Nervous, want to keep 2020 retirement plan. I am not objective, please comment?

[SunnyOne]

I am 59.5 and divorced - and I have been planning to retire on May 31, 2020.

Retiring with just under $2M portfolio, a $12K/year pension, healthcare and Soc Sec earliest age 62 @ $24K year.

Approximate expenses in retirement: $80K/year (have no mortgage or debt, so some flexibility there)

Leading up to retirement, I had been locking in gains by moving money from my equity accounts to income accounts (within my 401k), so I am sitting on about 30/70 in this year of planned retirement. I had been planning to revisit this AA after retirement.

The events of the past couple weeks have unnerved me - vis a vis retiring in 2020.

Domestic Equity 23%

International Equity 8%

Bonds 47%

Cash 22%


= 100%

A quick glance at my accounts shows a loss of about $70K total in the past several days. This was money I did not have until the run up of the past several months..and I had been planning to retire anyway in 2020, regardless of this run up - it was just icing on the cake.

I really want to retire as planned ( I work in a difficult job and it's been impacting my health).

** I know that none of us knows which way the market is headed in the coming weeks and months **

I want to stay the course and not sell, but I also feel that delaying my retirement could be disastrous from a mental health standpoint.

So here's where I am:

(1) If I sell some of my equity position, I can lock in the value of my portfolio and I can still retire as planned and potentially have less capital working for me in the outer retirement years (that's not to say I can't buy back in later)....

(2) or I can bet that we have already hit a bottom and stay where I am and take my chances as to further losses and the evaporation of my retirement timing.


I know only I can make this decision, but it would be great if anyone here could point out anything I am missing in these scenarios - oh yes, that would be a tax bill for 2020, but at least in a lowered income year - and the gains are long.

 

[copyright1997reloaded]

At 31% on a $2M portfolio, this means you have a $620K in equities. If the market loses 50% of its value from here, you would have $320K in equities, and about 1.7M net worth.

Assume (just for fun) that this happens, and then the market does 'normal' from there. You have 1.7M @ 4% = 68K per year plus 12K pension = 80K/year. If you needed to, you could take Social Security @ 62 which would increase the total to 104 K/year, most of which is inflation adjusted.

Seems like you are good to go.

p.s. I retired in May 2009 which was the last time everyone thought that the world was going to come to an end. I was at 56% equities which only that low because the market had fallen so much.

 

[Tiger8693]

If I had a $2M portfolio AND a $12k pension, I would not let the door hit me.....

 

[SunnyOne]

but the $2M portfolio is dropping and many are predicting troubled times ahead...that is the point.

I am not seeking for someone to make any decisions for me (as I stated in the original post)...but I do see value in various thoughts and opinions.

 

[UnrealizedPotential]

Hmm. What would I do? If my job was impacting my health and I was in your situation I would leave the assets where they are and retire as planned. Of course as everyone knows, the decision is yours and yours alone.

 

[MRG]

You have 69% of two million in cash and bonds? That will cover over 17 years of spending without touching any equities, not counting your pension and SS!

Relax and follow time honored project management saying: Plan the work and work the plan. Your plan is done, now follow it and enjoy life.

 

[Bamaman]

You've done well, and your portfolio is very defensive. You're fixed.


The market will be back at some point very soon.


Go for the planned retirement date. You'll be sorry if you put it off one more day.

 

[Go-NoGo]

Did some back of the envelope calculation.
22% cash = $440K

Expenses = 80K, and you will get a pension of 12K so burn rate = $68K
In 2 years your cash balance will be $440 - 68*2 = $304K (assuming you take $ from cash balance)

Since you plan to get SS, your burn rate becomes even better in 2 years 68-24 = $44k/yr.
I would expect markets to have recovered in 2 years (yea - I know, no one knows for sure).

So you still have 1.56M in your equity and 0.3M in cash. you should run that in Firecalc, I would expect a high success rate.

 

[Aiming_4_55]

I think you are ok to go with your plan, if you are flexible with your spending. Out of the 80k expenses, how much is discretionary vs essentials?

You say you are divorced, however any kid expenses that can increase your budget? Any large planned purchases?

If you feel it will cause health issues, I say go with your plan to retire and just watch your spending, i.e. clip a few coupons, look for sales, etc.

 

[W2R]

I was divorced when I retired, too (still am!), back in 2009 when the market was pretty low. I didn't know if the recession was over or if the market was still on its way down so that was kind of scary. I was 61 when I retired so I knew I could get Social Security at 62 if I needed to do that, even though my plans were to wait until age 70 for SS (which I ended up doing).

I think divorced or single people have one HUGE advantage in your situation, and that is, that we can cut back on spending pretty severely if necessary without having to negotiate the changes in spending with a spouse.

I like your asset allocation a lot, for retirement. Mine is very similar. I would stick with that AA if it was me.

I was a federal employee, and others in my agency who worked in the DC area told me how much it costs to live there, so I understand your concerns completely if you are in that part of northern Virginia. I retired on much less, but then I live in a medium cost of living area. I had a paid off home, no dependents, and no loans to pay off.

Retirement has been a dream come true for me, so I would urge you to retire if you think it is possible.

 

[Looking4Ward]

We are the same age. I ER'd almost six years ago with a portfolio smaller than yours (70/30) and no pension or health care provided. I'll most likely start SS at 62 for roughly $24K a year.

My spending has been both above ($107K) and below ($38K) your projected amount each of the last six years, and my portfolio is still larger today than it was the day I stopped working in 2014.

If I were in the same position as you, I'd quit on Monday.

 

[doneat54]

So if I read your numbers right, your portfolio is about $450k in cash? That is a big bucket. Covers many years of your expenses, so you could ride a cash train after you retire if needed to ride this drop out. And I do know that once I mentally picked my date, no drop was going to keep me from doing it. I told my wife "I'll live in a van down by the river if I have to". FIRE'd 3 years now.....

 

[SunnyOne]

I was raised by low income, spendthrift parents and money was a constant stress factor - and we ended up losing our home to foreclosure when I was a kid....Obviously, even as a middle aged adult, I still carry an abundance of fear around with me.

 

[gwraigty]

That $2M portfolio should be generating something in the way of passive income.

 

[COcheesehead]

I was raised by low income, spendthrift parents and money was a constant stress factor - and we ended up losing our home to foreclosure when I was a kid....Obviously, even as a middle aged adult, I still carry an abundance of fear around with me.

Then adjust your portfolio accordingly. Use a bucket approach or invest to produce an income stream, implement a rising equity glide path or build a bond ladder. Find a passive income source. There are so many ways to remove “scary” from investing.

 

[MRG]

I was raised by low income, spendthrift parents and money was a constant stress factor - and we ended up losing our home to foreclosure when I was a kid....Obviously, even as a middle aged adult, I still carry an abundance of fear around with me.

+1

You have the preretirement jitters, I did too. Actually I shook the first year, I knew the market would crash the day after I left my job. I'm watching a former co-w*rker do the same. It is optional.

You have enough assets to do nothing, if you have an issue with money, most are going to be clobbered. You have enough cash to comfortably ride out any know type of issues. I'm talking like armageddon scenarios! Chill, take a few big deep breaths and let go. Have you ever done deep breathing exercises? They're very good and helped my anxiety over "losing a paycheck". What I lost was a great big PIA and threat to my health, yours too.

Now this is a great test. Seize the opportunity to realize you are ok financially. I spoke to my Vanguard rep the other day on a regularly scheduled meeting. He mentioned two things that were helpful: He said in the last 11 similar events the market has recovered 9 of 11 times within 6 months. The other was if you are not sleeping well because of the recent downturn your asset allocation was wrong. I don't think your AA is wrong, I think you are nervous. Best wishes.

 

[WyomingLife]

+1

I spoke to my Vanguard rep the other day on a regularly scheduled meeting. He mentioned two things that were helpful: He said in the last 11 similar events the market has recovered 9 of 11 times within 6 months.

Here’s an interesting article on that point:

https://www.cnbc.com/2020/02/27/heres-how-long-stock-market-corrections-last-and-how-bad-they-can-get.html

 

[jazz4cash]

but the $2M portfolio is dropping and many are predicting troubled times ahead...that is the point.

I am not seeking for someone to make any decisions for me (as I stated in the original post)...but I do see value in various thoughts and opinions.

Not only are you good to go, you’ve made some savvy moves to reduce equity exposure leading up to your planned retirement. With your heavy cash allocation you can wait several years for the equities to recover from whatever the bottom turns out to be. You can also probably afford to cash out now if and only if the risk keeps you up at night. It seems like retiring as planned from a difficult job is most important of all. Congrats on a job well done.

 

[capjak]

Finances look good to go but not sure mentally.

If my health was impacted and I had 30x expenses (2000K/68K), I would be retiring.

But that's me.

 

[lordjust]

At your age and those numbers I would feel safe retiring. Especially since you are so cash/bond rich.

 

[Aerides]

You're sitting on 400k in cash in an otherwise healthy retirement egg, with a small pension. It would take you 5 years to spend that down before you'd have to touch anything else, so you can of course ride out this current downturn. Go for it.

 

[GravitySucks]

I addressed some of my fear by building a CD and bond ladder. Having a safe investment that pays out every six months or so relieved much of my stress. I've been very lucky as everytime they matured I was able to live off equity profits and reinvest the fixed income.
I wouldn't sell the equities. You're on the low side of what has historically been successful.

 

[Dtail]

I put your numbers in the Firecalc retirement calculator assuming a non cola pension collected at 62 y.o.
You are at 100% success and have about 95k maximum spending at a 100% success rate.
Your portfolio can drop to 1.55m and sustain the 100% success rate.

Assuming you are comfortable of your expense level, you are good to go.

Relax and take a deep breath and think about the best part of your life coming up.

 

[SunnyOne]

Thank you all for the outside looking in view points. I appreciate them at this time so much.

With respect to these two items - any suggestions for references to learn more about setting these up? Thank you in advance!

Then adjust your portfolio accordingly. Use a bucket approach or invest to produce an income stream, implement a rising equity glide path or build a bond ladder. Find a passive income source. There are so many ways to remove “scary” from investing.

I addressed some of my fear by building a CD and bond ladder. Having a safe investment that pays out every six months or so relieved much of my stress. I've been very lucky as everytime they mature

 

[COcheesehead]

Thank you all for the outside looking in view points. I appreciate them at this time so much.

With respect to these two items - any suggestions for references to learn more about setting these up? Thank you in advance!

Then adjust your portfolio accordingly. Use a bucket approach or invest to produce an income stream, implement a rising equity glide path or build a bond ladder. Find a passive income source. There are so many ways to remove “scary” from investing.

I addressed some of my fear by building a CD and bond ladder. Having a safe investment that pays out every six months or so relieved much of my stress. I've been very lucky as everytime they mature

This a great overview on the bucket strategy and includes worksheets for guidance on setting up the buckets.

https://www.theretirementmanifesto.com/how-to-build-a-retirement-paycheck/

For the rising equity glide path, see Kitces blog.

https://www.kitces.com/blog/should-...is-a-rising-equity-glidepath-actually-better/

He has some great stuff on there.


Fidelity has an excellent guide on their website for building and managing a bond or CD ladder.