Fire Calc at 94.3%

[StuckinCT]

With a heavy weighting in Dow stocks after adding to things like Walmart, Boeing in the last big pullback, it has been a good year with the Dow up 30%.

We touched 8 figures in net worth briefly at the peak with 7 figures in net worth growth just this year. So, I decided to re-run the firecalc and we are at 94.3%. We were below 90% last year.

I am now 46 and our kids are 8,6, and 5 our high expense lifestyle will not last forever. I used our current expenses in firecalc but anticipate them to drop by at least 10% when the kids go off to college and we have adequate college savings to fully fund it and miscellaneous expenses as I excluded $1.35 mm for college from portfolio in the firecalc.

I think I may have finally convinced myself that I am over the line

 

[Aerides]

Based on the title my first question was "hold old?" and your age didn't help the confidence level.

But based on the rest of the info, and the kids, and your geography, yes you clearly have options to reduce spending. The question is if you can reduce some of the expenses now vs. later, so you're not doing a whole lot of draw down on the portfolio in the early years of ER.

Still, if 8 figures is remotely close for you, most anyone can plan to live quite comfortably with moderate expense adjustments. I'd spend the next few months getting a real handle on your burn rate and see what is slack, like enough to still say yes if 2018 reverses the gains of 2017.

 

[Sunset]

With a heavy weighting in Dow stocks after adding to things like Walmart, Boeing in the last big pullback, it has been a good year with the Dow up 30%.

We touched 8 figures in net worth briefly at the peak with 7 figures in net worth growth just this year. So, I decided to re-run the firecalc and we are at 94.3%. We were below 90% last year.

.....
I think I may have finally convinced myself that I am over the line

I see 8 figures as: $10,000,000

I could retire at age 20 on that much, which would be $100,000 /yr at 1%

 

[bloom2708]

With $9 to $10 million, your spending must be very high to be at 94%.

That is fine. Maybe it takes $15 million. I would do an awful lot of soul searching and figure out how to stumble by on 3%.

Congrats on your success!

 

[audreyh1]

Are you doing FIRECALC runs on your entire net worth? Best to run it against assets set aside to fund retirement. Don’t include your house(s), for example.

 

[pb4uski]

....I used our current expenses in firecalc but anticipate them to drop by at least 10% when the kids go off to college and we have adequate college savings to fully fund it and miscellaneous expenses as I excluded $1.35 mm for college from portfolio in the firecalc.

I think I may have finally convinced myself that I am over the line

Try this...on the spending input on the start here page, put in your "ultimate" level of expenses in 2017 dollars. Then add off-chart spending beginning in the year you retire for the excess of current spending over ultimate spending and check the box so it is inflation adjusted... the input the same amount as a pension beginning in the year that you expect spending to decline... how does that change your success rate?

Or an easier approximation is to just reduce your portfolio by the product of the excess spending and the number of years it will occur and change your spending on the start here page to the ultimate amount of spending.

I suspect that it will make a huge difference because as it is now that excess spending is not only included but also being inflated every year.

 

[SecondCor521]

Another option is to move anywhere more than about 100 miles from the coastline, retire, and live like kings. AKA LCOL areas, AKA geographic arbitrage.

 

[flyingaway]

I see 8 figures as: $10,000,000

I could retire at age 20 on that much, which would be $100,000 /yr at 1%

There is an on-going thread "Hard to live on $100,000 per year". I guess one needs the full 4% annual withdraw. That is $400,000 per year. Still not 100% success rate? Make it to 9 figures.

 

[StuckinCT]

Try this...on the spending input on the start here page, put in your "ultimate" level of expenses in 2017 dollars. Then add off-chart spending beginning in the year you retire for the excess of current spending over ultimate spending and check the box so it is inflation adjusted... the input the same amount as a pension beginning in the year that you expect spending to decline... how does that change your success rate?

Or an easier approximation is to just reduce your portfolio by the product of the excess spending and the number of years it will occur and change your spending on the start here page to the ultimate amount of spending.

I suspect that it will make a huge difference because as it is now that excess spending is not only included but also being inflated every year.

Wow, you got me to 100%!!! Actually, I made two changes: In "your portfolio" I changed it from the default allocation to 81% equities as my portfolio is allocated now and in "other income spending" I reduced spending in 2030 when last kid off to college by 10% with a pension of 10% of today's spending w inflation!

I am feeling even better than I did before!

 

[StuckinCT]

Are you doing FIRECALC runs on your entire net worth? Best to run it against assets set aside to fund retirement. Don’t include your house(s), for example.

I ran it on a $6.7mm portfolio with $240k spending. We have $1.8mm in real estate no mortgage $1.35mm set aside for the kids education etc. and $115k jewelry art furniture all not included.

 

[StuckinCT]

Another option is to move anywhere more than about 100 miles from the coastline, retire, and live like kings. AKA LCOL areas, AKA geographic arbitrage.

If I could sell my primary house I would relocate in heartbeat! I am carrying it at $1.5mm after paying 1.7mm in 2010 but even that may be optimistic. We bought a second home cash in VT last year for $300k and trying to get more used to the idea of living there. Eventually, I will sell the big house in CT and relocate where kids are or someplace warm- I hope- and keep place VT.

 

[SecondCor521]

If I could sell my primary house I would relocate in heartbeat! I am carrying it at $1.5mm after paying 1.7mm in 2010 but even that may be optimistic. We bought a second home cash in VT last year for $300k and trying to get more used to the idea of living there. Eventually, I will sell the big house in CT and relocate where kids are or someplace warm- I hope- and keep place VT.

Bummer if you're underwater on the house.

I was going to make more suggestions, but I just noticed your username. With your assets and income, you must be a reasonably smart cookie. You'll figure it out.

(I'll just reiterate that fly-over country, if you like living there, can be extremely cheap.)

 

[Tallman4123]

Does your $240k include fed and state taxes? Firecalc does not account for the T word

 

[StuckinCT]

Does your $240k include fed and state taxes? Firecalc does not account for the T word

Tallman, yes, I included taxes in that figure, its funny how it came out to $240k- I also took into account $8k in wife's part time teaching- she's 35- and $6k in rental income on VT house. Our effective tax rate is very low since almost all qualified dividends and muni interest; with the new tax structure we will lose much of our real estate tax deduction but should make it up in child tax credits.

 

[audreyh1]

I ran it on a $6.7mm portfolio with $240k spending. We have $1.8mm in real estate no mortgage $1.35mm set aside for the kids education etc. and $115k jewelry art furniture all not included.

Good deal! - makes sense.

You’re looking at a 3.6% withdrawal rate which is somewhat conservative. But folks with a 40+ year retirement might want to dial it back even further to say 3.3%. How soon were you planning to retire?

Personally I use a % remaining portfolio method which does not track inflation. But follows portfolio performance instead. So one may experience widely varying income but won’t run out of money. It you have to decide how you want to manage the income variation.

 

[StuckinCT]

Good deal! - makes sense.

You’re looking at a 3.6% withdrawal rate which is somewhat conservative. But folks with a 40+ year retirement might want to dial it back even further to say 3.3%. How soon were you planning to retire?

Personally I use a % remaining portfolio method which does not track inflation. But follows portfolio performance instead. So one may experience widely varying income but won’t run out of money. It you have to decide how you want to manage the income variation.

How about tomorrow!? Yes, I agree 3.6% is a bit high, but by2030, we plan to drop it by 10% when the kids are grown to 3.24%, maybe sooner if I can unload this house anywhere close to what I paid for it!

 

[SecondCor521]

How about tomorrow!? Yes, I agree 3.6% is a bit high, but by2030, we plan to drop it by 10% when the kids are grown to 3.24%, maybe sooner if I can unload this house anywhere close to what I paid for it!

Emphasis added.

Sunk cost fallacy and loss aversion, or practical consequence of being underwater or needing the proceeds to be large enough for some other reason?

 

[StuckinCT]

Emphasis added.

Sunk cost fallacy and loss aversion, or practical consequence of being underwater or needing the proceeds to be large enough for some other reason?

I hear ya loud and clear, if I thought we had a chance I would list it but there is just no market right now for this type of house where we are- they just sit for years and years no matter the price because no one wants to pay $33k in real estate taxes. Eventually, we will get some major corporation to come in or something to soak up all this inventory or plain old inflation will take hold. Believe me, we are stuck here...

But I should add, there are worse places to be stuck, beautiful great schools friends etc. and we have the resources to retire as things stand so I am not despondent, just realistic..

 

[SecondCor521]

I hear ya loud and clear, if I thought we had a chance I would list it but there is just no market right now for this type of house where we are- they just sit for years and years no matter the price because no one wants to pay $33k in real estate taxes. Eventually, we will get some major corporation to come in or something to soak up all this inventory or plain old inflation will take hold. Believe me, we are stuck here...

But I should add, there are worse places to be stuck, beautiful great schools friends etc. and we have the resources to retire as things stand so I am not despondent, just realistic..

Actually I was wondering which of the two things it was. But I understand about trying to sell a high end home. Around here, most people want a custom home in the higher price range, so they become hard to sell.

Just curious, if you listed it for $1M just to get rid of it, would that work or would people just be suspicious that there was something wrong with it because of a super low price? Would you be able to make a FIRE plan work with proceeds of $1M (minus transaction costs)? Would you be able to stomach the loss?

 

[StuckinCT]

Actually I was wondering which of the two things it was. But I understand about trying to sell a high end home. Around here, most people want a custom home in the higher price range, so they become hard to sell.

Just curious, if you listed it for $1M just to get rid of it, would that work or would people just be suspicious that there was something wrong with it because of a super low price? Would you be able to make a FIRE plan work with proceeds of $1M (minus transaction costs)? Would you be able to stomach the loss?

What is interesting is that we are currently having a real estate revaluation and based on the first selectmans' letter on high end homes and expected appraisals, I am expecting our taxes to drop about 10%. This may not sound significant but the average home will likely get a 2-3% increase to compensate for this lost revenue on the grand list which will narrow the tax burden between houses like mine and the average $800k home. Also, neighboring towns like Westchester have even higher real estate taxes and with the loss of deductibility of property tax on the GOP bill, I think homes that were over $1.6 may start to move at bargain prices.

This house has a beautiful park like lot with 6 acres, 5850 sf and a though it was a spec house, it has a lot of nice mill work and some quasi custom features. The builder started in 2007 and was clearly aiming for a $2mm home then scaled back, so that's why we thought we were smart paying $1.7mm.

I think after this reappraisal and clarity on the tax front, not to mention our bankrupt state finally adopting a budget without further tax grabs, I think it would trade between $1.4mm and $1.5mm which I might be able to live with.

But the final thought I have is that since we have done so well with our investments, do I need to really worry about lowering my expenses now as the firecalc has me basically at 100% and at least 96.3% if we don't scale down when the kids fly the nest? I have to admit, there is part of me that wonders if now I am just being greedy or trying to keep score. Mr. Money Mustache, who follows the 4% rule, recently made this point. Do you even really need 100% on the firecalc? I can tell you Money Guide Pro says 90% is optimal. If you are at or close to 100%, you are done in my book.

 

[SecondCor521]

Sounds like a really nice house!

Regarding your last paragraph:

If I put myself in your shoes and found myself making decisions as you are, I would ascribe it to wanting to ensure that I could really fund my family's lifestyle going forward - not greed or score-keeping. It's a little surreal and scary to step through the looking glass from looking at some spreadsheet output that says 4% and actually not go to work and see that the bills still are getting paid.

How conservative or aggressive to be is a pretty personal choice. Personally I waited until I was at 4% then stayed about another two years until some toxicity in my workplace and my Mom's illness shifted the balance. I tend to think that people can recognize when the time is right for them - it is usually when their language switches from focusing on the fears and risks and minimizing the benefits to all the options and opportunities and minimizing the risks. The data is the same, it's the perspective that changes.

 

[USGrant1962]

Wow, you got me to 100%!!! Actually, I made two changes: In "your portfolio" I changed it from the default allocation to 81% equities as my portfolio is allocated now and in "other income spending" I reduced spending in 2030 when last kid off to college by 10% with a pension of 10% of today's spending w inflation!

I am feeling even better than I did before!

A couple of thoughts.

IMO you are over-funded for college expenses. I think I recall a previous post where you were planning for funding grad school (?) so this may not be applicable, but. I overdid the 529 savings, with help from grandma, and am facing trying to get remaining funds out without paying the 10% penalty (first world problem). Probably going to let it ride for the grandkids (if they come). This happened because I fully funded 4 years of private college for DS1 and DS2. DS1 graduated a $60K/yr private school, but got a $15K/yr merit scholarship. DS2 is currently at an out-of-state public school at ~$40K, but is on a partial ROTC scholarship so only costs me $20K.

Point is I could have put half as much in 529s and funded the difference out of cash flow - I suspect you are in the same regime, even in ER if your spend is $240K. If any of your kids get any kind of merit scholarship, go to less expensive schools, don't go to college, etc.; some of that reserved money comes right back into your portfolio.

Don't forget SS in your FIRECalc runs. Assuming you are on the high end of SS benefits you are looking at $50K or so a year, maybe $40K with a 23% haircut. That in itself knocks your post-SS withdrawal rate down, in your case by ~20%. So your 4% starting SWR becomes 3.2% after SS. I call this the "SS 2-step SWR", which is rarely acknowledged in most SWR discussions. Anyway, FIRECalc models it well.

 

[StuckinCT]

Yes, we are lucky to have such a nice home- our kids really love all the space, the privacy and the yard. My wife grew up poor in Oregon and for her it is her barbie dream house. For me it has been stressful but I’ve always known we could scale back at some point if need be and we sort of toughed it out.

What you said on perspective really makes a lot of sense. There have been some things at work that have happened recently too, and tomorrow i actually have a job interview! I’ll spare you the details but I am sort of leaving it in fates hands at this point.

Maybe I have one more push in me, but what is difficult is I have all the material things I want for the most part so I would be working to pad myself further and maybe save for a third home down south so I can keep the expensive home that stresses me out? It kind of alll doesn’t make sense does it. That may be what is happening, my perspective is changing.

 

[StuckinCT]

A couple of thoughts.

IMO you are over-funded for college expenses. I think I recall a previous post where you were planning for funding grad school (?) so this may not be applicable, but. I overdid the 529 savings, with help from grandma, and am facing trying to get remaining funds out without paying the 10% penalty (first world problem). Probably going to let it ride for the grandkids (if they come). This happened because I fully funded 4 years of private college for DS1 and DS2. DS1 graduated a $60K/yr private school, but got a $15K/yr merit scholarship. DS2 is currently at an out-of-state public school at ~$40K, but is on a partial ROTC scholarship so only costs me $20K.

Point is I could have put half as much in 529s and funded the difference out of cash flow - I suspect you are in the same regime, even in ER if your spend is $240K. If any of your kids get any kind of merit scholarship, go to less expensive schools, don't go to college, etc.; some of that reserved money comes right back into your portfolio.

Don't forget SS in your FIRECalc runs. Assuming you are on the high end of SS benefits you are looking at $50K or so a year, maybe $40K with a 23% haircut. That in itself knocks your post-SS withdrawal rate down, in your case by ~20%. So your 4% starting SWR becomes 3.2% after SS. I call this the "SS 2-step SWR", which is rarely acknowledged in most SWR discussions. Anyway, FIRECalc models it well.

I agree we are likely overfunded but again in the northeast, I know people that just finished paying for four years of Georgetown and it totaled $325k.

In all likelihood we will have one get some merit based help, one at state school- my motto is it is either UConn or Yale- and one we will pay full boat. My strategy for the 529s is to have $250k each which will be the cost of a state school or half of private school in future dollars and not tell them about the other money and actually have them take out loans for the difference, i.e. skin in the game.

The plan would be to see how they do and then either pay off their loan if they do well or let them struggle a little if they are having motivation problems.

If they do go to state school, then they will likely want a graduate degree and if they don’t use all the money they can use it for a down payment on a home start a business etc. I want to give them every advantage without spoiling them and it could be well over $500k each. Wish I knew what they will cost!

 

[USGrant1962]

As long as you are not tying up all of your "college funds" in 529s it is 100% fungible, so you are good. So the remaining question is how much do you reserve from your FIRECalc inputs. Conservatisms, as I call them, are good as long as you consciously decide to include them and understand you are doing so.

Regarding skin in the game, DS1 has the basic federal loans, meaning he owes $26K on a mechanical engineer's salary so he's good. DS2 will owe 4 years in the Air Force working in cyber-defense (or offense?), so he's good too.