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I am 42 and DREAM ER- Portfolio review PLEASE
Old 01-10-2017, 08:47 AM   #1
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I am 42 and DREAM ER- Portfolio review PLEASE

Hi all,

I am a big fan of this forum and have started “dreaming” of a ER lately. I am 42 and wife is 41 and want to ER in 13 years. Firecalc, vanguard and Fidelity retirement calculators all think we are on the right track. Current family income 200K. Both have decent academic jobs but we love International travel and would love to travel a lot in our mid 50’s and early 60’s. Appreciate recommendations and/or reality check from others….

Our finances: $450K in tax deferred retirement accounts (403B) & $50K in 457B deferred Comp for me (the husband)

When I turn 55 (and wife 54) we want to call it quits. We will sell out current house and move to our rental house. Both houses will be paid by then. Sale of our current house will easily get us 500K+ (Cash in pocket after commissions etc). I plan on contributing 18K to Deferred Comp every year and use that money plus the proceeds from sale of the house from 55 to 65 age. We budget on using 100K each year from 55 to 65. We also contribute about 25K per year to 403B’s plus I have a decent pension (none for wife) that will easily be more than $40K a year at 65. We don’t intend to touch any of the 403B accounts till the age of 65. We will touch SS when we are 67.

Thoughts and advise?? Are do our plans look like?? Where can we improve or change our plans??
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Old 01-10-2017, 08:58 AM   #2
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13 years is a long time. We were in roughly similar situation 13 years ago (we were 44/43 then) when we moved states/jobs and had three kids in high/middle school. Were planning to retire in 10-14 years... In the end, I kept lowering our projected withdrawal rate and telling DW "3 more years" each and every year....

Guaranteed that your dollar projections for spending (or at least on what!) will change. Likely that your attitudes toward your jobs may as well. Squirrel money away and continue planning and working to maximize the probability that you will be in physical condition to carry out those plans.

You are on a good trajectory.
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Old 01-10-2017, 09:03 AM   #3
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I always plan conservatively and use 2.5% as a withdrawal rate. For $100K annually, it would mean you would need to build your portfolio up to $4M in the next 13 years.
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Old 01-10-2017, 10:54 AM   #4
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I always plan conservatively and use 2.5% as a withdrawal rate. For $100K annually, it would mean you would need to build your portfolio up to $4M in the next 13 years.
I agree with the math here. I believe that future market returns will not match the last several decades and 2.5% WR is needed for safety. Even Firecalc uses historical return for its calculations.
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Old 01-10-2017, 11:17 AM   #5
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The 2.5% WR makes sense to me. I have always been bullish on dividend paying stocks and have acquired Dividend stocks and will continue to do so. To that effect does the WR really matter if I plan to get major chunk of the post ER needs via well diversified dividend pay outs. Obviously; dividend pay outs can go down from 5% to 3% in bad years but again that can be part of the calculations too. Thoughts
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Old 01-10-2017, 11:47 AM   #6
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What will you do for healthcare? If you get sick, require hospitalization or need an operation, this could affect your egg big time.
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Old 01-10-2017, 11:51 AM   #7
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That 100K includes cost of healthcare (budgetting about 15K/year) till we hit Medicare age.
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Old 01-10-2017, 12:19 PM   #8
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Originally Posted by MN_1021 View Post
That 100K includes cost of healthcare (budgetting about 15K/year) till we hit Medicare age.
15K is optimistic under present conditions (depending upon your state/city and whether you are willing to take ACA penalty, etc.) {edited to add this}

Especially if you don't have health insurance from employer (or access to employer's plan at your cost), there really is no way to budget/project in the time frame you are looking at. I used to just plug in 1000 a month for DW & I from 57-65. Now in our last 7 months of work, I'm plugging in 2000 a month--and that may well be over-optimistic. Who knows?

Moral of the story is Save/Invest, Save/Invest--which you are doing well at.
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Old 01-10-2017, 12:54 PM   #9
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I don't really want to start another SWR thread, but there's something here which might be a misconception, might not be, I don't know. Indicating that you believe 2.5% is a future SWR is fine, but commenting that even FIRECALC uses historical returns as the basis for that implies that you think the future will be worse than anything we have seen in the history that FIRECALC uses. That includes the inflationary times in the 70s, it includes the Great Depression. It includes the Great Recession.

There are tons of threads out there on this, but if you're using, say, a 4% constant withdrawal and FIRECALC says you're 100%, your plan would've survived even the worst times the market has seen historically for the duration of your retirement plan (probably 30 or 40 years in your case).

Now, if you want to plan for that, that's your prerogative. Planning for retirement is about managing risk within your own tolerance. I don't believe that most people should plan for a 2.5% WR in retirement - even early retirement - because it's extremely conservative in most circumstances to the point of being excessive.

The point here is that we've had several recommendations from people telling this person who wants to ER in 13 years that they need to save $4 million to do so (which doesn't account for Social Security or the aforementioned pension, by the way).

Count my vote as one which says you'd be fine retiring at age 55 on much less than $4 million. If you want $100K per year spend (including health care and taxes, and assuming that's a constant), your annual requirement becomes:

$100K - Pension (- SS) = $XXX/year required (once pension and SS kick in).

Then if you want the 2.5% WR for added safety, use the XXX number rather than $100K. I think you're going to find that you could target 3 or 3.5% and the XXX number and come out needing much, much less than what's being advised here. Remember that every dollar saved is earned somehow, usually through your time, and you only get to do this (life) thing once.
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Old 01-10-2017, 01:03 PM   #10
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Originally Posted by nash031 View Post
I don't really want to start another SWR thread, but there's something here which might be a misconception, might not be, I don't know. Indicating that you believe 2.5% is a future SWR is fine, but commenting that even FIRECALC uses historical returns as the basis for that implies that you think the future will be worse than anything we have seen in the history that FIRECALC uses. That includes the inflationary times in the 70s, it includes the Great Depression. It includes the Great Recession.

There are tons of threads out there on this, but if you're using, say, a 4% constant withdrawal and FIRECALC says you're 100%, your plan would've survived even the worst times the market has seen historically for the duration of your retirement plan (probably 30 or 40 years in your case).

Now, if you want to plan for that, that's your prerogative. Planning for retirement is about managing risk within your own tolerance. I don't believe that most people should plan for a 2.5% WR in retirement - even early retirement - because it's extremely conservative in most circumstances to the point of being excessive.

The point here is that we've had several recommendations from people telling this person who wants to ER in 13 years that they need to save $4 million to do so (which doesn't account for Social Security or the aforementioned pension, by the way).

Count my vote as one which says you'd be fine retiring at age 55 on much less than $4 million. If you want $100K per year spend (including health care and taxes, and assuming that's a constant), your annual requirement becomes:

$100K - Pension (- SS) = $XXX/year required (once pension and SS kick in).

Then if you want the 2.5% WR for added safety, use the XXX number rather than $100K. I think you're going to find that you could target 3 or 3.5% and the XXX number and come out needing much, much less than what's being advised here. Remember that every dollar saved is earned somehow, usually through your time, and you only get to do this (life) thing once.
+1

I also think a number higher than 2.5% would work fine too for OP as there would be discretionary activities (like the international travel) that could easily be trimmed for a few years if a 3 or 4% withdrawal rate was looking unsustainable. Bottom line is don't be a robot - be flexible enough to change behavior if circumstances change.

But overall, congrats - you are well on your way!
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Old 01-11-2017, 06:49 AM   #11
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Originally Posted by hesperus View Post
I always plan conservatively and use 2.5% as a withdrawal rate. For $100K annually, it would mean you would need to build your portfolio up to $4M in the next 13 years.
Actually, with $100k spend, a $40k pension and SSI, the portfolio can be much smaller. Assuming a combined $30K SSI (and that is likely low given the salaries), that would leave $30k annually at 65 so at a 3% draw, only $1 million is needed at 65. Add in a cushion for a non-COLA pension and for safety, and somewhere around $1.5 million at 65 is fine.
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Old 01-11-2017, 07:47 AM   #12
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Looks like you are doing great. I won't comment on SWRs or returns since that's been covered but you didn't mention anything about IRAs or HSA Accounts. If you're funding only employer-sponsored plans you are a perfect candidate to do backdoor Roth IRAs. That's $11,000 annually that can grow tax-free. An HSA account is even better if you participate in a high deductible health insurance plan. The money is saved pre-tax and then grows tax-free and it's not "use it or lose it" like the FSA so you can just use it like another retirement account. You can even invest the HSA contributions if you find a provider that offers low cost investment options. Call it your hip replacement fund!
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