FIRE in your 40s how has it been?

[DINKFIRE]

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!

 

[ExFlyBoy5]

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.

 

[Aerides]

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.

 

[HI Bill]

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).

 

[jim584672]

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.

 

[tb001]

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.

 

[Dtail]

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.

 

[DINKFIRE]

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.

 

[DINKFIRE]

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.

 

[HI Bill]

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.

 

[FIREd]

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.

 

[DINKFIRE]

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?

 

[scrabbler1]

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.

 

[FIREd]

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.

 

[tb001]

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.

 

[CyclingInvestor]

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

 

[npage]

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".

 

[OAG]

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.

 

[Offgrid Organic Farmer]

...
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.

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

They held the same.

... 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.

... 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.

 

[DINKFIRE]

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!

 

[karen1972]

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)?


Thank you all in advance for your input!

i don't meet the 15 year criteria but I dont' think your #2/3 really matters for that point.

2. I think this question is better asked what changed.
- Taxes went down by significantly, could have gone to zero but decided to prioritize Roth conversions.
- Utilities went up by 10% due to being home more and wanting better cable, plus for the first time ever I had to buy my own phone and pay for my own cell phone plan, something I hadn't done in 15 years.
- Grocery/eating out went down by 50% as with more time we spent more time cooking nice meals at home and weren't so tired at the end of the day to just by default order out.
- Travel doubled not just because of more travel but because my job allowed me to earn a lot of travel points which I use to use for free travel/upgrades, etc
- Car stayed the same as any miles saved from commuting we spent in travel and my volunteer work
- Health care went up by multiples as I had a very generous work plan.
- Entertainment went significantly down, once we weren't working we didn't spend as much time with work friends going to concerts and shows but instead picked up hobbies like hiking and taking advantage of public free events like stargazing in the park.

3. Due to us doing Roth conversions we dont' take the ACA subsidy. That includes dental and vision (we both have progressive glasses and our eye sight is changing).
- 2013 we had insurance thru my company
- 2014 we had insurance part of the year
- 2015 on we had individual insurance no subsidy. Most of the up years were due to therapy co-pays, cost of lots more vigorous exercise and aging.

2019	2018	2017	2016	2015	2014	2013
$14,646	$10,687	$10,204	$13,578	$14,539	$6,158	$3,671

 

[karen1972]

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 treated it like an HOA reserve budget, we own a brand new home so roofing/siding/windows/etc are not included as we will not own the home by the time that is required so add as needed. Lighting is included as we have LED pop lights which will need replacement. Basic home maintenance has its own budget line item to cover home depot runs for caulk, sealers, filters, etc

	Useful Life	Remaining	Cost
refrigerator	13	13	1500	$115.38
stove	15	15	750	$50.00
dishwasher	12	12	750	$62.50
microwave	8	8	500	$62.50
garbage disposal	13	13	300	$23.08
Washer	12	12	800	$66.67
Dryer	13	13	800	$61.54
Water Heater	12	12	1300	$108.33
Air Conditioner	12	12	3000	$250.00
Furnace	15	15	4000	$266.67
Lighting	10	10	1200	$120.00
Carpet	10	10	2500	$250.00
Laminate	25	25	4000	$160.00
Garage Door Openers	12	12	500	$41.67
Smoke Detectors	7	7	120	$17.14
Car #1	10	7	12000	$1,200.00
Car #2	10	2	12000	$1,200.00
Yearly				$4,055.48

 

[wallygator69]

42

Howdy,


Meet the criteria but only 14 years into FIRE



Pulled the plug at 42 and had 30*



We are frugal but expenses dropped by 25% anyway


I was wellesley and wellington 50/50 for many years. Past 6 years have market Timed twice and missed out on some upside but couldn't risk losing too much or would have been screwed. Still have 20% more than when we started.


Healthcare was $15k per year with $5k deductible til Obama Care. We have been doing Roth Conversions to hit the sweet spot for subsidies (about $22k MAGI) and now pay less than $600 a year for Blue Cross Silver.


We do both work 1 day a week (5 hours per shift) for free golf and make about $5K per year combined. Free golf is our primary hobby and saves us about $10k per year and we make $5K.....


Jump in the water is great!



Good Luck



Wally

 

[geeky_grrl]

I'm only 4 years in, but I retired with about 40x my expected retirement expenses.

My post retirement expenses are largely higher than my expenses before retirement except for taxes which went down a lot. My taxes while I worked were higher than the rest of my spending put together.

Stuff that went up:
- health care (I am on my SO's work insurance now but it still works out to be about $400 a month more).
- food (work provided 2 meals a day)
- cell phone, home internet (work used to pay for phone and reimburse me a chunk of internet)
- travel (more travel and loss of points earned on business travel)
- hobby expenses

I don't think I had any categories where my spending went down post retirement other than taxes. But I worked in tech so I didn't have fancy work clothes and I carpooled with my SO for my 2 mile commute.

 

[clifp]

We are DINK in our early 40s and have been planning to retire in the next 6-7 months

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!

Well, I'm pretty sure that retiring at 39.6 won't disqualify me from your survey. I'm in year 21 of retirement.
1. Since I left Silicon Valley and moved to Hawai, I wasn't really sure how much my expenses would be I picked a figure of 100K as ceiling. After paying an ridiculous amount of taxes in 2000 due exercising stock options I end up with $3.1 million (including the sales of the house). So I'd say my saving was over 40x my expense including renting pretty nice places my first few years in Hawaii. I used a 25% combined Federal and State for planning purpose. The actual number has been considerably less due to tax maneuvers on my part.

2. My expenses decreased modestly overall at least 10% but no more than 25% from my pre-retirement. (This changed in 2012, when I realized it wasn't important for me to limit spending any more.) Largest, savings were eating out, the ability to take advantage of discounts everything from matinees and to going to Vegas during the week instead of weekends. I became a more diligent shopper and also car expenses dropped although more of function of living on a small island. Travel expenses increased.

3. At age 40 I could get Kaiser plan, which was roughly equivalent to ACA sliver plan (no drug benefits but lower deductibles) for just over 200. That same plan 21 year later is about $650.

Once ACA came along, I switched to a high deductible plan that runs me $206. But I'm not even averaging one trip year to the doctor thanks to Covid

4. My AA has been all over the map pre-retirement it was 90-10 (70% Intel stock) In early 2000, I diversified to 70/30 and sold most of my tech. Bonds at the time were paying 5% for Muni's I got 10 year TIPs that almost 4% coupon so I loaded up on those. My equity dropped to 60/40 by the end of the 2002-4 bear market. As bonds maturited rather than reinvest at really low rates I started to buy equities, mostly dividend stocks but I kept at least 1/2 in Index funds..

In 2012, I started diversifying into residential Real Estate, and now I have a wide variety investments. Included equity investment in start ups and debt investments in mid size private companies. Right now I'm about 35% stock 15% cash (my highest ever) 25% real estate and real estate notes, and 25% alternative investment which includes things like a solar project, Kevin O'leary shark tank royalty deals, and all kinds of thing that no early retire should probably look at doing.

It is worth noting that I would have done much better If I had just left my money in the S&P. On the other hand if FAANG stocks drop 90% and the S&P
drops 60% I'll be still be ok.