Partial Early retirement plan 2.0 (43 & 38 years old)

[jjonas]

Age: I'm 43 years old, the Mrs is 38, no kids.
Location: New Hampshire

Investments:

Total net worth is roughly 950k but should be about $1,020,000 at the end of 2017 (without any market growth or losses).
Roughly 600k will be in my 401k and 420k in a non-retirement brokerage account. Asset allocation is about 75% stock, 20% bonds, 5% cash.


Expenses:

After revisiting our detailed budget and factoring in future health care premiums, our monthly expenses will be about $4500 per month. This includes our mortgage of $815 per month which will be paid off in 15 years. We have no other debt.

Part time income:

My wife and I can easily bring in 1k per month each working 2 or maybe 3 days per week (no more than 20 hours a week). With 24k per year in income we would only need to withdraw 30k annually from our investments. We would keep working 2 or 3 days a week for about 10 years unless of course we fall into careers or find work that we both really enjoy.

Health Care:

I’m well aware that health care premiums are likely on the rise and there’s lots of uncertainty right now but based on our state and projected income, we can currently purchase a gold level policy for $425 per month on the exchange. I’ve built in an extra $300 per month for our health care budget on top of the $425 per month, assuming premiums increase in 2018 (70% increase).

Taxes:

We’ll keep taxable income low enough to pay 0% on capital gains and qualified dividends. I’ll rollover my 401k and implement a Roth conversion ladder over a period of years and not pay tax on the conversion as long as I keep the tax bracket low enough. We’ll have access to our retirement account before age 59 1/2. There’s also the 72T option.

Planning:

I’ve used two FIRE calculators and Fidelity’s retirement analysis and they all look successful between 90-100%. I’ve factored in 4 lump sum withdrawals- two for 10k, and two for 15k over a period of 40 years for large purchases (cars, roofs). The Fidelity analysis factors in 2.5% annual inflation.


In summary:

We both partially retire in 2018. Work 20 hours per week (or less) to bring in 2k per month. Withdrawal rate from assets will be about 3%. By the time we’re both 62, we’ll have about $3400 in social security and a pension (both inflation adjusted). I’ve reduced my social security estimate by 25% assuming social security will be cut by the time we’re 62.

With future income factored in, we really only need to fund about a 20 year retirement. Withdrawals from our assets will be minimal after 62. If necessary, once our mortgage is paid off, we can use that $815 toward health care.

Thoughts on this plan? Retirement and investment calculators can only tell you so much. I think real life experiences from people already retired are important to consider.

Thank you for reading and commenting.

[ESRwannabe]

Looks like a good plan to me. Switching to Early-Semi-Retirement (i.e. part-time work) makes a lot of sense. The amount of money someone can make from part-time work, even at minimum wage, is equivalent to a huge chunk of money relative to generating the same income from investment returns.

The other benefit is that since you don't fully leave the work force then theoretically it is easier to increase w-2 income if needed. Your resume will look better, and more importantly you will have contacts in the workforce. If you run into an unexpected money crunch, just go back to full-time or pick up another part-time job for a few years.

I'm also like you in that I am vested in a pension. This makes things a lot easier for me, as my pension and social security will bring in more than I need already (I'm 41 and have 16 years vested so far). So, all I really need from my investments is to supplement my income until I turn 59.5 and can start collecting pension money. If I ESR at 45, then that means I just need my investments to help me bridge 14.5 years.

I make $65k a year and spend around $30k a year, but $12k of that is rent. If I bought a house ($150k for a nice house where I live) and paid it off that would reduce my living expenses by 40% to $18k per year. I have roughly $400k in investments. So a 4% withdrawal per year would be $16k... so I'd need to earn $2k per year from work lol... or, since I only need to withdraw funds for 14.5 years, I could just increase the withdrawal rate... it would work fine even if I kept the investments in cash ($18k * 14.5 = $261k).

Anyway... funny thing is I got a new boss at work and my job is more fun than its been in years. Unlike my old boss he isn't forcing me to do management garbage and lets me just do technical work. He's also a nice person whereas old boss was a harridan from hell. If work can stay like this then I may not even retire.

[brucethebroker]

I am also semi-retired: Have a "hobby job" that provides more than our modest house payment, taxes and utilities. I found that having a stress free "job" that I enjoy, plus the flex-scheduling is nearly as good as full time RE.

Your plan looks good, although I would be careful about projecting out current SS benefits. The benefits will most likely change for people your age-they changed for my generation during the Reagan years. But having the PT work now, and growth of investments over the next few decades is your ace in the hole.

Factoring in a mortgage free home in 20 years would also be a good addition to your plan, IMHO.

Good plan, welcome.

[evilanne]

Your plan sounds reasonable. One note on early withdrawals from retirement accounts.

You state "We’ll have access to our retirement account before age 59 1/2. There’s also the 72T option."

Once you select 72t option, you are locked into that method for 5 years or until you reach 59.5, whichever is longer. It isn't something you can just turn on and off. If you have different accounts, I believe you may be able to manage it better but since it is based on account balance and life expectancy, the younger you are the less you will be able to withdraw. There are 3 methods approved by IRS but with current low interest rates, I don't believe there is much difference between the option. Another option would be to purchase an annuity with a portion of your retirement account which may be a better option if interest rates increase.

[jjonas]

Quote:

Originally Posted by brucethebroker I am also semi-retired: Have a "hobby job" that provides more than our modest house payment, taxes and utilities. I found that having a stress free "job" that I enjoy, plus the flex-scheduling is nearly as good as full time RE. Your plan looks good, although I would be careful about projecting out current SS benefits. The benefits will most likely change for people your age-they changed for my generation during the Reagan years. But having the PT work now, and growth of investments over the next few decades is your ace in the hole. Factoring in a mortgage free home in 20 years would also be a good addition to your plan, IMHO. Good plan, welcome.

I did reduce my projected social security benefits by 25%. Do you feel that benefits could be reduced even lower than that in 20 years? It's also possible the minimum age we could start benefits could be pushed up a few years. I ran those scenarios too and I still look good.

[bingybear]

Quote:

Originally Posted by jjonas I did reduce my projected social security benefits by 25%. Do you feel that benefits could be reduced even lower than that in 20 years? It's also possible the minimum age we could start benefits could be pushed up a few years. I ran those scenarios too and I still look good.

What value did you reduce 25%? The benefit at full retirement age that is on your statement? If you were not going to work, you would also have to zero out earnings from now on. Since you are talking about part time work, you would need to reduce your income going forward for SS calculation in addition to considering early benefits.

Health care is a wild card. But assuming things stay pretty much the same, you would have to increase premiums just based on age (not including inflation). I also include a budget for Ah Sh!t events. I understand you are healthy and have very low medical expenses. So did I until blowing the MOOP with a pacemaker. Now... pretty low expenses...maybe $500/yr including meds and pacemaker visits. But about every 10 years I will blow the MOOP to replace the pacemaker. So, plan for some surprises to the down side.

[jjonas]

Quote:

Originally Posted by bingybear What value did you reduce 25%? The benefit at full retirement age that is on your statement? If you were not going to work, you would also have to zero out earnings from now on. Since you are talking about part time work, you would need to reduce your income going forward for SS calculation in addition to considering early benefits. Health care is a wild card. But assuming things stay pretty much the same, you would have to increase premiums just based on age (not including inflation). I also include a budget for Ah Sh!t events. I understand you are healthy and have very low medical expenses. So did I until blowing the MOOP with a pacemaker. Now... pretty low expenses...maybe $500/yr including meds and pacemaker visits. But about every 10 years I will blow the MOOP to replace the pacemaker. So, plan for some surprises to the down side.

I calculated our social security benefits assuming we'll each bring in 12k per year starting in 2018 until we fill in the remaining years to reach 35 years of income. We would start ss at age 62 and I reduced that age 62 benefit by 25%.

What's a MOOP? I'm sure it's an acronym for something but i'm not sure. I built in that extra $300 per month for premium increases and when mortgage is paid off, we'll have an additional $815 per month to use on health care if necessary.

[jjonas]

Quote:

Originally Posted by evilanne Your plan sounds reasonable. One note on early withdrawals from retirement accounts. You state "We’ll have access to our retirement account before age 59 1/2. There’s also the 72T option." Once you select 72t option, you are locked into that method for 5 years or until you reach 59.5, whichever is longer. It isn't something you can just turn on and off. If you have different accounts, I believe you may be able to manage it better but since it is based on account balance and life expectancy, the younger you are the less you will be able to withdraw. There are 3 methods approved by IRS but with current low interest rates, I don't believe there is much difference between the option. Another option would be to purchase an annuity with a portion of your retirement account which may be a better option if interest rates increase.

I don't think we'll have to rely n 72t as long as I'm consistently converting to a Roth every year starting in 2018. I could start Roth withdrawals by age 50. It's good to have the 72t option in the back pocket just in case.

[bingybear]

Quote:

Originally Posted by jjonas I calculated our social security benefits assuming we'll each bring in 12k per year starting in 2018 until we fill in the remaining years to reach 35 years of income. We would start ss at age 62 and I reduced that age 62 benefit by 25%. What's a MOOP? I'm sure it's an acronym for something but i'm not sure. I built in that extra $300 per month for premium increases and when mortgage is paid off, we'll have an additional $815 per month to use on health care if necessary.

MOOP == Maximum Out Of Pocket
It is highly likely you will not hit this every year. But hitting it for one of you in any individual year is quite possible. If you get a colonoscopy and they find something (even benign)... it is no longer routine... you pay for the procedure. Same thing for mammograms if they see something and do a biopsy... even if it turns out to be nothing of consequence, you pay for the diagnostic. It is good to plan for some level of expenses beyond typical.

[Whisper66]

jjonas - sounds like a doable plan that has considered the key issues most of us face. I echo others comments that the part time work is a good idea. Besides bringing in some needed income, it probably offers better opportunity to get back to work full time if things go south and you need more funds. Hopefully that won't happen. Good luck!

[Aerides]

It sounds doable, but I'd keep a close eye on the HI situation. Would you be better off both staying FT for 2-3 years then done completely, vs. PT for 10 years? Decent PT jobs are harder to find and first to go from what I see. Definitely have good ones lined up before you jump.

[Sojourner]

Quote:

Originally Posted by jjonas My wife and I can easily bring in 1k per month each working 2 or maybe 3 days per week (no more than 20 hours a week). With 24k per year in income we would only need to withdraw 30k annually from our investments. We would keep working 2 or 3 days a week for about 10 years unless of course we fall into careers or find work that we both really enjoy.

Quote:

Originally Posted by Aerides Decent PT jobs are harder to find and first to go from what I see. Definitely have good ones lined up before you jump.

This is exactly what I was thinking. Jjonas, are you sure you and your wife both will be able to work PT on a consistent basis for the next 10 years, as your plan seems to call for? I know this is possible in certain industries where demand for PT workers is high and only getting stronger (such as health care), but definitely not the case for most other industries.

[jjonas]

Quote:

Originally Posted by Sojourner This is exactly what I was thinking. Jjonas, are you sure you and your wife both will be able to work PT on a consistent basis for the next 10 years, as your plan seems to call for? I know this is possible in certain industries where demand for PT workers is high and only getting stronger (such as health care), but definitely not the case for most other industries.

Yes, this shouldn't be a problem. I'm a believer in having a back up plan and also having a diverse skill set but not just diversifying your skills in one specific industry. My wife will be a retired school teacher so she can easily substitute teach 3 days a week and she could teach yoga part time. I'm a justice of the peace so I can pick up weddings and/or also substitute teach. I'm also a licensed massage therapist and I could make $250-300 per month restoring and selling yard sale furniture, something I enjoy. So unless teachers stop getting sick and people stop getting married then maybe we'll have to do something else. If for some reason those side gigs don't bring in enough income, I would also love to work in outdoor retail. I already have my eye on an REI opening a few miles away sometime next year. I have no problem making minimum wage and getting a huge discount on clothes and outdoor gear. I'd be surrounded by other people who also love the outdoors. In fact REI offers a high deductible health care plan to part time employees (20 hours a week) and they contribute 5-10% of your pay into a profit sharing plan. I think there's more industries than you expect that are looking for part time employees in order to keep benefits costs down.

I also just found out that a guy in my neighborhood makes 20k per year pet sitting part time. People will pay him $20-30 to per visit to feed dogs and cats and let them out for a quick walk. He's been doing this for 8 years pretty consistently. People spend a ridiculous amount of money on dogs!

A lot of doors open to various income streams if you're creative, have other skills, and you keep an open mind and are not too proud to work in a certain industry.

Our goal is to leave the professional world and never return unless of course we find something we love to do...but then i guess it really wouldn't be a job.