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FIRE in your 40s how has it been?
Old 08-20-2020, 09:12 AM   #1
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FIRE in your 40s how has it been?

We are DINK in our early 40s and have been planning to retire in the next 6-7 months. Facing a long retirement, it is hard to determine if we are well prepared financially, even with all the calculations suggest we are beyond ready. So I'd like to get some prospective from those who had retired in their 40s. The criteria is that you retired in your 40s with no kids, without a defined-benefit pension or trust fund (or wealthy family money), and has been retired for at least 15 years without relying on any active work (W-2 and/or 1099s) to provide for more than 20% of your retirement expenses. For those of you fit the descriptions above, my questions are:

1. How many times of your pre-retirement annual expenses you'd saved upon your retirement (excluding your primary home)? What tax rate you used to calculate the gross-up amount?

2. Did your post-retirement expenses increase/decrease from your pre-retirement expenses? if so, by what percentage?

3. How much increase did you experience with your health care cost annually (on average)?

4. What is your asset allocation in cash/bond/stock/real estates/other excluding your primary home?

Thank you all in advance for your input!
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Old 08-20-2020, 10:56 AM   #2
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Originally Posted by DINKFIRE View Post
We are DINK in our early 40s and have been planning to retire in the next 6-7 months. Facing a long retirement, it is hard to determine if we are well prepared financially, even with all the calculations suggest we are beyond ready. So I'd like to get some prospective from those who had retired in their 40s. The criteria is that you retired in your 40s with no kids, without a defined-benefit pension or trust fund (or wealthy family money), and has been retired for at least 15 years without relying on any active work (W-2 and/or 1099s) to provide for more than 20% of your retirement expenses. For those of you fit the descriptions above, my questions are:

1. How many times of your pre-retirement annual expenses you'd saved upon your retirement (excluding your primary home)? What tax rate you used to calculate the gross-up amount?

2. Did your post-retirement expenses increase/decrease from your pre-retirement expenses? if so, by what percentage?

3. How much increase did you experience with your health care cost annually (on average)?

4. What is your asset allocation in cash/bond/stock/real estates/other excluding your primary home?

Thank you all in advance for your input!
Welcome to the forum, but alas...I have an evil DB pension so I am not eligible to help you out. Also, I think with the large number of "qualifiers" you may not get many responses.
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Old 08-20-2020, 11:36 AM   #3
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Yeah I met your criteria until I got to the 15 year part, sorry!

Also, with your 15 year requirement, you'll be getting pre-ACA repliers who would have had very different HI plans.
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Old 08-20-2020, 12:41 PM   #4
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How many times of your pre-retirement annual expenses you'd saved upon your retirement (excluding your primary home)? What tax rate you used to calculate the gross-up amount?
While I don't meet your criteria to answer (few here do), I thought I'd chime in!

Based on reading this forum for 3+ years, most of us have saved a minimum of 25X annual projected annual expenses, and many here have saved 30 to 50X. For FIRE in your 40s, FIRECALC would probably suggest a minimum of 30X.

The tax rate will depend on what percentage of your taxable accounts are LTCGs, STCGs, what % of your assets are tax-deferred, and your projected income/income sources. Many of us manage our MAGI so that we qualify for ACA subsidies. For MFJ couples, it's possible to spend $100K+ annually, and pay $0 in federal taxes, depending on the variables.

I'd suggest creating a annual spending spreadsheet with each year of your projected retirement. Show each asset on one row, and show annual distributions, and estimated taxes by year. Include the assumption that 85% of your SS will be taxable when the time comes. To create a tax-efficient spending plan, you really need to understand the tax code, and anticipate future changes to tax rates (which most of us believe will likely be higher than they are now).
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Old 08-20-2020, 02:00 PM   #5
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Out at 49, but have a DB pension which hasn't started yet.
Tax rate has been 0% due to qualified dividends.
Post retirement expenses are way lower than pre-retirement expenses. No commuting, clothes, gas, lunches, FICA taxes, etc.
Keep low income so health coverage hasn't cost me anything, thanks ACA.
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Old 08-20-2020, 02:44 PM   #6
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I think some of what you’re looking for is going to be so situationally dependent that the little input you’re going to get with those criteria won’t necessarily be helpful. Also don’t fit your criteria, but a few things that helped us get comfortable with pulling the plug:

An annual detailed budget with all expenses and projections out to our 80s/90s. We’ve also mapped out large expenses/replacements with average lifetimes and cost. For health insurance, I basically entered our info in for different ages and got premium estimates from aca for the best plan possible. We have young kids, so a considerable amount of fluctuation in spend over the next 10-15 yrs.

Once we had this done, went through and figured taxes across that timespan. Also looked at effect of death of a spouse, etc on taxes. Our tax rate won't necessarily be helpful, since cap gains, kids, and deductions are all going to be different. What I will say is the online retirement calculators significantly overestimated our tax burden.

We used the manual spend adjustment in firecalc and made sure to adjust for inflation hedged expenses like mortgage.

As far as equity allocation, excluding primary residence, we’re about 65% equities, 7% cash, which is a little higher than we’d like, and the rest bonds.

We have a significant amount of equity in our primary residence and it’s a big chunk of our NW, so we look at this as our backstop for any plan failure. We’d like to stay in the home until the kids are done with school, but it’s a lot of house for two people. We’ll see how things look at that point.

Just how we approached the problem. We’re living fairly fatfire, so have a fair bit of wiggle room if it goes wrong. If we were looking at lean fire budgets, we would have approached it differently I think.
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Old 08-20-2020, 02:50 PM   #7
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I believe @Audreyh1, one of our most prolific and comprehensive posters would qualify.
Perhaps she will see this thread.
Edit - I think she retired at 39 y.o.
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Old 08-20-2020, 02:52 PM   #8
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Yeah I met your criteria until I got to the 15 year part, sorry!

Also, with your 15 year requirement, you'll be getting pre-ACA repliers who would have had very different HI plans.
I'd like to hear you answers on these questions!

I know the 15-year limit is a tough one, I just want to exclude those only been retired in the last few years since it doesn't cover enough portion of the retirement. Given it has been a bull market since 2010, using only up-market year outcome could be inaccurate.
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Old 08-20-2020, 03:00 PM   #9
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I think some of what you’re looking for is going to be so situationally dependent that the little input you’re going to get with those criteria won’t necessarily be helpful. Also don’t fit your criteria, but a few things that helped us get comfortable with pulling the plug:

An annual detailed budget with all expenses and projections out to our 80s/90s. We’ve also mapped out large expenses/replacements with average lifetimes and cost. For health insurance, I basically entered our info in for different ages and got premium estimates from aca for the best plan possible. We have young kids, so a considerable amount of fluctuation in spend over the next 10-15 yrs.

Once we had this done, went through and figured taxes across that timespan. Also looked at effect of death of a spouse, etc on taxes. Our tax rate won't necessarily be helpful, since cap gains, kids, and deductions are all going to be different. What I will say is the online retirement calculators significantly overestimated our tax burden.

We used the manual spend adjustment in firecalc and made sure to adjust for inflation hedged expenses like mortgage.

As far as equity allocation, excluding primary residence, we’re about 65% equities, 7% cash, which is a little higher than we’d like, and the rest bonds.

We have a significant amount of equity in our primary residence and it’s a big chunk of our NW, so we look at this as our backstop for any plan failure. We’d like to stay in the home until the kids are done with school, but it’s a lot of house for two people. We’ll see how things look at that point.

Just how we approached the problem. We’re living fairly fatfire, so have a fair bit of wiggle room if it goes wrong. If we were looking at lean fire budgets, we would have approached it differently I think.
Thank you for providing many helpful suggestions. What large expenses do you budget for? I'd think we have home repair currently included in our annual budget (owned the residence for 8 years) that should be sufficient, and keeping one single used car at under $14K purchase price wouldn't hurt the overall budget significantly. I'm having hard time to determine how much and how long to budget for additional healthcare costs including nursing home.

I have run the yearly forecast including tax calculation, but can't determine how to budget for a statutory federal/state tax rate increase, which is most like to happen.
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Old 08-20-2020, 03:07 PM   #10
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What large expenses do you budget for? I'd think we have home repair currently included in our annual budget (owned the residence for 8 years) that should be sufficient, and keeping one single used car at under $14K purchase price wouldn't hurt the overall budget significantly.
The recommended annual house repair budget is usually 0.5 to 1% of the home's value. The largest things a homeowner usually faces are roof replacements, pool refinishing, and appliance replacement, along with house repainting and remodeling. I reserve the equivalent of 0.5% of my home's value annually in my budget annually to account for eventual roof repair and fiberglass pool refinishing. Also budget $300 monthly for eventual car replacement and $600 monthly for camera, computer, phone, and tablet upgrades for me and my wife.
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Old 08-20-2020, 03:33 PM   #11
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My signature line says it all:

"46 years old, single, no kids. Exited the job market in 2010 (age 36). Have lived solely off my investments since 2015 (age 41). No pensions. Current AA: real estate 65% / equities 10% / cash 25%; Current WR: 1.6%".

So I don't quite qualify (haven't been retired for 15+ years) but I'm still going to give my opinion in the subject.

1. How many times of your pre-retirement annual expenses you'd saved upon your retirement (excluding your primary home)? What tax rate you used to calculate the gross-up amount?

I forgot how many times of my pre-retirement annual expenses I had saved when I pulled the plug. I'd say 40-45x maybe? At the moment I am at >60x my current annual expenses. I very much manage my taxable income to keep taxes low (I paid no income tax in 2019 and probably won't pay any this year).

2. Did your post-retirement expenses increase/decrease from your pre-retirement expenses? if so, by what percentage?

My expenses have been all over the map because I moved several times in the 10 years since I retired - Southeast US, California, western Europe.

3. How much increase did you experience with your health care cost annually (on average)?
That too has been all over the map - depending on location and subsidy amount.

4. What is your asset allocation in cash/bond/stock/real estates/other excluding your primary home? Current AA: real estate 65% / equities 10% / cash 25%

Before pulling the plug, I too was pretty interested in all those questions. For many years, I was a meticulous planner. But after 10 years of retirement, I kinda "wing it" now. Since retiring I got divorced, I relocated several times, Obamacare became a reality, tax rates evolved, etc... none of that could be foreseen when I retired. And who knows what the next 50 years have in store. So I've accepted that, for such a long retirement, I have to remain flexible.
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Current AA: real estate 64% / equities 10% / fixed income 16% / cash 10%
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Old 08-20-2020, 04:11 PM   #12
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That's a very interest, FIREd. You allocate heavily towards RE. Do you exclusively invest in residential rental properties directly, or you have a blend of commercial/residential/natural resource RE investments? Do you hold material portion of your RE in REIT?
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Old 08-20-2020, 04:16 PM   #13
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Originally Posted by DINKFIRE View Post
We are DINK in our early 40s and have been planning to retire in the next 6-7 months. Facing a long retirement, it is hard to determine if we are well prepared financially, even with all the calculations suggest we are beyond ready. So I'd like to get some prospective from those who had retired in their 40s. The criteria is that you retired in your 40s with no kids, without a defined-benefit pension or trust fund (or wealthy family money), and has been retired for at least 15 years without relying on any active work (W-2 and/or 1099s) to provide for more than 20% of your retirement expenses. For those of you fit the descriptions above, my questions are:

1. How many times of your pre-retirement annual expenses you'd saved upon your retirement (excluding your primary home)? What tax rate you used to calculate the gross-up amount?

2. Did your post-retirement expenses increase/decrease from your pre-retirement expenses? if so, by what percentage?

3. How much increase did you experience with your health care cost annually (on average)?

4. What is your asset allocation in cash/bond/stock/real estates/other excluding your primary home?

Thank you all in advance for your input!
I meet your requirements except that I have been retired for only 12 years, not 15. I'll answer your questions anyway.

(1) I had saved about 38 times my expenses although the 1/3 of my portfolio in my rollover IRA I could not access yet due to my age.

(2) The way I had set up my retirement budget, my total expenses would be about the same as pre-retirement. What I was no longer paying in FICA and commutation expenses I had to pay out in additional health insurance premiums (pre-ACA). Everything else was roughly the same, including taxes, because I was working P/T in the years leading up to my ER.

(3) My health insurance costs have been, by far, the most volatile since I retired. From 2009-2011, my HI premiums rose 50%. So, I switched to low-cost, bare-bones HI policy to get me to 2014 when the ACA"s exchanges began and I could get a cheaper, more comprehensive policy, even with a tiny premium subsidy. From 2015-2019, my premiums rose a lot and the subsidy disappeared because I exceeded the income limit to qualify for it. Then, in 2020, I changed part of portfolio to reduce my income and get back on the subsidy train, reducing my net premium back to what I was paying in 2014. I also had some health issues in 2015 which have raised my medical costs (in 2015 only) but not by a lot.

(4) My overall AA is not something I target because I have a different objective in my IRA and my taxable portfolio. In the IRA, I have been gradually reducing its stock portion as I have aged, down to 43/57. (stock/bond) The taxable part is about 37/63 because it is income oriented to pay my expenses.
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Old 08-20-2020, 04:26 PM   #14
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That's a very interest, FIREd. You allocate heavily towards RE. Do you exclusively invest in residential rental properties directly, or you have a blend of commercial/residential/natural resource RE investments? Do you hold material portion of your RE in REIT?
I tilt strongly towards RE because the local tax code favors heavily that asset class. And real estate is the main vector for building wealth over here.

I hold a mixture of residential properties (condos), commercial properties (office space), and land (farmland and forests) - all held directly and with no mortgages.
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Old 08-20-2020, 04:45 PM   #15
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Thank you for providing many helpful suggestions. What large expenses do you budget for? I'd think we have home repair currently included in our annual budget (owned the residence for 8 years) that should be sufficient, and keeping one single used car at under $14K purchase price wouldn't hurt the overall budget significantly. I'm having hard time to determine how much and how long to budget for additional healthcare costs including nursing home.

I have run the yearly forecast including tax calculation, but can't determine how to budget for a statutory federal/state tax rate increase, which is most like to happen.
I have a spreadsheet that tracks appliances, hvac, roof, Painting etc... and estimated replacement frequency. There are good lists out there if you google, then you can pick what’s specific to you. We’ve also done a LOT of replacing/repair in the last year as we prepped. Since a lot of stuff is on a 15yr cycle, many of the big ones are done until we’re close to selling. If we’re tracking positively, we’ll likely keep the house and reinvest.

I’m late 40s and DH is mid 50s, so there is less uncertainty on some things. But still healthcare, taxes and SS are a black box. We’ve made some conservative assumptions and some that aren’t.

About 20-30% of our budget Is discretionary, so while we might not want to cut things, we could if we wanted to. This is partly why I asked about how lean you intend to fire. If we were going super lean, I’d probably add a 20% cushion to our annual budget.

One exercise worth doing, if you haven’t, is looking at the expected outcomes. The 4% rule, which is really 4.3 or something like that, is pretty bad from an outcomes perspective. Kitces has a great article on the percent of times you would have ended up with far more than you need and it was comforting to us.

Another approach is to get normal expenses down to what you might consider a perpetual swr. I think most believe that’s somewhere in the 3-3.5% range, with the caveat that history may not repeat. We’ll hopefully be pretty close to this in a few yrs. That gives you another bit of buffer.

In general, there’s just no way to plan for these time horizons and know what the future will bring. You just have to get comfortable that you have some bigger and can flex your plan if needed.
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Old 08-20-2020, 04:55 PM   #16
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Only 14 years in, but meet the rest.

1.Saved about 18* final gross salary. Ignored tax rates, figured they would be about the same as before

2. Spending increased as retirement income increased, about 7-8% per year, mostly on travel and entertainment, health care

3. Health insurance has roughly tripled since retirement

4. 100% equities
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Old 08-20-2020, 04:55 PM   #17
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I

(4) My overall AA is not something I target because I have a different objective in my IRA and my taxable portfolio. In the IRA, I have been gradually reducing its stock portion as I have aged, down to 43/57. (stock/bond) The taxable part is about 37/63 because it is income oriented to pay my expenses.
I'm not quite there yet but a similar approach. I keep my pre 59.5 funds very safe and I use the post 59.5 funds as the stock allocation. Right now it works out to about a 50/50 just happens the stock part is in 401K to be rolled to an IRA at retirement. As I get closer to 59 over the years I will lower stock allocation as I head towards my "second bucket".
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Old 08-20-2020, 05:47 PM   #18
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Did at 39, now soon to be 80 (end of Oct 2020). Worked fine 4 kids, all col grads. Could live a long time on what is in the bank.
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Old 08-20-2020, 07:06 PM   #19
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...
1. How many times of your pre-retirement annual expenses you'd saved upon your retirement (excluding your primary home)? What tax rate you used to calculate the gross-up amount?
At the time of my retirement, our 'primary home' was a Tri-plex [three apartments in a single building].

We had very little savings outside of our Tri-plex.

We were not paying income taxes at that time. My working income had been fully tax-sheltered by our investments. After I retired, my pension income was [and remains now] well below the threshold for paying income taxes.



Quote:
... 2. Did your post-retirement expenses increase/decrease from your pre-retirement expenses? if so, by what percentage?
They held the same.



Quote:
... 3. How much increase did you experience with your health care cost annually (on average)?
My annual enrollment fee is $400, and now we have co-pays for office visits.
But on the other hand, now we are treated by MD doctors, instead of HM corpsmen.

While I was serving on Active Duty, we did not pay for health care, but we had not seen MD doctors for decades. We were only treated by HM corpsmen.



Quote:
... 4. What is your asset allocation in cash/bond/stock/real estates/other excluding your primary home?

Thank you all in advance for your input!
We sold that Tri-plex and used to cash to buy and establish a farm. Then we saved up to be able to buy rental real estate.

In 2016, we bought another rental real estate, and today it is filled with fourteen tenants.

I have no bonds, no stocks.

I have been retired for 19 years.
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Old 08-21-2020, 09:02 AM   #20
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I have a spreadsheet that tracks appliances, hvac, roof, Painting etc... and estimated replacement frequency. There are good lists out there if you google, then you can pick what’s specific to you.
This is a really good suggestion, thank you!
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