Looking for Advice on our Situation

[Hopeful]

We have been saving diligently for early retirement, ever since we got married. As it is starting to get closer and closer the feelings of anxiety about being able to RE are getting stronger. As I am starting to run more and more numbers I am wondering if we should make the shift of stopping saving, and DW cutting her hours in a transition period?

A little about ourselves:

DW is 50 works full time, and has always been the higher wage earner. Takes very little interest in finance, and despite my prodding looks to me for that aspect.

I am 44 and work part time and am the lesser of the wage earner.

We have no children. Our hope has always been to be able to retire in 5 years when she is 55. Depending on the insurance situation, I may stay part time for a few years for the insurance. DW has never minded working FT, and was less stressed in her job than I was. On the other hand I know she would enjoy more free time, and I have been talking to her about switching to PT. I think she gets nervous about the idea of discontinuing saving though.

I feel that we are within striking distance, and if we stopped saving for retirement the difference would cover the lost wages of her going part time.

We currently save:

$42,000 a year in our 403b’s with her catch up contribution.
$12,000 a year in an IRA that we convert each year into a ROTH IRA
We started saving in a HSA this year the max of $6,750

We would still contribute to the HSA, and the 6% minimum for employer match in 403b

Our current approximate savings:

$1.45 M in taxable
$1.09 M in 403B’s
$300,000 in ROTH’s
$100,000 Cash
My Pension $52,000
DW Pension $229,000

Both pensions that have been frozen, and have the option of taking as a lump sum what we quit or annuity. DW’s would be the only one that may be worth annualizing. It does not have COLA and currently are quoted at age 65 with 100% joint benefit of $2,982 per month.

We have a house that is paid for and has dropped in value, but probably would be worth about $425,000.

So Total Net Worth without the house of $3.2M

Just started tracking our spending the last 3 years and it was $90-$100,00 per year. We have been pretty consistent though in not spending more than we took home and not dipping into savings. Back of the napkin goal was to always save 4 million to make a 3% WR for $120,000 a year with taxes. But I am wondering if that is too conservative. Especially if I start accounting for SocSec.

Firecalc is giving me a 100% success rate, if I plug in SocSec, at a $3.4M portfolio.

We had a recent health scare with DW , and although the prognosis is good, it has me rethinking our mortality. We are planning on spending about $75,000 on the house this year (roof, painting, deck etc.) DW says wait and see about her going part-time. I am thinking we would be just fine with her cutting her hours, and us reducing our savings rate. We could even stop reinvesting dividends in taxable for $25,000 more if needed to make up the gap. Even with this I think we could be on track for DW age 55 ER goal. But you know that little voice in the back of both of our heads, “It would be nice to be more secure”, “What if the market goes south” etc.

Sorry this has turned into a rambling post, but just looking for some input. The forum has helped me tremendously already in preparing for ER even though I don’t post often.

 

[younginvestor2013]

I think you can both retire immediately! But that's just my opinion. I would imagine expenses go down a bit in retirement, but if you have to self-fund your health care, that might offset any decrease in everyday expenses.

If you take out 3% on your current nest egg listed below, excluding your house, that gives you $96k a year, which is very conservative anyway given the 3% (and not 4%), PLUS eventually you'll get social security probably.

If I were you, I'd be like this

 

[Whisper66]

Congrats - you both could quit working today if you so wished and the concern was just how much you had saved. You are in great position.

Longevity - basically how long you run a Firecalc analysis for (using the calculator linked on the front page of Firecalc). You have about:
0.2% chance that both of you live another 50 yrs
2.7% chance that both of you live another 45 yrs
12.6% chance that both of you live another 40 yrs
Personally I run cases at ~5-10% longevity chance but sounds like you are quite conservative so maybe run the 45 yr case for your comfort (2.7%).

You have 3.22M in liquid assets today after pension collected and no large liabilities and no downsizing of home. You have assumed NO social security which is very conservative. Many here assume they will get ~75% of what is promised. The 25% cut is due to possible future changes to keep program solvent. That would be a reasonable basis IMHO. But for the discussion here, I assume 0 social security. Firecalc suggests:

93.1% chance of success - this is quite acceptable. You can always manage your budget if needed. Many find they don't spend as much in retirement as they thought. With any reasonable SS input, you are probably 95% or higher.

95% chance of success if you spend $114k yearly (in today's $$). 95% success is quite good for these types of calcs and is the default that firecalc uses for questions like this. So you wouldn't need to budget much to get 95% success. With any reasonable SS input, none at all.

Of course, continue working if you like (for insurance maybe). Just don't feel like you have to for the sake of building a bigger pot of money. Life can be much shorter than we plan for so make sure you are making a decision you will be happy with. Best of luck to you and again, congrats.

Edit: You are in that high asset range with large amounts in tax deferred 403b that you may want to consider Roth conversions to optimize your taxes over time. www.I-ORP.com is a tool used by many on this board. It has an option to suggest amounts to convert that will optimize your taxes over your lifetime.

 

[Hopeful]

Congrats - you both could quit working today if you so wished and the concern was just how much you had saved. You are in great position.

Longevity - basically how long you run a Firecalc analysis for (using the calculator linked on the front page of Firecalc). You have about:
0.2% chance that both of you live another 50 yrs
2.7% chance that both of you live another 45 yrs
12.6% chance that both of you live another 40 yrs
Personally I run cases at ~5-10% longevity chance but sounds like you are quite conservative so maybe run the 45 yr case for your comfort (2.7%).

You have 3.22M in liquid assets today after pension collected and no large liabilities and no downsizing of home. You have assumed NO social security which is very conservative. Many here assume they will get ~75% of what is promised. The 25% cut is due to possible future changes to keep program solvent. That would be a reasonable basis IMHO. But for the discussion here, I assume 0 social security. Firecalc suggests:

93.1% chance of success - this is quite acceptable. You can always manage your budget if needed. Many find they don't spend as much in retirement as they thought. With any reasonable SS input, you are probably 95% or higher.

95% chance of success if you spend $114k yearly (in today's $$). 95% success is quite good for these types of calcs and is the default that firecalc uses for questions like this. So you wouldn't need to budget much to get 95% success. With any reasonable SS input, none at all.

Of course, continue working if you like (for insurance maybe). Just don't feel like you have to for the sake of building a bigger pot of money. Life can be much shorter than we plan for so make sure you are making a decision you will be happy with. Best of luck to you and again, congrats.

Wasn't expecting to hear advice that we could RE now. I am not quite sure I can wrap my head around not shooting for 100%. I guess it is out of my comfort zone at such a young age. But what I do take away is that you obviously don't feel it would be a problem to stop adding to the retirement savings, and even possibly start spending our taxable dividends (staying within our spending budget).

Do you mind asking were you found those longevity figures? I would love to take a closer look at those.

 

[Whisper66]

....Do you mind asking were you found those longevity figures? I would love to take a closer look at those.

Go to FIRECalc: A different kind of retirement calculator
See link on that page to "Vanguard's Longevity Calculator"
Plug in your ages: 44 and 50 and timeframe = 45 yrs
Results show you have 21% chance and wife has 13% chance of that longevity.
The chance of both of you going 45 yrs = 21% x 13% = 2.73%

Maybe the results of the calculations would be less surprising if you knew where you were relative to others in your age bracket.......
https://dqydj.com/net-worth-by-age-calculator-for-the-united-states/
Looks like you are within the top 5% relative to you asset level. Great place to be in, gives you an option to retire early that many don't have.

 

[Whisper66]

Wasn't expecting to hear advice that we could RE now. I am not quite sure I can wrap my head around not shooting for 100%.....

Below is a thread that was a good discussion of many peoples thoughts on the Firecalc success rate.

http://www.early-retirement.org/forums/f36/firecalc-success-rate-84771.html

A couple things I took note of in the discussion:

(1) Good quote by Bill Berstein, author of the classic "The Four Pillars of Investing", in post #9 by Onward... "But history teaches us that depriving ourselves to boost our 40-year success probability much beyond 80% is a fool’s errand, since all you are doing is increasing the probability of failure for political, economic, and military reasons relative to the failure of banal financial planning."

(2) Several people do indeed use 100% success rate as you have done so far. As a person who works with numbers, I would only suggest that this is quite conservative. That is ok, but I'd caution you not to pile one conservative assumption on top of lots of others (such as zero social security or an unrealistic longevity or ultra conservative spend rate). Too much conservatism just limits your options more than really needed. Remember the calculation assumes you blindly spend your spend rate (plus escalation due to inflation) year after year. In reality, you can always trim back if things go south.

 

[Hopeful]

Whisper66, Thanks for the detailed responses. I will read into the info you posted. Definitely will be food for thought. Maybe it will be enough to at least convince the DW to cut her hours.

 

[Hopeful]

I would be grateful if any one else input. Particularly if there are those that stopped contributing towards retirement in the years leading up to it as the nest egg grew.

 

[marko]

Anxiety? Don't be anxious, be happy.

Get some RE tools (FireCalc, iORP etc), maybe talk to someone (your CPA, accountant...with that kind of cash you must have one), do some Excel scenarios about spending vs income, spend a little more time on sites like this one (especially this one!) and start prepping your bosses for your departures.

 

[Hopeful]

No CPA or accountant. For better or worse I have always been a do it yourself kind of guy, including being very conscious of fees.

 

[marko]

No CPA or accountant. For better or worse I have always been a do it yourself kind of guy, including being very conscious of fees.

That might be the source of your anxiety.

You've got a hefty balance there. Get a professional who can help you see how you can retire sooner than later.

Fees aren't your problem in this dilemma.

 

[Hopeful]

Maybe anxiety is too strong a word. More like it is so close we can taste it feeling, and the fear of something derailing it now. My wife's (and I guess mine too) biggest fear in cutting hours and stopping savings is a market drop in those 5 years leading up to full retirement. So it is easy for us to get in the mode of just one or two more years of saving will ensure our success. Don't really want to go too conservative with portfolio to counteract that risk, we currently are at 65/35 allocation. To be more specific- 40% US Stock, 10% Small cap value, 15% International, and 35% Bond & Pension.

 

[Scuba]

I agree with others that you are more than ready financially. It's very possible to buy your own health insurance. I would not delay ER for that reason. You can get quotes online to reassure yourself on the health insurance costs.

Unless you are a tax expert, I also agree that you should consult a good CPA. They could do cash flow projections for you to help you and your wife get comfortable with your readiness, and also advise you of tax efficient withdrawal strategies. With a good CPA's advice, fees will be minor in relation to potential tax savings as well as giving you confidence that a professional has validated your modeling.

Congratulations and go for it!

 

[Car-Guy]

Just started tracking our spending the last 3 years and it was $90-$100,00 per year. We have been pretty consistent though in not spending more than we took home and not dipping into savings. Back of the napkin goal was to always save 4 million to make a 3% WR for $120,000 a year with taxes. But I am wondering if that is too conservative. Especially if I start accounting for SocSec.

Even with this I think we could be on track for DW age 55 ER goal. But you know that little voice in the back of both of our heads, “It would be nice to be more secure”, “What if the market goes south” etc.

I have posted here many times that I wish I would have retired a few years earlier than I did, so I can relate to your concerns. Pretty clear to me that you could retire now, but after reading through your posts in this thread (and considering your ages, investment allocations, projected spend rates, concerns, etc), I think I'd shoot for your original back of the napkin financial goals and ages.

 

[Hopeful]

I have posted here many times that I wish I would have retired a few years earlier than I did, so I can relate to your concerns. Pretty clear to me that you could retire now, but after reading through your posts in this thread (and considering your ages, investment allocations, projected spend rates, concerns, etc), I think I'd shoot for your original back of the napkin financial goals and ages.

I agree, and know that we are not emotionally ready right now to completely pull the plug. In a couple years who knows. I think that DW going part time and us stopping the retirement savings might ease us into that transition. And we are starting to see realize we shouldn't do too much damage to our plan by doing that.

 

[Surewhitey]

+1 on the ready now for you...we're right behind you at 47 and 53. We're a lot lower on the expenses at $45-50k annually, all in, for the past couple years. Paid for home in a similar value. Likely to down-size and drop expenses even further (taxes & insurance, currently at around $8k of the $45K). We also will drop a car, another $1-2k off the $45K...

We took a couple years off and w*rked part-time in a foreign country to get a feel on how to fill our time and do some good things. I'm ready, DW not so much. I work FT, her, PT.

I'm the spreadsheet, planning type. She's the "feeling" kind...one day I'll nail her down on a number...

We have:
Deferred - $450k
Misc non-def'd - $400k
Home - $400k to go to $2-300k eventually
All in at $1mm and paid for home

at 65-ish
Pension - $1000 / monthly
SS eventually - $3200 / monthly
Dividends - $1200 / monthly
This will cover most of what we'll need

Now
Dividends - $1200 / monthly

I'm thinking a couple more years for us to keep peace in the family & pad my not-so-conservative estimate.

 

[Whisper66]

.....Maybe anxiety is too strong a word. More like it is so close we can taste it feeling, and the fear of something derailing it now. My wife's (and I guess mine too) biggest fear in cutting hours and stopping savings is a market drop in those 5 years leading up to full retirement. .....

Some things we did to lower our anxiety as we prepared for retirement:
(1) Run multiple Firecalc scenarios - for example, assume a market downturn occurs right when you retire. See if have enough fixed assets to outlast a normal downturn (say 3 yrs or so). Consider how much you'd need to trim your budget to avoid selling equities at a large loss.
(2) Confirm results with another calculation tool - We used I-ORP as our second major tool we used.
(3) Get other's opinions to challenge what you'd heard / calculated so far
(3a) the advice here is excellent.
(3b) We also went to a few of these free dinners that finanical advisors offer to those near retirement. Gave them our information and they provided a retirement financial plan after a coulple days. All did this free as a way to show how they would manage our funds if we hired them. Some were more useful than others but all confirmed our thoughts that we could retire without financial concerns. I also learned a few things about how to manage taxes better from some of these talks.
(3c) Get advice from your account company. If you have an account at Vanguard, they will provide a simple retirement plan as well, no cost depending on amount you have with them. If you are somewhere else, see if they will provide you a plan.

 

[pb4uski]

+1 that you have enough to retire now with a remote chance of ever running out of money. Even things went sideways investment-wise, I suspect that you could do a bit of belt-tightening in that $100k/year spending budget and still live very well. We retired at 56 on less with about the same spending and I sleep well at night.

I worked part-time for many years before fully retiring... I enjoyed working part-time... a very nice way to easily transition into retirement.

One tool that I would suggest is Quicken Lifetime Planner. While it does NOT address sequence of returns risk (I use Firecalc and other stochastic tools to stress test my plan), it is a very easy to use and intuitive tool for retirement planning. It is included in Quicken deluxe and higher versions of Quicken. You can run what-if scenarios to show how working to age x or working part-time or retiring now will impact your nestgg and its decay.

I'm not sure how much you have built-in to the $100k spending for income taxes, but a fun exercise is to do a pro forma tax return as if you were retired.... many of us have been pleasantly shocked at how much our tax bill declines... especially those of us living on taxable account funds... DW and I had over $100k of income last year (including $26 of Roth conversions to the top of the 15% tax bracket) and out total tax was less than $200.

 

[CoAndy]

Wasn't expecting to hear advice that we could RE now. I am not quite sure I can wrap my head around not shooting for 100%. I guess it is out of my comfort zone at such a young age. But what I do take away is that you obviously don't feel it would be a problem to stop adding to the retirement savings, and even possibly start spending our taxable dividends (staying within our spending budget).

Do you mind asking were you found those longevity figures? I would love to take a closer look at those.

I think you can retire today as well though if it would make you feel less stressed, maybe you could work a few extra months just for a little extra buffer.

 

[Teacher Terry]

I think your wife going p.t. would be a great transition. You don't need to save more $. I have had a few of my friends die or become severely disabled in 50's and 60's so I say take your time and enjoy while you can.

 

[euro]

Wasn't expecting to hear advice that we could RE now. I am not quite sure I can wrap my head around not shooting for 100%. I guess it is out of my comfort zone at such a young age. But what I do take away is that you obviously don't feel it would be a problem to stop adding to the retirement savings, and even possibly start spending our taxable dividends (staying within our spending budget).

Do you mind asking were you found those longevity figures? I would love to take a closer look at those.

Great - then you might want to consider continuing your part time gig for another few years and have your wife bail out now. That provides some extra cash and probably puts you past 100%?

 

[pullmyfinger]

Great - then you might want to consider continuing your part time gig for another few years and have your wife bail out now. That provides some extra cash and probably puts you past 100%?

I think this could be a good transition so you both feel comfortable with the idea of retiring. I also think you could both retire now. At the least I would recommend your wife switch to part time.

 

[RobLJ]

Yes; I ran both Quicken Planner and Fidelity Planner, in addition to FireCalc.

In terms of your situation, we have about 2/3 of your assets and are comfortable retiring at a 100k/year, although that has a lot of slack (the house is paid off and the kids are gone). I semi-retired two years ago and will continue to work about 1/2 time online, setting my own hours at my convenience, for a few more years, and DW will continue to work fulltime for anywhere from 1 year to 3, depending on when her bucket fills. Since I was renewed for 2 years, she may retire sooner. I add this, since you mentioned the possibility of DW working part-time, which isn't a bad idea to dip the toes in the water, which is what we did in moving to Reno two years ago when I semi-retired (and taking about a 65% decrease in salary, which has been more than enough to avoid our taking any withdrawals, so far).

I can cover both of us on retirement medical insurance, however, although right now I'm only covering myself since DW is covered through her work. That makes our situation easier, as one caveat.

+1 that you have enough to retire now with a remote chance of ever running out of money. Even things went sideways investment-wise, I suspect that you could do a bit of belt-tightening in that $100k/year spending budget and still live very well. We retired at 56 on less with about the same spending and I sleep well at night.

I worked part-time for many years before fully retiring... I enjoyed working part-time... a very nice way to easily transition into retirement.

One tool that I would suggest is Quicken Lifetime Planner. While it does NOT address sequence of returns risk (I use Firecalc and other stochastic tools to stress test my plan), it is a very easy to use and intuitive tool for retirement planning. It is included in Quicken deluxe and higher versions of Quicken. You can run what-if scenarios to show how working to age x or working part-time or retiring now will impact your nestgg and its decay.

I'm not sure how much you have built-in to the $100k spending for income taxes, but a fun exercise is to do a pro forma tax return as if you were retired.... many of us have been pleasantly shocked at how much our tax bill declines... especially those of us living on taxable account funds... DW and I had over $100k of income last year (including $26 of Roth conversions to the top of the 15% tax bracket) and out total tax was less than $200.

 

[Dash man]

Since you're hesitant you're not quite ready. So I recommend you:
1. Increase your after tax funds so you're not forced to liquidate pretax funds in a market downturn.
2. Consider major expenses such as new roof, remodeling, landscaping, new cars, etc. and deal with those prior to quitting.
3. Save up for your dream vacation to celebrate your retirement.
4. Consider healthcare costs as best as you can.
5. Retire and take the vacation!

 

[gerntz]

We currently save:

$42,000 a year in our 403b’s with her catch up contribution.
$12,000 a year in an IRA that we convert each year into a ROTH IRA
We started saving in a HSA this year the max of $6,750


We have been pretty consistent though in not spending more than we took home and not dipping into savings.

We had a recent health scare with DW , and although the prognosis is good, it has me rethinking our mortality. We are planning on spending about $75,000 on the house this year (roof, painting, deck etc.) DW says wait and see about her going part-time. I am thinking we would be just fine with her cutting her hours, and us reducing our savings rate. We could even stop reinvesting dividends in taxable for $25,000 more if needed to make up the gap. Even with this I think we could be on track for DW age 55 ER goal. But you know that little voice in the back of both of our heads, “It would be nice to be more secure”, “What if the market goes south” etc.

Sorry this has turned into a rambling post, but just looking for some input. The forum has helped me tremendously already in preparing for ER even though I don’t post often.

Rambling is good. Here's hoping DW health is good long term.

BUT... pretty hard to to be putting $48K into IRA & HSA each year AND be spending more than you take in each year. Think about that.

You're in great shape. Do what feels right & you'll be fine. Best to both of you.