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Just found this forum, my intro
Old 09-23-2011, 06:05 PM   #1
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Just found this forum, my intro

Hello, I discovered these forums recently and I'm making my way through the many posts - I've already found some great tips, books to read, and things to think about that I hadn't thought of yet.

I'm 43 and have been working in my profession career for 19 years. After finishing college and getting over the initial "hey, I'm getting paid real money now, I can eat out every meal, buy toys, etc.!" phase (lasted about a year), I took a basic course on personal money mangagement, then I read "Your Money or Your Life", followed by some other money management books/magazines. I spent several years learning about this, paid off my student loans as quickly as I could, bought a very low end house, and started saving towards retirement.

As I made progress on learning and saving, I thought I might be able to retire around age 40. However, as 40 approached, I evaluated my situation and decided I could retire at 40, but would not be able to upgrade my housing once I did that, and that I would rather upsize the house and move into a different type of neighborhood first, and postpone retiring for a while longer. I was more unhappy with our house and neighborhood than I was having to go to work every day :-) So 4 years ago my long-term boyfriend and I bought a house and I sold the old one. BTW, the boyfriend-not-husband thing isn't a concern, I believe everything in that regard is taken care of. I started to explain further, but this intro could get really long if I go off on too many tangents. I don't mind going into it, just didn't want this post to end up being a book!

So, I've had my own way of figuring out how much I need to retire, but based on my calculations, it works out to needing $1,100,000 total between retirement savings and non-retirement savings, to take the plunge. In my case, this will end up being about 30% in retirement accounts and 70% in non-retirement accounts. I've estimated my annual expenses at around $55,000, which includes an estimate of $500-$600/month for medical premiums and out-of-pocket expenses. My calculations also take into account when the 2nd mortgage will end, when the first mortgage will end, and at what age I'll run out without SS (run out around age 96) or with SS (run out around age 107 LOL.) My estimate is based on a 3.5% rate of inflation and a 6.5% rate of return overall.

Since reading these forums, I looked at the other ways of calculating the "how much do I need", and my "withdraw rate" works out to 5%, although I wouldn't actually have even withdraws, due to the mortgages which will end eventually. However, using FIRECalc, I will not succeed. It believes I need to have quite a lot more saved (varies depending on what I fill into all the variables, but around 1,500,000).

I'm close to my 1,100,000 saved - if the stock market goes back up a bit, I would reach that goal mid-next year I think. I do think having a hard-set goal is a little hard since my total saved varies every time the stock market goes up or down.

Until using FIRECalc, my main hesitation was due to the unpredictability of health care expenses in the future. Now in addition to that concern, I wonder if FIRECalc knows something I don't know, too. The one thing I can think of is I'm not sure how much to include for income tax in my annual expense estimate - in the first 20 years, I would be mostly spending money I've already been taxed on, and I'd still have a large mortgage interest deduction; so I didn't include taxes in my expense estimate. Is there a rule of thumb about this? Maybe this is where FIRECalc differs from my estimates?

Since I'm hesitant to retire until I'm more certain it will work out, one thing I've considered is working part of the year each year. I don't typically see jobs in my field for part-time workers, but I do see 3-6 month contracts in my field fairly often. So, assuming I could get one of those each year, I could work 3-6 months each year, which would dramatically reduce my withdraw rate and also satisfy my desire to work less - I like the work I do, just would like more time to spend on my non-work interests.

I'd like to say more, but also want to get this posted, so I'll stop for now since this has already gotten very long!

I welcome comments/advice/greetings/etc.
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Old 09-23-2011, 08:05 PM   #2
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Welcome CantThink (and I love your username!). You seem to have done quite a bit of research already. $55K is 4% of $1,375M so $1.1M seems a little short. As well, you are estimating a 6.5% annual return, which may be more than future markets will yield. I'm guessing that income taxes in the US will rise over the next few years as somebody has to pay down that big deficit. These are "interesting times' and I think it would be brave to apply the old expectations. Many of us are aiming for a SWR (safe withdrawal rate) of considerably less than 4%. I lost a virtual $70K in the markets this week (not counting $3K on Gold) and I am planning for a 2-3% SWR, which should be sustainable by dividend stocks.
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Old 09-23-2011, 08:20 PM   #3
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Welcome to the boards.
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
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Old 09-23-2011, 08:57 PM   #4
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Hello and welcome. DW and I just FIREd at 48 and 52. We had hoped for a little earlier but hey 48 and 52 are not bad. Now our full time job is to ensure we never w*rk again. I sure hope we can make that happen.

We can certainly relate to getting comfortable with a "number." We calculated a number, worked through FIRECalc and still worked for a few more years. So we're hoping the extra margin helps us through the ups and downs.

YMOYL is a great book. It certainly reinforced our desire to FIRE.

Good luck!
Dreamin' of Streamin'
FIRE'd at 52 on 7/8/11
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Old 09-24-2011, 06:31 AM   #5
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Welcome aboard noname! I have found this to be a great site too.

As you prob know, 4% is academically the SWR for a 65 year old planning on a 30 year retirement, you are much younger so it's prob not applicable. The never-ending SWR is often said to be 3%. I left at age 57 based on a WR even lower as I am not optimistic about the decades ahead. I am expecting a real return of 1-2% where you are planning on 3%. $500-600 for health care see slow to me. That would cover a HD premium, but you will prob have out of pocket costs too, could be considerable when you get older.

You're right taxes aren't easy to plan for I think rates will only go up, so I wouldn't use the current rates. I also expect Soc Sec and Medicare benefits to be reduced for someone my age or younger.

4-5% WR could work at your age, but the probability would be unacceptably low for most retirees so you may want to be prepared to go back to work or have other income. Best of luck...
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 50% equity funds / 30% bond funds / 20% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
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Old 09-24-2011, 08:06 AM   #6
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Welcome. I think the major reason for the discrepancy you see is that FIREcalc looks at sequence of returns and not just an average return of 6.5%. This is explained on the front page where it compares two people who retired with $1MM - one in 1973 before the 50% drop in stocks and one in 1975 after the two year bear market ended.
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Old 09-24-2011, 09:30 AM   #7
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Thanks for all the comments, more things to think about! I'm definitely going to spend more time with FIREcalc, and revisit the numbers I had been using based on some of these comments. All of this will help me feel less hesitant when the time comes - it's very helpful to have other people's input! My bf is completely uninterested in financial planning nor "playing with numbers", and I'm not comfortable discussing this stuff with the only one of my friends who is interested in finances, so up til now I've had no one to discuss things with (had bad experiences with the 2 financial planners I've tried in the past.)
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Old 09-24-2011, 09:40 AM   #8
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Welcome to the forum. It definitely looks like you are coming closer to your retirement goal. As the other responses indicate, the variable that you had not accounted for in your previous calculations seems to be the risk of market volatility. FIRECALC does take this into account and thus your SWR should be somewhat lower than 5%, unless you are satisfied with somewhat high chance of running out of money. I am not retired yet, but approaching the big day. Personally, I am fine with a 90% success rate, because if my spending starts to exceed my planned SWR and the assets dip, I will adjust spending down until assets recover.
I love to read about folks with ultra low SWR, because they will not run out of money. However, for me that approach does not work. If I wait until I accumulate the big pot of assets, I will probably retire late and miss too much of my life. Plus, I do not desire to die with lots of money. That would just spell out missed opportunity for me. I need to balance my true spending needs versus my comfort about not running out of money. For me that works out to about 3.5% SWR to last 38 years.
Hope you enjoy his forum as much as I do.
Have a good day.
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Old 09-24-2011, 12:39 PM   #9
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Kudos for getting a strong start at a young age, and at least thinking everything through fairly completely for a first-pass!

One item regarding taxes:

Originally Posted by CantThinkofAUserName View Post
it works out to needing $1,100,000 total between retirement savings and non-retirement savings, to take the plunge. In my case, this will end up being about 30% in retirement accounts and 70% in non-retirement accounts.
(numbers below are based on $1.1 M portfolio, which many have commented seems definitely low/too aggressive for many tastes)

$770,000 Taxable Account-starting portfolio

Of your projected 6.5% annual return, assume, say, 2% in average interest/divs and 1.5% in realized capital gains.

$26,950 in taxable interest/divs, some realized capital gains

1. Add in your annual taxable withdrawals from your retirement accounts to get your guesstimated taxable income.
2. Subtract out your mortgage interest, real estate taxes, and other deductions to arrive at your guesstimated Adjusted Gross Income.
3. Apply the appropriate local/state/federal tax rates to see what your taxes might look like.

Assuming that you don't live in an ungodly high real estate tax area, odds are, you WILL have some taxable income to pay taxes on. The gotcha is that you have a big % of your portfolio in taxable accounts - just because you are planning on spending 4% or 5% of your overall (tax + retirement) portfolios, don't forget that you still have to pay taxes on ALL earned interest/divs/cap gains spun out in your taxable accounts each year, whether you spend it or not.

But, fear not - you're pretty darn close to the finish line, so just a little more tweaking, and instead of the 4 Bed/3 Bath 2,800 sq ft in the nicer neighborhood, perhaps you might opt for a 3 Bed/2 Bath smaller home to give your portfolio a little bit bigger boost?
Dryer sheets Schmyer sheets
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Old 09-24-2011, 01:32 PM   #10
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I meant to say you're making exceptional progress no matter what you decide. You are undoubtedly way ahead of most of our peers. Most of us aren't/weren't comfortable discussing with others as most others would be bewildered by your progress, and therefore have nothing helpful to share, otherwise they'd have a similar nest egg.

Congratulations, you won't be sorry, your discipline will be richly rewarded (pun intended).
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 50% equity funds / 30% bond funds / 20% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
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Old 09-24-2011, 01:33 PM   #11
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MooreBonds - thanks for taking a look and helping with the tax question. And good gotcha to remind me that I will be paying taxes on the taxable accounts whether I spend the money or not! It's so nice to have found a place with people to "talk" to about this stuff. My goal of course is FIRE, but I also enjoy playing with the numbers and seeing what happens in different scenarios :-)

We do live in an expensive real estate area - CA - and we're not planning to move in the foreseeable future. Since our loans are only 4 years old, have high interest rates, and we don't have equity to refinance (slightly negative equity actually, but we don't want to abandon ship, we like it here), so most of what we pay is interest. Being in a high cost area, even though our prop taxes are only a little over 1%/year, it still comes out to a lot of $$. I looked at my 2010 Sched A and my deduction for interest and prop tax was $24K . Of course, this will reduce each year as our loan payments go more towards principle and less towards interest, especially as we're paying down our 2nd mortgage more than the minimum payment requires.

We lived in a tiny house on a small lot in a crowded neighborhood for over 10 years - we upgraded 4 years ago to a 1700 sq ft house on several acres where we can't hear our neighbor's TVs or conversations . Before buying, we researched other areas of the country, but they all have "weather" that we didn't want to endure, along with not wanting to leave our friends and other things we like about this area, so we opted to pay the $$ and stay here in CA.

I'm gonna be spending time with FIREcalc, along with a Fidelity tool I saw someone in these forums mention, and also revisit my expected cost of living, including adjusting the medical and tax expenses.
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Old 09-24-2011, 07:14 PM   #12
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Welcome ! Love the user name ! You are doing a great job and close to your goals . It does help to have padding so when the market drops as it did right after I retired you are still okay .
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Old 09-25-2011, 10:34 AM   #13
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Welcome to the Board. New here as well. Just retired a month ago. My situation appears to be quite different from most others in that I do not have a huge portfolio. I have a pension and no cost health care, healthy savings and a small deferred comp and 401k ($200k). Safe withdrawal rate to me is not an issue, as I view my taxable accounts as cushions and not money needed to live on. I have no debt, which helps.

One other thing to consider: health care premiums at age 43 are quite different than they will be at 53 or 63. That being said, you are well ahead of most people your age, I would think.

You are quite young to be retired. Any thoughts to how you will spend your time?

Welcome again.
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Old 09-25-2011, 11:17 AM   #14
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It looks like you have made good progress in your preparation to FIRE!

I would recommend developing a comprehensive financial plan including identifying your risks and planning for those also. I think it is best to be conservative in your assumptions and estimates.

Good job on the progress.
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Old 09-25-2011, 08:36 PM   #15
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I echo the greetings and compliments on your preparedness toward your ER. I also love your username LOL!

I was struck by some of the similarities between your investments and mine. I, too, have a total investment portfolio of just under $1.1M and it is split about 70/30 between my non-retirement and my retirement ones.

I consider my IRA, SS, and my former company's frozen pension to be my "reinforcements" which will begin to kick in when I turn 59.5. Until then, my non-retirement accounts are providing me with the income to cover my expenses.

I also have built in a surplus, or cushion, in case I have some unforeseen expenses in a given month. I am not talking about large expenses, just some smaller ones (under $1,000) which may arise from time to time. This gives me a level of comfort in case something arises.

My annual expenses are about $20k so my SWR is about 2%, nice and low.

I wish you continued success toward your ER goal.
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

"I want my money working for me instead of me working for my money!"
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Old 09-25-2011, 09:44 PM   #16
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Hi again everyone, I've spent a bunch of time this weekend reading past messages, messing with FIREcalc and Fidelity's tool, and looking some more at my own estimates, taking into consideration the various advice you've all mentioned (thanks!) I don't have a "plan" or date yet, but feel like I've made progress this weekend, I'm so glad I ran into this forum!

To answer the question regarding what I'll do after I FIRE, yes, I've thought about it a lot - my Dad warned me about 10 years ago to think hard about this before giving up my career. As I've gotten older, I'm even more sure I'm ready.

Believe it or not, I really want to be a home maker LOL. I would have NEVER imagined this in my 20's, but now I love cooking, home maintenance, organizing, gardening, running errands when I *don't have to rush*, and helping out my friends.

I have hobbies (various crafts and photo stuff mostly) I want to spend a lot of time on without always being rushed. I've also got a list of volunteer things I've wanted to do, but could never fit into my schedule: help build a Habitat for Humanity house; work on trail maintenance at some of my favorite hiking parks; participate in river and beach cleanups they have in my area; and volunteer at local services I believe in (library, senior center, humane society, and so on.)

I would also like my visits to my parents and siblings to be longer - it's so hard when trying to split up vacation time among a bunch of different visits, I never get to see anyone long enough.

There are also a lot of local weekend trips/activities my boyfriend and I would like to do, but we're so busy taking care of "life" on the weekends, we don't get to do all that many. Once I FIRE, I hope I can take care of "life" during the week, and we can do some of these things while we're still healthy.

I'm not addressing all the points you've all made in these replies, but I'm keeping a list so I don't forget any; they are much appreciated :-)
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