Am I on Track to Retire Around 55?

G

Godzilla

Dryer sheet wannabe
Joined
Oct 27, 2016
Messages
16
Greetings from the L.A. suburbs! This is my first post, but I have been reading the advice on here for a while, and have been learning a lot. Today I'm curious to get people's take on whether I'm in the ballpark of being able to retire at around age 55.

I'm currently 41 years old, and my DW is in her late 30s. We have two kids, both in elementary school. Our combined annual household income is about $400k/year, and we both have great, stable jobs (although we both work for very small businesses).

Main assets and liabilities are as follows:

ASSETS

  • Liquid non-retirement investment accounts - $600K - Mix of stocks and ETFs, with a asset mix appropriate for our ages (around 80/20 equities/bonds)
  • Pre-tax retirement accounts (IRAs, 401(k)s) - $800K - Same approximate asset mix
  • Roth retirement accounts - $400k - Same asset mix
  • Inherited IRAs - $630k - I have to take annual taxable minimum withdrawals on these, per the IRS single life expectancy table
  • 529 plans - Approx. $300K combined balance, with a fairly aggressive tilt towards equities right now
  • Home is worth approx. $900K

LIABILITIES

  • $500K remaining on mortgage (so, $400K net equity in home)
  • Approx. $10K auto loan
  • That's about it. We use credit cards for everything but pay them in full every month.
We max out all of our retirement vehicles each year (including backdoor contributions to Roth IRAs), and have been feeding the 529 plans since before our first child was born. We also sock away leftover cash in non-retirement accounts, to the tune of about $1,000 - $1,500/month.


WHY AM I HERE?

I've been thinking about FIRE since neither of my parents lived past 70, and I don't want to work and work and work and then just be gone one day. I don't need to retire super early and go travel the world and "find myself," but I can definitely see myself gearing down and stopping work -- or at least cutting back and maybe just doing some consulting to keep myself sharp -- by the time I'm in my mid-50's.

DW sort of has a harder time envisioning herself stopping full-time work so early in life, but also doesn't want to wait until her mid- to late-60's to gear down. We both have livelihoods where it's conceivable that we could both do some consulting work and still draw some income, if we wanted to.

Ideal retirement for us would involve some travel, but we live fairly simply. Other than eating out and maybe 2 trips per year, I don't think we'd spend extravagantly in retirement. We have not thought much about long-term care insurance or other types of costs that will probably loom large for us one day.

I feel like we're on a good path to retire in our 50's, but for all I know, maybe we're still being wildly optimistic about how quickly we'll chew through our savings if we stop working in 15 years. I welcome all opinions and advice. Thank you for having me!
 
It all depends on how much you want to spend per year. Without that, nobody can tell you!
 
Nice savings accumulation for your age -- AND with kids too!

-gauss
 
Well, without spending numbers, there's not much detail I can give. "Really basic" math tells me that if your money doubles twice over the next 14 years, you should have around 9.72M, which would give you a 4% SWR of around $388,800/year pre-tax. So you're on track to be "okay" at least I'd say, though I can't say more.
 
Kwix - Good savings so far. I'm 47, similar family/income situation, and my FI number in LA is between $4-5M with an already paid off townhome. I'm targeting semi-RE by 50 and full ER in early 50's depending on how I'm enjoying it.

I think you are on the right track. As far as retiring or downshifting in your mid-50's, it's possible however it depends on the lifestyle and expenses. I've seen some LA families enjoy spending, so it depends if you are looking to support a $100k budget or $300k annual budget.
 
You are on the path of being extremely wealthy. If that's part of your goal, great. If not, run some cases in Firecalc to see how much money you could spend each year under various "retirement" scenarios and pick a date you want to start doing something different. You will have lots of choice given your savings to date. I think you will be surprised how little concern you should have in your situation.
 
exnavynuke said:
Well, without spending numbers, there's not much detail I can give. "Really basic" math tells me that if your money doubles twice over the next 14 years, you should have around 9.72M, which would give you a 4% SWR of around $388,800/year pre-tax. So you're on track to be "okay" at least I'd say, though I can't say more.
Click to expand...

All true but note that this would imply an IRR of over 10% per year.

Possible: yes - a reasonable planning assumption: probably not.

-gauss
 
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gauss said:
All true but note that this would imply an IRR of over 10% per year.

Possible: yes - a reasonable planning assumption: probably not.

-gauss
Click to expand...

If I was expecting their portfolio to double in size solely from their investment returns, I'd agree. However, I expect that they haven't stopped saving for retirement at this point and won't stop saving for retirement until they retire, and with the stated income and account balances, I think it's reasonable to assume that the percentage of their income that goes towards investments is still fairly significant, thus requiring a lower IRR. A 2.4M starting balance investing 20% of their gross pay/year with 7% returns gives a 15 year result of ~$9M (again basic and with lots of assumptions). As I said though, it's a really basic estimate since we're missing most of the information needed to run any real calculations for theirs ituation


Edit: I noticed OP did mention savings rates (I missed that until now, oops), if I assume just $36k in 401k's and $1,500/month taxable for ~$4.5k/month put away, at 7% interest the balance in 15 years is $8.35M total balance. Again, just using basic calculations, not tax specific or taking into account any specifics (RMDs or paying off the mortgage or anything else of the sort), it still seems very doable to me.
 
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Aiming_4_55 said:
I think you are on the right track. As far as retiring or downshifting in your mid-50's, it's possible however it depends on the lifestyle and expenses. I've seen some LA families enjoy spending, so it depends if you are looking to support a $100k budget or $300k annual budget.
Click to expand...

Yes, very true about L.A. families! We live in the 'burbs, but even out here some of the dads I know get hair highlights, botox, etc... :p

Thanks to everyone who responded. This question for me was really a gut check, a way of asking, "I feel like we're doing great so far, but what am I missing?"

Many folks rightly pointed out that the question about spending in retirement is one I need to answer better. We've been very focused on the asset-accumulation part of retirement planning, but we need to start sketching out the other half of the equation.
 
kwix said:
Y
Thanks to everyone who responded. This question for me was really a gut check, a way of asking, "I feel like we're doing great so far, but what am I missing?"
Click to expand...

Nothing. For your age you are in outstanding shape to FIRE by 50.

Continue doing what you had been doing.
 
Thanks again for the feedback, everyone!

Just to give a little more detail on our current savings rate:

  • I save $18k/year in a Roth 401(k)
  • DW saves $18k/year in a pre-tax 401(k) - her company doesn't offer a Roth option
  • We each save $5.5K/year in a Roth IRA via backdoor contribution
  • We had been saving $1k/month in 529 plans, but have recently shifted this $1k over to saving in regular investment accounts since the 529 balances in pretty good shape
  • We save another $500 - $1K/month in regular investment accounts -- basically whatever is left over at the end of the month

So, approx. $65/year, mixed among different account types.
 
No issues

My friend, you are very far ahead of the curve at this point. As others have pointed out analytically, but I'll confirm with my own experience, you will have total discretion and control over your work/life choices if you stay on this track for even a very short additional time. Congratulations.
 
You're in great shape as far as savings for your age - or any age.

Adding up your current savings rate you're saving over $60k/year. You stated your combined income is about $400k.

If you're spending the balance - that's spending $330-340ish K/year. That would require needing a nest egg of between 8.25M and $9.9M. (4% or 3% withdrawal rates).

Obviously, you'll need less if you spend less. I'm pretty sure you can find some easy cuts in spending before your retire.

I live in SoCal also (coastal San Diego) - I have a much smaller nest egg - but also a much smaller spend rate. Like you I have 2 kids at home.
 
Glad to have you here, kwix!

As others have stated, you are way ahead of the savings curve. I agree with your decision to stop adding to the 529s as they are in good shape.

The big question is your lifestyle and how that may change when the kids are off to college and then on their own. If you plan an expensive lifestyle in retirement (luxury travel, high-end eating out, expensive wines, designer clothes, etc.) then the answer may be different that if you have more modest preferences.

Suggest running lots of scenarios in FIREcalc for both retirement dates and spending amounts, as well as carefully tracking your spending for the next few years.
 
rodi said:
You're in great shape as far as savings for your age - or any age.

Adding up your current savings rate you're saving over $60k/year. You stated your combined income is about $400k.

If you're spending the balance - that's spending $330-340ish K/year. That would require needing a nest egg of between 8.25M and $9.9M. (4% or 3% withdrawal rates).
Click to expand...


Actually, the income figure ($400K) is pre-tax. Taking out the federal and state income taxes we paid last year, that leaves approx. $260K. Taking our $60K savings out of that, we're spending around $200K/year. I just cross-checked this with our budgeting software, and it's very close.

Totally agree that we should be able to easily make some cuts. For example, I know we could cut back on eating out (our main splurge) and a few other things if we really wanted to!
 
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MBAustin said:
Glad to have you here, kwix!
Click to expand...

Thank you!

I have to admit that I had never played around with FIRECalc until today. I've been playing with lots of scenarios this morning. This tool is so great. I'm already learning a lot about the sensitivity of certain parameters. And DW, who's an actuary, even admitted that it's pretty cool.

Something to do on a rainy SoCal morning! :cool:
 
kwix said:
Actually, the income figure ($400K) is pre-tax. Taking out the federal and state income taxes we paid last year, that leaves approx. $260K. Taking our $60K savings out of that, we're spending around $200K/year. I just cross-checked this with our budgeting software, and it's very close.

Totally agree that we should be able to easily make some cuts. For example, I know we could cut back on eating out (our main splurge) and a few other things if we really wanted to!
Click to expand...

Unfortunately Feds and State still need their cut in retirement. You can eliminate the FICA taxes (SS and Medicare). You need to budget for taxes in retirement. You're in good shape in that some of your savings are post-tax and ROTH... but you'll still have cap gains on the post tax, and income tax on IRA withdrawals and interest/dividend payments.
 
kwix said:
ASSETS

[*]529 plans - Approx. $300K combined balance, with a fairly aggressive tilt towards equities right now
Click to expand...

Depending on what your plans are with funding private/public and level of education, ie. undergrad/grad/etc., the $300k might be enough if you add some estimated growth. With young kids, it might be invested for another 10 years and double. Something to consider as you continue to save. Not a bad issue to have.
 
As stated above by rodi, make sure that your "spending" in firecalc includes federal and state taxes.

Since I am far enough away from retirement, I just of back into my spending in a way similar to you. I take my before-tax income and subtract out current expenses I won't have in retirement. My current list of items that I subtract include: Retirement Savings, FICA, 529 contributions, private school tuition, and Child-care. By subtracting these out, I estimate that my income taxes will be reduced somewhat. Then I estimate my increase-in-spending categories: Health Insurance. ...and that's how I come up with my "spending" number for firecalc.

I know it's not too precise, but I am at least 8 years away and anticipate that my spending will change, or taxes will change, or laws will change...so it works for now.
 
enginerd said:
As stated above by rodi, make sure that your "spending" in firecalc includes federal and state taxes.

Since I am far enough away from retirement, I just of back into my spending in a way similar to you. I take my before-tax income and subtract out current expenses I won't have in retirement. My current list of items that I subtract include: Retirement Savings, FICA, 529 contributions, private school tuition, and Child-care. By subtracting these out, I estimate that my income taxes will be reduced somewhat. Then I estimate my increase-in-spending categories: Health Insurance. ...and that's how I come up with my "spending" number for firecalc.
Click to expand...

Oh boy, it's tricky since some of my assets will get taxed as I withdraw them, and some won't. And I'm surprised by how even the great tools out there seem to just lump all savings together, even though $100K in a Roth IRA is worth far more than $100K in a traditional IRA. Even though, in practice, I'll probably draw down one type of account and then the other, maybe for FIREcalc purposes I'll try using a "blended" number, assuming that only a percentage of my withdrawals each ear will be taxed?

Enginerd, your method makes a lot of sense.
 
You've already a great portfolio value, but boy, your spending is pretty high :cool:. OTOH, I have not lived in CA, it must be pricey in L.A. Also, given your high income in the stable jobs (as you say) why not enjoy and have some splurges.
If you keep up as until now I think you'll be just fine to retire in 10 years or so.

It cracked me up: "men getting highlights and botox". What's happening to a macho image?:facepalm: Seriously.
 
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