42 seems too early but the calcs say I can

[karen1972]

Hi,

So I'm only 42 and run lots of retirement calculators and most of them say I could retire now. As an engineer in Telecom I've survived 60+ layoffs and I would really like to step away from the corporate BS and may be forced to by year end at least find something new.

Current Age:42
Spouse: 43
No Kids and no plans to
Annual Expenses: $52K, expect to reduce to $40K once we move out of Chicago to Denver, CO.

Net Worth: $1.1M
- $450K 401K (Vanguard 2035 Fund
- $50K ROTH IRA (Vanguard 2035 Fund
- $50K Traditional IRA (Vanguard 2035 Fund
- $390K Stock Investment (10% bonds, 35% Dividend Funds, 55% Stock)
- $52K Money Market
- $96K Home (factoring in real estate agent and closing costs)
- Pension of $2,050/yr no inflation adjustment started 3 years ago
- Dividend funds generate $12K/yr
- Assumed $500/month for each of us for insurance plus $6k in a HSA. Currently no medical conditions and on no medicines.

Plan to sell Home in Chicago, move to Denver, rent for a year and then buy a small condo/townhome on a 20 year mortgage which would reduce costs by $1000/month.

My spouse plans to continue to work through age 65, but as a writer his income is not dependable so I've assumed only a minimal $10K per year contribution.

Running through FIRE,
- Age 90, retire now
- $50K withdrawel adjusted for inflation
- $2K pension + $10K spouses income

came to 97% chance of success .. yet I just feel like I'm missing something...I know I've insanely saved for 20 years.. usually 35% plus of my salary...so 35 to government including a 9K property tax and 11.5% sales tax in Chicago, 35 to savings, left me with only about 30% to live on...which is why I feel $50K is totally doable if I'm no longer saving or living in TAX R US Chicago. $50K gives me $8K extra each year for "life happens'.

Its not like I may not work going forward.. I just want the option NOT to work and not be stressed out if I lose my job. I think my biggest concern is that I'm looking at 50 years.. doesn't seem like $1.1M is enough to last that long. Not sure how people walk away...and not sure if mine is more just mental or if I am missing something in the math.

 

[Animorph]

Home values don't count unless you are selling and not buying again, and rent is in expenses. Don't use net worth in FIRECalc, use investable assets. Sounds like you may have that all in place, but just making sure.

Also, remember to include all taxes in your withdrawal, since most calculators don't include them.

You'll have to do the math to make sure you have enough outside retirement accounts to bridge between retirement and 59.5 when you can access your accounts penalty free. Though there are ways around that.

At 97% success you want to have a little flexibility in your spending. Especially for retirements longer than 30 years you need to consider that FIRECalc only has historical returns for a limited number of years. Typically around 40 years or so the success rates actually go up as some of the bad later years can't be used at the start of the period. Many of us feel more comfortable closer to a 3% withdrawal rate than 4%, especially for very early retirement that is mostly nondiscretionary.

So I see $992k investable, which hopefully is good for a solid $30k to a flexible $40k yearly income from Vanguard 2035.

 

[Totoro]

Hi Karen1972,

Welcome!

I'm 34 years old with a Phd in telco, so I heavily sympathize and admire your survival skills! I jumped out of the industry before I ever got into it .. I learned my lesson in 2001, watching the sector implode whilst sitting in my ivory tower.

I'm even younger than you are with less assets ($800k or so, no real estate), single, no kids either, and consider myself "probably financially independent"

I'm somewhere in the "maybe enough, but not a no-brainer" region, just like you. Welcome in the One More Year twilight zone!

The issue with firecalc and many other calculators is it cannot predict the future, just as it says on its homepage. Firecalc specifically also only takes actual historical sequences, which makes it less fitting in my opinion for long periods (like you and I are potentially facing).

The last full period firecalc simulates for example if you simulate up to 90 years starts in 1967! No calculators are perfect, and the future is inherently unknowable, but it gives good indications.The key fact you need to be aware of are our insanely long investment horizons. This in turn means that the only income stream we can rely on is the return on our investments after inflation and tax. The principal is unavailable as buffer for us, in contrast to 60+ retirees (or even 50+ retirees).

And therein lies the key issue: those returns are a lot less certain.

That being said, I currently have defined a 3% withdrawal rate as "likely secure under most circumstances", and the target for "no excuse not to FIRE".

In the mean time I did quit the high-paying job and am in sort of a experimental phase as self-employed. You may want to consider trying something like that, a career change etc .. you certainly have plenty of room to maneuver and backup from DH, maybe a down-shift in lifestyle.

 

[omni550]

Welcome aboard, Karen. Looks like you're doing great and will fit right in here.

If you're not too tired of calculators, try i-orp Retirement Calculator - Parameter Form (an industrial-grade linear programming optimizer).

omni

 

[David1961]

Hi,

Running through FIRE,
- Age 90, retire now
- $50K withdrawel adjusted for inflation
- $2K pension + $10K spouses income

Welcome. A question. Does the $50k withdrawal include the pension and the spouses income or is it separate? In other words, will you be taking $50k or $38k from your portfolio?
If you are planning on taking $50k from a portfolio of about 1 mil, that's a withdrawal rate of 5%, which I think is high for a retirement that may last 50 years. Just my opinion.

 

[FIGuy]

Hi,
Its not like I may not work going forward.. I just want the option NOT to work and not be stressed out if I lose my job. I think my biggest concern is that I'm looking at 50 years.. doesn't seem like $1.1M is enough to last that long. Not sure how people walk away...and not sure if mine is more just mental or if I am missing something in the math.

My opinion is find a way to cut 10k out of the budget and find some work that you enjoy to put another 10k of income in your pocket. Your 50k draw just went to 30k and you can retire today. It's never worth working in a career you don't enjoy full-time. 10k from a budget is possible for a frugal person. Just moving to a lower cost area than Chicago will do it.

 

[karen1972]

Animorph .. yes that was what I was thinking something around $30-40K would be advisable and keep my emergency fund in tack.. I'll be really close on non-taxable assets to get to the 59 1/2 which is one of my nervous points.

David1951 - I was looking at withdrawing $38K which I know may be on the high side for that long of a retirement. I will probably have to re-think and have some type of job ..even part time for at least a few more years just to be safe and bring withdrawel down to $30k or we tighten our belts and live on a little less.

 

[photoguy]

Karen -- I'm a similar age as you and just pulled the plug this year. Somethings you may want to consider are:

- 40k withdrawal on 1M of investable assests (not counting your home equity which you may need for downpayment on new home) is a 4% withdrawal rate. Due to the higher market valuations (implies possible lower future returns) many are targeting lower w.r. Personally I would not be comfortable at more than 3% and I'm well under that.

- $500/month in insurance is probably going to just cover premiums for health insurance under ACA (without subsidy) at your age and they will go higher as you get older. However, the maximum out of pocket expense could be an additional 12k+/year not including the premium. These additional costs need to be included in the budget.

- If you are expecting significant ACA subsidy, do you have a plan if the subsidy is decreased or eliminated? I think this is a real possibility.

- Having a spouse continue to work with 10k/year income is great bonus. How reliable is this income? what was your spouses actual income in the past several years and how is it trending? how did this writing income do in the last recession when companies were cutting back on purchases?

- At age 42, you have about 20 years to go before you can start pulling out money from tax deferred unless you do roth conversions / 72t. Have you planned out how you will do the withdrawals?

- How easily can you return to work once you leave your employer? I think for many in tech fields it can be difficult with a lapse in employement history plus potential age bias.

- Once you move to Denver (and are no longer employeed) will you still be able to get a mortgage? Or will you have to buy your new condo/townhome in cash?

 

[RunningBum]

Is that $40K budget realistic? With $18K in medical/HSA that leaves $22K to live on. Are you factoring in replacement/repair cost of cars, condo assessments for repairs (condo living may be mostly maintenance free but those buildings need big repairs too, and the money doesn't come out of thin air), appliance repair/replacement, travel, taxes, etc? As I approached retirement and took a careful look at real expenses, I found them to be a lot higher than I thought they would be because it's more than day-to-day living costs.

Another math check. You said dividend funds where 35% of 390K, or about $136.5K, and you get $12K of dividend income from them. That's 8.8%! Or does the dividend income also include divs from the 55% stock, and/or the 10% bonds? Not that it really matters, because an X% SWR is based on your net worth (usually not including your home unless you aren't rolling that into the condo) without regards to dividends, because you generally with when taking dividends you generally lose some equity appreciation that you'd otherwise get by reinvesting divs, or investing in non-dividend stocks.

 

[Senator]

I have more than that, and I am waiting until 2016. I want 100% with firecalc, and many other tools. It's easy to work a year longer, than try to come back. I overestimate espenses, and underestimate income, and still want 100%.

A few thoughts...
Your pension will be peanuts in a few years, if we have inflation.

$40K a year, is do-able, but you are cutting out 20% of your life style. And do you want to ever do something more expensive? $56K is an average household income.

$40K is a maximum. If the market has a stumble, it could be less.

You will not get a mortgage with that income, you need to pay cash or keep renting.

If you are living in a neighborhood with a bunch of people/families that earn 30% less than the average family, will that be enjoyable?

 

[Andre1969]

Definitely run those FireCalc numbers for a shorter timespan, as a few others have mentioned. I'm 44, and use age 100 as an end target. However, that's a 56 year span, which means that it wouldn't have tested any periods that started after 1958.

Initially I had a 100% chance of success, but must have done something wrong, because now when I run it I get 97.7%. However, running it for shorter periods, such as 30, 35, 40, 45, and 50 years, sometimes yielded lower results. I'd have to go back and look, but I think my worst result was either 40 or 45 years...although even that gave me 93.9%...not *too* horrible.

 

[GrayHare]

Looks like your plan has a roughly 4% withdrawal rate. For a 50-year retirement 4% is usually considered risky. I'd be very uncomfortable with more than 3.5%, and even that feels high. I'd shoot for a 3% withdrawal rate.

 

[Live And Learn]

Looks like your plan has a roughly 4% withdrawal rate. For a 50-year retirement 4% is usually considered risky. I'd be very uncomfortable with more than 3.5%, and even that feels high. I'd shoot for a 3% withdrawal rate.

+1. You'll find an abundance of cautious, pessimists here. And for good reason. You don't want to be 80 years old and broke. Take a step back to understand your drivers. Are you trying to calm yourself from fearing that you will be layed off and won't be able to find another job ? Or is there something that you've been looking forward to doing that w*rk is preventing you from experiencing ?

I think you "may" be able to retire, but personally I couldn't do it with your numbers. It really depends on how much risk you are willing to accept. I am going to do it with a 3% WR at age 50 and even then I feel I'm taking some risks.

 

[Fermion]

+1. You'll find an abundance of cautious, pessimists here. And for good reason. You don't want to be 80 years old and broke.

I would love to be 80 years old and broke than die with a lot of money at 55 just after retiring.

 

[Fermion]

Our net worth should be about 1.4M including sale of home (we do not plan to rebuy) and we are shooting for a 3% SWR of $42,000 a year. No pension though and we are a tad older (will be 45 and 46).

If I use your net worth numbers and a 3% SWR plus your pension and husbands income, I get about the same figure as we will have. We are highly dependent on ACA continuing though and will use a heavy subsidy.

I think with a low income (under $50,000) you can depend on ACA subsidies being there. Examining the past hundred years of policy shows that not too many social programs get scaled back. Based on that and your income, I would think you need to budget no more than about $6000 a year total for healthcare, including subsidized premium and subsidized out of pocket.

 

[Options]

Good that you've run several calculators. However, the future is unknown. I started with the calculators and then abandoned them after I was at 100%.

Pfau and Bernstein, among others, are "forecasting" some unusually low returns for the next 10 years, resulting in some fairly low withdrawal rates to match. Most who RE use a 3% WR, and when the battle of the lowest withdrawal rates starts, it can get down to 1.5% (or even lower!). Personally risk adverse, I couldn't pull the plug with your numbers, not for two people. On the other hand, you do have a pension(s), so you've got some floor income.

What strikes me is that at 42 you still have some substantial human capital. If you do RE, your plan B could always be PT w*rk.

 

[karen1972]

Is that $40K budget realistic? With $18K in medical/HSA that leaves $22K to live on. Are you factoring in replacement/repair cost of cars, condo assessments for repairs (condo living may be mostly maintenance free but those buildings need big repairs too, and the money doesn't come out of thin air), appliance repair/replacement, travel, taxes, etc? As I approached retirement and took a careful look at real expenses, I found them to be a lot higher than I thought they would be because it's more than day-to-day living costs.

Another math check. You said dividend funds where 35% of 390K, or about $136.5K, and you get $12K of dividend income from them. That's 8.8%! Or does the dividend income also include divs from the 55% stock, and/or the 10% bonds? Not that it really matters, because an X% SWR is based on your net worth (usually not including your home unless you aren't rolling that into the condo) without regards to dividends, because you generally with when taking dividends you generally lose some equity appreciation that you'd otherwise get by reinvesting divs, or investing in non-dividend stocks.

As for the math check.. yeh that's right.. I bought dividend stocks at the very bottom of the market and thus did very well...timed both downturns well as I actively manage my money.

I think you are using worst case ever for the health care. While I know I have to account for increasing health care, I also think its unrealistic to calculate that I will go from zero health care visits to maxing it out every year..if I'm maxing it out every year.. I won't be living to be 90 so that will fix itself.

 

[karen1972]

Good that you've run several calculators. However, the future is unknown. I started with the calculators and then abandoned them after I was at 100%.

Pfau and Bernstein, among others, are "forecasting" some unusually low returns for the next 10 years, resulting in some fairly low withdrawal rates to match. Most who RE use a 3% WR, and when the battle of the lowest withdrawal rates starts, it can get down to 1.5% (or even lower!). Personally risk adverse, I couldn't pull the plug with your numbers, not for two people. On the other hand, you do have a pension(s), so you've got some floor income.

What strikes me is that at 42 you still have some substantial human capital. If you do RE, your plan B could always be PT w*rk.

Yeh as I said its not like I don't plan to ever work again.. its more the "job block" thing. I'm sick of being "scared" to step away. I think its time to try something else and if it doesn't work, I"ll try something different.. and while I figure it out, I feel I have enough "backup" that I'll be just fine.

But I do realize I'm likely not job free at this point and my spouse if he works a mainstream job makes $45-80K a year...so it seems I may be at point I use the money to subsidize my life rather than just retire. I'm looking at going to part time and given I make $150K/yr, even that will suffice and if I can keep that for a few more years till I get to the 3%.

 

[papadad111]

Adding in social security estimates at age 65 will likely ease some of the uncertainty in the out years. With a 2k pension and what I would estimate to be a conservative 1.5k/ month in ss benefits, you are probably fairly close to being able to fire especially if there are no serious losses that do not recover in the first 7-10 years.

 

[gauss]

Adding in social security estimates at age 65 will likely ease some of the uncertainty in the out years. With a 2k pension and what I would estimate to be a conservative 1.5k/ month in ss benefits, you are probably fairly close to being able to fire especially if there are no serious losses that do not recover in the first 7-10 years.

+1

If your spouse has been working a SS covered job all along then he will also likely have at least 1.5k/month in accrued benefits (under current law).

In our case I worked 22 years in an engineering position and have accrued $2,500/month if I defer until age 70. Spouse, who is still working, has accrued even more.

Of course these benefits can be changed by lawmakers at any time for any reason. I personally discount them by 1/3 to come up with about $40,000 /year in SS benefits starting at age 70 for the two of us in ~ 20 years.

-gauss

 

[karen1972]

+1

If your spouse has been working a SS covered job all along then he will also likely have at least 1.5k/month in accrued benefits (under current law).

In our case I worked 22 years in an engineering position and have accrued $2,500/month if I defer until age 70. Spouse, who is still working, has accrued even more.

Of course these benefits can be changed by lawmakers at any time for any reason. I personally discount them by 1/3 to come up with about $40,000 /year in SS benefits starting at age 70 for the two of us in ~ 20 years.

-gauss

Notice how I completely ignored the SS. My spouse will get a conservative SS check and I know they are suppose to average out your earnings so mine should still be somewhat reasonable having maxed it out for 18 years.. so I figure we will get some money, just not nearly what was projected.

However my big concern is really how to get from now to 65. My 401K won't be touched and should easily have $2M in it which by then won't be the same as now.. but still a heck of a lot more than most will have. I just figure if I pull the trigger too soon, I will be 60 and looking for a job not to touch my 401k...and that I don't want to do.

 

[papadad111]

Well... You can begin to tap the tax deferred retirement accounts at 59.5 penalty - Even earlier for Roth accounts. So both are ate earlier than 65 as you know. And early SS is an option too.

Maybe sit down and work out a few scenarios for draw down -

Aggressive
Modest
Conservative

Modulate the timing that you and spouse take SS. You may be surprised.

 

[MBSC]

- $500/month in insurance is probably going to just cover premiums for health insurance under ACA (without subsidy) at your age and they will go higher as you get older. However, the maximum out of pocket expense could be an additional 12k+/year not including the premium. These additional costs need to be included in the budget.

+1

These were exactly my thoughts as I read the original post. Getting an unexpected cancer diagnosis can mean hitting the OOP max each year. I retired early this year at age 46 and include the premium and OOP costs in my budget "just in case".

 

[karen1972]

For my own benefit thought I'd update this 3 years into it.

Did pull the plug in Feb 2015, sold my home in Illinois (good bye astronomic taxes).. and ended up in North Carolina (well because Denver was booming and didn't like the housing prices or the snow it was having at that time).

Now: 45
Spousish: 46
No Kids
Annual Expenses: $52K which didn't change after all due to added health care costs.

Net Worth: $1.3M ($1.2M is invested assets)
- $80K ROTH IRA
- $600K Traditional IRA
- $520K Stock Investments
- Pension of $2,050/yr no inflation adjustment
- Spousish income currently at $12K at part-time gig which I consider a solid floor.

So $52K-12K-2K=$38K out of $1.2M or about 3.2% WR and still not accounting for SS.

I think I made the right decision, I wouldn't mind an extra $100k to be able to slightly upsize our home but not important enough to make me go back to work.

When the market tanked in 2015 and my honey lost his job right after moving here I was a little freaked out... I did something completely opposite to what I would normally do and we went on an extended trip to Europe. When we came back refreshed, we simply changed our plans and he went to work full-time for a year.. which allowed us to offset cost of a new car, trip to Europe, cost of two moves, closing costs on the home, and cost of 4 trips to the ER at $3500/trip and tons of physical therapy/chiropractor.

Now we are much closer to where we need to be and he is back to working part time. Just like in savings mode, I figure early retiring is about having a plan, sticking to the plan, adjusting to the bumps along the way to get you back on plan.

 

[MBAustin]

Thanks for the update, karen1972! Glad to hear things are working out for you. It will be encouraging to those who are considering extra-early ER as you did.