Barely reached Double Commas, and more to do...

[Markola]

My 50th birthday is this month so I decided to finally introduce myself to this valuable forum, even though I’ve enjoyed actively learning from you experienced folks for a couple of years now. Here goes:

Me: 50 y.o. male
DW: 52.5 (lovely lady and a two-time cancer survivor)
No children
We live in a medium-sized upper Midwestern city

Investible Net Worth: $1.2M
1.125M tax-advantaged @ 85/15 allocation, all index funds
$75,000 taxable in 100% Total Stock Mkt Index (for tax-efficiency)
Also: $100,000 home equity on a $400,000 house with 30 year mortgage at 4.1%. No consumer debt.

Current Gross Income of two salaries is $250,000.
Current savings $66,000/year. We are maxing 401Ks + saving $1,500 mo taxable. We are about to start adding two full 401K catch-up provisions for an additional $12,000/year to total $78,000 savings/year starting 2016.

Our Plan for our 50s: reach $2.5M - $3M investible
We obviously need to have health insurance locked down tight, even if it means working longer. DW remains ambitious for her career and makes $100,000 in the federal government. I don't see her stopping until she is at least 59.5, assuming her health holds. We can buy permanently into Fed health insurance starting in 6 years. I am not sure yet whether my driving goal is early retirement, part time work, or just better management so I'll keep working and saving until I decide. Plus we have older parents and, of course, a dark health cloud that hangs over and sends lightning bolts at us periodically. If we both keep working and are fortunate that present health, income and market trends continue (I project 7% long-term growth), we should hit our goals in 7-9 years, when I am 57-59. We’ll adjust spending or retirement dates according to whatever reality flings at us before then.

Plan for our 60s: Retirement
I plan to shift to 60/40 allocation of index funds when we stop working. For 3 years I have tracked all our spending avidly in YNAB and plan for $110,000/year to pay for taxes and spending if we keep our mortgage and make no lifestyle reductions. 4% of $3M is $120,000, so that’s the very high end spend rate and includes a lot of “wants”. There should be lots of ways to cut expenses or earn a little income in our 60s, if needed, or maybe events will transpire that let us step away a couple years earlier.

Thanks for your interest in our plan and for any advice!

[Senator]

Great start so far, but a few items...

By the time you work a few more years, your $110K will be closer to $120K+. You need that $120K after tax, not total. So you likely need more than $120K.

[MBAustin]

Nice intro, Markola. You two are certainly doing a great job with saving, and as you know, the more you save now, the more options you have later. Wonderful that your DW is healthy now and we'll all hope she stays that way.

Have you considered refinancing to a 15-year mortgage so you'll be closer to payoff when you are ready to retire and reduce your interest rate and total payments? Just a thought - especially if you could reduce expenses in other areas and keep your savings at the same level.

[walkinwood]

A few suggestions:

Start the move to your retirement AA about 5 years before you retire. That way, a sudden drop in the market doesn't affect your plans.

If you think you're going to live on less than what you're spending now, start living it - and see if you can.

Long term growth is what it turns out to be. Using a number to plan is great, but don't get too invested in it.

Your income tax rate drops a lot when you don't have any income coming in. Use your current dividend/cap gains income to do some rough estimates.

All the best and welcome to the forum.

[Markola]

Thanks much for taking the time to comment. A few responses:

Quote:

Originally Posted by Senator By the time you work a few more years, your $110K will be closer to $120K+. You need that $120K after tax, not total. So you likely need more than $120K.

Senator, Yes, I figure once we have our stash, we'll be doing good to manage it to stay just ahead of SWR+inflation. Our actual spending right now is $88,000, with the mortgage, so my $110,000 (your future $120,000) includes a margin for taxes. If we pay off the house or downsize at ER our spendable would drop by $18,000. Therefore, at current lifestyle, we'd need to generate $70,000 + taxes. I realize there's a significant cushion and margin built in but, as you point out, inflation is real, plus I like a big cushion. We also intend to wait until 70 for SS, so another cushion out there in the future. Should present trends not continue and my wife and I become highly motivated to FIRE, we will certainly make changes so that we do not require $3 million, though it is kind of nice to think about owning that big nut in 10 years as a reward for plugging along just as we are, according to my calculations. All of our current friends and family will likely still be working when we stop at 60 - the most distant scenario - so it will seem like we are ERd. Maybe I can relax and quit much earlier once we have health insurance nailed.

Quote:

Originally Posted by MBAustin Have you considered refinancing to a 15-year mortgage so you'll be closer to payoff when you are ready to retire and reduce your interest rate and total payments? Just a thought - especially if you could reduce expenses in other areas and keep your savings at the same level.

Thanks for your support MBAustin. I have lost my job twice in my career, which I don't recommend, though both traumatic experiences turned out to be fortuitous since I was fortunate to "fall forward" really well both times and increased my responsibilities and income. Those experiences are what got my butt engaged to plan for FIRE seriously, so another benefit. Both times, I had more of a mortgage straitjacket than was comfortable, so I think I prefer to minimize mortgage and maximize saving liquid assets that I can get to during another crunch. It stinks to be out of a job yet carry debt payments of any kind. It added to a stressful situation. I am also aware that I am turning 50, so maybe I wouldn't be so lucky the next time do to age bias? I know there are lots of good opinions on both sides of this mortgage topic and I have also read that, with our low interest rate, it comes down to personal preference. However, I do see paying it off or downsizing when we stop working as a big way to clear the expense deck to achieve ER.

Quote:

Originally Posted by walkinwood Start the move to your retirement AA about 5 years before you retire. That way, a sudden drop in the market doesn't affect your plans. If you think you're going to live on less than what you're spending now, start living it - and see if you can. Long term growth is what it turns out to be. Using a number to plan is great, but don't get too invested in it. Your income tax rate drops a lot when you don't have any income coming in. Use your current dividend/cap gains income to do some rough estimates.

Walkinwood, Yes, I am a bit aggressive in AA. The way I justify it to myself is that DW's accounts are invested more conservatively and mine are more aggressive. One reason is because she is less interested in studying investing and yet she has earned about a third of what we have saved. She lets me make the investing choices, so I feel responsible to invest her more conservatively than me. Second, we will possibly tap her accounts 2.5 years before mine when she hits 59.5 and having more bonds in her accounts reduces the risk of being in a downturn at ER. So, you're right, and she is already doing what you suggest. I predict I'll start reducing my own risk a few years out too, though I realize I said otherwise in my intro above.

I don't know if we'll ever have much dividend income from our relatively small taxable account to get much tax advantage. Instead, I expect to mostly pay regular earned income rates from IRA distributions. Am I wrong, though?

I KNOW we can live live just as happily on a lot less spending. Our first place together was a one bedroom rental house with a wood stove as primary heat while we were in grad school when I was 24. I didn't even own a car when we met, just a bike. We were downright Mustachian before Mustachian was cool, and totally in bliss, so I know there is a huge margin in all of these numbers.. We have enjoyed our lifestyle inflation but it is just a choice that we've made and choices can change. Heck, when I think about that romantic university life we enjoyed, it is clear that we could ER now! Options. What a great feeling to have.

Cheers to you and other ER forum readers. Everyone I know in daily life would, by this point, (including DW!) have decided they were getting a call they needed to take in another room, so thanks for hanging in there with me.


Sent from my iPad using Early Retirement Forum

[Markola]

Happy New Year, Everyone,
I thought I’d give a two-year update since my OP above and solicit the Forum’s ideas for fine-tuning:

Total Invested: $1,581,000

AA: A little more conservative now from 85/15 to 70/30. We basically have a Taylor Larrimore 3 Fund Portfolio (see Bogleheads). I still plan to be 60/40 at FIRE.

Mortgage: As commenters above suggested, I did look into refinancing to a 15 year mortgage but decided against it. We think keeping the 30 year gives us more options.

Jobs: Man, what a difference a change of jobs can make in one’s attitude toward w*rk. Two years ago, I had a miserable boss, whom I couldn’t wait to get away from. In April 2016, I did. It has made a big difference to job satisfaction to have a nice boss who respects others and I feel I’m thriving in my career again. DW, on the other hand, is gritting it out with the Federal Government after the boss who hired her retired and she obtained a new one who is a genuine head case. Now DW is the one hoping to hang in there 3 more years until she can FIRE but retain access to purchasing federal health insurance for both of us. We have a little notebook with a palm tree on the cover that we pull out once per month to rip out a page. 36 pages to go - for her, at least. The good part about that is, I will wholeheartedly support either her permanent or temporary FIREing in 3 years, whatever she wants to do, so that she, hopefully, returns the favor when it comes time for me :-). I was worried she’s the type who will work forever but, now, after illnesses and a toxic boss, she talks more like a person who realizes life is short. In other words, like me.

Emerging Idea: Gap Year in 2021 and do some traveling. My profession is fortunately in high demand such that I’m not at all worried about finding work later. I might do less of it, though.

A key part of our plan: Both of our retirement plans at work allow us to withdraw penalty-free if we separate in or after the year we turn 55. So, we will transfer our T-IRAs into my 403b and her TSP before too long. Though we have a $2M liability policy, I also like the extra liability protection of our work plans versus our state’s crappy IRA liability protections.

Some questions:
- Have any of you taken a gap year or so from careers to accomplish some bucket list items? What did you do and how did it go?

- We are not using the very popular G Fund in DW’s TSP account yet. I’ve been studying its uniqueness as something close to a free lunch investment, however. The return is about 2.5%. I use the Total Bond Index for all of our fixed income right now. Maybe we’ll use the G Fund to park some cash someday. What am I not seeing? Am I missing an opportunity?

Thanks for reading and for any other counsel.

[kimcdougc]

Happy New Year. DH and I retired with less than you currently have at the ages of 50 and 57. That was 3 years ago. Long story short - we have more now than when we retired. We also learned that we don't spend near as much as we budgeted for. We do what we want when we want.

We also purchase our healthcare on the exchange. So far, so good.

[Markola]

Congrats on pulling the plug. It’s encouraging to hear real life stories, like yours, of people who’ve actually accomplished FIRE. Glad to hear your portfolio continued to increase, too.

[splitwdw]

OP, A buddy of mine took a gap year when he only had 3 years to go to retire. I urged him not to take the gap year, instead keep working and super save. He took the year off, had to take a lower paying job in his field plus couldn't find that job right away. That was 4 years ago and he's got another year until he can retire. He went from 3 years to 5 years working. He's pissed that he went for instant gratification.

[Markola]

Good to know! Thanks for that story. I will give it some thought. DW will need to depart her job, I think, and who knows what the economy will be in 2021. I’m not locked into anything so we’ll see.

[NomDeER]

Quote:

Originally Posted by Markola Emerging Idea: Gap Year in 2021 and do some traveling. My profession is fortunately in high demand such that I’m not at all worried about finding work later. I might do less of it, though. A key part of our plan: Both of our retirement plans at work allow us to withdraw penalty-free if we separate in or after the year we turn 55. So, we will transfer our T-IRAs into my 403b and her TSP before too long. Though we have a $2M liability policy, I also like the extra liability protection of our work plans versus our state’s crappy IRA liability protections. Some questions: - Have any of you taken a gap year or so from careers to accomplish some bucket list items? What did you do and how did it go? - We are not using the very popular G Fund in DW’s TSP account yet. I’ve been studying its uniqueness as something close to a free lunch investment, however. The return is about 2.5%. I use the Total Bond Index for all of our fixed income right now. Maybe we’ll use the G Fund to park some cash someday. What am I not seeing? Am I missing an opportunity?

I have taken a gap year twice. I'm sure I'd be better off financially if I hadn't, but I definitely do not regret it. Both times I was burnt out and miserable in my job. I didn't travel much when I was young and really wanted to take some time to do that. The first time, I traveled to a number of places. The break gave me some time to decompress and see more clearly where I wanted to take my career (and where I didn't want to take it). It was a great decision. I was relatively young and had recently paid off my student loans, so I decided to go for it.

The second time, I was a little older, but again was miserable and felt like I needed a break from working. This time, I was lucky to have a job waiting for me when I got back. I had always regretted not spending a year abroad in college. So, I took the year and lived abroad doing very rewarding and interesting volunteer work. It was one of the best years of my life.

I wouldn't leave my job right now because of my age and because I definitely think it would be very difficult to get another job afterwards. I worry about the health insurance that comes with my job. But, this job is not a secure one, and if I lose it, I would consider traveling again.

If you will have the security of health insurance and are either confident that you will be able to find a job after a year or that you will be financially secure even if you don't find another good job, I highly recommend a gap year. Especially with your wife's history, you don't know what life will bring and whether you will be able to travel later. Maybe she can decompress for a little bit after she retires and then you can take some time off to have an adventure with her. Just having that to look forward to might help her grit her way through her job until she can retire.

As for the G Fund in the TSP, this is my take on it. A chunk of my retirement funds are in the TSP and the majority of my bond allocation (overall) is in the G Fund. I used to have some in the F Fund, but moved it over to the G. Personally, I have money in bond funds in order to reduce my risk, not for big return. At this point, there isn't much difference in the return of the G Fund and total bond funds. At this point in time, I can't see huge returns in the F Fund. But, there is more risk with the F Fund and it can go negative. The G Fund can't go negative. It's likely to go a little higher. It's low risk, so I feel a little more comfortable taking risks with the rest of my portfolio. I also tend to use the G Fund as a way to rebalance since I don't incur capital gains taxes.

[cnocmmz]

Also, since (you mentioned) DW makes about 100K (GS13) or so , she should also have a nice pension when she retires, and I wasn't sure if you mentioned this in your calculations?
In any case, sounds like you guys have really sacrificed and done the investing/ saving you needed to ER. Congrats on your success .

[Markola]

Quote:

Originally Posted by NomDeER I have taken a gap year twice. I'm sure I'd be better off financially if I hadn't, but I definitely do not regret it. Both times I was burnt out and miserable in my job. I didn't travel much when I was young and really wanted to take some time to do that. The first time, I traveled to a number of places. The break gave me some time to decompress and see more clearly where I wanted to take my career (and where I didn't want to take it). It was a great decision. I was relatively young and had recently paid off my student loans, so I decided to go for it. The second time, I was a little older, but again was miserable and felt like I needed a break from working. This time, I was lucky to have a job waiting for me when I got back. I had always regretted not spending a year abroad in college. So, I took the year and lived abroad doing very rewarding and interesting volunteer work. It was one of the best years of my life. I wouldn't leave my job right now because of my age and because I definitely think it would be very difficult to get another job afterwards. I worry about the health insurance that comes with my job. But, this job is not a secure one, and if I lose it, I would consider traveling again. If you will have the security of health insurance and are either confident that you will be able to find a job after a year or that you will be financially secure even if you don't find another good job, I highly recommend a gap year. Especially with your wife's history, you don't know what life will bring and whether you will be able to travel later. Maybe she can decompress for a little bit after she retires and then you can take some time off to have an adventure with her. Just having that to look forward to might help her grit her way through her job until she can retire. As for the G Fund in the TSP, this is my take on it. A chunk of my retirement funds are in the TSP and the majority of my bond allocation (overall) is in the G Fund. I used to have some in the F Fund, but moved it over to the G. Personally, I have money in bond funds in order to reduce my risk, not for big return. At this point, there isn't much difference in the return of the G Fund and total bond funds. At this point in time, I can't see huge returns in the F Fund. But, there is more risk with the F Fund and it can go negative. The G Fund can't go negative. It's likely to go a little higher. It's low risk, so I feel a little more comfortable taking risks with the rest of my portfolio. I also tend to use the G Fund as a way to rebalance since I don't incur capital gains taxes.

Thank you for the thoughtful reply and your story. You have captured our thinking about life being short and our desire to enjoy it while health is good. After a couple of chemo rounds and surgeries, lovely DW is slowing a bit, I can tell. Heck, so am I. We’re motivated to see the world so it seems entirely worth the expense. I’ve been plotting out the year off on the Personal Capital - Retirement Planner and it seems doable.

I also appreciate your example of using the G Fund as I envision. Good luck to you!

[Markola]

Quote:

Originally Posted by cnocmmz Also, since (you mentioned) DW makes about 100K (GS13) or so , she should also have a nice pension when she retires, and I wasn't sure if you mentioned this in your calculations? In any case, sounds like you guys have really sacrificed and done the investing/ saving you needed to ER. Congrats on your success .

Cnocmmz, yes, she’s GS13. However, she took a non traditional route to becoming a Fed at age 48, so she’ll only hit exactly her MRA+10 when she leaves in 3 years. Still, a small pension beats a sharp stick in the eye. Back of the envelope, it looks like $500 per month, which she’ll need to start immediately upon FIRE to continue our health insurance, which is the real point of our plan. It seems like the premiums will be a wash but, even if not, any pension will help.

It’s funny, we have saved but I don’t feel like we’ve sacrificed. I’ve enjoyed doing our finances and building our portfolio over the decades (DW could care less to learn it all but she’s let me max her savings and is in there with me fully). Between tax deferral and employer matches, I think we’ve gotten a real deal in life to build wealth from the system. We thought we’d have kids but didn’t, so there was a real financial upside to that life downside. We live pretty well and I don’t feel we’ve missed out on anything we wanted to do but thanks for the compliment nonetheless! Cheers.

[DrRoy]

If you are pretty close, I would skip the gap year and just finish. Then every year is a gap year, and every day is Saturday!

[VanWinkle]

Quote:

Originally Posted by Markola Thank you for the thoughtful reply and your story. You have captured our thinking about life being short and our desire to enjoy it while health is good. After a couple of chemo rounds and surgeries, lovely DW is slowing a bit, I can tell. Heck, so am I. We’re motivated to see the world so it seems entirely worth the expense. I’ve been plotting out the year off on the Personal Capital - Retirement Planner and it seems doable. I also appreciate your example of using the G Fund as I envision. Good luck to you!

I can relate with your feeling about DW and her battles with cancer. My DW is a survivor also with 3 different chemo series. It changed our outlook and I did retire early at 61. I have never regretted the time we have spent together. Good luck on your upcoming retirement and good luck for your wife's recovery.

[Markola]

Thank you very much for that encouragement, VanWinkle, and best wishes for you and your DW.

DrRoy, Your point is certainly appealing. I think DW will need to stop in early ‘21 for the reasons above, and a major project I was hired for also ends then, making it also a good time to step away after a big success, I hope and intend. Knowing us, we’re probably both going to do something professional after some time off, so I plan more in terms of semi-FIRE for us. On the other hand, maybe we’ll get used to not working! In that case, we could make some lifestyle adjustments and stop. Or at least that’s the way it looks here in 2018. Thanks!

[NomDeER]

Quote:

Originally Posted by Markola Thank you for the thoughtful reply and your story. You have captured our thinking about life being short and our desire to enjoy it while health is good. After a couple of chemo rounds and surgeries, lovely DW is slowing a bit, I can tell. Heck, so am I. We’re motivated to see the world so it seems entirely worth the expense. I’ve been plotting out the year off on the Personal Capital - Retirement Planner and it seems doable. I also appreciate your example of using the G Fund as I envision. Good luck to you!

It sounds like you're being very intelligent about this -- both financially and emotionally.

Hopefully your wife will regain some energy. I don't know how long she has been in remission. I have several friends who are cancer survivors. The cancer treatments, as well as the fear and the focus on recovery, sapped their energy for quite some time. But, eventually they regained energy. (That five year mark is especially significant.) I hope the same is true for your wife.

But, I admit that, as I've gotten older, my energy level has changed and my approach to traveling has therefore changed. I used to try to pack as much as I could into each day and trip because I was short on time and money. I have neither the energy nor the interest in that approach anymore. Now, I prefer to explore at a more leisurely pace and really soak things in. Early retirement would make that much more possible!

Decades ago, when I traveled in New Zealand, I met a 60 year-old woman who was traveling internationally for the first time. She was newly widowed and decided not to wait any longer to travel. She was having a blast. I've never forgotten that. My sister's in-laws did something similar. They retired in their mid-50s and took some trips they had dreamed of for years. It was a good thing they did. In their 60s, they both took tough hits to their health. Of course, I've also met energetic and fit hikers in their 70s while traveling, so you never know. I just don't want to roll the dice, especially given my family's medical history.

What you're planning isn't conventional, but if it makes sense for you, go for it. In the meantime, have a lot of fun planning what you will do in that gap year. Planning a trip is half the fun. When work gets me down, I browse the Lonely Planet forums or pick up some travel books and think about a travel itinerary.

Best of luck to you and your wife.

[Markola]

Thank you for those stories and your encouragement, NomDeER. The first time the Big C struck DW, she was 38. The second time, 52, and she finished her main chemo about 9 months ago. Anyway, we do what we have to do but it is an escape to plan our trip. I need to check out Lonely Planet forums. I used to like their plain old travel guide books best but those are getting scarce. WiFi is everywhere almost, so why use books, I guess. Thanks for the tip!

[brucethebroker]

How about a different idea? What would you do if the health insurance was not a concern? I am am serious-ignore it for a couple of hours and brainstorm together, perhaps over coffee or a short road trip. Consider all of the outside the box possibilities for retirement NOW. Start by saying "what if we found out one of us was going to die in 2 years? How would we want to live our life together for the next 24 months?"

My DW and I both have conditions that could put us in that position, and we have tried to plan our future taking that into consideration.

Health insurance is out there, and, for most affordable. If your numbers are correct, and you really can live on 85k, it would be easy to "massage" your numbers to get into Obamacare (ACA) tax credit territory. You can use HSA and IRA contributions, for example. Map out how many years you need to scramble (health insurance wise) until age 65 (Medicare). I read many posts here from people paralyzed by the fear of health insurance and unable to get past it. DW and I have had ACA for over 4 years (me 3, her 4) and have not had a serious problem with it. We have had 3 carriers in 4 years (a bit of a hassle, but worth it for DW to retire early), but we are winding down until her Medicare.

Would you be willing to downsize a little, in home costs, if it meant retiring early? Could you get rid of one vehicle if retired? Etc? Read, or re-read, Your Money or your Life.

You have many options due to your frugal ways to this point. Good luck with your plans.

BTW, my DW was offered early "retirement"/severence (no pension or health care) when her company was bought out by megacorp 4 years ago. Her 401-k and company stock would have ballooned had she stayed. But, no regrets. We would not have traded the last 4 years for twice that amount!!