Hi...would you do it?

[WasToldThereWouldBeNoMath]

I'm lucky to have found this forum in the hopes of receiving some advice.

Wife and I are 52. I'd like to retire. Now. Here are the details:

• $990K in tax-deferred assets currently in a 75/25 AA of mutual/bond funds (would not tap into until after 59-1/2)
• $500K in taxable assets in a roughly 50/50 mix of money market account and 60/40 AA mutual/bond funds
• $53K in non-COLA annual pension until age 62
• $28K in non-COLA annual pension from 62 on
• $25K in Social Security from 62 on
• Wife earns $30K, plans to work another 8 years until 60 and will contribute $3K annually to her tax-deferred account
• Would add about $11K for wife's Social Security at 62
• No mortgage or other loan debt
• Two kids but college is 100% covered by additional college savings
• Estimated after-tax expenses: $125K to cover expenses and a vehicle replacement, travel, or repairs each year with an estimated reduction by $10K per year from 60 to 70 and another $10K per year from 70+ (all in today's dollars)
• Willing to do a little part-time work if necessary

I want to do it. Can I do it? Would you do it?

I've run some Monte Carlo simulations, and the success % numbers are in the mid-70s to high-80s range depending on market returns, etc.

Thanks in advance and I hope you are either enjoying an early retirement or well on your way to achieving one.

 

[bloom2708]

Nope. Keep plugging away. If your percentage was 95% you would be close.

3.5% of 3,570,000 is $125k. You need to cover a 40+ retirement.

Plus, you aren't retired if your wife keeps working. You are a stay at home parent with kids in school.

 

[SecretlyFI]

Hmm, but with that pension and wife’s income, later replaced by wife’s social security and lowered expenses, I would have expected a higher success rate. Try firecalc. But make sure to include taxes in your total expenses. I don’t think using “after tax expenses” would make sense because you need to pay those just like any other expense.

 

[Bigdawg]

[*]Estimated after-tax expenses: $125K to cover expenses and a vehicle replacement, travel, or repairs each year with an estimated reduction by $10K per year from 60 to 70 and another $10K per year from 70+ (all in today's dollars)
[*]

A few years of ACTUAL expenses will bring your planning into focus. Good luck and welcome.

 

[Dash man]

I’d be nervous. DW and I spent $30,000 on healthcare this past year. Have you considered that? Do you plan for major expenses like a new roof, car, windows or remodeling? Do you have umbrella insurance to protect you? Long term care and burial costs? Do you want to leave something to your kids? Things to think about.

 

[WasToldThereWouldBeNoMath]

I’d be nervous. DW and I spent $30,000 on healthcare this past year. Have you considered that? Do you plan for major expenses like a new roof, car, windows or remodeling? Do you have umbrella insurance to protect you? Long term care and burial costs? Do you want to leave something to your kids? Things to think about.

I would have the same health care in retirement that I have now and have factored in my contribution to that and annual max out-of-pocket expenses. About $35,000 is factored in annually for major purchases -- not that we'd necessarily spend that every year. No to umbrella insurance and LTC insurance. Burial costs covered. Leaving something to kids would be great but doesn't need to be a fortune.

 

[Dtail]

Played around with Firecalc a bit with your numbers. Hard to do, as your situation doesn't fit totally into all the Firecalc inputs, but roughly received about a 83% success rate.
Not sure I would go yet.

 

[WasToldThereWouldBeNoMath]

Played around with Firecalc a bit with your numbers. Hard to do, as your situation doesn't fit totally into all the Firecalc inputs, but roughly received about a 83% success rate.
Not sure I would go yet.

I messed with it some, too, although I wasn't exactly sure which type of output to choose.

Factoring in $20,000 to $30,000 of part-time income and an expected inheritance of unknown value (say $100,00, conservatively) are also part of what I'm playing with. It helps, of course, but not sure it helps enough.

 

[WyomingLife]

A few years of ACTUAL expenses will bring your planning into focus. Good luck and welcome.

+1

OP, do you have data on your expenses for the past year or two, or more?

 

[Gumby]

You might want to work your way through these questions to help clarify your thinking. http://www.early-retirement.org/for...-answer-before-asking-can-i-retire-69999.html

 

[pb4uski]

I played with FIRECalc too. Put in your $53k pension starting in 2020 and $25k off-chart spending starting in 2030 for the expiry of the SS supplement... $25k of SS starting in 2030 and $12.5k for DW. $125k spending, $1,490k portfolio and 45 year time horizon. Added $24k to portfolio in 2024 to capture DW's retirement savings for 52-60. Couldn't fine a good way to factor in DW income.

With default expenses (CPI) the success rate is 54.8%... but if I change expenses to $125k for first 8 years, $115k for next 10 years and $110k thereafter (using Manual Entry of Spending Changes... you need to become a supporter to use this feature)... the sucess rate increases to 69.2%.

However, if I chose Bernicke's Reality Retirement Plan success rate increases to 99%!

Ty Bernicke's Reality Retirement Planning: A New Paradigm for an Old Science describes extensive research showing that most people see significant reductions in spending with age (not related to reduced assets or income). If selected, this option will reduce your inflation-adjusted yearly spending by 2-3% per year starting at age 56, and then stabilizing at age 76 to keep up with inflation. You should read his article for details if you plan to use this option.

So as others have suggested I would drill down and do some analysis on spending in 2019 and 2018 to get a better handle on what you really need. Given your SS amounts I would think it would be substantially less than $125k... but YMMV.

What you might do is design a spending number based on what you need to live including car replacement, etc... and then figure out what you want for travel, etc and then refuce your $1,490k portfolio for the total allocated for travel, etc.

ETA: If I reduce expenses by $20k... so $105k for first 8 years, $95k for next 10 years and $85k thereafter.... success rate increases to 97.1%!! So refine your spending estimate and retiring at 52 might be a realistic possibility.

 

[WyomingLife]

I would have the same health care in retirement that I have now and have factored in my contribution to that and annual max out-of-pocket expenses. About $35,000 is factored in annually for major purchases -- not that we'd necessarily spend that every year. No to umbrella insurance and LTC insurance. Burial costs covered. Leaving something to kids would be great but doesn't need to be a fortune.

Sorry for this follow-up post. I have just now reread OP’s posts. A question and a comment:

OP: When you say above continuation of current contribution to your HC, what do you mean? Are you currently on an ACA plan?

Comment: It looks like your budgeting may be quite conservative. Do folks generally assume max OOP for HC for every year in retirement? I guess that is the conservatively appropriately thing to do. In reality though, we have never hit max OOP for multiple years running — and neither DW nor I are models of excellent health. I have tended to budget around HC premiums only. Now I am fretting that our own budget is inadequate. I’d love to see some published statistics on OOP.

 

[aaronc879]

I would retire immediately if I had your retirement income/savings. You may need to reduce your spending expectations a little but that is very doable.

 

[jollystomper]

I would not do it. It would be to close for me... as mentioned above I would get a better handle on expenses and include taxes as an expense. An AA of 75/25 at the level of assets you have I would see as too risky, but that is more emotion than logic. I waited until various calculators and Megacorp financial planners gave me near 100% success, and even then I built an additional buffer.

 

[WasToldThereWouldBeNoMath]

+1

OP, do you have data on your expenses for the past year or two, or more?

I do...$87 to $89K the last two years for food, gas, utilities, property taxes, miscellaneous expenses...everything. That, of course, doesn't include something like a car replacement or other major expense.

 

[WasToldThereWouldBeNoMath]

Sorry for this follow-up post. I have just now reread OP’s posts. A question and a comment:

OP: When you say above continuation of current contribution to your HC, what do you mean? Are you currently on an ACA plan?

Comment: It looks like your budgeting may be quite conservative. Do folks generally assume max OOP for HC for every year in retirement? I guess that is the conservatively appropriately thing to do. In reality though, we have never hit max OOP for multiple years running — and neither DW nor I are models of excellent health. I have tended to budget around HC premiums only. Now I am fretting that our own budget is inadequate. I’d love to see some published statistics on OOP.

I have employer-provided HC, but I have to contribute about $3K annually pre-tax. And then there is a max out of pocket of $6K or something like that. I will have exactly the same plan in retirement but the $3K will be post-tax. And once kids are on their own in a few years, that amount will drop.

I budgeted full OOP just to be conservative.

 

[WasToldThereWouldBeNoMath]

You might want to work your way through these questions to help clarify your thinking. http://www.early-retirement.org/for...-answer-before-asking-can-i-retire-69999.html

All good questions and I think I've explored all of them and have good answers for all of them.

I appreciate all of the responses. It's looking like the majority here would not be comfortable taking the risk.

It's probably going to come down to whether I think I can secure some part-time income -- which wouldn't necessarily be a bad thing. I could use a change.

 

[WyomingLife]

I do...$87 to $89K the last two years for food, gas, utilities, property taxes, miscellaneous expenses...everything. That, of course, doesn't include something like a car replacement or other major expense.

Thank you for your follow up responses.

Good for you for tracking expenses, and also forecasting future expenditures conservatively, as I understand it. It seems you are conservatively estimating about $35K/yr in “major expenses” that might be more difficult to predict (home repairs, a new car). I gather you may have taxes in there, too.

I am not a tax expert, but lots of folks here are. I suspect your taxes going forward might be subject to more precise estimation based on draw-downs from specific accounts. They might also be lower.

As to other future expenses such as car replacements, can you draw any comfort from your past practices, then pro-rate dollars annually for that purpose? Say you buy a $40K new car every decade; then you might budget in $4K per year for a new car going forward. Obviously, future expenses like that are not predictable. And it is always wise to have ample cushions and be more conservative.

Your pensions are nice. It sounds like you have a HC solution, too. And DW will continue to work.

If you can focus energy on dialing in your estimates of future costs —- and ideally reduce them, while still leaving a buffer — you at least may get better informed outcomes. Personally, I would be more comfortable focusing on expenditures (over which I have some measure of control, even though some are unpredictable) than potential future incomes that may never happen and over which I have little control (part-time work may not materialize, inheritance may not happen, etc.).

Good luck and Happy New Year. Please keep us posted.

 

[pb4uski]

I do...$87 to $89K the last two years for food, gas, utilities, property taxes, miscellaneous expenses...everything. That, of course, doesn't include something like a car replacement or other major expense.

So your actual living expenses are say $90k of discussion purposes and add in $10k a year towards replacement type items... so a total of $100k a year.

I did find a rather crude way to include your DWs income by reducing spending for the first 8 years by $20k a year... so if I use $80k of expenses for the first 8 years ($100k spending less $20k DW income) and $100k thereafter you are at 98.1% success. IOW, before any travel, etc you are a-ok.

Now, if I add $10k a year to the first 8 years for travel, etc..... so that is spending of $90k a year for the first 8 years ($100k living expenses + $10k fun less $20k DW net pay) and $100k a year of living expenses thereafter... the success rate is 95.2%.

Conclusion: you are close if you are realistic about your spending.

Become a FIRECalc supporter and play with the manual entry of spending changes.

 

[athena53]

I have employer-provided HC, but I have to contribute about $3K annually pre-tax. And then there is a max out of pocket of $6K or something like that. I will have exactly the same plan in retirement but the $3K will be post-tax. And once kids are on their own in a few years, that amount will drop.

I budgeted full OOP just to be conservative.

Does your employer have the ability to change that or are they bound by a contract such as a union agreement? My brother retired with full health insurance benefits. Then they got a letter stating that as of 1/1/2018 there would be no more retiree health insurance. Period. He and DSIL are paying over $20K/year for a high-deductible plan. They're not eligible for Medicare for another year. A previous employer of mine was a little more considerate: at one point they froze their contribution to retiree health insurance so the retirees bore the impact of future premium increases.

 

[RxMan]

It seems you are either really close to reaching the number you need or already there depending on your annual spending. It comes down to comfort level and personal preference.

If you decide to retire now would you be comfortable cutting back expenses if a downturn in the market arrives? If not I’d consider working at least a little longer to give yourself the extra net worth.

 

[WasToldThereWouldBeNoMath]

Does your employer have the ability to change that or are they bound by a contract such as a union agreement? My brother retired with full health insurance benefits. Then they got a letter stating that as of 1/1/2018 there would be no more retiree health insurance. Period. He and DSIL are paying over $20K/year for a high-deductible plan. They're not eligible for Medicare for another year. A previous employer of mine was a little more considerate: at one point they froze their contribution to retiree health insurance so the retirees bore the impact of future premium increases.

That would be a highly unfortunate turn of events. I am grandfathered in to HC through retirement. Recent employees at this MegaCorp don't have it. Now, could they pull it at some point? I'm not 100% sure but would consider it unlikely.

 

[WasToldThereWouldBeNoMath]

It seems you are either really close to reaching the number you need or already there depending on your annual spending. It comes down to comfort level and personal preference.

If you decide to retire now would you be comfortable cutting back expenses if a downturn in the market arrives? If not I’d consider working at least a little longer to give yourself the extra net worth.

Yes, certainly that amount above expenses could be cut back if needed. It is a little harrowing considering an ER when the bull market has been running for so long. You have to think Mr. Bear will show up at some point here. Possibly a big nasty bear.

 

[WasToldThereWouldBeNoMath]

Become a FIRECalc supporter and play with the manual entry of spending changes.

I did this yesterday and adjusted annual spending to be more real-life as far as when we'd replace a vehicle, etc. So basically, a spike every three years or so in spending with still at least $10K over expenses in other years. Getting low- to mid-90% now from the tool.

 

[HI Bill]

Getting low- to mid-90% now from the tool.

Getting close! Most here strive for 100%, and a large percentage (but in the minority, I'm guessing) would be happy with 95%. You are very close, and it you have a reasonable AA, then you should be fine, assuming you'll be a little flexible with your spenidng in down market years, and your budget is nailed down.


FWIW, I went to 100% on FC, even with nearly 50% of the annual budget being discretionary. Once I RE, I want never to have to consider going back to work, or hopefully, even reducing the standard of living.

Best wishes!