2nd set of eyes - how do these #'s look to you?

[sebvad]

Topic Title: Looking to retire early, always helpful to have a second (3rd, 4th..) set of eyes on the data to see if i’m thinking straight or not

Life Situation: Married filing jointly, i’m 46, DW is 44 (and plans to work forever). One child in college (full ride scholarship). US citizen living in US.

Gross Salary/Wages: $168k for me, $88k for DW. Total HH gross = $256k/yr.

Individual amounts of each Pre-tax deductions $18.5k for me, $8k for DW’s 403Bb

Other Ordinary Income: None.

Qualified Dividends & Long Term Capital Gains: None.

Rental Income, Actual Expenses, and Depreciation: No rental properties. Annual expenses are averaging between $60-70k for the past few years.

Current expenses: No real estate expenses except for taxes (approx $7k annually). Total annual expenses are between $60-70k, which do include monies i spend for reimbursable work expenses - approximately $10k. Should i stop working, we’d anticipate our total annual expenses to be in the $60k area, w/o changing our lifestyle at all.

Assets:
Home - $500k - no payment, we own it.
Total retirement funds - $1,040,000
Own 3 vehicles outright
Short term reserves (banks) - $140k cash

Liabilities: None.

Specific Question(s):
For our planning purposes, DW plans to continue to work at her job for at least the next 20 years, with a current annual salary of $88k, of which $8k goes towards her 403b. We are debt free. Our goal is to have a very high level of confidence that we’d generate $100k/year for 30 years, starting drawdown at 65. Our retirement funding will come from:

- Standard retirement funds (401k/403b) - by my math - at a valuation of $1,040,000 today - if i work for another 12 months and we continue to contribute at the rate we have been, assuming a 5% annual return, it’s value should be about $1,125,000 in 12 months. If i stop working at that point, and DW continues funding at 8% of her salary for the next 20 years, assuming a 5% return annual, that should grow to approx $3.3mm USD - giving us $132k/year to live off of at a 4% withdrawal rate. Our 10 year historical average return rate is 11.4%. Using a 25x multiple of our spend - we’d seem to need ~$1.5mm USD at time of retirement to maintain our standard of living. At a $100k spend level (increasing our standard of living in retirement), we’d need $2.5mm USD balance in 401k. If it grows to north of $3mm USD - that feels like we’re in pretty good shape?
- Social Security estimates place us (jointly) receiving ~$50k/year if we start taking at 67. Lets be cautious and say it’s $40k - if we add that to our retirement funds - that takes the annual pretax annual retirement funds to $172k/year ($132k+$40k)
- Pension - I’ll get about $18k/year pension starting at 65. Adding that to the above - that brings us to $190k/year.
- House - we could, of course - sell our house (currently valued at $500k). Not working that into the above figures just because i don’t think we need to….

If i were to stop working 40hours 12 months from today - our annual expenses are ~$60k/year, and we’ve got 20 years before we pull from retirement accounts, DW’s salary should be able to cover our annual expenses until retirement, and we’ve got a healthy cash buffer if we find that there are years where it doesn’t. Her employment will provide our health care should i stop working. DW is a tenured professor - which basically means she has to kill someone to lose her job, and even then it better be one heckuva brutal murder. High confidence in her job stability.

Net/Net - to me - the above all seems to be pointing to me feeling comfortable with walking away from corporate america in 12 months. I’d love it if the ‘wisdom of the crowds here’ would be willing to take a look at the above and see if you’re seeing something that I’m not….

Thanks in advance folks!

 

[gauss]

So do you own a 500k personal home and a 500k rental home?

Did you expenses go down significantly recently?

with your stated level of income/expenses savings and age things seem like they might be a bit out of whack.

If you do indeed own (2) 500k homes free and clear then this would start to make sense.

Sounds like you both will be eligible for SS when you reach the age?

-gauss

 

[sebvad]

Sorry - we only own one property - our primary residence, valued at $500k. No rentals. Annual expenses have consistently been between $60-70k for as long as i've been recording them (10 years?)

 

[ivinsfan]

I'd caution you about the spouse wanting to work forever or in this case 20 years? Stuff happens, illness. divorce, death, too much BS at the spouse's job...resentment of the stay at home spouse.etc. BTW I'd say this to both men and women...

To be completely comfortable I'd continue on in your job until that number will carry you through no matter what. And seems like you don't have the expenses nailed down..Houses require upkeep not just taxes paid.

 

[gauss]

I stopped working ~ 6 years prior to my DW.

Her employer gave her a big pension bump/retiree health care after 30 years.

My employer terminated all that so I would not receive one nickel more (in retirement benefits) if I continued working.

One social litmus test is that if you stop working will you be able to openly tell friends and family that you are no longer working but DW still is.

IMHO you have to be able to own this.

DW asked me if she would be forced to work the next 6 years if I left early -- she didn't want to be trapped.

I gritted my teeth and said no - knowing that we would leave significant assets on the table if she needed to leave early. Fortunately she was able to ride it out and get a decent promotion in the interval.

It worked out for us, but I definitely had my concerns going into it.

BTW - I worked 6 months part time or so before going onto 1 year leave of absence that I chose to not to return from. After the 18 months, I could tell things were going to work out just fine, but having the option to return to my job if I wanted was liking having my cake and eating it too. It was much more valuable to me than any severance package could ever be.

Will your DW be eligible for a generous DB pension at some point?

-gauss

 

[sebvad]

Good points Ivinsfan. Our home is fairly new construction (5 years old in November). it's a $300k building on $200k of land - if i use a 1% rule for home maintenance on the upkeep - that'll have me planning for $3k/year of upkeep costs.

 

[sebvad]

I stopped working ~ 6 years prior to my DW.

Her employer gave her a big pension bump/retiree health care after 30 years.
My employer terminated all that so I would not receive one nickel more (in retirement benefits) if I continued working.

One social litmus test is that if you stop working will you be able to openly tell friends and family that you are no longer working but DW still is.

IMHO you have to be able to own this.

DW asked me if she would be forced to work the next 6 years if I left early -- she didn't want to be trapped.

I gritted my teeth and said no - knowing that we would leave significant assets on the table if she needed to leave early. Fortunately she was able to ride it out and get a decent promotion in the interval.

It worked out for us, but I definitely had my concerns going into it.

BTW - I worked 6 months part time or so before going onto 1 year leave of absence that I chose to not to return from. After the 18 months, I could tell things were going to work out just find, but having the option to return was liking having my cake and eating it too.

Will your DW be eligible for a generous DB pension at some point?

-gauss

Yeah, i get the social aspect of it. Honestly my biggest concern is what to do with my time. My skillset is iin relatively high demand, so i have no concerns about re-entering the workforce if necessary, or taking a part time job if only to address the time concern, should it arise.

DW is unlikely to have a pension prospect. DW absolutely loves her job and she's the one telling me she plans to work forever, and has been with the university for 20 years - so she's got some history there - but i do get it that what looks rosy today might not continue to look so great in 10 years.

 

[Lukeee]

Your emergency funds look good ( 2 years ).
So even if the income / job situation changes, it looks like you have 2 years for someone to get back on the treadmill. I think of ER at your age as reversible.. you can always come out of ER in a worst case situation should something dramatic happen before 62/67.

 

[Mdlerth]

It centers on one big IF...

Double ditto on the advice to reconsider DW's endurance. A lot [-]can[/-] will change in 20 years.

Your ten year average 11.4% return is good, but noting that the past 10 years includes starting from a low point it might be too optimistic to expect that to continue indefinitely.

Of course, it doesn't need to stay at 11.4%... IF your bride is content to toil away for another two decades. You are on an excellent path that should provide plenty of cushion... IF.

Is there some urgency about getting out in 12 months? None of my business what it is, but would there be any harm in hanging on for a bit longer? I mention this because I'm dealing with a similar calculation myself. I could retire this minute and we'd live on DW's earnings for 3-4 years before tapping the nut. Or, alternatively, I could keep earning (and saving) for a year & a half, and we'd both go out together. At your compensation level, every month you continue to earn (and save) would shorten the amount of time DW needs to earn by several months. So, sure, she's willing to put in another 20 years, but it could be awfully nice for her if some of those tail-end years were purely optional.

There ya go. The best free advice money can buy. Worth twice what you paid for it. Good luck!

 

[sebvad]

Double ditto on the advice to reconsider DW's endurance. A lot [-]can[/-] will change in 20 years.

Your ten year average 11.4% return is good, but noting that the past 10 years includes starting from a low point it might be too optimistic to expect that to continue indefinitely.

Of course, it doesn't need to stay at 11.4%... IF your bride is content to toil away for another two decades. You are on an excellent path that should provide plenty of cushion... IF.

Is there some urgency about getting out in 12 months? None of my business what it is, but would there be any harm in hanging on for a bit longer? I mention this because I'm dealing with a similar calculation myself. I could retire this minute and we'd live on DW's earnings for 3-4 years before tapping the nut. Or, alternatively, I could keep earning (and saving) for a year & a half, and we'd both go out together. At your compensation level, every month you continue to earn (and save) would shorten the amount of time DW needs to earn by several months. So, sure, she's willing to put in another 20 years, but it could be awfully nice for her if some of those tail-end years were purely optional.

There ya go. The best free advice money can buy. Worth twice what you paid for it. Good luck!

No urgency. Just tiring of corporate 'merica And agree 11.4% is optimistic, which is why i'm using 5% for my future return calculations.

 

[Lukeee]

Is there some urgency about getting out in 12 months? None of my business what it is, but would there be any harm in hanging on for a bit longer? I mention this because I'm dealing with a similar calculation myself. I could retire this minute and we'd live on DW's earnings for 3-4 years before tapping the nut. Or, alternatively, I could keep earning (and saving) for a year & a half, and we'd both go out together. At your compensation level, every month you continue to earn (and save) would shorten the amount of time DW needs to earn by several months. So, sure, she's willing to put in another 20 years, but it could be awfully nice for her if some of those tail-end years were purely optional.

Good point... I jokingly mentioned to DW she was welcome to pull the trigger later... but in all seriousness my ER activities and plans include a healthy dose of leisure time with her. Iirc, professors don’t get very much down time between regular semester and summer school etc.

 

[HI Bill]

Your plan seems to have no contingencies. What if:

1) You get divorced (which happend to my folks after 48 years of marriage)?
2) Your wife gets tired of working early or experiences a health condition that forces her to retire early?
3) You experience some sort of large unexpected expense?
4) One or both of you neet LTC?

Just a few...for me, when I hang up my work hat, I plan to never have even the slightest chance of needing to put it on again. So, for me, I'm working towards my investments providing 100% of my income needs, which in FIRECALC, including SS, means 100% chance of success.

 

[ivinsfan]

Your plan seems to have no contingencies. What if:

1) You get divorced (which happend to my folks after 48 years of marriage)?
2) Your wife gets tired of working early or experiences a health condition that forces her to retire early?
3) You experience some sort of large unexpected expense?
4) One or both of you neet LTC?

Just a few...for me, when I hang up my work hat, I plan to never have even the slightest chance of needing to put it on again. So, for me, I'm working towards my investments providing 100% of my income needs, which in FIRECALC, including SS, means 100% chance of success.

I mentioned these things and included the fact that people die as well. We know a poster on this board who went from retired, to rehabbing a forever home, to seeing warning signs in his marriage and less then 90 days later he was divorced.

Stuff happens..

 

[gauss]

OP did suggest that he could go back to work if things don't go according to plan.

 

[pj.mask]

So you earn $260k (any employer match?) and you spend 80k. So assuming 45k taxes you add $135k to your savings every year?

I agree with gauss - the numbers don’t appear to add up (short of recent significant promotion) Even assuming you started off with half that income and consistent 80k spend you should have more money.

If you can live on her income you can let savings grow significantly. Keep in mind inflation (I assume about 5.5% after inflation but also expect to recalc after a crash) still takes you ~10 years to double money after inflation.

Id love to retire earlier but my plan puts us at both having enough to live divorced and support the kids at some minimal level. If we stay together we can retired 15 years and living like a king in Patagonia - after all, nobody would surrender to the deed pirate Westley.

 

[ivinsfan]

OP did suggest that he could go back to work if things don't go according to plan.

Everyone assumes their skills are in demand and they can pick up where they left off,,,it seldom happens that way.

 

[sebvad]

So you earn $260k (any employer match?) and you spend 80k. So assuming 45k taxes you add $135k to your savings every year?

I agree with gauss - the numbers don’t appear to add up (short of recent significant promotion) Even assuming you started off with half that income and consistent 80k spend you should have more money.

All the extra income has been applied against elimination of debt (student loans, cars, mortgage, we paid for someone elses college, etc). Now that all debt is gone, yes - we'd add that overage to savings.

So the jist of what i'm hearing ya'll say is that my optimism isn't shared, largely due to unforseen events (divorce, illness, etc). Thanks for taking a look at it folks!

 

[Lukeee]

All the extra income has been applied against elimination of debt (student loans, cars, mortgage, we paid for someone elses college, etc). Now that all debt is gone, yes - we'd add that overage to savings.

So the jist of what i'm hearing ya'll say is that my optimism isn't shared, largely due to unforseen events (divorce, illness, etc). Thanks for taking a look at it folks!

I’m personally for it! A few here have mentioned in various posts that time > money. Many people I know are single income households. Only you and your DW best know what will bring true happiness to both of you. IMO, the board might be sounding personal concerns that you might/might not have thought about, but for me it’s something that you should consider. You seem to have the flexibility of going back to work so in the gloom and doom scenarios mentioned above, you always have that option.

 

[ivinsfan]

All the extra income has been applied against elimination of debt (student loans, cars, mortgage, we paid for someone elses college, etc). Now that all debt is gone, yes - we'd add that overage to savings.

So the jist of what i'm hearing ya'll say is that my optimism isn't shared, largely due to unforseen events (divorce, illness, etc). Thanks for taking a look at it folks!

Good for you on getting rid of that debt and paying off a house is a personal choice, but it means you have stuck a bunch of your net worth in a not very liquid asset.

You have the choice of pulling the plug in 12 months and probably being OK or working another year or two and having the retirement of your dreams if you can save a bunch of your salary.

What do you have in your budget for car replacement, are you going to be doing any traveling? Will you be spending extra money enjoying your free time, starting any new hobbies? This all makes a difference in your quality of life and you are planning a long retirement.

I can't see into the future but no matter what you need a buffer for health care.I think a lot of people with employed insurance while working are shocked at the cost of Medicare coverage when they hit 65

 

[joeea]

Everyone assumes their skills are in demand and they can pick up where they left off,,,it seldom happens that way.

Going back to work isn't quite the same thing as picking up where you left off.

With today's economy, jobs in general aren't very hard to find. That doesn't mean you get your old job back, just that jobs are waiting for people to fill them.

 

[ivinsfan]

Going back to work isn't quite the same thing as picking up where you left off.

With today's economy, jobs in general aren't very hard to find. That doesn't mean you get your old job back, just that jobs are waiting for people to fill them.

You helped with the point I was asking about..is it better to stay at a high paying job for one or two years, or to quit the job and if your plan doesn't work out get another job at maybe 25% of your original pay...that's a personal call.

 

[Eastfolk]

So the jist of what i'm hearing ya'll say is that my optimism isn't shared, largely due to unforseen events (divorce, illness, etc). Thanks for taking a look at it folks!

I think you’ll probably be fine...folks are just giving you things to consider in a worst case scenario.

I personally think your plan will work. I’m 15 years your junior but projecting to be pretty much in line with where you are financially at your age. My plan will also be to retire at around 50 and have DW continue working part time pulling in 60-80k annually until 60. I do agree with other posters however that if you don’t absolutely feel like you have to retire in 12 months to try and stick it out for a few more years banking 100k+ to your savings each year. Even toughing it out for 2-3 more years, given your compensation level, would significantly increase the likelihood of your plan succeeding. Good luck!

 

[sebvad]

Thanks folks - i appreciate the collective wisdom!

 

[Oz investor]

suggestions ..
1 lack of contingency plans ... probably an extra cash buffer might be useful there ( plus the knowledge you might have sudden changes )

3 vehicles ?? ( assuming one is not for your child )

assuming you retire ( but not DW ) what are you planning to do with yourself ( and what will that hobby/interest cost ?)

good luck