ER and Treading Carefully

[mattbaxx]

I retired in June at 50. DW (48) transitioned at the same time to half-time. Her current income ($3500/month) matches our current expenses (minus college—early retired with three kids in college—defies most people’s expectations). College is being paid for with some college loans, kids paying a bit, and us covering the rest. We expect 403(b) and ROTH contributions to reduce/end due to decreased salary. Her continued employment is a yearly decision; she is fortunate in that she enjoys her job for the most part.
What we’ve got:

$900K retirement accounts
$200K non-retirement
$725K house, paid off

We can expect a bit of pension each at 55 ($2500/month or so, total), and currently plan to take SS at 62 ($2000/month or so, and could possibly postpone this if expenses are being covered elsewise). Firecalc says things look good (90-100% depending on the parameters), and a Fidelity RIP shows smooth sailing ahead, with a bit of a dip in principal over the next five years but then settling and likely growing.

It is a bit of a crap shoot. There are things that could go wrong and we’d have to decide how to deal with them, but we feel we have many options. Downsizing the house as the kids are leaving, minimizing expenses, working more. If DW stops working, health care would be some sort of catastrophic care plan. Our health is excellent. We’ve been planners for our 27 years together and continue to do so, but would like to have more time now to enjoy life rather than putting it off too long . . . “one more year” . . . that sort of thing. It seems like a better adventure to jump in, tread carefully, and see what happens then to be overly cautious.

Anyway, nice to have this sounding board. I look forward to some viewpoints I have not previously considered.

 

[MBAustin]

Welcome! Hope you are enjoying ER so far.

You will find lots of good information as well as diverse viewpoints here. Don't be shy about jumping in to the conversation. It's a friendly bunch (albeit there is a bit of odd humor on occasion).

 

[REattempt]

I ...at 50. DW (48) ...Her current income ($3500/month) matches our current expenses.

What we’ve got:

$900K retirement accounts
$200K non-retirement
$725K house, paid off

We can expect a bit of pension each at 55 ($2500/month or so, total)

It seems like a better adventure to jump in, tread carefully, and see what happens then to be overly cautious.

Anyway, nice to have this sounding board. I look forward to some viewpoints I have not previously considered.

Welcome to the forum! I am in about the same boat that you are in (http://www.early-retirement.org/forums/f28/final-gut-check-feedback-56472.html) ...that being retired before/at 50.

I may get your numbers wrong, so adjust as you see fit. Expenses of 42K on investments of 1.1MM is about 3.8%.

Here is where I netted out. 4% withdrawal rate is to high (for my blood) for the potential number of years a 40-50YO would live. I looked everywhere and read everything I could about withdrawal rates. Here are some opinions: The Retire Early study on safe withdrawal rates - Millenniam Edition. and otar retirement calculator
each sell their books/whitepapers for about 5$ for the electronic copies respectively:
How much can you safely withdraw from your retirement portfolio? (Retirement Reports)
and
Unveiling the retirement myth (Click books and look for the "green" copy for $5 on otar retirement calculator)

I have no connection to either of these sites or individuals. I just felt they had some of the best supported information on SWR.

There are many other sources, but my net takeaway from all my reading is that with somewhere between a 40/60 and 60/40 mix (stocks/bonds) in a low cost, passive, index set of investments, a 3.1% withdrawal rate (WR) will survive 40+ years in all cases given any historical return. (Doesn't work if something different happens in the future!)

I too have pensions and SS and a large additional amount in paid off real estate. In my planning, I ignored the pensions (PPlans can go away), SS (not sure what might happen with SS) and the Real Estate. I needed to feel confident that if everything went away and we had the worst sequence of returns possible, I could survive. YMMV.

If you include Pensions and SS and your wife works for 7 years to get you to pensions, your WR at 55 is 1% ((3500 expenses-2500 pensions)/1.1MM) Certainly doable!!! Obviously this ignores whether or not you have COLA on the pensions or whether or not you investments grow between now and then, but you get the idea.

Additionally, if you included the value of your home (downsize at some point), then you have more than 1.1MM...

My reality is that I budgeted at 100% of my pre-retirment expenses and am running a3% WR, ignoring PP, SS and RE. I'm treating these as safety nets.

What I have learned in a year and a half is
1) My budgets in general were good and I have been able to manage my expenses to adjust/be flexible enough to handle unexpected expenses and not spend in certain areas if I want something outside the budget (e.g. new bike).
2) I did not budget enough to keep/maintain my properties...I think that I underestimated these expenses. I used 100% of my pre-retirement costs on these, but as the house/tractor/dehumidifier/... age, I'm spending more on upkeep...keep this in mind.
3) Health insurance and health costs are the biggest unknowns. My health care went up 10% this year. I expect they may continue to go up in consistenly large increments. It may be that I have to give up more of my discretionary budget to pay for health care. This may also happen with Taxes.

NET NET: Many here are a decade(s) into being FIREd, I'm only in the second year. I think most here will tell you to jump in, be flexible and all will work out. I tend to agree with the caveat that you have somewhat of a budget and plan to work against, know what WR you are comfortable with, plan for some level of contingency (see 1-3 above)...beyond that, jump in be flexible and it will work out...

 

[Midpack]

Welcome aboard. You are financially and (more importantly IMO) emotionally ready, congrats. You've done your homework, recognize you can't predict exactly how things will play out, and you've considered plan B's. Well done.

Only thing I questioned in your plan was taking SS at 62. Unless (below average) longevity is in your future, some people regrettably do know, you may leave quite a bit on the table by not waiting for FRA or ideally 70. But something tells me you know all that, and have made a clear headed call.

Best of luck...

 

[walkinwood]

Congratulations & welcome to the board.

 

[imoldernu]

We’ve been planners for our 27 years together and continue to do so, but would like to have more time now to enjoy life rather than putting it off too long . . . “one more year” . . . that sort of thing. It seems like a better adventure to jump in, tread carefully, and see what happens then to be overly cautious.

Sounds great to me. Unless you plan to be a world traveler, your plan looks good, and the fall back of going back to work is an insurance policy that you've done well to recognize. Nearly 24 years of retirement for us, and while we never had to retreat a bit, being young and healthy was the part that made the decision easy, and why we never had to fret over money.

 

[mattbaxx]

Thanks, all, especially REattempt. I appreciate you each taking the time to comment. The SS question, Midpack, will undergo ongoing consideration as the years pass. Same for the pensions as well. And I forgot the weddings my daughters (and perhaps my son if he finds a poor one to wed) . . . that's when I'll prepare a spreadsheet detailing what DW and I spent in 1985. As in: not much. But I'm sure I'll cough up for my three darlings when the time comes.

I look forward to a lot of reading and commenting here on the board.

 

[obgyn65]

Welcome to the forum.