Retiring into an Up Market

[wsm58]

Hello everyone. This is my first post, so here I go...

I'm turning 58 in April, and I've switched my job to part-time this year in order to help my elderly parents and spend more time on 2 nonprofits that I'm very devoted to. I'm am planning on phasing out from the 'real job' completely in another year or so. I have just over $3.1MM in combined taxable and tax-deferred accounts, $700,000 of rental properties (producing around $25,000 per year after expenses and income taxes). I also have another $900,000 in home and timber property (which requires a long long time between paydays). I also receive rapidly-declining mineral royalties which should net another $300k over the next 2 years, but not much afterward.

By 12/31/17 (absent a big market correction), I should have $3.4MM in securities.

I'm single, and my expenses (net of taxes) are $8,000 per month, or $96,000 per year.

I have two daughters, who will someday have families, and I'd like to leave money for them after I'm gone.

At 58, I'm not about to count on a 4% SRW, and with the market this incredibly high, I wonder if a 3% rate or even 2% is safe. After subtracting after-tax rent income, I need a 2.7% SWR to cover my expenses.

Is 2.7% a reasonable rate for someone who's 58 and single, in a market with a CAPE of 27 or 28?

Thanks in advance for what I know will be wise counsel!

 

[exnavynuke]

Well, I'd say a 3-4% rate should be relatively conservative based on your age regardless of the current market CAPE. It also seems you're not counting all assets/income streams towards your withdrawal rate apparently ($3.4 by the end of this year plus some unknown timber paydays plus another $300k over the next two years plus you probably will also supplement your investment income with SS at some point).

I imagine that every calculator out there (Firecalc, ********, etc) is also saying that you have a 100% chance of success based on all historic data available.

 

[pb4uski]

The way I figure it... not sure what your AA is but let's say it is 80/20 and the market takes a 20% hit... you'll still have $2.85 million and a need of $71k from your portfolio... which is only a 2.5% WR.

($96-$25)/[$3,400-($3,400*80%*20%)] = 2.5%

Plus, you are ignoring SS and I'm assuming that $96k of spending for a single person in Shreveport has some redundancy in it that could be trimmed if needed.

 

[nash031]

Generally, 4%+COLA would've been safe for 30 years in any market condition previously experienced. Unless you want to plan for something worse than the Great Depression, I'd say 2.7% is extremely conservative. I think Trinity's even been back-tested successfully for the Great Recession in 2011.

Seems like we see a lot of questions about "retiring into an up market", yet most simulators and "rules" already account for market conditions short of retiring into the zombie apocalypse. In other words, the various historic scenarios where the market was inflated are accounted for when you get a 100% or 98% or 75% success rate. If FIRECalc is telling you 100%, then only a situation worse than anything in 100+ years of market history will derail you.

In your shoes, I wouldn't worry one bit about the market. You said you've got ~$300,000 in additional income which can help you absorb a crash for the next three years. What are you waiting for?

 

[DrRoy]

I agree that 4% WR may not be prudent for RE's in the current market environment. Your situation and the 2.7% seem reasonable.

 

[Bamaman]

You're fixed. It's easy to over analyze any situation, however you are in great shape.

Unless you have a reason to stay around work, go ahead and hang it up. There's so much life to live, places to go and friends to see. Life is short and the clock's ticking--even though you're still young.

 

[wsm58]

Thanks for the thoughtful responses everyone. It's extremely helpful to get input from people who are contemplating the same issues.

 

[Aerides]

Pretty much anyone retiring for the past 6 years has been doing so in the current bull market. Yes, I do agree since November it's been even crazier.

One thing we have in our plan is to keep 3 years of expenses separate. I call it ride-out-the-next-recession money. Then, if there is a 20% drop in the market, doesn't really matter as we ride out the storm on the 3-year stuff, maybe also drop some expenses during that time if it's 2008 again. Point being never having to WD from the egg during a downturn (assuming 3 years is a reasonable window to come out the other side).

You look like you're in great shape. While 4% is mostly debunked, a 3% range should be very comfortable, plus you are not terribly far from medicare/SS so your risk is lower than say, retiring at 48.

 

[RockyMtn]

Given the choice I would certainly rather retire in an up market than a down one!

 

[Sunset]

Given the choice I would certainly rather retire in an up market than a down one!

Not me.
If I had enough to retire in a down market, then as it rose I'd end up with more than I started with.
This exact situation has happened to other folks on this forum who have expressed after about 9 years of retirement they are richer than they started.