Early Retirement - On the fence, need sanity check

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Ikigai
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Early Retirement - On the fence, need sanity check

Post by Ikigai » Tue Apr 10, 2018 1:03 pm

I'm planning to retire at 56. I'll be eligible later this year and am 95% there psychologically. I'm excited, but part of me feels like I'm walking off a cliff.

My dilemma: The first years are the "go-go" years, incurring the most expenses, (mainly travel for me). But the sequence of returns is concerning given the current market. Minimal returns (or downturn) are expected over the next several years. Is there any way to invest in a way that lets me spend more earlier without risking running out of money later in case of a serious correction? The way it looks to me is that I'll have plenty of money later - Social Security, RMDs, and a rising (hopefully) market, but the early years will be tight. I will probably take part time employment, and maybe that's the answer to my question, but I need to know if there are other alternatives. Staying in my current job is not an entertaining thought.

I estimate my expenses, including taxes, to be around $75K.
I do have a pension of ~$54K until age 62, after that it is $36K.
I have about 70K in CDs earning around 2 - 2.5%. I plan to dip into that bucket during the early years.
I have ~ $640K in my TSP (AA 60/40), and plan to withdraw about $10K/yr as needed until 62, then more after that. If I have to, I'll work part time.
I plan to collect SS at 67 or 70.
I have 40K set aside in a ROTH for LTC (AA 70/30).

My dad died at 96 and I haven't gone gray yet, so I'm banking on a long life. I've read all about SWRs for a 40 year retirement, and am settled at a 3.25% WR give or take, depending on the market. But given the market is so high, I want to avoid that if it falls too much.

Is this wrong-headed? Should I go ahead and take the 3.25% every year? Am I being overly optimistic about retiring at 56? What would you do in my position? I need a sanity check. Thanks!

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Pajamas
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Re: Early Retirement - On the fence, need sanity check

Post by Pajamas » Tue Apr 10, 2018 1:18 pm

What will you be doing for health care coverage?

How would working an additional year affect your assets, pension, Social Security benefits, etc.?

How much flexibility is there in your spending estimates?

Ikigai
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Re: Early Retirement - On the fence, need sanity check

Post by Ikigai » Tue Apr 10, 2018 1:35 pm

Pajamas wrote:
Tue Apr 10, 2018 1:18 pm
What will you be doing for health care coverage?

How would working an additional year affect your assets, pension, Social Security benefits, etc.?

How much flexibility is there in your spending estimates?
Health care costs are included in expenses.
Working one more year would add $24K to my TSP, add 1% to my pension, $70/month to SS.

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Pajamas
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Re: Early Retirement - On the fence, need sanity check

Post by Pajamas » Tue Apr 10, 2018 1:49 pm

What kind of health care coverage will you have? State exchange, employer, etc.? You don't have to give the answer but do consider that coverage may change dramatically and might cost more.

It does seem a little tight even assuming the 3.25% withdrawal rate. You have a decent pension but your assets are a little light for 40 years or possibly more of not working. Think about how much things have changed in the 40 years since you were 16. (If anything, it seems that the pace of change has accelerated in many ways, although that might be my perception.) Social security, pension, market returns on investments, health care coverage, there is a lot that needs to go right for a long time.

Working at your current job full-time to stash another $24k away a year instead of drawing a $56k year pension until 62 doesn't seem very appealing.

Seems that working part-time would certainly make a difference in your financial confidence level in those early years and is something to strongly consider both financially and for the intangible benefits.

fujiters
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Re: Early Retirement - On the fence, need sanity check

Post by fujiters » Tue Apr 10, 2018 3:47 pm

I think you'll be fine, but since you're cutting it relatively close and have good reason to expect to live another 40 years, you may want to consider annuitizing your TSP.

ThriftyPhD
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Re: Early Retirement - On the fence, need sanity check

Post by ThriftyPhD » Tue Apr 10, 2018 4:01 pm

Is the pension COLA? What do you expect from SS at 67/70? If pension + SS covers everything at 70, then you're more needing to bridge the gap till then. Also, if the 75k includes healthcare, will that be dropping when you hit 65 and get medicare?

delamer
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Re: Early Retirement - On the fence, need sanity check

Post by delamer » Tue Apr 10, 2018 4:16 pm

The budget you mentioned doesn’t reflect extra expenses for travel in the early years. Or it is too large for the later years when you expect to be traveling less. Or if it is really is an average, it isn’t that useful.

Set up a spreadsheet, or the pencil equivalent, that shows for each year what you expect your expenses to be. Then add a column for your fixed income for each year. Subtract your fixed income from expenses; this is the amount of money that you’ll need to withdraw each year from your savings. I’d do this until your SS collecting age.

This is the best way to look at your finances when your expenses and/or income will vary a lot during retirement. The 3.5% SWR isn’t as relevant if you know you’ll need more in some years and less in other.

You might decide to set aside the extra you need during your travel years into a money market, CDs, or short-term bonds, so you’ll know it is available. It sounds like you’ve done that to some extent already. Then you can invest the rest more aggressively in mostly stocks (maybe some bonds depending on your risk profike) since you’ll need it later. The idea is that when your fixed income has stabilized — which for you will be when you start taking SS — then the SWR is important. But until that time, you might be withdrawing more or less.

ExitStageLeft
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Re: Early Retirement - On the fence, need sanity check

Post by ExitStageLeft » Tue Apr 10, 2018 4:19 pm

Looks like a federal employee retiring under FERS after reaching 30 years of service. That includes a COLA on the pension and continuation of medical insurance. OP is actually very close to where I am at, just a couple years earlier than me. I recommend plugging your numbers in to FireCalc and see what spending under a Bernicke reality retirement gets you. The other thing is to get a much better handle on your expenses and figure out how much room you have to reduce if you get an early bad sequence of returns.

One thing I looked at with FireCalc and Cfiresim was to adopt an equity glide and see how that performs. Generally increases portfolio survivability by 10%.

Fishing50
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Re: Early Retirement - On the fence, need sanity check

Post by Fishing50 » Wed Apr 11, 2018 1:59 am

Part time employment might not be an entertaining thought either. https://earlyretirementnow.com/2018/02/ ... exibility/
It's perfectly legal, go ask the IRS, they'll say the same thing. I actually feel stupid telling you this, I'm sure you would've investigated the matter yourself. Andy Dufresne

msk
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Re: Early Retirement - On the fence, need sanity check

Post by msk » Wed Apr 11, 2018 2:20 am

Every BH has heard of the 4% WR, etc. Many do not seem aware that a Varying WR on a 100% stocks portfolio that maxes at 5% in any one year will last forever, and, on average, the annual withdrawals will keep up with inflation. This statement is backed by Monte Carlo simulation (it's the median forecast), historical data from 1966 to 2016, and is in conformance with 300-year history in various economies (5+% p.a. in real terms). So, IMHO if today someone can "survive" comfortably on 2.5% of his current 100% stock portfolio for a few years then there is absolutely no reasonable fear against early retirement. That amount is equivalent to 5% today following a 50% market fall that then lasts for years. Quite unlikely, but fear is fear. Withdraw 5% annually and live forever... Just never exceed 5% and all will be fine. 100% stocks. Nervous for the next 5 years? Park your 5-year needs in bonds.

gotester2000
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Re: Early Retirement - On the fence, need sanity check

Post by gotester2000 » Wed Apr 11, 2018 3:36 am

Your pension+ SS seem to cover your needs.There is some gap that you need to cover for 10 years till you take SS which a part of your portfolio will cover comfortably.

I think you should retire fully at 56.

nova1968
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Re: Early Retirement - On the fence, need sanity check

Post by nova1968 » Wed Apr 11, 2018 7:30 am

I retire this year at the same age from the Federal Govt and your retirement scenario is almost identical to mine. It appears your social security supplements ends at 62
The CD and TSP add up to 710K and you need 75K a year. here is what I would do
Age 56 to 62 54K pension + 21K = 75k ( withdraw 3%= 21k per year) Total of 126k for 6 years
Age 62 to 70 36K Pension + 39K= 75k (withdraw 5.5%=39K per year) Total of 312K after 8 years
Age 70 and beyond You will receive the max SS benefit which I would predict to be around 36K a year plus the 36k pension places you close to the 75K range.
You have a fair size FERS pension with healthcare included and your CD and TSP assets should carry you over until maximum SS benefits kick in at 70.
Considering your assets and pension I would retire at 56 while you are still young enough to enjoy life
Best of luck.

delamer
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Re: Early Retirement - On the fence, need sanity check

Post by delamer » Wed Apr 11, 2018 4:18 pm

msk wrote:
Wed Apr 11, 2018 2:20 am
Every BH has heard of the 4% WR, etc. Many do not seem aware that a Varying WR on a 100% stocks portfolio that maxes at 5% in any one year will last forever, and, on average, the annual withdrawals will keep up with inflation. This statement is backed by Monte Carlo simulation (it's the median forecast), historical data from 1966 to 2016, and is in conformance with 300-year history in various economies (5+% p.a. in real terms). So, IMHO if today someone can "survive" comfortably on 2.5% of his current 100% stock portfolio for a few years then there is absolutely no reasonable fear against early retirement. That amount is equivalent to 5% today following a 50% market fall that then lasts for years. Quite unlikely, but fear is fear. Withdraw 5% annually and live forever... Just never exceed 5% and all will be fine. 100% stocks. Nervous for the next 5 years? Park your 5-year needs in bonds.
Can you provide a link to a study concerning the max 5% varying WR with a 100% stock portfolio?

I am not familiar with it.

Thanks.

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Meg77
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Re: Early Retirement - On the fence, need sanity check

Post by Meg77 » Wed Apr 11, 2018 4:34 pm

The sequence of returns risk is very minimal for you given your high early pension. For the first 6 years of retirement, you'll only be withdrawing about $10k a year from your portfolio - and that's if you don't work part time.

The reality is that you'll be fine. A 3.25% withdrawal rate works in almost every conceivable scenario. And you can always work part time to bridge the gap. Look at it this way. You could live 100% off your pension and social security and make ends meet, albeit with fewer luxuries. You could work part time to cover the luxuries. And then you still have your whole portfolio on top of all that!

Working one more year won't hurt in your case. But it won't change the numbers much either. Consider this: would you rather work one more year full time to put another $24k into savings, or would you rather quit and then work part time to earn $24k? I know it's not apples to apples since in the latter case you also have to start taking your pension, etc. But still, it's effectively a tradeoff you could make if you're on the fence. Personally I'd probably go for it at 56 and then work some more later if the market tanks or you want more cushion or you get bored.
"An investment in knowledge pays the best interest." - Benjamin Franklin

stw
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Re: Early Retirement - On the fence, need sanity check

Post by stw » Wed Apr 11, 2018 4:55 pm

"I do have a pension of ~$54K until age 62, after that it is $36K."

Why does the pension go down at age 62? If you did not take early retirement, would the pension stay the same?

argulator
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Re: Early Retirement - On the fence, need sanity check

Post by argulator » Wed Apr 11, 2018 6:33 pm

The pension goes down because the FERS retirement plan includes a supplement payment that is paid until eligible for social security. It's based on years in service and anticipated Social Security payments at 62, usually ends up being 75% or so of the expected social security payment.
Ralph

argulator
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Re: Early Retirement - On the fence, need sanity check

Post by argulator » Wed Apr 11, 2018 6:52 pm

I'm also a fed in similar situation, planning to retire next January. I think you are ready to go. The only snafu might be early 80's like inflation for the next few years while your pension isn't COLA'd (assuming you aren't Law Enforcement or other special category employee.), and that's not too likely.
Ralph

TravelforFun
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Re: Early Retirement - On the fence, need sanity check

Post by TravelforFun » Wed Apr 11, 2018 7:12 pm

What's the SS amount at 67 and 70?

TravelforFun

45591
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Re: Early Retirement - On the fence, need sanity check

Post by 45591 » Wed Apr 11, 2018 11:02 pm

I’m another one in your shoes, just one yr older. My date is 31 Dec. You’re concerned because you’re not confident in your numbers and/or results. How many times have you checked your expenses to ensure you’ve covered everything? How many different financial planning tools have you used with Monte Carlo results? Are you honest in estimating lowered future returns? I’ve done this so many times , I have a hard time reviewing it anymore. The results were consistent and gave me the confidence that I’m financially ready. I think you’re close, but then again, I don’t have to live with your decision. Good luck and planning.

msk
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Re: Early Retirement - On the fence, need sanity check

Post by msk » Thu Apr 12, 2018 9:40 am

delamer wrote:
Wed Apr 11, 2018 4:18 pm
msk wrote:
Wed Apr 11, 2018 2:20 am
Every BH has heard of the 4% WR, etc. Many do not seem aware that a Varying WR on a 100% stocks portfolio that maxes at 5% in any one year will last forever, and, on average, the annual withdrawals will keep up with inflation. This statement is backed by Monte Carlo simulation (it's the median forecast), historical data from 1966 to 2016, and is in conformance with 300-year history in various economies (5+% p.a. in real terms). So, IMHO if today someone can "survive" comfortably on 2.5% of his current 100% stock portfolio for a few years then there is absolutely no reasonable fear against early retirement. That amount is equivalent to 5% today following a 50% market fall that then lasts for years. Quite unlikely, but fear is fear. Withdraw 5% annually and live forever... Just never exceed 5% and all will be fine. 100% stocks. Nervous for the next 5 years? Park your 5-year needs in bonds.
Can you provide a link to a study concerning the max 5% varying WR with a 100% stock portfolio?

I am not familiar with it.

Thanks.
I worked this out myself for the 50 years 1966-2016, before I came across the BH forum. It's actually straightforward:
The SP500 appreciated an average of 6.6% p.a. compounded (from 85 to 2064) and paid an average dividend of 3.1%
Inflation averaged 4% p.a. compounded.
Put in all your numbers in a spreadsheet and check against the 4% p.a. compounded inflation.
You can also play with portfolio mixes (AA) as you wish by using https://www.portfoliovisualizer.com/mon ... simulation
A 100% stock portfolio will deliver 5% of portfolio (i.e. varying) WR for forever as the Median simulation (50% curve) including inflation. Play with it.

aristotelian
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Re: Early Retirement - On the fence, need sanity check

Post by aristotelian » Thu Apr 12, 2018 10:02 am

delamer wrote:
Wed Apr 11, 2018 4:18 pm

Can you provide a link to a study concerning the max 5% varying WR with a 100% stock portfolio?

I am not familiar with it.

Thanks.
That is how most institutional endowments are managed. Foundations are actually required by law to spend at least 5%. The problem is you have to be able to tolerate massive fluctuation in the event of a market crash. My institution does 5% (actually I think 5.5%) based on a three year rolling average to smooth out the fluctuation, but even so 2009-12 was a rough time for us.

delamer
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Re: Early Retirement - On the fence, need sanity check

Post by delamer » Thu Apr 12, 2018 10:08 am

aristotelian wrote:
Thu Apr 12, 2018 10:02 am
delamer wrote:
Wed Apr 11, 2018 4:18 pm

Can you provide a link to a study concerning the max 5% varying WR with a 100% stock portfolio?

I am not familiar with it.

Thanks.
That is how most institutional endowments are managed. Foundations are actually required by law to spend at least 5%. The problem is you have to be able to tolerate massive fluctuation in the event of a market crash. My institution does 5% (actually I think 5.5%) based on a three year rolling average to smooth out the fluctuation, but even so 2009-12 was a rough time for us.
So it is a 5% withdrawal based on a 3 year average portfolio value?

aristotelian
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Re: Early Retirement - On the fence, need sanity check

Post by aristotelian » Thu Apr 12, 2018 10:24 am

delamer wrote:
Thu Apr 12, 2018 10:08 am
aristotelian wrote:
Thu Apr 12, 2018 10:02 am

That is how most institutional endowments are managed. Foundations are actually required by law to spend at least 5%. The problem is you have to be able to tolerate massive fluctuation in the event of a market crash. My institution does 5% (actually I think 5.5%) based on a three year rolling average to smooth out the fluctuation, but even so 2009-12 was a rough time for us.
So it is a 5% withdrawal based on a 3 year average portfolio value?
That is what we do, yes. Some may do it differently.

soccerrules
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Re: Early Retirement - On the fence, need sanity check

Post by soccerrules » Thu Apr 12, 2018 10:39 am

nova1968 wrote:
Wed Apr 11, 2018 7:30 am
I retire this year at the same age from the Federal Govt and your retirement scenario is almost identical to mine. It appears your social security supplements ends at 62
The CD and TSP add up to 710K and you need 75K a year. here is what I would do
Age 56 to 62 54K pension + 21K = 75k ( withdraw 3%= 21k per year) Total of 126k for 6 years
Age 62 to 70 36K Pension + 39K= 75k (withdraw 5.5%=39K per year) Total of 312K after 8 years
Age 70 and beyond You will receive the max SS benefit which I would predict to be around 36K a year plus the 36k pension places you close to the 75K range.
You have a fair size FERS pension with healthcare included and your CD and TSP assets should carry you over until maximum SS benefits kick in at 70.
Considering your assets and pension I would retire at 56 while you are still young enough to enjoy life
Best of luck.
Nova-
in order to get the max SS benefit you need to earn max earnings each year for 35 years. That seems a little unlikely to be the case if OP stops working at 56. That assumes max SS earnings each year from age 22-56. Again seem unlikely.
Waiting until 70 to claim does add 8% a year of the FRA monthly benefit, for waiting to claim past the FRA age.
Don't let your outflow exceed your income or your upkeep will be your downfall.

delamer
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Re: Early Retirement - On the fence, need sanity check

Post by delamer » Thu Apr 12, 2018 11:07 am

soccerrules wrote:
Thu Apr 12, 2018 10:39 am
nova1968 wrote:
Wed Apr 11, 2018 7:30 am
I retire this year at the same age from the Federal Govt and your retirement scenario is almost identical to mine. It appears your social security supplements ends at 62
The CD and TSP add up to 710K and you need 75K a year. here is what I would do
Age 56 to 62 54K pension + 21K = 75k ( withdraw 3%= 21k per year) Total of 126k for 6 years
Age 62 to 70 36K Pension + 39K= 75k (withdraw 5.5%=39K per year) Total of 312K after 8 years
Age 70 and beyond You will receive the max SS benefit which I would predict to be around 36K a year plus the 36k pension places you close to the 75K range.
You have a fair size FERS pension with healthcare included and your CD and TSP assets should carry you over until maximum SS benefits kick in at 70.
Considering your assets and pension I would retire at 56 while you are still young enough to enjoy life
Best of luck.
Nova-
in order to get the max SS benefit you need to earn max earnings each year for 35 years. That seems a little unlikely to be the case if OP stops working at 56. That assumes max SS earnings each year from age 22-56. Again seem unlikely.
Waiting until 70 to claim does add 8% a year of the FRA monthly benefit, for waiting to claim past the FRA age.
I think Nova meant that he would maximize his personal SS benefit (by waiting until 70), not that he would get the maximum benefit available to anyone.

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Youngblood
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Re: Early Retirement - On the fence, need sanity check

Post by Youngblood » Thu Apr 12, 2018 2:04 pm

Given the stress you are experiencing at your current job, your pension and assets, I would retire in order to receive the six years of higher pension and to reduce stress. But, I would only do so without spending down my savings for several years.

Given your lucky longevity genes and your current assets, I would also wait until seventy to collect SS.

Personally, I retired at fifty and have been retired for twenty years. Unlike my advice to you, I took SS early since my father died at sixty-nine.

In addition to working a bit, would you be willing and able to spend less, if needed, to accomplish the above?

If however, you cannot refrain from spending down your savings for several years I would continue working.

If not, you might be trading one stress for another.


YB
"I made my money by selling too soon." | Bernard M. Baruch

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Re: Early Retirement - On the fence, need sanity check

Post by bloom2708 » Thu Apr 12, 2018 2:10 pm

Are you single? Spend $60k instead of $75k that fixes most worries.

Look at all your spending. Do everything/anything to ensure your assets last until SS. How many times can you take $10k out of $75k? About 7. How many times can you take out $7k? About 10. 3 more years.

Too much house? downsize. Too much car? downsize. Move to a warmer climate. Simplify. Sell stuff.

Re-manufacture/re-engineer your life and do things that don't require spending money. Walk, jog, bike, use the library.

If things go well, increase spending 7 years down the road. Good luck!
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

fredjohnson
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Re: Early Retirement - On the fence, need sanity check

Post by fredjohnson » Thu Apr 12, 2018 7:46 pm

I think you should retire if your heart is set on it. Do it and don't look back. I came to this same crossroads years ago. I'm 62 now and still working--but I'm self employed--so there is a difference between being an employee and what I am. I don't hate what I'm doing so I continue on even with $7 million saved, no debt, and making $700k a year income from the business(not counting dividends and interest from the $7 mill). Obviously, I don't have to work. And like you, wife and I incur around $75K a year in living expenses. But, we still get away for 10 weeks of "working" vacations a year. 4 weeks to Europe lately, and 6 weeks to the Texas Gulf coast in winter(we live in MN). So, maybe I'm sort of retired in some people's eyes, but we also maintain nearly full time jobs. But, you should retire if that's your thinking. Your numbers look good for retirement. Me, I'm not ready yet. We each have our own goals in life. Do yours.

stuper1
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Re: Early Retirement - On the fence, need sanity check

Post by stuper1 » Thu Apr 12, 2018 8:14 pm

You might find the Retirement Spending calculator at portfoliocharts.com to be very helpful, along with some of the other calculators. The retirement spending calculator allows you to try different withdrawal methods using different portfolios if you like.

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tainted-meat
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Re: Early Retirement - On the fence, need sanity check

Post by tainted-meat » Thu Apr 12, 2018 9:18 pm

Retirement approved.

aristotelian
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Re: Early Retirement - On the fence, need sanity check

Post by aristotelian » Thu Apr 12, 2018 9:48 pm

tainted-meat wrote:
Thu Apr 12, 2018 9:18 pm
Retirement approved.
+1. The way your pension is set up, you either have the pension or SS taking care of $50K. That means you need about 25 X $25K = $625K to support the balance of your expenses. You have that plus an extra $100K.

$75K also sounds like a budget that likely has some flexibility.

Congratulations on your retirement.

MotoTrojan
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Re: Early Retirement - On the fence, need sanity check

Post by MotoTrojan » Thu Apr 12, 2018 9:56 pm

Also tune out the noise about the market. Overall economic condition (totally different than the market) is what really matters. Forward P/E is 16-17 on the S&p500; right at the past median (and some critics believe closer to 20 is the new-normal). But we will find out in the next week if the 18-19% EPS growth materializes or not :).

CAPE10 includes the financial crisis. CAPE8 looks a bit better.

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Re: Early Retirement - On the fence, need sanity check

Post by Ikigai » Fri Apr 13, 2018 8:08 am

fujiters wrote:
Tue Apr 10, 2018 3:47 pm
I think you'll be fine, but since you're cutting it relatively close and have good reason to expect to live another 40 years, you may want to consider annuitizing your TSP.
Yes, I've considered annuitizing a portion of it, although perhaps I should wait til rates go up to get a better deal?

Ikigai
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Re: Early Retirement - On the fence, need sanity check

Post by Ikigai » Fri Apr 13, 2018 8:21 am

ThriftyPhD wrote:
Tue Apr 10, 2018 4:01 pm
Is the pension COLA? What do you expect from SS at 67/70? If pension + SS covers everything at 70, then you're more needing to bridge the gap till then. Also, if the 75k includes healthcare, will that be dropping when you hit 65 and get medicare?
The pension is has a cola, but that may not last given the current climate in DC. My SS at 67 is $32K, although my statement says to bank on only 79% of that, so I use $25K @67 and $31K @ 70 for my calculations.

Ikigai
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Re: Early Retirement - On the fence, need sanity check

Post by Ikigai » Fri Apr 13, 2018 8:49 am

ExitStageLeft wrote:
Tue Apr 10, 2018 4:19 pm
Looks like a federal employee retiring under FERS after reaching 30 years of service. That includes a COLA on the pension and continuation of medical insurance. OP is actually very close to where I am at, just a couple years earlier than me. I recommend plugging your numbers in to FireCalc and see what spending under a Bernicke reality retirement gets you. The other thing is to get a much better handle on your expenses and figure out how much room you have to reduce if you get an early bad sequence of returns.

One thing I looked at with FireCalc and Cfiresim was to adopt an equity glide and see how that performs. Generally increases portfolio survivability by 10%.
I have a very good handle on my estimated expenses, given my current #s tracked in Quicken, and my projected health and travel #s.

Thanks for the Firecalc and Cfiresim tips - will definitely check them out.

Ikigai
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Re: Early Retirement - On the fence, need sanity check

Post by Ikigai » Fri Apr 13, 2018 8:56 am

45591 wrote:
Wed Apr 11, 2018 11:02 pm
I’m another one in your shoes, just one yr older. My date is 31 Dec. You’re concerned because you’re not confident in your numbers and/or results. How many times have you checked your expenses to ensure you’ve covered everything? How many different financial planning tools have you used with Monte Carlo results? Are you honest in estimating lowered future returns? I’ve done this so many times , I have a hard time reviewing it anymore. The results were consistent and gave me the confidence that I’m financially ready. I think you’re close, but then again, I don’t have to live with your decision. Good luck and planning.
I've gone over this quite a bit. I've used Firecalc, and will do that again based on another's comments. I'm ready to go, but just wanted some other eyes and perspectives before I take the plunge. I was raised by 2 Depression-era parents so have a scarcity complex. :wink:

Ikigai
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Re: Early Retirement - On the fence, need sanity check

Post by Ikigai » Fri Apr 13, 2018 9:13 am

Thanks everyone, for your insights. Its helpful to have other's opinions before I take this big step. Most of you have given your thumbs up, which supports my decision to go. I know I have to watch expenses and there is wiggle room in my budget, for sure. I will take it as it comes. Thanks again!

dlw322
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Re: Early Retirement - On the fence, need sanity check

Post by dlw322 » Fri Apr 13, 2018 11:09 am

Ikigai wrote:
Tue Apr 10, 2018 1:03 pm
I have 40K set aside in a ROTH for LTC (AA 70/30).
Why do you have the money in the ROTH set aside for LTC? If you have a need for LTC I would assume you would have enough medical costs to deduct so that your tax rate those years will be low. So that would be a good expense to pay out of the traditional TSP

Ikigai
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Re: Early Retirement - On the fence, need sanity check

Post by Ikigai » Fri Apr 13, 2018 11:21 am

dlw322 wrote:
Fri Apr 13, 2018 11:09 am
Ikigai wrote:
Tue Apr 10, 2018 1:03 pm
I have 40K set aside in a ROTH for LTC (AA 70/30).
Why do you have the money in the ROTH set aside for LTC? If you have a need for LTC I would assume you would have enough medical costs to deduct so that your tax rate those years will be low. So that would be a good expense to pay out of the traditional TSP
Thank you - I didn't think of that! Excellent point.

ljb1234
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Re: Early Retirement - On the fence, need sanity check

Post by ljb1234 » Fri Apr 13, 2018 11:41 am

Ikigai wrote:
Fri Apr 13, 2018 9:13 am
Thanks everyone, for your insights. Its helpful to have other's opinions before I take this big step. Most of you have given your thumbs up, which supports my decision to go. I know I have to watch expenses and there is wiggle room in my budget, for sure. I will take it as it comes. Thanks again!
Have you looked at the Boglehead Variable percentage withdrawal plan? It can allow slightly higher withdrawals early, but you have less income if you have negative returns. It might work for your case.
https://www.bogleheads.org/wiki/Variabl ... withdrawal

Nova1967
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Re: Early Retirement - On the fence, need sanity check

Post by Nova1967 » Sat Apr 14, 2018 10:07 am

soccerrules wrote:
Thu Apr 12, 2018 10:39 am
nova1968 wrote:
Wed Apr 11, 2018 7:30 am
I retire this year at the same age from the Federal Govt and your retirement scenario is almost identical to mine. It appears your social security supplements ends at 62
The CD and TSP add up to 710K and you need 75K a year. here is what I would do
Age 56 to 62 54K pension + 21K = 75k ( withdraw 3%= 21k per year) Total of 126k for 6 years
Age 62 to 70 36K Pension + 39K= 75k (withdraw 5.5%=39K per year) Total of 312K after 8 years
Age 70 and beyond You will receive the max SS benefit which I would predict to be around 36K a year plus the 36k pension places you close to the 75K range.
You have a fair size FERS pension with healthcare included and your CD and TSP assets should carry you over until maximum SS benefits kick in at 70.
Considering your assets and pension I would retire at 56 while you are still young enough to enjoy life
Best of luck.
Nova-
in order to get the max SS benefit you need to earn max earnings each year for 35 years. That seems a little unlikely to be the case if OP stops working at 56. That assumes max SS earnings each year from age 22-56. Again seem unlikely.
Waiting until 70 to claim does add 8% a year of the FRA monthly benefit, for waiting to claim past the FRA age.
Based on the amount of his pension 54k a year which means while working he was well into 6 figure range for several years it's likely he will be eligible for max benefits at age 70 of $3698. Even at 3k a year by delaying SS he should achieve his target of 75k a year.

soccerrules
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Re: Early Retirement - On the fence, need sanity check

Post by soccerrules » Tue Apr 17, 2018 12:48 pm

Nova1967 wrote:
Sat Apr 14, 2018 10:07 am
soccerrules wrote:
Thu Apr 12, 2018 10:39 am
nova1968 wrote:
Wed Apr 11, 2018 7:30 am
I retire this year at the same age from the Federal Govt and your retirement scenario is almost identical to mine. It appears your social security supplements ends at 62
The CD and TSP add up to 710K and you need 75K a year. here is what I would do
Age 56 to 62 54K pension + 21K = 75k ( withdraw 3%= 21k per year) Total of 126k for 6 years
Age 62 to 70 36K Pension + 39K= 75k (withdraw 5.5%=39K per year) Total of 312K after 8 years
Age 70 and beyond You will receive the max SS benefit which I would predict to be around 36K a year plus the 36k pension places you close to the 75K range.
You have a fair size FERS pension with healthcare included and your CD and TSP assets should carry you over until maximum SS benefits kick in at 70.
Considering your assets and pension I would retire at 56 while you are still young enough to enjoy life
Best of luck.
Nova-
in order to get the max SS benefit you need to earn max earnings each year for 35 years. That seems a little unlikely to be the case if OP stops working at 56. That assumes max SS earnings each year from age 22-56. Again seem unlikely.
Waiting until 70 to claim does add 8% a year of the FRA monthly benefit, for waiting to claim past the FRA age.
Based on the amount of his pension 54k a year which means while working he was well into 6 figure range for several years it's likely he will be eligible for max benefits at age 70 of $3698. Even at 3k a year by delaying SS he should achieve his target of 75k a year.
I agree that waiting until 70 should be the goal and give the better longevity SS payment, 8%/year guaranteed return from FRA to 70. I just question assumption that OP maximized SS earnings each and every year from age 22-56 (35 years) --to translate into the maximum benefit at FRA and/or 70. Seems unlikely to me. I don't know how OP's pension payment was calculated. Many of the pension programs that I hear/read about pay a % of the 3 to 5 highest years earnings assuming they met the other requirements (age +years of services=80). In this case that indicates earnings in and around $45-55K/year (guess). Might be different for OP
Don't let your outflow exceed your income or your upkeep will be your downfall.

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Re: Early Retirement - On the fence, need sanity check

Post by Nestegg_User » Tue Apr 17, 2018 1:52 pm

Meg77 wrote:
Wed Apr 11, 2018 4:34 pm
The sequence of returns risk is very minimal for you given your high early pension. For the first 6 years of retirement, you'll only be withdrawing about $10k a year from your portfolio - and that's if you don't work part time.

The reality is that you'll be fine. A 3.25% withdrawal rate works in almost every conceivable scenario. And you can always work part time to bridge the gap. Look at it this way. You could live 100% off your pension and social security and make ends meet, albeit with fewer luxuries. You could work part time to cover the luxuries. And then you still have your whole portfolio on top of all that!

Working one more year won't hurt in your case. But it won't change the numbers much either.Consider this: would you rather work one more year full time to put another $24k into savings, or would you rather quit and then work part time to earn $24k? I know it's not apples to apples since in the latter case you also have to start taking your pension, etc. But still, it's effectively a tradeoff you could make if you're on the fence. Personally I'd probably go for it at 56 and then work some more later if the market tanks or you want more cushion or you get bored.
Meg

Unfortunately, the OP couldn’t work after retirement and get $24k/yr without a significant reduction in the FERS supplement... it’s under the same conditions as SS before FRA in that there’s a reduction (1 for 3 if I remember) after the value for SS allowable income. income below that value does not result in reduction, and after 62 (when the supplement stops) the OP could earn any amount, although that’s six years away.

depending on where the OP is at, they could either go part time for the whole year up to the limit (the gov WILL send you letters inquiring as to other income after retirement, and I don’t remember if any reduction is by quarter or just annually) or go full time for a seasonal job, again up to the limit. {ex, in a winter seasonal area work on the slopes or lodge in the winter and then enjoy yourself traveling in the summer}

As to retiring, for FERS (under regular civil service) the addition of 1% per extra year is hardly enticing; the rare difference is when one is 61 with 30 years {30 x 1% = .30 avg} when next year would be 62 with 31 years and the other multiplier kicks in {31 x 1.1% = 0.341 avg} so in that case one year gives about the same benefit as four years...so worth it. [You at 56, no real benefit as your “high three “ is 36 k and unless you can significantly increase that it doesn’t move the needle. That and the potential to either move to “high five” or eliminate the supplement entirely....won’t go there, lest there be dragons]

edit: remember that FERS is “COLA - lite” and so won’t fully keep up with inflation. Your portfolio will have to do some of the lifting to keep up with inflation. That’s also why it’s best to have SS at 70 since SS has full COLA vs the feds benefits.

Ikigai
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Re: Early Retirement - On the fence, need sanity check

Post by Ikigai » Thu Apr 19, 2018 3:12 pm

Nestegg_User wrote:
Tue Apr 17, 2018 1:52 pm

As to retiring, for FERS (under regular civil service) the addition of 1% per extra year is hardly enticing; the rare difference is when one is 61 with 30 years {30 x 1% = .30 avg} when next year would be 62 with 31 years and the other multiplier kicks in {31 x 1.1% = 0.341 avg} so in that case one year gives about the same benefit as four years...so worth it. [You at 56, no real benefit as your “high three “ is 36 k and unless you can significantly increase that it doesn’t move the needle. That and the potential to either move to “high five” or eliminate the supplement entirely....won’t go there, lest there be dragons]

edit: remember that FERS is “COLA - lite” and so won’t fully keep up with inflation. Your portfolio will have to do some of the lifting to keep up with inflation. That’s also why it’s best to have SS at 70 since SS has full COLA vs the feds benefits.
Yes, the numbers look great at 62, but the truth is I've had it here at this job, and I have so many other interests that I want to pursue. No way can I do 6 more years, and one more year won't buy me anything, given only 1% extra and a pay freeze to boot. Best to take the supplement while I can still get it, and run ahead of the dragons.

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Re: Early Retirement - On the fence, need sanity check

Post by Nestegg_User » Thu Apr 19, 2018 10:35 pm

Ikigai

That’s why, in my response, I said there’s NO real benefit since you were 56. ( only IF you were 61 with 30 years would I have said “did you realize that one more year gives you the equivalent of four years of benefits?”.... you, no there’s no advantage)

cherijoh
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Re: Early Retirement - On the fence, need sanity check

Post by cherijoh » Fri Apr 20, 2018 10:21 am

aristotelian wrote:
Thu Apr 12, 2018 9:48 pm
tainted-meat wrote:
Thu Apr 12, 2018 9:18 pm
Retirement approved.
+1. The way your pension is set up, you either have the pension or SS taking care of $50K. That means you need about 25 X $25K = $625K to support the balance of your expenses. You have that plus an extra $100K.

$75K also sounds like a budget that likely has some flexibility.

Congratulations on your retirement.
Actually, that is not the case - there will be a gap between when the pension supplement ends and the OP is planning to take SS. In effect, this pushes out when OP is most vulnerable to sequence of return risk. If the market tanks after the OP is 62 but before SS begins, the withdrawal rate necessary to maintain the same standard of living may exceed the tipping point of his/her retirement savings. So OP better be prepared to slash spending big time.

OP would have the option to start taking SS early, but that would exacerbate another big risk to which the OP is most likely vulnerable - inflation. If the OP's pension does NOT have a COLA, $36K is not going to cover very much 10, 20, 30 or 40 years down the road. Therefore it behooves the OP to wait as long as possible to draw SS which does have a COLA. That could put him/her between a rock and a hard place.

If inflation stays at a modest 2%/year, the $36K pension will only have the purchasing power (in 2018 dollars) of $31.9K [36*(1-.02)^6] after 6 years when his pension supplement runs out. If inflation returns to its historical average of 3.5%, the purchasing power drops to $29.1K at that time. This will put even more pressure on his/her nest egg to fill the gap.

My recommendation is that if OP does decide to retire, he/she consider ways to supplement income in the early retirement years or at a minimum to slash spending when the market eventually makes a large correction.

EDITED TO ADD: Pension supplements like the OP's can be a godsend, but I do think they do tend to give people a false sense of security since most people tend to focus on whether they have enough money NOW rather than worrying about whether they might run out of money LATER.

ExitStageLeft
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Re: Early Retirement - On the fence, need sanity check

Post by ExitStageLeft » Fri Apr 20, 2018 1:31 pm

OP is retiring under the Federal Employees Retirement System (FERS) and is comfortably able to retire the moment 30 years of service are completed. If OP adopts a conservative withdrawal plan the assets can more than adequately cover any poor sequence of returns.

Expenses for maintaining a comfortable standard of living can reasonably be expected to decrease by 1.5% or more per year in real dollars. With pension, SS, and continued medical coverage the OP can look forward to fixed income at 70 and beyond that covers most, if not all, living expenses. If history is any guide, spending at $75K (inflation adjusted) allows for 100% success when compared against past returns in FIRECalc.

Using a Reality Retirement Plan spending model, FIRECalc shows 100% success for an intial spending level of $105,000. With that model, spending steadily drops until age 75, then remains constant in real dollars thereafter. As long as OP is mindful of the market condition during retirement and is prepared to adapt to returns reminiscent of 1929 or 1966, the Go-Go years can be enjoyed without great concern of having to subsist on dog food down the road.

delamer
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Re: Early Retirement - On the fence, need sanity check

Post by delamer » Fri Apr 20, 2018 2:39 pm

cherijoh wrote:
Fri Apr 20, 2018 10:21 am
aristotelian wrote:
Thu Apr 12, 2018 9:48 pm
tainted-meat wrote:
Thu Apr 12, 2018 9:18 pm
Retirement approved.
+1. The way your pension is set up, you either have the pension or SS taking care of $50K. That means you need about 25 X $25K = $625K to support the balance of your expenses. You have that plus an extra $100K.

$75K also sounds like a budget that likely has some flexibility.

Congratulations on your retirement.
Actually, that is not the case - there will be a gap between when the pension supplement ends and the OP is planning to take SS. In effect, this pushes out when OP is most vulnerable to sequence of return risk. If the market tanks after the OP is 62 but before SS begins, the withdrawal rate necessary to maintain the same standard of living may exceed the tipping point of his/her retirement savings. So OP better be prepared to slash spending big time.

OP would have the option to start taking SS early, but that would exacerbate another big risk to which the OP is most likely vulnerable - inflation. If the OP's pension does NOT have a COLA, $36K is not going to cover very much 10, 20, 30 or 40 years down the road. Therefore it behooves the OP to wait as long as possible to draw SS which does have a COLA. That could put him/her between a rock and a hard place.

If inflation stays at a modest 2%/year, the $36K pension will only have the purchasing power (in 2018 dollars) of $31.9K [36*(1-.02)^6] after 6 years when his pension supplement runs out. If inflation returns to its historical average of 3.5%, the purchasing power drops to $29.1K at that time. This will put even more pressure on his/her nest egg to fill the gap.

My recommendation is that if OP does decide to retire, he/she consider ways to supplement income in the early retirement years or at a minimum to slash spending when the market eventually makes a large correction.

EDITED TO ADD: Pension supplements like the OP's can be a godsend, but I do think they do tend to give people a false sense of security since most people tend to focus on whether they have enough money NOW rather than worrying about whether they might run out of money LATER.

There is a COLA, but it does not kick into until age 62. So there is some unknown loss of purchasing power until then.

I don’t see the false sense of security with a supplement. The supplement can be replace immediately by SS if desired. I understand that the OP needs income over-and-above pension plus supplement. But income is income, and the less that needs to be withdrawn from savings today, the more that is available for tomorrow.

LeisureLee
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Re: Early Retirement - On the fence, need sanity check

Post by LeisureLee » Sat Apr 21, 2018 5:41 pm

Your situation looks very safe to me.

First, from age 70 onward you look great. You have $31k of SS (and that assuming only 79% of benefits paid) and a $36k pension (worth something like $30-$32k for 2-3% inflation between now and age 62, when it starts being inflation adjusted). That means about $62k of your $75k goal is covered. You'll need to draw ~$13k. If you have ~$325k left of your portfolio, it's a 4% draw, which is quite safe at age 70.

In the meantime, you need ~$20k until age 62 and ~$45k until 70 (assuming the $36k pension is worth $30k @62).

$20k is a 3% draw from your portfolio - extremely safe. If there's a crash in the next six years, you could spend your CDs instead to skip 3.5 years of draws. If it was a 2008-style crash, that would get you through "new" 2009, 2010, 2011, and half of 2012. By then, prices were back to 90% of the previous highs.

From 62-70, it would be a ~6% draw, so I would expect some depletion, but your $640k only has to be $325k by age 70. [So, it could lose $315k of value, or $39k per year, and you still have enough left to spend exactly what you want at age 70].

Alternatively, if you're very risk-averse, you could turn $160k of your portfolio into TIPs now to fund the $20k/yr extra need from 62-70. You'd have $480k left, and the $19k you need from 56-70 would then be a 4% draw - still quite safe.

Also, remember, if there's a crash after you turn 62, there probably wasn't one between now and then, so your portfolio had six more years to grow in the meantime. Your big early pension seems like excellent protection from sequence of return problems to me.

Personally, I'd keep your $640k all invested as-is and have a plan to cut ~$6k-12k per year of spending if you have a *very long* crash before age 62 or weak growth until 62 and then a bad crash sometime between then and age 70.

freebeer
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Re: Early Retirement - On the fence, need sanity check

Post by freebeer » Sat Apr 21, 2018 5:47 pm

msk wrote:
Thu Apr 12, 2018 9:40 am
delamer wrote:
Wed Apr 11, 2018 4:18 pm
msk wrote:
Wed Apr 11, 2018 2:20 am
Every BH has heard of the 4% WR, etc. Many do not seem aware that a Varying WR on a 100% stocks portfolio that maxes at 5% in any one year will last forever, and, on average, the annual withdrawals will keep up with inflation. This statement is backed by Monte Carlo simulation (it's the median forecast), historical data from 1966 to 2016, and is in conformance with 300-year history in various economies (5+% p.a. in real terms). So, IMHO if today someone can "survive" comfortably on 2.5% of his current 100% stock portfolio for a few years then there is absolutely no reasonable fear against early retirement. That amount is equivalent to 5% today following a 50% market fall that then lasts for years. Quite unlikely, but fear is fear. Withdraw 5% annually and live forever... Just never exceed 5% and all will be fine. 100% stocks. Nervous for the next 5 years? Park your 5-year needs in bonds.
Can you provide a link to a study concerning the max 5% varying WR with a 100% stock portfolio?

I am not familiar with it.

Thanks.
I worked this out myself for the 50 years 1966-2016, before I came across the BH forum. It's actually straightforward:
The SP500 appreciated an average of 6.6% p.a. compounded (from 85 to 2064) and paid an average dividend of 3.1%
Inflation averaged 4% p.a. compounded.
Put in all your numbers in a spreadsheet and check against the 4% p.a. compounded inflation.
You can also play with portfolio mixes (AA) as you wish by using https://www.portfoliovisualizer.com/mon ... simulation
A 100% stock portfolio will deliver 5% of portfolio (i.e. varying) WR for forever as the Median simulation (50% curve) including inflation. Play with it.
But, this doesn't capture sequence of returns risk and other issues due to the fact that there's a very large volatiloty to equity returns. If we could depend on steadily getting average returns, we could certainly spend more. But we can't.

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