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Hi from Northern IL
Old 07-22-2020, 07:06 AM   #1
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Hi from Northern IL

Greetings from Lake County.

I am hoping to retire this year before I turn 55. For me a big part of the decision is an inherited IRA that I am required to cash out over the next 10 years (the new tax law). This is currently at a balance of around 830K, and my current pre-tax salary is at 80K. Essentially, I will be able to give myself a bigger raise than I am expecting from my current job, and use this for the 55-65 years.

After the inherited IRA, I have around 1.3MM in taxable investments, 350K in traditional IRA/retirement accounts, plus around 380K split between 529 and UTMA accounts for our 2 children. I have been running FireCalc on all of the assets minus the college funds, and am seeing between 93-100% with spending between 85K-100K/year (with a 35 year term).

I have calculated our expenses based on the last several years, and we seem to be in good shape, although health insurance pricing can be volatile. I have run the numbers with COBRA at a bit over 2000/month and found a good private plan that allows us to keep our doctors at around 1100. We have an 17 years left on our mortgage at 1200/month with property taxes around 800 (170K balance). We currently have a 400 car payment, but it is interest free and we can pay off the balance with cash on hand if need be. A plus is that my DW plans to continue working for at least the next couple of years, and we may be able to get heath coverage through her job. Our kids are 16 and 19, both currently in school.

Our cars are both relatively new (2019) and electric. We installed a solar array last year that has offset fuel costs 100% while reducing our electric bill. As we have continued working the last year we are amazed at the amount this has been saving even with the car payment. Overall our biggest expense after the mortgage plus taxes has been our home and auto insurance which is between 500-600/month. I am working on quotes to reduce this expense. Overall, our lifestyle is relatively frugal and we don't have any expensive travel, clothing, or dining habits.

How do our numbers look? Forgive me for having posted this previously in another thread. I just got on the board, and jumped into one of the recent threads with the same info. I am still learning about FireCalc, and have to go back and look at some of the more advanced features I did not know about. I have been putting in numbers for our mortgage plus taxes (should I add taxes?) and things still look good. My social security estimates are just that, and I am a bit dubious whether we will ever see these. Overall, the worst I have seen in a 93%, and this is without taking my DW's continued job into the calculations.
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Old 07-22-2020, 07:35 AM   #2
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Is your monthly house expense 1200 plus 800 a month or 2k?

So you have basically posted your barebones budget here and I'm not sure that's the number you want to use. I'm guessing you'll want to do something with your time for the next several decades. A low bones budget with a long horizon might need a little more cushion. Factor in some inflation and the cost of health care and I think your number needs to be higher. That JMO.
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Old 07-22-2020, 08:10 AM   #3
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I am trying to picture what I will be doing with my time. I spent most of the last 20 years in corporate jobs I did not enjoy, and am currently working for a smaller company in a similar position. I have had hobbies with relatively low cost (home brewing, an aquarium, I am an active gardener), and our travel has mostly been limited to road tripping and a single visit to the Yucatan for the last 20 years.

Although I picture some travel during the next decades, we do not have any normal large expenses. My DW is planning to continue working for the next few years, and she is bringing another 60-80K into the annual budget currently (she is a nurse and her salary is variable based on OT hours).

My dreams of FIRE have been going on for much of the last 5 years, but our current lifestyle has been frugal to begin with. Most vacations have been to visit relatives, and we simply don't spend much if any time going to shows (I can think of 2 musical performances in the last 10 years), air travel (the Yucatan trip), or truly fine dining. We occasionally visit steak house type restaurants, but most dining out is on hold for the short term anyway. For us (before CV-19), a successful weekend revolved around things like the Chinese Buffet, the garden, and a trip to the library.
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Old 07-22-2020, 08:15 AM   #4
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KarlH, it's hard to know what you don't know. I might build some cushion though in case you do find a wonderful hobby or outlet. It would be good to have some money for it.
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Old 07-22-2020, 08:37 AM   #5
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KarlH, it's hard to know what you don't know. I might build some cushion though in case you do find a wonderful hobby or outlet. It would be good to have some money for it.
I understand, but what does a wonderful hobby cost? My current vision involves helping my high school sophomore and and college freshman with remote learning. I see threads where folks have annual expenses that are double our family's, but frankly don't know how they can do it. If anything I see our expenses dropping in retirement.

We are really satisfied with our lives at the current moment, with the exception of the job.
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Old 07-22-2020, 08:51 AM   #6
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I understand, but what does a wonderful hobby cost? My current vision involves helping my high school sophomore and and college freshman with remote learning. I see threads where folks have annual expenses that are double our family's, but frankly don't know how they can do it. If anything I see our expenses dropping in retirement.

We are really satisfied with our lives at the current moment, with the exception of the job.
Well we have high spenders and low spenders here and people can spend what they want to it's their money. Many of the higher spenders have a SHTF budget and a do what makes me happy budget. So in times of upheaval or uncertainly they can cut back without any hardship.

My main is point you have taken a budget without many frills at all on a 35 year timeline and you might just think about running a little higher number and seeing what that looks like. Just for the information, not saying you need to spend more just asking if you wanted or needed to spend a little more does that feel comfortable.

You will have house payments far into your retirement taking around 24K a year if I read that right and ongoing taxes of close to 10K a year after you own the home. Couple that with rising HI costs are you are aging into retirement and there goes maybe 45-50 a year right off the top of your budget.
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Old 07-22-2020, 08:55 AM   #7
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Karl: 93% is not bad, but most folks on this board are very conservative. Some use 95%, which I think is perfectly acceptable, but others want to reach 100%, or more than 100% believe it or not.
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Old 07-22-2020, 09:11 AM   #8
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Karl: 93% is not bad, but most folks on this board are very conservative. Some use 95%, which I think is perfectly acceptable, but others want to reach 100%, or more than 100% believe it or not.
Thanks. I have been learning about FireCalc even as we speak. I was getting 100% keeping things at my current salary/expenses, but thought I should put a few 1000 extra in as a starting number. I am beginning to understand how to put mortgage and ongoing taxes in as continuing expenses, and assume that the FireCalc is thinking about CG and Div income in its models. As I said, I am a bit confused about spending more, because we have never done this.

Our recent investments in the solar system (purchased) and cars (1 purchased and the other on an interest free loan) has put us in the unusual situation where we are saving more per month that we ever have. I keep most of our taxable investment income paying dividends and CG into cash, which I then reinvest while maintaining a cash buffer that can keep us going for several months. We have minor home improvements we are planning in the pipeline, but likewise are considering paying cash (or interest free financing) for windows, a floor installation, and new garage door. Our priority for improvements usually revolves around tax deductions for energy efficiency.

I can picture larger projects as I write this, as we have talked about a budget kitchen replacement (your dream kitchen never seems to be the buyer's) and a brick driveway... these are the expenses you are talking about?
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Old 07-22-2020, 09:15 AM   #9
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Welcome, Karl. I'm somewhat familiar with Mundelein, I worked there ~ 30 years ago and remember the lovely wooded, open areas, small town feel. I assume it's grown up over the years. The Lake County Forest Preserve community looks thriving. We live in Champaign and I've gotten involved in our forest preserve network, volunteering and am on the Citizens Advisory Committee. Everything I do is free, educational and socially engaging. My time is valued. The Covid thing has put a damper on things, but I'm out in the preserves often (very safe in this environment).

Just a suggestion if you like the outdoors. And you'll be part of the conservation movement to protect nature, after all, nature is essential. :-)


BTW, we RE at 55 (now 62). DH has an in home LLC consulting gig that keeps him busy and in touch with friends and colleagues from corporate world. There are so many possibilities to use your time to do things you enjoy. And stress...no longer in our vocabulary.
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Old 07-22-2020, 10:57 AM   #10
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Welcome KarlH,

Here is a "hobby" that I didn't expect us to discover..

As a person that used to only do USA road trips, a few years ago we did a European river cruise (15 days) as a once in a lifetime trip ($10K total) and LOVED it.

It seriously was an eye opening experience, so the next year we flew to Barcelona for 10 days, then hopped on a 10 day Mediterranean cruise (Italy, Croatia, etc), Then stayed on the ship while it cruised back to USA in 15 days to NY. (nearly $10K total).

So there is an example of something we never considered before retirement, as it all seemed so difficult (different currencies, no English, can't read signs) and far away. Now we plan to spend weeks every year in some other country(s) as it's so interesting, and fun once Covid-19 is solved.
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Hi from Northern IL
Old 07-22-2020, 11:43 AM   #11
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Hi from Northern IL

Welcome Karl!

Hobbies can be expensive, or not. I used to spend a lot on camera gear, but now I have everything I need. Same with some of my other hobbies. Hiking hardly costs me anything.

Point is that youíll probably develop more hobbies early in your retirement, and these will have upfront costs that will diminish over time.
But itís impossible to budget for these things now. Later youíll develop an interest in things that you do not have interest in now.

But youíll be ok - just sit back and enjoy the ride!
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Old 07-22-2020, 07:33 PM   #12
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Welcome KarlH,

I see you ran FIRECalc using an ending age of 90. The only concern I'd have with this is there is a decent likelihood that one of you could live past 90. I've seen stats on percentages of one spouse living past 90 and if I recall correctly it was over 30%. I've ran my FIRECalc models out to 100 just to be extra safe. Something to consider.

You are probably overfunded on your 529/UTMA accounts but that happened to me too. I never expected the returns over the past 15 years that I saw which skyrocketed those account balances. I say overfunded because for me, each kid went to out of state schools and I did not get anywhere near $200K/kid including tuition, books, housing, food, etc., etc., etc. Since the remaining UTMA was technically their money and has to be used for their benefit, I transferred the remaining balances to their name once they graduated college. It gave each of them a nice starting cushion to buy furniture and other expenses to start life out with since both stayed near their college towns (with jobs thankfully).

Make sure you're considering taxes correctly. Based on your inherited IRA plus your wife's salary I'm guessing you will be in the 22% marginal tax rate. And that is assuming there is not a tax rate hike in a year or two. I personally think that is very likely. So everything you take out of the IRA will get hit with 22+% taxes. You will need to start making ES payments. And yes you do need to build taxes into the budget expense numbers you enter into FIRECalc.

For Social Security you can go to SSA.gov and open an account if you don't have one already. It will give you guidelines on what your payments would be at 62, 67 and 70. If you wanted to be conservative you could run FIRECalc with 75% of those amounts to be "safer".

It's a tough decision, I know because I just went through this a little over year ago. I ended up pulling the trigger and other than being stuck at home for the past few months I'm very happy with the decision, although the market drop in March/April did have my questioning my sanity.

The other thing you may want to think about is whether your wife will end up getting jealous after watching you sleep late and not go to work. She may end up asking to join you losing out on her salary and equally important health care.
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Old 07-23-2020, 06:02 AM   #13
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The other thing you may want to think about is whether your wife will end up getting jealous after watching you sleep late and not go to work. She may end up asking to join you losing out on her salary and equally important health care.
I have been budgeting at the 22% tax rate, and pre-paid state and Federal on the inherited IRA withdrawals. I also keep a solid cash buffer in order to cover the tax bill when the time comes, although I think I have overpaid for next year. I fortunately was able to put this year's money back in due to the recent covid related measures taken by congress, so I have another few months of growth on the IRA.

My wife is currently adamant that she wants to continue working well into her 60s, although I suspect that may change. I am still the one who gets up and makes coffee every morning whether I am working or not, so chances are she might be jealous that I am out walking the dog, not sleeping in.
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Old 07-23-2020, 10:14 AM   #14
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Welcome Karl!

Since you've put all the numbers out there, you can link to your entries in FIRECalc, that might help others give you another set of eyes on the entries.

But back-of-the-envelope, it looks like ~ $2.5M, and the top end of spending ($100K), puts you right at 4%, which is a bit marginal at 55. As mentioned, the odds of one of a couple surviving past 90 are not so low as to not plan for it. Hmmm, Vanguard used to have a joint LE calculator, it's gone! There are probably references to the results around here though.

It wasn't clear if you were including SocSec or not? That should offset a good % of spending in 10 years or so.

Another thing to watch for is the occasional big bills, like new roof, HVAC, water heater, replacement of cars, driveway, etc, etc. I did a simple spreadsheet with ~ 30 years across, and a line item for all those "once in a while" expenses. Then plugged in a guestimate for cost in today's $, in the year I thought it might be needed. Then average them out over that time, or do some one time adjustments for the largest items in FIRECalc.

Oh, just remember that 22% Fed tax rate would be your marginal rate - the average (effective) rate will be much less with the MFJ exemptions and standard deduction. Also add in IL income tax, but IL does not tax retirement income (yet), so exclude that from IL tax.

Some people like to take a micro-look at spending, but I've taken a big-picture look, which was easy for me. Most spending comes out of one checking account, so I just add up the debits for the year. Subtract out anything that is a "transfer", like a Roth IRA contribution (I didn't spend it, I still have it), or any other things needing adjustment (like a new roof - accounted for elsewhere). And then add/subtract anything that changes for retirement (ended up not being much for me, except for health insurance, but that's an individual thing).

But offhand, if your $100K holds up, especially if it is at the high end, I think that with SocSec (any pensions?) added, even if you enter SS at 75% to be conservative, you should be good.

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Old 07-23-2020, 10:49 AM   #15
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[QUOTE=ERD50;2461207Another thing to watch for is the occasional big bills, like new roof, HVAC, water heater, replacement of cars, driveway, etc, etc.[/QUOTE]

Thanks ERD50,

The feedback is making me feel a bit more comfortable with the transition. Another thing is that we did some of these major expenses including new roof with solar array and 2 electric cars in the last year. We tend to drive cars into the 250,000 mile range in our family, and think these could be the last ones we ever need. Maintenance is almost non existent, and the roof has been covering our fuel costs. I am worried about replacing the driveway and have put in for an estimate so I can better budget the expense, even if its a couple years away.

We are trying to get all of the "major" house expenses that we have been discussing out of the way this year and have been through many of the ones you are describing already (HVAC, Water Heater, half the windows, etc.). I'm thinking that purchases like these have been easy to cover on our current budget over the last several years, so they shouldn't cause any big departures as we move forward.
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Old 07-23-2020, 11:14 AM   #16
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Thanks ERD50,

The feedback is making me feel a bit more comfortable with the transition. Another thing is that we did some of these major expenses including new roof with solar array and 2 electric cars in the last year. We tend to drive cars into the 250,000 mile range in our family, and think these could be the last ones we ever need. Maintenance is almost non existent, and the roof has been covering our fuel costs. I am worried about replacing the driveway and have put in for an estimate so I can better budget the expense, even if its a couple years away.

We are trying to get all of the "major" house expenses that we have been discussing out of the way this year and have been through many of the ones you are describing already (HVAC, Water Heater, half the windows, etc.). I'm thinking that purchases like these have been easy to cover on our current budget over the last several years, so they shouldn't cause any big departures as we move forward.
You are young enough that you might not be "one" and done with a lot of these expenses. Just a good thing to keep in mind. Most likely they wouldn't recur until after you pay off your house which would free up cash.
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