Money Isn't Everything

[dndjones]

This is my story.

Currently in a middle management position, I work a minimum of 55 hours per week at the
office and another 5 to 10 at home catching up. It seems that upper management never trims the number of positions reporting directly to them, but can always find ways to streamline your team by eliminating positions that you must pick up the responsibility for. No vac. for last 2 yrs due to continual proj. deadlines etc... Well enough venting here I go.

I'm 50 years old (wife 54) and would like to FIRE in the next year or so. If I run the numbers they come up 100%, but would like some reassurance from the experts.

We currently have 590k in 401K accounts, 70k in cash accounts, 580k in home equity (own it free and clear) and no other debt (all new auto's for wife & kids paid for), in 5 years I am elgible for 1600 per month in retirement benefits (another story my co. went bankrupt so retirement benefits were reduced by half) and have medical through my wifes former employer (360 per month). I have 2 kids in college (1 junior and 1 freshman), both on academic scholorship, so financial burden is minimal (3000 per year). Would like to sell my home and retrieve 200k in equity for ER and put the rest into another home that would be paid in full.  I need 55k gross to live on. Social security benefits at 62 will total 2700/mo my wife is elgible to begin drawing 1200/mo in 8 years.

I didn't explain above, but my wife ER'd in 1999 right before the market crash. It took its tole on her lump sum but we made it ok.

 

[SolidA]

Hi! Am I missing something?? The way I worked it, using your numbers, is that after downsizing your home, you will have approximately $800k in your retirement kitty. I'm not seeing how you are getting $55k out of that each year - what is your withdrawal rate that gives you 100%?? Or, are you drawing down more now for the next few years until your pension kicks in?? I'd love to say GO FOR IT, but just want to make sure your numbers actually work for the long run!!

 

[dndjones]

I plan to reduce the withdrawal rate when my pension and social security benefits kick in.

 

[Nords]

Welcome to the board, RTG.

I plan to reduce the withdrawal rate when my pension and social security benefits kick in.

It sounds like you're planning to consume savings to bridge the gap to SS. I sure hope that $55K includes everything like health insurance premiums, taxes, and college spending and that all of those pensions come through at their promised amounts. Let me make a simple worst-case timeline assuming zero returns & constant $55K/year expenses:
Today: $800K savings, age 50. Quit and withdraw $55K/year for five years.
Start year 6: $525K savings remaining, age 55, first pension $19,200K/year, withdraw $35,800/year for three years.
Start year 9: $417K, age 59, second pension $14,400/year, withdraw $21,400 for four years.
Start year 13: $332K, age 62, start SS of $32,400, cashflow turns positive by ~$11K/year.

FIRECalc will give a high success rate to just about anything in the short term, but it's only as good as the numbers you put in. You won't go broke getting to SS but you don't have much margin for error. You'll need to verify all your calculations and make sure that's what you're getting, or be ready to work part-time to patch the cracks. Hope that you can hold the line on spending, healthcare costs, and inflation. There won't be much left over for rising property taxes, community assessments, new roofs, replacement vehicles/appliances, fantasy vacations, kid's weddings... you get the idea.

But if the question is "Can I quit now to save myself and my health?" the answer is always "Yes".

 

[mathjak107]

money isnt everything but it sure makes misery better!

 

[Sam]

Social security benefits at 62 will total 2700/mo

ReadyToGo, I assume that the amount is not in today's dollars.  If it is, then you have made an error somewhere.

Edited:  Never mind, I missed the word "total", meaning for both you and your wife.  Anyway, as others have said, Firecalc will not give 100% based on the number you provided.  To get 100%, your gross expense will have to be around $42,000/year.

Sam

 

[Maximillion]

RTG, could you live in a $300, 000 Home and release $280,000 in equity??

 

[laurence]

Ready to Go, you are pushing the envelope a bit IMHO, but you have to factor in your health as well. I think you should look into a part time job, something really leisurly to work until 55. 20 hours a week will seem like a dream compared to 55, and if you can cut your withdrawal rate in half for those key years you will vastly improve your margin for error, plus you'll feel better and maybe enjoy a smoother transition to retirement.

More and more I'm thinking that's the path for myself, as well. I'm 31 now, and I hope to go part time (semi-retire?) at 45 (by having the house paid off at that point), and completely check out around 55 (after letting the retirement portfolio grow on it's own for another decade).

Right now I'm guessing you are emotionally spent/wiped out/burnt out, so your feeling like you gotta make the jump sooner rather than later. I'm with you on that, I would just consider going the part time route.

 

[dndjones]

Thanks for reviewing my situation. I guess I'm not quite there yet, but I'll keep chipping away at it. Nothing would be worse than to RE and have to find a job at 60 years old, because your out of money.

I think I'll go ahead with the house sale and invest the proceeds. This will help me get where I need to be before I ER. I guess 1.2mm is really the right number, if I consider everything. I should be able to get there in the next 5 years if I achieve 8% return and continue adding 15k per year.

Its great to have those who have been there, and are unbiased critique your plan.

Thanks,
ReadyToGo

 

[Nords]

I should be able to get there in the next 5 years if I achieve 8% return

Let us know where you find that!

 

[just_hatched]

More and more I'm thinking that's the path for myself, as well. I'm 31 now, and I hope to go part time (semi-retire?) at 45 (by having the house paid off at that point), and completely check out around 55 (after letting the retirement portfolio grow on it's own for another decade).

Laurence - I think 55 is too young to COMPLETELY "check out"...

 

[laurence]

Laurence - I think 55 is too young to COMPLETELY "check out"...

What's the old hippie saying, "tune in...something....drop out?" I could have chosen a better phrase!

 

[astromeria]

You forgot the most important part: tune in, TURN ON, drop out!  O0

 

[califdreamer]

You forgot the most important part: tune in, TURN ON, drop out! O0

Solid.

 

[JonnyM]

I need 55k gross to live on. Social security benefits at 62 will total 2700/mo my wife is elgible to begin drawing 1200/mo in 8 years.

I didn't explain above, but my wife ER'd in 1999 right before the market crash. It took its tole on her lump sum but we made it ok.

Having just ER'd at your age and done a small amount of SS research, I'd say you might be optimistic with your $2700/month estimate. I would guess your DW's number is closer to the truth.

We both made decent money during our careers, but if you don't factor in the dozen years of not working the SSA estimates in the letter you receive each year assume you will make the same or better for the remaining time. Once you sit out a year, the table updates to Zero for the interim and you get an estimate more like your DW's.

We are estimated about $1k/month each at age 62. (DW is also 50 and ER'd two years ago)

 

[HFWR]

Timothy Leary... "Turn on, tune in, drop out..." 8)

Moody Blues: "Timothy Leary's dead..."

 

[AFloat]

ReadyToGo -
I don’t think of ER has an ‘all or nothing’ action. I think of it as a transition. If you’re in your 50’s and have had a challenging and successful career chances are your going to find something in the future that you want to do and it will probably earn you some money. I’m 54 and just ER’d as a independent computer consultant. This is my 3rd career and I’ve been moderately successful at all of them and I expect that I’ll find something in the future that I love to do and I hope I can make a few $ doing it.

It sounds like you need a change and your assets are enough to at least take some time off to figure out what you want to do. I’d say go for it. Maybe you’ll decide to downsize you life and live off of your savings, maybe you’ll find another passion in life and make some money doing that. Either way you win.

 

[jug]

Welcome to the board, RTG.
It sounds like you're planning to consume savings to bridge the gap to SS.  I sure hope that $55K includes everything like health insurance premiums, taxes, and college spending and that all of those pensions come through at their promised amounts.  Let me make a simple worst-case timeline assuming zero returns & constant $55K/year expenses:
Today:  $800K savings, age 50.  Quit and withdraw $55K/year for five years.
Start year 6:  $525K savings remaining, age 55, first pension $19,200K/year, withdraw $35,800/year for three years. 
Start year 9:  $417K, age 59, second pension $14,400/year, withdraw $21,400 for four years.
Start year 13:  $332K, age 62, start SS of $32,400, cashflow turns positive by ~$11K/year. 

We forgot to factor the fact that 800k produces at todays interest rates a mininum of 32-36K each year, so with a bit of tightening, after the house sale and a purchase of a smaller less expensive house, I do believe with a small pt time job, he can do it.

I came out to 860K after the house sale and purch of a 300k house.

860Kat 4.4% interest will give us about 38K a year gross.

Health premiums are cheap, and the fed will take about 3.5K in income tax.

You really have to see what kind of CASH you need to live on, this is the best measurement.

But I do believe you can do it and have a part time job earning 10-15K, it should be no problem

We dont live forever, however, perhaps a sabatical is in order now before you make de leap

jug

 

[Nords]

We forgot to factor the fact that 800k produces at todays interest rates a mininum of 32-36K each year

Speak for yourself, jug, "we" didn't forget anything. I decided not to correct that swag for returns or inflation.

Without knowing anything about what state the poster lives in, his general health habits, and his expected lifespan-- I'd find it misleading at best to state that "health premiums are cheap."

 

[jug]

Speak for yourself, jug, "we" didn't forget anything.  I decided not to correct that swag for returns or inflation.

Without knowing anything about what state the poster lives in, his general health habits, and his expected lifespan-- I'd find it misleading at best to state that "health premiums are cheap."

Sorry Nords, I pushed the hit button before sending on that one, I meant to say health prems are "not" cheap.

I agree there is alot we dont know about his fellow, but I think that in looking at his numbers, he may very well be able to ER with a part time job.

This is assuming subidized health premiums, but he sure does have the capital, also assuming college costs are nil or very cheap.

But let put it this way, this is not a perfect science, and if one is in his fifties, or thereabout, and is burned out terrible, then perhaps ER is the way to go even if there is some risk.  The alternative to let burnout continue is to risk severe disability or even death.

Im ERing soon, have the new house bought, the one Im in closing in a few months.  My numbers are very close and I realize Im leaving alot on the table, and this bothers me, but a friend reminded me this morning that your body and mind knows when to cut and run before it is too late.

He set me straight.  If I stay the next 4 years in ga ga land, I may end up burned even more than I am now.  The present situation leaves me with a pension that covers my basics and then some.  I have to rely on investments for breathing money.

If I wait 4 years till Im 57, I get the full pension that would take care of all of my needs.  There is no right answer here.

jug

 

[Mountain_Mike]

"Nothing would be worse than to RE and have to find a job at 60 years old, because your out of money."

I disagree with this statement. Look at it this way, if you ERed at 50 and "had" to work at 60, you had TEN GOOD YEARS in the prime of your life to do what you wanted to do.

I think nothing would be worse than to forgo the best years of your life, work until 60 or 65, and then drop dead, or spend your ER days in poor health, in hospitals, etc.

Time is a non-renewable resource.

 

[jdw_fire]

I'm 50 years old (wife 54) and would like to FIRE in the next year or so. If I run the numbers they come up 100%, but would like some reassurance from the experts.

We currently have 590k in 401K accounts, 70k in cash accounts, 580k in home equity (own it free and clear) and no other debt (all new auto's for wife & kids paid for), in 5 years I am elgible for 1600 per month in retirement benefits (another story my co. went bankrupt so retirement benefits were reduced by half) and have medical through my wifes former employer (360 per month). I have 2 kids in college (1 junior and 1 freshman), both on academic scholorship, so financial burden is minimal (3000 per year). Would like to sell my home and retrieve 200k in equity for ER and put the rest into another home that would be paid in full.  I need 55k gross to live on. Social security benefits at 62 will total 2700/mo my wife is elgible to begin drawing 1200/mo in 8 years.

Fellow posters, I don't understand where you are coming from with all the pessimism on RTG's analysis.  When I input his numbers into FIRECalc I get 100% also. 

So that anyone can double check me my inputs were:
W/D = $55000
Starting Portfolio = $860,000 ($590K + $70K + $200K)
Lifespan = 40 years
Your SS = $18,000 in 12 years (($2700-$1200)*12)
Spouses SS = $14400 in 8 years ($1200 * 12)
W/D change 1 = -$19,200 in 5 years not inflation adjusted (his pension $1600 *12)
Settings and Defaults used CPI and checked box for First Year W/D
All other settings were left the way they were set when the program opened.

Therefore if he is correct about his expense and asset numbers HE CAN RETIRE NOW!  If I missed something please point it out.  If not why are you all encourging him to wait?

 

[Sam]

Fellow posters, I don't understand where you are coming from with all the pessimism on RTG's analysis.  When I input his numbers into FIRECalc I get 100% also. 

jdw_file,

I have no idea what you were doing. But using the your numbers, FireCalc reported 65.9% sucess.


FIRECalc Results

You have proposed a withdrawal of 6.40% of your starting portfolio.

We looked at the 91 possible 40 year periods from 1871 until 2002, and the 40 partial periods from 1962 until 2002, starting with a portfolio of $860,000 and taking out $55,000 the first year, and the same amount after adjustments for inflation (PPI) each year except as follows:

Starting in year 12, the withdrawal was decreased by $18,000 (your Social Security; adjusted for inflation).


Starting in year 12, the withdrawal was decreased by $14,400 (spouse's Social Security; adjusted for inflation).


Starting in year 5, the withdrawal was increased by $19,600 (without adjustment for inflation).

Your Success Rate is 65.9%

In 34.1% of those 131 periods, the portfolio would have been fully depleted at or before the withdrawal in year 40. In 65.9% of the years, the portfolio would have maintained a positive balance through the withdrawal in year 40.
The average (mean) portfolio balance following the withdrawal in year 40 was $2,680,951.

 

[Sam]

Actually the success rate in 70.5%.  In the previous calculation, I had his wife SS at 12 instead of 8 years.

Sam

 

[astromeria]

Starting in year 5, the withdrawal was increased by $19,600 (without adjustment for inflation).

This is where you went astray--you forgot to add a minus sign before the pension amount. (A confusing bit of UI that will undoubtedly be fixed in the next iteration.)