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Old 10-25-2016, 05:57 PM   #21
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I was in a similar position, a high WD (6-7%) for about 4-5 years, then a drop for 3-4 years (4-5%), then a 1.5-2% or lower for the remainder of our lives. I ran the numbers in 3 comprehensive programs, as well as 4 or 5 "quickie" programs, then looked at it from a reasonable man perspective and concluded that the 95-100% success rate (through 95 years old) was a reasonable answer. The biggest concern I had was a major correction in the first 2-3 years, but with the actual spending down somewhat from the budget, a correction wouldn't affect me too much (plenty of cushion from what I would like to do down to what we really want to do, with the ability to hunker down further).
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Old 10-25-2016, 09:22 PM   #22
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Quote:
Originally Posted by MikeWillRetire View Post
Look at it this way. You need two buckets of money. The first bucket needs to last 7 years, so the 4% rule of thumb doesn't apply to that bucket. That bucket should be invested very conservatively. The second bucket contains the remainder of your money, and it needs to last until you pass, and should be invested accordingly. That bucket needs to meet the 4% rule of thumb.
Exactly how I would approach the problem if I were in the OP's shoes.
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Old 10-25-2016, 10:19 PM   #23
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A high SWR is sort of a misnomer.....anyway the OP is risking some nasty sequence of returns issues if they need an initial 8% and there's a protracted market correction. So asset allocation is going to be important and the OP should probably accept a smaller potential ending capital to minimize risk.
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Old 10-26-2016, 03:52 AM   #24
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If you are close on the numbers, and REALLY want to FIRE early, can you cut some expenses? Can you downsize to a less expensive home? Get down to one car?

Or, increase your income. How about taking out a reversible mortgage to provide more income? Or find a part time job for next few years-something you would enjoy that would give the flexibility to travel, etc?

As to the rental properties, consider 1031 exchanges to a single new rental in a place where you want to live and a home you want to live in (eventually). Rent it out for a year or two (see your CPA for advice), then give notice to the renters and move in yourself. Sell your current residence and take the gain (all or mostly) tax free. It's legal, although it does get a bit complicated when you decide to sell the converted rental home though. But you may never do that anyway.

How about working part time until SS kicks in? Find something you might enjoy.
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Old 10-26-2016, 03:53 AM   #25
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Should have cut out last sentence.............oh well, it's early.
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Old 10-26-2016, 05:56 AM   #26
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Based on the estimates I'm seeing, the monthly prem would be covered almost completely by the subsidy for the lowest level bronze plan.
Did you plan for the deductible? In 2016 the average for a family was $11,600. Could be higher next year.
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Old 10-26-2016, 08:21 AM   #27
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Quote:
Originally Posted by MikeWillRetire View Post
Look at it this way. You need two buckets of money. The first bucket needs to last 7 years, so the 4% rule of thumb doesn't apply to that bucket. That bucket should be invested very conservatively. The second bucket contains the remainder of your money, and it needs to last until you pass, and should be invested accordingly. That bucket needs to meet the 4% rule of thumb.
Yes, but something still looks scary.

The OP is talking $1.1M ~ $1.4M now (does the $1.4M include home equity?), and spending around 7-8% WR for the first 7-8 years. Assuming that was ~7% of liquid $1.1M, that's $539K consumed, so in 7 years portfolio is $561K.

4% of $561K is just $22.44K annual. Does SS and pensions bring that up enough? And 4% is aggressive for an ER, IMO.

Also, to simplify the FIRECalc entries, you might want to do a manual 'projection' of where you would be in 2021, similar to what I did above, and make the entries from there forward, so less fewer changes to try to account for.

-ERD50
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Old 10-26-2016, 09:35 AM   #28
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Yes, but something still looks scary.

The OP is talking $1.1M ~ $1.4M now (does the $1.4M include home equity?), and spending around 7-8% WR for the first 7-8 years. Assuming that was ~7% of liquid $1.1M, that's $539K consumed, so in 7 years portfolio is $561K.

4% of $561K is just $22.44K annual. Does SS and pensions bring that up enough? And 4% is aggressive for an ER, IMO.
You've subtracted expenses from the portfolio to get a balance. Presumably that portfolio will make something in those 7 years, so the balance should be higher. With a poor sequence of returns it *could* be that low but at that point you wouldn't expect continued poor returns.

The OP claims 2.5% after 7 years, not 4%. No mention of pension, and it's a bit hard to believe SS will make up that much difference, though the OP also mentioned reduced expenses. We're not seeing all the numbers, so I don't know if the OP's math is right.

I agree that a second bucket for the first 7 years is another way to go. I still claim that putting a value on SS and pensions and including it in the portfolio for SWR calcs is also valid.

I wonder if the OP has accounted for the possibility of reduced SS benefits, or higher taxes on them? Or has included taxes in general, as those are kind of hidden for most people working for a paycheck with taxes already taken out?
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Old 10-26-2016, 09:43 AM   #29
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Just a few thoughts come to mind.....
Are you going to be hit with penalties for withdrawing before 59.5 from the IRAs etc ??

Aren't your expenses a little too high at this time to consider retiring ??

I worked at a megacorp and I watched many of my older colleagues "coast" for their final year or two. Some of them turned it into an Art Form, dodging Meetings and avoiding Action Items like the plague. One guy in particular had so many vacation days that he basically worked a 4-day week for the last year.

Age 62 seems like a magic number.....SocSec can kick in, no early withdrawal penalties, an extra year or two to Make Bank, perhaps a Pension Enhancement Program is offered at work, a chance to see what a new Prez will do with this Economy.

Is it possible for you to stay with megacorp for a few more years ??
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Old 10-26-2016, 10:17 AM   #30
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Originally Posted by RunningBum View Post
You've subtracted expenses from the portfolio to get a balance. Presumably that portfolio will make something in those 7 years, so the balance should be higher. With a poor sequence of returns it *could* be that low but at that point you wouldn't expect continued poor returns. ...
Yes, I simplified (or over-simplified?) that the portfolio only keeps up with inflation. Of course it could go up or down, it's just another 'back of the envelope' way to view it.

Quote:
The OP claims 2.5% after 7 years, not 4%. No mention of pension, and it's a bit hard to believe SS will make up that much difference, though the OP also mentioned reduced expenses. We're not seeing all the numbers, so I don't know if the OP's math is right.
Yes, 2.5% was mentioned, but it wasn't clear if that 2.5% was based on the original portfolio, or on the (presumably) reduced portfolio after 7-8 years of high withdraws (which would take it up ~ 4%). I also feel we aren't getting all the numbers we need.

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Old 10-26-2016, 10:43 AM   #31
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A piece-wise approach to the problem is required for analysis. We have incomplete information from OP so we need to fill that in:

Retirement age: 59 (assume no penalties from tIra and 401K withdrawals for analysis)

Investment portfolio $1.1M (assumes no additional contributions until ER)

Rental income of $8K

Social security income at FRA (8 years after retirement) is $25K (estimate)

Initial annual need for first four years is $70K (inclusive of taxes and rental property income)

Initial annual need for next four years is $58K (inclusive of taxes and rental property income)

Initial annual need at FRA is $33K (includes rental property and social security income)


Now need to estimate investment portfolio value at FRA. To simplify we can assume a 4% real growth on portfolio balance after annual withdrawals. We can also ignore inflation adjustments of need. I realize this is just a ballpark and assumes staying invested in a modestly riskier portfolio of stocks/bonds/cash.

Portfolio value at 4 years is about $996,000
Portfolio value at FRA is about $920,000


At FRA your portfolio need is 25 x $33K = $825K

You should be good to go, although I would caveat this with the following assumptions:


Your FRA portfolio could be reduced with a worse than expected market return
You must keep your 8K in rental income
Your social security benefit is not much lower than $25K/year


This analysis seems to correlate with the firecalc and fido calculator results of > 95% success rate.
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Old 10-26-2016, 11:17 AM   #32
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IMO, a 4% real growth rate is a little too much for this thumbnail analysis. How do those numbers look at 2% real growth ?? Maybe even 1% if we don't ignore Inflation ??

Would also like to verify that there is no early penalty on IRAs.
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Old 10-26-2016, 11:30 AM   #33
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You've subtracted expenses from the portfolio to get a balance. With a poor sequence of returns it *could* be that low but at that point you wouldn't expect continued poor returns.
Not to be the Debbie downer here but it also "could" be A LOT lower if things tank early on. I guess its all about risk tolerance (and backup plans. really good backup plans!), but I myself would have significant anxiety around those numbers
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Old 10-26-2016, 11:33 AM   #34
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IMO, a 4% real growth rate is a little too much for this thumbnail analysis. How do those numbers look at 2% real growth ?? Maybe even 1% if we don't ignore Inflation ??

Would also like to verify that there is no early penalty on IRAs.
At 2% real the terminal portfolio value goes to about $740K - below the need at FRA.

The OP wants to retire sometime in 2017 which presumably makes him 59 in 2017. Penalties on tax advantaged account withdrawals go away at age 59 1/2, so it's possible there may be some penalty on withdrawals in the first few months of ER. We also don't know the mix of tax advantaged accounts between the the OP and spouse, nor the spouses age.
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Old 10-26-2016, 11:54 AM   #35
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Responding to liberty53's reply (thank you!) :

Retirement age: 59 (assume no penalties from tIra and 401K withdrawals for analysis) -

Reply: Correct, no penalties due to the "age 55 rule".

Investment portfolio $1.1M (assumes no additional contributions until ER) -

Reply: There will be an additional small contribution - approx. $10k - at the end of this year. The portfolio is invested at Vanguard 50/50 allocation (Wellesley & Wellington) except for a smaller portion still at mega corp 401k.

Rental income of $8K

Reply: Yes

Social security income at FRA (8 years after retirement) is $25K (estimate)

Reply: SS at FRA = approx $40k (including DW).

Initial annual need for first four years is $70K (inclusive of taxes and rental property income)

Reply: Yes

Initial annual need for next four years is $58K (inclusive of taxes and rental property income)

Reply: Yes

Initial annual need at FRA is $33K (includes rental property and social security income)

Reply: Should be less due to revised SS income amount.

------------------------

Sorry I didn't provide all the needed info initially. I'm new here so still feeling my way around. Here are a few more details:

- $10k cash in a mutual fund

- $80k available via a HELOC (balance = $0) Currently have a small mortgage.

- Pensions are pretty insignificant - $3600/yr.

- As mentioned above, SS at FRA is approx $40,000. Closer to $50k if I delay to age 70.

- The 2.5% WR mentioned previously is based on the remaining value of the portfolio. This number came from the results of the FRP tool.


Thanks again.
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Old 10-26-2016, 11:57 AM   #36
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A piece-wise approach to the problem is required for analysis. We have incomplete information from OP so we need to fill that in:
Or pause until OP shows up with enough information?
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Old 10-26-2016, 12:14 PM   #37
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Or pause until OP shows up with enough information?
doing nothing is always an option
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Old 10-26-2016, 01:55 PM   #38
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Originally Posted by Carpediem View Post
Responding to liberty53's reply (thank you!) :

Retirement age: 59 (assume no penalties from tIra and 401K withdrawals for analysis) -

Reply: Correct, no penalties due to the "age 55 rule".

Investment portfolio $1.1M (assumes no additional contributions until ER) -

Reply: There will be an additional small contribution - approx. $10k - at the end of this year. The portfolio is invested at Vanguard 50/50 allocation (Wellesley & Wellington) except for a smaller portion still at mega corp 401k.

Rental income of $8K

Reply: Yes

Social security income at FRA (8 years after retirement) is $25K (estimate)

Reply: SS at FRA = approx $40k (including DW).

Initial annual need for first four years is $70K (inclusive of taxes and rental property income)

Reply: Yes

Initial annual need for next four years is $58K (inclusive of taxes and rental property income)

Reply: Yes

Initial annual need at FRA is $33K (includes rental property and social security income)

Reply: Should be less due to revised SS income amount.

------------------------

Sorry I didn't provide all the needed info initially. I'm new here so still feeling my way around. Here are a few more details:

- $10k cash in a mutual fund

- $80k available via a HELOC (balance = $0) Currently have a small mortgage.

- Pensions are pretty insignificant - $3600/yr.

- As mentioned above, SS at FRA is approx $40,000. Closer to $50k if I delay to age 70.

- The 2.5% WR mentioned previously is based on the remaining value of the portfolio. This number came from the results of the FRP tool.


Thanks again.
With your reduced need due to the higher social security and pension income you should be good even at a 2% real return from 2017 until FRA.
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Old 10-26-2016, 02:15 PM   #39
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You can't take a reverse mortgage until age 62. The younger you take it the less you get. Also if both people end up out of the home for more then 3 months at the same time they can force the sale of the home. Say both end up breaking a hip at same time and are in rehab, etc. Fees are also quite high.
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Old 10-26-2016, 02:47 PM   #40
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Firecalc has a feature on the Spending Models tab that lets you enter in specific spending year by year. You have to be a supporter and logged in to get this feature. I used it when I first started planning - and I'm pretty sure Katsmeow used it as well.

For me it was useful because I have kids under the roof now, they will be going to college, then they will (hopefully) be off my payroll and someone else's problem. I needed to model for higher spending now, and lower spending later.

I left the income side of things on the "other income" tab where you enter SS and pensions... I didn't want to conflate things.

It's a useful feature of the firecalc tool.
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