40 with 4 more to go

[Omalley]

O'Malley; Just curious-what do you anticipate your SWR to be when you FIRE? With such a long anticipated retirement, a withdrawal rate of any more than 3 percent would be considered unsafe by many. Personally, I'd aim for no more than 2.5 percent. And have you calculated the higher cost of those teenage years?

There are two phases to our retirement, pre and post 60. For pre-60, the plan is to spend down the taxable investments to $250k by age 60. I have mapped out annual spending which varies considerably, but averages $80k/year. A small pension of about $12k will be available at age 55 if we decide it is needed at that time. Base spending can be cut to $50k without much difficulty if funds are not performing ideally.

At age 60, the 401k type funds should total about $3 mil. I estimate annual spending of $80k with the $12k pension, and SS estimated at $25k that we can claim at the optimal time. This equates to a 1.5% WR from the 401k assets, which should allow considerable growth of the portfolio over the next 35 years.

As I have posted in other threads, I do expect some trepidation as we approach RE and have to switch from building a portfolio to spending it.

 

[Omalley]

Great job on saving!
I would be curious if you don't mind sharing: what type of work you and your wife do? How do you invest your taxable money (individual dividend stocks, dividend mutual funds or something else?)?
Is the growth in the 401k's comprised of market change only or with max contributions as well?

If your kids pay attention, you set a good example for them: choosing a well-paid occupation and LBYM lifestyle can lead to the ER.

Thanks for the encouragement. We both have professional careers (attorney and finance). The investments are pretty straightforward, with only 8% in three individual stocks and rest spread among a variety of mutual funds, primarily equities. We contribute enough to the 401k accounts to get the maximum matches from our companies, but not up to the annual limits. Most of growth now is tied to dividends and price appreciation. Our current focus is on building the taxable accounts as quickly as possible.

We do need to work on consolidating our investments into a more manageable number of brokerages and funds. This will become a top priority as we head into FIRE.

Yes, I think the kids are paying attention and learning that LBYM is very powerful. They have asked why we don't live in the newest part of town like many of their friends, but they understand that retiring 15-20 years early is a fair trade-off. Mainly they are looking forward to extended summer travel starting in 2017.

 

[Omalley]

Another year down, but I think we are further away from retirement than we were last year. We effectively live on my salary, and invest DW's take home. However, DW's income dropped for the second consecutive year. We also continue to firm up post-retirement travel plans and we want to ensure that all of these expenses are funded before quitting our jobs.


Current assets -
401k - 890k
After tax brokerage/Cash - 720k
College tuition - prepaid 8 years credits (2 kids)
529 - 70k
House - 240k (no mortgage)


As it currently stands, probably realistically looking at retiring in 3 years if dividend yields combined with stock price appreciation continue at 6-7% per year. I will also continue to look for inspiration from the posters here.


Omalley

 

[Katiek]

Thanks for the update, I love reading the ongoing reports. It's natural to adjust your goals and expectations, and if you can fund your post retirement dream travels with just a little extra work - that makes a lot of sense.

 

[Jay_Gatsby]

Another year down, but I think we are further away from retirement than we were last year. We effectively live on my salary, and invest DW's take home. However, DW's income dropped for the second consecutive year. We also continue to firm up post-retirement travel plans and we want to ensure that all of these expenses are funded before quitting our jobs.


Current assets -
401k - 890k
After tax brokerage/Cash - 720k
College tuition - prepaid 8 years credits (2 kids)
529 - 70k
House - 240k (no mortgage)


As it currently stands, probably realistically looking at retiring in 3 years if dividend yields combined with stock price appreciation continue at 6-7% per year. I will also continue to look for inspiration from the posters here.


Omalley

Maybe I'm missing something, but I don't see how 401(k) assets can be considered as part of the calculus for someone retiring at 44 (or in their mid-40s). The $720k in cash may last for the entire time during which the 401(k) can't be touched without penalty, but then again, maybe not.

 

[Omalley]

Jay_Gatsby -

Totally correct, the $720k in the taxable accounts is not adequate to last from 46-60 at our planned spending levels. We are about at the mid-point of saving for our taxable account goal and expect to hit our number in the next 3-4 years. We do expect to spend the gains and about 50% of the principal up to age 60.

We also continue to invest in tax-advantaged accounts to get the maximum matching funds provided by our employers. On an inflation adjusted basis, we expect to be have a 2.5% withdrawal rate from these accounts starting at 60.

As Katiek implied we are fine tuning our savings plan, and have added two additional years of w#rk to our original 2016 estimate which was created in 2012. In the meantime, just trying to enjoy each day as it comes.

 

[NanoSour]

I sense that you are quite set on not using pre-tax money before the 59.5 age limit. I'm an early retiree (age 50) and can relate to your concern. For us, there is a chance that we may have to dip in to the IRA early and have to pay the 10% penalty, but I think the penalty is worth the years of freedom that I'm enjoying. I my case I'd have to withdraw as much as 40K and pay a 4K penalty. That's money well spent for a year of my life.

Also, be aware that if you do withdraw money early and use it for valid education expenses, then there is no early withdrawal penalty. I will take advantage of that if it comes to pass as our children will be starting their college journey in 2 years.

You don't mention SS in you overall plan and I'm curious if you are SS eligible. ESPlanner software was an important tool in my overall decision process as it provides a reasonably accurate SS estimate for my work history.

From where I sit you look to be in excellent shape to execute your plan. Congratulations.

 

[Omalley]

Nanosour -

You bring up an interesting point about the early use of 401k type funds. While I don't plan on using 401k funds early, I will not be shy about dipping into them early if it means avoiding returning to w@rk at some point.

We will both be eligible for SS but haven't decided at what age we will begin distributions. I will also have a pension from megacorp that will add about $12k per year depending on when I begin distributions.

Omalley

 

[robertf57]

I sense that you are quite set on not using pre-tax money before the 59.5 age limit. I'm an early retiree (age 50) and can relate to your concern. For us, there is a chance that we may have to dip in to the IRA early and have to pay the 10% penalty, but I think the penalty is worth the years of freedom that I'm enjoying. I my case I'd have to withdraw as much as 40K and pay a 4K penalty. That's money well spent for a year of my life.



Also, be aware that if you do withdraw money early and use it for valid education expenses, then there is no early withdrawal penalty. I will take advantage of that if it comes to pass as our children will be starting their college journey in 2 years.



You don't mention SS in you overall plan and I'm curious if you are SS eligible. ESPlanner software was an important tool in my overall decision process as it provides a reasonably accurate SS estimate for my work history.



From where I sit you look to be in excellent shape to execute your plan. Congratulations.

You should not have to pay a 10% penalty if you plan. You should be able to roll a portion of your 401K into an IRA and do a 72t withdrawal plan with no penalty


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[escapee2020]

The plan looks great to me as well definitely ready, it is also awesome you are eliminating all debt therefore allowing you to adjust your spending for your living needs. you won't owe anyone money Yipeeee


Escapee2020

 

[Omalley]

Somehow two years have past since my last update! Here is the latest:


Current assets -
401k - 890k
After tax brokerage/Cash - 1,030k
College tuition - prepaid 8 years credits (2 kids)
529 - 75k
House - 240k (no mortgage)


Also, the planned retirement timing has slipped one more year to Spring 2018. We won't be able to easily recreate our income stream after RE, so we want to be sure we have enough for everything that is planned. Kids will still be in high school in 2018, so extended travel is deferred for a few years anyways.


I read the board often and am always inspired by those who have already been able to RE.

 

[Omalley]

Six more months have gone by, and for once the planned RE date hasn't slipped. Still working towards Spring 2018. These Sunday nights get harder as we close in on the goal for the brokerage account balance.

Current investments -
401k - 975k
After tax brokerage/Cash - 1,210k

Need to spend time reviewing health insurance options and understanding the implications of RE in March/April of a particular year.

Omalley

 

[Katiek]

Nice progress on the investments! Thanks for the update.

 

[aida2003]

Current investments -
401k - 975k
After tax brokerage/Cash - 1,210k

Fantastic progress, Omalley!! A few questions though:
- What balances do you strive to attain before you're 99% sure you can quit?
- As you may realize the US is perhaps in its longest bull market (it seems to go sideways this year) and part of your report progress is based on the appreciation. What happens to your plan if the market drops shortly before/after you ER?
- How have your children reacted to the postponement of your ER? Have you heard a question about a potential car or two once they pass 16?
- Any plans for PT or contract work after you both ER and kids gone to college or their own careers?

Thanks

 

[thebeachlife]

Congratulations on the amazing progress. Though we have little control over things like market returns it's nice to see a plan pretty much working out as you hoped. I'm just curious what you have been able to do to "stay the course" over these years? Also, are the now-older kids still interested in that long summer trip (possibly to Italy)?


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[Omalley]

Responses to recent questions:

Goals for RE - grow cash/brokerage balance to $1.5 mil. Draw down over the next 15 years, in combination with megacorp pension at age 55. Continue the 401k contributions for next 1.5 years to get maximum company match, then let the balance grow for 15 years. No plans to return to w@rk after RE, but if needed will consider on a seasonal basis while kids are in high school.

Plans if market crash shortly before RE - plan for extended travel during summer 2018. If the international plane tickets haven't been purchased, then RE could be delayed until 2019 if there was a significant crash (greater than 40%)

Plans for market crash shortly after RE - would ride out the downturn by reducing discretionary spending, primarily extended travel (except for 2019 travel). If absolutely necessary, I could leverage 20 years of megacorp experience and return to megacorp as an Agency employee (hired by employment agency and not directly by megacorp). DW has very specialized legal experience and could get a consulting contract with minimal effort.

Kids expectations - our kids are generally aware of our RE goals. The only firm expectation we have given them is an extended family trip to France during summer 2019 for the Women's Soccer World Cup. That means our drop dead RE timing is June 2019. As for cars, they are saving for their car purchase/insurance. They will have to opportunity to buy our vehicles (150k miles) at trade-in value, where they will know the vehicle history. The alternative is to try their luck at local car lots or Craigslist.

In general, undertaking RE seems to be a very large 'leap of faith'. While we may never have the opportunity to earn this much money again, we only have a few full-time years left with our kids and we want to make the most of that time.

Omalley

 

[Omalley]

For the question about how we 'stayed the course' over the years. I have had a relatively short professional career of 22 years with two years 'off' to secure my MBA. DW has had a slightly shorter professional career.

Like most on the board, we have a strong LBYM mindset. We have used my take-home pay to run the household and have used DW pay for debt reduction and investing.

The hardest part of the RE journey has been last 1-2 years, since we have started to accumulate a significant amount of cash/brokerage funds. Thoughts about taking a one year sabbatical compete with buckling down for 1.5 years to reach the our RE goals sooner. We are working on the buckling down option, but an unending increase in work responsibilities has been hard to handle. However, once we RE we don't expect to ever return to w@rk again which is what keeps us going every day.

Omalley

Omalley

 

[Omalley]

15 more months have gone by since my last update, and the planned RE date has once again slipped to mid-2019.

Current investments -
401/457 - 1,280k
After tax brokerage/Cash - 1,720k

I have been caught unaware how difficult it would be to walk away from w*orking and the security provided. In my younger years, I had big plans for entrepreneurship success by striking out on my own. In the end, I always stayed with a steady check, benefits, and pension plans. I now know that I didn't possess the risk gene needed for entrepreneurship, but I hope I can make the leap to ER in 18 months.

Waiting (and investing) until 2019 will lower our SWR to about 2.2%. A small pension in 2017 will reduce it to 1.8%, and finally SS in 2034 would move SWR well below 1%.

I will continue to look for ER inspiration from others on the site!

Omalley

 

[VanWinkle]

Grats Omalley, keep up the good work!!

 

[Love This Community]

Way to go.....you are inspiring lot of folks here on ER. 11K views!!

 

[Bigdawg]

15 more months have gone by since my last update, and the planned RE date has once again slipped to mid-2019.

Current investments -
401/457 - 1,280k
After tax brokerage/Cash - 1,720k

I have been caught unaware how difficult it would be to walk away from w*orking and the security provided. In my younger years, I had big plans for entrepreneurship success by striking out on my own. In the end, I always stayed with a steady check, benefits, and pension plans. I now know that I didn't possess the risk gene needed for entrepreneurship, but I hope I can make the leap to ER in 18 months.

Waiting (and investing) until 2019 will lower our SWR to about 2.2%. A small pension in 2017 will reduce it to 1.8%, and finally SS in 2034 would move SWR well below 1%.

I will continue to look for ER inspiration from others on the site!

Omalley

I just read all of your posts on this thread and it seems that you are moving the goal posts. Why? Seems like you can still punch next summer.

 

[StuckinCT]

Sounds like a good plan financially. Imagine you are 44 and not working. What will you be doing?

My point is to give thought to the non-financial aspects as well.

I am glad you raised this point. Firecalc flashing 99/100% depending on day for us- me 46, DW 36 with three kids 8,6,5. Now that I feel like I can responsibly quit, I must admit it is a little scary. Two weeks ago a great opportunity arose that will require a 5 year commitment-
dilemma!

Here is what I think: knowing you can quit is almost as great as not working. I am able to leave a bad day behind fairly quickly. I hear you though on the spending time with the kids in the summer, you just don't get those years back. Sounds like you have a good plan and staying involved in the community gives you options should you need to go back to work.

 

[aida2003]

Hmm, the OP is turning out to be an extremely ultra-conservative person. I'd say he's the first I've read who wishes to spend less than 1% of his portfolio. Self-insurance or golden hand-cuffs at work?

 

[Omalley]

Yes, I didn't realize quite how financially conservative I am. We have both been working non-stop since we were in our early teens, and leaving that security behind is daunting. I will go back and read about the successful ER journeys from others who made the leap before age 50.

Moving from 2018 to 2019 will allow my DW to complete some career goals. In both our cases, there aren't any golden handcuffs keeping us in place for another year. I am at megacorp and would have to stay for 14 more years (age 60) to get a retiree medical insurance stipend. I am not so conservative that I am willing to consider staying that long!

As was mentioned by others, reaching FI has made dealing with issues at megacorp more manageable. I am taking time to act more as a mentor to younger employees, helping them get off to a good start in their own careers.

Omalley

 

[Omalley]

Hmm, the OP is turning out to be an extremely ultra-conservative person. I'd say he's the first I've read who wishes to spend less than 1% of his portfolio. Self-insurance or golden hand-cuffs at work?

As the portfolio grows, DW keeps coming up with new ideas to add into the budget! She will do her best to keep the our SWR near 3% as new income streams are added.