Almost there - Need Encouragement

[Shepard]

First post, but I've been around for many years lurking.

Age: About 42, Spouse the same
Kids: None
Anticipated Retirement: April 2022
Allocation: 80/20 Risky/Ballast

Let A = Annual expected spending in retirement. We have 30.55A set aside for retirement, or a 3.27% w/d rate currently, split roughly equally between taxable and non-taxable/qualified accounts. Plan to save another 1.15A between now and retirement date, so hope to have at least 31.7A or 3.15% w/d rate.

I am fairly handy with spreadsheets and am an amateur coder, and so I have created my own simulation tools to compare with Firecalc and the work seen on the Early Retirement Now blog. They all compare reasonably well to each other, and everything looks green across the board now, let alone in a few more months. That said, I seem to be suffering from a form of OMY.

I keep finding a few more things to save for to pad things to get comfortable. For example, in my calculation of A, I took our yearly spending for the last 5 years (which I have documented practically down to the dollar), adjusted it for things like anticipated ACA premiums, minus car insurance after going down to one car, etc. However, I decided to add a '13th month' as a just in case factor, which is included in my figures above. Without it, the 31.7A or 3.15% becomes 34.3A or 2.91% w/d rate.

Additionally, I decided we should set aside 1.25A for unexpected medical/dental expenses, and 1A for 'fun' (think crazy vacation or something), both of which we have already put aside, and that 2.25A additional is not included in the above figures or w/d rate.

While I'm very much looking forward to taking control of my time, I just feel nervous for a variety of reasons. As I have read other posters say from time to time, I will never be able to make the kind of money I do once I walk away from my j*b, inflation is high, the market seems overvalued. I wonder if I'm just inventing excuses, but I just don't know if I will really be able to pull the trigger. At the same time, I know that if I did stay on, I might be willing to work up to another year, but I don't see how I could take much more than that without moving to something different.

I think I just need some help on how to put things into proper perspective.

 

[pb4uski]

...We have 30.55A set aside for retirement, or a 3.27% w/d rate...
I think I just need some help on how to put things into proper perspective.

After you get to a 3.27% WR, any fine tuning after that is akin to playing with your genitals.

Does the 3.27% WR plan includes SS?

 

[pacergal]

It sounds like you have the financials down. It is my understanding that Firecalc and other calculations include the worst case scenarios over time, what ifs, etc.
Under 4% withdrawal at your age seems very reasonable for what could be a 40-50 year retirement.
Can you take a short sabbatical, 6 months or so from work and try your retirement budget and lifestyle?

Have you answered these questions in the FAQ section?:
Some Important Questions to Answer Before Asking - Can I Retire?

What does your spouse say/feel about the situation?

You can always earn more money/part time job/hobby job in retirement if desired.
You can't get more time.

 

[MBAustin]

Welcome, Shepard.

First, congratulations on being in such amazing financial condition that you can even contemplate ER at such a young age. That takes a lot of hard work and discipline!

I would be a little concerned with such an aggressive AA for such a long period of retirement, especially with the current market valuations. Seems to me you have a good bit of sequence of returns risk.

Pacergal raises good points above. Also, you say you might consider moving on to something different in a year or two - have you seriously looked into what that might be? It's a pretty good time for changing jobs as there's a lot of demand in many fields - a change to something less stressful / more interesting could be a good move. Or something seasonal or part-time.

Finally, you say you are looking forward to taking control of your time, but do you have a good idea of what you actually want to do with your time?

 

[OldShooter]

... We have 30.55A set aside for retirement, or a 3.27% w/d rate currently, split roughly equally between taxable and non-taxable/qualified accounts. ...

Without some real dollar numbers it's hard to react, but I think you're saying that you have 30 years of needs saved assuming no inflation and that your planning horizon is from 42YO to maybe 90, so 48 years. 48 years is a long, long time; plenty of time for a black swan or two to fly into your life. Hopefully you have a lot of flexibility to cut back on "A" -- you may need it.

You don't mention inflation as a planning parameter. For reference, prior to the current excitement IIRC US historical inflation has been 4.11%. At that rate, today's dollar will have the buying power of 36 cents after 24 years and 13 cents at the end of 48 years. SORR is a risk, of course, but it can be managed and market drops are always followed by recoveries. Inflation, though, is a permanent hit. I think that few of us worry enough about it.

 

[FLSUnFIRE]

My numbers are/were about the same*... you can look at my thread for my details. I say do it, you can futz forever and every day you do is another day you are not FIREd. Once you jump, that eliminates one variable and you can still mess around adjusting and optimizing your actual withdrawals. I do find myself playing with spreadsheets less (EOM updates as always but no multiple times a week silliness) now that I'm free! Just enjoying the ride now. You look to be in good shape, as many have said before "Jump on in, the water is FINE!"


*I tend to be a bit over-conservative in many of my assumptions.. budgeted for full health care cost, plan my expenses based on an immediate 30% market drop, sinking funds for known unknowns. Sounds like you may be similar with the 13th month. Realistically, things like a new car can be deferred if the market goes way wrong but are in the plan as "fixed"

 

[LarryMelman]

You do not say whether "A" is just expected routine expenses or if it includes expected irregular expenses like cars and major home items like roofs and furnaces/ACs. Or if "A" includes new expenses you plan to have in retirement. Especially with the need to plan out 40-50 years. Allowing only an extra "A" or two over all that time seems quite inadequate.

I say that you are nowhere near ready. But I also know that people who refuse to spell out the word "job" probably already have their minds made up.

 

[Shepard]

Thank you all for the replies. I appreciate it very much.

Trying to reply in order of responses:

@pb4uski - The 3.27% w/d rate does not include SS, which is another source of conservatism I suppose. However, with 20+ years before it would be in play, I just figure it will be a bonus.

@pacergal - I could take a sabbatical or short break, but any break would likely mean that my income would drop by at least half upon returning. Knowing that, I usually conclude that I should just stick it out until I am finally done.

As for the FAQ, I went and reviewed those and I think I have it all decently covered. I know my expenses very well, and barring something unexpected, I know what I am going to spend in retirement too. I'm ignoring SS and a very small pension I have in my calculations, and I account for taxes, etc.

My spouse is supportive. This is a goal we have been working toward together for many years. They stopped working a few years ago and are ready for me to join the party. However, they generally leave the numbers to me and would like to hear that we are good to go before I take the plunge. We agreed that I would stay in my j*b until April of 2022 to at least get one more bonus from MegaCorp to increase the nest egg as described in my first post.

@MBAustin - I am very nervous about SORR, absolutely. I have actually grown more conservative over time. I was 100% risk on for a long time until the numbers started getting within striking distance of target, then I didn't want to risk having to work longer because of it, so I backed up to 80/20. I know that is still fairly aggressive, so I use a mixture of things to try to mitigate that, such as equities/REITs/Put Option writing in the risky category vs Bonds/TIPS/Commodities/Cash in the Ballast category in an attempt to have some non-correlation in the assets.

When looking at safe withdrawal rates over long periods of time, the analysis tends to encourage more risk than less, but I agree that increases SORR. I also always have something ERN once wrote in my head "Retirement success is inversely correlated with the CAPE at retirement" (or something to that effect), and with the CAPE near 40, that is scary for sure.

I would make the same comments about a new role as above. I would do it if I needed to if, for instance, I retired and the portfolio got cut in half. However, doing it immediately to stay employed is a tough sell as the income drop would be so large.

As for my time, I do have plans, but I confess I am a little worried about eventually becoming bored. My spouse believes this is not a real threat or concern for me when we have discussed it, and so far they have not been bored in several years, so that is encouraging.

@Old Shooter - Yes, I have over 30 years of anticipated needs saved. Inflation is accounted for in FireCalc and in ERN's work by adjusting spending to maintain purchasing power I believe (it is also in my own simulators, but obviously nobody else has seen that). Either way, I agree with you that it is scary to contemplate even knowing that those calculators use inflation, especially when looking at the latest number of 6.2% for October of 2021. However, other than moving some of my bond allocation to TIPS and commodities, I'm not sure what else to do about inflation.

As for flexibility in 'A', yes there is some. As FLSUnFIRE mentioned sinking funds and LarryMelman asked about irregular expenses, I have sinking fund allocations in my monthly budget for future car purchases, major home repairs, electronic gizmo purchases, vacations, etc. I have also created an "Emergency Mode" budget that would remove many of these items if needed, and I estimate we could get by on 60% of A, although it wouldn't be nearly as fun.

@FLSUnFIRE - Thank you for the reply. I agree our situations seem fairly similar after I read through your post. As mentioned above, I also create sinking funds in addition to the other potential conservatisms built into the budget. I don't like having any expense I don't have a fund ready to go for. I know it is mental accounting, but it works for me.

@LarryMelman - What withdrawal rate or multiple of A would you feel is sufficient?

 

[OldShooter]

... other than moving some of my bond allocation to TIPS ...

That's what we did as we were redecorating the portfolio for retirement in 2006. Our conclusion was that our only real risk was runaway inflation, so we put almost all of our fixed income tranche into the 2s of 26, lowest interest rate at the time of minimize reinvestment risk and the longest available TIPS at the time.

I don't recall the exact number but in the trailing 12 months to 9/30/21 our return from the TIPS was over 6%. Over the longer haul the return has been quite good as interest rates went to zero and we still had that 2% coupon. That was pure luck of course but we're happy to have it.

More generally, TIPS return slightly less than similar govvies. We view this difference just like we view our fire insurance premium -- a cost to offload some risk. We pay happily and hope that both insurance premiums are "wasted" with no fires and no wild inflation.

No interest in commodities.

 

[Retireby45ish]

I’m 41 and have an almost identical situation and numbers. My tentative Mar 2023 target date is approaching.

I am going with a 60/40 AA because of SORR. I find that the difference between 60/40 and 80/20 isn’t much as far as success rates so am a bit more conservative than you. but you have a bigger chance of major growth over this long horizon.

I also have last 5 years of expenses mapped. And I am assuming if that is ~75k and with ACA I’m using 110k or so to back into my 30-33x number. I feel like the 35k gives me ACA premium cost wiggle room plus added expenses.

How will you control income to get ACA subsidies (if that is part of your plan)? That’s the toughest piece to plan: health insurance and how to free up cash to live on while keeping income low enough to get a healthy subsidy.

 

[Shepard]

How will you control income to get ACA subsidies (if that is part of your plan)? That’s the toughest piece to plan: health insurance and how to free up cash to live on while keeping income low enough to get a healthy subsidy.

I am assuming no ACA subsidies in my calculation of 'A' (I have assumed I am paying the full premiums), so any subsidy I get would be further conservatism. That said, my plan to get or not get ACA subsidies is highly dependent on the returns from the option writing portion of my income/portfolio:

1) Have a great option year (Option Income > ACA subsidy limit). In this case, there is no chance of getting a subsidy, but I made a ton of money, so that's okay, that was what 'A' plans for.

2) Have an okay option year. (ACA min income < Option Income < ACA subsidy limit). In this case, I would withdraw from Roth accounts or other taxable sources without capital gains to achieve A. I would get whatever subsidy that level of income provides

3) Have a bad option year (Option Income < ACA min income). In this case, I would sell taxable assets to achieve A, and if I still didn't have enough capital gains to hit the income minimum, I would then convert regular 401(k) funds to Roth to have whatever amount of income I wanted.

DISCLAIMER: I am not a tax/ACA professional and am not providing anyone with tax/ACA advice...

 

[LarryMelman]

I am asking if you really really trust your "A" number. You say you know your current A very well. As do I, it's very low, even if I average in major purchases like cars and etc. But that will not be A in retirement. Especially not in the early years of retirement, when your health will be good and you will transition into a new lifestyle. That's the A you need to forecast. On top of that are really major unplanned expenses, both good and bad. You seem to be throwing various small fudge factors into your A. I'm saying to plan for 2A or 3A, with an occasional 10A year thrown in because "things happen".

Lastly, you refer to an unnamed "they" a couple times ("They stopped working a few years ago and are ready for me to join the party.", "so far they have not been bored in several years"). Are these friends? relatives? co-workers? Have you asked them how their "A" changed in the early years of retirement, when good health and ample free time allow for more spending?

 

[MissMolly]

Lastly, you refer to an unnamed "they" a couple times ("They stopped working a few years ago and are ready for me to join the party.", "so far they have not been bored in several years"). Are these friends? relatives? co-workers? Have you asked them how their "A" changed in the early years of retirement, when good health and ample free time allow for more spending?

I'm pretty sure "they" is a spouse.

 

[HI Bill]

Welcome! Does "A" include enough $ to fund any new hobbies, travel, intermittent expenses, and any purchases that you might want? If so, you're good to go financially. I kept increasing "A" to where when I FIREd, it was triple (3X) my spending level before FIRE. This was at first, a way to have discretionary travel $ in an amount equal to the non-discretionary $, and then later, to allow the purchase of a house that cost 3X our condo value. You just need to ensure that A will fund your current picture of your RE, and allow you to spend on what you want. I find myself buying new tools and stuff weekly, even 13 months after moving into my new place. $23K later, I'm about done with furniture. But I'm now building custom garage cabinets, and may branch out and do a 12-foot long vanity for the master bath.

Good luck! OMY is a real and constant threat to RE. Don't let OMY win!

 

[skyking1]

Welcome! Does "A" include enough $ to fund any new hobbies, travel, intermittent expenses, and any purchases that you might want? If so, you're good to go financially. I kept increasing "A" to where when I FIREd, it was triple (3X) my spending level before FIRE. This was at first, a way to have discretionary travel $ in an amount equal to the non-discretionary $, and then later, to allow the purchase of a house that cost 3X our condo value. You just need to ensure that A will fund your current picture of your RE, and allow you to spend on what you want. I find myself buying new tools and stuff weekly, even 13 months after moving into my new place. $23K later, I'm about done with furniture. But I'm now building custom garage cabinets, and may branch out and do a 12-foot long vanity for the master bath.

Good luck! OMY is a real and constant threat to RE. Don't let OMY win!

Congrats on the tools and creative stuff. That is the good stuff for me too, and you are right:
Don't let OMY win. Right now I am fighting with pushing back 6MM.

 

[Shepard]

Update 4/6/2023

Once the market started turning down at the start of 2022, I decided to wait it out a bit and kept saving/working as my portfolio dropped. Fast forward to today, I am back at 30.5A (years of living expenses), or a 3.28% withdrawal rate, with an extra 4A on the side for various contingencies and sinking funds.

I am moving toward a retirement date somewhere between 5/5/2023 and 6/2/2023, but I still find myself thinking about OMY. I make enough and live frugally enough that OMY is worth 2A in additional savings. I'm getting more confident I am ready but it feels like a lot of money to walk away from at 43.

Thanks for listening

 

[MBAustin]

Shepard, only you can decide what is more important to you - a more cushioned nest egg or time to do what you really want on your own terms. I don't see where you have specific plans for your time, but with your spouse already out of the w*rkforce and not concerned about you getting bored, that's a good sign. Is your spouse encouraging you one way or the other at this point?

 

[O2Bfree]

I'd planned to retire in 2017. Met my financial goals, but was enjoying my job and decided to stay two more years. Left in 2019, with big plans for travel and other activities in 2020. Then covid hit, so I spent my first two years of retirement not being able to do many of the things we'd planned.

I really regret not retiring when I'd originally planned. The market crash during covid would have been more alarming if I had, but things came back and I would have been fine.

There are also health issues to consider. You and your wife are only 42, so healthwise you probably have many of your best years still ahead of you. Take advantage of them! Go crazy! Come your 50s, you may be spending more time than you'd like dealing with health issues.

 

[Shepard]

Is your spouse encouraging you one way or the other at this point?

My spouse is supportive, but leaves all the financial stuff to me, so they just want me to confirm everything is fine and that's it. We have agreed that my last day will be no later than 6/2/2023, but could be earlier if I want, although 5/5 is the closest realistic date at this point.

Any lingering OMY or even 'one more month' thoughts are just my own demons to contend with. That said, unless something really crazy happens in the market over the next few weeks, I intend to retire as planned.

 

[RetiredAt49]

I retired on 1/3/2022 (the start of the bear)… Assuming all the normal tools (Firecalc) show positive results then press forward and don’t look back. Congrats!

 

[Shepard]

As things get closer, I have a question for those who made the transition to an ACA plan. Do you apply for an ACA plan before your actual last day of employment to ensure a smooth coverage transition or do you have to wait until you are actually unemployed to submit the application?

 

[Willers]

I didn’t wait until I was unemployed.

My end date was 2/28 so I applied on healthcare.gov in February for a 3/1 start date. It went smoothly with no issues. I just chose loss of employment as the reason for a mid-date start.

 

[DrRoy]

At that age, I think I would want 40X, without all the other fudge factors.

 

[Shepard]

I didn’t wait until I was unemployed.

My end date was 2/28 so I applied on healthcare.gov in February for a 3/1 start date. It went smoothly with no issues. I just chose loss of employment as the reason for a mid-date start.

Thank you; that helps a lot.

 

[Shepard]

Well, I turned in my two weeks notice today, so here we go! FIRE'd as of 5/5!