Is Rustward Crazy?

[Rustward]

I have been lurking for years. Obviously if I have lurked for years I find value here. This is my first post. It is a long post, but contains a lot of detail.

Having recently been in an employment situation with which I was unable to cope, I am now out of my misery. The problem was an incompatibility that could not be reconciled. That chapter is closed.

I have been considering options, FIRE being one of them. Of course the other option is to go back to work. When I mention "not working" to people I usually get a "What are you thinking? Are you crazy?" kind of reaction. I have to admit, this a little scary. We live well below our means, and our lifestyle does not reflect our assets. I had a Scarlet O’Hara experience in 1976 and I do not want to go there again. We have been very fortunate, and for that we are grateful.

Having always put work before just about everything else, I have come to the realization that that may have been a mistake. This is an opportunity for a correction but I am a little uneasy with the idea of quitting work altogether. It is difficult to think of not working when just about all I have done is work.

Us:
Me 52, not working
DW 55, currently earning ~$68,000
No dependents

Expenses: Living expenses have been flat averaging $52,500 over the last 5 years. That 5 year period includes one new vehicle purchase (cash), and a few other extraordinary expenses; I think the 5 year period is representative. This figure does *not* include health insurance or federal income taxes. This state does not have a state income tax.

I am budgeting $15K/year for health insurance and out of pocket health expenses. As long as DW is in her current job we will use her employer's health insurance plan. After that we will be purchasing whatever is available. We are fairly healthy and have no major medical conditions at this time.

My planning number for FIRE calls for a minimum of $67,500 per year in expenses, excluding federal income taxes. This is the minimum that I think we can get by on without moving to a different house. So a $77,500 or 87,500 planning number seems appropriate. I imagine we would be ultra-conservative in the early years then loosen up over time.

Debt: No mortgage, no car payments, no credit card balances, no consumer loans, no debt at all.

Assets: House paid (no mortgage) estimated $233,000 by Zillow.com. House probably needs about $50K or more in remodeling which we intend to do, probably in the next 5 years or so (will probably take $75K - $100K by then). Property taxes have recently ranged between $5K and $6.5K per year. This property tax expense is included in the $52,500 average expenses above. We own a couple of modest vehicles but do not consider them or any other personal property as an asset for planning. The house is not used as an asset for retirement planning purposes either.

Pension and SS: If DW ends her employment in 2009 she will be eligible for a $12K/year uncola pension. The pension does adjust up every now and then but it is not very predictable.

If I start SS at 62 without working between now and then my benefit is projected to be $18.4K/year.

DW's SS benefit at 62 is projected to be $10.4K/year if she does not work between now and then.

These figures come from the SSA's detailed calculator that you download and run on your computer. DW, with a pension, is subject to the SSA's WindFall Elimination Provision (WEP), and the detailed calculator is required to get that estimate. To some degree, the larger her pension benefit, the smaller the SSA benefit. Let’s hope SS does not evaporate.

Financials: Most financial assets are in managed accounts, some containing funds and the others stock. We are pretty well diversified. I know managed accounts are not popular here, but we feel that we have gotten acceptable results with them. Please bear with us. Perhaps we will change at some point in the future.

We have about $761K in taxable accounts and, $320K in cash and MM.
The deferred accounts have about $1327K.
My SS is projected to be $18,400/year in 2018.
DW's SS is projected to be $10,400/year in 2014.
DW's pension will be $12,000/yr if she starts it in 2009.

I have been through FIRECalc and a number of other advanced calculators and get a green light on all of them even after inflating the expenses by 10 or 20k/yr using a 40 year horizon. The paranoids are out to get me, because when entering the data into calculators, I use 90% of the value of the funds and stocks on any given day, and the cash total minus $50K (planning for that remodel or whatever else we decide to spend it on). FIRECalc seems to be the most conservative of the advanced calculators I have used, but I get similar results with the others.

My goal is to quit work someday with no (or very low) probability of being forced back to work for lack of funds. The thought of not working is a little hard to get used to.

It looks like we might have the financial part covered. I might be more concerned with the non-financial part, though.

Did I miss anything? Any comments?

[brewer12345]

I'd quibble over the managged acccounts, but otherwise your portfolio looks plenty big enough to cover your expenses. The only potential hole I see is the medical insurance. Before you just assume that you can buy coverage, I would strongly suggest that you look into the rules in your state and get an actual quote on a policy you would willingly buy.

[W2R]

Hi, and welcome!

I looked at your post and nothing jumped out at me as being unrealistic, except perhaps the medical insurance question. Is $15K/year enough for medical insurance for two, once you are purchasing it on the open market? I have no idea, and it is difficult to project future medical insurance costs. Overall, your financial plan seems reasonable, though.

You seem concerned with the non-financial aspects of your plan. A good place to post about them (where you are more likely to be answered) is in the Life After FIRE section of the forum.

[W2R]

Brewer and I were posting at the same time, but it looks like we have the same concerns about your medical insurance.

[brewer12345]

Quote:

Originally Posted by Want2retire Brewer and I were posting at the same time, but it looks like we have the same concerns about your medical insurance.

Except I am a much worse typist (and generally too lazy to correct my mistakes).

[DblDoc]

Rustward - welcome.

Adding up your assets I get $2408000 which at 4% is 96320, much greater then you conservative estimate of expenses. You have plenty of non-deferred to last until tapping your tax deferred. Add in SS and pensions down the road. Your are good to go from a financial perspective. The non-financial you'll have to figure out...

DD

[W2R]

Quote:

Originally Posted by brewer12345 Except I am a much worse typist (and generally too lazy to correct my mistakes).

I am a terrible typist too, and often don't like the way I initially phrase things, but try to correct my posts - - often too much!!

[laurence]

is the 320k cash in addition to the 721k taxable or part of?

In any case, you have over $2 Million in assets to draw upon, and you have 12k to start out with in retirement income, and you, worst case, have 90k in yearly expenses. So putting aside COLA/Inflation adjustment worries for now since you have more retirement income streams through SS down the road, we'll say you need 78k per year withdrawn from your assets for 5 years, then reducing as SS comes on line.

4% SWR of 2 Million is 80k, so I'm going to say the survivability of 78k drawdown for 5 years is a no brainer.

Is this the house you want to die in?

[Rustward]

Thanks for the replies.

Brewer and Want2, I may be somewhat underinformed about individual health insurance plans. I like the advice about getting an actual quote. I did take a look at ehealthinsurance.com and there seemed to be some high deductable plans that would fit. Whenever we decide to do this we will apply for and be offered coverage before making our move. I'll be studying up on individual health insurance more...

... and regarding my own typing, sometimes early in the morning I have a tendency for my fingers to land on the keyboard offset to the right or left by one key which makes for some interesting reading.

Laurence, it's 721k in stocks and funds, and an additional 320k in cash and mm.

One comment about FIRECalc -- well two comments: 1) I like it a lot, and 2) it is difficult to plan with a portfolio that consist of a significant after-tax component AND a significant tax-deferred component. Conventional wisdom seems to say to draw from the after-tax funds first (in which case there will be a very low income tax expense) then draw the tax-deferred funds which results in an increase of expenses. The 96320 that dbldoc mentions is more than enough if I don't have to pay federal taxes on it but when the after-tax money runs out it doesn't seem like a lot with federal taxes paid out of it. ... if I understand how this works.

[brewer12345]

Rustward, before you count on what you get from ehealthinsurance, give a careful, thorough read of Health Insurance and Coverage Help for Consumers Everywhere for your specific state. Insurance markets vary very widely according to state. Pay particular attention to what there is available if you get rejected by health insurers. I live in a ""take all comers" state, where insurers are not allowed to underwrite or reject people because of their health. Other states have other mechanisms. But you should thoroughly plumb the downside on this one.

Taxes are a bit of a bright spot for the retiree. Unlike us working stiffs, retirees with significant taxable and tax deferred assets have a lot of control over their tax bill. If you haven't already, get a copy of turbotax and play around with it using different scenarios to see what your actual tax bill will be. With taxable assets, you can play games like tax loss harvesting, etc. I think your tax liability will be modest.

[Nords]

Welcome to the board, Rustward.

Many ERs don't worry about the expense ratios on their portfolio (including the management fee) until they're ER'd and realize that a 1% portfolio management fee is a quarter of a 4% portfolio SWR.

Your FIRECalc success rate might look a lot better if your ER portfolio funds were in less expensive equivalents (like passive index funds or no-load active mutual funds with low expenses) held by a company like Fidelity or Vanguard. Transferring your assets "in kind" would get rid of the management fee, and cashing in your portfolio for low-cost funds would result in a one-time large cap gains tax bill at a time when cap gains taxes seem to be as low as they're ever going to get. And if you did it in your IRAs you wouldn't have to worry about taxes at all, but you'd free up a lot more of your IRA to compound away.

PenFed has low-interest home equity loans right now. If you're not averse to the debt, that might help smooth out the renovation expenses.

[samclem]

Rustward,
Greetings. It looks like you've got the financial side fairly well nailed down, as other have mentioned.

About "not working:" I'm semi-ERed right now, and busier than I've ever been. When I'm home my dance card is filled with things I want to do--home repairs, hobbies, just sit and read for an hour, etc. Yes, being without the artificial structure provided by work, with it's familiar daily and weekly pattern is a little unusual at first. But, as many here can attest, being free of the yoke can be a wonderfully liberating feeling. This may be especially true in your case, as the work environment you were in sounds like it was miserable. Before you decide to take another job or semi-ER, I'd recommend you try going cold-turkey for awhile (since your finances allow it).

[Moemg]

Greetings , I'll also comment on the non financial part . I had worked 39 years partly because I was convinced by others I'd be bored . That is so not true . I'm busy , happy and rarely bored . I did go thru a period of adjustment the first two months but after that I was fine . You do not need to be busy every moment to enjoy life. Enjoy life at a slower pace .

[Martha]

You might also want to read the health insurance FAQ: http://www.early-retirement.org/foru...nce-30756.html

[Midpack]

Rustward: As others have said, your financial house appears to be in order and it's easy enough to get health care quotes.

I spent most of my career thinking only of the $ aspect of retirement. Now that I am 2-4 years from pulling the plug, it's dawned on me there's much more to it. I'd strongly suggest you start by reading Work Less, Live More by Bob Clyatt and/or How to Retire Happy, Wild & Free by Ernie Zelinski (not that well written, but great content, and the Get-A-Life Tree exercise alone is worth it IMHO)...

...as for whether you will be happy FIRE or not, no reply you get here can answer your question. At one extreme there are many people who have so many activities in their lives before FIRE that they have no problem adjusting. They will sincerely and honestly post 'go for it, I did, and I have no regrets' although their makeup may be nothing like you. [I've even seen posts along the lines 'I retired x months ago and I'd recommend it.' Ideally FIRE is a 30-40 year stint, I'd put alot more weight on someone at least 5 years out who still thought they'd made the right decision.]

At the other end of the spectrum, there are those who have devoted themselves to their work (some because they actually enjoy working even if they aren't fulfilled in their current job or they're just more comfortable with a more structured life) who are lost or bored within a year of FIRE if not much faster. They will just as sincerely and honestly post 'I did it, and I got bored/drove my spouse crazy, went back to work and I'm happier' and you guessed it, their makeup/circumstances may be nothing like you either.

Where you are on this continuum is unique to you. You will get some thought provoking responses worth reading, but it's your journey - I'd start with the books above and some self examination. Best of luck, make it the best chapter in your life so far...

[Rustward]

Laurence asked if this is the house we want to die in. Probably not, but we would like to stay here for at least the next 15 years or so, maybe more. DW likes the big yard so we will stay here until the yard becomes a pain. I suppose we can put a residential downsizing into the plan at some arbitrary point in the future.

The health insurance/expenses thing seems to be a major unknown. This is quite daunting. I have started reading the links that Brewer and Martha supplied. I had seen some of them before but now I will be reading with a little better focus.

This thinking may be completely invalid, but to try to get my arms around this topic I went to the state's risk pool web site and priced a plan for me and DW. The plans vary, but the one I would use if I had to has premiums totaling $11,820 using this year's rates; I am calling this the best case. The (max out of pocket + premiums) was $27,820; and for this analysis I am calling this the worst case. The max out of pocket figure they give you includes deductibles plus max coinsurance, and I added in the premiums to arrive at a total. Now that I have a best case and a worst case I don't know what to do next. The mid-point is $19,820, so maybe that number is good for something. This is medical only without any dental or vision.