It's Time....Critique my plan, please

[Rex]

I think we are ready. There is nowhere else to run my ER plan by and get such helpful, real advice. Shoot to me straight. What am I missing because I think I am locked and loaded.

Who?
Me 53, DW 51...W2s since 1979. I did the corporate ladder thing and switched companies a few times chasing the dollar. Exhaustion and burn out have set in.

When?
I'd like to ER later this year...Thinking 11/1 to coincide with quarterly bonus.

Where will the $$ come from?
$2,400,000 retirement portfolio (60/40 invested....50/50 taxable/tax deferred)
$18,000 non-cola pension @55 (or $31,000@65)
Yes to Social Security for both of us

How much $$ do we need?
Budget says $96,000/year. I've tracked this for 2 years. I've considered categories that change....Kids drop off, travel and health increase. No more dry cleaning.

What about housing?
Sold the family home now that we are empty nesters. Having new home built. $$$ for home including furnishings are not included in above.

What about medical?
Thanks to a package from previous employer, we can stay on company medical until we hit 65. I've looked at long term care insurance but think self funding makes more sense now.

What about the kids?
One is off the payroll. Other is in last year of college and showing progress towards a successful launch.

What are we going to do?
Relax, interfere in the kid's lives, travel, eat better, get in shape, re-connect with family & friends, grow tomatoes, climb mountains, look out after the DM & DMIL, join Bible study, track down the family tree, scan the family pics, cross off items on the bucket list....the usual suspects.

What if the money runs out?
Go back to work, drive for Uber, sell the 2nd home, downsize primary home, inheritance....Thinking several options here, but want to avoid.

What are my questions/concerns?
1) DW has been slow to embrace RE. I think it's based on a herd mentality of "you are too young to retire and nobody does that" but I've kept her in the loop and showed her the $$$ and she is getting there. Any advice on this?
2) Does the financial plan really work? FireCalc is good, FA is good, other calculators are green. I worry what I am missing. What is it?
3) Is there a best time to leave w*rk? I don't want to leave anything on the table but don't want to continue to catch OMY disease...and I've already extended the date a few times already this year (still chasing the $$).
4) Am I cutting it too close? SWR would be 4% but that's before pension and social security.

What have I not thought about?

 

[DrRoy]

By general guidance you look situation looks good. My only concern is that Firecalc and other evaluations operate off of historical returns, and I personally believe that the average market returns that we have experienced over our careers are not sustainable going forward. Population and productivity growth, the primary drivers of economic growth and investment returns are now lower than the last many decades and do not look like they will return to historic levels, so I expect lower future returns. How would your budget be at a 3% WR?

 

[cathy63]

You're in the same ballpark we are. DH is 55 and I am 54 and we retired a year ago. We have about the same size nest egg as you, but only a $9K non-cola pension at age 65. You also have much better healthcare options as we're on ACA (though we are in CA, where ACA is working much better than in some other states.)

We planned up to $100K spending for the first 10 years, but it looks like we'll be under that this year and our nest egg has grown even with the withdrawals due to general market increases.

1) For your DW, I don't think I can help much as I'm still a bit nervous about whether this is all really going to work. Most days I think it's going well. For the part about "nobody does this", maybe direct her here where basically everyone does this.

2) There are various expense calculators floating around. Look for those to get ideas and make sure you've accounted for sudden large expenses like cars, appliances, new roof, etc.

3) I ended up working 6 months longer than I had originally planned because of a delay in awarding a contract my company was bidding on where I was a key person, and I liked them and didn't want to leave them in the lurch. They gave me a substantial bonus to thank me for that, which I hadn't planned on but it delayed us having to start withdrawing from our portfolio. Staying also allowed me to max out my 401K for last year and both our IRAs, whereas if I'd left in Dec the year before, we'd have lost that opportunity. So I don't know if it's worth staying another 4 to 6 months for you, but if you're thinking of leaving in Nov, you could consider whether there's an advantage to staying until Feb or March or whether you'd prefer to be free of work sooner.

4) 4% is historically safe for a 30 year retirement. If you're going to be retired longer than that, and keep withdrawing that much, you might get into trouble. But once the pension and SS kick in, you should be able to reduce the withdrawals.

 

[euro]

From the sound of your post, Im going to assume that you have at least SOME flexibility in that 100k budget in case of a nasty downturn. If that is the case, and considering that you pension will kick in pretty soon, I would say: congratulations, you are good to go

 

[Blue Collar Guy]

I think we are ready. There is nowhere else to run my ER plan by and get such helpful, real advice. Shoot to me straight. What am I missing because I think I am locked and loaded.

What have I not thought about?

Deduct what you think the new house is going to run you. Add in furniture etc. Now run that nest egg in firecalc. In the social security options add in 70 % of your expected payout. Add in the 18k for the immediate pension. What are the results for 20/30/40 &50 year time horizons? If you only have 4 or less failures , then your good to go. Those failures are probably from the 1929, 1965,1966 and 1973 retiree. You will know if you entered a bad retirement sequence, you tighten the belt and dont take inflation increases till things level out. Or drive for Uber. You sound like me, Ill stock shelves at the supermarket/ be a bouncer if things go sour. Lets us know what the calc says.

 

[whatnot]

I think you should be good. We have about the same size next egg, but have only 10% in taxable. So that is a big plus on your side. Have you decided when to start your pension and SS? Have you run various scenarios on when to start them on Firecalc, etc?
We will also have retiree employer sponsored health insurance - but what if that goes away before we are Mcr eligible is a concern. Also, how well funded is your Pension? Just a few questions to ponder.

 

[pjigar]

I am in a boat who believes SWR of more than 3% is not prudent considering the low return future we face for a next decade or more. Cut you expenses or build up nest egg some more.

 

[Rambler]

I am in a boat who believes SWR of more than 3% is not prudent considering the low return future we face for a next decade or more. Cut you expenses or build up nest egg some more.

+1. I think at 96k expense, 2.4M portfolio is cutting it way too close for comfort. I'd hang on for another couple years, keep saving, launch the kid, watch the economy, then re-consider. If you are someone who could amass that amount of money, you won't want to work as a walmart greeter to make ends meet, but once you get out of the game, getting back in isn't as easy as we'd like it to be.

 

[Markola]

I am in a boat who believes SWR of more than 3% is not prudent considering the low return future we face for a next decade or more. Cut you expenses or build up nest egg some more.

I see this advice to withdraw much less than 4% on these boards frequently. It makes me wonder how to factor in that inflation is also historically low? Doesn't it offset the current low growth environment somewhat? For example, most people seem to start safe withdrawals at a pegged rate up to 4% and then add an inflation adjustment each year. I believe that's what the original Trinity Study leading to the 4% SWR called for. In this low inflation environment of less than 2%, that annual adjustment would be much smaller than most earlier periods. Wouldn't the compounding effect of that smaller-than-usual inflation adjustment be protective of the SWR and reduce the chance of running out of money? Also, Social Security payments will kick in at some point. Also, one's home equity is another backstop. These factors plus the 4% SWR's built-in conservatism, e.g. Trinity's 50/50 AA, and the historic success of a 4% SWR make me more comfortable with it if Firecalc gives a 90%+ success rate.

 

[Blue Collar Guy]

. I'd hang on for another couple years, keep saving, launch the kid, watch the economy, then re-consider.

-1 I dont subscribe to this , time on this earth is finite. run when you can You dont want to be the richest guy in the cemetery.

 

[USGrant1962]

You are certainly in shape to FIRE if you wish.

While you'll will be at a 4% WR next year, you'll drop to something like 3.4% in 2 years when your pension kicks in, followed by ~2.5% when SS kicks in (depending on your PIA and when you decide to collect).

I also like that you are 50% taxable - that is better money to use between 54 and 59.5. Presumably a good part of that is principal so you can manage your AGI well.

I'm in a similar situation - just retired at 55, bridging to SS at about 4.0% WR, but will be at ~3% when SS kicks in. That is with a bunch of conservatisms built in - neglecting sale of a house (why does one need a house if in LTC?), neglecting a likely inheritance, assuming zero future income from consulting or hobby jobs, etc.). You should take stock of what conservative assumptions you have made.

As far as the surfing the bottom lines on FIRECalc, if you really think the next decade will be worse than both the Great Depression and the 2-digit inflation of the 70s you can ignore FIRECalc and keep working. I'm not...

 

[bradaz2488]

+1. I think at 96k expense, 2.4M portfolio is cutting it way too close for comfort. I'd hang on for another couple years, keep saving, launch the kid, watch the economy, then re-consider. If you are someone who could amass that amount of money, you won't want to work as a walmart greeter to make ends meet, but once you get out of the game, getting back in isn't as easy as we'd like it to be.

I tend agree with this given the +40 year plan. However, the OP will receive a pension and is also assuming they will receive SS benefits. Sounds like they are good for HC premiums thru employer. If these assumptions are low risk in the OP mind then they can start with a 4% WR, which is risky for a 40+ year plan, but it will reduce when pensions & SS kick-in..... If it we me I would try to reduce initial spending (3% WR) until the pension kicked-in at 55 and give myself a big raise at 60 when SS and medicare benefits should be more clear on what you will actually be getting.... If there is no flexibility in the $96K expenses then I would take a 25-30% haircut to my expected pension and SS and see what FireCalc and other tools tell me. Just my 2 cents

 

[Bryan Barnfellow]

''What are we going to do?
Relax, interfere in the kid's lives...''

Droll!

-BB

 

[Nightcap]

Life is short, death is certain, and for all we know there's an errant asteroid that's about to smack into the shallow waters of the Eastern Seaboard tomorrow. The resulting tsunami will take out both the seat of government of D.C. and the financial center in N.Y. (and also wash away the sand bar I live on).

I believe it was Mr. Money Mustache who pointed out that the difference between a safe withdrawal rate that should see you through 30 years and one that will see you through 40 is pretty small. If I were in your shoes, I'd go for it.

 

[Sojourner]

I am in a boat who believes SWR of more than 3% is not prudent considering the low return future we face for a next decade or more. Cut you expenses or build up nest egg some more.

This is generally how I see it, too, although in OP's specific situation, 4% could very well be just fine. Having an $18K pension and retiree healthcare from previous employer until Medicare kicks in is tremendously helpful, obviously.

But... how much certainty is there regarding that pension and healthcare coverage? OP has 12 years till Medicare, so that's 12 years in which the previous employer could reduce or even eliminate their retiree healthcare benefits. Pensions have also been known to evaporate unexpectedly or get cut substantially. So, if it were me, I would factor in some sort of discount for those to arrive at a more truly "safe" SWR. Maybe something like a 30% discount? Many do this with SS, since it's fairly likely to be reduced for future retirees, even for those now in their 40s or early 50s.

 

[walkinwood]

Make sure DW is fully on board. Talk about it often. Schedule time to discuss the topic so that she's open to hearing what you are saying. Be patient and go over the same numbers and logic multiple times. You've obsessed over this for a long time - she hasn't. Don't assume that she's on board until she says it herself with no prompting.

Make a list of the things you (and DW) want to do in retirement. Personally, I think that you'll be doing more of the things you like to do today. That means that many of the aspirational things you have on your list will remain untouched for years. Check your list with that in mind.

On the money front, account for some headroom (10-15%) over what your historical spend is. We also set a chunk of money aside as an emergency fund. While this money is still part of the portfolio, it isn't used to calculate our withdrawal rate.

Make sure you're comfortable with your AA. We ER'd into the '08 downturn and while I did stay up some nights, we were able to keep from selling anything in a panic. However, I couldn't get myself to rebalance all the way back to the original AA. It recovered by itself fortunately.

Good luck.

 

[Koolau]

I think the decision to FIRE or not might depend on how flexible you are willing to be. If that $96K is more or less in stone, there could be a problem at some time in the future (market issues, unexpected expenses, etc.) But if you could cut back for a couple of years if need be or cut overall expenses going forward (replace cars at 10 years instead of 6 or whatever) you should be good. Some of us joke about "belt and suspenders" when it comes to our back-up options. I'd think it terms of what those back-ups might be and see if you could deal with them. YMMV

 

[pb4uski]

I am in a boat who believes SWR of more than 3% is not prudent considering the low return future we face for a next decade or more. Cut you expenses or build up nest egg some more.

What you and other posters saying "no" are missing is that while the OP's initial WR is 4%, their ultimate WR, after pensions and SS start is much lower and it is that ultimate WR that counts.

With respect to your 3% WR statement, while you are entitled to your opinion, IMO 3% is too conservative. As others have pointed out, the prospects of low returns are also accompanied by the prospect of low inflation.

 

[Markola]

pb4uski's opinions are well-reasoned and I'm relieved to see his general agreement with mine above in this string. People worried about low returns always seem to leave out the historically low inflation part of the equation. It will be a few years before DW and I can pull the plug in a 4% scenario as it is. Projecting a 3% scenario is just disheartening. We have no heirs and I do not care to be the richest couple in the cemetery.

 

[pjigar]

What you and other posters saying "no" are missing is that while the OP's initial WR is 4%, their ultimate WR, after pensions and SS start is much lower and it is that ultimate WR that counts.

With respect to your 3% WR statement, while you are entitled to your opinion, IMO 3% is too conservative. As others have pointed out, the prospects of low returns are also accompanied by the prospect of low inflation.

"Low return" comment was for the returns after inflation. It is common sense that if you buy an expansive business today then your return on investment will be low unless you can miraculously expand your market by orders of magnitude. We are in similar situation for the economy as a whole: Expansive businesses (high valuation) which have no potential for expanding market (consumption) by orders of magnitude going forward.

Here is an article that lists what experts projects for future returns (including truly ours' John Bogle): What Market Experts Are Saying About Future Returns


Real wages has been stagnant for last two decades for majority of the population so there is not much of discretionary spending to keep pumping the consumption based economy. https://www.advisorperspectives.com...5/u-s-household-incomes-a-49-year-perspective

So if real wages go up significantly or government start massive spending then the returns on investment can go up. I have not much faith in either of those happening.

 

[pb4uski]

I am in a boat who believes SWR of more than 3% is not prudent considering the low return future we face for a next decade or more. Cut you expenses or build up nest egg some more.

What you and other posters saying "no" are missing is that while the OP's initial WR is 4%, their ultimate WR, after pensions and SS start is much lower and it is that ultimate WR that counts.

With respect to your 3% WR statement, while you are entitled to your opinion, IMO 3% is too conservative. As others have pointed out, the prospects of low returns are also accompanied by the prospect of low inflation.

"Low return" comment was for the returns after inflation. .....

You still are not "getting it". The OP has $2.4 million and a $96k a year spending target. OP will get $31k pension at age 65 and he is 53 and DW is 51. They ll also get SS but he doesn't say how much.

You and others are saying don't retire now because their WR is 4% ($96k spending vs $2.4 million nestegg) but you are focusing on the wrong WR. We need to look at the WR once pensions and SS start.

Let's assume that their SS is $20k each and starts at 67.

Let's say they carve out money out of the $2.4 million to cover spending before pensions and SS start. He has 12 years before the $31k pension starts... so that is $372k. He has 14 years before SS starts, so that is $280k. She has 16 years before SS starts, so that would be $320k. So all together, they need ~$1 million to cover gaps before SS starts so that reduces their $2.4 million to $1.4 million.

Once their pension and SS is online their gap is only $25k ($96k spending target -$31k pension -$40k SS), so their ultimate WR would only be 1.8% ($25/$1.4 million) which is very conservative. Wouldn't you agree that it would be prudent for a 52 year-old to retire with a 1.8% WR?

The green lights that they are getting from FireCalc and other tools reiterate the above so I see no reason why they should not retire now.

 

[rodi]

I think you're fine... I retired with a smaller nest egg and a plan of 90k/year spend. I still have/had kids under the roof. Turns out my actual spending was far less (by about 10k). Like you I had a non-cola pension a few years out - and have since started it. We also have rental income and DH has SS. Our WR is only 3% because of these other sources of income. But as I said - we had a smaller nest egg.

You have to weigh whether padding the nest egg is worth the stress/unhappiness at work. Are you going to worry/lose sleep if you don't pad the nest egg more...

I, personally, think you're fine... but it's not my life and not my decision to make.

 

[Cobra9777]

I agree with pb4uski. This is why WRs are of little use in answering the question, "Am I good to go?" Many early retirees have various "phases" with different income streams coming online at various times. It's not at all unusual nor undesirable for the initial WR to be high, even above 4%. Likewise, expenses often do not follow a clean, flattish, or upward sloping line, and may have little resemblance to pre-retirement spending. Model your expenses carefully, then just plug your numbers into FIRECalc, ********, Fidelity RIP, and i-ORP, and see what they say. I like to maintain my own spreadsheet as well. I retired when all these tools agreed that I was good to go, not based on any WR.

 

[pjigar]

You still are not "getting it". The OP has $2.4 million and a $96k a year spending target. OP will get $31k pension at age 65 and he is 53 and DW is 51. They ll also get SS but he doesn't say how much.

You and others are saying don't retire now because their WR is 4% ($96k spending vs $2.4 million nestegg) but you are focusing on the wrong WR. We need to look at the WR once pensions and SS start.

Let's assume that their SS is $20k each and starts at 67.

Let's say they carve out money out of the $2.4 million to cover spending before pensions and SS start. He has 12 years before the $31k pension starts... so that is $372k. He has 14 years before SS starts, so that is $280k. She has 16 years before SS starts, so that would be $320k. So all together, they need ~$1 million to cover gaps before SS starts so that reduces their $2.4 million to $1.4 million.

Once their pension and SS is online their gap is only $25k ($96k spending target -$31k pension -$40k SS), so their ultimate WR would only be 1.8% ($25/$1.4 million) which is very conservative. Wouldn't you agree that it would be prudent for a 52 year-old to retire with a 1.8% WR?

The green lights that they are getting from FireCalc and other tools reiterate the above so I see no reason why they should not retire now.

I get it now. I missed the pension part. I never had a remote chance of getting any pension so my brain simply ignores pension as noise!