Looking to retire early like ASAP

[txholdem]

Hello All, I have been lurking on here for awhile and I am ready to hang it up as I've been burned out. I am in sales and due to industry changes and company missteps the job has become horrible and very stressful.

I am 53 years old and I have the following assets.

401(k): 600K
Other retirement plan: 55K
Annuity: 22K
CDs: 1M at about 2.5% for 18 months generating monthly income
Cash: 400K getting 1.8% at the moment
Car: paid for

I live with my GF (55) and we moved from a different state. She had a house that was paid off so she took that money (250K) and put it in a 5yr CD at 3.5%. We are renting where I pay 900 a month and she pays the rest. I would buy here but the property taxes are horrible along with an HOA I'm looking at the area of 900 a month hence the reason I rent. We may look at moving to a different state if we buy a house in like TN or NC. We don't have any kids. I don't have any other bills except for food and utilities and my gym memberships.

I'm in excellent health but that's one of the things you never know so I will have to buy my own health insurance. Not sure if the ACA will be around. This is really the thing that worries me the most. I also don't calculate SS into my thoughts as I'm not sure what it will be in the coming years. Do you thing I can do it?

 

[FoolyCooly]

A rough calculation
1M @ 2.5% = $25,000
400K @ 1.8% = $7,200
600K @ 5% = $30,000
= $62,200

Assume 5%/4% rule
$62,200 * 4%/5% = $49,760

$49,760 -25% (taxes) = $37,320 or $3,000 per month

Yes you can do it. The real question is, Can your life style shrink to fit this new amount of income? Can you sacrifice your standard of living to this new amount?

Or, Can you put you risk putting your money into a higher yield investment?

 

[txholdem]

Thanks, I don't really spend much. I probably only spend 2K a month. I'm not looking to pull off the 401K and the other retirement account as it is growing well. I'm hoping that will be at 1M as well by the time I hit 65.

 

[pb4uski]

I think you need to dig into the numbers and make sure that you really only spend $24k a year. What would you do for health insurance between ER at 53 and Medicare at 65? Have you provided for periodic car replacements or major repairs? Looks like you are good to go but I would do more research and analysis before deciding.

Your asset allocation is very conservative and inflation risk in the long run could be an issue for you.

 

[txholdem]

I will sell my car and we will go to one car. She will take care of the car since I pay a bit more in rent. I really don't spend much each month. No cable TV, no expensive phone plan as I don't believe in that.

The health insurance is my biggest concern as I can't control the costs and my health.

 

[Aerides]

You are ~75% in cash and CD's? That would be viewed as incredibly risk-averse, and not a good idea for a long, early retirement, as you've no protection against a turn in inflation. Is there a reason you've avoided investments with better growth prospects?

 

[txholdem]

Yeah, I don't do well with risk as I like to sleep at night. The 401k doesn't bother me as it was guaranteed return with matching plus I started the 401k 25 years ago. I started using a financial planner at the same time but I got burned as I realized that the FPs goal was to maximize his profits at my expense.

 

[Sunset]

OP - The trick is you are not seeing the risk of only 25% stocks.
You have identified healthcare as a risk, so that is good.
You missed the risk of GF leaving, she leaves, can you live or will you be in a tent ?
Your GF is her total savings the house sale of $250K ? Does she work or is free to move ?
There is no reason to think SS will not be there or at least ~80% there. Don't believe the BS it will end.

 

[txholdem]

In hindsight, sure I should have been more in the market but the two times I did get in I literally got in month before a correction.

The GF has about 1M in savings and she has a pension at 65. She still works and she works remotely so she can work anywhere.

No, I wouldn't be living in a tent. It's not like I'm a paycheck away from homelessness. If she wasn't around I would live in a cheaper apartment not that this place is massively expensive.

I just don't see how I could fail even if I take the 2M and divide by 60K that takes me to 86 and I spend nowhere close to 5K a month. Rent + insurance 910, utilities 50, groceries 200, gyms (hobbies) 100, going out 100, misc 150

 

[Sunset]

In hindsight, sure I should have been more in the market but the two times I did get in I literally got in month before a correction.

...

So when this coming correction happens after the market has dropped 20% , if I were in your shoes, I'd put 20% of the 1MM into broad etf's like VTI, or SCHD.
If the market drops another 10% , add another 10%.

That way you will get skin in the game at the low's rather than waiting for it to get to the high point where it's normal to feel comfortable.

 

[intent]

A rough calculation
1M @ 2.5% = $25,000
400K @ 1.8% = $7,200
600K @ 5% = $30,000
= $62,200

Assume 5%/4% rule
$62,200 * 4%/5% = $49,760

I can't recall ever seeing this rule before. Could you explain it a little further? Thanks.

 

[FoolyCooly]

I can't recall ever seeing this rule before. Could you explain it a little further? Thanks.

TLDR: Make 5% on your investments, spend only 4%. You have a 90% chance your money will last 30+ years.

https://www.investopedia.com/terms/f/four-percent-rule.asp

 

[davebarnes]

A rough calculation ...$49,760 -25% (taxes) = $37,320 or $3,000 per month

+ "Annuity: 22K"
= $55K/yr

 

[The Cosmic Avenger]

In hindsight, sure I should have been more in the market but the two times I did get in I literally got in month before a correction.

Your mistake wasn't getting in a month before a correction, it was getting out afterwards. Corrections shouldn't influence your AA strategy. As I keep reminding myself in order to keep my spirits up after a big loss, it's not just a loss, it's a sale on stocks! What a great time to rebalance!

 

[WyomingLife]

TLDR: Make 5% on your investments, spend only 4%. You have a 90% chance your money will last 30+ years.

https://www.investopedia.com/terms/f/four-percent-rule.asp

I’m also unaware of a “4%/5% rule” where you do the math above (calculate returns then multiply by what amounts to 80%, though I stand ready to be corrected.

The linked Investopedia article correctly describes the 4% rule instead. It is on another board, so I apologize for posting here, but another simple explanation is here. https://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/

The 4% rule is a SWR—based strategy that considers withdrawals from a portfolio of invested assets.

 

[txholdem]

Yeah the first time it was the dotcom bust, the second was when they thought Euro was going to crash. I'm still confident I could pull off the early retirement. It could be worse as I could have zero saved.

 

[FoolyCooly]

I’m also unaware of a “4%/5% rule” where you do the math above (calculate returns then multiply by what amounts to 80%, though I stand ready to be corrected.

The linked Investopedia article correctly describes the 4% rule instead. It is on another board, so I apologize for posting here, but another simple explanation is here. https://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/

The 4% rule is a SWR—based strategy that considers withdrawals from a portfolio of invested assets.

My apologies, This is my interpenetration of the 4% rule. The 4% rule is usually coupled with the assumption that the stock market (S&P 500) does 5% on average every year, and inflation of 2%. Considering the past performance, where the stock market might crash, the 4% rule was created as a safe withdrawal rate for 30 years.

Therefore my interpenetration is that you should only spend about 80% of your income, the 20% remainder should be invested back to adjust for inflation and offset for the downturn years. I was trying to apply this thinking to the original post such that the constant devaluation due to inflation doesn't hit too hard in 30 years, since the original post has a large percentage in interest bearing accounts.

 

[HI Bill]

My apologies, This is my interpenetration of the 4% rule. The 4% rule is usually coupled with the assumption that the stock market (S&P 500) does 5% on average every year, and inflation of 2%. Considering the past performance, where the stock market might crash, the 4% rule was created as a safe withdrawal rate for 30 years.

Therefore my interpenetration is that you should only spend about 80% of your income, the 20% remainder should be invested back to adjust for inflation and offset for the downturn years. I was trying to apply this thinking to the original post such that the constant devaluation due to inflation doesn't hit too hard in 30 years, since the original post has a large percentage in interest bearing accounts.

The 4% rule assumes you begin by taking out 4% in year 1 of retirement, and increase the annual distributions by an assumed inflation rate each year. Many here don't anticipate future returns matching past returns, and many promote a 3.5% rule.

 

[Surfer]

Your mistake wasn't getting in a month before a correction, it was getting out afterwards. Corrections shouldn't influence your AA strategy. As I keep reminding myself in order to keep my spirits up after a big loss, it's not just a loss, it's a sale on stocks! What a great time to rebalance!

This is such good advice.