Greetings..RE Dreaming

[REDreaming]

Greetings.

I've been lurking for a while. I'd love to RE but am a little nervous because of the 'finality' of leaving a long-time employer steady paycheck.

A little about me.....

55 years old, engineer, single, no dependents, INTP

Net worth $1.25 mil (including a paid-for house worth about $260K)

My investments are mostly in the "couch potato" portfolio -- 80% stock and 20% bonds.

I have about $200K liquid (including laddered CDs).

If I retire now, I'll get a non-COLA'd pension of $25K/year. Waiting to retire another 3 years would bump this up to about $32K/year. Medical insurance is currently a retiree benefit. That may be changing in the future with the ever-escalating costs of healtcare, but who can predict?

Assuming that SS will still exist, the report they send me projects that I'll get $18K/year at 62.

I estimate my current expenses as $45K/year (as I eat out a lot, and travel a bit). However, I worry that in retirement I may spend a lot more, as I will need to 'entertain' myself 24/7. Also, having a lot more time to travel may result in a significant jump in expenses as well.

Others from my gene pool typically lived until their late 80's-early 90's so I'm using 95 as my 'expire by' date.

I've run the i-orp and firecalc calculators. Both calculators yield positive results yet the results are significantly different. I'm wondering how to compare these results and I'm hoping someone here can help.

Also, as I stated above, I'm a little uneasy about walking away from that steady paycheck. The work I do is quite specialized, so, if I decide that RE isn't working for me I could not just step into another engineering position. My mega-employer would not rehire me once I leave, as they are going through a tough time and are in the process of headcount reductions. Although I think that I am not one of those who will be targeted to be cut in the near term.

This explains my REDreaming name.

Does anyone have any insights to share to reduce my concerns about giving up the steady income?

Also, I struggle with how to handle expenses. I've read the discussions where a retiree typically spends a lot more when they are younger and that retiree spending usually tapers off as they become older and travel less and, in general, do less. However, I can't figure out a good way to quantify this and factor it into my number-crunching. Any suggestions?

REDreaming

 

[Nords]

Net worth $1.25 mil (including a paid-for house worth about $260K)

My investments are mostly in the "couch potato" portfolio -- 80% stock and 20% bonds.

I have about $200K liquid (including laddered CDs).

If I retire now, I'll get a non-COLA'd pension of $25K/year. Waiting to retire another 3 years would bump this up to about $32K/year. Medical insurance is currently a retiree benefit. That may be changing in the future with the ever-escalating costs of healtcare, but who can predict?

Welcome to the board, RED! I predict that these numbers will generate many "Why the heck are you still working?!?" responses.

Assuming that SS will still exist, the report they send me projects that I'll get $18K/year at 62.

I estimate my current expenses as $45K/year (as I eat out a lot, and travel a bit). However, I worry that in retirement I may spend a lot more, as I will need to 'entertain' myself 24/7. Also, having a lot more time to travel may result in a significant jump in exponses as well.

In the fine print of the SS report it says that you'll get that amount ONLY IF you continue working until age 62. If you want a more detailed estimate (using zeros for your earned income between ages 55-62) try SS's detailed online calculator. Not that receiving less SS will make you more sanguine about retiring.

ER expenses are a subject of some debate. If you're tracking your current expenses, as you seem to be doing, then you'll come up with good numbers. However you might want to review FIRECalc's comments plus the 33% threads here and here. $45K is around the number most ERs spend (myself included without our mortgage) so that's probably a good number.

While your travel expenses will probably rise, you might try to put numbers on the "entertainment" category. Most ERs find that they've already purchased all their hobby toys supplies and their expenses are minimal. Golf fees, fishing licenses, surfboard wax, other consumables-- sure. But unless you're planning to spend the days drinking in bars and trying to pick up... well, never mind. I guess my point is that most ERs try to put a number on their "entertainment" budget and stick to it. You may find out that you have plenty to do without spending more in the entertainment category.

The "good" news is that your fixed pension & SS will cover a huge percentage of your expenses. Your first few years of ER will be more expensive but your withdrawals from your portfolio will drop off when SS kicks in.

Others from my gene pool typically lived until their late 80's-early 90's so I'm using 95 as my 'expire by' date.

Hey, good luck with that! What happens if you live to age 96? Perhaps you could design a portfolio that meets your expenses with dividends (never completely drawing down the principal) or go for a longer lifespan like 120. I'm not claiming that you can predict your date of your death (although you can sure arrange the event) but you CAN invest for an unexpectedly long life.

Also, as I stated above, I'm a little uneasy about walking away from that steady paycheck. The work I do is quite specialized, so, if I decide that RE isn't working for me I could not just step into another engineering position. My mega-employer would not rehire me once I leave, as they are going through a tough time and are in the process of headcount reductions. Does anyone have any insights to share to reduce my concerns about giving up the steady income?

If you're not comfortable then perhaps you could arrange to go part-time. That's about the only practical solution to the "need a paycheck" syndrome and it's driven at least one poster back into the workplace.

However you could practice living without a paycheck. Try to arrange a vacation of at least four weeks (a three-month sabbatical would be even better) and try to live your ER lifestyle. Don't try to travel the world, completely overhaul your house, or train for a triathlon. Get plenty of sleep & exercise, sure, but otherwise try to live what you'd see as a "normal" ER. Track your expenses (especially your entertainment). See how you'd feel about spending from your retirement portfolio instead of from your employer's direct deposit into your checking account. "Practicing ER" seems to be the best way to assuage your concerns.

I can't address your FIRECalc vs I-orp calculator questions other than to say that using "n" calculators will give you at least "n" answers and "n+1" questions. If those two calculators aren't light-years apart then the difference probably isn't significant. Bernstein's website has a five-part series on the "Calculator from Hell" that essentially says if you can get an 80% success rate from a calculator then you'll survive a Great Depression, a world war or two, several recessions, and a half-dozen personal disasters just fine. Anything over 80% is a meaningless waste of your time, although that hasn't stopped me from trying to quantify a couple decimal places either.

Also, I struggle with how to handle expnses. I've read the discussions where a retiree typically spends a lot more when they are younger and that retiree spending usually tapers off as they become older and travel less and, in general, do less. However, I can't figure out a good way to quantify this and factor it into my number-crunching. Any suggestions?

I wouldn't try. The most recent study that raised this controversy did not estimate long-term healthcare costs, especially in a continuing care facility, so it's quite possible that your expenses will actually RISE as you get older. LTC insurance is one way to approach that problem but if you're single with no kids or other beneficiaries then your situation would also be handled by spending down your assets and going on Medicaid. Otherwise it's probably better to plan for a max 4% initial annual withdrawal from your portfolio and to raise that amount annually by inflation.

 

[rms977]

RE Dreaming

Perhaps we should join forces.....Together we'd be Two engineers w/ 2houses and $2 million in assets
Willing to travel How do you feel about Cyprus?

 

[REDreaming]

rms977

RE Dreaming

Perhaps we should join forces.....Together we'd be Two engineers w/ 2houses and $2 million in assets
Willing to travel How do you feel about Cyprus?

I  don't know anything about Cyprus. However I did do a bicycling trip of Greece about 10 years ago and really enjoyed that.

Tell me more about Cyprus.

RED

 

[REDreaming]

Hey, Nords. Thanks for warm welcome and the great info.

In the fine print of the SS report it says that you'll get that amount ONLY IF you continue working until age 62.  If you want a more detailed estimate (using zeros for your earned income between ages 55-62) try SS's detailed online calculator. 

I entered my earnings data into the SS online calculator and crunched some numbers for retiring at 55 vs 58. It shows that I'll get an additional $1.66/month of SS for each additional month I work over the next 3 years.

In the fine print of the SS report it says that you'll get that amount [$18K] ONLY IF you continue working until age 62.

Doing a little more math shows that my SS at 62 would be $17K if I retire now versus 62, so my SS would be reduced by a little over $1K a year if I work 7 fewer years.   

Thanks for the "33%" links, I'm going back to read them.

I like your idea of taking a month (or three) off and pretending to RE. Unfortunately, I cannot take off 4 weeks in a row.  Working part-time is not an option with my mega-corp employer. It's an 'all or nothing' work situation.

RED

 

[MooreBonds]

Well REDreaming, here is a quick spreadsheet I worked up based on your info:
Total Total
Pension Inv Gross Income Net Portfolio Portfolio
Age Income SS Income Income Taxes Income Value Income
55 25,000 30,000 55,000 13,750 41,250 1,000,000 60,000
56 25,000 30,900 55,900 13,975 41,925 1,030,000 61,800
57 25,000 31,827 56,827 14,207 42,620 1,060,900 63,654
58 25,000 32,782 57,782 14,445 43,336 1,092,727 65,564
59 25,000 33,765 58,765 14,691 44,074 1,125,509 67,531
60 25,000 34,778 59,778 14,945 44,834 1,159,274 69,556
61 25,000 35,822 60,822 15,205 45,616 1,194,052 71,643
62 25,000 17,000 36,896 78,896 19,724 59,172 1,229,874 73,792
63 25,000 17,170 38,003 80,173 20,043 60,130 1,266,770 76,006
64 25,000 17,342 39,143 81,485 20,371 61,114 1,304,773 78,286
65 25,000 17,515 40,317 82,833 20,708 62,124 1,343,916 80,635
66 25,000 17,690 41,527 84,217 21,054 63,163 1,384,234 83,054
67 25,000 17,867 42,773 85,640 21,410 64,230 1,425,761 85,546
68 25,000 18,046 44,056 87,102 21,775 65,326 1,468,534 88,112
69 25,000 18,226 45,378 88,604 22,151 66,453 1,512,590 90,755
70 25,000 18,409 46,739 90,148 22,537 67,611 1,557,967 93,478
71 25,000 18,593 48,141 91,734 22,933 68,800 1,604,706 96,282
72 25,000 18,779 49,585 93,364 23,341 70,023 1,652,848 99,171
73 25,000 18,966 51,073 95,039 23,760 71,280 1,702,433 102,146
74 25,000 19,156 52,605 96,761 24,190 72,571 1,753,506 105,210
75 25,000 19,348 54,183 98,531 24,633 73,898 1,806,111 108,367
76 25,000 19,541 55,809 100,350 25,087 75,262 1,860,295 111,618
77 25,000 19,736 57,483 102,220 25,555 76,665 1,916,103 114,966
78 25,000 19,934 59,208 104,141 26,035 78,106 1,973,587 118,415
79 25,000 20,133 60,984 106,117 26,529 79,588 2,032,794 121,968
80 25,000 20,335 62,813 108,148 27,037 81,111 2,093,778 125,627
81 25,000 20,538 64,698 110,236 27,559 82,677 2,156,591 129,395
82 25,000 20,743 66,639 112,382 28,095 84,286 2,221,289 133,277
83 25,000 20,951 68,638 114,588 28,647 85,941 2,287,928 137,276
84 25,000 21,160 70,697 116,857 29,214 87,643 2,356,566 141,394
85 25,000 21,372 72,818 119,190 29,797 89,392 2,427,262 145,636
86 25,000 21,585 75,002 121,588 30,397 91,191 2,500,080 150,005
87 25,000 21,801 77,252 124,054 31,013 93,040 2,575,083 154,505
88 25,000 22,019 79,570 126,589 31,647 94,942 2,652,335 159,140
89 25,000 22,240 81,957 129,197 32,299 96,898 2,731,905 163,914
90 25,000 22,462 84,416 131,878 32,969 98,908 2,813,862 168,832
91 25,000 22,687 86,948 134,635 33,659 100,976 2,898,278 173,897
92 25,000 22,913 89,557 137,470 34,368 103,103 2,985,227 179,114
93 25,000 23,143 92,244 140,386 35,097 105,290 3,074,783 184,487
94 25,000 23,374 95,011 143,385 35,846 107,539 3,167,027 190,022
95 25,000 23,608 97,861 146,469 36,617 109,852 3,262,038 195,722
96 25,000 23,844 100,797 149,641 37,410 112,231 3,359,899 201,594
97 25,000 24,082 103,821 152,903 38,226 114,677 3,460,696 207,642
98 25,000 24,323 106,936 156,259 39,065 117,194 3,564,517 213,871
99 25,000 24,566 110,144 159,710 39,927 119,782 3,671,452 220,287
100 25,000 24,812 113,448 163,260 40,815 122,445 3,781,596 226,896

The above assumptions are based on:
1. Pension income starting when you retire
2. Portfolio nominal growth of 6%
3. SS income growth at a meager 1% (fairly conservative)
4. Whatever your portfolio grows by, you take half of it for spending money, and let half of the growth ride.
5. AVERAGE total income tax rate of 25% (don't forget that when you add in your deductions/exemptions, it's usually fairly well below the highest nominal bracket you're in)

Obviously, the above changes if you don't get your pension until age 62 or 65. However, even then, you will only need to rely on your portfolio for 10 years (or whenever you start earning your pension). Given the reasonable 6% return rate in the above charts, your annual expenditures of 45k seem doable..PROVIDED that it's 45k pre-tax. However, even if it's 45k after tax, it just means using up slightly more of your portfolio in the initial years, and you still won't run out of money if your expenses grow with a 5% inflation rate.

If you want, feel free to give me more particulars and I can whip up another spreadsheet with more detailed info (45k pre/post tax, tax rate, when you start receiving pension, what your SS is worth if you wait until 65/67, etc.)

 

[REDreaming]

peter76...

Wow...hey thanks for the spreadsheet.

For comparison purposes, would you mind punching-in 58 as a retirement date (using $32K for pension at 58 and $17.7 K for SS at 62)?

BTW, my current $45K living expenses are actually after taxes.

Thanks,

RED

 

[Mr._johngalt]

Well REDreaming, here is a quick spreadsheet I worked up based on your info:
                                                   Total                  Total
         Pension           Inv    Gross   Income    Net        Portfolio Portfolio
Age     Income    SS      Income Income   Taxes  Income    Value             Income
55 25,000               30,000  55,000  13,750  41,250  1,000,000      60,000
56 25,000               30,900  55,900  13,975  41,925  1,030,000      61,800
57 25,000               31,827  56,827  14,207  42,620  1,060,900      63,654
58 25,000               32,782  57,782  14,445  43,336  1,092,727      65,564
59 25,000               33,765  58,765  14,691  44,074  1,125,509      67,531
60 25,000               34,778  59,778  14,945  44,834  1,159,274      69,556
61 25,000               35,822  60,822  15,205  45,616  1,194,052      71,643
62 25,000 17,000 36,896 78,896 19,724 59,172 1,229,874 73,792
63 25,000 17,170 38,003 80,173 20,043 60,130 1,266,770 76,006
64 25,000 17,342 39,143 81,485 20,371 61,114 1,304,773 78,286
65 25,000 17,515 40,317 82,833 20,708 62,124 1,343,916 80,635
66 25,000 17,690 41,527 84,217 21,054 63,163 1,384,234 83,054
67 25,000 17,867 42,773 85,640 21,410 64,230 1,425,761 85,546
68 25,000 18,046 44,056 87,102 21,775 65,326 1,468,534 88,112
69 25,000 18,226 45,378 88,604 22,151 66,453 1,512,590 90,755
70 25,000 18,409 46,739 90,148 22,537 67,611 1,557,967 93,478
71 25,000 18,593 48,141 91,734 22,933 68,800 1,604,706 96,282
72 25,000 18,779 49,585 93,364 23,341 70,023 1,652,848 99,171
73 25,000 18,966 51,073 95,039 23,760 71,280 1,702,433 102,146
74 25,000 19,156 52,605 96,761 24,190 72,571 1,753,506 105,210
75 25,000 19,348 54,183 98,531 24,633 73,898 1,806,111 108,367
76 25,000 19,541 55,809 100,350 25,087 75,262 1,860,295 111,618
77 25,000 19,736 57,483 102,220 25,555 76,665 1,916,103 114,966
78 25,000 19,934 59,208 104,141 26,035 78,106 1,973,587 118,415
79 25,000 20,133 60,984 106,117 26,529 79,588 2,032,794 121,968
80 25,000 20,335 62,813 108,148 27,037 81,111 2,093,778 125,627
81 25,000 20,538 64,698 110,236 27,559 82,677 2,156,591 129,395
82 25,000 20,743 66,639 112,382 28,095 84,286 2,221,289 133,277
83 25,000 20,951 68,638 114,588 28,647 85,941 2,287,928 137,276
84 25,000 21,160 70,697 116,857 29,214 87,643 2,356,566 141,394
85 25,000 21,372 72,818 119,190 29,797 89,392 2,427,262 145,636
86 25,000 21,585 75,002 121,588 30,397 91,191 2,500,080 150,005
87 25,000 21,801 77,252 124,054 31,013 93,040 2,575,083 154,505
88 25,000 22,019 79,570 126,589 31,647 94,942 2,652,335 159,140
89 25,000 22,240 81,957 129,197 32,299 96,898 2,731,905 163,914
90 25,000 22,462 84,416 131,878 32,969 98,908 2,813,862 168,832
91 25,000 22,687 86,948 134,635 33,659 100,976 2,898,278 173,897
92 25,000 22,913 89,557 137,470 34,368 103,103 2,985,227 179,114
93 25,000 23,143 92,244 140,386 35,097 105,290 3,074,783 184,487
94 25,000 23,374 95,011 143,385 35,846 107,539 3,167,027 190,022
95 25,000 23,608 97,861 146,469 36,617 109,852 3,262,038 195,722
96 25,000 23,844 100,797 149,641 37,410 112,231 3,359,899 201,594
97 25,000 24,082 103,821 152,903 38,226 114,677 3,460,696 207,642
98 25,000 24,323 106,936 156,259 39,065 117,194 3,564,517 213,871
99 25,000 24,566 110,144 159,710 39,927 119,782 3,671,452 220,287
100 25,000 24,812 113,448 163,260 40,815 122,445 3,781,596     226,896

The above assumptions are based on:
1. Pension income starting when you retire
2. Portfolio nominal growth of 6%
3. SS income growth at a meager 1% (fairly conservative)
4. Whatever your portfolio grows by, you take half of it for spending money, and let half of the growth ride.
5. AVERAGE total income tax rate of 25% (don't forget that when you add in your deductions/exemptions, it's usually fairly well below the highest nominal bracket you're in)

Obviously, the above changes if you don't get your pension until age 62 or 65. However, even then, you will only need to rely on your portfolio for 10 years (or whenever you start earning your pension). Given the reasonable 6% return rate in the above charts, your annual expenditures of 45k seem doable..PROVIDED that it's 45k pre-tax. However, even if it's 45k after tax, it just means using up slightly more of your portfolio in the initial years, and you still won't run out of money if your expenses grow with a 5% inflation rate.

If you want, feel free to give me more particulars and I can whip up another spreadsheet with more detailed info (45k pre/post tax, tax rate, when you start receiving pension, what your SS is worth if you wait until 65/67, etc.)

Hey Peter..............I fished all day. Do you need to get a life??

JG

 

[Mr._johngalt]

Hey, Nords. Thanks for warm welcome and the great info.

I entered my earnings data into the SS online calculator and crunched some numbers for retiring at 55 vs 58. It shows that I'll get an additional $1.66/month of SS for each additional month I work over the next 3 years.

Doing a little more math shows that my SS at 62 would be $17K if I retire now versus 62, so my SS would be reduced by a little over $1K a year if I work 7 fewer years.   

Thanks for the "33%" links, I'm going back to read them.

I like your idea of taking a month (or three) off and pretending to RE. Unfortunately, I cannot take off 4 weeks in a row.  Working part-time is not an option with my mega-corp employer. It's an 'all or nothing' work situation.

RED

In my case, as I age I get reckless. Of course, I am super self confident.
Anyway, at age 61 I pretty much assume I can do what I please and
work out the details later. So I die in debt................it won't worry
me much now will it?

JG

 

[MooreBonds]

Hey Peter..............I fished all day. Do you need to get a life??

JG

Hey John,

I enjoy fishing, when I'm around water.

However, fear not - the above spreadsheet took me a whopping 5 minutes to produce. Far less effort and time than one of those infamous JG Triple Crown posts you do (you know, where you put three posts in a row, each one answering the previous post you put up? )

 

[MooreBonds]

peter76...

Wow...hey thanks for the spreadsheet.

For comparison purposes, would you mind punching-in 58 as a retirement date (using $32K for pension at 58 and $17.7 K for SS at 62)?

BTW, my current $45K living expenses are actually after taxes.

Thanks,

RED

RED....based on the scenario for retiring now, it looks like you won't have a problem making it to over 100, assuming a reasonable 6% nominal return and 25% AVERAGE tax rate (most likely a little high). But, here's the low down on working another 3 years.

NOTE: I assumed that your portfolio will grow at just 5% average pre-tax return over the next 3 years while working (but grows at 6%/year from age 58-on) and that you won't be withdrawing anything from your portfolio until you retire at 58.

My apologies in advance for the poor formatting. I haven't figured out yet how to keep the columns aligned when I post from Excel....


Pension SS Invest Gross Net Portfolio
Age Income Income Income Income Taxes Income Value
55 1,000,000
56 1,050,000
57 1,102,500
58 32,000 34,729 66,729 16,682 50,047 1,157,625
59 32,000 35,771 67,771 16,943 50,828 1,192,354
60 32,000 36,844 68,844 17,211 51,633 1,228,124
61 32,000 37,949 69,949 17,487 52,462 1,264,968
62 32,000 17,700 39,088 88,788 22,197 66,591 1,302,917
63 32,000 17,877 40,260 90,137 22,534 67,603 1,342,005
64 32,000 18,056 41,468 91,524 22,881 68,643 1,382,265
65 32,000 18,236 42,712 92,948 23,237 69,711 1,423,733
66 32,000 18,419 43,993 94,412 23,603 70,809 1,466,445
67 32,000 18,603 45,313 95,916 23,979 71,937 1,510,438
68 32,000 18,789 46,673 97,461 24,365 73,096 1,555,751
69 32,000 18,977 48,073 99,050 24,762 74,287 1,602,424
70 32,000 19,167 49,515 100,681 25,170 75,511 1,650,496
71 32,000 19,358 51,000 102,359 25,590 76,769 1,700,011
72 32,000 19,552 52,530 104,082 26,021 78,062 1,751,012
73 32,000 19,747 54,106 105,854 26,463 79,390 1,803,542
74 32,000 19,945 55,729 107,674 26,919 80,756 1,857,648
75 32,000 20,144 57,401 109,546 27,386 82,159 1,913,378
76 32,000 20,346 59,123 111,469 27,867 83,602 1,970,779
77 32,000 20,549 60,897 113,446 28,362 85,085 2,029,902
78 32,000 20,755 62,724 115,479 28,870 86,609 2,090,800
79 32,000 20,962 64,606 117,568 29,392 88,176 2,153,524
80 32,000 21,172 66,544 119,716 29,929 89,787 2,218,129
81 32,000 21,384 68,540 121,924 30,481 91,443 2,284,673
82 32,000 21,597 70,596 124,194 31,048 93,145 2,353,213
83 32,000 21,813 72,714 126,528 31,632 94,896 2,423,810
84 32,000 22,031 74,896 128,927 32,232 96,695 2,496,524
85 32,000 22,252 77,143 131,394 32,849 98,546 2,571,420
86 32,000 22,474 79,457 133,931 33,483 100,448 2,648,562
87 32,000 22,699 81,841 136,540 34,135 102,405 2,728,019
88 32,000 22,926 84,296 139,222 34,805 104,416 2,809,860
89 32,000 23,155 86,825 141,980 35,495 106,485 2,894,156
90 32,000 23,387 89,429 144,816 36,204 108,612 2,980,980
91 32,000 23,621 92,112 147,733 36,933 110,800 3,070,410
92 32,000 23,857 94,876 150,733 37,683 113,049 3,162,522
93 32,000 24,095 97,722 153,817 38,454 115,363 3,257,398
94 32,000 24,336 100,654 156,990 39,248 117,743 3,355,119
95 32,000 24,580 103,673 160,253 40,063 120,190 3,455,773
96 32,000 24,826 106,783 163,609 40,902 122,707 3,559,446
97 32,000 25,074 109,987 167,061 41,765 125,296 3,666,230
98 32,000 25,325 113,286 170,611 42,653 127,958 3,776,216
99 32,000 25,578 116,685 174,263 43,566 130,697 3,889,503
100 32,000 25,834 120,186 178,019 44,505 133,514 4,006,188

 

[Mr._johngalt]

Hey John,

I enjoy fishing, when I'm around water.

However, fear not - the above spreadsheet took me a whopping 5 minutes to produce. Far less effort and time than one of those infamous JG Triple Crown posts you do (you know, where you put three posts in a row, each one answering the previous post you put up? )

5 minutes? No kidding? Well, I guess we are tied then because even my
"triples" take no time at all. It's a gift man!

JG

 

[REDreaming]

Peter76,

Thanks...this gives me something to mull over for while.

RED