Thinking of retiring and scared

[redcfool]

Hi,

I want to retire - yesterday. I am 61. I have 1.2m in 401k, savings etc. About 65/35 stocks/bonds. FireCalc shows I can withdraw 70k/year with 100% success. This is more than I need for expenses. I am really afraid of giving up 125K/yr salary. I am afraid savings will fall as fast as they rose.

My questions are: how trustworthy is the calculation provided by FireCalc? Is a financial advisor at .75 - 1 % worth it? How has your experience been giving up steady income for probable income? Any advice on withdrawal strategies? For example, should I sell stock I am overweight on and keep household income below 80k to avoid capital gains? They have been high performers and are expected to continue to be so. Or sell bonds and rebalance stock funds to bond funds?

I know... lots of questions. My mind has been spinning for months. Appreciate any thoughts.

 

[street]

I really want to help you but not an expert, but there will be people here that can give you science advise.

I will say a few things and one is I wouldn't consider selling any of your investments. If at all possible let them grow and ride the market if at all possible.

One thing you might want to work till 62 then take SS at that time. Get to know the ACA health insurance do's and don'ts for an option for health care. Just a few things for thought.

 

[Ronstar]

how trustworthy is the calculation provided by FireCalc?

don’t know for sure but have ever seen anyone on the forum claim that FireCalc was not trustworthy.

Is a financial advisor at .75 - 1 % worth it?

it is for those uncomfortable with investing on their own, but informed investors can achieve gains similar or better than those of FA’s

How has your experience been giving up steady income for probable income?

fine. I made a retirement spending plan before I retired, and I stuck to the plan when I retired.

Any advice on withdrawal strategies? For example, should I sell stock I am overweight on and keep household income below 80k to avoid capital gains? They have been high performers and are expected to continue to be so. Or sell bonds and rebalance stock funds to bond funds?

I would gradually sell individual stocks and buy a mix of stock and bond funds that meet your AA requirements. Gradually over several years to minimize tax.

 

[braumeister]

I want to retire - yesterday. I am 61. I have 1.2m in 401k, savings etc. About 65/35 stocks/bonds. FireCalc shows I can withdraw 70k/year with 100% success.

That's not possible, so you're doing something wrong. Please take a few minutes and read the instructions in FIRECalc. Used properly, it will give you realistic results.

 

[H2ODude]

We're all different in how we accept risk. I would think you'd be fine with what you've given us but if you're uncomfortable (which you say you are) about pulling the plug I would not recommend it. I went way beyond what I needed but it suited my personal comfort level. After almost ten years, yeah, I can look back and say I could have gone earlier but I'm happy with things as they are. If you decide to stand pat for now, take great comfort in knowing that if any time you care to you can pull the cord. Just because you can doesn't mean you have to. Try to find something to divert your attention from whatever bugs you about employment if you have to. Good luck.

 

[RetireBy90]

I would say that if your scared that is an indicator that you are on the right path. Lots of unknowns as in life generally. There will be times that you need to adapt to changes and seems the older I get the less I like change. I can still change just don't like it much. I would also say that $70K sounds a bit high for withdraws from a 1.2M fund. That is close to 6% and conventional wisdom is 4% or less. If you ahve other income sources (SS or pension) and plan to use those as part of the $70K that would change the math.

 

[H2ODude]

Goops. Braumeister is correct, I misread the OP as having overall income (SS, pension) of $70k, not just investment gains.

 

[Lewis Clark]

How sure are you of your expenses? Are you including lumpy expenses such as new vehicles, home maintenance, and so on? Income taxes? Health care in retirement?

How much of your expenses are discretionary and could easily be cut, if necessary?

If you have little safety margin between projected income and essential expenses, it may be worth working longer and increasing the safety margin to reduce the fear.

Have you considered looking for a different job that might be less onerous? Even if you make less money, having some income may reduce the fear of giving up the good paying job you have now.

 

[Time2]

Goops. Braumeister is correct, I misread the OP as having overall income (SS, pension) of $70k, not just investment gains.

Ya, did you not tell us that you were including SS or any pension?
With a $70k withdrawal you would need $1.8M to have a 97% success rate over 30 years using Firecalc,

 

[pb4uski]

Hi,

I want to retire - yesterday. I am 61. I have 1.2m in 401k, savings etc. About 65/35 stocks/bonds. FireCalc shows I can withdraw 70k/year with 100% success. ...

That's not possible, so you're doing something wrong. Please take a few minutes and read the instructions in FIRECalc. Used properly, it will give you realistic results.

braumeister, I get your reaction, but I wonder if the OP mispharased it and the $70k is really spending and not withdrawals... I say that only because FIRECalc doesn't show withdrawals that I know of but only shows spending (other than if you dive into the weeds of the spreadsheet output and I doubt that the OP did that).

My suspicion is that the $70k is spending and is a combination of SS and withdrawals from the $1.2m portfolio.

If the OP earns $125k then I would think that SS should be sufficient to get 100% success when combined with a $1.2m portfolio.

OP needs to clarify.

 

[pjigar]

First off, past performance is not a guarantee of future returns so use any simulator/ calculator as a guide. Second, you don't need FA unless you can't control your emotions when market tanks. You can't sustain $70K with $1.2M portfolio unless you have other sources of income. You need to double check firecalc inputs. There is no magic bullet to retirement: Either reduce your spending or increase your nest egg.

 

[pb4uski]

Hi,

I want to retire - yesterday. I am 61. I have 1.2m in 401k, savings etc. About 65/35 stocks/bonds. FireCalc shows I can withdraw 70k/year with 100% success. This is more than I need for expenses. I am really afraid of giving up 125K/yr salary. I am afraid savings will fall as fast as they rose.

My questions are: how trustworthy is the calculation provided by FireCalc? Is a financial advisor at .75 - 1 % worth it? How has your experience been giving up steady income for probable income? Any advice on withdrawal strategies? For example, should I sell stock I am overweight on and keep household income below 80k to avoid capital gains? They have been high performers and are expected to continue to be so. Or sell bonds and rebalance stock funds to bond funds?

I know... lots of questions. My mind has been spinning for months. Appreciate any thoughts.

OP, your trepediation is common. We are creatures of habit and change is hard and retiring and giving up that large, steady paycheck is a huge life change.

FIRECalc's calculations are very trustworthy. However, to put you mind at ease I suggest that you run your situation through the numerous other free retirement calculators available. When I was deciding to retire, I ran numerous calculators and they all gave me different versions of a green light. Or here is another calculation that you can do. How much is your SS and at what starting age? Multiply your SS times the gap between when you retire and when you start SS. Subtract that result from your $1.2m. Multiply that result by 3.8%. Add your annual SS to that result. That gives you roughtly the amount that you can safely spend each year.

So for example, if your SS is $30k a year and you plan to claim at 67 you have 6 years until SS starts so your "SS side fund" would be $180k. The remainder of your nestegg would be $1,020k and at a 3.8% WR that would be $39k a year of safe withdrawals. The $39k of safe withdrawals plus $30k SS (first 6 years from the side fund) would be $69k of safe, inflation-adjusted spending.

My view is that for the vast majority of people that FAs are not worth their fees and most people are better off to DIY.

On withdrawal strategies, we need more information on how much of your $1.2m is in taxable accounts (brokerage accounts, savings accounts, etc.), tax-deferred accounts (traditional IRAs, 401(k)s, 403(b)s etc.) and tax-free accounts (Roth IRAs and HSAs) to give you sensible advice.

 

[njhowie]

You probably don't realize it, but you likely have a fair amount of expenses just with having that $125k/year job. Take out taxes and deductions and where are you starting - maybe $75k to $85k?. I will guess that in that, there's probably a good $5k to $10k in ancillary expenses that you pay out during the year and don't even realize. Further, you likely have a fair amount of normal expenses that are really higher than they need be. You don't check in to it and how you might lower them because they are not budget busters when you have the constant cash flow of a good salary coming in. There's probably a good $3k to $5k in annual expenses you could likely squeeze out simply by reviewing your monthly expenses - cellphone, cable, landline, subscriptions, insurance, etc. There are many that you carry which you really can reduce or eliminate.

Don't get yourself scared about retiring. Look at it as the reward for all the years of working and saving that is making it possible.

 

[redcfool]

Hi, thank you all for your responses. Yes, the 70k includes future SS.

 

[Midpack]

Respectfully, with those questions, you’re probably not ready to retire.

My questions are: how trustworthy is the calculation provided by FireCalc? Assuming you enter valid inputs, it’s 100% trustworthy. FIRECALC tells you how your retirement portfolio would have done from 1871 through 2019 using actual returns, inflation, etc. FIRECALC does not predict the future or anything else, no one can - you have to decide what you’re comfortable with. Did you read the first page?

Is a financial advisor at .75 - 1 % worth it? It’s a total waste of money for some, and money well spent for others. Depends entirely on your ability, risk tolerance, spending needs, etc. Successful investing takes some skill, and lots of discipline. Many people with the necessary skills are their own worst enemies when the inevitable corrections occur - they panic and sell when they should do nothing, and then miss the run up that eventually follows. That will kill your investing results. We can’t know how you’ll fare, you may not know yourself yet.

How has your experience been giving up steady income for probable income? We’ve done very well over our first 9 years, but markets have done well during the past 9 years, it hasn’t been hard to do well. And we have another 25-30 years to go. You can’t know if your plan was successful until the end...you can only know the probability of success before then, barring unprecedented geopolitical disasters and the like.

Any advice on withdrawal strategies? For example, should I sell stock I am overweight on and keep household income below 80k to avoid capital gains? They have been high performers and are expected to continue to be so. Or sell bonds and rebalance stock funds to bond funds? Sounds like you might benefit from an advisor, or some significant self education. There’s no universal answer to such a question.

I know... lots of questions. My mind has been spinning for months. Appreciate any thoughts.

 

[Sirka]

I will say a few things and one is I wouldn't consider selling any of your investments. If at all possible let them grow and ride the market if at all possible.

One thing you might want to work till 62 then take SS at that time. Get to know the ACA health insurance do's and don'ts for an option for health care. Just a few things for thought.

+1
We took SS at 62. It helped me with no steady income worries since the 0 interest rates are killing the old idea of 'live off interest'. Most of our basic expense is covered now.

Health insurance is an other story, I hope you have that covered until 65.

Having the house paid off was very important. No need to generate income to make mortgage payments. I love divided stocks to help with cashflow, but we lived through a period when companies were required to cut dividends to nothing! BP, BAC ...

Do it and enjoy [emoji41]

 

[viking111]

Hi,

I want to retire - yesterday. I am 61. I have 1.2m in 401k, savings etc. About 65/35 stocks/bonds. FireCalc shows I can withdraw 70k/year with 100% success. This is more than I need for expenses. I am really afraid of giving up 125K/yr salary. I am afraid savings will fall as fast as they rose.

My questions are: how trustworthy is the calculation provided by FireCalc? Is a financial advisor at .75 - 1 % worth it? How has your experience been giving up steady income for probable income? Any advice on withdrawal strategies? For example, should I sell stock I am overweight on and keep household income below 80k to avoid capital gains? They have been high performers and are expected to continue to be so. Or sell bonds and rebalance stock funds to bond funds?

I know... lots of questions. My mind has been spinning for months. Appreciate any thoughts.

It's good to be scared.
Based on what you wrote it seems to me you need to do some reading and learning about investing. Bogleheads forum is a good start. A good book is the bogleheads guide to investing.

Even if you get a financial advisor, you should still be able to understand the language and talk the talk so you understand what they are telling you and perhaps not telling you. You will be able to ask questions and know what questions to ask.

You can get a financial advisor to set up a plan for you for a low one time fee. You can pay one to manage you funds for a flat annual fee not an AUM (assets under management % fee).

There are many that will charge 2 - 5 thousand per year to do this. Much less than a percentage.

You can have vanguard do it for a low fee.

I personally like Planvision. I don't own it or advertise for them and I have used them. I'm saying it from personal experience.

You mentioned you are 61 years old. So by 65 you may have around 1.5 million. If you are scared now will you be scared at 65 or 70?

I'm still learning and have the same fears. So I read and ask many questions.

 

[Taxman59]

That's not possible, so you're doing something wrong. Please take a few minutes and read the instructions in FIRECalc. Used properly, it will give you realistic results.

I could be that the SSI and pension allow the OP to SPEND $70k. the withdrawal would be lower as the expenses would be covered by the other income sources.

 

[Blue531]

It's really difficult psychologically to go from receiving a paycheck to relying upon your own resources. Most of us here, I presume, have been through it. It took me 2-3 years to give up the check and go into full retirement. I couldn't do it "cold turkey" so I did it in steps, first cutting my hours from 40 to 32. Then after awhile, I cut down to 20 hours a week. And I only made 30k. I can only imagine the fear if I was used to making 125k. It took time to process. I had no doubt I wanted to retire, but it's a huge switch-a-roo. Spend most of your life saving and investing and the thought of withdrawing down without a paycheck is overwhelming at first. I weaned myself down off my paycheck, dealt with my fear by telling myself how resourceful I had been to get this far and reminded myself that I may only have 10-25+ years to live. Did I really want to spend it working and/or in fear of what might or might not happen? I wish you the best in your process Redcfool.

 

[Rksolid]

My company is closing end of 2021, several of us have chose to retire early. One co worker is 53 he used the FIRE calc but didn't believe the results, he went to his financial rep and questioned the results. His rep informed him the numbers were correct and would be able to retire. I'm 55 and plan on retiring but I also worry, I make 130k a year been saving for retirement for 33 years now the thought on not working and spending my savings is scary, I'm sure everyone who retires has the same feeling.

 

[pb4uski]

...and spending my savings is scary ....

I understand... but did you save that money to spend in your retirement or to hoard it?

 

[Markola]

You can get a financial advisor to set up a plan for you for a low one time fee. You can pay one to manage you funds for a flat annual fee not an AUM (assets under management % fee).

This is what I’d do. Google “Fee-only Financial Planner” and get a comprehensive baseline plan together. Then shop around for how to execute it, whether:

1). Doing it yourself if you wish, with education.
2) Doing it yourself but with annual fee-only tuneup meetings with your fee-only advisor.
3) Turn control of your money over to a financial planner (Assets Under Management or AUM). However, do not pay .75 - 1%. That is way too much. DW and I have a dedicated planner at Vanguard who does it for us and we pay .30%.

Also, breathe. You are a millionaire and that means you have a very long runway to study options, get your sustainable plan together, and make decisions while less influenced by emotions, as you are right now.

Finally, there is a habitual reflex on this board that one should only spend 4% or less per year. However, that math changes considerably when SS is factored in by the calculators. SS is on your horizon sooner, so I am not surprised you got feedback that you can spend 6% or so sustainably. Good luck!

 

[braumeister]

This is what I’d do. Google “Fee-only Financial Planner” and get a comprehensive baseline plan together.

And be aware that the definition matters. "Fee-only" is definitely not the same as "Fee-based", which often means an AUM percentage.

 

[street]

I think a lot of financial savers could be called hoarders/greedy of their money saving ways. I would have to agree that it isn't easy to start to draw down the money you worked so hard to get.

 

[EastWest Gal]

Hi,

I want to retire - yesterday. I am 61. I have 1.2m in 401k, savings etc. About 65/35 stocks/bonds. FireCalc shows I can withdraw 70k/year with 100% success. This is more than I need for expenses. I am really afraid of giving up 125K/yr salary. I am afraid savings will fall as fast as they rose.

My questions are: how trustworthy is the calculation provided by FireCalc? Is a financial advisor at .75 - 1 % worth it? How has your experience been giving up steady income for probable income? Any advice on withdrawal strategies? For example, should I sell stock I am overweight on and keep household income below 80k to avoid capital gains? They have been high performers and are expected to continue to be so. Or sell bonds and rebalance stock funds to bond funds?

I know... lots of questions. My mind has been spinning for months. Appreciate any thoughts.

I understand the head spinning. Retirement is the most major change in your life outside of starting kindergarten. And this one you control. Savor it, embrace it.

Your question about minimizing capital gains does not matter if you are taking out of a 401K or and IRA. All dollars taken out are taxed as wages. The goal is different if you have after tax dollars invested.

If you are relying on the 401K and SS, don't use an advisor that charges AUM. You don't need that. A fee-only advisor will do. If you have after tax investments, it gets more complicated.

My FA charges 0.37% AUM. I sent you a PM regarding this. They are Boglehead alums. Every conversation we have with them is a learning experience for both. But if your assets are mostly pre-tax, an AUM advisor is probably unecessary. A fee-only advisor will do.

My AUM advisor company follows a Bogleheads philosophy; their founder was Rick Ferri, a long time Bogleheads contributor. He started his own fee only company a couple of years ago.

My situation is different from yours in that most of our portfolio is post-tax. With an IRA or a 401K, the goal is to maximize return, minimize risk. Capital gains do not matter in a pre-tax account. You could be best served with a fee-only advisor, and otherwise manage on your own. Asset allocation and paying attention are the key in an after tax environment. And when you are retired, paying attention to your finances is MUCH eeasier.

Be patient with yourself. You haven't had the time or energy to learn about investments. You have spent most of your waking hours w**king. There is a real fog of work. Most of us have experienced the head-spinning wall of knowledge that contemplating retirement entails.