44 and planning for ER at 45

[amfox1]

My wife and I are 44 years old and I am planning for ER in 12 months.

We expect to be in the following financial situation in 12 months:

Liquid assets - $3.25mm (assumes no 2011 investment return), of which $2.25mm will be in non-retirement accounts and $1mm will be in retirement accounts.

Other assets/debts - $500k, most of which is the equity value of our real estate. No debt, except for mortgage (which is netted off already).

Kids (ages 14 and 12) assets set aside for college - $232k (assumes no 2011 investment return. Our budget (discussed below) includes additional monies contributed for college and expenses in sufficient amount to finance four years of college for each kid, based on roughly $55-60k per year.

Budget - we have a conservative budget that we have set up and reviewed with our financial adviser. The budget provides for spending, health insurance, specific life-events, etc. It assumes that I live until age 84 and my wife lives until age 94.

Our financial adviser has run an analysis (which I believe is similar to FIREcalc) which shows a high likelihood of success using our budgeted numbers.

Portfolio - our portfolio has been professionally managed for the last five years, and it has provided market returns with below-market risk. We have assumed 4% returns for non-retirement funds and 5% returns (and 35% tax rate on withdrawals) for retirement funds.

Income - my wife would continue to work for 10 years, until age 55, and I would take on some small consulting gigs during that time. Our budget assumes that my wife will not get a raise during the 10 year period and assumes my income as a fraction of hers (and a tiny fraction of my current income). This would provide approx. $85k post-tax per annum over that 10 year period. Then, we have assumed no income until SS kicks in at an assumed age 70.

Spending - we track our spending carefully, and it has averaged approximately $200k per annum. In other words, we are assuming net spending of $115k for the next 10 years, $200k for the following 14 years and $155k thereafter. We are savers by nature and I have little doubt that we will spend less than what was conservatively budgeted.

Reason for ER - simply, I do not enjoy my job. I am a partner in a law firm and, while I enjoy practicing law, I do not enjoy the business (read: marketing) aspects of the business. I am ready to walk away from mid-6 figures. I would plan on consulting for a couple of current clients that I like working with but haven't decided on a firm path.

What to do in ER - that is the $64k question and the one that keeps my wife up at night. She is afraid that I will not have interaction with others while she is working and will spend my time in front of a screen. I expect to spend a good portion of the next 12 months trying to answer the question, including spending time on this site.

Health - obviously, health and health insurance are two large wild cards. We have budgeted quite a bit for insurance. My wife and kids are all healthy. I have lost significant weight in 2010, both in anticipation of ER and to manage a pre-diabetic state.

I look forward to continuing to gain knowledge over the coming year and beyond.

 

[Htown Harry]

Welcome Amfox1. Looks to me like you are all set.

You will find there are several other like-minded attorneys here on the board.

There's a list of recommended ER reading here: http://www.early-retirement.org/for...reading-list-with-a-military-twist-46732.html

Under the heading "Books / retirement" you'll find a number of titles useful in establishing your own plan for answering "Whatcha gonna do all day?" The first one on the list, Work Less Live More, was written by board member ESRBob.

 

[obgyn65]

Congratulations, you are set IMO.

Also, good decision re: point below.

I have lost significant weight in 2010, both in anticipation of ER and to manage a pre-diabetic state.

 

[skyvue]

You seem in great shape to me...no worries!

 

[Danmar]

Congratulations. You have done well. I would be most concerned about being retired while my DW was not. This will mean you will be mostly tied to your home and kids while DW is in the workforce. Kind of like a house dad? Will you miss "being a big shot"? I did.

 

[chinaco]

Welcome.


You could consider taking a sabbatical or switching law firms for something less demanding or part-time.

Perhaps consider teaching part-time in a university setting.

 

[walkinwood]

Welcome to the board & congratulations on a successful career.

I expect to spend a good portion of the next 12 months trying to answer the question, including spending time on this site.

Be patient & you will figure it out. Imho, just the absence of job stress makes ER worth it.

 

[growing_older]

I like your plan and am pretty impressed at your accumulation so far (maybe even a bit envious). I like the commitment to kids education funds, but hope they are not all tied up in 529 type plans. With the time horizon you have, and the rate of tuition inflation, you could have more than you need, or less, and having some flexibility in the use of those funds might be very handy.

The only part of your plan that seems dangerous is the assumption that you will retire in 12 months, and DW will continue to work for 10 years. Kudos if that plan works, but it could easily happen that she sees how great ER is and wants in herself as soon as possible. You might want to consider an alternate spending budget to see if that's possible what the impact could be.

 

[firewhen]

Welcome Amfox1. I have small concerns. Keep in mind that I am very conservative (not with asset allocation but with the amount needed to RE). I think these decisions always come down to what is your SWR % (the percent of your portfolio you need to withdraw each year to fund your expenses). At even $115k per year, that is about 3.5%. Do your expenses include taxes on dividends or capital gains you might incur to fund your expenses? 3.5% is not bad, but you are looking at upwards of 50 years and predicating this on your wife keeping her job. An SWR of upwards of 4% is advocated by many, though the longer you go, the more uncertain that gets. Your key issue is the $200k spending. Bring that down to $150k, and with the $85 income the SWR falls to 2%, which even the most conservative would advocate. If you continued spending $200k once your wife retires, and your portfolio were still at $3.25M, that would be over 6% SWR. For what it is worth, we are at a 2.5% rate and I am shooting for 2%, but that is only because our spending is much lower.

 

[amfox1]

I would be most concerned about being retired while my DW was not. This will mean you will be mostly tied to your home and kids while DW is in the workforce. Kind of like a house dad? Will you miss "being a big shot"? I did.

Danmar - I will become the primary caregiver while my wife works (four days a week). Note that my youngest will be 12 next year, so we're talking about a fairly short period with the kids at home. I am looking forward to this, as my career has cost me time with my kids. "Being a big shot" is not important to me.

You could consider taking a sabbatical or switching law firms for something less demanding or part-time.

Perhaps consider teaching part-time in a university setting.

chinaco - I would consider the consulting gig as the equivalent of "something less demanding or part-time". A sabbatical is not practical or viable. Switching firms wouldn't solve my problem. I like the people I work with, but I no longer like being in a law firm. Will consider teaching in some form or fashion.

I like your plan and am pretty impressed at your accumulation so far (maybe even a bit envious). I like the commitment to kids education funds, but hope they are not all tied up in 529 type plans. With the time horizon you have, and the rate of tuition inflation, you could have more than you need, or less, and having some flexibility in the use of those funds might be very handy.

The only part of your plan that seems dangerous is the assumption that you will retire in 12 months, and DW will continue to work for 10 years. Kudos if that plan works, but it could easily happen that she sees how great ER is and wants in herself as soon as possible. You might want to consider an alternate spending budget to see if that's possible what the impact could be.

growing_older - The kids' money is approx. 2/3 in 529 plans. We'll have to think about allocations going forward. As to the assumption about my wife, I highly doubt she will stop working voluntarily. If anything, she will want to work more in the short-term.

***

I will respond to firewhen's post separately.

 

[amfox1]

I have small concerns. Keep in mind that I am very conservative (not with asset allocation but with the amount needed to RE). I think these decisions always come down to what is your SWR % (the percent of your portfolio you need to withdraw each year to fund your expenses). At even $115k per year, that is about 3.5%. Do your expenses include taxes on dividends or capital gains you might incur to fund your expenses? 3.5% is not bad, but you are looking at upwards of 50 years and predicating this on your wife keeping her job. An SWR of upwards of 4% is advocated by many, though the longer you go, the more uncertain that gets. Your key issue is the $200k spending. Bring that down to $150k, and with the $85 income the SWR falls to 2%, which even the most conservative would advocate. If you continued spending $200k once your wife retires, and your portfolio were still at $3.25M, that would be over 6% SWR. For what it is worth, we are at a 2.5% rate and I am shooting for 2%, but that is only because our spending is much lower.

I share your concerns, which are not small to me. One of the things I did in putting together a budget was try to budget expenses conservatively (read: high). Obviously, in budgeting for a 50-year time horizon, especially one that will involve multiple stages of life, it is difficult to know whether we can get the numbers right, and this could have a significant impact in our later years. The $200k is based on those conservative assumptions, and I believe we will be able to bring that number down in retirement. I have a yearly budget going through the next 50 years and intend to manage it carefully, so we are able to refine our estimates going forward.

By way of example, our budgeted expenditures for the ten-year period from age 60-69 are $2.00mm, broken out as follows:

$500k - spending/utilities
$500k - travel/gifts
$420k - housing/vehicles
$300k - health insurance
$170k - charity/religious
$110k - all other insurance

Assuming that we have correctly estimated insurance and that charity/religious expenses are sacrosanct, we are estimating an average of $58k/annum on those items and $142k/annum on everything else. We estimate our portfolio will be at $3.5mm at age 60 and $3.0mm at age 70 (using the above assumptions). If we cut $20k/annum from this amount, our portfolio rises from $3.0mm to $3.3mm at age 70. If we cut $32k/annum, our portfolio would remain constant at $3.5mm during that period.

I am not geared to think about SWR; perhaps that will be another thing I will need to think about over the next 12 months.

 

[amfox1]

So, it has been nearly three months since I first posted.

I have pushed my anticipated ER date out for three months (12 months from now, class of 2012). This works from a personal standpoint, as we have an overseas trip planned for next April and I can essentially time things to FIRE before then. Also, it gives us an additional three months of cushion.

Financially, we remain on track. We are working on simplifying our financial picture - consolidating accounts, reviewing service vendors, etc. - and setting a revised AA. We have been at approx. 70/30 stock/bonds and plan to ramp that down closer to 60-65/35-40. We are also tracking spending and doing a lot of reading and researching, including Otar's book, which has been instructive.

I am still thinking about what I will do in ER but haven't reached any conclusions yet. Health remains good - I've lost another 6 pounds so far in 2011. So far, so good.

 

[Packman]

amfox, my situation is similar to yours. However, I am 10 years older, and have about 60% of your portfolio, no kids and no mortgage. My wife plans to work about 4 or 5 more years. The things that keep me awake are: health insurance after my DW retires, walking away from mid six figure job to zero (no pension), filling my days so they are fulfilling not just passing the time, and making sure this doens't negatively impact my marriage. I too will become a house husband. I have never not worked in my life, so it's new territiory to me. My job has involved a lot of travel and 60 hour work weeks. It will be a huge change, but I'm up to the task!

The other difference between us is spending. I plan to spend about $50k/year as I have advanced past needing to buy much except for simple living expenses and some discretionary travel, and a bit of spending money. As long as you have estimated high on the expenses and can make do with less, if needed, you should be fine. Good luck. I know what you are going through at work. I have about 2 months before I call it quits.

 

[amfox1]

Here is my most recent quarterly update.

Still looking at an anticipated ER date 9 months from now (class of 2012).

Financially, we remain on track. While the markets went down and came back up, overall not much has changed.

I continue to ponder post-FIRE life.

 

[flyfishnevada]

I ER'd last year at 43 yo with 12 and 14 year old boys (44, 13 and 15 now repsectively). My wife works part time from home. I doubt you will want for stuff to do. If your kids are anything like ours, you will be busy. Don't get me wrong, I have free-time, but not as much as most retirees.

You will need to figure out what to do with your free-time. Now's the time to begin working on it. I'm sure you can figure something out. A hobby you don't have time for currently, an activity you gave up to raise a family or focus on your job, something you have always wanted to do but could never find the time. Could even be something to do with the law since you said you enjoyed practicing. Maybe donate some of your time to a charity or open a small, part-time practice out of your home that concentrates on the aspects of the profession you find appealing.

All it takes is a little thought. Try writing some stuff down or read some retirement books like "How to Retire Happy, Wild and Free". Lots of good stuff and even a big list of ideas. Good luck and let us know how its going.

 

[scrabbler1]

I can't say my personal details are a lot like yours. But, the title of this thread could have been written by me and about me back in 2007 when I was 44 and watching the pieces of my ER plan fallling rapidly into place that year and in 2008, leading up to my ER in November, 2008.

I hope you can share my "Retired at 45" claim before you turn 46.

 

[Jay_Gatsby]

I'm also a lawyer and 4 years behind you. Made the switch to in-house practice 2005 and haven't looked back. The money is much less than I was making in private practice, but the work schedule is MUCH more to my liking (with no less challenging work). Obviously no marketing and no administrative crap. Perhaps an in-house career would be more your speed rather than complete retirement.

 

[FreeAtLast]

I would do the consulting for a while until you figure things out. Part time work is much different than full time. I used to have a small software consulting firm and now just work PT as a programmer analyst for a local distributor supporting their business systems.

I get my health insurance, holidays, vacation and only work 4 morning a week. I am 59 and in about the same financial shape as yourself. I still have not figured out how I will spend my time if I retire FT so I continue with the semi-retirement status.

I am glad to hear you are working on your weight. I just lost quite a bit of weight.

Good Luck!

 

[Leon44]

I recently ER'd at 54. There is an adjustment on your time but my top goal is to get into better physical condition. ER is a blessing that gives you the time to get and maintain health. The mental challanges will come to keep you busy and engaged.

Looks like you are in great shape finacially. Make surre your wife is 100% on board with the plan. she'll be heading off to work while your still in your PJ's.....that can be an adjustment until she joins you.

BTW...it sounds like you have a good investment advisor......leaarn from them and take over managing your own investments. That is a great hobby to have!

 

[amfox1]

flyfishnevada - I also doubt I will want for stuff to do, given two tween/teens. I am working on the "what to do with my free time" part. It will likely include a mix of hobbies, volunteering and socializing. "How to Retire Happy, Wild and Free" is on my reading list.

scrabbler1 - I am fairly confident that I will be sharing your "Retired at 45" claim while I am 45.

Jay_Gatsby - An in-house career is not likely for me, at this stage. I'm much more likely to do a limited amount of legal consulting on an ad hoc basis than a full-time job.

FreeAtLast - See response to Jay. Sounds like you have a good deal with your PT work. The toughest part is keeping the weight off. I lost 33 pounds in 14 months and have kept it off for another 4 months.

Leon44 - It's a funny thing, but the closer I get to ER, the more supportive she is about it. It took a while to convince her that this was in everyone's best interest, but she's now there (and thinking about all the ways this will benefit her as well). Part of the reason for doing this is to allow her to work with fewer distractions. She sacrificed a chunk of her career to raise our kids and support my work, and now it's time to pay that back. As for the advisor, we are slowly shifting money to Vanguard (approx. 25% so far), with the idea that all or most of the remaining managed funds will be moved to Vanguard at ER and invested in accordance with an investment policy statement we are putting together.

 

[Jay_Gatsby]

Thanks for the reply, Amfox1. I completely understand your rationale for not wanting to go in-house at this point.

As for your weight loss, congratulations. Going in-house allowed me to get into great shape and stay that way. Retirement will likely be just as kind (if not more) to you. If I were in your shoes, I would see how far I could take myself to get into great shape, since it gets much more difficult the older you are.

 

[Packman]

Leon44 - It's a funny thing, but the closer I get to ER, the more supportive she is about it. It took a while to convince her that this was in everyone's best interest, but she's now there (and thinking about all the ways this will benefit her as well). Part of the reason for doing this is to allow her to work with fewer distractions. She sacrificed a chunk of her career to raise our kids and support my work, and now it's time to pay that back.

My wife was on board as well when I ER'ed a month ago. I had been planning for ER for many years and she was happy that I was realizing my dream. She also liked the fact that I would do all of the housework and grocery shopping and car maintenance, etc. However, (again, with only 30 days into this new phase) I don't think she is quite as excited about this as she thought. She has been pretty quiet since my ER, so I think the reality of it all has upset her a bit. We took a short vacation last week, and when we got home, she went back to work - I didn't. I'm sure that as we settle into a rythym it will become easier to live with. Just want to point out that minds can change, so be aware. I for one, am not bragging to my DW how great this ER thing is. I'll let some time pass before I do any of that.

 

[amfox1]

Here is my most recent quarterly update (a bit late).

Still looking at an anticipated ER date in the first quarter of 2012 (class of 2012). I'm looking at a likely range between the end of January and the end of March.

I've made it through my latest quarterly heath checkup with flying colors and intend to provide notice after a full physical in mid-January, assuming no change. My DW continues to be supportive and is taking concrete steps vis-a-vis her career based on the expectation that I will FIRE early next year.

Financially, we still remain on track, despite the market downturn, and we are in the process of refinancing our mortgage at lower rates while I am still employed.

I continue to ponder post-FIRE life. In the short-term, greater inclusion into day-to-day affairs and some other family obligations will keep me busy. I have recently re-started a hobby in anticipation of post-FIRE, but I will need to continue to think about how I spend my time outside of family obligations.

 

[amfox1]

Here is my most recent quarterly update (a bit late again).

I intend to give notice early next week, effective as of March 1 (class of 2012).

I've been checking off boxes. Refinancing mortgage, check. Full physical passed, check. DW spoke to her boss to make sure her job is secure, check. Financial plan for immediate post-RE, check.

Last box is to tell the kids, and I expect that to happen by the end of the weekend.

I continue to ponder post-FIRE life. As mentioned previously, in the short-term, greater inclusion into day-to-day affairs and some other family obligations will keep me busy.

I am going to take six months (through the end of the summer) to consider the next stage of my life. I am thinking more and more about doing some volunteer work in my community, but need to take some time off and really figure out what I want to do. Luckily, DW is very supportive.

I'll post again after I give notice and then update the class of 2012 thread.

 

[Bestwifeever]

Wow, that is just a month away now! Congratulations!