adviser (and attorney) who specializes on Estate planning as well.

@jzajazz

A. The plan is to put this into 1.5 Million into equities as I already have a good sized Real Estate portfolio. I have already started doing that with Vanguard funds that mostly mirror S&P 500.

B. The $2M is just my share of the company. I have a business partner and will most likely sell him the stake (he will pay it out over 4 years). It is very lucrative so selling to him won't be an issue. I can grow somewhat it but its not worth it for me to put in the extra effort at this time and money at this point (I am taking more time off and really want to enjoy my 40's). My biz partner is ok with me staying on as well in whatever fashion I want so if I may start with 50% time and then ratchet down to 25% and see if that is a good balance. Either way, I'm not counting any more income other than the $2M after 50 for my calculations.

C. The key man policy is now in my name and we switched to me paying for it(there was some issue that if the company got the money and gave it to my estate could be taxed vs. my family getting it directly is not taxed). This is for all essential purposes a life insurance policy. I had 2 policies for a total of 2 Million and have only kept one now that is 1 Million but that will expire in about 9 years as we got a 20 year one a while ago.

D. I am going the estate planning route. With the large exceptions now, I don't think i'll run into estate taxes until after 50 but it doesn't hurt to plan properly. The other thing I found through all this I don't put away enough in 401K and working to find more ways to legally put more money away into retirement so it can grow tax free. All my decisions now are kind of hinging on looking at what my after tax return is as my tax rate is very high (which is why i've been pushing real estate very hard lately).

E. Someone asked about my spouse and there is the catch. I want to retire at 50 but she does not. She is a physician who works 35 hours a week and absolutely loves it (except for the part where they have to log everything into the electronic medical systems). I wanted to travel the world for 3-4 months at a time and then be near the kids (who will just be in college) after we retire but she just asked me yesterday - "Why are you always talking about retirement. Your job isn't very stressful, you make a ton of money, and we have a great life outside of work and really enjoy our days? " I'm not sure how to answer that as work is enjoyable but there is a deeper longing to not have any responsibility and just be free. She says she views life as a marathon rather than a sprint and I guess I prefer sprinting and then relaxing for the rest of the time

 

[exnavynuke]

Anyone to me - "Why do you want to retire?"
Me to anyone - "If they weren't paying me, I wouldn't be doing the job. That tells me that it isn't what I want to be doing with my life. As such, when I can, I"ll spend my time doing things I want to do whether they earn money or not. Life is too short to spend it doing things you don't want to do for any longer than is necessary."

 

[Milton]

I am normally the one that’s the voice of reason always.

Wow. Just ... wow.

 

[Nemo2]

Don't be scared - you may not even be alive in nine years.

 

[NanoSour]

Trust me, your fear of retirement thoughts will be replaced by other fears and concerns once retired. No one escapes this part of the human psyche.

 

[LivePassionately]

Don't be scared - you may not even be alive in nine years.

I totally agree as an employee in his 40's just had a near death experience.
I think fear of death is also driving my desire to get away from the "golden handcuffs". The fear I guess is also psychological as much as anything. I think as a man, it feels weird to stop being a "provider". Second, I grew up poor and there is the irrational "fear of poverty". Third, everyone I know is kind of in their "golden" earnings period and ramping up their careers and and always talking about work (which I hate) so its tough to think of getting away from this mentality. I feel like they don't "Get it". Now working on convincing the wife to figure out retiring at the same time as me or figure out how she can work and spend 2-3 months seeing the world

 

[Nemo2]

I totally agree as an employee in his 40's just had a near death experience.

My late wife didn't make her 53rd, her best friend's husband didn't make his 50th, another friend's wife died in her early 50's, DW's cousin and her husband died within about a year of each other, (both from different cancers), in their 40s....etc, etc, etc.

Everything can go into the crapper in a heartbeat, (or, more to the point, the lack of one), and 'stuff' (a la George Carlin) isn't worth a damn and won't give you one more second on earth.

 

[ER Eddie]

I am trying to wrap my head around the idea of someone with 8 million dollars being scared of retirement, or the idea of someone with a fear of poverty going through 250K/year. I don't get it.

 

[timemoveson]

I am trying to wrap my head around the idea of someone with 8 million dollars being scared of retirement, or the idea of someone with a fear of poverty going through 250K/year. I don't get it.

I know it doesn't sound plausible but I assure you it is. Pretty straightforward in my experience, given I see hundreds of examples and can reflect on my own experiences:

- When you perform economically at or near this level for a while or a long time you stop really knowing any different;
- You understand everything about our situation, rationally, but most rich people started at the bottom, so they have trouble imagining not being at the top of the economic heap;
- FIRE is usually a voluntary scenario, no one is forcing us to stop - is it a mistake to stop when you likely cannot start again or be at this level if we want to be or need to be?;
- $250K/year is a high number but I've spent more and I know many (hundreds of people) who spend much more than that annually and it is entirely normal for them to do so;
- $8M is a big number but it could be easily be spent down, you could make serious mistakes, or you could misfire due to circumstances if you don't manage your risks correctly. You and your spouse, if you have one, could easily fall out of alignment on any number of life dimensions and kill your plans.

The bigger you are the harder you fall is definitely true when it comes to FIRE.

 

[ER Eddie]

I know it doesn't sound plausible but I assure you it is. Pretty straightforward in my experience, given I see hundreds of examples and can reflect on my own experiences:

- When you perform economically at or near this level for a while or a long time you stop really knowing any different;

Yeah, I've never been a big earner, so it's hard for me to imagine raking in so much money that the idea of having only 8 million dollars and having to subsist on a mere $250,000 a year sends you into a panic. It seems bizarre.

But then again, people with very low incomes and no chance of early retirement probably think most of my financial worries are pretty ridiculous, too.

You understand everything about our situation, rationally, but most rich people started at the bottom, so they have trouble imagining not being at the top of the economic heap;

That would be an issue of pride, prestige, or position -- an ego thing. That part I get, although it's not really a financial issue per se.

- FIRE is usually a voluntary scenario, no one is forcing us to stop - is it a mistake to stop when you likely cannot start again or be at this level if we want to be or need to be?;

True, although that's the case for most of us.

- $250K/year is a high number but I've spent more and I know many (hundreds of people) who spend much more than that annually and it is entirely normal for them to do so;

Yes, but the part I found difficult to understand is that this spending level is being coupled with an intense fear of poverty. If you're terrified of poverty, wouldn't you be reigning in your spending, not spending money hand over fist? That's the part I didn't get.

- $8M is a big number but it could be easily be spent down, you could make serious mistakes, or you could misfire due to circumstances if you don't manage your risks correctly. You and your spouse, if you have one, could easily fall out of alignment on any number of life dimensions and kill your plans.

That makes sense. Unpredictable disasters could happen. For instance, if there is a divorce and custody battle, it could take a big bite out of that 8 million dollar nest egg. Same is true for all of us, though.

The bigger you are the harder you fall is definitely true when it comes to FIRE.

I'd rephrase as, The richer you are, the more worried you are about losing your riches. Or, the more you possess, the more you are possessed (Nietzsche). But I don't want to make it sound like a general principle. I don't think this is just a "rich guy" thing. There's plenty of rich guys who aren't scared of retirement. I think there are some psychological issues here (e.g. the meaning OP attaches to money) that make this a little different.

 

[LivePassionately]

@Timemoveson : Thank you for the back up. Good to have someone that understands.



Eddie - I totally agree that there definitely is a psychological aspect and I love the Nietzsche quote. Note that everyone has this in some form or another over retirement. The One More Year is about fear in many ways more than anything. My fear isn't about living below my means..I have always saved over 50% even when I started with a 29K salary and can now live on a 100K if I wanted.. It is about losing a portion of it and no idea where it stems from other than growing up without money. I will have to read further and see what dr. google says on this.
Anyways, enough discourse on the fears as its a first world problem I can certainly get over. I shared my thoughts and opened up not to sound whiny but because this is a supportive place and its great to hear different ideas and have some discourse as I don't really know where else I can talk about this stuff. I really enjoy reading these forums and especially love the After Fire forums.

I am READY and going to enjoy planning to FIRE in 9 years and getting my ducks in a row. Thank you all for you input.

 

[RockLife]

Don't be scared - you may not even be alive in nine years.

I literally LOL'd at this!

Now, the reality is exactly like other posters have already said. In my case, I have lost 2 brothers, my oldest friend, my Dad and Step-Dad, and my closest friend now has cancer. My wife has lost her best friend and two other friends. All of this in the last 3 years, so really, we can't retire soon enough!

We have a fraction of what you describe, but we have a plan to live a happy, frugal life. In a few years (1? 10? 40? We don't know how many), good luck or bad luck, we'll all be pushing up daisies in the bone-yard at some point. My job is lucrative and (mostly) interesting, but I don't enjoy it enough to spend my remaining years doing it. You may feel differently, but that's where I come from.