Retire at 60

[averagebum]

Hi everyone. Been lurking here for a while and find all the discussions very helpful. I would like to seek some advice (and maybe reassurance) on what I hope to do. Thanks in advance.

60 right around the corner. Hope to retire next year and travel abroad on a full time basis, living 3 months here and 4 months there.

Assets: 1 million in taxable account, 1.5 million in IRA and 100,000 in Roth IRA, all invested in individual stocks. Collect over 60,000 in dividends a year. Dividends have been growing at 5 to 10% per year. Dividends seem safe since most of the investments are in big cap stocks like Microsoft, Intel, Cisco System, Merck, etc.

Will receive a pension at 60 for about 1400 a month after tax. The pension also provides health insurance. Intend to continue with part-time work online, earning about 2500 a month after tax. Would like to have 8000 a month after tax cash flow to live on and travel with, so intend to draw down about 5000 a month from dividends. Don't intend to collect social security till 67 when the estimated amount is about $2600 a month.

Have no dependents. Have a mortgage which the equity in the house can cover. Can sell the house, or in the worst case scenario go on paying the mortgage, about $1500 a month, while living abroad.

Should I feel financially safe in pulling the plug on my full-time job next year? Again, thank you for any input you can provide.

 

[Dtail]

Welcome averagebum to our wonderful site.
It sounds like your 60k withdrawals would be ~3%WR not including SS.
I would say you seem good to go.
Have you tried using the retirement calculator associated with this site called Firecalc?

 

[HI Bill]

Welcome! Have you created a budget for your international travel? I'm assuming that your pension's health insurance is US domestic only, and won't cover you overseas. As long as your stated income will meet your monthly needs, with some contingencies built in...

 

[TwoByFour]

Should I feel financially safe in pulling the plug on my full-time job next year? Again, thank you for any input you can provide.

It depends on how much income you expect while retired, but I would not have a problem pulling the plug with what you described.

A couple questions: Is the pension COLA? Does the included health insurance convert to secondary insurance (to Medicare) when you turn 65? My wife has a similar arrangement and her insurance is now our secondary to Medicare. It is more expensive than Part G/Part D but the coverage is really good and has paid off for us. You will find that healthcare can be one of your biggest retirement expenses so having that covered is huge.

 

[Bamaman]

Have a great time. We are only able to travel internationally once or twice a year.

Just beware of the Schengen Agreement limiting you to staying 90 days in the EU out of any 180 day period. But there is a whole world out there outside of Europe.

 

[pb4uski]

SS gap = $2,600/month * 7 years = $218,400

Ultimate gap = $8,000 spend - $1,400 pension - $2,600 SS = $4,000/month or $48,000/year.

WR = $48,000/yr divided by ($2,600,000- $218,400) ~ 2%

You are golden... no need for part-time work unless you want to.

If you have lurked herea while then you know we are going to ask.... what does FIRECalc say?

 

[averagebum]

Thank you for the input everyone. I just did the calculation on Firecalc. The worst case scenario, assuming I will be withdrawing 80,000 a year is that I will still end up with about $1.2 million by the end of 30 years. This definitely gives me more confidence.

About health insurance, I have been told that monthly cost of private health insurance costs only about $300 in Germany. I suspect it would probably be cheaper elsewhere in Europe. The insurance that comes with my pension will become my supplement after Medicare kicks in at 65. So I think I should be OK with health insurance.

Thank you all again.

 

[pb4uski]

I think you mean $80k a year of spending, not withdrawals.... withdrawals will be lower due to pension at ER/age 60 and SS at age 67.... right?

So when are you putting in your resignation?

 

[Golden sunsets]

Did you say you are invested 100% in individual equities? My concern would be that you have too much risk, at 100%. What will your feelings be if the market tanks like it did in 2008.

 

[averagebum]

On FIREcalc, I put in 80,000 a year withdrawal rate, but you are right, I won't need to withdraw that much counting social security after 67, my pension and part-time work.

 

[averagebum]

I have been on dividend reinvestment which has worked out really well for me over the years through up and down markets. If I pull the trigger next year, I will probably do a little selling of the non-dividend paying stocks and raise some cash as a cushion and take partial withdrawal only from the dividends.

 

[REWahoo]

On FIREcalc, I put in 80,000 a year withdrawal rate, but you are right, I won't need to withdraw that much counting social security after 67, my pension and part-time work.

If you input your SS, pension, and PT income into FIRECalc it reduced your withdrawal rate as those other sources of income came on line.

 

[DeborahB]

Without even doing the math... based on my own experience you have tons of money and shouldn’t have to worry. Just don’t go nuts and buy an airplane or stay at $1000/night hotel suites! 100% in equities... might want to make sure you’re diversified. I have very little in bonds right now because rates are still low and rising. I’m mostly in dividend stocks.

 

[pb4uski]

On FIREcalc, I put in 80,000 a year withdrawal rate, but you are right, I won't need to withdraw that much counting social security after 67, my pension and part-time work.

If you input your SS, pension, and PT income into FIRECalc it reduced your withdrawal rate as those other sources of income came on line.

OP, you are confusing spending with withdrawals.

If you spend $80,000 and have a $16,800 pension then your withdrawal would only be $63,200.

The FIRECalc input is what you spend, not what you withdraw... FIRECalc computes annual withdrawals based on what you input for spending, pensions and SS.

 

[averagebum]

Thank you for your input and encouragement everyone. I have to figure out how to input the variables into the equation besides the withdrawal amount to do another calculation.

 

[averagebum]

Without even doing the math... based on my own experience you have tons of money and shouldn’t have to worry. Just don’t go nuts and buy an airplane or stay at $1000/night hotel suites! 100% in equities... might want to make sure you’re diversified. I have very little in bonds right now because rates are still low and rising. I’m mostly in dividend stocks.

Thank you for the cautionary advice, but I am very low maintenance. I drive cheap cars, wear Target and Sears clothes, live in a modest neighborhood. My biggest annual expenditure over the years has been about $15,000 to $20,000 spent traveling abroad two or three times a year. I am addicted to traveling and would love to do it full-time, and would like to do it while still "young" and physically able.

I have about $1 million tied up in a single stock, Cisco Systems, with cost basis of about $20. The rest is fairly well diversified in dividend paying stocks, with a few non-dividend paying ones, about 15% of the portfolio. I think Cisco is on the cusp of something transformative and big--knock on wood.

 

[Golden sunsets]

Thank you for the cautionary advice, but I am very low maintenance. I drive cheap cars, wear Target and Sears clothes, live in a modest neighborhood. My biggest annual expenditure over the years has been about $15,000 to $20,000 spent traveling abroad two or three times a year. I am addicted to traveling and would love to do it full-time, and would like to do it while still "young" and physically able.



I have about $1 million tied up in a single stock, Cisco Systems, with cost basis of about $20. The rest is fairly well diversified in dividend paying stocks, with a few non-dividend paying ones, about 15% of the portfolio. I think Cisco is on the cusp of something transformative and big--knock on wood.

You are violating two tenets that most forum members hold dear: 1) holding 100% equities in retirement and 2) an extreme concentration of risk with your Cisco holding. I'd suggest you do some reading on these two issues.


Sent from my iPad using Early Retirement Forum

 

[Ronstar]

Should I feel financially safe in pulling the plug on my full-time job next year?

Welcome averagebum!

You should feel financially safe given your numbers as long as you keep spending in check. But I would convert the individual stocks into an index fund to minimize risk.

 

[The Cosmic Avenger]

You are violating two tenets that most forum members hold dear: 1) holding 100% equities in retirement and 2) an extreme concentration of risk with your Cisco holding. I'd suggest you do some reading on these two issues.


Sent from my iPad using Early Retirement Forum

I have to re-emphasize this point. Don't let the fact that you've been lucky so far make you think that any one stock is safe. Enron seemed too big to fail until they weren't. Washington Mutual was half again as big as Cisco is now when they went under. The only hedge against things like that is diversification.

And, as I tell my partner, if the entire economy collapses we'll have more to worry about than our retirement investments! But it doesn't seem worth losing out on gains by holding gold or massive amounts of supplies on that very extreme chance. However, the chance of any one company failing is much less remote.

 

[pb4uski]

+1 Lack of diversification would be a huge concern for me... I'd be buying out of the money puts to protect myself.

 

[DeborahB]

No one stock should be that much of your portfolio. Just that. Any stock.

I’ve had a lot of tech stocks over the years and lost a lot when the next great thing came along. Be very cautious. Or maybe sell off half of it if it won’t be a horrible tax burden.

 

[averagebum]

I truly appreciate all the advice everyone. I was tempted to lighten up some when the price neared 50 only a couple of weeks ago. If and when it gets back to about $50, I may trim the position and raise some cash. Having said that, I believe Cisco will raise its dividend again come February, as it has consistently for the past 8 years. It started its dividend at 6c a quarter in 2011; it's now paying 33c a quarter, and that's only about a 40% payout ratio, so there is room for dividend growth. It also added 25 billion to stock buyback from the cash repatriated. The company's revenue is also being changed into a recurrent revenue model with much greater visibility. My reluctance to sell the shares is due to the conviction that better days are still ahead for the stock. I do realize the risk though that it takes up such an outsized % of the portfolio.

 

[HI Bill]

My reluctance to sell the shares is due to the conviction that better days are still ahead for the stock. I do realize the risk though that it takes up such an outsized % of the portfolio.

I own a lot of CISCO stock as part of ETFs. In the next market or sector correction, or worse, my ETFs will tank (or the tech sector or NASDAQ), and CISCO stock will be affected, whether or not their underlying business is sound.

$4.1 billion in CISCO shares are held in just one ETF, Vanguard's VOO. This represents about 20% of the value of Apple held in the same ETF.

$5.8 billion in CISCO shares are held in another Vanguard ETF, VTI. This also represents about 20% of the market cap of Apple held in the same ETF.

If you don't think your share value will be affected when the market panics and broad-based selling of mutual funds ensues, you'll be in for a surprise!

 

[Golden sunsets]

The OP is not interested in hearing why his plan may not work. He’s 100% equities and in individual stocks entirely, one of which represents well over 33% of his total investments. He is confident in his plan and wants our collective blessing.

 

[Fedup]

Maybe his stocks were granted options or RSUs.