Hello - Guidance Needed

[Hope2Retire]

Hi folks,

I am looking to answer the following questions and get a sanity check

1. What is a reasonable target "number" and age to reasonably consider cutting lose? Given the 4% rule, if my expenses are 35k a year (plus lets say 10k a year for health insurance and unknowns) - I come out to 1.2 million. If I am saving 75-80k a year, I figure I could pull this off conceivably by age 39 barring any bear markets. Is it crazy to think that I can retire NOW (or soon) drawing 20-25k out of my investments and then working part time?



2. What do I need to tweak in my portfolio given #1 in order to get there?

I understand that a 75% Diversified stock index to 25% High returning Bonds, CDs, etc, is a reasonably safe portfolio to have with good upside returns - and is the basis of the 4% withdrawel rate.

3. Based on my expenses, salary, etc. - how am I doing compared to other retire early types?

4. What am I missing?

Some basics:

I am 32 years old. I have a 550k portfolio. I have a girlfriend - no plans to have kids, potential plans to marry. Current income at job is 150k as a technology consultant and project manager. I spend roughly 35k a year on expenses and have done so for about 10 years. I save roughly 75-80k a year. I plan to stay in an apartment.

Monthly Expenses:

Rent: 650
Utilities: 200
Health Related: 100
Entertainment/Eating Out: 1000
Car expenses (Gas, Repairs, Maintanence, Replacement Costs): 250
Misc: 200
Groceries: 250/Month
Clothing, Toiletries, Etc. 50
------------
Total: 2650/Month

Portfolio:

120k in 401k - S&P 500
40k company stock
125k IBonds
125k 5.25% CDs
125k Stock portfolio (1/3 International Index, 1/3 Large Cap, 1/3 Small Cap)
20k Stock


Thanks - and I am glad you folks exist!

 

[Nords]

Welcome to the board, Hope.

Is it crazy to think that I can retire NOW (or soon) drawing 20-25k out of my investments and then working part time?

No, it's not crazy, 4% works fine over 30 years and may work for longer periods. It's based on the assumption that the future won't be any worse than the past and also to some extent on a higher-equity portfolio. What you're proposing is similar to the strategies in Bob Clyatt's "Work Less, Live More".

2. What do I need to tweak in my portfolio given #1 in order to get there?

Generally higher allocations of equities lead to higher returns and will consistently beat inflation. However that also raises volatility, and some investors prefer lower-volatility portfolios that help them sleep at night. It depends on your income sources (not just your portfolio but also any pensions or annuities) and the size of your withdrawal rate. A good place to learn more about asset allocation is Bernstein's "Four Pillars of Retirement".

3. Based on my expenses, salary, etc. - how am I doing compared to other retire early types?

Well, your earnings are probably higher than most of us at that point in our careers, and your savings are correspondingly higher. But ERs are all over the map-- it's a bell curve with fat tails.

It's not a competition. It's not how you're doing compared to the rest of the world, it's whether your own earnings or savings rate can be improved for your situation. What you may see as acceptable or even frugal may be perceived by others to be deprivation.

4. What am I missing?
Portfolio:
120k in 401k - S&P 500
40k company stock
125k IBonds
125k 5.25% CDs
125k Stock portfolio (1/3 International Index, 1/3 Large Cap, 1/3 Small Cap)
20k Stock

Take a look at your portfolio in FIRECalc or other retirement calculators like Financial Engines & IORP and see how you do with your proposed withdrawal rate. A portfolio that's not heavily in equities (75% or higher) may not compound to your target by age 39. Of course it may survive a bear market better, too-- it's pretty hard to predict equity returns over such a short period.

no plans to have kids

Good luck with that-- keep your planning flexible!

 

[macdaddy]

I am a fan of ER but what's the rush to turn it in at 32? Do you really hate your job? I think if you are satisfied with your work, at 150k a year, it may be worth it to stick it out for a couple years, maybe until the kids issue is settled. You are doing all the right things, every day you spend at work will just provide you that much extra security and freedom in the future.

 

[Donzo]

Hey hope,

First of all...you are doing great with creating a solid portfolio. You are way ahead of where I was at 32....thats why I worked til 49. I would bite the bullet and stick it out for a few more years. You are making big money and are able to save big as well. If you pull the plug now - you are setting yourself up for many years of needed part time work - part time is still work. I suggest staying/saving until you are in a position of not NEEDING to have part time work - few get to a position of saving that you are currently at - unless the job is killing you ... take advantage of your favorable savings ability alittle longer.
Good luck, you are doing great!

 

[Dawg52]

Hey hope,

First of all...you are doing great with creating a solid portfolio.  You are way ahead of where I was at 32....thats why I worked til 49.  I would bite the bullet and stick it out for a few more years.  You are making big money and are able to save big as well.  If you pull the plug now - you are setting yourself up for many years of needed part time work - part time is still work.  I suggest staying/saving until you are in a position of not NEEDING to have part time work - few get to a position of saving that you are currently at - unless the job is killing you ... take advantage of your favorable savings ability alittle longer.
Good luck, you are doing great!

I agree. If you could work another 10 years, you will have a portfolio of around 2.1 based on 7% rate of return. 10 years may sound like a long time, but 42 is still a pretty young age to retire.