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Am I on Track to Retire Around 55?
Old 10-28-2016, 04:18 PM   #1
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Am I on Track to Retire Around 55?

Greetings from the L.A. suburbs! This is my first post, but I have been reading the advice on here for a while, and have been learning a lot. Today I'm curious to get people's take on whether I'm in the ballpark of being able to retire at around age 55.

I'm currently 41 years old, and my DW is in her late 30s. We have two kids, both in elementary school. Our combined annual household income is about $400k/year, and we both have great, stable jobs (although we both work for very small businesses).

Main assets and liabilities are as follows:

ASSETS
  • Liquid non-retirement investment accounts - $600K - Mix of stocks and ETFs, with a asset mix appropriate for our ages (around 80/20 equities/bonds)
  • Pre-tax retirement accounts (IRAs, 401(k)s) - $800K - Same approximate asset mix
  • Roth retirement accounts - $400k - Same asset mix
  • Inherited IRAs - $630k - I have to take annual taxable minimum withdrawals on these, per the IRS single life expectancy table
  • 529 plans - Approx. $300K combined balance, with a fairly aggressive tilt towards equities right now
  • Home is worth approx. $900K

LIABILITIES
  • $500K remaining on mortgage (so, $400K net equity in home)
  • Approx. $10K auto loan
  • That's about it. We use credit cards for everything but pay them in full every month.
We max out all of our retirement vehicles each year (including backdoor contributions to Roth IRAs), and have been feeding the 529 plans since before our first child was born. We also sock away leftover cash in non-retirement accounts, to the tune of about $1,000 - $1,500/month.


WHY AM I HERE?

I've been thinking about FIRE since neither of my parents lived past 70, and I don't want to work and work and work and then just be gone one day. I don't need to retire super early and go travel the world and "find myself," but I can definitely see myself gearing down and stopping work -- or at least cutting back and maybe just doing some consulting to keep myself sharp -- by the time I'm in my mid-50's.

DW sort of has a harder time envisioning herself stopping full-time work so early in life, but also doesn't want to wait until her mid- to late-60's to gear down. We both have livelihoods where it's conceivable that we could both do some consulting work and still draw some income, if we wanted to.

Ideal retirement for us would involve some travel, but we live fairly simply. Other than eating out and maybe 2 trips per year, I don't think we'd spend extravagantly in retirement. We have not thought much about long-term care insurance or other types of costs that will probably loom large for us one day.

I feel like we're on a good path to retire in our 50's, but for all I know, maybe we're still being wildly optimistic about how quickly we'll chew through our savings if we stop working in 15 years. I welcome all opinions and advice. Thank you for having me!
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Old 10-28-2016, 04:48 PM   #2
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It all depends on how much you want to spend per year. Without that, nobody can tell you!
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Old 10-28-2016, 04:54 PM   #3
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Nice savings accumulation for your age -- AND with kids too!

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Old 10-28-2016, 06:46 PM   #4
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Well, without spending numbers, there's not much detail I can give. "Really basic" math tells me that if your money doubles twice over the next 14 years, you should have around 9.72M, which would give you a 4% SWR of around $388,800/year pre-tax. So you're on track to be "okay" at least I'd say, though I can't say more.
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Old 10-28-2016, 07:16 PM   #5
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With those assets, I would already be retired...
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Old 10-29-2016, 03:15 AM   #6
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Kwix - Good savings so far. I'm 47, similar family/income situation, and my FI number in LA is between $4-5M with an already paid off townhome. I'm targeting semi-RE by 50 and full ER in early 50's depending on how I'm enjoying it.

I think you are on the right track. As far as retiring or downshifting in your mid-50's, it's possible however it depends on the lifestyle and expenses. I've seen some LA families enjoy spending, so it depends if you are looking to support a $100k budget or $300k annual budget.
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Old 10-29-2016, 06:46 AM   #7
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You are on the path of being extremely wealthy. If that's part of your goal, great. If not, run some cases in Firecalc to see how much money you could spend each year under various "retirement" scenarios and pick a date you want to start doing something different. You will have lots of choice given your savings to date. I think you will be surprised how little concern you should have in your situation.
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Old 10-29-2016, 07:33 AM   #8
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Originally Posted by exnavynuke View Post
Well, without spending numbers, there's not much detail I can give. "Really basic" math tells me that if your money doubles twice over the next 14 years, you should have around 9.72M, which would give you a 4% SWR of around $388,800/year pre-tax. So you're on track to be "okay" at least I'd say, though I can't say more.
All true but note that this would imply an IRR of over 10% per year.

Possible: yes - a reasonable planning assumption: probably not.

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Old 10-29-2016, 07:40 AM   #9
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You might also consider where your asset level is relative to others in your age range. Looks to me like you are in at least the top 5% and likely the top 2%. https://assetbuilder.com/knowledge-c...lth_scoreboard. That should also give you a feel for how comfortable you should feel about your possibilities.
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Old 10-29-2016, 09:26 AM   #10
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Originally Posted by gauss View Post
All true but note that this would imply an IRR of over 10% per year.

Possible: yes - a reasonable planning assumption: probably not.

-gauss
If I was expecting their portfolio to double in size solely from their investment returns, I'd agree. However, I expect that they haven't stopped saving for retirement at this point and won't stop saving for retirement until they retire, and with the stated income and account balances, I think it's reasonable to assume that the percentage of their income that goes towards investments is still fairly significant, thus requiring a lower IRR. A 2.4M starting balance investing 20% of their gross pay/year with 7% returns gives a 15 year result of ~$9M (again basic and with lots of assumptions). As I said though, it's a really basic estimate since we're missing most of the information needed to run any real calculations for theirs ituation


Edit: I noticed OP did mention savings rates (I missed that until now, oops), if I assume just $36k in 401k's and $1,500/month taxable for ~$4.5k/month put away, at 7% interest the balance in 15 years is $8.35M total balance. Again, just using basic calculations, not tax specific or taking into account any specifics (RMDs or paying off the mortgage or anything else of the sort), it still seems very doable to me.
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Old 10-29-2016, 10:41 AM   #11
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Originally Posted by Aiming_4_55 View Post
I think you are on the right track. As far as retiring or downshifting in your mid-50's, it's possible however it depends on the lifestyle and expenses. I've seen some LA families enjoy spending, so it depends if you are looking to support a $100k budget or $300k annual budget.
Yes, very true about L.A. families! We live in the 'burbs, but even out here some of the dads I know get hair highlights, botox, etc...

Thanks to everyone who responded. This question for me was really a gut check, a way of asking, "I feel like we're doing great so far, but what am I missing?"

Many folks rightly pointed out that the question about spending in retirement is one I need to answer better. We've been very focused on the asset-accumulation part of retirement planning, but we need to start sketching out the other half of the equation.
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Old 10-29-2016, 02:58 PM   #12
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Y
Thanks to everyone who responded. This question for me was really a gut check, a way of asking, "I feel like we're doing great so far, but what am I missing?"
Nothing. For your age you are in outstanding shape to FIRE by 50.

Continue doing what you had been doing.
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Old 10-30-2016, 09:51 AM   #13
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Thanks again for the feedback, everyone!

Just to give a little more detail on our current savings rate:
  • I save $18k/year in a Roth 401(k)
  • DW saves $18k/year in a pre-tax 401(k) - her company doesn't offer a Roth option
  • We each save $5.5K/year in a Roth IRA via backdoor contribution
  • We had been saving $1k/month in 529 plans, but have recently shifted this $1k over to saving in regular investment accounts since the 529 balances in pretty good shape
  • We save another $500 - $1K/month in regular investment accounts -- basically whatever is left over at the end of the month

So, approx. $65/year, mixed among different account types.
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No issues
Old 10-30-2016, 10:10 AM   #14
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No issues

My friend, you are very far ahead of the curve at this point. As others have pointed out analytically, but I'll confirm with my own experience, you will have total discretion and control over your work/life choices if you stay on this track for even a very short additional time. Congratulations.
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Old 10-30-2016, 11:09 AM   #15
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You're in great shape as far as savings for your age - or any age.

Adding up your current savings rate you're saving over $60k/year. You stated your combined income is about $400k.

If you're spending the balance - that's spending $330-340ish K/year. That would require needing a nest egg of between 8.25M and $9.9M. (4% or 3% withdrawal rates).

Obviously, you'll need less if you spend less. I'm pretty sure you can find some easy cuts in spending before your retire.

I live in SoCal also (coastal San Diego) - I have a much smaller nest egg - but also a much smaller spend rate. Like you I have 2 kids at home.
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Old 10-30-2016, 12:22 PM   #16
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Glad to have you here, kwix!

As others have stated, you are way ahead of the savings curve. I agree with your decision to stop adding to the 529s as they are in good shape.

The big question is your lifestyle and how that may change when the kids are off to college and then on their own. If you plan an expensive lifestyle in retirement (luxury travel, high-end eating out, expensive wines, designer clothes, etc.) then the answer may be different that if you have more modest preferences.

Suggest running lots of scenarios in FIREcalc for both retirement dates and spending amounts, as well as carefully tracking your spending for the next few years.
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Old 10-30-2016, 12:57 PM   #17
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You're in great shape as far as savings for your age - or any age.

Adding up your current savings rate you're saving over $60k/year. You stated your combined income is about $400k.

If you're spending the balance - that's spending $330-340ish K/year. That would require needing a nest egg of between 8.25M and $9.9M. (4% or 3% withdrawal rates).

Actually, the income figure ($400K) is pre-tax. Taking out the federal and state income taxes we paid last year, that leaves approx. $260K. Taking our $60K savings out of that, we're spending around $200K/year. I just cross-checked this with our budgeting software, and it's very close.

Totally agree that we should be able to easily make some cuts. For example, I know we could cut back on eating out (our main splurge) and a few other things if we really wanted to!
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Old 10-30-2016, 01:03 PM   #18
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Glad to have you here, kwix!
Thank you!

I have to admit that I had never played around with FIRECalc until today. I've been playing with lots of scenarios this morning. This tool is so great. I'm already learning a lot about the sensitivity of certain parameters. And DW, who's an actuary, even admitted that it's pretty cool.

Something to do on a rainy SoCal morning!
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Old 10-30-2016, 03:12 PM   #19
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Actually, the income figure ($400K) is pre-tax. Taking out the federal and state income taxes we paid last year, that leaves approx. $260K. Taking our $60K savings out of that, we're spending around $200K/year. I just cross-checked this with our budgeting software, and it's very close.

Totally agree that we should be able to easily make some cuts. For example, I know we could cut back on eating out (our main splurge) and a few other things if we really wanted to!
Unfortunately Feds and State still need their cut in retirement. You can eliminate the FICA taxes (SS and Medicare). You need to budget for taxes in retirement. You're in good shape in that some of your savings are post-tax and ROTH... but you'll still have cap gains on the post tax, and income tax on IRA withdrawals and interest/dividend payments.
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Old 10-30-2016, 09:44 PM   #20
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ASSETS
[*]529 plans - Approx. $300K combined balance, with a fairly aggressive tilt towards equities right now
Depending on what your plans are with funding private/public and level of education, ie. undergrad/grad/etc., the $300k might be enough if you add some estimated growth. With young kids, it might be invested for another 10 years and double. Something to consider as you continue to save. Not a bad issue to have.
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