Fire at 55?

[Blux]

Hello,

I tried to reply to my old "intro" thread but forum said it was too old

Here it is:

Hello All,

My wife and I are both employed at the same business in a declining industry(work for family business). My wife also holds a night job several nights per week. I am 43, wife is 41. House is paid off. We live in the land of incarcerated governors(illinois), so our property taxes are quite high for a very average house. We bring in around $90k + about $20k from her second job. Net worth is about 1.1million with about 650k in retirement assets...the rest is house, cars, etc. We have no kids.

We would like to retire by 55. The business is on shaky ground as is the industry(printing). We are hoping to hold on for another 15 years which is pretty optimistic for the industry and highly optimistic for our family business. We both put in about 10k each in our 401 and another 5k each in a roth ira.

Investing wise, we are about 90%+ in stock mutual funds with a quite high % in overseas/emerging markets.

My questions are as follows...we have nearly nothing saved in non-retirement accounts...can start working on this as our house has just been paid off. We need some repairs at this point...maybe 20k worth. Would it be worth taking out a loan or should we get on a cash only plan now?
I had also thought about getting a loan for about 100k and investing what we don't need for repairs...wife hates this plan.

Is my investing plan and current savings schedule going to work? My wife is diabetic, so insurance between retirement and medicare frighten me.

Been lurking this site for a while now, thanks for taking time to read my post!

 

[Blux]

Update 12-30-14

We are still employed
1.4M net worth
no debt
putting 40k in retirement accounts/year
putting 10K in non-retirement accounts/year

New questions and concerns
1. What % of success in the Monte Carlo simulations should you be aiming for to feel "comfortable" you are on the right track?
2. When making the change from a heavily stock based portfolio to a more income based one in retirement, should you be looking to generate enough income for living expenses only, and use the equity portion of the portfolio for "mad money"?
3. Is there a good resource to determine what the health care insurance premiums are in different states?
4. By retiring before 65...hopefully 55...how does that affect my SS benefits(I know it is an average, but if you are not working from 55-65 years old does that drag the average down)?

 

[Senator]

I am a bit conservative, probably more than most. I am also not retired yet.

1. I always use the highest percentage for Monte Carlo simulations. With Fidelity, I change it to 95%, from the default of 90%. I never count anything but 'investable assets', and non-homeowner real estate, i.e. do not count your home unless you are planning on selling.

I think if you have more than 10% international, that is a bit high. Most S&P companies are international too. 3M, Google, MCD, XOM, WMT, etc. all all affected by international economies.

2. My thought is that the S&P generates ~1.75% dividend, a decent dividend EFT generates ~3%, not much difference. You will likely have to use the equity portion.

3. health care insurance premiums are in different states? I am not sure on this... I believe you can go to the government website and make up an address or sip code. Or Google it.

4. If you retire at 65 or 55 as far as social security goes, it's not much of a difference. It's when you collect. Assuming you have 35 years of work under your belt. The SS web site can give you that info. Use a $0 as current salary for an estimate. It will assume you do not have any income after this year.

Do the repairs on your house, slow and sure. Pay as you go.

 

[Live And Learn]

Update 12-30-14

We are still employed
1.4M net worth
no debt
putting 40k in retirement accounts/year
putting 10K in non-retirement accounts/year

New questions and concerns
1. What % of success in the Monte Carlo simulations should you be aiming for to feel "comfortable" you are on the right track?
2. When making the change from a heavily stock based portfolio to a more income based one in retirement, should you be looking to generate enough income for living expenses only, and use the equity portion of the portfolio for "mad money"?
3. Is there a good resource to determine what the health care insurance premiums are in different states?
4. By retiring before 65...hopefully 55...how does that affect my SS benefits(I know it is an average, but if you are not working from 55-65 years old does that drag the average down)?

1. Like Senator I use 95% confidence in Fidelity RIP, and am happy if my shortfall age is 85 or more. I also want 100% in FIRECalc. Most importantly I want a 3% WR from investable assets.
2. I cannot live off the dividends / interest from my investments. I'm happy to use the portfolio value as part of my withdrawals, given #1 above are met.
3. Healthcare.gov can give you quotes. If your state has an ACA Exchange you can use that. Healthsherpa.com is another resource but will not tell you about subsidies
4. Yes, SS is reduced by ER since the years between 55 and 67 tend to be the highest earning years. You can use the SSA.gov estimator to see the difference in your projected benefits.

 

[Blux]

Does the reduction in SS benefits by retiring early something that would make someone work longer? Am I being greedy by trying to maximize benefit?

 

[Senator]

Does the reduction in SS benefits by retiring early something that would make someone work longer? Am I being greedy by trying to maximize benefit?

Mine do not go up by more than $100 per month from what I see so far. I am already close to the maximum and have almost 40 years.

If you are lower income, a higher percentage of those dollars will be counted towards SS. Once you get above ~$5K a month, only 15% of those dollars count.

If you are less than 35 years, you get some 0s added to your average formula.

And if you are less than 10 years, each year at that point makes HUGE difference.

So, the answer, "It depends..."

 

[2B]

You need 10 years (40 quarters) to qualify for SS. After that, the highest 35 years based on how much of the SS max was covered are all that are counted. Depending on your work history your highest years may have been 20 years ago when your true salary was much less.

The only thing you can do is to go the the SS calculator and put in your actual SS income and see what you get if you put all zeros in after your latest tax year and compare it to a couple more years at your present salary.

The estimates you get from your SS statement assumes your income will stay the same until age 62, FRA (66 ?) and 70.

 

[NanoSour]

Does the reduction in SS benefits by retiring early something that would make someone work longer? Am I being greedy by trying to maximize benefit?

SS is a strange beast when it comes to what your eventual payout will be. It is a somewhat regressive program in that it is skewed to the lower income worker. In other words it replaces a much bigger percentage of income the less you make.

I ER'd at 49 at an income well above the max SS contribution income. If I had continued to work until 61, the SS benefit went from $21,954 to $26,497, or $4543 annually. That's $378/month before tax for working another 12 years. If you are in the 25% Fed tax bracket, it's not a tremendous amount of money.

These figures were obtained from ESPlanner.

 

[pb4uski]

.....New questions and concerns
1. What % of success in the Monte Carlo simulations should you be aiming for to feel "comfortable" you are on the right track?
2. When making the change from a heavily stock based portfolio to a more income based one in retirement, should you be looking to generate enough income for living expenses only, and use the equity portion of the portfolio for "mad money"?
3. Is there a good resource to determine what the health care insurance premiums are in different states?
4. By retiring before 65...hopefully 55...how does that affect my SS benefits(I know it is an average, but if you are not working from 55-65 years old does that drag the average down)?

YMMV.

1. I would look for a 95% or better success rate.
2. I think AA is more a function of age/time horizon so it should naturally change as you age. I was all equities until I was in my 40s and then new money went into fixed income later in my career which gradually shifted my AA from 100%/0% to 60%/40% when I retired at age 56. For those who are ER the typical range seems to be anywhere from 30%/70% to 70%/30%.
3. Healthsherpa.com
4. You can find out on SS.gov by putting in zeros for future earnings in the calculator there. The effect is slight for many people. IIRC the effect on me was about $50/month.