I am now ready

[TOPDAWG]

Hello,

I have visited and read a far amount on this forum years back when I sold my business, and received some great advice on here from some very friendly and helpful people. Some updated information....

I am currently 49 years old, and would like to retire in the next 6 months. I am married with two kids 20-18.

Liquid assets - $3.6mm+ of which $2.6mm in non-retirement accounts and $1mm in retirement accounts. College accounts for both kids are separate. See below.

Other assets/debts - $475,000 House, Cars, etc.. No Debt

Life Insurance: $2mm Me, $2mm Wife.

Kids (ages 20 and 18) assets set aside for college - $125k, each (250k total not included in the above 3.20

Budget - My Current Budget is $150k pre-tax dollars. I know this is high, but that's my current lifestyle. I don't see this changing in the next 8 years, but obviously it will slow down.

Portfolio - Our portfolio is professionally managed. I am pretty confident the portfolio will average 4.5% to 5.5%

Income - My wife is 44, and likely will retire also.

Health - We are fortunate to have great health.

I currently have no plan on what I will do. I know I will volunteer and help in the community. I would like to get in better shape (I'm not overweight). I want to get myself fit. I may start a small development business with some rentals. I would ease into that. I want to spend time with my wife while I still can, and enjoy things before I break down.

If I give up this job, there is no turning back. I will be done. Finding another job is not easy, and I would have to start from scratch establishing myself. I'm making $175k per year, but it's simply no fun. It's a drag coming to work.

I am looking for advice on how my situation looks? I am confused on my tax situation post retirement. Any advice is appreciated. Can I survive?

Thanks in advance TD

 

[2B]

Liquid assets - $3.6mm+ of which $2.6mm in non-retirement accounts and $1mm in retirement accounts. College accounts for both kids are separate. See below.

Other assets/debts - $475,000 House, Cars, etc.. No Debt

Life Insurance: $2mm Me, $2mm Wife.

Kids (ages 20 and 18) assets set aside for college - $125k, each (250k total not included in the above 3.20

Budget - My Current Budget is $150k pre-tax dollars. I know this is high, but that's my current lifestyle. I don't see this changing in the next 8 years, but obviously it will slow down.

Portfolio - Our portfolio is professionally managed. I am pretty confident the portfolio will average 4.5% to 5.5%

You are right on the edge of having enough to meet your significant spending budget. You didn't mention SS or any pension but either of these will give you a little more breathing room. I really suggest you consider some spending reductions.

I'm not sure what the purpose of the life insurance is since you and your DW are financially secure. If it's whole life it's time to consider cashing it in. If it's a cheap level term, it's probably worth keeping for a few years.

The elephant in the room is the "professionally managed" portfolio. If you've read many of the threads here, there aren't many that support someone having someone else manage their portfolio. I will assume you have a nominal 1% management fee. On your $3.6MM that is a $36,000/year hit (ouch) plus you are probably being put into higher expense funds than the typical index fund. I'll suggest you read Andrew Hallam's Millionaire Investor. If you want a more advanced read on index investing, read William Bernstein's Investor's Manifesto.

 

[Lagniappe]

So, you need $150K annually from a $3.6M portfolio. Unknown asset allocation or expense ratio. No flexibility in reducing expenses. Unknown future pension or SS.

A few questions. Does the "150K pre tax dollars" mean that taxes are a part of the $150K, or that you need to add that in as well? Is health insurance included? What is the ER of your portfolio (including fund and manager costs?)

At first glance, a 4.1667% withdrawal rate seems a bit high for a 49 year old. Given that it does not include portfolio expenses, it looks like you will need to cut your planned spending a bit, or work another year or two. Personally I'd choose to examine the budget more closely for reduction opportunities.

 

[TOPDAWG]

Reducing the budget isn't a problem.
It can be chopped down.

Also, I certainly don't have an issue managing my own portfolio. In fact, I would enjoy that. I selected a professional simply because of the lack of time for studying investments.

So, you need $150K annually from a $3.6M portfolio. Unknown asset allocation or expense ratio. No flexibility in reducing expenses. Unknown future pension or SS.

A few questions. Does the "150K pre tax dollars" mean that taxes are a part of the $150K, or that you need to add that in as well? Is health insurance included? What is the ER of your portfolio (including fund and manager costs?)

At first glance, a 4.1667% withdrawal rate seems a bit high for a 49 year old. Given that it does not include portfolio expenses, it looks like you will need to cut your planned spending a bit, or work another year or two. Personally I'd choose to examine the budget more closely for reduction opportunities.

 

[2B]

Reducing the budget isn't a problem.
It can be chopped down.

Also, I certainly don't have an issue managing my own portfolio. In fact, I would enjoy that. I selected a professional simply because of the lack of time for studying investments.

Read the books I suggested. Managing your own investments will take an hour per year or less.

 

[TOPDAWG]

How's the other items look? Bin your opinion?

Read the books I suggested. Managing your own investments will take an hour per year or less.

 

[2B]

How's the other items look? Bin your opinion?

As said before, you are on the edge with your budgeted spending but you leave gaps on any pension, SS and investment expenses.

 

[samclem]

Comments:
- You don't have enough to be "worry free" at your present spending level. Every dollar you can reduce from your monthly expenses reduces the size of the needed portfolio by about $400 (assuming 4% WR, 25% taxes), so that's the first place to look. Cut out $200/month and you've reduced the needed size of your portfolio by $80K. For many people, reducing expenses is easier than trying to pile up more money.
- Play around with FIRECalc and include your anticipated SS and any other income streams.
- I echo 2B on the need to manage your own investments. This is a great place to reduce your expenses in a very meaningful way--you'll earn much more than your present hourly rate at your job, and can do it from here on out.
- Look into those health care costs--just go online and checkout the info on your state's marketplace or the one run by the Federal government for your state. These costs can be substantial, and you need to know them when figuring your expenses.
- Spending plan: If you think you can belt-tighten, you'd be well advised to set up a budget and have the whole family live with it before quitting your job. This will also allow you to set aside a cushion for any unanticipated expenses.
- If you decide to pull the plug and you know you'll be close to the go/no-go point, I'd consider getting a mortgage >before you quit your job<. People will differ on this point, but having $400K from the refi of your house placed in a MM fund would provide a nice bit of insurance against sequence-of-return risk in the early years of your retirement. This insurance is very cheap, given today's mortgage rates. If the market takes a tumble just as you quit, this money could buy you 3+ years of breathing room and a chance for the market to come back before you need to sell shares. If the market does well in the early years, you can pay back the mortgage as soon as there's a bit more fat in the portfolio.

 

[ivinsfan]

You said in your OP that you didn't see your budget changing in the next 8 years. Have you done some numbers to prove that "reducing the budget isn't a problem"..because these two statements contradict each other.

 

[TOPDAWG]

Correct, I can change and reduce my budget easy enough, but I will not reduce that any further for another 8 to 10 years.

You said in your OP that you didn't see your budget changing in the next 8 years. Have you done some numbers to prove that "reducing the budget isn't a problem"..because these two statements contradict each other.

 

[ivinsfan]

Correct, I can change and reduce my budget easy enough, but I will not reduce that any further for another 8 to 10 years.

Not to be a pest, but from your posts your kids are almost launched and college costs are already funded. What do you see as being different in 8 to 10 years. Do you have large amounts budgeted for travel or home improvements? You are young enough that in 10 years your hobby and your travel lifestyle will still be possible. Between inflation and lifestyle enjoyment, I'm curious why you are thinking lower instead of the same amount or possibly higher. Most ER's will tell you spending is the most important factor to have nailed down.

Are you consistently tracking your spending to see where these future cuts might come from?