Pre-FIRE Counseling Requested

[DawgMan]

I expect you all to overwhelm me with your wisdom...

I am playing around with a date range to RE. The calculators and analysis say I can do it in 3 yrs (55), but as of today, a combination of "what the hell am I going to do at 55" and OMY syndrome have me saying just stay working, but not a day later than 60. A few details and then the question...

- Kid #4 (last one) graduates from college at (when I turn 55) so in expenses drop for DW and me
- Self-employed with good income (fluctuates depending on economy), big saver, DW has been home since Kid 1 was born, so I am used to pulling the sled.
- all my RE income will come from my investments (AA, RE)
- I could probably piddle part time, but not sure the time/reward would be worth it as to be effective in my business to generate any measurable $, you need to be pretty engaged.
- my RE income aspirations are up there north of $200K

Questions...
- Read some books, run the calculators, know to go thru "Some Important Questions to Answer Before Asking - Can I Retire?", but what process did you go thru prior to RE that helped prepare more mentally for a successful RE?
- What major changes did you make and how soon prior to RE did you make them (i.e. downsize, sell the Porche)?
- What would you have done differently (i.e. Worked longer, RE earlier)?

I realize nothing is 100% in this world, but with so many on this site with 1, 5, 10+ yrs of RE under their belt, you have to have a wealth of knowledge that guys like me can learn from?

 

[gauss]

Tracking categorized expenses for many years before FIRE was a big enabler for me. I was able to know how much we would spend in an unconstrained fashion, and then I was able to see what part of that would go away in retirement.

"Experts" say you need at least 80% of pre-retirement income to prosper in retirement, but I found out that this was nowhere near the case. More like 40% for us.

Your income needs of more than 200k/year in retirement reminds me of how I use to think ("heck I wanted 100% of pre-retirement income") before I looked into this in more detail as described above.

-gauss

p.s. I also originally assumed 0 for Social Security originally. I now plan for ~ 2/3 of what we have already accrued under current law. This was another significant enabler to taking the plunge.

 

[nvestysly]

Tracking categorized expenses for many years before FIRE was a big enabler for me. I was able to know how much we would spend in an unconstrained fashion, and then I was able to see what part of that would go away in retirement.

+1!

Is your 200k number accurate? That's really high in my mind. Many retired people we know live quite well on less than half of that. Your number may be valid but surprises me.

We realized that understanding our expenses was the only way for us for feel confident when we reached FI so we could then decide if we wanted to RE. For us, we decided we needed 33x annual expenses.

 

[DawgMan]

+1!

Is your 200k number accurate? That's really high in my mind. Many retired people we know live quite well on less than half of that. Your number may be valid but surprises me.

We realized that understanding our expenses was the only way for us for feel confident when we reached FI so we could then decide if we wanted to RE. For us, we decided we needed 33x annual expenses.

To be clear, $200K is by no means a "need", but based on some of our projected post RE expenses (travel, other), that is the level I would like to plan for and am tracking for.

 

[bigcmagor]

I am posting to follow, as I am in a similar situation to where you expect to be in a few years. Turned 55 this week and just wrote my last check to the bursar - twelve years of that by the way. Always planned to retire at 55, but the housing crisis gave my net worth a 40% haircut and now, retiring is possible but only with lifestyle compromises that I'm not prepared to make. Every year I continue to work is one less year the portfolio has to provide and perhaps less lifestyle contraction too. It's a bit of a conundrum. I'm eager to hear the advice you get.

 

[socca]

If you begin nurturing your post-RE activities now, then your transition from pre-RE to post-RE may go more smoothly.

 

[pb4uski]

....Questions...
- Read some books, run the calculators, know to go thru "Some Important Questions to Answer Before Asking - Can I Retire?", but what process did you go thru prior to RE that helped prepare more mentally for a successful RE?
- What major changes did you make and how soon prior to RE did you make them (i.e. downsize, sell the Porche)?
- What would you have done differently (i.e. Worked longer, RE earlier)?

I realize nothing is 100% in this world, but with so many on this site with 1, 5, 10+ yrs of RE under their belt, you have to have a wealth of knowledge that guys like me can learn from?

I ran virtually every free retirement planner known to man as I was preparing for retirement, trying to use similar assumptions wherever possible and they all gave me various versions of a green light. We had just moved into our newly built lake house and sold our main house so at that point we were down to one house... with a commensurate reduction in expenses. Since we were financially secure continuing to work was just increasing our kids inheritance. I liked my job and boss and colleagues and clients but the allure of doing what I wanted to do when I wanted to do it was irresistible... so I quit just after my 56th birthday (one year later than my plan).

Retirement has been wonderful. Whenever I am a bit bored I just pick up another project or add another volunteer "job". I concede that I did not really plan the non-financial aspects of retirement at all, but everything has fallen into place nicely.

Financially, Mr. Market has been generous... after funding our living for almost 5 years, building a $50k garage, buying a winter condo and two new vehicles as well as paying down $55k in mortgage principal, our portfolio is still 11% higher than when we started retirement. Life is good... never been happier.

 

[RobbieB]

I made no changes and still live where I've lived the last 30 years.

I had no idea what my expenses would be and found out after I retired.

I'm never bored and have plenty to do.

 

[W2R]

Questions...
- Read some books, run the calculators, know to go thru "Some Important Questions to Answer Before Asking - Can I Retire?", but what process did you go thru prior to RE that helped prepare more mentally for a successful RE?

Read the books, ran the calculators, talked over my investments at the Bogleheads board, read about retirement lifestyles on this board. I am the only person on earth who ever read Bernstein's The Four Pillars of Investing slowly and carefully, not once but twice, without dying of boredom (at least not too often). I was determined to retire on the first day I was eligible to do so, 11/7/2009.

Back in those days, there was no ACA health care and people on the forum were casually mentioning mind-bogglingly high private health insurance costs. So, that was why I knew that I had to be eligible to officially retire and get that retiree health insurance, before I could retire, even though I was FI a couple of years earlier.

My forum name was originally "Want2Retire", because I did. I was well motivated.

- What major changes did you make and how soon prior to RE did you make them (i.e. downsize, sell the Porche)?

Nothing before retirement. Originally we intended to sell our houses and move to Springfield, Missouri, but didn't because the urge to put miles between us and our jobs seemed to lessen after we retired.

I bought my "dream house" just 3 miles from my old house, during my 6th year of retirement.

- What would you have done differently (i.e. Worked longer, RE earlier)?

I'd rather have retired earlier, but I couldn't because of health insurance (see above).

For me, the psychological adjustment was unusually smooth. I love being the one to decide how my time is spent. I also decided that there is no need to do impressive, constructive, admirable things in retirement so instead, I do whatever I please (within the confines of law, propriety, and good health). Never was able to do that before, and it's really nice.

 

[Teacher Terry]

WE down sized into a smaller home that is in town instead of the burbs. WE knew what our expenses would be.

 

[LiveBelowMeans]

I would caution you on your $200k assumption. I too want to travel etc. However, you may find that as you age the desire to travel extensively will drop. With the freedom of retirement, you can also travel for less as you are not as constrained as when working. You may want to model spending with higher $$ the first 5 to 10 years. Time is precious....

 

[Al in Ohio]

How much of that $200k is for that travel? Is it averaged over your total retirement period and then divided by the years you are mobile enough to travel? A lot of folks don't realize that the window for travel mobility is in the earlier retirement years, but then drops off, sometime significantly, then entirely. Of course this happens just before medical costs due to poorer health may skyrocket.


Sent from my iPad using Early Retirement Forum

 

[Perryinva]

Part of the problem with asking such a question from REers of the last 7 years is this long legged bull market with low inflation will have doubly benefited any typical LBYM saver that was not negatively affected by the housing bubble burst. So the OP is asking all the people that succeeded "what did you do in advance to determine success?". Their timing was excellent.

The best advice I see has been to track expenses, but that needs to be further defined as to include categorizing them in to fields of "essential that never go away, essential that change predictably, essential that go away over time, discretionary needs, discretionary wants, & desired amounts left after you die".

Not an exclusive list, but you get my drift. Then, besides the usual FIRECALC style ones (which are still very very useful) , the calculators like the old Fidelity RIP, allow you to factor in varying degrees of inflation, and track net income after taxes (which at $200k are significant). Then you can objectively look at various scenarios and decide if you are comfortable with their outcomes.

Rarely is one 100% positive that they can RE very early, but for most that do successfully have Back up plans to handle cuts in income in an extended bear market, or rising inflation.

The key to the most successful REers I've read posts from were that they had for many years lived at the level they are comfortable at, which was way below their income level when working, allowing them to save and invest significantly. When they REed, their lifestyle either didn't change or they actually relocated to further reduce their costs, so that in retirement their worst income scenario still easily met or exceeded their expected budgets. They have no trouble adjusting to the lower income, because all that was eliminated was the taxes, and savings they were piling up. When that went away, especially during a bull market with low inflation, retirement simply meant a leap of faith in their ability to persevere the way they already had for many years, would see them through,mjust like it had for all the years before retirement. For the last 7 years many REers have had an apparant increase in income in retirement thanks to the market and low inflation. If you have to make huge changes in your lifestyle to make RE work, you are less likely to be happy (I'm not selling my Porsche, just to retire). If you can actually add to what you were able to do while working, then you wil be happier. Hopefully, you have been enjoying life all along, and not foregoing lifes pleasures so that you can stop and do it all in your old age, not that you "made it".

So to all that lived the life they wanted on 50% of what their gross was, their incredibly intelligent decision and foresight to do that has trained them to handle those scenarios as well as enable them to be confident in the RE decision.

The 80% number is the more common ballpark figure that is often misquoted and watered down as the amount one needs to retire on. In reality, that is just the average amount of income that an average FRA retiree can expect to need to match what they were living on before retirement, because of the now reduced taxes, no SS, house payments, average savings, etc.

But not only does that not include any more (or even less) discrectionary spending that one was already living on while working, it also assumes that income is inflation adjusted. Hence the safer 25 to 33 (or 4% rule) years of last income saved formulas which are better at guaranteeing full retirement preparedness, IF most of your income comes from savings.

I would venture to say that most here believe the 4% (or 3.5%) rule is safe. So if all your income will come from savings, then for $200k income you want to have between 5 and 5.7 million saved. That may be perfectly within your range, in which case,more power to you, but for most of us mere mortals, we would rather cut back our lifstyle to accommodate a more reachable goal of maybe a million, and count on other income sources (pension, SS, annuities) where not only do we avoid all our eggs in one basket, its also not a gigantic basket that requires more work to maintain our entire life. That may or may not be doable for anyone at that levelmof income that has been self employed, vs say a Corp VP with a $150k/yr pension, plus 5 million saved.

I can't offer any advice as to the "will I be happy not earning money (or working, etc) in retirement" because that is so entirely individually based its like saying "Will I love a Broadway Show or fishing?" The answer is both, either one or neither, depending on the individual and all answers are correct. Most don't find out until they are there, and are either pleasantly surprised, disappointed, or exhuberant.

 

[Which Roger]

what process did you go thru prior to RE that helped prepare more mentally for a successful RE?

The key for me was to develop a mental framework/vision for my post-ER life, including creative pursuits and relationships. One upside of my MegaCorp struggling for years was that this mostly came naturally because sources of inspiration and friendships in the workplace dried up along with the morale. So over a period of a few years, I gradually withdrew my attachment to the workplace, and without really realizing it, to compensate I created outside of the workplace exactly what would serve me well post-ER. Then taking the leap was easy. If you are in a thriving workplace and enjoy your job, this might come as naturally, so be conscious of what you need to do.

 

[Perryinva]

Lol^^^, so I guess I'm screwed, we still have great morale and I have good friends at work. I may as well stick around as long as my pension keeps growing and they keep paying me more while it takes less time and effort each year. While earning more weeks of vacation. I get another week in 3 years.

 

[Finance Dave]

Dawg,

I left the Fortune500 exec job 4 years ago to become a part time home inspector and I love it. I took a 75% cut in pay, but enjoy the work and the people for the most part (always some goofball buyer that thinks we can see through walls lol).

The stress is significantly less. I don't miss the old job a bit. I spend much more time on my hobbies now (woodworking, musclecars, financial planning, travel, craft beer tasting). And about 2x a month, I get out a cookbook, go to the store, and make a nice meal for my DW and I...no way I had time to do that when I was an exec.

I do admit that when I originally set our FIRE target savings number I was a bit worried when we got close to it ( "Can we really RE?")....so DW and I sat down and made a list of expenses we knew were coming or luxuries we wanted to buy over the next 1-2 years. We then adjusted the FIRE target by this amount and worked a bit longer. This proved to be brilliant...because now our....

1)New Lexus SUV
2)New Ford truck I use for my job
3)Great room sectional couch
4)Wood privacy fence restaining
5)Bath shower that was worn out
6)Trip to England
7)Hardwood floors in the great room
8)Solid surface kitchen counters

are all paid for! Yes we'll always have new things we need/want...but getting that large chunk of expenses paid off before FIRE really gave us peace of mind and now we know we won't have to lay out money for cars for a LONG time (I used to be an auto tech and we typically keep our cars about 12-14 years).

 

[DawgMan]

Dawg,

I do admit that when I originally set our FIRE target savings number I was a bit worried when we got close to it ( "Can we really RE?")....so DW and I sat down and made a list of expenses we knew were coming or luxuries we wanted to buy over the next 1-2 years. We then adjusted the FIRE target by this amount and worked a bit longer. This proved to be brilliant...because now our....

1)New Lexus SUV
2)New Ford truck I use for my job
3)Great room sectional couch
4)Wood privacy fence restaining
5)Bath shower that was worn out
6)Trip to England
7)Hardwood floors in the great room
8)Solid surface kitchen counters

are all paid for! Yes we'll always have new things we need/want...but getting that large chunk of expenses paid off before FIRE really gave us peace of mind and now we know we won't have to lay out money for cars for a LONG time (I used to be an auto tech and we typically keep our cars about 12-14 years).

This is a little closer as to how my logic is playing into it, or perhaps I am just suffering from OMY syndrome. In my case, my "heavy lifting" is getting my last 2 kids graduated from college and off the payroll (hence, my 3 yrs initial target date to RE). The last bogie are the remaining potential weddings (married off 1 daughter last year, 2 more in the hopper along with a son who is about to get engaged). Yes, I realize my RE income goals are up there perhaps compared to many on this site, but that is based on my assets I have been fortunate to grow and the standard of living I would like to maintain. I am by no means saying I "need" $200K/yr, but only that it is my desire to create this kind of income. I might suggest that physiologically it can be more challenging for historically higher income earners in pre-RE who may have more lofty goals for higher income in post-RE to "let go of the income generating reins".

 

[ugeauxgirl]

Dawg,

I left the Fortune500 exec job 4 years ago to become a part time home inspector and I love it. I took a 75% cut in pay, but enjoy the work and the people for the most part (always some goofball buyer that thinks we can see through walls lol).

The stress is significantly less. I don't miss the old job a bit. I spend much more time on my hobbies now (woodworking, musclecars, financial planning, travel, craft beer tasting). And about 2x a month, I get out a cookbook, go to the store, and make a nice meal for my DW and I...no way I had time to do that when I was an exec.

I do admit that when I originally set our FIRE target savings number I was a bit worried when we got close to it ( "Can we really RE?")....so DW and I sat down and made a list of expenses we knew were coming or luxuries we wanted to buy over the next 1-2 years. We then adjusted the FIRE target by this amount and worked a bit longer. This proved to be brilliant...because now our....

1)New Lexus SUV
2)New Ford truck I use for my job
3)Great room sectional couch
4)Wood privacy fence restaining
5)Bath shower that was worn out
6)Trip to England
7)Hardwood floors in the great room
8)Solid surface kitchen counters

are all paid for! Yes we'll always have new things we need/want...but getting that large chunk of expenses paid off before FIRE really gave us peace of mind and now we know we won't have to lay out money for cars for a LONG time (I used to be an auto tech and we typically keep our cars about 12-14 years).

You were a fortune 500 exec, an auto tech and now a home inspector? That might be the most interesting career I've ever heard of!

 

[rodi]

Dawgman -
I struggled with two sides of the "can I retire" question.

Mentally - I wasn't sure if I would get bored. So I made some plans to keep me engaged, interested.... I planned courses I'd take at the community college. I put together a LONG list of books to read from the local library. I put together a new health improvement plan that involved taking the time for long walks etc. Turns out I didn't need this - but have enjoyed it anyway. I've been retired 2+ years and have taken 3 semesters of Italian and am currently taking a financial accounting course. I've rediscovered my love of mystery and spy thriller novels. I walk the dog at the beach daily... rain or shine (yesterday was a rainy walk). I've also added some free senior water fitness classes to the mix... and I've been pushing my personal envelope on cooking technique.

Financially I wanted to make sure I was ok. We were comfortable with my salary prior to quitting. When I subtracted out SS taxes, Medicare taxes, and 401k contributions... then added in a big chunk for increases in health insurance... I knew I had a number that would not require a change in lifestyle. Turns out we spend less than that number.

Like Finance Dave - I prefunded several big ticket items prior to pulling the plug - so this money was set aside, separate from my "retirement" funds. For us it was:
- new windows
- new carpet
- "big" trip to Europe with the kids (we spent 9 weeks last summer - awesome trip!!!)
- new car

And I made sure my house was paid off prior to pulling the plug... and took out a HELOC (still untouched) while I still had income. The HELOC is there in case I need to "smooth" spending over more than one tax year for ACA tax credit reasons.

I planned on a withdrawal rate of 3.5%... We've been closer to 3%. I still worry about sequence of returns risk... but so far so good.

 

[Which Roger]

Lol^^^, so I guess I'm screwed, we still have great morale and I have good friends at work. I may as well stick around as long as my pension keeps growing and they keep paying me more while it takes less time and effort each year. While earning more weeks of vacation. I get another week in 3 years.

Sorry to hear that you're in such a tough situation.

 

[Which Roger]

I don't miss the old job a bit. I spend much more time on my hobbies now (woodworking, musclecars, financial planning, travel, craft beer tasting).

I've found that things like woodworking and home improvement projects are a key to a successful retirement. These sorts of pursuits provide opportunities for learning and creativity, like I used to have in the workplace, but now on my own terms. And the beneficiaries of the end result are now myself and my DW, rather than some corporate customer.