Pushed out and considering staying out...

[ExitLeft]

Hi everyone! This is an amazing resource and I am blown away by how helpful and giving of their time and experiences people contributing here tend to be. So here's my situation, looking for some guidance as I work through the numbers:

I'm 47, SO is 54 and does not earn a wage. We have 2 kids, one in 1st year of college and other is a Junior in High School. We have about $1.8m in cash/equity/bonds, roughly half IRA and half taxable accounts. Our paid off house is worth about $800k. Severance ends in a few months and we'll be on COBRA or other health plan then. I'm figuring another $225k total in tuition over the next five years. I'm estimating that excluding the tuition expenses, we can live on about $75k per year. This should drop over time, but I left it constant in FIREcalc.

FIREcalc indicates a very high likelihood of success if I include the house in my portfolio. We will likely downsize once the kids are done college, so I think this is reasonable, but I am wondering if others include their paid off house when looking at the scenarios or leave it out to be more conservative? (Unfortunately, I don't see an allocation % for real estate on the portfolio page of FIREcalc.) I would also like to know what others think about our success if I went fully ER versus part time or *shudder* back to full time?

 

[SarahW]

Howdy and welcome. I can't speak to how others use FireCalc, but personally I don't include our home's value in our calculations. It is mortgage free and we will likely stay here, so obviously we won't realize the value unless the house is sold. Good luck to you.

 

[Meadbh]

Welcome to the forum!

I'm 47, SO is 54 and does not work.

I'm sure SO works very hard as CEO of the household; she just doesn't earn a wage for it.

Regarding the house, of course it is included in your Net Worth. But even if you downsize, you have to live somewhere. So it would be unrealistic to include the total value of your house in your retirement portfolio. Most people do the calculations on investable assets; that is, assets that make money for you. This can include rental real estate but not your home. Your home is a lifestyle expense, not a profit centre.

 

[ExitLeft]

Meadbh, that's embarrassing and unintentional. Thanks for the correction!

SarahW and Meadbh, Thanks for the thoughts on the house calculation.

 

[Meadbh]

Meadbh, that's embarrassing and unintentional. Thanks for the correction!

SarahW and Meadbh, Thanks for the thoughts on the house calculation.

No problem. Millions of SAHMs thank you.

 

[SarahW]

No problem. Millions of SAHMs thank you.

In this day and age, I wasn't sure the "SO" is a female, let alone a "SAHM." I never assume anything anymore.

 

[TallTim]

To the OP - I think you've gotten your answer on the house ... if you plan (truly) to sell it and realize value, then you can have that amount added to your portfolio in the appropriate year in the FIRECalc portfolio tab. Might be wise to run it both ways, so you know *for sure* whether you have to sell or not.

As far as time horizon, it's what everyone else says all the time:
How sure are you about your expenses?
With some fudge factor, what is your estimated SWR and do you feel comfortable with that?
How much % chance of failure do you like to accept, recognizing that FIRECalc is just a model?

Finally, read (if you haven't) Gumby's thread and answer the Qs: http://www.early-retirement.org/for...-answer-before-asking-can-i-retire-69999.html

It's different looking at it from 'We're really done' vs. "I'm living off my severance for a while and will go back ..."

 

[youbet]

No problem. Millions of SAHMs thank you.

As do millions of SAHHs!

 

[TimSF]

One of the alternatives I run thru Firecalc assumes I will take out a reverse mortgage on my paid off house when I am 62. This way I can use some of the equity and appli it to ER scenarios. This usually boosts my Firecalc success percentage by 5% or more.

 

[KiraC]

Welcome!

Have you considered ways to make your money work for you so you could possibly earn enough from it each year so you are not drawing down your overall total?

My plan is to generate enough each year through my trading activities and investments so when we do draw down, the percent is minimal.

Good luck!

 

[ExitLeft]

Admittedly, going in I did not have a strong grasp on our expenses. But I've done a pretty thorough analysis of the prior year and the current bills and even looked at the extensive survey data at the bureau of labor statistics (Consumer Expenditure Survey).

I've calculated that our "basic needs" expenses (excluding food and education) are ~$29k per year. This includes utilities, insurance (health, car, umbrella), property tax, HOA, cell phone, video/voice/data at home (FiOS and Netflix), pharmacy, other medical, and pet food/vet bills.

The harder estimate for me is Food/HH supplies, which was 30% of our spending in 2013 versus 20% of spending in the BLS data, and more than double what every other group reported as spending annually. Hopefully, there's some "low hanging fruit" there (pardon the pun), but we will have to see. Clothing was also well above the averages for us, so that should be adjustable. Unfortunately, I realize that this is going to take adjustments on our part and we are in the early days of that. I've been working with YNAB software to help us be more diligent about spending and knowing where everything is going. But to be honest, I was surprised how "out of whack" we were in these basic categories relative to the norm and that has increased my anxiety level with making this successful. At a budgeted $75k in expenses per year (ex-education), we are well above the BLS spending norms (backing out mortgage and pension spending of others to make it apples-to-apples), so given our minimum of $29.4k and the budget, I think we should be well able to make the adjustments to make it work.

 

[H2ODude]

I'm always skeptical of "norms" whether it's expenditures or incomes. We're all very different and have different priorities. That's why I strongly recommend anyone within, say, 5 years of retirement or who is subject to a sudden forced one, to do a pretty good accounting of where the money goes. We have for 10-15 years so can take that information and apply factors as to what might go up fast, what could leave. We find ourselves taking care of three dogs right now, one elderly we took from daughter when moved overseas. If you total all the pet costs including boarding when we travel, it's about $7k a year. NOT norm I would think. We're paying ~$13k a year for HI and had some unusual expense in 2013; totaled almost $18k for medical; woohoo! got some tax deduction. Hope that won't repeat.

Given a good categorization year to year (we use Quicken) you can assess these ups and downs and what applies to your situation so as to more confidently project the future. More confidently, but certainly not with certainty!! Good luck!

 

[wingfooted]

I'm 47, SO is 54 and does not earn a wage. We have 2 kids.....

I would also like to know what others think about our success if I went fully ER versus part time or *shudder* back to full time?

IMO

1. At $1.8MM including house and taxable accounts - You don't have enough to FIRE.
2. At 47 - You are too young to FIRE.

One door closes, another opens. Find the door

 

[growing_older]

I do NOT include home equity of the paid off house in FIRE calculations for 2 reasons. #1 I still have to live somewhere. At best if I downsize, a considerable portion of the equity is going to transaction costs, buying a new place and getting it set up to my satisfaction. #2 scenarios which require downsizing or reverse mortgage indicate something in my plan went awry. I want to have reserves available in the form of home equity to rescue myself from whatever oversight in the plan got me into this mess.

Also, I strongly distrust my forensic ability to determine spending in retrospect. I have done that exercise then compared to actual spending when I keep records contemporaneously. There always seem to be unusual expenses or months that don't conform to my old records and actual expenses are higher than what I retroactively calculated. I'll only be comfortable with a plan that covers my spending from actual measurements.

In the darker moments at work when I realize that I'm not actually FI yet, I do also remember that I'm close enough that a few years of almost any modest income will be enough to get me there, so there are plenty of plan B possibilities. If I don't want to keep my current job (or cannot due to circumstances beyond my control) then I can do most anything for perhaps a little longer and still get to a secure FI. You might consider that you have many options if something like that happens to you.

 

[Cooked]

From a 50,000 foot standpoint, I would say that you look ok. That said, I would focus on your expenses. This is very important.
All MBAs are taught that you get what you measure. MBAs measure, then they cut. I would not suggest laying off your kids.
Once you start measuring then you can quickly find where to cut and where to spend. We started measuring our spending in 2000 and 2001 and 2002. It took us three years to get a system that worked for us. Now we know where the levers are and we can budget ongoing expenses, occasional expenses and we are prepared for unexpected expenses.
Bottom line is: start a measurement program and look at it each month. If 75k is your normal (base) case then either cut spending or go back to work. The finding work process will hone your spending skills. If you convince yourself (with data) that 29k is your true base case then just measure and...live.

happy hunting

 

[MichaelB]

Admittedly, going in I did not have a strong grasp on our expenses. But I've done a pretty thorough analysis of the prior year and the current bills and even looked at the extensive survey data at the bureau of labor statistics (Consumer Expenditure Survey).

Welcome to the forum, ExitLeft.

The BLS data is fascinating to look over but I'm not sure it is helpful to a specific situation. Instead of trying to understand how you compare to some averages, why not make an effort to understand exactly how much your individual needs are? Here are a few questions that you may find helpful. http://www.early-retirement.org/for...re-asking-can-i-retire-69999.html#post1399715

 

[2B]

In this day and age, I wasn't sure the "SO" is a female, let alone a "SAHM." I never assume anything anymore.

Very true. We're friends with a couple where he was a stay at home dad and then got to enjoy his hobbies while his DW was a senior VP at a major oil company. I was so funny to watch the role reversals between them and us. They were building a monster house and I got to listen to him anguish over the flooring and color schemes. His DW was too busy to worry about it.

 

[ExitLeft]

IMO

1. At $1.8MM including house and taxable accounts - You don't have enough to FIRE.

$1.8m does not include the house, which could be worth about ~$850k and is paid off.

 

[ExitLeft]

Instead of trying to understand how you compare to some averages, why not make an effort to understand exactly how much your individual needs are?

Fortunately, we use one credit card almost exclusively, for the cash back rewards. This made it easier for me to download the transactions and cut the data, which is how I arrived at my analysis of the high level categories I mentioned, with food and household supplies being $25k in spending last year. But I can't go deeper and see why it was so high without the actual receipts. So I am being more diligent now. The BLS data is what it is and I use it as a baseline 'sanity check.'

 

[MikeWillRetire]

We have similar circumstances. Our food, restaurant, and sundries expenses are the same as yours. Crazy, I know. I partially blame it on the two-income lifestyle because we rely on a lot of convenience foods. Remember, these expenses will drop in half or more when the kids fly the coop.

 

[rodi]

Keep in mind a few things:
Firecalc assumes spending includes all income taxes (state/local)

As far as the house - we don't include the value because it's our plan B if we need long term care, or some other need. If you plan to downsize, you can model the NET equity you'll gain by adding it as as a lump sum addition on the portfolio tab of Firecalc.

Have you calculated how retiring at 47 will impact your SS. It might not impact it much if you've been working for most of your adult life.

As others have mentioned - the key is accurately calculating/predicting spending - including taxes. If you reduce your spending, you can make the money last longer.

 

[Ready]

Looking at your expenses of $75K, you would need to withdraw 4.17% of your $1.8M portfolio to get to $75K. However, if your $75K expense estimate is net after taxes, you will need to figure out how much you will need to pull out gross to net $75K.

Based on your young age of 47, you have a long retirement ahead. I would not pull the plug just yet if I needed that large of a percentage of my portfolio to live on. If you want to down size your house your numbers may look a bit more favorable. But most of the members on this forum are pretty conservative, and would probably not want to spend more than 3 or maybe 3.5% each year if they were starting retirement at 47.

I'm also 47, and still working part time BTW. If I was not working part time, I would need about 2% SWR to cover my expenses. But I like not having to think about it just yet, which is why I found part time work to be a good compromise. Might be something to consider if you have that as an option.

 

[obgyn65]

Welcome aboard.

 

[MikeWillRetire]

ExitLeft,
I have a couple of questions. Did you include any Social Security in your Firecalc runs?
You mention $225K college costs. Do you already have that saved outside of your retirement portfolio?

 

[ExitLeft]

Did you include any Social Security in your Firecalc runs?
You mention $225K college costs. Do you already have that saved outside of your retirement portfolio?

Hi MikeWillRetire,
I didn't include SS in the FireCalc and I do have savings outside of those mentioned for college.

To your earlier point about expenses coming down when the kids leave, I think this is very important. Granted, we can't predict what the labor market will look like and if there may be needs beyond their graduation date, but we can say with a high degree of certainty that the spending rate to support four people won't continue throughout our retirement. To that end, I have also built a separate spreadsheet modeling out spending year-by-year and building in SS and various rates of return on investments and real estate appreciation. All the while realizing that a spreadsheet is merely a reflection of one's assumptions. But at least under my current assumptions, it's doable. The biggest fear I have is getting 15 years in and not being able to get a job if things don't go as planned.