Constructive assessment please

[Lance a less]

Hello everyone. 51 year old frequent lurker on this site. Would love to retire in 3-4 years.I’m seeking advice on fine tuning my plan and getting a reality check on where we are. Married with 2 kids (17 and 11), wife is 51 also. We have tracked spending for the past 2 years and we spend 165k/year. I was surprised at the size of this number and kind of embarrassed. This includes music lessons for both kids and some summer camps but we really are kind of fiscally conservative in many ways such as NOT eating out frequently, drive older medium cost vehicles till they die, public schools for kids and no lavish vacations. The plan for us is to sell big house in 8 years, use half of monies to renovate the vacation house, half put into investable assets. I like the ******** calculator because it allows me to make blocks of retirement time where expenses change (kids out of house, sale of big house, etc). Really looking forward to some constructive advice on this. And just to clarify the background, there were no silver spoons in my family of origin, no trust fund, no college savings; I’ve been working since age 12…and yes I’m a little tired of work.
Financial status:
Investable assets: $4.2M (40% tax deferred), low cost index funds mainly, 45% stocks; hope to make that 4.7 at retirement
Expenses: I would fully expect our expenses to run about 170k for the first 5 years after retirement (before sale of big house). Then they would drop significantly.
Taxes: Have played with Taxcaster and I’m shocked at the relatively low amount we will be paying. We will probably not fall below the ACA subsidy threshold on some years during the “bridege” to age 65 and the budget includes 24k for ALL medical expenses (premiums, dental, out of pocket)
Main home: $1.1M
Vacation home: 400k
529s fully funded for both kids for state university with a little buffer
Debt: none
Pension: none
SS: plan to have wife claim at 62ish and me at 70. I have a significantly larger PIA.

Question for PB, we track expenses with an Excel spreadsheet and like our system. Do you think Quicken Lifetime Planner is worthwhile for our circumstances?
Thanks in advance.

[gauss]

Quote:

Originally Posted by Lance a less Hello everyone. 51 year old frequent lurker on this site. Would love to retire in 3-4 years.I’m seeking advice on fine tuning my plan and getting a reality check on where we are. Married with 2 kids (17 and 11), wife is 51 also. We have tracked spending for the past 2 years and we spend 165k/year. I was surprised at the size of this number and kind of embarrassed. This includes music lessons for both kids and some summer camps but we really are kind of fiscally conservative in many ways such as NOT eating out frequently, drive older medium cost vehicles till they die, public schools for kids and no lavish vacations. The plan for us is to sell big house in 8 years, use half of monies to renovate the vacation house, half put into investable assets. I like the ******** calculator because it allows me to make blocks of retirement time where expenses change (kids out of house, sale of big house, etc). Really looking forward to some constructive advice on this. And just to clarify the background, there were no silver spoons in my family of origin, no trust fund, no college savings; I’ve been working since age 12…and yes I’m a little tired of work. Financial status: Investable assets: $4.2M (40% tax deferred), low cost index funds mainly, 45% stocks; hope to make that 4.7 at retirement Expenses: I would fully expect our expenses to run about 170k for the first 5 years after retirement (before sale of big house). Then they would drop significantly. Taxes: Have played with Taxcaster and I’m shocked at the relatively low amount we will be paying. We will probably not fall below the ACA subsidy threshold on some years during the “bridege” to age 65 and the budget includes 24k for ALL medical expenses (premiums, dental, out of pocket) Main home: $1.1M Vacation home: 400k 529s fully funded for both kids for state university with a little buffer Debt: none Pension: none SS: plan to have wife claim at 62ish and me at 70. I have a significantly larger PIA. Question for PB, we track expenses with an Excel spreadsheet and like our system. Do you think Quicken Lifetime Planner is worthwhile for our circumstances? Thanks in advance.

When you spent $165k for the past few years were you not including savings in this figure? In my case, our retirement budget went way down from our working budget due to the lack of expenses associated with:
- no more 401k and after tax savings
- no more FICA
- much lower income tax
- paid off house

BTW we were dual income no kids during the working years.

I have used Quicken for over 20 years with categories for all non-cash spending. This was key in being able to develop the retirement budget because I could run reports with categories that were no longer relevant (see above) omitted.

-gauss

[Animorph]

You sound pretty much on track, given a decent market for your last few years.

I'll just toss in my obligatory recommendation for Roth conversions of your tax-deferred accounts, a portion each year you have low income. The Roth is a little better than a normal IRA/401k, and you can pay some of your lowest tax rates. Try to estimate your taxes at 70 when you take SS and have to take RMD's from tax-deferred accounts. That may shock you into doing those earlier Roth conversions.

Are you going to live in the vacation house?

Make sure you have covered the case where you or spouse dies first and a little early. The survivor may not have half the expenses, will lose the smaller SS benefit or maybe a pension, may not be the financially savvy spouse, and will have taxes bumped to the higher individual rates. That can be a tough scenario.

[pb4uski]

Quote:

Originally Posted by Lance a less ..... Question for PB, we track expenses with an Excel spreadsheet and like our system. Do you think Quicken Lifetime Planner is worthwhile for our circumstances? Thanks in advance.

Yes, I think QLP is worthwhile even though you track your expenses in Excel. Normal living expenses are just a single input in QLP ($165k in your case but you can do some what ifs to see how your portfolio decays at different expense levels. However, it gives you the flexibility to add other expenses and use different rates of expense growth.

Beyond that, I suspect that most calculators will tell you that you are on track given that your WR will be about 3.5% or perhaps a tad more. Congratulations.

[wingfooted]

So upon retirement, you will be spending $180K per year (inflation adjusted) plus say $25K per year for ACA premiums (that employer is paying for now). Total projected spend $205K per year.

Assets, not including the renovated vacation home, will be $4.7MM investable plus $0.5MM big house sales proceeds equaling $5.2MM.

Withdrawal rate of 4% per year which is feasible, particularly if expenses drop somewhat when the children move on and the primary residence is downsized.

45% stock allocation at age 51 is low but probably reflects a conservative outlook.

I would say your plan looks good with the caveat that you'll just need to monitor investable assets as your retirement date draws closer and make sure you still have a realistic withdrawal rate.

The joys of first world problems !




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[prudent_one]

I prefer the Fidelity Retirement Income Planner to the Quicken one but I have used both many times.

I notice you say spending of $170K from your assets is only for 4-5 years (from when you retire in 3-4 years, until you sell the big house in 8 years) then you expect it to drop significantly. With that in mind, you're in fine shape.

[Ronstar]

Your plan looks solid - a thorough plan that includes how to take SS and downsizing. Not too many people have those issues tackled at 51. Finances look great.

I used to use Quicken, but now use a spreadsheet. I find that using a spreadsheet requires a little more work, but gets me more in tune with my finances since it's not as automated as Quicken and make me think more when I'm categorizing and doing calculations.

[Lance a less]

Wow! Thanks so much for all the responses. To answer a few of the questions brought up:
1. The yearly budget of 165k/year only includes expenses (no FICA or savings). This does include taxes, healthcare expenses and about 10-12k in vacations. I run a small business so I pay my own healthcare thru the business and our total healthcare expenses are 20k.
2. Have about 100k in Roth (trying to add flexibility)
3. We are definitely going to retire to the small, vacation home which is one story. Going to make it "elderly" friendly with the renovation.
4. I'm hoping to keep withdrawal rates between 3.5 and 4 for the first few years of retirement, then it really should drop to a more palatable 3% or lower after downsizing/kids gone/SS. If it looks like we will be at 4% or higher for the first few years, I'll just work another year b/c I don't feel comfortable with that.
5. The 45% equity allocation is a little conservative but it's where we are comfortable. I'll keep this at 45% going into retirement with yearly rebalancing. Part of the non-equity savings is about 350k in I bonds.

I am off this weekend and I am so happy! I have a life outside of work and this work gig is holding me back. I want to do all kinds of stuff, simple things like watching you tube videos to do small projects, grow a garden, kayak, go to the gym. And yeah, maybe even read a book for fun. I need to retire!! THANKS AGAIN everybody and more responses are very welcome.

[ivinsfan]

Will you be able to sell your business after you retire, I don't see any mention of that in your summery?

Depending on where you are located, your budget numbers might not be that high for a family of 4 and 2 houses.

Does your wife work a paying job, don't see any mention of that one way or another.

With kids that age you might take a look at your budget and see what you are spending on them, might have a chance to trim that area if you are so inclined. I just spend a week helping my sister pack up for a cross country move for work purposes. She and her husband are both middle management and make good money. Their 17 year old daughter lives the high life. Things from 80 dollar streak jobs on her hair, to pedis with artwork, to unlimited gas in her provided car, to clothes shopping every weekend.

As the mother of 2 thirty something woman, I have tried to express to my sister many times that she is setting the baseline way too high for this young lady. There is nothing wrong with any of the above items, but they don't really go with a college or first job budget. I am concerned that my niece takes all these items as her "due" and doesn't realize the value of a dollar or the effort that goes into earning them. I feel she is setting the girl up for some unpleasant times ahead. So far my words have fallen on deaf ears.

[rodi]

I'm close to your age, and have minor children at home, and retired with quite a bit less than you have... but my spending is also half of your proposed spending.

As far as calculators - I used them *ALL* before deciding I was ok to pull the plug. QLP allows for saving/spending for college, for debt reduction (paying off the mortgage), for one time expenses (like paying for a wedding). All of that is pretty nice and flexible. What it doesn't do is provide real world market returns - you input the expected rate of inflation, rate of return, tax rate.... and they are "steady" over the course of retirement... not very real world. But it is an excellent tool for testing worst case scenarios.

Firecalc uses historic returns... so it sees if you'd have survived retiring in early 1929, before the stock market crash/great depression. It has limitations in that the spending is fixed or follows specific algorithms. That said - if you know your spending will drop after a certain point, or know you'll get a big chunk of money after some point, you can play around/trick it to handle those cases by using the pension /extra spending on the income tab. If you donate to firecalc - you also can do a year by year spending - that can be useful for modelling the full nest/empty nest scenarios.

I also like fidelity RIP and i-ORP. Financial Engines also allows some modelling - and if you have vanguard accounts you can use it from their site.

For me - I looked at the last 5 years spending, modified it with the things I knew would change: added in healthcare premiums, reduced out FICA/Medicare, reduced out mortgage (knew I'd be paying off my mortgage), and reduced out investment/savings/401k contributions. That gave me a number I knew we could live with, for spending, because it was the number we've been living with. I know taxes might be different, but that's hopefully not a big impact... I expect them to go down. I used that spending number for QLP and firecalc.

Welcome to the board!

[daylatedollarshort]

I am not sure how much you like or hate your job, but if you could cut your annual expenses you could retire tomorrow.

We had annual expenses like yours a few years ago and realized if we lived a little less high on the hog, neither one of us had to work ever again. We actually didn't change our lifestyle too much - just started comparison shopping more, pay a lot less in taxes, not outsourcing as much of our lives, shopping in lower rent cities near us, making more use of the library and parks, etc.

[Lance a less]

ivinsfan, thanks for the feedback. I have looked over the last year of expenses and there are a few things we could cut back on. Some of the costs are associated with upkeep of two homes and some are non-negotiable, like music lessons for both kids, gas for commuting, etc. My wife is pretty darn fiscally astute and uses coupons. We are the opposite of impulse buyers. But I'm still shocked and sort of embarrassed that we spend this much. I will get about a 100k buyout from the sale of my small part of the business but I didn't include that, just keeping it as a buffer. My wife is retired after selling a small business. She has about 20 years paid social security with 10 of those at the max level and the other 10 at small and medium levels (college, first jobs after college, etc). I will have about 18 years at max and 10 years at low levels if I retire in 4 years.

rodi, I'm going to play around with Fido RIP since I have one small account with them. And I hope to have at least 4 years of expenses to be as accurate as possible.

Thanks for the welcoming and feedback!

[daylatedollarshort]

If you have a potential 50 year retirement planned, a $165K budget requires $8.25M total retirement funding, while an $80K budget requires $4M, and a $40K budget requires $2M. The lower your expenses the larger percentage will be covered by SS.

We put our budget into the same categories as the Consumer Expenditure Survey and compared our expenses line by line to see where our spending was unusually high. We realized there were a lot of areas we could easily cut back and that we'd rather do that than have to work. We work part-time but I do not include that in our retirement plan so we don't feel like it is something we have to do.

[Lance a less]

daylatedollarshort, you bring up a good point on the longevity guess. My wife and I are reasonably healthy (no chronic illnesses yet) but we both do NOT have extreme longevity in the family tree. All family members have done the final polka in the late 70s to mid 80s. We are planning to mid 90s (specifically 95) using firecalc. Don't ask me where I came up with 95, just a guess. Any other thoughts on this?

[prudent_one]

Planning to 95 seems smart to me. It is short-sighted to plan for a mid-80's demise only because that's what happened to others (and remember, those others were older than you, and medicine is always advancing). And of course, nearing age 85 and realizing you're going to have to drastically scale back your lifestyle because the money is getting tight... nobody wants that.

[rodi]

I hear you on the music lessons. Our piano teacher is getting a lot of money from us. It's far from the smallest line item on our budget. What saves our budget is having a paid off house.

As far as longevity - I used the OLDEST age any of my relatives have lived (maternal grandmother lived to age 92) for me. For my husband I added 10 years - which puts him to 102. He's got an uncle who's 92 and still alive. His dad died last year at 90, and his mom turns 88 this year and is still physically healthy. Given the fact that my mom died at 67 and my dad at 77, my brother at 49, and 3 grandparents failed to make it to 70, I'm confident that 92 is a conservative number for me. My husband may push 102... but he states "I can't imagine 4 decades past age 62". (He's 62.) I found comfort in using family history to derive my longevity numbers.

Another thing to consider is the impact if a spouse dies early - that can impact income streams (pension, SS) as well as taxes (suddenly you're filing single vs married - so taxed higher.)

[mpeirce]

I didn't see any discussion of the kids college expenses. What is you intention there?

When I FIREd at 49 our DS was still in High School. We set aside money outside of our budget for him (some was in an old custodial account and some just earmarked). It's working out well so far - he starts his junior year later this month.

[Lance a less]

mpeirce, we have money set aside via 529 accounts to cover both kids for about 5 years at a state university (about 120k each).

[mpeirce]

Ah, I missed that. Sorry...

[Lance a less]

Well I don't want to beat a dead horse or be a pest, but I really would appreciate any other input regarding our retirement plan. I have a fair amount of anxiety about this and don't want to mess this up since my wife is depending on me for a successful launch and ride into retirement. Would appreciate any input from the "heavy hitters" like An Intentional Road, Meadbh, Midpack, etc.