42 year old, saved $3M, thinking to retire next year

[JPearl]

Dear all, I'm a newbie here and am obsessed with this forum!

I'm a 42 year old single woman, no kids. Have a very stressful job and am contemplating on retiring next year. Here are my numbers:

401K:$500K
Brokerage account: $2M with about a 1% annual management fee but their performance has been very good
Of which AA is about 60 (equity)/40(fixed income)
EF cash in saving account and munis: $500k

Have a pension that will come in at age 65, about $1000/m if I stop working next year. SS will kick in some time at or after 65, about $1500/m I think.

Currently not owning any real estate, no car, and no debt. My expenses will be about $70K a year after taxes, including travel (which I plan to do a LOT after I retire), rent, health care, etc. In a year or two I may buy a property for $500k.

So, do I have enough to retire next year?

 

[REWahoo]

So, do I have enough to retire next year?

The answer to your question is another question:

http://www.early-retirement.org/for...-answer-before-asking-can-i-retire-69999.html

 

[JPearl]

The answer to your question is another question:

http://www.early-retirement.org/for...-answer-before-asking-can-i-retire-69999.html

Thanks for the questions! Yes I did read them and did my homework as well. I ran a few FIREcals and the answers were all 100%. But still, it's kinda scary when you think about retiring in your early 40s, isn't it? I may be able to do some part time job to bring in extra $$, but I wouldn't count on it...

 

[prose3589]

I am a newbie too! 42 and a high stress job. I wish my numbers looked like yours, but I got a late start. Seems to me that it will be easier to control expenses NOT buying property. For me, the home seems to be a drain. You may want to figure a budget under various scenarios. You should be proud of how well you have saved.

 

[Fermion]

I am really impressed you managed to save 2,500,000 after taxes with no kids (talk about high tax bracket!) PLUS you somehow managed to swing a $12,000 a year pension. Did you start working as a child actor?

 

[REWahoo]

But still, it's kinda scary when you think about retiring in your early 40s, isn't it?

I think the fact that you are single with no children should eliminate most of those fears. Plus, you are young enough to be able to return to the work force if you think things aren't working out.

 

[travelover]

.............
So, do I have enough to retire next year?

Here is one way to look at it. Pulling 3% a year gives you $90,000 a year, which is twice the average American family income. Can you live on $90,000 a year?

 

[clifp]

I retired at 39 with a bit over $3 million plus a paid off house, but your pension + SS of $2500 is higher than mine at 67. My spending is similar, except for the last couple of years where it has been higher.

Financially I don't think it will be a problem at all even plugging in your very high investment expense in FIRECalc, I got 100% and that doesn't include SS or your pension. Once you retire, come back to the board and be prepared to get a second (3rd,4th, 5th...) opinion about your broker's performance Firing him maybe the easiest way of making $20K/year..


I somewhat disagree with Wahoo, while 42 is certainly young enough to get a new job or even start a new career. I am guessing you've got a high paying job. After a few years, your options get smaller and the likelihood of landing a similar high paying job decrease, especially in this economy.. I think it is wise to not count on a part time work. If had to take 50%+ pay cut in hourly wages I would, but it isn't something that ever had appeal for me. But I am perfectly fine working at volunteer job for free...

 

[Ready]

Welcome to the forum Jpearl. Based on what you have told us so far it would appear your assets far exceed what you need to retire, even at a young age.

You can expect to get a lot of push back on paying a 1% management fee on this forum. As clifp mentioned, that adds $20K per year to your expenses, and I suspect you are not getting much from that. The stock market has done quite well the past few years, so it is expected that your performance would be good. The way to judge your advisor's performance is to compare it to a very simple index fund portfolio with very low fees. Based on all of the research out there, it is highly unlikely that your advisor will beat this type of portfolio for any significant number of years.

In any case, congratulations on getting this far, and best of luck with your retirement plans.

 

[REWahoo]

You can expect to get a lot of push back on paying a 1% management fee on this forum.

+1

Few here would recommend paying 25% of your potential annual retirement income for something you can do yourself for far less.

 

[JPearl]

I am a newbie too! 42 and a high stress job. I wish my numbers looked like yours, but I got a late start. Seems to me that it will be easier to control expenses NOT buying property. For me, the home seems to be a drain. You may want to figure a budget under various scenarios. You should be proud of how well you have saved.

You are right --a house would definitely be a drain. Besides, I certainly have no interest or the skills taking care of a house. I was thinking to buy a condo, which can be rented out while I travel or stay with my parents part of the year.

 

[JPearl]

I am really impressed you managed to save 2,500,000 after taxes with no kids (talk about high tax bracket!) PLUS you somehow managed to swing a $12,000 a year pension. Did you start working as a child actor?

I wish! I worked at high pay/high stress jobs during my earlier career, saved a lot. Got lucky with my investments in real estate. Then landed a job with good pension plan later on---again got lucky since my company no longer offers pension to new hires! Now this job is increasingly getting stressful and the pay is not worth it.

 

[JPearl]

Here is one way to look at it. Pulling 3% a year gives you $90,000 a year, which is twice the average American family income. Can you live on $90,000 a year?

My financial advisor is more conservative than that. He thinks I can, and should only pull 2% of my net worth, that is, excluding real estate or hard assets (not that I have any) annually. That would give me only $60k a year in spending. I can live on $60k/yr if I live with my parents --they'd love it and they have enough space for me. Well, there goes the middle aged single woman living with her parents...

 

[explanade]

What is EF?

 

[Ready]

My financial advisor is more conservative than that. He thinks I can, and should only pull 2% of my net worth, that is, excluding real estate or hard assets (not that I have any) annually.

Correct. 2% for you, 1% for him.

 

[JPearl]

I somewhat disagree with Wahoo, while 42 is certainly young enough to get a new job or even start a new career. I am guessing you've got a high paying job. After a few years, your options get smaller and the likelihood of landing a similar high paying job decrease, especially in this economy.. I think it is wise to not count on a part time work. If had to take 50%+ pay cut in hourly wages I would, but it isn't something that ever had appeal for me. But I am perfectly fine working at volunteer job for free...

I agree. It is hard to return to the workforce once you retire, no matter how skilled and valuable you once were. It's part of the reason I'm a bit scared to leave the workforce. but again, I know I can survive no matter what, as most of you can too I believe.

 

[38Chevy454]

I agree with the rest, get rid of the FP, do a bit of self education and advice on here so you can add that $20K/yr back into your portfolio. Take the 3% per year and you have as much money as you say you project for expenses. The pension and SS can take care of worries for inflation and portfolio reduction in later years. By not removing $20K/yr you will benefit from that both short and especially long term.

A condo is a good choice in being able to leave it and travel without a lot of worries looking after the property. Just beware of condo fees which can really jack up your expenses.

 

[JPearl]

What is EF?

Emergency fund

 

[JPearl]

Welcome to the forum Jpearl. Based on what you have told us so far it would appear your assets far exceed what you need to retire, even at a young age.

You can expect to get a lot of push back on paying a 1% management fee on this forum. As clifp mentioned, that adds $20K per year to your expenses, and I suspect you are not getting much from that. The stock market has done quite well the past few years, so it is expected that your performance would be good. The way to judge your advisor's performance is to compare it to a very simple index fund portfolio with very low fees. Based on all of the research out there, it is highly unlikely that your advisor will beat this type of portfolio for any significant number of years.

In any case, congratulations on getting this far, and best of luck with your retirement plans.

Thank you for the advice! Yes I will, and plan to reconsider having the brokerage account, when I retire and have the time to potentially manage my own $$. The money management team has been pretty good over the last decade that I've been with them. They beat the market/index by not having my portfolio lose as much as the index in a down market, but of course they do not reach the highest return in a bull market either. I did try running my own portfolio in parallel for a few years (with smaller $$ amount and very limited spare time and research), but was never able to beat their performance even after they take out 1% fee!

 

[JPearl]

I agree with the rest, get rid of the FP, do a bit of self education and advice on here so you can add that $20K/yr back into your portfolio. Take the 3% per year and you have as much money as you say you project for expenses. The pension and SS can take care of worries for inflation and portfolio reduction in later years. By not removing $20K/yr you will benefit from that both short and especially long term.

A condo is a good choice in being able to leave it and travel without a lot of worries looking after the property. Just beware of condo fees which can really jack up your expenses.

I guess I'll need to seriously consider getting rid of the management team once I retire. It is indeed a lot of $$$ that can be saved. The funny thing is that I've had my whole career in finance, but I'm scared to manage my own $$!

Yes condo fees can go up so quickly, and so can real estate taxes (although there are tax benefits to it)!

 

[FIREd]

Similar age, similar net worth. FIRECalc and other calculators give me the green light up to $84K in annual spending including a greatly discounted SS income starting at 70. So it looks like you are good to go.

Like clifp, I think that going back to work should not be considered an infallible plan B, even at your age.

 

[papadad111]

Well done!
Welcome!

Firecalc holds some of the answers. I think you'll be fine.

With respect to buying property, i suppose it's the old rent vs own ROI analysis.

If it were me, i would avoid the trappings of an expensive home and the incremental costs that go with it - maintenance, property taxes, insurance, etc. While appreciation can far exceed those costs...with the amount of travel you plan to do, I would take a bit of a "keep flexible" attitude. ..either get something less expensive (a single middle aged woman living in a 500K place generally is a decent amount of house, although location dependent could also be something modest)...or rent for a while til you get into retirement routine and see what happens.

Who knows...you could meet Mr. Right who already has a home and decide to marry. Or want to travel for months on end and not want to be tied to having to maintain a house remotely (or the perils of renting it for the short term).

You have a lot of flexibility with no kids .... 2.5M in cash now....a 0.5M 401K that will grow for another 20-25 years. A reliable 30K annual pension+SS "annuity" at age 65 if all else fails and is lost... pretty well prepared but you should also consider that your parents will eventually pass and if you have no heirs....your own older age care could require more than family help... best to plan for that with long term care insurance, etc etc.

Just some thoughts. Keep us posted.

 

[sinbad]

Hello JPearl,

congratulations for the amount you have saved and for being able to keep your expenses under control (with such income I think it would have been very easy to let your expenses increase out of control).

Since nobody did until now please let me point you to some valuable resources, in what concerns to investment philosophy and practice:

Bogleheads® Blog | Investing advice inspired by Jack Bogle
Bogleheads • Index page

Please don't assume that to be able to manage your own money you need to have special investment skills or dedicate to it a lot of time. Both are myths and such task can be very simple - it is, nevertheless, important to be knowleadgeble about some investment principles (that you can find in the resouces above as well as from specific authors like Bogle, Ferry, Swedroe, Bill Schultheis,...). There is a lot of evidence that the so called investment expertise is basically noise/luck or results from the comparison with the wrong benchmarks.

Since you are young it is very worthwile to invest some time reading such authors and then keep to yourself the 20k/year - it will be probably your best returning investment.

Best Regards,
sinbad

 

[Lcountz]

Your money may go a LOT farther if you move out of New York State.....and yes I know NY has a lot of very nice areas to live, but they tax your pension ( part of it), property taxes and school taxes are outrageous ( if you were to purchase property)...Winters can be brutal...I just think your dollar can go a lot further in another state.

Being single myself, and childfree and taking care of an elderly parent ( who is, thank goodness, still very independent at 93 in her own home, reads the WSJ every day and is in relatively good shape for her age)....I see what's down the road for me....I do a LOT for my Mom, and I can see I need to plan for my advanced age as I have no kids to rely on....

But, there are plenty of kids that contribute NOTHING to their parents care...

Anyway...congratulations on accumulating so much wealth at such a young age!!!!

You will be set no matter what you choose to do....!!!!!

 

[dontworry]

I am close to your age with a hubby and three kids. We could easily retire with what you have, but our spending is pretty low. Congrats on saving so much!