New here-Introduction and plan to FIRE before 2020

[DeepSouth]

1st time posting here, been following for quite some time but wanted to jump in. Planning to FIRE in 2 to 3 years and think I’m on a pretty good path based off the FIRE calculator here and others. My only worry is like many here, Health care and insurance. I’m 53, DW is 52. We are planning to ER at 55 and 54. I have worked with Mega Corp for 20+ years, been in an executive position for the last 8, job is OK but very high pressure with a lot of headaches; DWs family owns a small business that she inherited 50% of in the last year. Here is our info.
Current 401k balance: $1.1m, Savings (this includes CD’s, regular savings, cash available, etc.) $1.1m, real estate net worth Approximately $900k, this includes primary residence valued at about $250k and a 130 acre tree farm we purchased 5 years ago valued at $250k, plus other properties but no rentals. No pensions. DW may sell her portion of the small business at retirement or lease it (neither of these are in the above figures). We have no debt. I completed a study of our last 3 years expenses and they average around $45k annually. I have estimated that we will need $20k annually for health coverage/insurance. Also, $15k for annual vacations, DW likes to travel. So estimated annual spending is $80k. We both drive older cars, both our kids have graduated college with no debt and have reasonably Ok jobs. One works in the family business, which may put a little hesitation on selling in the future. But may be able to lease to him for an added monthly income. We will continue to max out 401k, HSA and IRA for DW until retirement. My plan is to live off the savings until 62 (or 65) then add in SS and not withdraw any from 401k until after 65, possibly at 70 when mandatory. This depends on what happens with the small business, 401k average return has been 6.5% since inception (20+ years). You can see I’m not a big investor keeping as much money in savings, cash and CD’s at really low interest rates but very safe. I do like buying and selling property when I find it and have done well with it over the years, not houses only land. Mentally ready to leave the work force but do wonder what am I going to do with all the free time. I am thinking I will spend most of my time, Hunting, Fishing, working around the tree farm and traveling. Let me know if you see holes in our plan.

[Mdlerth]

Welcome to the board, DeepSouth!

If your expenses don't exceed your 80k estimate, and you've got 2.2M in various pots, then at 4% WR you should be OK. SS will be an added cushion when it comes, and MC will likely shave some off that 20k in medical costs, reducing the 80k requirement.

But... It doesn't leave much room for error. For example, you might want to underrun that 4% WR, since you're starting ER at 55 vs age 65. This means that once the SS starts, you don't increase spending at all, you just trim the WR.

I don't see any income projection from the family business or the tree farm. Maybe you're better off than you appear.

Here's a suggestion you won't hear from many of our fellow ER forum members, because of the LBYM paradigm that built their portfolios. You said you drive older cars. One wise thing I watched my late in-laws do just before retiring was replace a trio of old cars with a single new one. Since they no longer had to commute, they didn't need multiple vehicles. And they wanted to take lots of road trips in retirement, so automobile reliability was their top priority. Consider upgrading your fleet before you turn off the paycheck.

The same goes for other concentrated capital purchases, such as your home's roof and HVAC. Make some provision for these lumpy expenses. Costs like these tend to fly under the radar and then show up in clusters. We don't want any unwelcome surprises to derail our future, do we?

Other than that, you're either in great shape or you're close. Have a jolly day!

[flintnational]

Quote:

Originally Posted by DeepSouth You can see I’m not a big investor keeping as much money in savings, cash and CD’s at really low interest rates but very safe.

Welcome and congratulations! IMO you are in pretty good shape. While it was not completely clear in the asset breakdown, you might want to consider if your assets will keep up with inflation (assuming we see it in the future). That is one of the reasons many folks keep a fair percentage of assets in stocks.

FN

[MBAustin]

Welcome DeepSouth! Most of us around here would say that you will find more than enough to keep you as busy as you want to be (although certainly a few have decided that ER wasn't for them - yet - and have gone back to w*rk).

I think the key to dealing with uncertainties such as insurance, healthcare, and market fluctuations is to be flexible on spending, particularly in the early years. For example, if the market goes down significantly, cut back on your travel for a year or two to preserve capital.

With the tree farm and business as potential sources of either income or capital, you will have a lot of options in that arena as well.

Look forward to having you posting with us!

[DrRoy]

Quote:

Originally Posted by DeepSouth Estimated annual spending is $80k. You can see I’m not a big investor keeping as much money in savings, cash and CD’s at really low interest rates but very safe. Let me know if you see holes in our plan.

General evaluation of investments for RE presumes a blended portfolio including a majority of stocks, with an average return of 7-8% per year over several decades. If you are invested as conservatively as you say then a 4% WR may not work for you. 3% or less may be necessary.

[NgineER]

Welcome to the board.

You seem to be in decent shape, but a little worried about 50% being in cash or cash equivalents...
I'd suggest you start pulling out living expenses from your 401k to reduce future tax burden (RMD) and at the same time investing a similar amount from your cash trove into equities to reduce longevity risk of having 13 years of living expenses in cash. Keep investing until you have a maximum of five years worth of living expenses.

[pb4uski]

Assuming that your SS is fairly high given your Megacorp career I suspect that you are in great shape and could easily retire now.

Your spending is $80k. I'm guessing that your SS at your FRA is ~$50k+ between you and your DW... so once SS starts your gap is $30k ($80k-$50k). Even if you retire today, you would burn $700k of savings between now and when you turn 67 [(67-53) * 50k] to provide what SS will later provide and would have $1.5 million left to generate $30k a year which is a 2.0% WR.

Plus, you'll likely have 14 years to do low-cost Roth conversions and save a bundle in taxes.

What is the AA of your 401k?

[street]

Looks to me you will be fine. Good luck.

[lwp2017]

Quote:

Originally Posted by Mdlerth Welcome to the board, DeepSouth! If your expenses don't exceed your 80k estimate, and you've got 2.2M in various pots, then at 4% WR you should be OK. SS will be an added cushion when it comes, and MC will likely shave some off that 20k in medical costs, reducing the 80k requirement. But... It doesn't leave much room for error. For example, you might want to underrun that 4% WR, since you're starting ER at 55 vs age 65. This means that once the SS starts, you don't increase spending at all, you just trim the WR. I don't see any income projection from the family business or the tree farm. Maybe you're better off than you appear. Here's a suggestion you won't hear from many of our fellow ER forum members, because of the LBYM paradigm that built their portfolios. You said you drive older cars. One wise thing I watched my late in-laws do just before retiring was replace a trio of old cars with a single new one. Since they no longer had to commute, they didn't need multiple vehicles. And they wanted to take lots of road trips in retirement, so automobile reliability was their top priority. Consider upgrading your fleet before you turn off the paycheck. The same goes for other concentrated capital purchases, such as your home's roof and HVAC. Make some provision for these lumpy expenses. Costs like these tend to fly under the radar and then show up in clusters. We don't want any unwelcome surprises to derail our future, do we? Other than that, you're either in great shape or you're close. Have a jolly day!

Very good advice in the post above.

If you're planning 4% or greater withdrawal for 30+ years then strongly recommend the above advice on large maintenance costs and vehicles.

This is my last year to work ( age 55). Over the past 10 months we bought a new car and pickup ( both for road trips), new carpet throughout house, a new roof, complete new HVAC, new exterior door replacement. Additionally bought a small house for our youngest daughter ( she's paying us back at IRS minimum interest rate).

Also put in new boundary barb wire fences on our farm and replaced all of our cattle with 2 year old bred Brangus heifers.


We shouldn't have any expected major home expenses for 15 years and we get at least 12 years out of vehicles. Got 25 years out of carpet, roof, and HVAC. Cows are good for 15 years with positive income stream.

Taking care of these five figure expenses takes a lot of worry of my shoulders if we have multiple back to back bad market years.

[kimcdougc]

Looks pretty good to me. I would buy newer cars before retirement, especially since DW likes to travel. We have found that we spend way less since we retired and we do basically everything we want to do.

Look forward to reading more posts from you as you get closer to your fired date.

Welcome aboard.

[brucethebroker]

Some very good advice here, so far. I notice very little consideration of your buying and selling land "hobby" (for lack of a better term). My guess is that you are making profit, or you would have given up by now. How does that profit figure in? On average, is it an additional $10-15k a year? That is a game changer for someone living on $45k a year! The future income from the tree farm is also huge in the total picture.

Also, $45k income a year should allow qualification for Obamacare subsidies plus nearly tax free 401-k withdrawals. You may want to live off 401-k money instead of savings in your early retirement days, instead of waiting to age 70 and possibly higher taxes.

Welcome and good luck.

[pb4uski]

Quote:

Originally Posted by brucethebroker ....You may want to live off 401-k money instead of savings in your early retirement days, instead of waiting to age 70 and possibly higher taxes. Welcome and good luck.

I think a better strategy is to live off taxable account funds and do low tax cost Roth conversions from ER until pension and SS are coming in since earnings on the Roth are tax-free.

Also, consider making the portfolio more tax efficient by holding equities in taxable accounts and liquidating as needed for living expenses because qualified dividends and LTCG are tax-free if your total income is in the 15% tax bracket and put 401k in bonds/CDs/savings.

[DeepSouth]

September 2018:
1 year Update: Since last post a few things have changed: My plans were for 2019 or 2020 FIRE. Since then I have been diagnosed with CML-chronic myeloid leukemia. Even though a major health concern, it was found very early and can be managed with Rx one pill a day (side- affects are a little aggravating, but better than alternative). Even though I have it, still feel lucky-early and treatable. Now health Insurance is more important than ever. Medicine is approximately $50-$100/pill per day in the US so $36.5k max per year (Canada much cheaper). I have great insurance now from Mega Corp. so Rx is only costing me $80 for 3 month supply. Now decision to FIRE may rely more on insurance than before-been playing with ACA calculators a good bit.
Financial situation hasn’t changed much: 401k balance $1.25 m, moved some funds from regular brokerage account and cash into a 3.0% CD, total brokerage account is $1.1m (.9% brokerage fees on some balances). Real Estate net worth is up to approx. $1.0 m, finished remodeling an older house we had. Son is living there. Someone asked last time what was current Asset Allocation: Current AA for all accounts are 78% equities, 17% Fixed Income, 5%regular savings/cash.
Current plan is to still retire at or before 57 (maybe 56, will be 55 this year). Plan to live off of brokerage account from 56/57 until -(New estimated spending up from $80k to $105k to add for more insurance, health issues and Rx. Already had $20k budgeted for health insurance-this moves it to $45k-ouch!). Plan to take SS at 62 or when needed after that depending on situation, life span for CML is estimated to be 2-5 years shorter than average population, so figured go ahead. But who knows when they are going anyway. DW portion of small business is still in play-had an offer of $800k for one portion of the business (3 separate businesses-but this one is most valuable-think all sold should bring her portion about $.8m-$1.0m), since last update but decided to keep it in the family a while longer-seems very hard to let go of a 40 year family business. She is thinking sell around 2020-2022, but will be hard for her. Plan to not touch 401k until needed after 65 or at 70 for required withdrawals (account has increased to now average over 7.0% since I have been in, 20+ years). Plan to upgrade autos in 2019. Not new but newer than current-all are 2010 or older, I have never bought a new car. Tree farm will probably generate $50-$75k in 2021. Then could generate double that in 2028-2029, but I don’t plan to cut them all, only if there was an emergency and needed the additional income. I enjoy being out in the woods. Only other variable is son wants to start a small business of his own (DW and I backing him) that is estimated to take about $75k to start. I would partner with him when I retire to “fill” some of my time and help out-it ties in with my buying, improving and selling small properties, which I/we have done pretty well at over the years-we own some of our own heavy equipment on the tree farm for this type work. I enjoyed reading and thinking thru the comments last time so please make suggestions or point me in a different direction.

[MBAustin]

Thanks for the update, DeepSouth. Sorry to hear about your health issues but glad it was caught early and can be managed. Because of your real estate and business ownership, your financial profile is much different than typical, so I think the most important thing is for you and your DW to be comfortable with your financial position and plans (AA, when to sell what, how much to support DS in his business, etc.). I would personally be spending quality time with yourself and your family to decide your priorities in retirement as that may help you decided when it is time. Obviously researching HC options is also important - if you like your doctors then keeping them could be a priority, or starting to look for new doctors that are in the plans you're considering.

[Lukeee]

Yes please take care of your health.

[Katiek]

Thank you for the update and very glad the CML was detected early and there is a good treatment plan.

[StuckinCT]

Quote:

Originally Posted by DrRoy General evaluation of investments for RE presumes a blended portfolio including a majority of stocks, with an average return of 7-8% per year over several decades. If you are invested as conservatively as you say then a 4% WR may not work for you. 3% or less may be necessary.

I agree with Dr. Roy here, who shares my obsession with withdrawal rates. If you are less than 50% stocks, your safe withdrawal rate might be closer to 3% or 3.5% even at 60.

The 4% rule works for anyone much over 50 depending on life expectancy as long as you have at least 50% in equities. You could be looking at a 30 year time period and you should also have some cushion built in for unexpected expenses. If the tree farm produces income and can be sold you might be able to include that in your portfolio for retirement. I like that you are budgeting $20k for healthcare as you seem to have a realistic idea of expenses..

[street]

I wish you well in life.

[MichaelB]

Quote:

Originally Posted by StuckinCT I agree with Dr. Roy here, who shares my obsession with withdrawal rates. If you are less than 50% stocks, your safe withdrawal rate might be closer to 3% or 3.5% even at 60. The 4% rule works for anyone much over 50 depending on life expectancy as long as you have at least 50% in equities. You could be looking at a 30 year time period and you should also have some cushion built in for unexpected expenses. If the tree farm produces income and can be sold you might be able to include that in your portfolio for retirement. I like that you are budgeting $20k for healthcare as you seem to have a realistic idea of expenses..

FIRECalc shows a 4% WR over 30 years is successful 94.9% of the time with a 50%-75% allocation to equities. With a 40% equity allocation, the survival rate drops to 93.2%, and at 35% the survival rate drops to 89.9%, so 40% is probably closer to the lower end equity allocation range.

[DeepSouth]

May 2020 Update:
2+ years since original post: CML is being managed pretty well, able to find the chemo drug much cheaper than originally started. Down in the $20/day range now, have gotten use to the side effects and feel like I have some of my energy back. I have decided to target 2021 as my RE date, I will be 57 and DW will be 55. DW is seriously considering selling her part of the businesses and will probably be listing soon. Bought her a newer car (2016) and a newer truck (2016) for me, still can’t force myself to buy a new vehicle, cost too much (mindset I guess). Currently rebuilding a 1974 in my spare time, and replaced our RV with a new one.
Current financials holding close to last post even with the market craziness:
401K/IRA-$1.470m (averaging 7.59% for 23 years 62% stocks, 37% bonds and 1% MM)
Brokerage: $430k (Averaging -7.5%, 84% equities and 16% Bond-changed Brokerages in January and AA-may have been a mistake-will wait and see)
CD (3%): $250k comes due in August
Money Market account, regular savings and cash: $402k (at +/- 2.0%).
HSA balance: $20k, retirement payout form mega corp. for medical expenses for approximately $25k, one time. Can be used like HSA.
Real estate including primary residence still at the $1.0m (no mortgage/debt.)
Spending: Total annual estimate is $105k, Actual is $65k annually ($45k expenses plus $20k for vacations-Last 3 years-studied closer and very accurate), increased it by $30k for medical insurance and medicine and added another $10k for safety factor-never know what can happen with the CML.
Plan for retirement: Draw from the MM, regular savings and cash accounts, and using HSA+ mega corp. funds for roughly 5 years (may adjust spending down if necessary to make 5 years- actual shows 4.25 years)
Start SS at 62 if needed: (2025 for me and 2027 for DW): $23k for me, $11k for her. Lowers withdrawal amount needed to $71k
Will leave 401k/IRA as is and not take any until needed or RMD, live off brokerage, CD and business sale until RMD’s kick in. Should continue to grow at the 5-7% range based off of history.
So that is the current plan, FIRE calculator shows 100% with SS added in, and 89.6% without SS for 35 years (don’t think I will make it that long with CML, but DW will), both scenarios without the business sale. I have not studied much on tax rates after retirement but think I may need to manage the 401k withdrawals earlier possibly for best tax results. Point me in a different direction-especially on 401k’s and taxes if you have input .