thinking about ER at 50

[broadway]

Hello,

I will be 50 by the end of this year. Unmarried. No dependents.

According to FIRECalc, there is 100% success if I withdraw $30K/year for 35 years.

I chose 35 years because there is a family history of dementia/Alzheimer's on my mother's side of the family. My father died at 73 from a brain tumor.

Should I retire? If so, what should I do to prepare?

 

[obgyn65]

What are your annual expenses ?

 

[broadway]

I live in NJ so property taxes are high. $8750/year.
I will need to purchase medical insurance. Not sure how that will pan out with the ACA. As of right now, I priced it to be about $4000/year.

House is paid for. No debt.

 

[obgyn65]

Apologies if I was not clear. What are your total annual expenses?

 

[BuysToys]

Car insurance? Electric/gas bills? Groceries? Medications? Phone/Internet/Cable?

A quick calculation of 15% Federal and 6% state taxes leaves you with less than $1,000 a month after paying property tax, medical, and income taxes. Does your budget show you can do that? If it shows you can do it now, will you be able to do it in 30 years with inflation?

Have you considered how you would pay for a new roof for the house? Or a new heating system? Those are the things that are difficult to plan for as you just don't know when they'll hit. Does your annual estimate include putting something aside for major repairs?

More information will help you get the answers you're looking for.

 

[broadway]

Good point.

I will gather last year's data and put it into a spreadsheet.

The car insurance will be less since I driver almost 20K miles for commuting.

 

[rbmrtn]

Your scenario is very similar to mine. Biggest issue was access to health insurance, in 2014 that should no longer be an issue, I think you have guaranteed issue in NJ already.

As obgyn65 mentioned you really need to understand your expenses. Many folks do a trial run, living on their retirement budget for a year or two to see if it works. Based on the info provided and if 30K covers your expenses, I would go for it. Do have any pension or social security coming in later ? I wouldn't do anything without a good handle on expenses.

 

[broadway]

I do have a very small pension of $200/month at age 55, and of course, social security. Not sure how much that will be. I have been working 25+ years.

 

[REWahoo]

Even if your budget shows you to be ultra frugal I think you are cutting it too close. FIRECalc may say you can make it on $30,000 per year but you will have little wiggle room to cut back if the economy goes in the dumper for an extended period. Your car will eventually need to be replaced, appliances will break and houses need maintenance, new roofs, etc.

Can you hang on for a few more years or if not, find part-time work to give yourself a little cushion?

 

[Meadbh]

Welcome broadway. As others have said, we really don't have enough information to answer your question. I suggest you begin by adding up all your expenses for at least the last year. Some will go down in retirement, some may increase. So then you need a budget. There are many tools, the simplest of which is an Excel template that you can download and customize. Don't forget to budget for taxes. Then you need to know what income to expect from pensions and social security, plus any other sources of income you might have. At that stage, try entering your data into FIRECalc. The link is at the bottom of the page. The answer may be obvious, but at that point we can be more helpful.

 

[ERhoosier]

Agree with REWahoo 'bout cutting it too close financially. Even with ACA guaranteed access you'll still need to cover 15 yrs of health insurance (HI) premiums plus any deductibles/copays. And in financial world (like life in general), the cone of uncertainty widen out with lengthening of your timeline. Things like inflation & health care costs can have a HUGE impact for 3+ decades.

Other aspect of "should" you retire is very personal. There are big emotional issues possibly tied to retirement. Think about how you will fill your time for years, not just next few weeks/months. Many do not realize how much of their identity & social life are tied to their j*bs. In many lines of w#rk, deciding to get back in after retiring ain't that easy.

Welcome aboard. I think you'll find some very logical & experienced folks here giving their perspectives.

 

[walkinwood]

A quick calculation of 15% Federal and 6% state taxes leaves you with less than $1,000 a month after paying property tax, medical, and income taxes. Does your budget show you can do that? If it shows you can do it now, will you be able to do it in 30 years with inflation?

You may be overstating the tax bite. Best method is to enter data into a tax program & see what happens.
I agree with the rest - too little information & in a high cost state like NJ, you may be cutting it too close.
We moved out of NJ to Colorado.

 

[BuysToys]

You may be overstating the tax bite. Best method is to enter data into a tax program & see what happens.
I agree with the rest - too little information & in a high cost state like NJ, you may be cutting it too close.
We moved out of NJ to Colorado.

I probably am, but it was the same type of quick scratch I tend to do for myself. Worst case scenarios are easier to deal with than planning for the best and running into bad.

 

[broadway]

Thanks everyone for your thoughts.

Looks like I have to suck it up and work for another 5 years until I am 55 unless I can find a part-time position.

I added up my expenses and it came to about $13K. I would have to add medical insurance and groceries and misc to that.

 

[scrabbler1]

Hi Broadway, we have some similarities in our situations. I turn 50 this year and have been ERed for 4 years. No kids, no debts, like you. I live in a high-cost state (New York) like you do.

In my ER planning stage, I separated it into two parts - the part before I turn ~60 which requires me to use only my current (taxable) accounts and not my IRA (which I lack unfettered access to) or frozen company pension, or SS, and the part after I turn ~60, when those "reinforcements" become more easily accessible.

When figuring out my expenses in ER, I used my current ones but made adjustments for 3 big things - elimination of commutation expenses and FICA taxes, and having costlier health insurance (which will soon be mitigated by the ACA, something which was not part of my ER plans back in 2007-08.

But I also discovered that my income taxes were somewhat lower when I worked through the new budget. The way my taxable portfolio is arranged, I had a decent chunk of my investment income in the 0% federal bracket due to it being LT Cap Gains and Qualified Dividends. My average tax rate on taxable investment income (AGI) of about $38k per year (on average), has been just over 5% for federal and just under 4% for state (NY). And $38k is more than I need per year; my annual expenses are about $22k, which means I have built in a nice cushion, something I strongly suggest for someone contemplating ER.

As others have advised, you need to lok at your current expenses and get a good idea of what they will be in ER.

 

[broadway]

Hi Broadway, we have some similarities in our situations. I turn 50 this year and have been ERed for 4 years. No kids, no debts, like you. I live in a high-cost state (New York) like you do.

In my ER planning stage, I separated it into two parts - the part before I turn ~60 which requires me to use only my current (taxable) accounts and not my IRA (which I lack unfettered access to) or frozen company pension, or SS, and the part after I turn ~60, when those "reinforcements" become more easily accessible.

When figuring out my expenses in ER, I used my current ones but made adjustments for 3 big things - elimination of commutation expenses and FICA taxes, and having costlier health insurance (which will soon be mitigated by the ACA, something which was not part of my ER plans back in 2007-08.

But I also discovered that my income taxes were somewhat lower when I worked through the new budget. The way my taxable portfolio is arranged, I had a decent chunk of my investment income in the 0% federal bracket due to it being LT Cap Gains and Qualified Dividends. My average tax rate on taxable investment income (AGI) of about $38k per year (on average), has been just over 5% for federal and just under 4% for state (NY). And $38k is more than I need per year; my annual expenses are about $22k, which means I have built in a nice cushion, something I strongly suggest for someone contemplating ER.

As others have advised, you need to lok at your current expenses and get a good idea of what they will be in ER.

Scrabbler,

Can you explain more about the 0% federal bracket?
I don't have alot of "cash". It is mainly an emergency fund which is in money market fund earning 1% at the local bank in case I lose my job.
I will be withdrawing money from mutual funds.

 

[scrabbler1]

Scrabbler,

Can you explain more about the 0% federal bracket?
I don't have alot of "cash". It is mainly an emergency fund which is in money market fund earning 1% at the local bank in case I lose my job.
I will be withdrawing money from mutual funds.

While there are many threads which discuss the 0% bracket for LTCG and QD, here is a recent one I found quickly which addresses this:

http://www.early-retirement.org/for...qualified-dividends-and-0-taxation-64547.html

Basically, if your in the 10% or 15% marginal tax brackets, your QD and LTCG are taxed at 0%. The income has to be "stacked" properly, which is difficult for me to explain.

Between LTCG, QD, and tax-exempt interest from muni bond funds, only 62% of my investment income is taxable at the federal level. And if you think that's good, I know there are others in this forum who easily surpass my achievement.

 

[broadway]

Thank you for that link.

ER and paying for it, requires more planning than I had originally thought.

 

[broadway]

Update:

I decided in the end that I did not quite feel comfortable to ER at 50 when I originally posted the question in January 2013.

I worked until October 2013 to get the 1-year anniversary 401(k) 25% match from my employer.

In the ensuing 3 years, I worked on a contract basis both on W-2 and 1099 with breaks of no employment.

I will be starting a full time clerical job in early November.

 

[MBAustin]

Thanks for the update, Broadway. How are your numbers looking now? Have you set a new target date for ER?

 

[broadway]

My numbers at FireCalc.com indicate that I would have 100% success even without taking into account Social Security.

Right now, I am thinking about working another two years full time at this upcoming job or two years part time at a job in my actual field of expertise.

From my various periods of unemployment I have found that I enjoy the type of work I used to do. What I hate was the long commute in local traffic (>= 45 minutes one-way) and the politics.

 

[FREE866]

My numbers at FireCalc.com indicate that I would have 100% success even without taking into account Social Security.

Right now, I am thinking about working another two years full time at this upcoming job or two years part time at a job in my actual field of expertise.

From my various periods of unemployment I have found that I enjoy the type of work I used to do. What I hate was the long commute in local traffic (>= 45 minutes one-way) and the politics.

If your success rate says 100% without even taking into account SS why wouldn't you retire?
just curious

 

[broadway]

If your success rate says 100% without even taking into account SS why wouldn't you retire?
just curious

Three years ago when I asked this question, I thought I would enjoy being retired, but I was still skeptical about my finances even with Firecalc calculations.

I ended up working at several contract jobs.
I have found that I still enjoy working in my field, but I no longer want to make the 45-minute one-way commute every day. That restriction makes the job hunt harder since jobs in my field are not that plentiful in NJ.

My last contract job ended in July of this year. With that job I had every Friday off.

I am not sure whether I will be able to keep finding these contract jobs on my going forward.