About to pull the trigger

[getoutearly]

Been coming to this site for years, but have not posted for over 2 yrs. Am about to pull the plug on the old working world July 1. Same old reasons (as if we need to have reasons); tired of the commute, tired of the megacorp BS, Figure 30 yrs is enough, and, because I can. Or at least I think I can. Tell me what you think:

Age 50
kids 7th and 9th grades

Yearly income needed / wanted: $80-90K

Net Worth: $2.7MM
Comprised of:
Home / personal goods: $350K (planning to die in this house) though)
Cash / Emergency funds: $145K
Income deferred to 2011: $45k
Stock grants available 2013:$35k

After Tax Investments: $335K
IRA - 401K $1.7MM
529's (2 kids) $110K

No DEBT

What do you think? Do-able?

If I am short in a few months/years, I'll do part time work as needed. If not needed, I won't...

 

[audreyh1]

Does your yearly income needs include taxes?

How old are you?

I backed out the house and the kids 529s for total (liquid) investments of $2.24M.

If that is $90K including taxes per year, then you are looking at withdrawal rate of 4% which is right on the margin depending on how long you need the portfolio to last.

If you could drop your annual income needs a bit, you would have a much more secure retirement - a bit more wiggle room.

Also - maybe your annual income needs will drop significantly once the kids leave home?

Audrey

 

[getoutearly]

Thanks Audrey, I had just realized I had not put my age or kids ages in. I'm 50. Kids in 7th and 9th grades. I updated my post also.

Your thinking is about what I was figuring. Reducing the expenses would seem to be the easiest solution. Now if I could just convince the DW...ha (which I will in time)

My story sounds a bit like Global's earlier post. We don't seem to live extravagantly at all. No fancy cars, fancy houses, fancy tastes. Still piss away $100k/yr. Which we can do, comfortably, before I retire.

I'm so close now, I can TASTE it...

 

[audreyh1]

Well, 50 is still pretty young. I am 50 and retired - but no kids, and I have a larger nest egg relative to expenses. I can easily manage on a 3% draw or even less if I have to (including taxes).

Personally I would be so much more comfortable getting the kids (at least one?) through high school before pulling the trigger. In the mean time, you can "feather" the nest egg and figure out how you can reduce expenses in retirement without reducing quality of life too much. It just seems like chances are too high for unexpected expenses until they are in college. After that you probably have a lot more predictable expenses.

And since you are basically financially independent, this can really help the psychology of working. You know you can stop if you really have to and weather any temporary unemployment. I think a lot of folks on this forum went through a stage of feeling so much more financially secure that a lot of the BS at work just rolled off their back and work became more enjoyable for those last few years.

But some folks here have retired with kids still in school. They worked hard to get a handle on those expenses though! and/or had enough pension income to cover most of their basic needs.

But you are right on the cusp there! And at 50 too! Congrats!

Audrey

 

[Rustward]

Congratulations getout -- you are in a very good position!

What are your plans for providing health insurance?

 

[getoutearly]

Audrey, thanks for the honest feedback. I know it is a bit close to the edge. but i think I can actually get by on $80k, or actually $60 - 80. If so, I should be in good shape? And the kids college scares me a bit. But, if I have to, i'll work or do something to bring in some income. I am so burned out at the current job, I don't feel like I have much choice. It's either this or the looney bin! Mentally, I'm already gone.

I'll have retiree health insurance from my employer. ~$500/mo

 

[Rustic23]

Does your estimate of expenses include 'accruals'. Things like a fund for car replacement, major appliances, roof, etc. If not it should! Another way to look at it, is there enough money left over each month to replace the emergency fund. On the surface $145,000 emergency fund is quite large. However, you will find many on this board that keep more than three years living expenses in cash so as to avoid withdrawal from invested funds during a down market.

 

[walkinwood]

Welcome back.

Do an honest evaluation of the possibilities of part-time work or moving in and out of the workforce in your particular field. If that is feasible, consider taking a year off to out ER. If there are some financial surprises (internal or external), you can always go back.

That's what we did. Our financial shock was external - 2008/09 stock market. We now work part-time. You don't need to earn a lot of money - just enough to fill the gap or keep the portfolio withdrawals from creeping too high (ie. greater than 4% of portfolio value for us). Going into ER with this possibility at the back of our minds made it easier for us to get back to work with a (relatively) good attitude.

All the very best to you.

 

[audreyh1]

Audrey, thanks for the honest feedback. I know it is a bit close to the edge. but i think I can actually get by on $80k, or actually $60 - 80. If so, I should be in good shape? And the kids college scares me a bit. But, if I have to, i'll work or do something to bring in some income. I am so burned out at the current job, I don't feel like I have much choice. It's either this or the looney bin! Mentally, I'm already gone.

I'll have retiree health insurance from my employer. ~$500/mo

Well, you are indeed in good enough shape to quit to avoid the looney bin, and it's really good that you have health insurance.

Flexibility is key! And yes - dropping expenses to $60K to $80K would make a huge difference - especially on the lower end.

Perhaps a good strategy is to be very careful with expenses for the next few years while you get the kids through high school. You've set aside $110K for college - that is a reasonable base, and the kids can help make up the difference. A lot of us paid for our college or for part of it.

You could find part-time work to help tide things over during this period.

Then once the kids are launched into college, perhaps you can reevaluate.

Audrey

 

[cardude]

I agree with Audreyh1. If you are about to go crazy at work and if you are close enough financially, I would pull the trigger. Trim the expenses and after a year or so you can pick up some part time work (you may find yourself getting a little bored about that time anyway). An extra $1000 per month or so earned part time would make a big difference while the kids are still in high school and asking for this and that. Don't forget to allow for vehicle expenses and insurance for the kids when the get to driving age. That can get expensive.

I'm retired, 45, and have two boys 10 and 12, so we are in a similiar situation. DW still working for another year though. I do a little part time "work" buying and selling cars for extra pocket change and surf trip money.

 

[MichaelB]

Hi getoutearly

Some good advice already – but a couple of questions already asked but not yet answered, which are important. Re Audrey and Rustic: does your estimated budget include taxes and how do you plan to cover major expenses? I would add: do you feel you can completely cover post high school education with the 529’s.
The 4% withdrawal rate you are looking at is doable but not easy and would suffer from any of these three things.

 

[DeborahB]

I am less conservative than some people here about withdrawals.... and income on investments. I added it up, and it looks like you have $2,370,000 in investible assets. At 3.5% that's an income over all of $82,950.

I think you can get more than 3.5%. There's a thread about dividend stocks on this site, take a look.

So - I think you can do it easily - unless you are determined to have risk free investing. I don't. I have corporate bonds, bond funds, dividend-paying stocks with room for capital appreciation, and growth mutual funds.

I enjoy investing and watching it like a hawk If you don't, you will be looking at either a financial advisor or very conservative investments.

I still think you'll be fine, and you said you are willing to do part-time work to supplement if necessary. I think the really important thing you said is that you have health insurance available to you at a very reasonable cost.

GO FORTH AND RETIRE EARLY!!!!!!!!

You can always cut back a little. Just eat out less, etc. And you'll be so much happier.

 

[Global1]

I am in a, somewhat, similar position except that I have only one child and she is older (college). I found that through high school and into college her expenses have been grown a bit. The expenses eventually go away (hopefully!) but for the next few years you may want to account for that since your children are younger.

 

[audreyh1]

I think you can get more than 3.5%. There's a thread about dividend stocks on this site, take a look.

So - I think you can do it easily - unless you are determined to have risk free investing. I don't. I have corporate bonds, bond funds, dividend-paying stocks with room for capital appreciation, and growth mutual funds.

Thinker - this is not really a safe long-term approach.

If you are getting all that dividend income from stocks (100% equity) then you may not be diversified enough. And you had better be able to ignore high volatility in your portfolio. At the very least you had better be a very skilled dividend investor.

If a huge chunk of that income is coming from bond funds, then your portfolio will decline with inflation. For a young retiree (and 50 is young), inflation will be a major risk long-term for a retirement portfolio.

Audrey

 

[getoutearly]

Hi getoutearly

Some good advice already – but a couple of questions already asked but not yet answered, which are important. Re Audrey and Rustic: does your estimated budget include taxes and how do you plan to cover major expenses? I would add: do you feel you can completely cover post high school education with the 529’s.
The 4% withdrawal rate you are looking at is doable but not easy and would suffer from any of these three things.

On the taxes, I would have to cover them in the funds I will be spending (in the $90k). So, yes, i will have to study up on the best ways to reduce taxes.

On the 529's, my plan all along was to get at least 50% of what I thought I would need, in a 529. I figured total cost of around $200k, and I have a little over $100k now. Figured I'd cover the rest out of non-529 funds. That way, if the kids pay for some, or they get scholarships (or, hey, by then maybe we'll have Nationalized College Education to go with the Health Care also!?), I wouldn't have any monies "stranded" in the 529's

Basically, what I am seeing is that I may have to watch the investment returns and withdrawls closely (hey, what else will I have to do with all that free time?), and then work part time, cut back on some non-essentials in the budget as needed to make it work... Some part time income of $20-30k/yr will go a long way i would think. And I can do that is a few months of contract work in my current field I believe.

Make sense?

 

[DeborahB]

Thinker - this is not really a safe long-term approach.

If you are getting all that dividend income from stocks (100% equity) then you may not be diversified enough. And you had better be able to ignore high volatility in your portfolio. At the very least you had better be a very skilled dividend investor.

If a huge chunk of that income is coming from bond funds, then your portfolio will decline with inflation. For a young retiree (and 50 is young), inflation will be a major risk long-term for a retirement portfolio.

Audrey

Thanks Audrey but it's working for me. I have about 1/3 in a mix of bond funds I inherited, and corporate bonds maturing in the next year or two. I have 30% LTCG on the utility dividend stocks in the past year. So things are looking just fine. I am a pretty experienced investor, though. So far, so good.

 

[getoutearly]

Audrey, glad you brought up the inflation issue. I need to figure that one out. I'm no economist, and no investment expert. Scares the heck out of me wondering when that is going to raise it's ugly head, and what if anything I can do to protect myself from it, and hopefully even profit from it...

I'm sure there are some good threads on here lately about this. if anyone can direct me to it, much appreciated...

 

[MichaelB]

On the taxes, I would have to cover them in the funds I will be spending (in the $90k). So, yes, i will have to study up on the best ways to reduce taxes.

On the 529's, my plan all along was to get at least 50% of what I thought I would need, in a 529. I figured total cost of around $200k, and I have a little over $100k now. Figured I'd cover the rest out of non-529 funds. That way, if the kids pay for some, or they get scholarships (or, hey, by then maybe we'll have Nationalized College Education to go with the Health Care also!?), I wouldn't have any monies "stranded" in the 529's

Basically, what I am seeing is that I may have to watch the investment returns and withdrawls closely (hey, what else will I have to do with all that free time?), and then work part time, cut back on some non-essentials in the budget as needed to make it work... Some part time income of $20-30k/yr will go a long way i would think. And I can do that is a few months of contract work in my current field I believe.

Make sense?

Makes sense, although it sounds like you still have some figuring to do. The IRA, after tax investments, deferred inc and stock add up to 2115K. A 4% withdrawal rate gives you 84K yearly. The emergency fund covers major expenses, high school and college child expenses, and supplements college. 4% is not a recommendation, however, it is in my opinion the absolute max and is risky for someone as young as you. A 3.5% withdrawal, which would be my target, gives you 74K before tax.

20-30K part time would make this plan sustainable and also help you get to age 59 /12 before withdrawing the IRA.

I would suggest you develop a more precise after tax budget target, followed by a clear plan on what college will cost and how it will be financed. Unplanned college expenses can ruin your plan, and the time to plan for college is now.

 

[getoutearly]

Good advice Michael B, and everyone. I figured I was a little too close to the sharp edge. I'll have to do a bit more figurin' to make sure I have a real, do-able plan. Ideally, that would be before I retire. Of course, I may just decide one day very soon, enough is enough, and pull the trigger. That's the beauty of doing it early enough. I can always go back to work at something I enjoy, if needed, to make it work.