Newbie looking for feedback

[zekeboz]

Long time lurker that is looking for some feedback.

Scenario: Married, 46 & DW 46. Three kids with college starting in 3 years for the 1st one, then the others will follow starting every three years thereafter – 2019, 2021 & 2023. I am looking to be FI in the next 2~3 years – take time off, retire, reboot, etc.. Wife is still enjoying work and would most likely continue for the next 7~10 years.

SALARY: 190k- gross
ME: 120k
WIFE: 70k

ASSETS: 1.6M (excluding home equity)

CASH: 25K

INVESTMENT REAL ESTATE: 250k (free and clear)
Net Cash Flow: 20k / YR

TAXABLE ACCOUNTS: 542k
(majority of dollars assigned to Vanguard Index funds)
* US Stocks – 59% 318k
* REITs – 14% 77k
* INTL – 11% 58k
* US Bonds – 13% 57k

RETIREMENT: 694k
-breakdown-
ROTH IRA: 201k
(majority of the dollars assigned to Vanguard Index funds)
* US Stocks – 72% 145k
* INTL – 13% 26k
* REIT – 6% 12k
* Bonds – 8% 17k

IRA: 176k
(majority of the dollars assigned to Vanguard Index funds)
* US Stocks – 58% 102k
* INTL – 16% 28k
* REIT – 6% 8k
* Bonds – 20% 35k

401k: 316k
(majority fidelity index)
* US Stocks – 74% 233k
* INTL – 14% 45k
* REIT – 5% 15k
* Bonds – 5% 16k

Education: 160k
* 529s: 160k
(Target date funds)

PENSION&SS: 70K / YR @ 65 for both of us
* WIFE: 55K
* ME: 15K

I’ve used a number of online tools in the past few years and all point positively. Personal Capital is one that I gravitate to more and more since it allows for granular settings of Income/Expense buckets (College costs, Health Care, Selling RE, etc..) and it reports back a success 92~95% (8.9% annualized return with a 14% std. deviation. 8.9% is a little high in my book so I assume at least a 1% reduction in the success number).

Expense wise (which is everything…) we run between 90~110k per year (past two years). Based on that I have assumed that we’ll need 40~50k from assets until wife retires which we would then increase to 100k until SS&Pension.

As for investment style and risk tolerance I am a contrarian/index/long term investor.


Questions:

* With these numbers would you feel comfortable in hanging it up in 2~3 years?
* Outside of continuing to max out retirement accounts, where would you apply additional savings taking into account wanting to be FI- cash, bonds, equities? Expectation is at least 30~40k/YR available for this purpose while i work.
* Thoughts on dealing with gap years, until SS&Pension kick in, work from cash holdings or try to live off of dividends, both, etc..?.? Right now I feel i am not setup to deal with this aspect.


Thanks for your time…

 

[Fishingmn]

One big question - what do you and DW plan to do regarding college expenses?

Are you funding part, all? State school or any school? $160k won't go very far if you are paying for 100% of a private college education for 3 kids.

We planned for 100% of the cost of our state university (where DW and I went). That helped us plan an exact number and set expectations with kids but everyone has a different plan.

 

[zekeboz]

One big question - what do you and DW plan to do regarding college expenses?

Are you funding part, all? State school or any school? $160k won't go very far if you are paying for 100% of a private college education for 3 kids.

We planned for 100% of the cost of our state university (where DW and I went). That helped us plan an exact number and set expectations with kids but everyone has a different plan.

Good question. State. The model includes fulfilling college costs beyond the 160k. I just broke that out since it is in a 529.

In addition we have some grandparents that would like to significantly contribute to their education. DW and I are taking this with a grain of salt since life can throw curve balls. So we are not including this potential scenario at this time though based on past history of 'giving' this is a very likely chance of happening.

 

[exnavynuke]

Have you run a Firecalc simulation yet?

 

[broadway]

I am guessing you are going to get medical insurance through your wife's employer?

Depending on where you live, plenty of families are getting by on your wife's salary of $70K/year, so I don't see problems with you retiring.

$25K in cash is not the 6-9 months of emergency fund many experts generally advise. I would personally feel more comfortable if it was $70K.

 

[zekeboz]

Have you run a Firecalc simulation yet?

Yes. Depending on Portfolio options usually it has a success rate of 95%+

 

[zekeboz]

I am guessing you are going to get medical insurance through your wife's employer?

Depending on where you live, plenty of families are getting by on your wife's salary of $70K/year, so I don't see problems with you retiring.

$25K in cash is not the 6-9 months of emergency fund many experts generally advise. I would personally feel more comfortable if it was $70K.

Correct - we would roll onto her plan.

I was thinking about leveraging a HELOC as the emergency fund since I like to keep cash working. But with the GAP scenario I feel I need to re-evaluate how that would work..?.?

Also as part of the plan HC costs during the gap between her retiring and us being on Medicare I budgeted 15k per yr but I know that is a moving target year to year and one of the biggest unknowns i believe.

 

[broadway]

Correct - we would roll onto her plan.

I was thinking about leveraging a HELOC as the emergency fund since I like to keep cash working. But with the GAP scenario I feel I need to re-evaluate how that would work..?.?

Also as part of the plan HC costs during the gap between her retiring and us being on Medicare I budgeted 15k per yr but I know that is a moving target year to year and one of the biggest unknowns i believe.

I don't have a HELOC myself, but I have read of others having one as the emergency fund.

You may want to get an idea of the cost of healthcare now for you and your wife using the ages you both will be when you both ER. This will give you the low end. Healthcare cost will only go up. I personally think 15K will be too low.

 

[panacea]

Looks great. However, your asset allocation is really aggressive. I think I would ratchet it back to at a 60/40 or so if you're 3 years out from drawing from your portfolio. Should be able to capture around 8% average return with a standard deviation closer to 10%.

 

[Golden sunsets]

I think your assumed rate of return is very high. I'd rerun your numbers with a much lower assumption(4 or 5% and see what the success rate drops to.


Sent from my iPad using Early Retirement Forum

 

[bclover]

I'd feel pretty comfortable with it especially IF your wife continues to work for another 7-10 years

Would you be able to get decent Healthcare through her employer? that's pretty important especially since the current political climate is assuring that the ACA will go away.

And as a few others have pointed out, I'd lower your rate of return a bit.

 

[zekeboz]

Thanks for the questions and feedback. It has been helpful being able to get comments on this..


RE: broadway

I don't have a HELOC myself, but I have read of others having one as the emergency fund.

You may want to get an idea of the cost of healthcare now for you and your wife using the ages you both will be when you both ER. This will give you the low end. Healthcare cost will only go up. I personally think 15K will be too low.
broadway is offline Report Post

Not sure if someone has a crystal ball.. ;-) but based on the future of where we will be post my wide working (56~57ish for both of us) the current rates for a 57 year old with reduced income (since we would both not be working, I just plugged in 45k as a guess but I would think it would be close to 0) is only $600~$700 per month with max amount between 12~15k. This does not take into account tax credits due to the low income.

This begs the question.. So what are folks planning a few years away from FI doing about HC? What numbers are you using and are you assuming a low to no "income" scenario since you will not have a W2?

RE: panacea, Golden sunsets

I know the rates I have gained the past 5 years (10% ave) are not likely if I want to reduce swings. I think the 8.9% that personal cap. site uses may be aggressive but I think how I plan for the gap years would help determine my overall allocation. I just realized that I forgot to take into account the income of the building and in reality I would prob. only need to take out 20~30k given the 20k it generates yr.. It would look something like this including major events -

(Post 2~3 years of additional work)
* Years 1~10: 100~110k (DW 70k, building 20k, assets 20~30k, Me/DW 46~56 old)
* Years 11~21: Same (all from assets - DW is done, sale of building, kids out of the house (fingers crossed), Me/DW 56~67 old)
* Years 15+: Reduced (I believe in the Bernicke's model where spending reduces as you get older. From my own experience with my folks at least this is the case)

bclover

I'd feel pretty comfortable with it especially IF your wife continues to work for another 7-10 years

Would you be able to get decent Healthcare through her employer? that's pretty important especially since the current political climate is assuring that the ACA will go away.

And as a few others have pointed out, I'd lower your rate of return a bit.

That is the plan - she really enjoys the work that she does and the people she works with.
Yes - Teacher but ironically her plan costs relatively more than my employer plan so we have been on mine instead. With that being said the one area that I need to confirm is IF she has an option to continue insurance after she leaves... If so they that would solidify the HC cost question I have been trying to work through.

 

[zekeboz]

It has been almost 3 years since I made my initial post. I thought I would send an update..somewhat of a personal reason since I have been circling back here and there to review my own status.

Still have the original goal to retire early (1-2 years). I know that was my ‘goal’ in 2016, OMY syndrome. My DW is still planning to retire when she reaches 55-56. We are now 48&49.

Some life changes since 2016

1 - Sold the apt. building for a nice profit. The value appreciated much faster than expected and as a result we sold it in 2018 and invested the proceeds.
2 - 1st child is off to college... YEAH
2a - Grandparents followed through and funded a large portion of the 1st year (was a possibility that we did not plan on)
3 - Kids 2 & 3 are 2 and 4 years away from college
4 - Discovered my DW is entitled to gap medical insurance when she retires (55 or 56) that we can leverage. Big win for us in nailing down better our future medical insurance costs
5 - Cat died and as a result we got 2 new cats... wrong direction.

Still working through how to fund our expenses. As of now we have 1+ years of expenses covered in cash if I were to stop working today. My thought has been to leverage that bucket idea moving forward. Always have a bucket of cash that is funded by dividends and the selling of assets. We are still roughly 50/50 between taxable and tax sheltered.

Open to thoughts that others have in how they fund during this time period.

The numbers...

SALARY: 210k
ME: 130k
WIFE: 87k

ASSETS: 2.3M (excluding home equity)

CASH: 75K


TAXABLE ACCOUNTS: 1m
(majority of dollars assigned to Vanguard Index funds)
* US Stocks – 62% 640k
* REITs – 14% 136k
* INTL – 9% 98k
* US Bonds – 8% 80k
* INTL Bonds – 2% 17k


RETIREMENT: 1.1m

ROTH IRA: 280k
(majority of the dollars assigned to Vanguard Index funds)
* US Stocks – 72%
* INTL – 13%
* REIT – 6%
* Bonds – 8%

IRA: 313k
(majority of the dollars assigned to Vanguard Index funds)
* US Stocks – 58%
* INTL – 16%
* REIT – 6%
* Bonds – 20%

401k: 504k
(majority fidelity index)
* US Stocks – 74%
* INTL – 14%
* REIT – 5%
* Bonds – 5%

Education: 188k
* 529s: 188k
(Target date funds)


PENSION&SS: 70K / YR
* WIFE: 55K * Can start collecting at 56
* ME: 18K * Projection @ 65

 

[pb4uski]

You're golden to retire when your wife turns 55.

I would look at the tax efficiency of your asset placement. I would go all bonds and REITs in tIRA and 401k and get rid of international equities in Roth... hold all international equities in taxable to take full advantage of the foreign tax credit (foreign taxes paid on international equities held in tax-deferred and tax-free accounts is wasted).

https://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement

 

[lordjust]

It has been almost 3 years since I made my initial post. I thought I would send an update..somewhat of a personal reason since I have been circling back here and there to review my own status.

Still have the original goal to retire early (1-2 years). I know that was my ‘goal’ in 2016, OMY syndrome. My DW is still planning to retire when she reaches 55-56. We are now 48&49.

Some life changes since 2016

1 - Sold the apt. building for a nice profit. The value appreciated much faster than expected and as a result we sold it in 2018 and invested the proceeds.
2 - 1st child is off to college... YEAH
2a - Grandparents followed through and funded a large portion of the 1st year (was a possibility that we did not plan on)
3 - Kids 2 & 3 are 2 and 4 years away from college
4 - Discovered my DW is entitled to gap medical insurance when she retires (55 or 56) that we can leverage. Big win for us in nailing down better our future medical insurance costs
5 - Cat died and as a result we got 2 new cats... wrong direction.

Still working through how to fund our expenses. As of now we have 1+ years of expenses covered in cash if I were to stop working today. My thought has been to leverage that bucket idea moving forward. Always have a bucket of cash that is funded by dividends and the selling of assets. We are still roughly 50/50 between taxable and tax sheltered.

Open to thoughts that others have in how they fund during this time period.

The numbers...

SALARY: 210k
ME: 130k
WIFE: 87k

ASSETS: 2.3M (excluding home equity)

CASH: 75K


TAXABLE ACCOUNTS: 1m
(majority of dollars assigned to Vanguard Index funds)
* US Stocks – 62% 640k
* REITs – 14% 136k
* INTL – 9% 98k
* US Bonds – 8% 80k
* INTL Bonds – 2% 17k


RETIREMENT: 1.1m

ROTH IRA: 280k
(majority of the dollars assigned to Vanguard Index funds)
* US Stocks – 72%
* INTL – 13%
* REIT – 6%
* Bonds – 8%

IRA: 313k
(majority of the dollars assigned to Vanguard Index funds)
* US Stocks – 58%
* INTL – 16%
* REIT – 6%
* Bonds – 20%

401k: 504k
(majority fidelity index)
* US Stocks – 74%
* INTL – 14%
* REIT – 5%
* Bonds – 5%

Education: 188k
* 529s: 188k
(Target date funds)


PENSION&SS: 70K / YR
* WIFE: 55K * Can start collecting at 56
* ME: 18K * Projection @ 65

I thought you were in decent shape in your 2016 post. You jumped to 2.3M in 3 years? I honestly am the wrong person to give you advice as there are others that actually have a strategy and are have been following it for years on the forum. I am commenting as your numbers in 2016 are similar to mine except your spent rate is higher than mine (i figure $70k/year as a 45yo single male with no kids).

I was only going to caution you regarding your kids and their needs as you are fairly young. I would expect them to hit you up for some loan/gift. Your numbers look good to me. You look aggressive your investments (not a bad thing) just curious for those of us that are following in your footsteps, how did the REITS work out for you? Anything you would recommend to others that are near your age range? Would you have changed anything?

 

[zekeboz]

+1 year since my last update.

Still punching the clock but we have been fortunate to see our assets continue to rise given everything going on in the world.

Portfolio is up 400k.
2.7m Total
1.4 taxable (75%, 20%, 5% - Stock, Bonds, Cash)
1.3 retirement (60%, 40% - Stocks, Bonds)

Changes from last year.

Reduction in cash reserves due to
- Paid down some of the our home mort.. (70k left)
- painted house
- bought car
- invested in the market when it tanked last spring

I have been working from home since Feb. due to covid and now my latest plan is to quit once I hit 20 yrs with the co.., next spring. So from now until then most of our savings will be going back into cash reserves.

@lordjust We own/ed a 3 unit residential building for 5yrs. that we sold at a nice profit in 2018. It required a lot of sweat equity but the rate of return was 17-19% a year. I sold it when someone offered a price that brought the rate down to 5-7% so I figured if they were valuing the building at that rate I would be crazy not to sell. I'd rather have the risk in the market and have the added flexibility of it being semi-liquid. We still own REITs but only in a mutual fund, it's a small overall %.

 

[Montecfo]

+1 year since my last update.

Still punching the clock but we have been fortunate to see our assets continue to rise given everything going on in the world.

Portfolio is up 400k.
2.7m Total
1.4 taxable (75%, 20%, 5% - Stock, Bonds, Cash)
1.3 retirement (60%, 40% - Stocks, Bonds)

Changes from last year.

Reduction in cash reserves due to
- Paid down some of the our home mort.. (70k left)
- painted house
- bought car
- invested in the market when it tanked last spring

I have been working from home since Feb. due to covid and now my latest plan is to quit once I hit 20 yrs with the co.., next spring. So from now until then most of our savings will be going back into cash reserves.

@lordjust We own/ed a 3 unit residential building for 5yrs. that we sold at a nice profit in 2018. It required a lot of sweat equity but the rate of return was 17-19% a year. I sold it when someone offered a price that brought the rate down to 5-7% so I figured if they were valuing the building at that rate I would be crazy not to sell. I'd rather have the risk in the market and have the added flexibility of it being semi-liquid. We still own REITs but only in a mutual fund, it's a small overall %.

Hi Zekeboz,

You have made a lot of progress and frankly gotten some good comments which you have acted on. You are getting to a very sweet place as far as assets/retirement cash flow.

Building cash as you have is wise and capturing needed cash from timely asset sales can allow you to keep a more aggressive portfolio, since you have managed the risk of "selling low" with cash and to a lesser extent bonds.

I would get an HELOC if you have not already. Margin loan could be a further backstop for emergency cash. Just something to keep in mind.

Have you switched to DW health insurance now? My DW is also in education and my recollection is you have to have been on it a few years to get the retiree benefit (I do not expect it to be available to us).

Also, in her district, the retirement benefit simply allows you access to group plan rates. Probably still better than ACA, but also good to shop/price ACA so you have that cost as alternative-for your planning.

You might want to consider Roth conversions after you stop working.

I would not worry about paying down mortgage-unless it is high rate or you are planning a near-term move.

Looking really good. Congratulations!

 

[zekeboz]

Thanks Montecfo -

Yeah, we missed the 1st go around for the open window last year in joining my wife's insurance. This year we made it a point to make sure we did the switch this year since my shift will be sooner than later. Not sure about the time requirement but one that we'll need to confirm still. I think we'll be ok since she wants to work roughly 5-6 years.

I did have a HELOC, until it ran out a few years ago. The rate was unbelievable at the time, 1 minus prime. I'll have to hunt around to see what rates are like now.

Thanks

 

[cnocmmz]

I think your assumed rate of return is very high. I'd rerun your numbers with a much lower assumption(4 or 5% and see what the success rate drops to.


Sent from my iPad using Early Retirement Forum

May be even lower to 3-4%.

 

[zekeboz]

May be even lower to 3-4%.

I think there maybe confusion on the rate of return that I mentioned earlier - it was for the 3-unit building that I owned.

For my monte carlo simulations (FIREcal or Flexible Retirement Planner) I have done simulations at lower levels. The great thing about Flexible Retirement Planner you can add future downturn scenarios to the simulation, ex. at 2 year downturn of 0% return with X stand. deviation. In addition you can easily specify one time, short duration expenses or income events.

Here are some examples based on the following:

1 - 60k spending / yr baseline
2 - Additional yr by yr spending levels (ie. mortgage - 22k, house cap. expenses - 18k, etc.) see 1st screen shot
3 - extreme constant return scenarios, a. low return of 3% with std of 5% and b. middle of the road 8%.

 

[zekeboz]

2021 update

64 dollar question up front - yes still working.

Assets are up to 3m. In general we benefited from the overall market performance.
Still an 80/20 mix with the 20 portion holding roughly 100k in cash/ibonds.
Wife is still planning on retiring once she hit 30 years, 2026, she'll be 55 then.

We are still expecting with a normal spend (110-120k /yr) to only draw 1-2.5% per year for the 1st 5-7 years given wife still working and then her pension.

2 out of 3 are now in college. A large portion of their college costs are being covered by grandparents, which is something that we were aware of but were not counting on in FIRE calculations. One nice surprise is our monthly food bill is down almost 40-50% with those two out of the house!

There were a number of off budget expenses - some for lifestyle and one for peace of mind when we do retire.

- paid off remaining mortgage (70k). not a pure number wise best decision given subsequent market returns but one that helps us feel more ready
- new patio & outdoor furniture (10k). decided that we are staying at least 10+ years here so decided to splurge a bit
- hot tub (12k). ditto

still working remote and appears that will be the case for the foreseeable future. it has pros and cons but one of the unexpected pros is that it dulls the office politics and crap that i was contending with earlier and has reduced the earlier desire to retire asap a little.

Ironically this year 2 friends and one extended family member (49,50 & 50) all decided to retire in 2021. Two of them were complete surprises and one was one that I was aware of somewhat but had no clue it was going to be this year! Sort of soft pressure to be "like the jones" now ;-)

My own planning today revolves around distribution plans and approaches. I was hot on the bucket approach until I started watching Rob Berger videos and now I am gravitating towards a guardrail approach.

Not ruling out the bucket approach but it is the 'math' he highlights and simply take from equities when high vs bonds and reverse given the market. Vanguard gave me the same guidance when they provided a free consultation a couple years ago. keep it simple they said. given my track record (paying off the mort. early) I will probably end up with a bucket type plan. ;-)