Early Retirement - On the fence, need sanity check

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msk
Posts: 767
Joined: Mon Aug 15, 2016 10:40 am

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

Post by msk » Sun Apr 22, 2018 2:22 am

Withdrawing a fixed percentage of the portfolio implies that one is willing to experience the volatility of the annual withdrawals. We all realize that taking a fixed percentage implies that the portfolio will last forever, as long as we do not withdraw >=100%! Question I posed myself is what percentage rate will keep my remaining portfolio growing and keeping pace with inflation (implying also that my annual withdrawals will also keep pace with inflation, on average). The answer from playing with a spreadsheet was around 5% p.a. When I finally discovered the BH forum (and portfolio visualizer/Monte Carlo simulations) it simply confirmed that 5% p.a. is the magical number, 50% probability. If the market is against you, your portfolio will shrink (one can choose any probability one designates) but that is ALWAYS compensated by a massively growing portfolio with the same probability on the other side. E.g. with the 5% withdrawal from a million $ initial portfolio (US market) the 25 percentile, 50 percentile and 75 percentile remaining portfolios at the end of 30 years are simulated to be $0.69 million, $1.35m, 2.52m REAL terms. Keeping in mind that anyone who follows such a withdrawal strategy that foresees varying amounts as the years pass will have a starting portfolio that is larger than requiring the absolute max of 5% even in good years. I.e. he will be withdrawing < 5% is good years and maxing out to 5% only after severe market falls. IMHO it's an excellent strategy for those with portfolios larger than the bare minimum and people who are happy to leave a legacy. Also great for those with the backstop of a COLA pension.

willyd123
Posts: 10
Joined: Mon Feb 19, 2018 7:23 am

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

Post by willyd123 » Sun Apr 22, 2018 7:25 am

Following is something I just posted regarding healthcare coverage I thought may be relevant...

I think people sometimes provide worst case costs when responding to healthcare cost questions in retirement, and maybe that's appropriate to do, but it really is a bit more involved.

There are "qualified" and "non-qualified" plans that one can buy with the former being plans that meet all of the ACA rules (i.e., no lifetime limit, pre-existing conditions covered, etc.) and the latter being those that do not. If you want to get a sense of the cost and options with a qualified plan, go to stridehealth.com where after answering a few questions, you will see the plans available and the associated premiums. I input a couple both age 60 in the 33704 zip code and the cheapest plan was $1,411 per month. A critical variable regarding qualified plans is whether you will qualify for government subsidies based on you forecasted income which the stride health website includes. The subsidies can greatly reduce the net cost to the insured.

Non-qualified plans are the other option. These are growing very quickly in popularity given that premiums are much lower but of course so is the coverage. These plans have caps in terms of the maximum costs they will cover, you have to pass a physical to be approved for coverage and the plans won't cover existing health issues. Nevertheless, non-qualified plans MAY be a consideration depending on your situation. Note that a possible strategy could be to buy a non-qualified plan and if you come down with a serious long term health issue then move to a qualified plan. You can go to American Insurance Agencies Direct or Health Insurance Innovations websites to price such a product. Again, you should only entertain the idea of a non-qualified product after fully understanding the limitations and risks.

Sam1
Posts: 58
Joined: Mon Apr 09, 2018 7:24 am

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

Post by Sam1 » Sun Apr 22, 2018 7:34 am

I wouldn’t do it. I’d continue working 4-5 more years as these are your peak earning years. I’d try and save at least 50 percent of my take home. But I’d also take ALL of my vacation and probably a week each quarter.

tibbitts
Posts: 7508
Joined: Tue Feb 27, 2007 6:50 pm

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

Post by tibbitts » Sun Apr 22, 2018 9:13 am

Sam1 wrote:
Sun Apr 22, 2018 7:34 am
I wouldn’t do it. I’d continue working 4-5 more years as these are your peak earning years. I’d try and save at least 50 percent of my take home. But I’d also take ALL of my vacation and probably a week each quarter.
Peak earnings years are increasingly not your last years - employers are finally figuring out that old people aren't as useful as younger ones.

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