Hello I'm new: So about that "retired with=>5M thread",hopefully a different question

[DanP]

Hello I'm new: So about that "retired with=>5M thread",hopefully a different question

Just learning about this forum and maybe unfortunate timing saw the "for those that have retired with > 5m" thread" and some animated / rough responses.

So timing aside, I am a new guy, early 50's fairly conservative pondering exactly whether I can retire on 4 - 5M liquid. No debt. Expenses in the 200k range but still 3 teeners in the house so that will taper in some years.

Firecalc seems 100% but I need to play with variables more.

It would be interesting for my wife and I to hear how other folks in the 4-5m asset range and 200k expense range were fairing.

I realize that may be a narrow audience, still looking to learn from collective experiences.

 

[hnzw_rui]

$200K is 5% of $4M and 4% of $5M. That makes a fairly significant difference in portfolio longevity. Also, is that $200K inclusive of taxes? If you can be flexible with your spending, 5% is probably just fine.

 

[DanP]

Thanks, sorry if not enough details. 200k expense meaning after tax / fees. And yes you are right plenty discretionary there, minor mods change the equation quickly.

I was more curious about the dream of maintaining our exact habits over time.

 

[Gone4Good]

It would be interesting for my wife and I to hear how other folks in the 4-5m asset range and 200k expense range were fairing.

I think the way the math works is that it doesn't matter much whether one has between $4-5M and is drawing $200K or has $2-$2.5M and is drawing $100K or has $1-1.25M and is drawing $50K. Portfolio survivability is going to be exactly the same in each case.

Now what is important is that someone spending $200K has a whole lot more flexibility to cut than someone spending $50K. And if one was worried that the retirement plan may not be up to snuff, taking a hard look at how much of that $200K is discretionary might go a long way to boosting one's confidence that they really do have enough to pull the trigger . . . or not.

 

[DanP]

... taking a hard look at how much of that $200K is discretionary might go a long way to boosting one's confidence that they really do have enough to pull the trigger . . . or not.

And thanks yes you are correct. And easy enough in our case because the lion share is vacations, eating out, etc. Other than the big house maintenance but that will eventually go away after all kids are in college.

I'll invite my wife to read this it will help the mindset. Need to learn to relax going forward, not easy.

 

[Gone4Good]

I was more curious about the dream of maintaining our exact habits over time.

I don't know that there's a good answer to this question.

The obviously factual answer is that you'll be much more likely to maintain your spending if you draw 4% from your portfolio than 5%. And you'll have even higher odds if you draw 3%.

Beyond that, it's a matter of personal preference and risk tolerance.

Personally I feel better with a 2% withdrawal rate given my age and my current views on the market. Many others likely view my approach as far too conservative. But that's OK, I view theirs as far too risky.

I will say that the higher your withdrawal the more willing you should be to make changes if things don't go according to plan. And to make them quickly.

One way to gut-check your plan is to ask yourself "How bad would I freak out if after I retired equities went down 50% and bonds went down 15%?"

 

[urn2bfree]

$200,000 AFTER taxes and fees means income is in the $250,000 range- even if you can get the taxes waaay down I still think that will mean withdrawing over $210,000 a year. It's sort of silly tomtalk of expenses AFTER taxes and fees. Taxes and fees ARE expenses.

I would worry about trying to maintain that level of spending with a $5 Million portfolio. It might work okay, especially if you are ready to cut expenses. I am thinking of the Guyton style of SWR - where there is a 6% max of inflation adjustment allowed any hear, and negative portfolio years mean no inflation adjustment and very bad years lead to cutting 10% if the portfolio value falls so much or the inflation adjustment is so high that the withdrawal comprises a 20% or more increase over the baseline SWR.

Example- portfolio $5 Million, withdraw 5% ($250,000). Over the years the inflation brings the $250,000 up to $320,000 and the portfolio has grown but is only $5,250,000. That makes the withdrawal now 6.1%. And 6.1% is more than a 20% increase over 5%.

Such a strategy might be able to withstand what is what I would call a tenuous portfolio given your desired spending.


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[Danmar]

I agree with the comments about spending flexibility. Having said that, you are pretty close to the line. If I were you I would want to pad the portfolio somewhat before pulling the trigger. When I retired at 56, my portfolio and pensions supported spending about 30% higher than what I was spending pre retirement. After 10 years of retirement I am glad I had that cushion. There are lots of fun and interesting things to spend on especially in early retirement. On the other hand, if you really don't like your job, you could probably swing it now. Good luck.

 

[LOL!]

When running FIRECalc, your expenses in that software are supposed to include taxes, so be sure to estimate your taxes and include them.

With $200,000 spending on living, one could still pay annually $0 in income taxes or one would pay $50,000 in income taxes. It will all depend on how one's income is structured. It may be that you are not investing tax-efficiently now and are wasting money on taxes. Or it could be that you are investing very tax-efficiently now and keep your taxes to a minimum.

For a little while, we had two kids in college. Our expenses were quite large then. But they eventually get out of college and expenses drop.

 

[2017ish]

We are about the same age and looking at similar portfolio size (most likely closer to your low end when we bail next year), but planning on "mandatory" spending far less than 200k (we are in LCOL area, our kids are on their own, and house will be paid off). Because our mandatory spending is low, we are comfortable with variable spending/withdrawal--which alleviates my concerns both about current market valuations and DW's likely longevity.

For us, maintaining our exact habits over time is not an option--in fact, we yearn to retire so that we can get out of the present habits! It came down to weighing continued 6-7 day workweeks and DW's being called out in the middle of the night and weekends versus possibility (probability?) of bad returns preventing us from doing as much intercontinental travel of the type she'd like. After thinking about it, we concluded: 1) it would be nice to see each other more; 2) there are a lot of places we haven't properly experienced in the USA, Canada, and the Caribbean; 3) we can travel quite a bit cheaper (per day) once we aren't working; and 4) don't let the perfect be the enemy of the good.

Just our approach, so take it for whatever it's worth. (And good luck with this process!)

 

[rodi]

Welcome to the forum, DanP.

If you haven't read this thread, you should consider it.
http://www.early-retirement.org/forums/f47/some-important-questions-to-answer-before-asking-can-i-retire-69999.html

You mention that you're conservative. (I'll assume that's with money... we don't allow partison political talk here.) You should note that if you don't have at least 30% equities in your portfolio, you need a lower withdrawal rate in order for the portfolio to survive inflation over time. Firecalc has different tabs at the top - one of them lets you fill in your asset allocation (equities/bonds/cash/etc.)

I ran every calculator I could get my hands on to test whether I was ready. Each offered different value and tested my plan. Firecalc tests whether your spending can be sustained over every US market we've had historically, including the great depression. Note that the annual spending you input on the first page is INCLUSIVE of taxes, health insurance, etc. I also ran Quicken Lifetime planner - it's deterministic (you input the growth, inflation, etc, yourself) but explores lots of one time expenses (college for kids, weddings for daughters, etc.) Fidelity retirement planner lets you dive deep into your spending and different inflation rates for some items (many of us use a higher inflation rate for healthcare and college expenses.)

The key to knowing whether you have enough portfolio to last is to know your spending.

 

[eytonxav]

We are about the same age and looking at similar portfolio size (most likely closer to your low end when we bail next year), but planning on "mandatory" spending far less than 200k (we are in LCOL area, our kids are on their own, and house will be paid off). Because our mandatory spending is low, we are comfortable with variable spending/withdrawal--which alleviates my concerns both about current market valuations and DW's likely longevity.

For us, maintaining our exact habits over time is not an option--in fact, we yearn to retire so that we can get out of the present habits! It came down to weighing continued 6-7 day workweeks and DW's being called out in the middle of the night and weekends versus possibility (probability?) of bad returns preventing us from doing as much intercontinental travel of the type she'd like. After thinking about it, we concluded: 1) it would be nice to see each other more; 2) there are a lot of places we haven't properly experienced in the USA, Canada, and the Caribbean; 3) we can travel quite a bit cheaper (per day) once we aren't working; and 4) don't let the perfect be the enemy of the good.

Just our approach, so take it for whatever it's worth. (And good luck with this process!)

What are you waiting for?

 

[2017ish]

What are you waiting for?

DW's replacement and topping our non-deferred assets off (of course!). She is in a small physician group and she and partners are interviewing possible replacements with a focus on present residents.... Longish lead time and doesn't want to leave her partners/patients in the lurch.

 

[eytonxav]

DW's replacement and topping our non-deferred assets off (of course!). She is in a small physician group and she and partners are interviewing possible replacements with a focus on present residents.... Longish lead time and doesn't want to leave her partners/patients in the lurch.

Kudos to your DW, wish there were more like her.

 

[RenoJay]

Does the $4-$5 MM include home equity? I wouldn't include that in the equation when calculating withdrawal rates.


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[RenoJay]

Does the $4-$5 MM include home equity? I wouldn't include that in the equation when calculating withdrawal rates.


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Disregard my previous post - just saw the word liquid


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[DanP]

Very helpful replies, much appreciated.

Will now go back to the spreadsheet and get more serious about understanding my true spending and breaking it down into a few levels of mandatory / discretionary.

Agree that having more clarity on that needs to be my first step.

 

[pb4uski]

....I ran every calculator I could get my hands on to test whether I was ready. Each offered different value and tested my plan. Firecalc tests whether your spending can be sustained over every US market we've had historically, including the great depression. Note that the annual spending you input on the first page is INCLUSIVE of taxes, health insurance, etc. I also ran Quicken Lifetime planner - it's deterministic (you input the growth, inflation, etc, yourself) but explores lots of one time expenses (college for kids, weddings for daughters, etc.) Fidelity retirement planner lets you dive deep into your spending and different inflation rates for some items (many of us use a higher inflation rate for healthcare and college expenses.)....

+1 I ran probably 10 different calculators using the same assumptions (as best I could) and a few sensitivities. All gave me various versions of a green light and that gave me the confidence to pull the plug.

I liked QLP in that the various screens cover a lot of bases and cause one to think things through comprehensively. That was my base plan and I used stochastic tools to stress test it for sequence of returns risk.

On taxes... I suggest you take your 2015 tax return and then adjust it for changes that will occur if you retired (eliminate any earnings, add pension if applicable, change deductions as necessary, etc) and see what your taxes will be... you may have a plesant surprise there.

 

[DrRoy]

Very helpful replies, much appreciated.

Will now go back to the spreadsheet and get more serious about understanding my true spending and breaking it down into a few levels of mandatory / discretionary.

Agree that having more clarity on that needs to be my first step.

I am also looking at RE in a little over a year and have a situation that is 2/3 of your assets but only 2/5 of your spending, so I think you are putting too much draw on your portfolio. I would not be compfortable with a 5% WR. In the current market valuation condition, I think you should get to 3% WR.

 

[rrppve]

The big question is college. Are you planning on fully funding private college for all 3 kids or is that coming from a separate pool. That could be a $750k total in expenses or more if you are intending to fund grad school. If you're not planning on paying for their college, having them borrow or going public that will certainly reduce it, but that certainly needs to be factored into the decision. I had college fully covered in 529s before I pulled the trigger.
A variable method like Variable Percentage Withdrawal (VPW) will also give you a higher initial withdrawal rate while kids are still home. The trade is that it requires you to cutback on withdrawal rate and spending during market declines, which is of course easier at higher discretionary income levels.


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[Closet_Gamer]

The big question is college. Are you planning on fully funding private college for all 3 kids or is that coming from a separate pool. That could be a $750k total in expenses or more if you are intending to fund grad school. If you're not planning on paying for their college, having them borrow or going public that will certainly reduce it, but that certainly needs to be factored into the decision. I had college fully covered in 529s before I pulled the trigger.

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I'm still w*rking full time but have two teens with college on the horizon. I model/manage the financial impact of this by just pulling it all out of the retirement & net worth calculations -- both the saved assets designated for college and the college expense obligation. I treat future college costs as my first obligated dollars and nothing is available for the retirement/net worth pile if that's not funded.

I find it simplifies both my modeling and my sleep to clearly drive a wedge between college planning and retirement planning.

My $0.02.

 

[jabbahop]

I'm still w*rking full time but have two teens with college on the horizon. I model/manage the financial impact of this by just pulling it all out of the retirement & net worth calculations -- both the saved assets designated for college and the college expense obligation. I treat future college costs as my first obligated dollars and nothing is available for the retirement/net worth pile if that's not funded.



I find it simplifies both my modeling and my sleep to clearly drive a wedge between college planning and retirement planning.



My $0.02.

That is how we do it also.


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[LOL!]

The big question is college. Are you planning on fully funding private college for all 3 kids or is that coming from a separate pool. That could be a $750k total in expenses or more if you are intending to fund grad school.

Or it could be under $250,000 for all 3 through grad school. And that's paying full list price without any financial aid.

Maybe we should have a poll on what parents actually pay for their kid's college nowadays and not the hyper-inflated numbers provided in the media?

We have paid for 1.5 college educations (including grad school) and 0.5+ to go.

 

[Independent]

The "3 teeners in the house" is a big deal to me. I'd expect expenses to shoot up when they are in college, then drop a lot.

I'd want to estimate what it takes to maintain our current lifestyle for just the two of us. That's the long term need. Then, add a lump sum for spending on the kids between now and the time they are (hopefully) self supporting.

Making up numbers, it might be that $1 million covers everything I need/want to spend on the kids over the next 8 years, and after they're gone the DW and I can maintain our lifestyle for $100,000/yr plus taxes. We'd have $3-$4 million to cover that.

 

[Gone4Good]

I'd want to estimate what it takes to maintain our current lifestyle for just the two of us. That's the long term need. Then, add a lump sum for spending on the kids between now and the time they are (hopefully) self supporting.

That's a very good and important point for the OP to consider when modeling their plan.

There's a big difference between saying "I'm going to draw 4-5% inflation adjusted forever." And saying "I'm going to draw 4-5% for the next X years and then only 3% thereafter."

They can set cash aside for the temporary expenses and use the remainder as their retirement fund.