Retire Early?? Need a sense check

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InvestorThom
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Retire Early?? Need a sense check

Post by InvestorThom »

I've used a variety of online calculators to determine if I can retire early, i.e., this year. Most give a ballpark figure of $4M. I developed a spreadsheet to project expenses and sources of income year by year. It seems I can do it on what I have and I would like to sense check this with others -- i.e., what am I not considering?

Here are a few facts:
Current Age: 55
Est Life Expectancy: 85-90 (although family history would suggest 80)
Current Health: Good (I understand a lot can change)

Taxable Accounts:
Emergency Fund: $200,000
Brokerage: $1,500,000 (index funds)

Tax Advantaged Accounts:
IRA and 401K: $1,100,000

Assumptions:
a) Will not touch tax advantaged accounts until 70 1/2. Using online compound interest calculators, no additional contributions, 5% return per year, 15 years, the account balance should be around $2,286,000
b) Start taking SS either at 67 or 70 for about $2800-3000 per month
c) Between 55 and 70 live off Taxable accounts, again assuming 5% return per year
d) Projected annual expenses of $110,000-120,000 (determined from detailed monthly/annual calculations)
e) I have a LTC policy (can't remember the details off the top of my head, but would offset some expenses in later years if needed)
f) I'm not trying to build wealth to leave behind

Thoughts?
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knpstr
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Re: Retire Early?? Need a sense check

Post by knpstr »

you're good to go with those numbers/assumptions
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Grt2bOutdoors
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Re: Retire Early?? Need a sense check

Post by Grt2bOutdoors »

Enjoy your retirement. :beer
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Hawaiishrimp
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Re: Retire Early?? Need a sense check

Post by Hawaiishrimp »

Very solid plan.
I save and invest my money, so money can make money for me, so I don't have to make money eventually.
Dandy
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Re: Retire Early?? Need a sense check

Post by Dandy »

looks good but I am always a bit conservative when making projections that long.
Some things to consider:
1. Compounding at 5% on the surface seems reasonable - how does 4% turn out.
2. How re employable are you say the next 5-10 years at a good income? Some people leave at that age and can get something comparable and many can't.
3. How much wiggle room is there in your living expenses.
4. Health care is kind of up in the air for many - do you think you have a reliable bridge to Medicare.

If these things don't present any major concerns you look very good.
muddlehead
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Re: Retire Early?? Need a sense check

Post by muddlehead »

You have 2.8 mill. Wife and I retired at a little younger than you with 3.1 mill. at Schwab a few years ago. And, we're leaving 2 mill for 2 sons at death we hope. House will be at least a mill. ! mill in cash. You have the whole 2.8 mill to work with. You have no worries. If you put the entire amount in a bag in your closet you could spend 93k per year and it would last 30 years till you're 85...
delamer
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Re: Retire Early?? Need a sense check

Post by delamer »

Dandy wrote:looks good but I am always a bit conservative when making projections that long.
Some things to consider:
1. Compounding at 5% on the surface seems reasonable - how does 4% turn out.
2. How re employable are you say the next 5-10 years at a good income? Some people leave at that age and can get something comparable and many can't.
3. How much wiggle room is there in your living expenses.
4. Health care is kind of up in the air for many - do you think you have a reliable bridge to Medicare.

If these things don't present any major concerns you look very good.
These are good cautionary guidelines.

In addition, does your expenses estimate include income taxes? And how do the numbers look if your taxable account takes a hit of 25% in the first year or two of your retirement, and then takes a year or two to recover?
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Grt2bOutdoors
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Re: Retire Early?? Need a sense check

Post by Grt2bOutdoors »

Read Unveiling the Retirement Myth - Jim Otar. Calculators are good, have you tried Fidelity's Retirement Income Planner? Monte carlo simulators may be too optimistic. If John Bogle is right, over the next 10 years it will be difficult to expect more than 4% from equities, if that is true, how do you plan on obtaining a 5% return especially if you are holding some fixed income? Your blended return rate is projected to be less than that. Assuming you have good health, can you work until age 57 or 59? Each additional year worked is one more years worth of savings and one year less that you would need to bridge until 67 or 70.

You could retire now, but retiring and actually having things in the market cooperate is another story.
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Watty
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Re: Retire Early?? Need a sense check

Post by Watty »

InvestorThom wrote:d) Projected annual expenses of $110,000-120,000 (determined from detailed monthly/annual calculations)
Be sure to look at your expected income needs at different ages. I have seen relatives reach their mid 70's and naturally slow down even though they were in relatively good health. At that point their spending went way down and they didn't feel like traveling much or even shopping and buying stuff even though they could have afforded to. They lived in a moderate cost of living area in a paid off house which helped but there were often months when they did not need any more their Social Security checks.
aristotelian
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Re: Retire Early?? Need a sense check

Post by aristotelian »

I don't like assumption C. You are talking about an intermediate timeframe, but there is no investment that guarantees 5% annually. Your withdrawal rate from the bridge years is about 10%, so depending on your portfolio a bear market could make the bridge years tricky.

What is your allocation? Is health care taken care of? Could you live on $80K if needed during the bridge years?

Then you could have a more conservative assumption and invest your bridge funds very conservatively.
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Re: Retire Early?? Need a sense check

Post by radiowave »

Agree with above about healthcare considerations. I recently looked at what it would cost for both of us: $1.2-1.5k/mo on the private market and if we had to do a Cobra, about the same. Both were high deductible plans so under certain circumstances, we could be out $20-30k in a year total expenditures for insurance and deductibles if one or both of us gets sick or injured.
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Dinosaur Dad
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Re: Retire Early?? Need a sense check

Post by Dinosaur Dad »

My two cents:

1. What's your real return (i.e. what is your inflation assumption)?
2. Agree with other posts which essentially say...how much flex does your $110-120k/year expense number have? if you have a couple of sub-par years, adjusting spending could be an option.
3. Remember that the healthcare component is probably going to outpace other inflation...not sure how you're addressing via either LTC insurance or some other way. I'm looking at healthcare insurance now (age 60, hope to retire next year) and the whole thing - what will be available, tax rates, subsidies, etc - is up in the air.
4. Wholly agree with those that say "test it at 4%" just so you see the full picture...none of us knows what the future rate of return is, and please remember that an early bear market can have a big impact.
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AlohaJoe
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Re: Retire Early?? Need a sense check

Post by AlohaJoe »

You're "bridge" portfolio is $1.7 million and needs to last you for 15 years. You withdraw $120,000 a year -- or 7%.

The Trinity study found that a 7% withdrawal rate over 15 years failed 20% of the time. So I'm a bit surprised that so many normally conservative Bogleheads -- who usually seem to argue whether you need a 95% chance of success or 99% chance of success -- are okay with a mere 80% chance of success.

How risk averse are you? How flexible are your expenses?

Personally, I'd retire early but I also have a lot of flexibility in my expenses -- I can cut them by over 50% easily if things look less than rosy.
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knpstr
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Re: Retire Early?? Need a sense check

Post by knpstr »

AlohaJoe wrote:You're "bridge" portfolio is $1.7 million and needs to last you for 15 years. You withdraw $120,000 a year -- or 7%.

The Trinity study found that a 7% withdrawal rate over 15 years failed 20% of the time. So I'm a bit surprised that so many normally conservative Bogleheads -- who usually seem to argue whether you need a 95% chance of success or 99% chance of success -- are okay with a mere 80% chance of success.

How risk averse are you? How flexible are your expenses?

Personally, I'd retire early but I also have a lot of flexibility in my expenses -- I can cut them by over 50% easily if things look less than rosy.
But $110,000 of $1.7M for 12 years (taking his low end given numbers) is about 99% success rate
Also he has access to all of his funds, but SS, in 4.5 years if need be.
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avalpert
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Re: Retire Early?? Need a sense check

Post by avalpert »

AlohaJoe wrote:You're "bridge" portfolio is $1.7 million and needs to last you for 15 years. You withdraw $120,000 a year -- or 7%.

The Trinity study found that a 7% withdrawal rate over 15 years failed 20% of the time. So I'm a bit surprised that so many normally conservative Bogleheads -- who usually seem to argue whether you need a 95% chance of success or 99% chance of success -- are okay with a mere 80% chance of success.

How risk averse are you? How flexible are your expenses?

Personally, I'd retire early but I also have a lot of flexibility in my expenses -- I can cut them by over 50% easily if things look less than rosy.
Yeah, but if his 'bridge' fails he has the rest of the portfolio to lean on. His overall portfolio is $2.8m, a 4% withdrawal rate is just at the lower end of his range $112k - and that doesn't include the impact of social security.

The rest of the assumptions and the bucketing is superfluous - as long as he is a little flexible if things start out poorly return-wise and he doesn't insist on holding to the mental accounting buckets he will be ok.
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Re: Retire Early?? Need a sense check

Post by AlohaJoe »

avalpert wrote:His overall portfolio is $2.8m, a 4% withdrawal rate is just at the lower end of his range $112k - and that doesn't include the impact of social security.
A 4% withdrawal rate is only meaningful for a 65-year old, though. The OP is 55; so something more like 3.5% is more appropriate, which gives him more like $98,000 a year. That's a fair way off the top end $120,000 he quoted. (And let's not even get into "but withdrawal rates should be lower nowadays because of X, Y, Z" :happy )
as long as he is a little flexible if things start out poorly return-wise and he doesn't insist on holding to the mental accounting buckets he will be ok.
I agree -- that's why I said I'd do it so long as their expenses are flexible. Like many posters, the OP never returned to the thread so we'll probably never know :sharebeer
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InvestorThom
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Re: Retire Early?? Need a sense check

Post by InvestorThom »

The OP is wrapping up a BBQ at friends. :beer

I quickly scanned the responses. Thanks so much for all the insights! They are exactly what I'm looking for. I will read more thoroughly, think through and respond tomorrow.
aristotelian
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Re: Retire Early?? Need a sense check

Post by aristotelian »

avalpert wrote: Yeah, but if his 'bridge' fails he has the rest of the portfolio to lean on. His overall portfolio is $2.8m, a 4% withdrawal rate is just at the lower end of his range $112k - and that doesn't include the impact of social security.

The rest of the assumptions and the bucketing is superfluous - as long as he is a little flexible if things start out poorly return-wise and he doesn't insist on holding to the mental accounting buckets he will be ok.
Yeah, but he is quoting a higher withdrawal rate during the bridge years, and that is a significant amount of time. The bulk of his portfolio is the bridge money. He only has 1.1M in the 401K. He is assuming positive return during the bridge years. It's a good bet but not a sure thing. The only way he lives exclusively off the 401K is if it doubles during the bridge years, but if his optimistic assumptions don't hold, then he is doubly screwed. He has gone through the bridge money faster than expected, and there is less in the 401K to bail him out.

That's why I am curious about his allocation. How much risk does he have to take to get the 401K to double?

Personally, I would like to have $3M in retirement at normal retirement age to sustain about $100K spending. He is betting that he can retire 10 years earlier than me with the same amount of money. Am I being overly conservative?
bb
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Re: Retire Early?? Need a sense check

Post by bb »

I guess I would be interested in OP's AA and plan if there is a
significant decline in taxable account. Is it clear that spending
down taxable is better than ROTH conversions from a tax stand
point. Is there value in treating taxable/tax defferred accounts
as separate with regards to retirement planning?
Jack FFR1846
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Re: Retire Early?? Need a sense check

Post by Jack FFR1846 »

If you really think a reasonable life expectancy is 80, consider starting social security at 62. Or you could do an excel spreadsheet of what your payments would be at various ages. I do this and consider that payments will drop to 75% in 2034, when the trust fund runs out of money and payments are generated from only incoming taxes. I keep a pretty good eye on reports of this and they have slowly but surely dropping in percentage and getting sooner in years.

I think you're right on the line for the spending you quote. Reducing the spending to put your max at $110k a year and/or working for more time will help you.
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KlingKlang
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Re: Retire Early?? Need a sense check

Post by KlingKlang »

InvestorThom wrote:a) Will not touch tax advantaged accounts until 70 1/2. Using online compound interest calculators, no additional contributions, 5% return per year, 15 years, the account balance should be around $2,286,000
b) Start taking SS either at 67 or 70 for about $2800-3000 per month
c) Between 55 and 70 live off Taxable accounts, again assuming 5% return per year
If you go ahead with this plan you will be in a very low tax bracket from ages 55 to 70 (only income from interest and dividends on taxable accounts) followed by a much higher tax bracket as you take income from both SS and RMDs. Unless you want to keep your income low to get ACA subsidies from ages 55 to 64, you should consider making Roth conversions or just withdrawing funds from tax advantaged accounts after age 59.5 to lessen the impact of the eventual RMDs.
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Watty
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Re: Retire Early?? Need a sense check

Post by Watty »

muddlehead wrote:If you put the entire amount in a bag in your closet you could spend 93k per year and it would last 30 years till you're 85...
Read this post again.

And you will have Social Security.

One thing that I have not seen mentioned is what you housing situation is. If part of your high expenses is an expensive rental property or mortgage then having a paid off home would be worth looking into if plan to stay in the same area.

If you do have a paid off house then that home equity could be considered a safety net that could be tapped in the unlikely event that you had a shortfall.

You could also look into what it would cost to buy a single premium immediate annuity when you are older. For example when you are 80 you might be able to buy one to provide for your expenses after that. You would need to pay with the numbers but I would thing that if you set aside $750K(a wild guess) and left that invest for 25 years then it would grow a lot and could be used to buy a SPIA then.
btenny
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Re: Retire Early?? Need a sense check

Post by btenny »

I am not sure if your plan works or not. You have not given us enough data. Does your $120K budget plan include health care expenses for your family for the next 10-15 years? Around here I am see costs of $12K to $15K per year. How are you covering taxes out of this budget? Did you assume you will spend $15K of this for fed and state taxes? So do you really really spend $90K or $120K? These are huge variables in your plan so please advise.

The other variable not discussed is where are you going to live and if you need to buy a home out of this $$ or are your housing costs covered in your $110K?

Please advise. Good Luck.
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knpstr
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Re: Retire Early?? Need a sense check

Post by knpstr »

aristotelian wrote:Personally, I would like to have $3M in retirement at normal retirement age to sustain about $100K spending. He is betting that he can retire 10 years earlier than me with the same amount of money. Am I being overly conservative?
I think yes.

With $3M it's very likely one could sustain $100K spending at almost any age.
I would feel comfortable retiring now (age 32) with a $3M portfolio and planning $90K withdrawals.

If you're hoping $3M sustains $100K only in a normal retirement length and you have SS to boot... you're likely to end up with a LOT of extra money.
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willthrill81
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Re: Retire Early?? Need a sense check

Post by willthrill81 »

$2.8M invested in a 60/40 AA, with $100k plus CPI withdrawn each year, has had a 96.2% success rate over 40 years, according to FIRECalc. And that doesn't take into account the ~30% spending reduction the OP will have in 15 years. Anything more conservative than this would seem overly conservative to me.

Rather than fixed withdrawals, I would recommend that the OP consider using flexible withdrawals. This would enable the portfolio to better withstand market downturns, but perhaps just as importantly, it enables you to capture the likely upside the portfolio will produce. One flexible strategy that I really like is the '95% rule', meaning that your spending for each year is the greater of something like 4% of your portfolio or 95% of what you spent last year. With a reasonable starting withdrawal rate, it's virtually impossible to run out of money this way, though the actual dollar amount of your withdrawals could get low in some situations.
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muddlehead
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Re: Retire Early?? Need a sense check

Post by muddlehead »

******* Post by Watty » Mon muddlehead wrote:
If you put the entire amount in a bag in your closet you could spend 93k per year and it would last 30 years till you're 85... Read this post again.*******

Thank you Watty. At least some one listens to me. Re: Social Security. For my planning, I think of monthly social security benefits paying for health care.
Atgard
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Re: Retire Early?? Need a sense check

Post by Atgard »

I admit I am conservative, but I look at a 4% withdrawal rate as a minimum before I would feel comfortable enough to just retire. Even then, considering early retirement that will hopefully last longer than normal... I would probably need more like 3% to feel secure.

Simple top-line math, $2.8M x 4% is $112,000. His expenses are "$110,000 to $120,000." So he's right at the edge. $120,000 would be more than 4% (for that he'd need a cool $3M).

Sure, he will probably be OK, will eventually probably get social security, his expenses may possibly decrease (but he hasn't mentioned they will), etc. But I would be hesitant to just say "you're done." Perhaps some sort of part-time or semi-retirement if possible? We also don't know how flexible that $120,000 is. Is that assuming lots of travel that could be curtailed if the market tanks or he has large medical bills or something? Or is that pretty well fixed in housing cost or insurance or whatever?

The good news is, if you're not there, you can clearly see "there" from where you're at and another good year or two would probably get you there.
renue74
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Re: Retire Early?? Need a sense check

Post by renue74 »

Sorta off the subject, but how in the world do you spend $10,000 per month? I live near Charlotte, NC with a family of 4 and our expenses aren't close to that.
fm3040
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Re: Retire Early?? Need a sense check

Post by fm3040 »

InvestorThom,

You may have to work until retirement to get the social security that you have in your assumption: $2800- $3000

Here is mine from the ssa.gov website and I have been maxing out SS contributions for 20+ years.

At full retirement age (67):
$2,906 a month
At age 70:
$3,608 a month
At early retirement age (62):
$2,000 a month


Your estimates are based on the assumption that you will earn $118,500 a year from now until retirement.
Last edited by fm3040 on Mon May 08, 2017 11:37 pm, edited 2 times in total.
bb
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Re: Retire Early?? Need a sense check

Post by bb »

At full retirement age (67):
$2,906 a month
At age 70:
$3,608 a month
At early retirement age (62):
$2,000 a month
I thought redution was 25% at 62? $2k is about a 45%
reduction.
delamer
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Re: Retire Early?? Need a sense check

Post by delamer »

bb wrote:
At full retirement age (67):
$2,906 a month
At age 70:
$3,608 a month
At early retirement age (62):
$2,000 a month
I thought redution was 25% at 62? $2k is about a 45%
reduction.
No. It's about a 31% reduction from $2906 to $2000.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Tamales
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Re: Retire Early?? Need a sense check

Post by Tamales »

fm3040 wrote:InvestorThom,

You may have to work until retirement to get the social security that you have in your assumption: $2800- $3000

Your estimates are based on the assumption that you will earn $118,500 a year from now until retirement.
[/b]
This is a good point. There are two ages that matter for benefits calculations: your "stop work age" and your retirement age (i.e. the age where you begin collecting SS benefits).

But if most of your 35 highest years are at the annual SS max, it won't cause a big reduction in the estimate you get from using e.g. AnyPIA if you don't have any W2 income from age 56 thru to retirement age. But you have to use AnyPIA in order to enter a stop work age of e.g. 55.

But this is just the estimate from the calculator. I'm not sure how closely an estimate done today with AnyPIA, at say age 55 and stopping work at 55 will differ from an estimate say 5 years in the future when there would be a new version of AnyPIA with a new NAWI value (with 5 years of increases) to use for the index factors and new bend points.
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InvestorThom
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Re: Retire Early?? Need a sense check

Post by InvestorThom »

The OP has returned!

Thanks to everyone who took the time to respond. Reading all the pro’s and con’s from a group of grounded pragmatic folks is really helpful. A lot of you asked for more information. Being my first post I now realize I should have included more context. Below are my responses.

Profile
1. Single
2. Live in an expensive urban area; plan to move to much cheaper area
3. Original goal was $3M at 60

Expenses
1. At the bottom of this post are the categories I used to estimate my expenses, monthly and annually. (If I missed any feel free to comment.) The rounded up sum was $110,000 and I added $10,000 slush fund to get $120,000, hence the range
2. I assumed expenses would remain constant. My sense is expenses will decline as I get older and leaving the value constant would be a way to incorporate inflation and minor unknowns
3. I tried to estimate on the higher side. For example, 10% of my expenses are for travel. I’ve been very fortunate and have seen a lot of the world. Are there still places I’d like to see or go back to? Yes. If I couldn’t because the market was down would I be overly disappointed? No. If the market has a bad year, I could easily and quickly cut out about $16,000

Taxes
4. I included an estimate for income taxes, again a constant value. I chose a rate of 30%

Healthcare
5. I will have to purchase coverage. I estimated $12,000 for premiums and $12,000 for “misc”, to include things like a crown

Housing
6. I currently do not own. I plan to move from the high cost urban location in which I currently reside to one of two places that are cheaper and where I have a social network. I plan to buy a condo. Not included in my original figures is $200,000 for a down payment. I’m targeting a purchase price of $400,000-450,000 and will determine the down payment amount and terms (fixed rate 15 or 30 year) at time of purchase. Est HOA and property insurance is included

Asset Allocation
7. I think this is where folks got me, which is good since this is all about a reality check. Across taxable and tax advantaged accounts: approx. 40% US Total Stock; 20% Total International; 30% Total US Bond; 5% Small Cap; 5% real estate. All Index funds, Fidelity and Vanguard. Small Cap because the Total US Stock available through work 401K is light on small caps.

Approx. Location:
US Stocks – 100% Taxable account
International – 9.5% Taxable account; 90.5% Tax Advantaged account
Bonds – 35% Taxable account; 65% Tax Advantaged account
Small Cap – 100% Tax Advantaged account
Real Estate – 100% Taxable Account

Agree the Tax Advantaged account will be challenged to grow 5% with the large amount in bond funds. I welcome any thoughts here!

Growth Assumption
I think it’s good advice to model with a 4% growth assumption and will try that.

Social Security
I pulled the est. SS from somewhere, but have not created an account so don’t know for sure. Location of my statements is a mystery; not sure I kept them.

Employability
I’m choosing 55. There are other options. I could probably stand another 3 years of the rat race. I have also thought about pulling back, i.e., lower paying job, perhaps in area in which I’d like to relocate.

I had always thought about it as one value – Taxable account + Tax Advantaged account. But then last week I looked at them separate and asked myself if I could do it. The “bridge years” of 55-70 are the shakiest in my mind.

Thanks for all your input. It’s great to upgrade the plan!

T


Expense Categories (Formatting is a bit off):
Housing Mortgage
HOA
Maintenance
Furnishings

Transportation Auto
Maintenance
Gas

Household Grocery
Household Items
Technology

Utility Electric/Gas
Internet
Cell Phone

Lifestyle Entertainment - In
Entertainment - Out
Travel
Subscriptions
Gym
Clothing

Insurance Home
Auto
Umbrella
Long Term Care
Medical

Medical Medical - other

Charitible Contrib


Taxes Property


Income Taxes
Atgard
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Re: Retire Early?? Need a sense check

Post by Atgard »

With that additional detail (that you are moving to a cheaper area, seem to have covered all the expense bases, have included some "slush money" and vacations you could scale back on if needed, etc.), I think you are either there or very very close to there. Now it really just matters if you want to work another 1-3 years (or part time) to have more money to splurge a little more in retirement and have a bigger cushion, or just escape the rat race ASAP for health/stress purposes. And that choice is up to you, you're in a great position that you get to choose (since many don't have the option)! Good luck!
aristotelian
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Re: Retire Early?? Need a sense check

Post by aristotelian »

I am still concerned about asset allocation. 70/30 is pretty high risk. You say that is across accounts, but the distribution is important since your taxable account has a shorter time horizon. What is your allocation in the taxable account for the funds intended to cover the bridge years? What if the stock market drops 50% this year and doesn't come back for 4-5 years?

I think you will probably be fine if you make it to when SS/Medicare kick in, but I am a little concerned about your bridge year plan.

I do like that you are being conservative about your expenses.
bb
Posts: 389
Joined: Wed Apr 25, 2007 10:04 pm

Re: Retire Early?? Need a sense check

Post by bb »

I'm not sure how closely an estimate done today with AnyPIA, at say age 55 and stopping work at 55 will differ from an estimate say 5 years in the future when there would be a new version of AnyPIA with a new NAWI value (with 5 years of increases) to use for the index factors and new bend points.
Can you elaborate on this concern? Are you saying you worry that income in years past will not
be inflated accurately vs a current salary if you continued to work? Has there been any evidence
of that in the past? I understand you may not get the full amount out due to underfunding but
would be suprised if the accounting was dishonest on top of that.
BlackStrat
Posts: 330
Joined: Wed Apr 29, 2015 9:20 am

Re: Retire Early?? Need a sense check

Post by BlackStrat »

aristotelian wrote:I am still concerned about asset allocation. 70/30 is pretty high risk. You say that is across accounts, but the distribution is important since your taxable account has a shorter time horizon. What is your allocation in the taxable account for the funds intended to cover the bridge years? What if the stock market drops 50% this year and doesn't come back for 4-5 years?
I'm in a similar situation to the OP with an even more aggressive AA (75/25). I worry about surviving a possible 40 year retirement with a more conservative asset allocation.
aristotelian
Posts: 12262
Joined: Wed Jan 11, 2017 7:05 pm

Re: Retire Early?? Need a sense check

Post by aristotelian »

BlackStrat wrote:
aristotelian wrote:I am still concerned about asset allocation. 70/30 is pretty high risk. You say that is across accounts, but the distribution is important since your taxable account has a shorter time horizon. What is your allocation in the taxable account for the funds intended to cover the bridge years? What if the stock market drops 50% this year and doesn't come back for 4-5 years?
I'm in a similar situation to the OP with an even more aggressive AA (75/25). I worry about surviving a possible 40 year retirement with a more conservative asset allocation.
I am just talking about his bridge years, though, and he only has $1.5M in taxable, assuming 5% return.
Tamales
Posts: 1644
Joined: Sat Jul 05, 2014 10:47 am

Re: Retire Early?? Need a sense check

Post by Tamales »

bb wrote:
I'm not sure how closely an estimate done today with AnyPIA, at say age 55 and stopping work at 55 will differ from an estimate say 5 years in the future when there would be a new version of AnyPIA with a new NAWI value (with 5 years of increases) to use for the index factors and new bend points.
Can you elaborate on this concern? Are you saying you worry that income in years past will not
be inflated accurately vs a current salary if you continued to work? Has there been any evidence
of that in the past? I understand you may not get the full amount out due to underfunding but
would be suprised if the accounting was dishonest on top of that.
Oh, no, not implying anything dishonest. It's simply a matter of the way the string of calculations work and that some of the variables change each year regardless of changes (or not) to your earnings history. This is a dynamic calculation, and every year the latest (larger) NAWI value replaces the previous value, which in turn changes your indexed earnings history that is used to compute AIME, and every year the bend points change as well. Together these affect your calculated monthly benefit. The key point is it's not your raw earnings history that matters in the resulting "sum of top 35" number, it's your indexed earnings history.
InMyDreams
Posts: 1882
Joined: Tue Feb 28, 2017 10:35 am

Re: Retire Early?? Need a sense check

Post by InMyDreams »

InvestorThom wrote:The OP has returned!

Healthcare
5. I will have to purchase coverage. I estimated $12,000 for premiums and $12,000 for “misc”, to include things like a crown
Find a quote for a Marketplace/ACA insurance plan in an area that you would consider moving to. I've looked at a retirement/pre-65/workplace-sponsored health care plan, with $750 deductible/OOP max $3k. Premiums is ~$7200 a year - and that's subsidized.
Topic Author
InvestorThom
Posts: 79
Joined: Sun May 07, 2017 12:10 pm

Re: Retire Early?? Need a sense check

Post by InvestorThom »

Thanks for the additional input and insights! Exactly what I am looking for.
MotoTrojan
Posts: 11259
Joined: Wed Feb 01, 2017 7:39 pm

Re: Retire Early?? Need a sense check

Post by MotoTrojan »

InvestorThom wrote: '
Approx. Location:
US Stocks – 100% Taxable account
International – 9.5% Taxable account; 90.5% Tax Advantaged account
Bonds – 35% Taxable account; 65% Tax Advantaged account
Small Cap – 100% Tax Advantaged account
Real Estate – 100% Taxable Account
I assume by Real Estate you mean a REIT fund like VNQ? Just an FYI these are pretty tax-inefficient, and would do much better in your tax-advantaged account. Same for the bond funds, although I presume your bridge situation warrants having those there.

May be worth depleting the real estate near-term, since the tax drag will hurt longterm growth. Also could plan to rebalance bonds into your tax-advantaged space, after you start withdrawing from there.

Congrats on making it!
Topic Author
InvestorThom
Posts: 79
Joined: Sun May 07, 2017 12:10 pm

Re: Retire Early?? Need a sense check

Post by InvestorThom »

fm3040 wrote:InvestorThom,

You may have to work until retirement to get the social security that you have in your assumption: $2800- $3000

Here is mine from the ssa.gov website and I have been maxing out SS contributions for 20+ years.

At full retirement age (67):
$2,906 a month
At age 70:
$3,608 a month
At early retirement age (62):
$2,000 a month


Your estimates are based on the assumption that you will earn $118,500 a year from now until retirement.
Thanks FM3040! I have adjusted SS in my modeling to reflect this.
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