Another update after 1.5 years!

[panhead]

Well, last post I had was called "39 and thinking" Lots of things have happened since then. I was unemployed till September of 2010 (about 16 months) I was living on 600/month plus income from one of my rentals. It was easy living! I had plenty of money coming in to pay bills, have fun, and still had some left over! In September I got a call from my old company and they needed some contract help, so I am back at work about 1/3 time. This still pays all my bills and then some.

In the 39 and thinking post I was considering pulling the plug then and there. I since that post sold the house 1/2 owned with my sibling. I'm working on setting up a portfolio that is ready to kick in should work dry up again and I decide to retire. While i'm working I'll be adding a bit to it here and there as well...

So Just for kicks, here is an incredibly simple portfolio I am considering. If anyone wants to comment I'd love to hear it, and I'd also like to know if anyone's portfolio mimicks something like this. Here it is:

Assume a 750k portfolio and a 50 year payout
70/30 stock/bond/cash mix
750 * 0.3 = 225k in cash/bonds
750k - 225k = 525k stock funds
475k in S&P 500/total stock market fund
50k in global/emerging markets high risk own picks etc. (appx 10%)
assume 30k/year for living expenses
5 years living expenses in a ladder or decent interest bearing cash vehicle
5 * 30k = 150k for 5 years living expenses in some laddered investments or anything with decent interest rate
225k - 150k(from 5 yr ladder) = 75k to be put into bond fund

Other information:
Firecalc gives me 100% survival rating even when no SS is assumed and interest rate is at 4%
I have a paid off house that I rent out which nets me about $6000/yr, house value is about 130k.
This will eventually be sold and proceeds added to portfolio.
I own half of a 2 family which flows cash but all monies are currently reinvested to fix it up.
Current value of 2 family is about 160k. Balance of loan is 140k and loan matures in 25 yrs.
This would either be sold eventually and proceeds added to the portfolio, or once paid off use
the rents to lower withdrawals from portfolio

The house I live in I owe 130k on and is worth about 250-270k. I could sell this house
and buy a nice house for about 150-170k loan free with lower taxes.
I would only do this if my work dried up.
In my current house, I would need to withdraw 26k annually, so I have 4k wiggle room
If I were to sell this house and buy the cheaper one, I would have to withdraw about 20k/annually so I would have
about 10k wiggle room
I plan on adding modestly to my portfolio while I contract part time, and not withdrawing anything from it unless work dries up.
Questions:
Is this a reasonable allocation for the cash portion given the real estate holdings?
Is this in general how some people are structuring their portfolios during deaccumulation phase?
Where do I park the 150k living expenses where i get a decent interest rate? CDs are terrible now?
Any other comments?

[flyfishnevada]

Can't help much with the financial stuff. On the other hand, sounds like you have already proved you can do it while you were unemployed. Don't know much about your family situation (married, kids, plans for those), but you might want to consider changes in those areas. I mean, you're only 40. Things and attitudes change. Just something to consider.

I'd also consider future plans. Travel, living arrangements, expensive hobbies, etc. Again things change. Just because you can live on a bare minimum, don't assume you'll want to. If you have enough to travel if you want, change living arrangements (new home, condo, RV, sailboat, etc.) or afford to engage in your hobbies and activities of choice, nothing to worry about.

Other than that, I say do it. Sound like you have it handled financially. Sounds like you have already done it. Part-time employment or not, I think you're already retired more or less. Continue working if you feel like it, stop if you don't and enjoy!

[Telly]

panhead! It's always good to hear from you. You are one of the very few forum members (I think REW may be the only other) that were on this board before me, that still post.

You didn't mention it, but how are you covering health insurance? My health is great, but with health, everything can be great... until one day... it isn't. I see health care as the single biggest reason for many people NOT to RE.

[brewer12345]

Aside from health insurance, I personally would want a more diversified portfolio, especially on the equity side. International, small caps, mid caps, REITs, maybe some commodities, probably some international bonds, etc.

For the cash side, rates just suck. No way to avoid that. The best place I can see is 5 year CDs with low early withdrawal penalties (such as Ally).

[panhead]

Thanks for the comments thus far! Hey Telly, good to see some of the old gang is still around! Health insurance is a major headache. I currently purchase my own policy for about $400/month. I could probably do better, but it's a good policy. It's the inflation on the health care side that worries me the most.

flyfishnevada: I am not married (was, lol!) and I have no kids. Like most of the FIRE'd here, I have many activities that I enjoy, and some actually make me a couple of $$. I'm really liking this part time work thing, it's giving me plenty of time for my own activities and allows me time to get the ER portfolio in order. Also, it should allow me to add a couple bucks here and there to the egg before I pull the trigger.

brewer: your comments about a more diversified portfolio are well taken. I may add a small cap fund to the international one but keep the bulk in S&P or total stock market. I don't want REITs as I believe I already have plenty of RE exposure with the rentals.

Basically I'm trying to set up my retirement portfolio (and life) right now so I am all set should work dry up. I have alot of work to do to get the right allocation (once I figure out what that is, lol). I don't know what's going to happen on the work side, I'm just playing that by ear. It might dry up, or I might be asked to work full time again. If so, I'll have a decision to make.

I gotta say, it's pretty amazing after so many years of working, saving, and planning for ER to see that it is finally a real possibility!

Anyway, I would sure like to see some other examples of portfolios people are drawing off of and how they are set up. I've been searching thru the forum, but if anyone would like to point to a thread or share, I'd love it!

[REWahoo]

Quote:

Originally Posted by panhead Anyway, I would sure like to see some other examples of portfolios people are drawing off of and how they are set up. I've been searching thru the forum, but if anyone would like to point to a thread or share, I'd love it!

Hey panhead!

It has been a while since we had a "I'll show you mine if you show me yours" AA thread, especially one dedicated to the drawdown phase. Why don't you start one?

[panhead]

Hey REWahoo!

I probably should've called it that to begin with, lol! Great idea, I'll do it!

[panhead]

Hi all, I was thinking about cruising into retirement sticking with the contracting gig that I had but they asked me to go back to work full time and I figure it wouldn't hurt to build up the portfolio a bit as well. My new target age is 45, so about 4 years from now. Kind of a bummer, but I did take about 16 months off and then worked 1/2 time or less for about 9 months, so I've been pretty laid back for over 2 years. It was awesome and it gave me a real idea for what it costs me to live.

Anyway, I'll be checking in here and there to see what's up. Funny how much less stressful work is when you are FI !!

Good luck to all!

[KB]

Good luck with your full time job. You certainly aren't the only person who has gone back to work. At least you had the 16 months off...

[ChadR]

Quote:

Originally Posted by panhead Hi all, I was thinking about cruising into retirement sticking with the contracting gig that I had but they asked me to go back to work full time and I figure it wouldn't hurt to build up the portfolio a bit as well. My new target age is 45, so about 4 years from now. Kind of a bummer, but I did take about 16 months off and then worked 1/2 time or less for about 9 months, so I've been pretty laid back for over 2 years. It was awesome and it gave me a real idea for what it costs me to live. Anyway, I'll be checking in here and there to see what's up. Funny how much less stressful work is when you are FI !! Good luck to all!

Now that is awesome!! Being FI has to radically change the feel of the day to day grind compared to the pay check to pay check crowd.

I know it made a big difference for me to have an appropriate financial cushion when I decided to change jobs last year and took a 6 month sabatical in between.

[landover]

Well, how is feeling going back fulltime after two years of ER? Wasn't is possible to continue part-time, I guess you make less but less work, less stress, less taxes. And if you were happy with the retired life (not lusting for bigger boat/car/vacation... etc) why go fulltime, you will not get time back.

Just a thought...

Quote:

Originally Posted by panhead Hi all, I was thinking about cruising into retirement sticking with the contracting gig that I had but they asked me to go back to work full time and I figure it wouldn't hurt to build up the portfolio a bit as well. My new target age is 45, so about 4 years from now. Kind of a bummer, but I did take about 16 months off and then worked 1/2 time or less for about 9 months, so I've been pretty laid back for over 2 years. It was awesome and it gave me a real idea for what it costs me to live. Anyway, I'll be checking in here and there to see what's up. Funny how much less stressful work is when you are FI !! Good luck to all!

[panhead]

OK, to answer some of the questions here, going back to work full time after so much time off was not (that) bad. Contracting for a while sort of bridged the gap. As far as landover's comments about less taxes, that is only from someone who has never worked for themselves. There is a self employment "penalty" where you start with 30% tax and work up from there. Taxes are much worse as a self employed person when you contract and are not dealing in cash. Oh yeah, I was very happy working part time, I'm certainly not lusting after the next biggest and greatest, but my nest egg was at the point where at 4% it provided the minimum living standard I was ok with. I figure go back to work for a few years and boost that while the economy recovers (I hope). To quote one of my favorite movies, "I'm hip on time, but I gotta go..." That was from 'Easy Rider'. I figure for me this is a good move. I'm still young and I got stock options on a pretty successful startup. If it hits, I'm done. If I gotta wait 4 years, I'm only 45. When this all happened I got laid off and I wasn't really prepared to retire anyway (tho I was planning for it). There's alot more to the story but that's for another time. Thanks for the comments, and keep em' comin' if you like, they make me think...... Eventually, I'll share the whole story as there is a lot more.....

[panhead]

I figured I'd bump this thread with an update, as I always enjoy reading updates from other members, so hopefully this will provide some entertainment!

In this post, and in another one at the time called, "39 and thinking (http://www.early-retirement.org/foru...ing-48247.html), I was laid off for 16 months (yes, during the great recession) and considering not going back to work, then got hired back as a contractor for 9 months, and eventually back to full time. I figured I'd work till 45 or so.....

Well, I'm 45! My company got acquired, made a couple $$ but not earth shattering, income has increased as has the portfolio with the stock market! My allocation is now 50/50 and I still have the 2 rentals. The portfolio as it sits today supports my lowest acceptable retirement income at a 3% draw including my mortgage payment.

I guess I’m officially on OMY(s), and here is what I am thinking now: In 2 years (47) I should have enough that I can draw the same amount of $$ at 2.5% that I currently am able to at 3%. I consider 2.5% to be pretty much bulletproof. If I can continue to work for another 3 years (50, or maybe just before so I can claim 49 lol) I should have enough to provide a very nice retirement income at 2.5% draw. I’d like to sell the rentals about this time as well, and pull the plug.

So at one time I was at 39 and considering dropping out at a 4%(ish) draw without a lot of slack and likely requiring some part time income. Now, older and hopefully a bit wiser, I’m looking at about 50 with a nice, cushy retirement income. That being said, if I got laid off today I’d be tempted to find a way to make my plan work immediately!

Interesting how what I consider to be a “safe” withdrawal rate has evolved over the last 17 years or so. I used to think 5% was ok, then it was 4%, then 3%, now 2.5%. I don’t see any reason to go below 2.5% as my well-diversified portfolio yields about that.

I’d also like to say “Hi and Thanks” to all the forum members that have provided entertainment, guidance, wisdom, and a virtual sounding board along the journey...

Party on, Garth!

-Pan-

[pb4uski]

Congratulations!

3% is pretty bullet-proof and I'm guessing that you are not including SS so your ultimate WR, once SS is on line is probably even lower.

Once I was FI I found work more fun because I was able to be cynical within the bounds of politeness and point out what everyone was thinking but didn't have the courage to say (like that the emperor had no clothes).

[panhead]

Pb4uski (still love that username), I couldn't agree more! I've got a really good situation now with a excellent manager so work is tolerable. It is not only true that I feel more fee to speak my mind, but also that I don't have to tolerate 7pm meetings and the like. As for SS, I consider that when I start taking it that it will basically adjust my withdrawals for inflation, and yes, my draws might even go down, or at worst case, stay the same. Thanks for the congrats!

[MBAustin]

Good job, panhead! Thanks for posting your updates - I think it's really helpful to those who are still in planning mode to see what others are up to. Keep up the good work!

[Live And Learn]

I love reading updates ! Great job !!!

I too set my acceptable WR at 3%. I've been ER'd 10 days and of course I wonder if I should have waited until I was at 2.5% ... and then I remember what made me want to ER in the first place and feel its worth the potential risk of being old and broke, living on SS alone. Plenty of people (including my mom) do it.

[panhead]

Thanks MBA and L&L!

MBA: I loved reading peoples updates and progress over the years, so yeah, that's why I figured I'd share mine. Plus it was fun to go back and look (read) where my mind was at the time.

L&L: I really enjoyed reading your thoughts and decision process over the years on when to retire. I know you have a rock-solid plan, especially with respect to health care, so expect (and hope) any surprises you will have will be on the up side!

I actually believe that 3% would be fine, but right now, at 3%, I am just covering all necessary expenses, granted this includes a repair and replace and 'fun' budget which overlaps with my max out-of-pocket for health care, as well as a vacancy and repair budget for the rentals. This alone should give me some slack in years where things go well. I also have other property (non-income producing) that I could sell if things got bad, so I have "backup plans", including SS.

Right now, I'm targeting 2020. Not sure I'll make it that far, but that's the plan. I still find it amazing that I've stuck with this for about 20 years, and seeing the pieces really fall into place is very cool. I'd really like to see monetary policy normalize before I pull the plug as well.

Good luck to all!