Do we have enough to retire?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills

Do we have enough to retire?

Postby Rusa » Thu Mar 14, 2013 11:52 pm

Two 58 year olds with $3.5 million in assets, no debt at all, currently renting but plan to buy living space in the next two years with money from recent sale of house. Current asset allocation is 40 stocks/60 bonds and lots of cash from recent house sale. Wife is (more than) ready to retire from Biglaw at the end of the year. Hubby may want to retire from medical doctor work a year or so later. Practicing the Boglehead way with stock investments in Vanguard index funds VTI, VNQ, VEU and bonds in Vanguard BND and TIP. Will be moving back to Denver, CO after Hubby retires from current job in DC. We are not big spenders, like to have an occasional visit to the beach, have always lived well below means so can continue easily after retirement.

Any thoughts would be appreciated.
Rusa
User avatar
Rusa
 
Posts: 90
Joined: Mon Jan 25, 2010 3:18 pm
Location: Washington DC (for as short a time as possible)

Re: Do we have enough to retire?

Postby mac808 » Thu Mar 14, 2013 11:55 pm

"It's not what you make, it's what you spend."

How much do you plan to spend on a house, and then what are your estimated annual expenses in retirement?
mac808
 
Posts: 125
Joined: Mon Sep 19, 2011 8:45 pm

Re: Do we have enough to retire?

Postby awval999 » Fri Mar 15, 2013 12:03 am

Simply yes--- you have enough to feed, shelter and clothe you and your spouse for the rest of your lives.

But----
I think if you gave us more information regarding the quality of life you expect it would be helpful.

$3,500,000.00 will throw off---> $112,500/year at 3% and $140,000/year at 4%. Let's split it half way and call it ~$125,000/year. Most will consider this a conservative 3.5% SWR enough to last you the rest of your lives.

The question is: Is $125,000/year enough? Is this money pre or post tax? How large of a house do you want your retirement homestead to be (as it will decrease your kitty and the subsequent withdrawl rate).
Last edited by awval999 on Fri Mar 15, 2013 12:06 am, edited 1 time in total.
awval999
 
Posts: 674
Joined: Fri Apr 08, 2011 10:17 pm

Re: Do we have enough to retire?

Postby Rusa » Fri Mar 15, 2013 12:04 am

We plan to spend about $300K on a house. Current yearly living expenses are about $100K - $120K, so a pretty good quality of life :)
Rusa
User avatar
Rusa
 
Posts: 90
Joined: Mon Jan 25, 2010 3:18 pm
Location: Washington DC (for as short a time as possible)

Re: Do we have enough to retire?

Postby awval999 » Fri Mar 15, 2013 12:08 am

Rusa wrote:We plan to spend about $300K on a house. Current yearly living expenses are about $100K - $120K, so a pretty good quality of life :)


Are your living expenses determined by your current pre-tax salaries or by your after-tax expenditures?

$3,200,000 x 4% = $128,000/year.
The tax status will depend if these are pretax 401k/403bs or post-tax taxable accounts or tax-free Roth accounts.
awval999
 
Posts: 674
Joined: Fri Apr 08, 2011 10:17 pm

Re: Do we have enough to retire?

Postby letsgobobby » Fri Mar 15, 2013 12:10 am

Well, it's not a gimme. After the house you'll have $3M and up to a $120k annual spend. That is 4%, the historical threshold for a safe SWR. But many have argued that is too high for a low return environment. And you have to think about health care premiums, unless that's in your $120k spend. Big law and medicine don't tend to have a lot of pensions, I don't think?

Overall, you have a 90-95% chance of success if your health care premiums are included in the $120k spend. If not your chances are lower.

Anyway to work part time til Medicare kicks in? Enough to bring in $30-$60k total?
letsgobobby
 
Posts: 7267
Joined: Fri Sep 18, 2009 1:10 am

Re: Do we have enough to retire?

Postby LH » Fri Mar 15, 2013 1:10 am

Rusa wrote:We plan to spend about $300K on a house. Current yearly living expenses are about $100K - $120K, so a pretty good quality of life :)


3.2 million after home purchase. 4 percent SWR. 128K a year.

Is the living expense of 120K a year after tax? Or is that taxable income, and you live on 80K or whatever?

SS will kick in at 67? (65?).... SS payments will in about 10 years, cut down that figure from 128 to under 100 in ten years time roughly, so thats basically 3 percent withdrawal rate needed then.

So yeah, it looks like you can retire.

For extra safety/diversity if desired, throw in some SPIA maybe 300K worth, you can get a higher stream from that, more safety, at the expense of losing principle if you are the one who dies young, also at risk of company failure.

You are there as far as I can tell.
User avatar
LH
 
Posts: 5488
Joined: Wed Mar 14, 2007 2:54 am

Re: Do we have enough to retire?

Postby Igglesman » Fri Mar 15, 2013 4:15 am

If your portfolio were to drop 20% in value, are you willing to live on less each year? I think you are right on the borderline....and expenses in retirement may be higher than you estimate.
User avatar
Igglesman
 
Posts: 406
Joined: Fri May 01, 2009 2:20 pm

Re: Do we have enough to retire?

Postby wesleymouch » Fri Mar 15, 2013 5:42 am

Given the current state of affairs I would rely on a 2 to 2.5% SWR. Can you live on that and have a cushion in case things don't work out? In your shoes I would probably work longer.
wesleymouch
 
Posts: 237
Joined: Wed Dec 05, 2012 2:24 pm

Re: Do we have enough to retire?

Postby livesoft » Fri Mar 15, 2013 5:51 am

There are many calculators that try to answer the question. Have you tried them?

One's I would use are www.firecalc.com , Fidelity's Retirement Income Planner, and Otar's flexible retirement planner.
This signature message sponsored by LadyGeek.
livesoft
 
Posts: 34935
Joined: Thu Mar 01, 2007 8:00 pm

Re: Do we have enough to retire?

Postby richard » Fri Mar 15, 2013 5:51 am

Bill Bernstein, a well respected advisor, has said "Two percent is bullet-proof, 3% is probably safe, 4% is pushing it." I'm not sure anything is bullet-proof.

The 4% inflation adjusted withdrawal rate is based on a study of history that may or may not apply to the future.

They looked at a 30 year retirement (you or your spouse could easily live longer than that). There are only about 100 years of reliable data, so only about three independent data points. There are no guarantees conditions in the future will be the same as during these years, so we seem to have fewer than three relevant data points.

The so-called calculators out there either assume history is a reliable guide or guess future returns. Alas, we don't know what the future will bring.

I wouldn't assume a 4%, or even a 3%, inflation adjusted withdrawal rate for the rest of my life if I were 58, but I'm a rather cautious sort in these matters.

As others have asked, is the $100-$120k all in, including taxes, likely healthcare costs, etc.?
richard
 
Posts: 7543
Joined: Tue Feb 20, 2007 3:38 pm

Re: Do we have enough to retire?

Postby awval999 » Fri Mar 15, 2013 6:43 am

wesleymouch wrote:Given the current state of affairs I would rely on a 2 to 2.5% SWR. Can you live on that and have a cushion in case things don't work out? In your shoes I would probably work longer.


Come on---- the dividend yield of the S&P 500 itself is 2.0%.
awval999
 
Posts: 674
Joined: Fri Apr 08, 2011 10:17 pm

Re: Do we have enough to retire?

Postby Sidney » Fri Mar 15, 2013 6:51 am

awval999 wrote:
wesleymouch wrote:Given the current state of affairs I would rely on a 2 to 2.5% SWR. Can you live on that and have a cushion in case things don't work out? In your shoes I would probably work longer.


Come on---- the dividend yield of the S&P 500 itself is 2.0%.

the analysis is best done using real rates of return. Most retirees would expect to hold a significant portion of their assets in bonds which currently have negative returns.
I always wanted to be a procrastinator.
Sidney
 
Posts: 5897
Joined: Thu Mar 08, 2007 6:06 pm

Re: Do we have enough to retire?

Postby richard » Fri Mar 15, 2013 6:55 am

awval999 wrote:
wesleymouch wrote:Given the current state of affairs I would rely on a 2 to 2.5% SWR. Can you live on that and have a cushion in case things don't work out? In your shoes I would probably work longer.

Come on---- the dividend yield of the S&P 500 itself is 2.0%.

Stocks are not exactly safe investments.

There's no such thing as a free lunch. If you're getting a return above TIPS rates, you're taking risk.
richard
 
Posts: 7543
Joined: Tue Feb 20, 2007 3:38 pm

Re: Do we have enough to retire?

Postby momar » Fri Mar 15, 2013 7:12 am

Too close for comfort. Work another couple years. Just you, maybe, since your wife seems ready.
"Index funds have a place in your portfolio, but you'll never beat the index with them." - Words of wisdom from a Fidelity rep
User avatar
momar
 
Posts: 1359
Joined: Sun Nov 13, 2011 12:51 pm

Re: Do we have enough to retire?

Postby hicabob » Fri Mar 15, 2013 7:19 am

momar wrote:Too close for comfort. Work another couple years. Just you, maybe, since your wife seems ready.

I think OP is the biglaw wife? I agree it's a bit close - unless you cut the budget to 110k (until SS kicks in)
hicabob
 
Posts: 1796
Joined: Fri May 27, 2011 5:35 pm
Location: cruz

Re: Do we have enough to retire?

Postby awval999 » Fri Mar 15, 2013 7:23 am

richard wrote:
awval999 wrote:
wesleymouch wrote:Given the current state of affairs I would rely on a 2 to 2.5% SWR. Can you live on that and have a cushion in case things don't work out? In your shoes I would probably work longer.

Come on---- the dividend yield of the S&P 500 itself is 2.0%.

Stocks are not exactly safe investments.

There's no such thing as a free lunch. If you're getting a return above TIPS rates, you're taking risk.


Life is not exactly safe a investment.

There's no such thing as a free lunch. If you're breathing, you're taking risk
awval999
 
Posts: 674
Joined: Fri Apr 08, 2011 10:17 pm

Re: Do we have enough to retire?

Postby momar » Fri Mar 15, 2013 7:25 am

hicabob wrote:
momar wrote:Too close for comfort. Work another couple years. Just you, maybe, since your wife seems ready.

I think OP is the biglaw wife? I agree it's a bit close - unless you cut the budget to 110k (until SS kicks in)

My apologies. Re-reading the post, it is not clear. I just read wife first and immediately assumed the poster was the husband.
"Index funds have a place in your portfolio, but you'll never beat the index with them." - Words of wisdom from a Fidelity rep
User avatar
momar
 
Posts: 1359
Joined: Sun Nov 13, 2011 12:51 pm

Re: Do we have enough to retire?

Postby NYBoglehead » Fri Mar 15, 2013 7:28 am

I am all about making conservative estimates but I think sometimes we go overboard here. The OP has more than $3.5 million for retirement, which is WAY higher than the overwhelming majority of people will ever have. I am fairly certain that they will be able to adjust their spending in a down market to make that nest egg last.

For starters, I expect that their cost of living will go down after relocating to Denver from Washington DC. The housing is cheaper and taxes are lower. That 100-120k will go a lot further in CO than it did in DC, so either they will be doing more with the money or not spending as much when they relocate. I'm also assuming that rent is included in the 100-120k figure and obviously after purchasing a home outright there will be no monthly rent.

100k is just 3.1% of $3.2 million. 2% alone should come from dividends/interest, and we assume interest rates will rise at some point in the future. They will also have Social Security later on in retirement.

OP, in my opinion you have enough money to retire on. Not sure what kind of law you practice but I'm sure you can find some form of PT work in Denver if you desired or needed the money.
NYBoglehead
 
Posts: 1588
Joined: Fri May 25, 2012 9:38 am

Re: Do we have enough to retire?

Postby Wolkenspiel » Fri Mar 15, 2013 8:09 am

NYBoglehead wrote:I am all about making conservative estimates but I think sometimes we go overboard here. The OP has more than $3.5 million for retirement, which is WAY higher than the overwhelming majority of people will ever have. I am fairly certain that they will be able to adjust their spending in a down market to make that nest egg last.

OP, in my opinion you have enough money to retire on. Not sure what kind of law you practice but I'm sure you can find some form of PT work in Denver if you desired or needed the money.


I couldn't agree more. Even under the most dire 2% max SWR scenarios, the OP will still have about 1.5x the median US household income per year. There is no certainty that they will be able to blindly draw an inflation adjusted $120k from the portfolio forever, but the handwringing over the retirement prospects of someone in the top few % of the US networth distribution is somewhat ridiculous. Should I ever reach a comparable net worth, I will make a decision based on whether I still like my work more than other ways of spending my time, not on SWR hair splitting.
Wolkenspiel
 
Posts: 448
Joined: Wed Sep 30, 2009 7:45 am

Re: Do we have enough to retire?

Postby wesleymouch » Fri Mar 15, 2013 8:17 am

My suggested SWR of 2 to 2.5% is not that extreme. Similar numbers are suggested by W Bernstein, W Pfau and Jim Otar as the bombproof numbers (closer to 2% as bombproof).
wesleymouch
 
Posts: 237
Joined: Wed Dec 05, 2012 2:24 pm

Re: Do we have enough to retire?

Postby prudent » Fri Mar 15, 2013 8:33 am

Age 58 with $3.5m? You absolutely can retire, if you are willing to adjust spending downward if you had to. But I doubt you will have to.
User avatar
prudent
 
Posts: 1282
Joined: Fri May 20, 2011 2:50 pm

Re: Do we have enough to retire?

Postby awval999 » Fri Mar 15, 2013 8:36 am

wesleymouch wrote:My suggested SWR of 2 to 2.5% is not that extreme. Similar numbers are suggested by W Bernstein, W Pfau and Jim Otar as the bombproof numbers (closer to 2% as bombproof).


It is nuclear proof though?

What about dirty bomb proof?

Sometimes we miss the forest for the trees.

Numbers such as 8% are recommened by Dave Ramsey. Lol.

You only live once--- only get one retirement--- living on a 2% SWR is just needless. It is worrying about severe tail risks but not taking into account other tail risks like missing out on your one life!
awval999
 
Posts: 674
Joined: Fri Apr 08, 2011 10:17 pm

Re: Do we have enough to retire?

Postby Grt2bOutdoors » Fri Mar 15, 2013 8:36 am

OP is living a very nice life on a 100K net spending in Colorado today. That said, it'd be nicer if they had a bit more cushion, leaving the workforce at 58 shaves off a bit off of S.S. to be received at 67. Figure they spend down 1/4 of portfolio by 67, it will be tight if they upgrade their lifestyle over that ten year period - most folks don't spend a consistent amount overtime, things go up in costs and they may have the inclination to do more than travel to a beach in California, if Tahiti is their idea of a beach vacation, 100K will not cut it.
"Luck is not a strategy" Asking Portfolio Questions
Grt2bOutdoors
 
Posts: 10753
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Do we have enough to retire?

Postby richard » Fri Mar 15, 2013 8:39 am

awval999 wrote:
richard wrote:
awval999 wrote:
wesleymouch wrote:Given the current state of affairs I would rely on a 2 to 2.5% SWR. Can you live on that and have a cushion in case things don't work out? In your shoes I would probably work longer.

Come on---- the dividend yield of the S&P 500 itself is 2.0%.

Stocks are not exactly safe investments.

There's no such thing as a free lunch. If you're getting a return above TIPS rates, you're taking risk.

Life is not exactly safe a investment.

There's no such thing as a free lunch. If you're breathing, you're taking risk

Relying on a 2% yield, and no significant decrease in value, for the S&P 500 is risky. There is a significant chance of a major decline in value.

I'm with Bill Bernstein and wesleymouch. YMMV.
richard
 
Posts: 7543
Joined: Tue Feb 20, 2007 3:38 pm

Re: Do we have enough to retire?

Postby richard » Fri Mar 15, 2013 8:43 am

awval999 wrote:
wesleymouch wrote:My suggested SWR of 2 to 2.5% is not that extreme. Similar numbers are suggested by W Bernstein, W Pfau and Jim Otar as the bombproof numbers (closer to 2% as bombproof).


It is nuclear proof though?

What about dirty bomb proof?

Sometimes we miss the forest for the trees.

Numbers such as 8% are recommened by Dave Ramsey. Lol.

You only live once--- only get one retirement--- living on a 2% SWR is just needless. It is worrying about severe tail risks but not taking into account other tail risks like missing out on your one life!

You only live once, and if you run out of money at 90 because you withdrew too much, you're going to feel very bad.

8% is very risky. It fails about 90% of the time based on history (firecalc, 40 year timeframe) and future returns could easily be worse than history
richard
 
Posts: 7543
Joined: Tue Feb 20, 2007 3:38 pm

Re: Do we have enough to retire?

Postby bottlecap » Fri Mar 15, 2013 9:00 am

I think you're close, but a 4% withdrawal rate is not a sure thing. On the bright side, you will be eligible for social security within the next decade, which will help a lot.

In short, if you do it right, you should have enough with the expectation of social security benefits coming through for you. Without them, it would be a very close call.

JT
User avatar
bottlecap
 
Posts: 3330
Joined: Tue Mar 06, 2007 11:21 pm
Location: Tennessee

Re: Do we have enough to retire?

Postby lwfitzge » Fri Mar 15, 2013 9:04 am

awval999 wrote:
richard wrote:
awval999 wrote:
wesleymouch wrote:Given the current state of affairs I would rely on a 2 to 2.5% SWR. Can you live on that and have a cushion in case things don't work out? In your shoes I would probably work longer.

Come on---- the dividend yield of the S&P 500 itself is 2.0%.

Stocks are not exactly safe investments.

There's no such thing as a free lunch. If you're getting a return above TIPS rates, you're taking risk.


Life is not exactly safe a investment.

There's no such thing as a free lunch. If you're breathing, you're taking risk



Indeed...we need to consider the other risk of living (or not). Take a look at some longevity survival curves and the reality is that a sizable number of 58 year old in US don't make it to 65 (if fact, one survival curve I looked at said 12% don't make it). Given the life span of males in my family over the past 100 yrs, I'm not particularly worried about lasting to 90 and running out of money.
lwfitzge
 
Posts: 311
Joined: Sun Jun 12, 2011 8:01 am

Re: Do we have enough to retire?

Postby wilked » Fri Mar 15, 2013 9:09 am

If you retire today, then next Friday the market takes a 30% haircut and your portfolio takes a 20% haircut...would you panic?

If no, you are ready to retire. If so, keep on working
wilked
 
Posts: 785
Joined: Thu Mar 24, 2011 1:50 pm

Re: Do we have enough to retire?

Postby NYBoglehead » Fri Mar 15, 2013 9:29 am

If people like the OP cannot retire, the rest of us might as well stop planning on retiring.

Tomorrow I will stop all contributions to retirement accounts and I will plan on working until I drop dead. That is essentially what most are saying. Can your portfolio survive the onset of World War III or the zombie apocalypse? If not then you better keep working.

The OP has $3.5 million dollars. She will have $3.2 million and a paid for house at age 58. To suggest that she cannot retire borders on the absurd in my opinion. If the market dives we are not talking about her and her husband having to eat rice and beans, but instead lower their very high 100k+ annual expenses (2.5x the national income by the way)
NYBoglehead
 
Posts: 1588
Joined: Fri May 25, 2012 9:38 am

Re: Do we have enough to retire?

Postby HomerJ » Fri Mar 15, 2013 9:32 am

Wolkenspiel wrote:
NYBoglehead wrote:I am all about making conservative estimates but I think sometimes we go overboard here. The OP has more than $3.5 million for retirement, which is WAY higher than the overwhelming majority of people will ever have. I am fairly certain that they will be able to adjust their spending in a down market to make that nest egg last.

OP, in my opinion you have enough money to retire on. Not sure what kind of law you practice but I'm sure you can find some form of PT work in Denver if you desired or needed the money.


I couldn't agree more. Even under the most dire 2% max SWR scenarios, the OP will still have about 1.5x the median US household income per year. There is no certainty that they will be able to blindly draw an inflation adjusted $120k from the portfolio forever, but the handwringing over the retirement prospects of someone in the top few % of the US networth distribution is somewhat ridiculous. Should I ever reach a comparable net worth, I will make a decision based on whether I still like my work more than other ways of spending my time, not on SWR hair splitting.


Exactly... Many of us here are WAY too conservative... There's no reason to believe that interest rates will remain this low for 30 years, and even if they do, it just means the OP will only take 3 big vacations a year instead of 5. Silly to work 2-3 more YEARS of your life to avoid a 5% chance that you may have to skip a vacation or two during retirement.
User avatar
HomerJ
 
Posts: 7002
Joined: Fri Jun 06, 2008 12:50 pm

Re: Do we have enough to retire?

Postby wesleymouch » Fri Mar 15, 2013 9:38 am

Wealth has a marginal utility. As Otar says the first 4 years of retirement are critical. If your net woth has not declined 4 yrs after retiring you are probably okay. I would have a very low withdrawal rate those first 4 years. I don't like eating Alpo and I imagine I will like it less without teeth.
wesleymouch
 
Posts: 237
Joined: Wed Dec 05, 2012 2:24 pm

Re: Do we have enough to retire?

Postby HomerJ » Fri Mar 15, 2013 9:44 am

richard wrote:You only live once, and if you run out of money at 90 because you withdrew too much, you're going to feel very bad.


The OP has ZERO chance of running out of money at 90... They MAY have to "only" live on 80k a year (in today's dollars) in their 90s if things go really bad....

2% SWR is 100% recency basis... Interest rates have been low for a few years... So people are projecting they will remain super low for 30 years. Which is just as stupid as people who projected people could withdraw 10% a year during the 90s.
Last edited by HomerJ on Fri Mar 15, 2013 9:47 am, edited 1 time in total.
User avatar
HomerJ
 
Posts: 7002
Joined: Fri Jun 06, 2008 12:50 pm

Re: Do we have enough to retire?

Postby HomerJ » Fri Mar 15, 2013 9:45 am

bottlecap wrote:I think you're close, but a 4% withdrawal rate is not a sure thing. On the bright side, you will be eligible for social security within the next decade, which will help a lot.


And they're both high earners, so SS benefits are going to be close to 2000/month EACH... They'll be getting at least $40k (inflation-indexed) a year from SS someday.
Last edited by HomerJ on Fri Mar 15, 2013 9:53 am, edited 1 time in total.
User avatar
HomerJ
 
Posts: 7002
Joined: Fri Jun 06, 2008 12:50 pm

Re: Do we have enough to retire?

Postby HomerJ » Fri Mar 15, 2013 9:52 am

Rusa wrote:We plan to spend about $300K on a house. Current yearly living expenses are about $100K - $120K, so a pretty good quality of life :)


You should nail down how much you actually spend each year to get a better idea where you stand... How much of those current yearly living expenses is rent for instance?

And Colorado will be cheaper than DC.
User avatar
HomerJ
 
Posts: 7002
Joined: Fri Jun 06, 2008 12:50 pm

Re: Do we have enough to retire?

Postby tphp99 » Fri Mar 15, 2013 10:38 am

Wolkenspiel wrote: There is no certainty that they will be able to blindly draw an inflation adjusted $120k from the portfolio forever, but the handwringing over the retirement prospects of someone in the top few % of the US networth distribution is somewhat ridiculous. Should I ever reach a comparable net worth, I will make a decision based on whether I still like my work more than other ways of spending my time, not on SWR hair splitting.



Why is it ridiculous? Maybe they want to stay in the top few % in their distribution phase. As a matter of fact, if they are young, they may spend more in retirement than while working.
tphp99
 
Posts: 241
Joined: Sun Jan 03, 2010 8:47 pm

Re: Do we have enough to retire?

Postby NYBoglehead » Fri Mar 15, 2013 10:51 am

tphp99 wrote:
Wolkenspiel wrote: There is no certainty that they will be able to blindly draw an inflation adjusted $120k from the portfolio forever, but the handwringing over the retirement prospects of someone in the top few % of the US networth distribution is somewhat ridiculous. Should I ever reach a comparable net worth, I will make a decision based on whether I still like my work more than other ways of spending my time, not on SWR hair splitting.



Why is it ridiculous? Maybe they want to stay in the top few % in their distribution phase. As a matter of fact, if they are young, they may spend more in retirement than while working.


120k is $328.76...every single day of the year. While extravagant vacations and expensive taste make this entirely possible, I think most of us could figure out how to live on that. Oh, and that would be with a paid off house, so that $328.76 would be for property taxes and consumption. Unless they are eating prime rib with expensive wine and taking a car service to the restaurant every night I think they'll be alright.
NYBoglehead
 
Posts: 1588
Joined: Fri May 25, 2012 9:38 am

Re: Do we have enough to retire?

Postby Watty » Fri Mar 15, 2013 10:53 am

HomerJ wrote:
bottlecap wrote:I think you're close, but a 4% withdrawal rate is not a sure thing. On the bright side, you will be eligible for social security within the next decade, which will help a lot.


And they're both high earners, so SS benefits are going to be close to 2000/month EACH... They'll be getting at least $40k (inflation-indexed) a year from SS someday.


Bingo!

That is what I was going to say. I couldn't believe that some of the posts in this thread was being so negative.

In addition when they turn 65 Medicare will start and their medical expenses should go down a lot too.

Very roughly the way that I would look at it is that with taxes they might need $150,00 a year before taxes for the next 7 years to get to the age of 65. With a $300K house that is 1,350,000 that they will spend by then.

Right now that would give them an additional $2,150,000 that will be invested for seven years then be used to support them after the age of 65. For self-described "not big spenders" with that, a paid off house, and the social security they should be able to retire just fine with plenty left over.
User avatar
Watty
 
Posts: 4856
Joined: Wed Oct 10, 2007 3:55 pm

Re: Do we have enough to retire?

Postby countofmc » Fri Mar 15, 2013 10:59 am

I know it does not directly address OP's question, but shouldn't their personal capital (or whatever the correct terminology is, I forget) be considered here as well? OP is a BIGLAW partner and spouse a medical doctor. My guess it either one of them could jump back into working if need be and make a decent income.

Seems like OP has a lot of options available. They could start with the "aggressive" SWR of 4%, and then if something drastic happens, they can pare down on expenses or have one of them return to working part time and/or on a consulting basis.

I think OP's situation is on opposite ends of someone like my uncle-in-law, who also just retired at the age of 58. He has a nice nest egg and a good plan, but he retired from a job where his skillset was extremely unique and basically limited to his employer. If he needed to go back to work, his chances of finding a job with an income anything close to what he was making is zilch. As such, someone like him may need to be much more conservative in how much he can withdraw from his portfolio each year as compared to OP.
countofmc
 
Posts: 282
Joined: Tue Dec 11, 2012 12:03 pm

Re: Do we have enough to retire?

Postby Zytos » Fri Mar 15, 2013 11:01 am

NYBoglehead wrote:If people like the OP cannot retire, the rest of us might as well stop planning on retiring.

Tomorrow I will stop all contributions to retirement accounts and I will plan on working until I drop dead. That is essentially what most are saying. Can your portfolio survive the onset of World War III or the zombie apocalypse? If not then you better keep working.

The OP has $3.5 million dollars. She will have $3.2 million and a paid for house at age 58. To suggest that she cannot retire borders on the absurd in my opinion. If the market dives we are not talking about her and her husband having to eat rice and beans, but instead lower their very high 100k+ annual expenses (2.5x the national income by the way)


Agreed. Whenever you feel inadequate after reading this message board, just read the replies to this thread. Also see OP in:

viewtopic.php?f=2&t=112515

Then breathe a sigh of relief knowing that a good portion of posters here will never be satisfied, and instead live in perpetual anguish over their inability to achieve 100% certainty in life.
Zytos
 
Posts: 30
Joined: Mon Sep 24, 2012 11:47 am

Re: Do we have enough to retire?

Postby bottlecap » Fri Mar 15, 2013 11:08 am

NYBoglehead wrote:If people like the OP cannot retire, the rest of us might as well stop planning on retiring.

Tomorrow I will stop all contributions to retirement accounts and I will plan on working until I drop dead. That is essentially what most are saying. Can your portfolio survive the onset of World War III or the zombie apocalypse? If not then you better keep working.

The OP has $3.5 million dollars. She will have $3.2 million and a paid for house at age 58. To suggest that she cannot retire borders on the absurd in my opinion. If the market dives we are not talking about her and her husband having to eat rice and beans, but instead lower their very high 100k+ annual expenses (2.5x the national income by the way)


Not absurd by any stretch. There are people that could retire on $500,000 or less. It's a question of expenses.

I could retire on $3.2 million dollars. You could. But someone who has expenses of $120,000 per year might run out of money (ignoring for a moment social security). A small chance, but one with significant consequences. The point is that the OP will have to analyze what the household expenses are before blindlly saying that it's a foregone conclusion that they can retire.

Just look before you leap.

JT
User avatar
bottlecap
 
Posts: 3330
Joined: Tue Mar 06, 2007 11:21 pm
Location: Tennessee

Re: Do we have enough to retire?

Postby richard » Fri Mar 15, 2013 11:15 am

HomerJ wrote:
richard wrote:You only live once, and if you run out of money at 90 because you withdrew too much, you're going to feel very bad.


The OP has ZERO chance of running out of money at 90... They MAY have to "only" live on 80k a year (in today's dollars) in their 90s if things go really bad....[/qoute]
The OP has an excellent chance of running out of money at the 8% withdrawal rate mentioned in the post I responded to
HomerJ wrote:2% SWR is 100% recency basis... Interest rates have been low for a few years... So people are projecting they will remain super low for 30 years. Which is just as stupid as people who projected people could withdraw 10% a year during the 90s.

It appears that the best predictor of future interest rates is current interest rates.

Current or recent stock returns, on the other hand, are a lousy predictor. For all it's flaws, p/e seems a better predictor. Recent yield seems to work better than recent (or longer term) price appreciation, which was among the reasons anyone projecting 10% in the 90s was nuts.

Not that any of these methods are very good predictors, but if there's any research showing better prediction metrics, I'd like to see it.

Recency is typically predicting current returns will continue. Higher current returns usually means lower yield (bond and stock), so using bond yield and p/e goes the opposite direction of the usual recency bias.
richard
 
Posts: 7543
Joined: Tue Feb 20, 2007 3:38 pm

Re: Do we have enough to retire?

Postby 2wolves » Fri Mar 15, 2013 11:20 am

livesoft wrote:There are many calculators that try to answer the question. Have you tried them?

One's I would use are http://www.firecalc.com , Fidelity's Retirement Income Planner, and Otar's flexible retirement planner.


Does firecalc still not account for taxes? It would be the best tool if it did, but without that, I have trouble trusting it's conclusions without making a bunch of complicated adjustments.
2wolves
 
Posts: 158
Joined: Sun Apr 10, 2011 11:57 am

Re: Do we have enough to retire?

Postby mindbogle » Fri Mar 15, 2013 11:28 am

OP, I think its instructive to take an actuarial point of view and to look to the present-day bond market to help answer your question:

Assumptions:
you desire to support a $110K pretax inflation-adjusted withdrawal rate for the rest of your combined lives (one or more of you are alive)
your current $3.2 million after purchasing a house is pre-tax, sitting in an IRA
one of you is male, and one female, both with "normal" mortality risks (2007 mortality tables)
you desire a 90% confidence of not running out of money
you expect a pretax $50k in social security starting at the age of 65
you can buy Treasury Inflation Protected Securities (TIPS) today that mature in each year of the future priced using today's tips yield curve

Results:
based on joint mortality probabilities, there is a 90% chance that you will both be deceased before 43 years from retirement (if you both retire at 58)
cost of purchasing TIPS bonds today to fund each of those 43 years is $3.1 million in today's dollars, after accounting for SS

So under these assumptions that I listed above, two should be able to retire with a high degree of confidence.

Fine print:

The above uses an extrapolation of the yield curve to calculate prices to fund the last 13 years. Of course in practice you won't be able to purchase bonds for those years now. And then there are implicit assumptions that TIPS and SS are safe from government default, that the government's measure of inflation for these matches your personal inflation rate. Also, should highlight that one of the assumptions above was that your inflation-adjusted spending rate remains constant, regardless of your age and health, and whether both or just one of you is alive at any point in the future.

Caveats notwithstanding, the calculation is meant to give rough guidance and not a suggestion for how you should invest or live. Note that looking at it this way, we don't have to make highly speculative real return assumptions, which are implicitly behind many of the SWR-type rules that people use to answer this question. I am not asserting that this way of looking at the problem is necessarily superior to the other ways, but I think it is a useful and more transparent alternative due to most of the uncertainty being shifted into mortality, and away from investment returns.
Last edited by mindbogle on Fri Mar 15, 2013 12:15 pm, edited 2 times in total.
mindbogle
 
Posts: 89
Joined: Sun Feb 10, 2013 11:28 am

Re: Do we have enough to retire?

Postby Clearly_Irrational » Fri Mar 15, 2013 12:09 pm

richard wrote:Bill Bernstein, a well respected advisor, has said "Two percent is bullet-proof, 3% is probably safe, 4% is pushing it." I'm not sure anything is bullet-proof.


I would argue that spending the dividends + interest on your portfolio is bullet proof. Currently that's 2.4% for a 40/60 portfolio. Any conditions that resulted in that not being true would also likely lead to the collapse of modern society.
User avatar
Clearly_Irrational
 
Posts: 2696
Joined: Thu Oct 13, 2011 3:43 pm

Re: Do we have enough to retire?

Postby NYBoglehead » Fri Mar 15, 2013 12:23 pm

$3.2 million dollars. If the OP started taking 120k/yr and earned only enough to keep up with inflation (and not a dime more...zero real return) she could withdraw 120k annually for 26.7 years. That would be depleting every single time by 84/85 and doesn't account for social security. It also doesn't account for whatever the house will be worth that can later be sold. It also doesn't account for the fact that they'll probably spend a little less on vacations, etc in their 70s than they will in their 60s. It is also coming from a very high annual expense budget, so any reductions won't be mean their eating ramen noodles every night. AND...that assumes a real return of 0% in the next 26.7 years. How many times has that happened?

Also in the above scenario they haven't spent any of the social security income since they've been taking the 120k+inflation adjustment from the portfolio. If they wait until 70 to take it and earn 50k/yr combined by 85 they will have accrued a 750k balance in the savings account in which the benefits were placed. So from age 85+ they can spend the 50k/yr from Social Security and draw an additional 70k from the past SS benefits in savings for another 10.7 years.

Sadly, my scenario does have them relying strictly on Social Security at age 96 after having spent 38 years spending 120k/yr (plus inflation adjustment) and never having earned a real return on the portfolio or adjusting their spending downward as they aged. Silly me.

OP, if I were in your shoes I'd put in my walking papers tomorrow. A lot of people have retired successfully with a whole lot less.
NYBoglehead
 
Posts: 1588
Joined: Fri May 25, 2012 9:38 am

Re: Do we have enough to retire?

Postby ThatGuy » Fri Mar 15, 2013 1:17 pm

Zytos wrote:
NYBoglehead wrote:If people like the OP cannot retire, the rest of us might as well stop planning on retiring.

Tomorrow I will stop all contributions to retirement accounts and I will plan on working until I drop dead. That is essentially what most are saying. Can your portfolio survive the onset of World War III or the zombie apocalypse? If not then you better keep working.

The OP has $3.5 million dollars. She will have $3.2 million and a paid for house at age 58. To suggest that she cannot retire borders on the absurd in my opinion. If the market dives we are not talking about her and her husband having to eat rice and beans, but instead lower their very high 100k+ annual expenses (2.5x the national income by the way)


Agreed. Whenever you feel inadequate after reading this message board, just read the replies to this thread. Also see OP in:

viewtopic.php?f=2&t=112515

Then breathe a sigh of relief knowing that a good portion of posters here will never be satisfied, and instead live in perpetual anguish over their inability to achieve 100% certainty in life.


At first, I though this was a humble-brag type of post. But then, when I saw the posts saying she should worry, I realized this is the Twilight Zone.
Work is the curse of the drinking class - Oscar Wilde
ThatGuy
 
Posts: 669
Joined: Fri Feb 05, 2010 9:00 am

Re: Do we have enough to retire?

Postby LH » Fri Mar 15, 2013 1:34 pm

You unequivocally have enough to retire if you want.

Now, are you protected from plaque, meteors, etc?

No.

May you have to cut back at some point to say, what the median family of 4 lives on per year 50K salary.... Sure maybe in really bad case.

So.... The horrible case is you fall back to what 4 people live on in the US currently, 50K, versus 120K. (I guess after taxes 50k is really 40k?)

Then, whatever SS manages to pay out in real terms on top of that. Thats not alpo people, no where near.

This board is seemingly populated, by a lot of posters, who expectantly, by planning to maintain a high lifestyle without cutbacks if need be in the more extreme cases, are simply going to pass a large amount of money to their heirs and never retire.....

Dont let the perfect get in the way of the good. and their situation is not good, it sounds pretty great. when compared to the median US expenditure.

Now if these people where saying, hey, we are planning on living on 40K a year, and that was near the 4 percent withdrawal rate for their portfolio, then sure....... be more careful. Maybe do not retire, save a bit more, though of course, SS in that case, is going to be percentagewise more significant contribution, so I dunno, would have to think more on that, but anyway, conceivably, the alpo range is conceivable in that case.

But the OP are 3 times that with two less people........ They have lots of leeway. I dunno if its applebees instead of ruth chris steakhouse we are talking about here, but something akin to that.
User avatar
LH
 
Posts: 5488
Joined: Wed Mar 14, 2007 2:54 am

Re: Do we have enough to retire?

Postby grap0013 » Fri Mar 15, 2013 1:43 pm

NYBoglehead wrote:$3.2 million dollars. If the OP started taking 120k/yr and earned only enough to keep up with inflation (and not a dime more...zero real return) she could withdraw 120k annually for 26.7 years. That would be depleting every single time by 84/85 and doesn't account for social security. It also doesn't account for whatever the house will be worth that can later be sold. It also doesn't account for the fact that they'll probably spend a little less on vacations, etc in their 70s than they will in their 60s. It is also coming from a very high annual expense budget, so any reductions won't be mean their eating ramen noodles every night. AND...that assumes a real return of 0% in the next 26.7 years. How many times has that happened?

Also in the above scenario they haven't spent any of the social security income since they've been taking the 120k+inflation adjustment from the portfolio. If they wait until 70 to take it and earn 50k/yr combined by 85 they will have accrued a 750k balance in the savings account in which the benefits were placed. So from age 85+ they can spend the 50k/yr from Social Security and draw an additional 70k from the past SS benefits in savings for another 10.7 years.

Sadly, my scenario does have them relying strictly on Social Security at age 96 after having spent 38 years spending 120k/yr (plus inflation adjustment) and never having earned a real return on the portfolio or adjusting their spending downward as they aged. Silly me.

OP, if I were in your shoes I'd put in my walking papers tomorrow. A lot of people have retired successfully with a whole lot less.


+1

You absolutely can retire. I'd withdraw 4% nominal for a couple of years and see how it goes. You can't take it with you when you go.
If you can't explain it simply, you don't understand it well enough.
User avatar
grap0013
 
Posts: 1350
Joined: Thu Mar 18, 2010 1:24 pm

Re: Do we have enough to retire?

Postby J295 » Fri Mar 15, 2013 1:56 pm

You have enough, and you can certainly reduce expenses and/or generate additional income outside of your investments in the future if you choose to do so. I read a quote on an early retirement site that I enjoyed in the context of reminding us that there are no guarantees in life ..... "if you want a guaranty buy a Sears battery" ...

Best of luck, and it's wonderful that you are in a position where you have choices. Enjoy the adventure!
J295
 
Posts: 244
Joined: Sun Jan 01, 2012 11:40 pm

Next

Return to Personal Finance (Not Investing)

Who is online

Users browsing this forum: HoosierJim, Yahoo [Bot] and 25 guests