Turning 50 and ER in 2014?

[Rex]

Long time reader and first time poster. These boards are extremely helpful. With the New Year, it's time for me to get serious about my ER plan.

I hit the big 5-0 in 2014 (DW 48) and that has always been the ER goal. We saved but did not do without. Climbed the megacorp ladder. The ER goal has kept our sanity while moving, working, burning out doing whatever megacorp needed.

I will be brief with my info but please hit me back with any questions.

Portfolio = $2m (50/50 IRA/nonIRA, invested roughly 45/45/10)
Debt = zero
College = 2 kids, $$ tucked away in 529s
Health Insurance = Can maintain megacorp group plan until Medicare
Pension = $40k/year, 15 years from now, no COLA
SS = yea, I qualify

The plan.....

Annual Spending = $70k (funded by $50k from portfolio & $20k from both working "fun" part time jobs)

From age 50 to 65 my WR is less than 3%. Then at 65, the pension kicks in, followed by social security.

Tell me what you think? Thanks and Happy New Year!

 

[JoeWras]

Welcome Rex. Same age as you, but no pension. I'll probably work a bit longer. Just taking things in stride right now, but I'm out by 55 pretty much no matter what. So, your story rings close to mine.

Did you try out some firecalc scenarios? You can plug in all those variables. Excellent tool and it will give you an idea of confidence. Remember, the result doesn't have to be "100%" for sure.

My gut feel for 70k spending is you might be a bit tight if you didn't have that pension. You are probably OK with pension. You don't mention whether the 70k includes your Megacorp insurance hit. My megacorp insurance isn't cheap, especially if I end up in the emergency room one year (high deductible).

How confident are you in megacorp's pension and insurance support? Some megacorps are better than others.

 

[Midpack]

Welcome aboard, looks like you're in fine shape. As to what "we" think, take a couple of minutes and plug your numbers into FIRECalc: A different kind of retirement calculator - and you can tell us. If you have questions from there, this crowd would be happy to help...

 

[pb4uski]

.....Tell me what you think?

Even ignoring pension and SS your WR is only 3.5% if you retired now and didn't bother with part-time work. Congratulations!!!

If you still enjoy your work then know that you are FI and have fun - if not, then RE!

Just double check that the $70 spending level is realistic and includes provisions for major repairs, periodic car replacement, etc.

 

[Rex]

Good info....I ran Firecalc and I am in good shape.

The comments about the annual spending being questionable are on target. I do have some flexibility there but I need to focus on the budget.

As far as Megacorp being around to fulfill the pension and maintain the health care, I am not sure how to risk rate that? It's an old, stable, NYSE listed company but hey, as we have learned in the last few years....anything goes.

 

[JoeWras]

As far as Megacorp being around to fulfill the pension and maintain the health care, I am not sure how to risk rate that? It's an old, stable, NYSE listed company but hey, as we have learned in the last few years....anything goes.

That's about as good as it gets.

The only other risk is no COLA. Let's hope inflation doesn't blow up on us all.

Keep thinking about that budget, but overall, sounds like you are good. Congrats!

 

[MBAustin]

Welcome, Rex! You have a full year to monitor your expenses to verify that you're on track. In 2+ years of ER, we spent more in the first year or so to scratch our major travel itch, but expenses in other areas (especially taxes and eating out) have been lower than expected. Good luck!

 

[David1961]

Hopefully, your portfolio will grow faster than inflation until you retire, and your actual withdrawal rate can be even lower.

 

[nun]

Good info....I ran Firecalc and I am in good shape.

The comments about the annual spending being questionable are on target. I do have some flexibility there but I need to focus on the budget.

As far as Megacorp being around to fulfill the pension and maintain the health care, I am not sure how to risk rate that? It's an old, stable, NYSE listed company but hey, as we have learned in the last few years....anything goes.

For healthcare get a few insurance quotes and figure that along with out of pocket expenses into the contingency.....for the pension risk see if your budget can be accommodated from your own assets. If the $70k is a good budget estimate you look to be in reasonable shape as 3.5% WR will fund that.

 

[Rex]

All great info folks.....I am going to focus the year on the budget and good suggestion to run the numbers with health insurance and no pension.

In prepartion for ER next year, I was thinking I dropping my first and second years "pay/withdrawal" in internet CD's (1 & 2 year). I figure this will keep this money "out of the market fluctations," and I can fill up year three with incoming dividends/interest.

Any suggestions on how to fund the first years of transition to ER?

 

[nun]

All great info folks.....I am going to focus the year on the budget and good suggestion to run the numbers with health insurance and no pension.

In prepartion for ER next year, I was thinking I dropping my first and second years "pay/withdrawal" in internet CD's (1 & 2 year). I figure this will keep this money "out of the market fluctations," and I can fill up year three with incoming dividends/interest.

Any suggestions on how to fund the first years of transition to ER?

You can fund your spending from taxable dividends/capital gains and principal. I'd keep a year in cash and have dividends and gains paid into a MM fund. I'd also keep 1 to 2 years in CDs or short term bonds as insurance against having to sell into a market crash.

You might also look a buying a rental property. It's a good way to produce income that isn't closely linked to you equity/bond investments.

 

[pb4uski]

All great info folks.....I am going to focus the year on the budget and good suggestion to run the numbers with health insurance and no pension.

In prepartion for ER next year, I was thinking I dropping my first and second years "pay/withdrawal" in internet CD's (1 & 2 year). I figure this will keep this money "out of the market fluctations," and I can fill up year three with incoming dividends/interest.

Any suggestions on how to fund the first years of transition to ER?

I hold ~1 year of withdrawals in an online savings account and ~1 year in a short-term investment grade bond fund. The former pays 0.80% and is FDIC insured and the latter has a distribution yield of ~2% and a duration of 2.3 years but I'm willing to accept the interest rate risk in exchange for the higher yield.

In theory, money flows from my retirement investments into the short term bond fund when I rebalance and then periodically from the short term bond fund into online savings and then a monthly scheduled "paycheck" from online savings to my local bank accounts where it is ultimately spent.

Dividends and cg distributions from taxable accounts investments also go into the local bank account and help fund some expenses that are lumpy (property taxes and insurance premiums due in Nov, etc).

From what I have seen the online savings rates are fairly comparable to 1-2 year CDs and have no restrictions so I like the online savings better.

 

[obgyn65]

Welcome. I am turning 48 this year so a couple of years younger than you. I think your numbers look good.

Tell me what you think?

 

[Rex]

Good suggestions on how to manage the "buckets" of money in retirement. I like it simple.

Thanks to all for the info....I look forward to 2013 and my "last lap" of w*ork as I plan for ER and the big 5-0!

 

[truenorth418]

I am the same age as the OP and retired in 2011 with a similar net worth and pension options as he has now. Where we differ is I am single while the OP is married with college age kids. I have decided to start with a lower WR (2.5%) until I reach my mid 50s. I like having this margin of safety in the early years while hopefully the portfolio grows a little more. I like the idea of getting a fun part time or seasonal job for a little extra spending money and will likely look into that for myself this year.

 

[Rex]

My plan is to fund my ER with $50k from portfolio and $20k from DW and I working "fun" part time jobs. That will keep my WR at 2.5%.

I wonder how realistic a "fun" part time job will be? It helps me ease into this with a less riskly WR.

 

[mh]

My plan is to fund my ER with $50k from portfolio and $20k from DW and I working "fun" part time jobs. That will keep my WR at 2.5%.

I wonder how realistic a "fun" part time job will be? It helps me ease into this with a less riskly WR.

I'll be bold and say it's pretty unlikely. I would go under the assumption that any part time job you find won't be all that fun and pay a whole lot less than what you are getting now. I always looked at a job as having a rather large
up front "annoyance" cost no matter how few hours you worked. you always
have to get something or other done on a regular basis that cut into your non working plans significantly. My take on it is, why pay that high "annoyance" overhead over N years when you could just tough it out at your full value job the (let's say) N/5 years instead.