Can I swing it?

[Goodprovider]

Wondering if retirement right now is doable. Here's my situation:

- 45 years old
- Divorced
- 2 kids who will be college age in 5 years - I pay for half
- Paid-off house worth about 750k
- About 600k in a 401k
- Another 600k in liquid assets
- No debt; net worth is about 1.95 million
- Expenses are about 50k per year.
- Only certain retirement income would be social security, though may be in line for inheritances.

What do you think? Any feedback would be much appreciated.

 

[REWahoo]

Check this out: Some Important Questions to Answer Before Asking - Can I Retire?

 

[Mountain skier]

What is the AA with your investments?

 

[pb4uski]

1) What does FIRECalc say?

2) At such a young age I would think your WR should be 3.5% at most... IF you are certain of your $50k spending then that would be $1.4k of financial assets.... so if you downsize your housing then you might have a decent shot.

 

[USGrant1962]

Welcome to the forum!

You are close, but need to answer a number of questions to yourself such as the ones in REWahoo's link. The ones that jump out at me:

1. How confident are you in your spending budget. Did you include lumpy expenses like replacing a car/roof/AC/etc.?
2. Is your college expense included in your budget? Is it in a 529?
3. What is your Social Security forecast? Pension?
4. Your paid off house is worth imputed rent (a plus on the spending budget), but is not generating cash for you to live on in retirement. So you need to focus on your portfolio versus your budget, not net worth.

Based on what you have posted, I feel like you are not quite there and need a year or two to be highly confident, but you are close.

Have you done a model of your situation in FIRECalc?

 

[Goodprovider]

Thanks guys. My investments are very conservative. Of my liquid assets, about 125k are in stocks with the remainder in savings. If you have investment advice for that 500k, I'm all ears. Thinking maybe bonds or CD's.

FIRECalc seems to be saying I have like a 92% chance of being able to swing it. Agreed that I'd need to downsize my house eventually.

This is all very encouraging.

 

[Goodprovider]

USGrant, addressing your questions:

1. I'm pretty confident in the 50k, though maybe 60k with health insurance I'm not a big spender. Right now my biggest expense is taxes which would be eliminated in retirement.

2. College expense is not in a 529 though maybe it should be. Just imagined I'd pay it out of savings.

3. My social security forecast is $2100. No pension.

I can maybe be comfortable working another year or two if need be, but my job is very high stress (which is why I make the big bucks I suppose), and I'm presuming taking years off my life.

Many thanks for your help.

 

[USGrant1962]

Thanks guys. My investments are very conservative. Of my liquid assets, about 125k are in stocks with the remainder in savings. If you have investment advice for that 500k, I'm all ears. Thinking maybe bonds or CD's.

FIRECalc seems to be saying I have like a 92% chance of being able to swing it. Agreed that I'd need to downsize my house eventually.

This is all very encouraging.

For "early retirement" I'm a 100% guy in FIRECalc as long as your model includes SS (at say 80%).

But that is assuming you will not do any side gig, consulting, part time, etc. for the next 50 years.What are your aspirations on that? If you will have some small income it makes a huge difference in your results. Especially if you keep improving your SS returns by replacing zero years / high school jobs / college jobs.

Also, I think your investments are too conservative for a 40-50 year retirement. Make sure you go to the "investigate" tab in FIRECalc and see what changing your Asset Allocation (AA) does by playing with "Investigate changing my allocation". You will find that you get the best results between 30% and 90% stocks. IMO, for someone retiring earlier than 50 years old going below about 50% stocks is actually risky. The risk of being too conservative probably won't show up for a long time, but it will show up at the worst time - when you cannot really recover.

 

[Mdlerth]

Focus on FI, and RE will take care of itself

Run FIRECalc multiple times, using different forecast retirement dates, until you get a 100% success. That will give you a target date, which can be crucial for setting your mind at ease.

Suppose you don't achieve a FIRECalc 100% success projection until, say, 2023. It doesn't mean you necessarily have to wait until then. Nor does it mean you have to leave at that point, but once you have a Do Not Exceed date, you have a lot more flexibility. In my own case, once I hit 100%, I didn't punch out right away, but it was then I started lobbying upper management to consider me high on the list for downsizing. In the end, I snagged a severance package so it worked out well.

I've heard lots of anecdotes from pre-retirees about how refreshing it was to reach their target dates. The best one came from my late father, who worked as an economist for the federal govt. He routinely had to testify before Congress as an expert witness. It irritated him to no end that certain Sens and Reps weren't interested in facts; they only wanted to hear him say something that supported their policy initiatives regardless of how idiotic they were. But he told me that once he hit the magic milestone of retirement eligibility, the pressure lifted and he could speak the truth without fear of repercussion.

He stayed on for 2 more years; those last 2 years on the j*b were much more pleasant, and they substantially padded his and Mom's retirement lifestyle. He passed last summer after 27 sweet years of freedom; I don't believe he regretted those extra 2 years in harness.

 

[njhowie]

You can swing it.

Safer to wait until your obligations for the kids college has been satisfied. You'll be in a much better place then.

 

[ivinsfan]

You pay for half of college? Ok what kind of college and for how long? CC, in state tuition or shoot the moon private school. You need a number for that and with college 5 years away I'm guessing serious discussion about that hasn't happened yet.

Are you living close to your kids and do you need to keep that house for another 5 years? Who knows what the home will be worth 5 years from now.

Hang in there and try to nail down some more details.

 

[HI Bill]

My investments are very conservative. Of my liquid assets, about 125k are in stocks with the remainder in savings. If you have investment advice for that 500k, I'm all ears. Thinking maybe bonds or CD's.

Inflation is your largest risk with your ultra-conservative AA. This AA is actually extremely risky over the long-run, as at/near a 4% WR, you'll have a hard time keeping up with inflation, with the low rates that savings/bonds/CDs are paying right now. I'd consider a 50/50 portfolio a minimum (although the highest probability of success are often quoted with AAs of 60/40 to 40/60).

I'd go with Vanguard's four-ETF portfolio, but leave about 3 years of expenses in cash in their money market fund:

https://investor.vanguard.com/etf/investment-options

 

[Goodprovider]

All:

Thanks for these very helpful comments. I wish I'd come upon this bulletin board years ago. You do a great service here.

It's true I'm an overly-cautious investor. I suppose I'm excessively paranoid about the stock market lately. Been waiting for a dip to jump in - most likely with the Vanguard ETF portfolio that you suggest. Maybe 60% of it directed there, with the remainder in savings / bonds / CD's.

Appreciate the support.

 

[HarveyS]

I say you need to look at ivinsfan's comments and take them to heart. You and your ex may have different visions of college for your kids. And the kids may have different visions. Shoot for the moon private is about $75k/yr all in. And you are not likely to get much aid with your assets. Even if you and the kids agree to an in-state but away from home option (maybe $25k/yr), the ex may de-rail that. A friend had his ex convince their DD that Private U, out of state, was the best for her. Of course, money was no object for the ex and her new hubby. Not so much for my friend.
You are in a tricky spot with an ex involved. Tread carefully. Good luck.

FWIW I budget $25k/yr for health care for me, spouse and kids. That's premium and max out of pocket. Thankfully, I have not hit MOOP in any year so far, but I believe it prudent to budget for that. Others here don't budget for MOOP, but that's what I do. You may qualify for ACA subsidies also - I don't know about those other than they vary by state. Lots of threads on that topic here.

 

[The Cosmic Avenger]

All:

Thanks for these very helpful comments. I wish I'd come upon this bulletin board years ago. You do a great service here.

It's true I'm an overly-cautious investor. I suppose I'm excessively paranoid about the stock market lately. Been waiting for a dip to jump in - most likely with the Vanguard ETF portfolio that you suggest. Maybe 60% of it directed there, with the remainder in savings / bonds / CD's.

Appreciate the support.

There's a reason "market timing" are often considered dirty words here. In my own experience, I also thought it made sense to wait for a dip to buy...until the 5th or 6th time I wound up finding a "dip" was only the beginning of a slide, or a stall in a climb, and I would have done better if I had waited longer or not as long. After a few of those, I resolved to implement whatever new strategy or AA as soon as I made up my mind to do so, regardless of the market. If you're planning on investing for at least 3-5 years, just do it, you're as likely to miss out on gains as you are to buy on a dip. If your strategy is sound, then trust in it and jump on it!

 

[pb4uski]

OP, you may want to look at value averaging.... it is a technique to put money into the market over a period of time.

Briefly, let's say your have $100k to invest and you decide that you'd like to do it over 10 months. Invest $10k today. In one month add whatever you need to to bring it to $20k... so if the $10k is $9.5k a month later you put in $10.5k.... if the $10k grew to $10.5k you add $9.5k. The next month add whatever you need to to increase your balance to $30k. Rince and repeat until your $100k is fully invested.

You end up investing more then the market is relatively low and less when it is relatively high.... and more importantly... you stop standing there and do something.

 

[Scratchy]

Your age, your children's ages, your low risk tolerance, current bond yields, all make me think that you are cutting it too close to retire now. You have a long horizon and in my experience most surprises after age 45 are not good ones.

If you're in a profession or have a skill where you can go back to work if needed, perhaps that is okay. If not, I recommend you stick it out for a while.

 

[PartIrish]

Goodprovider, the social security estimate you are seeing may be way off if it assumes you will continue earning your currently income until age 67. This tool is excellent for getting an accurate estimate using your actual earnings. The website doesn't keep any data.

https://socialsecurity.tools/app.html