Hello from a very wet Houston !!!!

[fromtx]

Hi All,

I have been a member of this forum for some time but am posting for the first time to introduce myself !!! This is a great forum with lots of friendly advice and information that is hard to find, thank you very much for a great learning experience!

A bit about myself - I am 55 years old, DW is 53 and we have one child in grad school. I am in the consulting business .. have spent a lot of time traveling to clients, long working hours and mentally/physcially ready to sign off not I am not sure if I can.

I would like your valuable input as to what I should do next. In the process of slowing down, I have left the megacorp and started doing some freelance work to maintain flexibility in how much and where I work. Here is our financial status:

Net worth - $2M (not including home, 50% in taxable accounts)
No Mortgage, house fully paid
SS - 15K at 62, spouse 7K at 62
Small Pension - 7K at 65 (Cola adjusted)
Expenses - 78K (not including income tax, assuming 12K tax I am projecting 90K overall expenses per year. Healthcare premium included)

Firecalc shows 94K spend with 100% success over 35 years of retirement (average family longevity is around 80 years)

Mentally, I am ready to FIRE in Dec 2015 but I am not sure if I can. Wife does some freelance/volunteering work and can bring 5K per year. I could continue to do freelance consulting and make 100K per year if needed (but dont want to ..). Personally, I would take the time to enjoy life, volunteer, spend time with friends and family while I can.

I would greatly appreciate your advice on the above and your recommendations.

Thank You.

 

[Rustic23]

Ok, Have you looked at this thread:

http://www.early-retirement.org/for...-answer-before-asking-can-i-retire-69999.html

For us it was not so much about income as expenses. I personally feel if you really know your expenses, the decision is easy. We found that our expenses in retirement were less than forecast by about 15%., maybe a little more. Also, we have what I call regular expenses, things like bills, food, auto, the everyday type stuff. We were spot on with these. A little harder to determine were the onetime recurring expenses. i.e. new car, appliances, major repairs etc. We put money away each month to form a sinking fund for those. I figured these at about 125K.

 

[Whisper66]

From your numbers, it looks like you could retire to me if you wanted to. Some suggestions:

(1) Make sure your Firecalc runs include assumptions are realistic for your situation. For example, the default assumes assets of 75% well diversified stocks and 25% bonds. For me personallly, that was more aggressive a portfolio than I was comfortable with in today's market so I adjusted them accordingly.

(2) Run similar analysis in I-ORP ( Optimal Retirement Planner - Parameter Form ) and ensure you are still comfortable with the financial results. This program will estimate your maximum allowable spend per year. If for some reason you don't like that program, there is another called ESPlanner Basic that should yield similar analysis (https://basic.esplanner.com/).

(3) Consider a couple "what-if" scenarios. A couple that come to mind are:

What if the stock market has a major correction next year like the one in 2008/9 so that many of your stock assets are worth dramatically less than today. Would you have a plan that you are comfortable with? We've been in a bull market for several years now. A major correction would not be surprising.

What if you child either doesn't graduate or graduates and cannot find a job to be self sufficient? Is that something you feel comfortable with handling if you are already retired? Or is it worth waiting a couple years until your child is self sufficient?

Is your health insurance satisfactory to you in retirement? Especially in the case of the above (child not able to get self sufficient right away).

If things don't go so well in retirement (stock crash, illness, ....whatever) does the yearly spend amount in your planning allow for some leeway to cut back for a few years if needed?

Welcome to the forum. I wish you the best and hope you come up with the best answer for your situation.

 

[Big_Hitter]

greetings from an ex-Houstonian (1973-2011)


good luck with your plans

 

[wingfooted]

Congratulations for accumulating more investable net worth than 98% plus of all Americans. And probably 99.5% of the global population.

$2MM plus house free and clear with +/- $100K annual expenses, 30 to 40 years retirement span and potential SS 'sometime in the future'. Those numbers seem to come up quite a bit on this forum.

My opinion is that successful ER with the above data set will depend on 'how it goes' and does not leave a conservative amount of buffer to accommodate personal black swan events:

Market correction
High inflation event
Medical issues
Decision to 'just do something else', perhaps an expensive 'do something else'.
Divorce
Family Crisis

Given that you think you make $100K working part time, I would guess your job is a good one and you are making quite a bit more full time.

Accordingly, I would suggest that you work at your current job until you accumulate at least another $1MM investable buffer.

This is when my fellow posters will point out that you you have done very well so far, just need to work on expenses and that $2MM is plenty. To each his own.

Just my two cents worth....

 

[Golden sunsets]

Your projected SS seems low for a high earner. Were you a state or federal employee?

 

[catman2020]

Maybe you've been through all of this in, but...Basically you seem to be grappling with the questions of "what SWR (safe withdrawal rate) will guarantee your income for the next 35 years?" which is really an endless debate with a few different perspectives.

I would observe that:

- few would argue that you should assume a SWR of more than 5%
- few would argue that you should assume a SWR of much less than 3%

A couple of the different perspectives on this topic:

- Firecalc seems to be at about 3.5% SWR where you get close to 100% success for long periods of retirement. Some on this forum advocate a SWR of below the 3.5% for a safety measure, and they may feel that the current market valuation and rate environment indicate that future returns will be at or below the worst returns covered by the historical period covered by Firecalc.

- Mr. Money Mustache following the Trinity Study is at 4%, but advises that you should focus on controlling spending to fit your passive income and remain flexible about earning income during retirement

- Todd Tresidder and flexibleretirementplanner.com and others say that you need a flexible approach adjusting to market flucuations - and there are a vareity of these flexible approaches out there

In terms of your situation, you appear to be a bit below 5% ($94k/$2,000k) leaving SS, Medicare, pension out of the equation for simplicity/safety measure - which puts you in the range where I could seriously start to consider FIRE, but its not a slamdunk.

Some of the ways to bridge where you are to FIRE are:

- refine your calculation to include more factors that reduce your SWR (put back in SS etc.) - but this can be an endless cycle of refinements followed by increased insecurity, etc.

- assume a declining spending pattern such as Bernicke's Reality Retirement Plan included in Firecalc - same issue as above

- Continue to work, perhaps switch to part time, for a few more years to keep pushing the SWR down

- review your spending to see if you can live on closer to a 3.5-4% SWR...Mr Money Mustache and other extreme retirement folks have a ton to say on this topic but the biggest impact seems to be the size/cost/location of your home and what that means in terms of investments available for retirement/ expenses/taxes/transportation etc. E.g. could you/would you/would it make a difference if you were to downsize now, preferably to a location where you didn't have to drive a lot

If it's any help, I'm also in that 5% to 3% range myself - I've been doing a little of the expense reduction, a little of the working a few more years.

Best of Luck!

 

[fromtx]

Thanks all for your comments and suggestions.

I think I have a good handle on our expenses, I have been tracking our spend for a few years by category. Our property taxes and insurance rates are high, so that comes out to be a big chunk in addition to healthcare.

Here is a breakdown of my projection of $78K annually ($6500 per month) excluding income tax):
Medical (Premium, Copay, Medicines, Dental Cleaning et) - 18K
Property Tax / Home Insurance: 13K
Home Maintenance: 6K (includes garden service & accrual for new roof etc)
Car (Gas, Maint, Insurance): 6K
Life Insurance - 6K
Groceries - 7.5K
Holiday/Dining - 8K (discretionary spend)
Utilities - 3.5K (electricty, gas, water, security alarm etc)
Internet/Cable - 2.5K
Phones - 2.5K
Shopping (Supplies, clothes, electronics etc) - 5K (50% could be discretionary)

We have about 10K in discretionary spend in the above that could be directed towards emergencies (unexpected maintenance, health issue etc) while we cutback on travel money/dining out etc.

I did run ORP per your recommendation, the result was 99K spend/year. Will also run Fidelity RIP in the next few days and share the result. I have not accounted for market crash scenarios so will need to work on that (and that is what is holding me back to take a plunge and hang by boots). Child already has a professional undergad degree so that should be ok. Hopefully, divorce would not be a scenario .

I had some gaps in work due to family situation and I am also assuming I will not have any earning starting next year, hence the low projection on Social Security $. I am also assuming I take SS at 62.

I want to take the plunge but I am also worried that I am not quite there yet financially and probably need to wait for another 3 years to bring the SWR down. I am also considering if I should go part-time and work 6 months/year. I dont think I would be able to add to my portfolio by working part-time but would slow down the withdrawal amount.

 

[rodi]

Since half your income is in taxed already accounts (vs IRAs) I think you're good to go. You can arrange your withdrawal to stay in a low tax bracket before your pension and ss come on line. I retired with less but have a rental income.

If you're willing to tighten your belt if we have a prolonged market downturn you should be fine.

 

[aaronc879]

Is there a reason to have life insurance after you retire? If not, that's $6K you can take off your spending. The medical will go down a lot after age 65. Based on your property taxes i'd guess your home is worth around $500K. You can get a very nice house for 2 people in Houston for half that much so there's room to cut back there too. Looks like you should be good to go.

 

[nash031]

Yeah, the life insurance seems like an easy way to reduce spending. If you're retired, you're not replacing income (assuming you also don't have a pension), so you can evaluate whether or not you need life insurance at all, and then whether or not you need to pay $500/month for it! I would probably answer "no" to both of those questions in your situation, but it's a personal decision, obviously. DW and I intend to drop our coverage entirely before we turn 55 or 60 assuming the plan goes as designed.

As a smaller cutback, I think you could probably do better with your phone plans than $200/month. Are you really using all those minutes/data? If so, do you really need to? I'd bet you could knock another $100/month off there and not miss it.

That $600/month or so takes you down around $86K spending and 4.3% WR without a noticeable decrease in your living standard.

After that, start looking at things you can do yourself in retirement (gardening) and things that will likely go down as you stop working (wardrobe expenses, automotive), and you'll probably find even more without even thinking too hard!

 

[papadad111]

How much is your paid off home worth. ? That could be your single biggest asset or it could not. Without that info it's hard to say... Downsizing is an option etc etc.

 

[fromtx]

The house is worth 400K, would like to keep unless the financial situation forces us to downsize. I do have an equity line against it for emergency funding but have not drawn anything against it.

Life Insurance can go away but my thought was to maintain for the next five years till I ma 60 as a safety net for DW. In case of major financial crisis, I may be able to go back to work but DW may not have that option. Need to look at what DW SS survivor benefits and then reduce the insured amount which is currently at $1M and save some $ I have forecasted.

The phone expense, it currently includes land line as well as a family plan which includes the child but would come down when my bill is just for two of us in FIRE mode.

 

[MBAustin]

You will see (or already have seen) threads that describe how members have reduced their spending in retirement just because they have more time to do things (like cook instead of eating out, or researching items more carefully before spending money). If you think you might fall in that camp, that gives you a cushion; also your willingness to (significantly) reduce discretionary spending in down years is a factor.

Would it be an option to cut back your consulting significantly next year but not give it up completely? This would give you some additional cushion and also the option to ramp things back up if you felt you needed to in a downturn.

That said, I am one who leans toward jumping in with both feet and making it work, and it looks to me that you are close enough to do that.

 

[fromtx]

We would be open to curtail discretionary spend in down years but do want to plan for a comfortable retirement (not luxurious) and calibrate based on market changes as well as bring in some savings as other members have done successfully. My tentative plan is work until Dec 2015 and then evaluate where we are in terms of portfolio and spend. Based on that I may end with OMY on a limited basis and target Dec 2017 as the FIRE month. Another consideration is that I may be forced to stop work by the end of this year if consulting market slows down for me - your recommendations and opinions have been very valuable for me to assess where I stand in case I have to face that situation at the end of this year. I want to be prepared for the worse, just in case ...