When Were You Ready To Pull The Trigger?

[Sycamore]

In my introductory post I profiled my assets as a multiple of annual spending. I use this metric as it's easy to calculate a portfolio withdrawal. I received some good feedback with some responses alluding to my plan as conservative.

Fast forward to today and a lot is going on in my industry (uncertainty and layoffs).

I'm curious when other forum members developed a strong comfort level with retirement when considering a life long withdrawal rate net of social security. Some common withdrawal rates and spending multiples include:

• 4% = 25x spending
• 3.5% = 28.5x spending
• 3% = 33.3x spending
• 2.5% = 40x spending

Today I have 31x spending (3.2% withdrawal rate) saved, split evenly in tax deferred and taxable accounts.


I'm 56, DW 55, two kids in college (90% of tuition funded in 529s). A portfolio would have to last about 40 -44 years given longevity in DWs family. I've have a good handle on current and future expenses.



I'm concerned about returns the next 30 years given where we are in the bond cycle.


At what savings multiple or withdrawal rate were you ready to pull the trigger?


Sycamore

 

[jabbahop]

We are about 28x now but will be doing some cost reductions (moving to lower cost area, kids off to college, etc.) that should get us to more like 35x in a 5 years. Once SS and Medicare kick in, spending is lower but not sure about portfolio at that point.

I am 56 this month and wife is 57.


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[Lucantes]

Not retired yet (next year) but our numbers will be from about x30 to x35. Probably end up above 3% but below 3.5% I imagine.

 

[Milton]

I'm concerned about returns the next 30 years given where we are in the bond cycle.

I have no real idea what returns are likely to be over the next ten years, let alone 30! And, I suspect, neither does anyone else.

What are these "bonds" of which you speak?

 

[OnTheBeach]

I am 46 with 3 children under the age of 18 - currently at 41X spending and will be retiring this year. 10 years ago I set my goal to retire at 30X and have been OMY for the last 4 years.

 

[2017ish]

How much of the spending is discretionary? We gave notice a while back and will be quitting summer of '17 at 57/56 with DW being from extremely long (and well) lived stock. Plan to spend 4% of portfolio each year (or, maybe, 1% each quarter....).

I would not be comfortable with a "SWR" of 4% to cover needed spending, but the variable approach is fine--given that well over half our planned spending will be discretionary, even a 50% cut in spending would leave us in fine shape.

 

[rodi]

I pulled the trigger when our required SWR in the early years was under 4% - but it will go down over time. We have income sources from DHs SS and rental income... our draw last year was between 3 and 4%.

Our WR will go down next year since I start a very small pension this year. We'll also have kids moving out in 4 and 6 years from now (529's are funded so I'm not worried about the college expenses.)

 

[mystang52]

DW still w*rking so we're not yet in withdrawal stage. But like you, OP, I backed into my number. I knew what my likely expenses would be, and that number was 2.7%. That number has somewhat of a fudge factor in that "expenses" include rainy day sinking funds for repairs, large purchases etc.
So, all in all I'm very comfortable with that............and was the reason I ER'd with confidence.

 

[FreeBear]

We ER'd this year and are using a 4% SWR for long term planning, assuming 40 yrs of retirement.

Key assumptions:

- Worse case, we're willing to leave nothing to our estate. Nominal case (in Firecalc), we'd have the same amount of money left after 40 years (todays dollars) as we have today. Anything left will fund causes we care about. We don't have kids, maybe would feel differently if we did. On the other hand, why would we cheat them of the privilege and opportunity to earn their own way in life and retirement

- Willing to survive last years on Medicaid and minimal budget. My dad did so at the end. The end wasn't pretty, but poor health was a bigger issue than being financially broke. No amount of money would have made him happy in the last 10 yrs. as disease took his mind first, then his body.

- Neither of our parents lasted beyond 70, and the last 10-15 years weren't pretty. Of course, we're doing everything we can to stay healthy and outlast our parents, but this is still a very sobering reminder that we can't assume we'll be health and sane in our 80's, let alone our 90's.

- We have many older good friends, so we've seen the impact on time on every very health people. Financially comfortable retired folks in their 60's up to mid 70's seem to have a blast. All of our friends faced significant health struggles in their 70's, often losing a spouse and/or fighting cancer. The folks in their 80's are just doing OK at best, often without their spouses. Although I appreciate that the average longevity for our generation is likely to be greater, I can't shake the impression that time is not on our side healthwise...

- We are flexible on yearly SWR. We won't automatically take the inflation increase in the budget. Although healthcare, taxes, and utilities seem to endlessly march upward, we try to fight part of this by cutting costs in other areas will still enjoying life (local vacations instead of overseas, ethnic dining instead of steakhouses, local library instead of Amazon, church/charity functions & volunteering instead of movies/shows/concerts). This isn't always easy, but then neither was working full time in the corporate rat race!

In closing, you may want to search this board for the SWR poll done awhile back. If I recall correctly, almost everyone claimed a SWR between 3-4%, with a large grouping at 4%. However, in discussions folks seem to mention 3% ish and even lower, almost as a badge of courage. For me, sure I'd rather have a 3% SWR, but not the expense of another decade as a wage slave.

FB

 

[Whisper66]

At what savings multiple or withdrawal rate were you ready to pull the trigger?

I retired in early 2015 at 55 yrs old, no dependents other than DW (all kids grown and independent, parents also independent) and no future expected income other than SS. Plans cover ~40 yrs longevity for both of us. After one year of retirement, spend rate was 2.5%. Anything up to 3.7% was within our "comfortable level" based on Firecalc and I-ORP analysis run before retirement. DW and I have a good handle on expenses and feel we could easily cut 20-30% if things turned south on us.

 

[Teacher Terry]

WE retired at age 53 and 58. My hubby had already had a cancer scare at 49 so 53 for him seemed reasonable. We were lucky in that we both had pensions we could take immediately. We also had saving and a paid for home. We both do consulting work p.t. because we want to. 4 years later we are glad. WE had one friend die at 59, another couple he is 67 and dying now and she is 64 in nursing home for Alzheimer's and another friend with severe MS going to have to go into a home at 63. We are traveling and doing what we want because there at no guarantees. My Mom lived till 90 so outlived her $ but was able to live decently on her pension, SS etc and like many others she has 4 bouts of cancer between 78-90 so her traveling really slowed down, etc.

 

[DrRoy]

I am still working for 18 months in order to max out a modest pension. Right now I am at 42X without the pension, and will be at 70X with it. DW and I are 55 & 56. I know some of you will say "what are you waiting for??!!" but DW likes the idea of getting all we can get out of Megacorp. I have definitely pulled back on the throttle. Maybe you guys can convince her.

 

[emerytura]

We retired at 55, and 53. We both worked at large corporations for over 25 years. My DH took golden 80 pension(25 years work+age 55). l retired due to merger and downsizing. Received severance pay (56 weeks), unemployment and pension. My DH retired in 2007, and I retired in 2013. Our children are grown and independent. We are traveling a lot and living very active life. We want to enjoy our time now when we are healthy. Nothing is guaranteed and everyday is precious.


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[GreenER]

When we FIRE next year at 55 we will be at 2.5 to 3% WR depending on house sale proceeds and what happens with the market in the interim. We will need about that much to supplement pension for 15 years until age 70. Once SS kicks in it should 1% or whatever it takes to accommodate inflation.

 

[Sycamore]

Thanks for all the replies, the insights about future uncertainties regarding health are important, and I have to admit I don't give those issues enough consideration.

Milton,

You asked a question about my statement regarding bonds. My fixed income in tax advantaged accounts is mostly total bond index with a small percentage of TIPS. In my taxable account I have muni bond funds, 50% short term, 50% intermediate.

My concern about bonds in general is the impact they had on Bengen's/Trinity Study results. If memory serves me right the average return for bonds in the Trinity study was 6%. Since fixed income cycles are long (I think the current cycle started in the mid 70's) investors might face lower than average fixed income returns the next 30 years.

I realize no one knows for sure, but it's a concern I have.

 

[Sycamore]

2017ish,

About 25% of my spending is discretionary, maybe 30%.

You raise a good point about variable withdrawals. Like many posters on this board I will adopt a variable approach.

This week I read an article by Scott Burns where he wrote about Guyton's work on withdrawal rate decision rules.

His study applied four decision rules to withdrawals. His data showed portfolios could withstand >4% average withdrawals when applying the decision rules throughout the retirement time period.

 

[Scarecrow]

Sycamore, I am in a situation similar to yours. Probably will retire next year, at which time I will be 57, DW will be 52. One kid finishing college, another yet to start, but funded. DW may continue to work, if jobs are available. She actually likes to work. I think she has a mental problem.

We can't count on her staying employed, since she is considered ancient and undesirable in the corporate world (over 50), so we have to plan for both of us being retired. I'm thinking 3% SWR, at least for quite a number of years. I don't feel comfortable with 4% at pre-65 retirement. Even 3.5% makes me uneasy at earlier ages, considering the state of the world.

We still have some cushion at 3%, so, that could be lowered if things are really bad.

 

[Options]

Retired (semi-early?) 8 months ago at 60, I've dispensed with the whole SWR idea as I'm delaying SS until 70 so WR will be variable. I read in a thread once that someone had adopted a "swing by the ropes" approach in delaying SS. One money source "rope" would carry them to the second money "rope" (when they started receiving a pension), and the third "rope" consisted of delayed SS.

I liked that approach as I felt it provided peace of mind and also made for a pseudo-LMP methodology. I also liked the idea of not having to hang on every word of financial porn that abounds, particularly in markets like these, as your bases are already covered.

In my case, my budget is covered at 70 by delaying SS until then. I will yank an obscene amount of cash out of my place when I sell and downsize in 5 years. This will cover 65-70 expenses, pay for a downsized place, and even have cash left over. I have a very large PF to last from 60-65 despite what the market does. All calculators indicate I've saved too much, which isn't a bad problem to have, I suppose.

My objective these days is to simplify PF management to the greatest extent possible, spending maybe 15 minutes a month, if that. Once all the groundwork has been laid, this is very much possible. There is too much I want to be, do, and have in this new retirement life to spend my time squeezing a few cents out of my PF like wringing water out of a washcloth.

 

[VFK57]

I retired at 55 but DW is still working so there is no withdrawals yet. But we planned if DW pulls the plug the WR would be 2.8% -3%

 

[W2R]

At what savings multiple or withdrawal rate were you ready to pull the trigger?

On my retirement date in 2009 I had about 35x my anticipated yearly expenses.

I would have retired earlier with around 25x-30x, had it not been for the health insurance situation back then. Instead I waited until I qualified for subsidized federal retiree medical.

So far in retirement I have spent between 1.7%-2.6% each year. Well, except for the dream house that I bought in cash last year. I am thinking of that as a permanent reduction in principal rather than part of my WR. With less principal my WR will probably go up, I would imagine. As long as it stays below 3.5% that's OK with me. I am 67 years old so I don't have a 50 year retirement to fund like some of our members do.

 

[brett]

I was financially and emotionally ready a year prior to my early retirement.

I hung in hoping to get a package. Fourteen months later I got the golden handshake. A bonus of two plus years of salary/benefits. Good ROI for staying another 14 months until I was 59. Bridged to my full DB pension at age 62.

 

[Alan]

I was ready at age 53 both financially and emotionally, but held on to 55 to get retiree health benefits. Turned out to be well worth it because it also meant I could start drawing my pension at 55 instead of 62.

 

[REWahoo]

My retirement decision wasn't based on a "25x spending" or similar metric. I relied heavily on FIRECalc and a couple of other calculators, an enormous volume of spreadsheet calculations, plus a one time review of our situation by a fee-only FA.

Even with all indicators in the green, I came down with a case of OMY syndrome.

I'd planned to retire in 2004 (age 57, DW was already retired) but realized if I worked OMY and threw everything I could at our mortgage, I could retire a year later without a house payment. It turned out to be a brilliant decision as the company I worked for was sold and all my underwater stock options magically surfaced. Cashing out the options just prior to retiring equaled a full year's salary, which was a very nice parting gift.

 

[Hangingitup]

If I count vacation home, were about 2.9% WR and 34 x, including tax expenses, not considering small pension and SS. But still in OMY syndrome.


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[Senator]

I have always been a busy person. While holding a full-time job, I purchased a tavern in southern Minnesota. My partner and I ran it for five+ years, and then sold. I ran for political office as the endorsed candidate for the Minnesota House of Representatives. I received my graduate degree while working.

I had a lawn care and snow plowing business, that started shortly thereafter. It was a great weekend and after work project – unless it rained for a few days. Then it was hell. Or if it was super-hot outside. Or it was cold and snowy. Or if I had other things to do. But the sacrifice made money, and helped garner capital to invest in real estate.

I really ramped up my investing career in 2008. I purchased a 4-plex, and did what I thought was an extensive remodel. As it turns out, it was mostly new appliances, painting and cleaning in most of the units. A light remodel.

This worked well for about 9 months, and another 4-plex became available. I bought it. After all, if the first 4-plex was a deal, the second one would be too. About 9 months later, another one. Then another and a final one in 2012. I had a total of five 4-plexes, plus the two duplexes I already had.

Each 4-plex required a significant down payment, nearly $100K. Each one required a lot of work and vacancy expense. You can add another $10K to $60K to the purchase price. Each one cash flowed better than the previous, but my investment account was slowing eroding away. I would spend $100K on the property, and a year later my account would be close to where I was again, just slightly lower. After five buildings, including one that took ~$260K cash, I was down quite a bit.

In 2012, I purchased my last 4-plex, and it was a cash deal. Approximately $200K investment, plus another $60K in repairs, and a lot of free labor to get it back in rentable condition. On 1/1/2013 I had it completely rented, approximately 6 months after I purchased it. Something happens when you do not have a mortgage. Rental property cash flows like a madman.

Prior to tax year 2013, I always received a big refund in my income taxes. I had lots of deductions due to all of the depreciation, interest expenses, property taxes, etc. I paid a lot of taxes through my employer, and I claimed zero deductions, so they withheld a lot. Those big refunds were a good deal. I was working so much, and trying to keep the rentals going, that I didn’t have time to spend money, or see how much the rental were cash flowing. I was just working, sleeping, and working again. Nights, weekends, vacations, etc. were all used to work on the rentals.

I also did a property flip in November 2013 that generated a bit, but required another $140K outlay before it was sold in January 2014. I always felt that I was barely making money, but it was because I was continuing to invest in properties and had no time to look.

As I was doing my 2013 taxes around February of 2014, I realized that I was going to have to pay income taxes. Despite of having already paid a large sum, I had to send in additional check for about another $10K. WOW. I really needed to look at my income stream and see how much I was really making.

I calculated it out, and low and behold, I was making more than my gross pay at my real job. I didn’t have to work. I still could not quite believe it, so I set a retirement date on a whim. I have saved about 50% more than my gross pay at my real job for the past 3 years. Here is how I set my date to leave my real job.

I figured that I was near 55, so I said “25% chance I will retire at 55, 50% chance at 56, and 25% chance at 57”. There was no science to it. Since my birthday is in November, I added a few months because I wanted to max out my 401K the next year by the end of April, then leave. I found out that after 1,000 hours, my company gives me another year of pension, which is about an extra $100 per month at 65, so I added just a couple of months to my end date to ~6/25. I then added July 1st, to get another 1.67 days of vacation and healthcare paid for the month. I added July 5th in, so I would get paid for July 4th, double-pay day.

At one time, I did have a “do or die” asset amount I wanted to have in my investment account of $1.5M, but since then, I paid off my personal home, another large rental mortgage, almost paid off another large rental mortgage, and purchased another rental property with cash. All told, paying those extra mortgages off generates another almost $4,000+ per month in cash flow. So my investment account is not going to be that high.

Looking back, I probably should have left a year ago, or even three, but I am now nearly 100% positive I will not have financial issues, regardless of what the stock market does. And I can live better than I did while working.