Nervous about ER with $5.5 million

[nash031]

Without the pension or home equity considerations, and inflating your spend to $15k/month for a margin of safety, you're still at a 3.2% WR. I think you're beyond fine financially.

It's not crazy to be concerned, but you've got a lot of margin in there to be able to retire today and still live a more well-to-do and philanthropic lifestyle than 95% of the country.

[kcowan]

Congratulations. I think if you can adapt to a 25% reduction in case of a meltdown and not panic for a while, you should be fine. If you think you will panic again, then you should keep working.

[Earl E Retyre]

Quote:

Originally Posted by Foxtails Hi, ... I am concerned about starting retirement with the market at an all-time high and what a drastic drop could do to our long-term retirement prospects. During the 2008 meltdown we did panic and sold thereby locking in our losses. I know we can't do that if the market goes down again. ... DH has a pension from a previous job ... approximately $4100 per month at 65 for 100% survivor. SS would be approximately $4k a month total but I'm not confident it will be there for us so I don't like including it in calculations.

I would recommend you run Firecalc assuming your $4,100 pension and assuming 75% of your $4k social security (likely worst case SS scenario). Run 2 Firecalc scenarios - 1st using the allocation you suggested at 50% equities; 2nd assuming 25% equities. While 50% equities will yield a likely larger number at the end, my guess is that both will yield 100% success rate with healthy numbers at the end.

When the market drops 40-50%, with a 50% equity allocation you will lose > $1M and you may panic as you did in 2008 or may lose lots of sleep for who knows how many years. If 25% equity with a loss of $500k on big market drops allows you to sleep at night, then perhaps that is the compromise you need for your nerves. It allows you to meet your financial needs to maintain your current quality of life, while lowering your financial nervousness and eliminating work stress altogether.

Just another point of view.

[OldShooter]

Quote:

Originally Posted by Foxtails ... After looking through the other posts of what people spend post retirement I am kind of shocked at how low it is. We figured about $13,500 - $14,000 per month but this includes a lot of extras that we could reign in if necessary. For example, we budgeted $1000 a month for travel for the rest of our lives. Also about $1500 a month is budgeted for charity. Our home is worth about $900,000 and it's paid off but the property taxes run about $20,000 a year. We are not interested in downsizing at this point but may in the future if necessary. Also I have heard from family members that health insurance costs can run $30,000 a year until Medicare kicks in. We have zero debt but with the property taxes and health insurance that alone could be $50,000 a year. ...

& I'm kind of shocked at how high your estimated spending is.

The costs you mention add up to about $6500/month, add 30% for taxes maybe $9K. What is the rest? If you are concerned about the long term, IMO your planned monthly expenses need a hard look. Remember, too, that in retirement you will not have expenses for retirement saving, commuting, work-time restaurant lunches & expensive coffees, dress clothes, etc.

That said, re travel we spent $40K last year and are just setting up a January private tour in Indochina that will run us about $15K. So $1K/month is probably ok if you are planning group travel, but not for private travel.

Everybody's expenses are different.

[CaliKid]

Quote:

Originally Posted by tomc5179 In that case, I think you are in pretty good shape. If I was your husband, I'd probably get out now and then you can adjust the portfolio and expenses to where you feel pretty comfortable.

+1

I would feel much more comfortable as that puts your net assets at about $7m assuming house is paid off. Your expenses seem reasonable with that net worth to me.

[rodi]

Welcome to the forum.

On the surface - it looks like a clear case of "you're good to go". The only concerns I have are whether you would panic during another downturn. Panic is a normal, human reaction and it takes cojones to just rebalance and move forward during a downturn. Like you - I sold (some) during the downturn... but only for a short window... (a few months)... I was panicking and wanted to catch my breathe and gather my wits... Fortunately, I held my breathe and jumped back in early enough to enjoy most of the recovery. Next time I hope to not panic at all... just keep rebalancing.

Again - welcome to the forum and congrats on saving such a nice nest egg.

[slv1]

Quote:

Originally Posted by DJRR You are not nuts, but I do believe your issue is more psychological than financial. To make it simple: $15,000 per month x 12 = $180,000 per year Put $1.8M in 10 federally insured bank CDs. You can live until 65 At 65 take your pension and social security - at $96k you are in the top 25% of households in the US. No longer in the top 10%, but don't think you will be begging anytime soon. That leaves you with an additional $3.7M plus a million dollar house to cover inflation and anything that comes up. Even a 50% loss still leaves you a lot of money. If the US defaults on its debt and goes Venezuela your job is not going to protect you. Buy some guns, ammo, food, etc and set up a secure location. If you love your job then keep it, if it is hurting your health I would not let fear rob me.

I like your post. It's a good way of breaking it down. Thinking about it. Let 3.7 million grow, use the rest now. What happens with inflation in the next few years.

[happy8]

Your numbers look very similar to mine. I'm 51 yo have about $6.2 million in investable assets. No pension. My assets are about 50/50 in tax advantaged and regular brokerage accounts. Expenses for me about $12.5k/month, I posted more detail previously. Like you, most people gave an enthusiastic thumbs up to retiring now but I remain very nervous. There are a couple of things that I see some do not take into account in their projections:

1) In your case, to end up with $14k/month cash to spend, you will have to withdraw quite a bit more because taxes may be assessed as capital gains or as regular income, depending on what type of account you are drawing from. In the case of your non tax-advantaged accounts, the amount of tax will obviously be higher if you have a lot of capital gains. I do not have a good handle at all on what a typical effective combined federal and state tax rate actually would be on the amount needed to generate in your case $14k/month and in my case $12.5k/month. I'm guessing it might be in the range of 30 % in California, which taxes capital gains as regular income. If you are in a similar situation, you could be looking at needing to withdraw $240k/year to net $14k/month? If this is the case you are looking at a SWR of 4 % which to me is by no means a very comfortable margin of safety. I would love to hear comments that give insight into the issue of effective tax rates during retirement.

2) In any projection model, I think that you should factor in 2-3% increase a year for inflation in expenses. Perhaps you anticipate your expenses going down because of changes in your spending and you can account for that separately but I suggest that you not ignore the inevitable inflation creep for known expenses. Firecalc I believe does this automatically but there have been some comments offering rough projection models which do not account for inflation and I think that may be unrealistic.

I would love to retire now but for now I'm planning on hanging in there, perhaps at reduced hours, another five years and then reassess.

Very good luck to you!

[Senator]

My assets are not that far from yours, although heavily in real estate. It produces an income in excess of $16K a year and my spend is considerably less than yours, although less liquid.

I am closer to $5K a month in spending. I also get free healthcare and a small pension. It should have been be a no-brainier for me. I was saving 2x my gross income for 3 years before I quit.

For me, it was nerve racking. When I quit my job, it was the first job I ever quit without having another higher-paying job to go to.

In the end, you just have to realize that so many people leave their jobs with so much less. At the end, we are all dead, and you do not want to die while waiting to accumulate more. I also did not want to keep paying as many taxes to people hat did not work at all.

[brucethebroker]

Quote:

Originally Posted by flintnational Congratulations on a well executed savings plan. Others have done an excellent job commenting on the financial aspects of early retirement. I think the item that often gets overlooked is the risk you take if you don't retire early. You will never be younger than you are today and you may not be as healthy in the future. So you are potentially giving up youth and health to continue w*rking. IMHO, there are risks on either side of the decision. Only you can decide which risks are more acceptable. FN

+1.
There are many who have successfully retired on $500,00-$1m by managing their expenses. Knowing that it is possible should ease your "worst case senario". I had breakfast with a lifetime friend in another state, recently. He is one of those people. He asked me "do you find that once you retire, you seem to spending even less, and your savings continue to grow?" "Yes, it surprises me also."
You may not be "ready" to downsize, but you would do it to survive, right? That should be your answer to many of the "what if" questions.

[SAtoUS]

You will be just fine. As Andy said in 'The Shawshank Redemption'

"I guess it comes down to a simple choice, really. Get busy living or get busy dying."

[street]

I would like to say you have done well with a stash of 5.5M. If it were me with that kind of money I would have NO problem making it. I say you are in good shape and it may come to that you have to cut spending but that is in your control.

[tomc5179]

Quote:

Originally Posted by happy8 1) In your case, to end up with $14k/month cash to spend, you will have to withdraw quite a bit more because taxes may be assessed as capital gains or as regular income, depending on what type of account you are drawing from. In the case of your non tax-advantaged accounts, the amount of tax will obviously be higher if you have a lot of capital gains. I do not have a good handle at all on what a typical effective combined federal and state tax rate actually would be on the amount needed to generate in your case $14k/month and in my case $12.5k/month. I'm guessing it might be in the range of 30 % in California, which taxes capital gains as regular income. If you are in a similar situation, you could be looking at needing to withdraw $240k/year to net $14k/month? If this is the case you are looking at a SWR of 4 % which to me is by no means a very comfortable margin of safety. I would love to hear comments that give insight into the issue of effective tax rates during retirement.

I'd encourage you to spend a little cash for an hour or two with an accountant or tax attorney for them to give you an idea of your tax liability after retirement. If the majority of your money in the non tax advantaged portion of your portfolio is in index funds, you probably won't have too many capital gains from activity in that. I'm guessing half or more of what you'll withdraw will be dividends. Also, depending on what state you live in, tax on dividends are treated more favorably than cap gains. I was pleasantly surprised with my tax bill after I retired.

[Ronstar]

Yes you should be concerned. But your concern is good in that it helps you implement a solid retirement plan. That said, it looks to me like you're good to go. I'd said retire as soon as possible given your DH's job is quite stressful.

[kimcdougc]

DH and I retired with a fifth of what you have. We do what we want when we want. No bills beside health insurance (on the aca) and daily living expenses. Travel is our biggest expense.

Still give a couple of thousand to charity annually too.

Life is good.

You look good to go to me.

Good luck with your decisions.

[Foxtails]

Thank you for taking the time to reply. I received a lot of good suggestions and also some posts that made me think a little deeper than I have been. To answer a few of the questions - if necessary we could easily trim the monthly budget down to around $10,000. There is quite a margin built into the original $14,000 per month. If things got really bad we could probably find other costs to cut or downsize the house. If we downsize we could take some profit since the house is paid off and also cut the property taxes in half to $10k from $20k. Also I realize the healthcare costs should go down once we go on Medicare in about 12 years.

We're still unsure about the pension. I think there are pros and cons with both the lump sum and the monthly payout option. If I remember correctly the financial plan we had run 2 years ago said the break even point was around 85 years old. Longevity on either side is a mixed bag. We have some relatives that have lived into their late 90s while others from the same family have passed in their 60s. Lifestyle has something to do with it so I try to factor that in. The pension is with a mega Corp but we are concerned if they sell off the monthly obligation to an insurance company what happens if the insurance company goes bankrupt. Is the monthly pension still protected by the pension benefit guarantee corp?

[pb4uski]

Quote:

Originally Posted by Foxtails ....The pension is with a mega Corp but we are concerned if they sell off the monthly obligation to an insurance company what happens if the insurance company goes bankrupt. Is the monthly pension still protected by the pension benefit guarantee corp?

That should be the least of your concerns as most insurance companies are financially stronger than most Megacorps. Additionally, they are monitored by the rating agencies (S&P, Moody's and Fitch) and regulated by state insurance regulators who would likely step in and take over the company long before the company's assets would decline to a point where they could not pay their liabilities. Finally, there are state guaranty funds that would pay in the event the insurer was unable to.

In short, your pension is much more secure with an insurer than with a megacorp even with PBGC coverage because the PBGC is in poor financial shape with a deficit of almost $80 billion (yes, that is billion with a B).

[jollystomper]

Quote:

Originally Posted by Foxtails We're still unsure about the pension. I think there are pros and cons with both the lump sum and the monthly payout option.

In my opinion I believe it is good to have a steady income stream as part of retirement income, so I would opt for the monthly payout. I will be getting a pension and that is the route I am choosing. You have more than enough in your other assets to balance it out. But this is a more conservative approach; others who have a higher risk tolerance would likely lean towards the lump sum.

[tdv2]

I'm in a similar, albeit slightly less, boat WRT investable assets. With DW's lump sum we are a hair over $5MM investable. Got this number up from$3.1MM in 4 years. House worth close to $600k. Have a spending plan of $13,000 / month. Budgeted HC at $27k/yr---will be less if we don't hit max out of pocket. Tracked spending for 5 years and average around $75k without HC. In the $13,000 monthly spend half is discretionary.....planning large travel budget.

Still struggling with decision myself....will be 54 at year end....DW is 61.
What to do
I know the answer.....pull the plug.

BTW Fidelity RIP is my go to calculator.

[happy8]

Quote:

Originally Posted by tomc5179 I'd encourage you to spend a little cash for an hour or two with an accountant or tax attorney for them to give you an idea of your tax liability after retirement. If the majority of your money in the non tax advantaged portion of your portfolio is in index funds, you probably won't have too many capital gains from activity in that. I'm guessing half or more of what you'll withdraw will be dividends. Also, depending on what state you live in, tax on dividends are treated more favorably than cap gains. I was pleasantly surprised with my tax bill after I retired.

Thanks for the suggestion and I will plan to do so with my accountant at tax planning later this year. I do know that unfortunately California taxes both capital gains and dividends as regular income, and the tax rates are high. Once you pass AGI 40k the marginal rate is already 8 %.