Ready to down shift?

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MrxBuff
Posts: 5
Joined: Mon Oct 08, 2018 5:44 am

Ready to down shift?

Post by MrxBuff » Tue Oct 09, 2018 12:00 pm

Looking for feedback on our portfolio and if I am ready to downshift career wise. I am 50 years old and my wife is 51. She is planning on working until 60. If I were to leave my higher paying corporate role my plan would be to find some part time contract type work to supplement her income so we do not have to touch retirement assets until 60 years old. She gets a nice pension @ 60 so she wants to work until then. Between the two of us we currently average around $350k per year in income.

Emergency funds: $520k in brokerage account; $12k in checking
Debt: $0; house is payed off; no loans; no credit card debt
Tax filing status; Married filing jointly
Effective tax rate = 21%
State of residence: New York
2 children aged 13 and 17; each child gets $100k for college and that is fully funded via a 529 plan (this is not included in the retirement assets below)
Desired allocation at 60 years old: 70% equities and 30% bonds and keep that allocation until end of plan
Current allocation: 73% equities and 27% bonds which is right on the efficient frontier
Assuming a real rate of return of 4% and Inflation rate of 3% going forward (I believe I am being conservative given by allocation)

Annual Expense Estimates by Age
50 - 60 = $115k
60 - 70 = $137k
72 - 75 = $107k
76 - 80 = $95k
81 - 86 = $75k
87 - 90 = $135k (includes end of life care)

Current Retirement Assets 1.62M
Taxable = $520k total, $500k in VTSAX and $20k in VTIAX
Tax deferred (401k, IRA's) = $979k in VTTWX
Tax free (Roth's) = $127k mostly in VTHRX, very small amount in VTIAX

Retirement Income
Pensions:
- Hers 52k per year starting at age 60
- His 13k starting at age 65

Social Security:
- Hers 18k per year starting at age 62
- His 35k per year starting at age 70

I have modeled this with many different tools and it appears highly unlikely that we would run out of money. What am I missing?

JoeRetire
Posts: 1598
Joined: Tue Jan 16, 2018 2:44 pm

Re: Ready to down shift?

Post by JoeRetire » Tue Oct 09, 2018 2:20 pm

MrxBuff wrote:
Tue Oct 09, 2018 12:00 pm
Looking for feedback on our portfolio and if I am ready to downshift career wise. I am 50 years old and my wife is 51.
Between the two of us we currently average around $350k per year in income.

Emergency funds: $520k in brokerage account; $12k in checking
Why so much in emergency funds? Your expenses are comparatively low. Are both your jobs highly volatile?
Annual Expense Estimates by Age
50 - 60 = $115k
60 - 70 = $137k
72 - 75 = $107k
76 - 80 = $95k
81 - 86 = $75k
87 - 90 = $135k (includes end of life care)
Wow. How did you come out with such precise estimates going out 40 years?
Are you both planing to die at 90? Or just one of you?
Current Retirement Assets 1.62M
Why so small a portfolio, given your incomes?
Retirement Income
Pensions:
- Hers 52k per year starting at age 60
- His 13k starting at age 65

Social Security:
- Hers 18k per year starting at age 62
- His 35k per year starting at age 70
If you are right about your expenses, then you should be okay.

Jack FFR1846
Posts: 7808
Joined: Tue Dec 31, 2013 7:05 am

Re: Ready to down shift?

Post by Jack FFR1846 » Tue Oct 09, 2018 2:35 pm

I'm not going to draw any conclusions, but want to point out some things.

$520k in a brokerage account as emergency fund. What is this invested in? If it's in equities, I'd be scared. If it's all T bills or some kind of bond fund, then ok.

529's: I would expect the 17 year old has already chosen a college. Have you done a double check on the costs? Certainly Staffords would apply as everyone qualifies. I ask knowing what private college on campus housing costs are (son in last year). Just a ping to double check.

Contracting: I have plenty of engineer coworkers and friends who have done this route. I find that they do one of 2 things. Either they underestimate that the business side of things doubles the hours worked and they end up working more "in retirement" than they worked when working......or they really limit the work they take and would honestly make more money doing 10 hours a week at McDonalds.

Can you backpedal? Sure. You've got good pensions and social security in the future. You're willing to do work. I think you're fine. You're not asking for both the wife and you to quit, load the family into an RV and travel the country forever. With the wife working, you can pretty easily monitor how your assets are doing and how much you really spend. If you don't like what you see, get a job.
Bogle: Smart Beta is stupid

delamer
Posts: 6138
Joined: Tue Feb 08, 2011 6:13 pm

Re: Ready to down shift?

Post by delamer » Tue Oct 09, 2018 3:01 pm

I don’t think you are missing anything.

With a 4% withdrawal rate on your investments as if today, you can cover $64,000 in expenses. If you downshift your job so that you don’t have to withdraw from investments until 60, then that pot will continue to grow.

Plus another $120,000 from pensions plus SS.

If your expenses don’t include income taxes, then you need to revise up.

Also, it would be worthwhile to model different scenarios where you die first or your wife dies first, at relatively young ages.

The survivor’s fixed income will decline and his/her tax rates will go up. There will be some decline in expenses too, of course.

MrxBuff
Posts: 5
Joined: Mon Oct 08, 2018 5:44 am

Re: Ready to down shift?

Post by MrxBuff » Thu Oct 11, 2018 5:57 am

Thanks for taking the time to review. Our brokerage account is in all equities at the moment, which we are OK with given we don't plan on selling any of those equities for at least 10 years. I am going to start putting some money in a Vanguard tax free muni bond fund (e.g. VWITX) in the brokerage account and then use that to pull from if required once I do down-shift. I do not want to sell the equities in brokerage as it would move us off of our target allocation and the efficient frontier and I would have to pay long term capital gains now.

My expenses estimates come from tracking what we spend for the past 20 years. I think I am over-estimating expenses post 60 years old but I would rather be over-estimating than under-estimating.

I did not include the 200k of 529 funds in our portfolio as that is already spent in our minds; if they don't use it all then the grandkids get what is left over. Our kids will go to in-state public schools (SUNY) so 25k per kid, per year is reasonable for tuition/room/board. The 17 year old may live at home during college which would lower those expenses to around 10k per year for tuition versus 25k for tuition, room, board.

Why is our portfolio so small? And I thought we were doing pretty good :). We started investing heavily around 2007 or so. Our combined salaries have not always been this high. That is a relatively recent development. Our taxes run about $100k a year in state/fed taxes, expenses run about $115-120k today, and we invest the remaining ~$130k per year. We also have no debt - we paid off the house in 2008 which was a big nut that did not get invested. Also no auto loans or credit card debt.

Our expenses do include income taxes. We have assumed a 13% effective tax rate from 60-90 years old, down from 23% today.

Ultimately I may end up working a couple of more years at the higher income just to pad the accounts and keep the wife happy. But it is good to know I have options.

delamer
Posts: 6138
Joined: Tue Feb 08, 2011 6:13 pm

Re: Ready to down shift?

Post by delamer » Thu Oct 11, 2018 8:07 am

MrxBuff wrote:
Thu Oct 11, 2018 5:57 am
Thanks for taking the time to review. Our brokerage account is in all equities at the moment, which we are OK with given we don't plan on selling any of those equities for at least 10 years. I am going to start putting some money in a Vanguard tax free muni bond fund (e.g. VWITX) in the brokerage account and then use that to pull from if required once I do down-shift. I do not want to sell the equities in brokerage as it would move us off of our target allocation and the efficient frontier and I would have to pay long term capital gains now.

My expenses estimates come from tracking what we spend for the past 20 years. I think I am over-estimating expenses post 60 years old but I would rather be over-estimating than under-estimating.

I did not include the 200k of 529 funds in our portfolio as that is already spent in our minds; if they don't use it all then the grandkids get what is left over. Our kids will go to in-state public schools (SUNY) so 25k per kid, per year is reasonable for tuition/room/board. The 17 year old may live at home during college which would lower those expenses to around 10k per year for tuition versus 25k for tuition, room, board.

Why is our portfolio so small? And I thought we were doing pretty good :). We started investing heavily around 2007 or so. Our combined salaries have not always been this high. That is a relatively recent development. Our taxes run about $100k a year in state/fed taxes, expenses run about $115-120k today, and we invest the remaining ~$130k per year. We also have no debt - we paid off the house in 2008 which was a big nut that did not get invested. Also no auto loans or credit card debt.

Our expenses do include income taxes. We have assumed a 13% effective tax rate from 60-90 years old, down from 23% today.

Ultimately I may end up working a couple of more years at the higher income just to pad the accounts and keep the wife happy. But it is good to know I have options.
Some on this forum get a bit worked up about why people don’t have more saved based on their reported current income.

I think they assume that the current income has been available from the womb, or at least age 22. :?

Speaking for my family, there was a period when our income went up 175% over the course of a dozen years. And our ability to save went up commensurately.

Posters also sometimes don’t take into account home equity when evaluating a financial picture. There is a big difference between you with a paid off house and someone with exactly the same financials otherwise but who owes $400,000 on their home.

What ultimately matters is whether you are meeting your financial goals, and you seem to be in good shape.

Good luck.

bhsince87
Posts: 1823
Joined: Thu Oct 03, 2013 1:08 pm

Re: Ready to down shift?

Post by bhsince87 » Thu Oct 11, 2018 10:02 am

I'm assuming you'll be covered by your wife's health insurance while she is working. But what are your plans after that?

I'm looking at ACA plans that coud be $32k out of pocket each year, without subsidies.
Retirement: When you reach a point where you have enough. Or when you've had enough.

MrxBuff
Posts: 5
Joined: Mon Oct 08, 2018 5:44 am

Re: Ready to down shift?

Post by MrxBuff » Thu Oct 11, 2018 11:58 am

My wife has a Cadillac health care plan through NYS. $150 a month for the entire family. Very lucky there.

MrxBuff
Posts: 5
Joined: Mon Oct 08, 2018 5:44 am

Re: Ready to down shift?

Post by MrxBuff » Thu Oct 11, 2018 12:02 pm

delamer wrote:
Thu Oct 11, 2018 8:07 am
MrxBuff wrote:
Thu Oct 11, 2018 5:57 am
Thanks for taking the time to review. Our brokerage account is in all equities at the moment, which we are OK with given we don't plan on selling any of those equities for at least 10 years. I am going to start putting some money in a Vanguard tax free muni bond fund (e.g. VWITX) in the brokerage account and then use that to pull from if required once I do down-shift. I do not want to sell the equities in brokerage as it would move us off of our target allocation and the efficient frontier and I would have to pay long term capital gains now.

My expenses estimates come from tracking what we spend for the past 20 years. I think I am over-estimating expenses post 60 years old but I would rather be over-estimating than under-estimating.

I did not include the 200k of 529 funds in our portfolio as that is already spent in our minds; if they don't use it all then the grandkids get what is left over. Our kids will go to in-state public schools (SUNY) so 25k per kid, per year is reasonable for tuition/room/board. The 17 year old may live at home during college which would lower those expenses to around 10k per year for tuition versus 25k for tuition, room, board.

Why is our portfolio so small? And I thought we were doing pretty good :). We started investing heavily around 2007 or so. Our combined salaries have not always been this high. That is a relatively recent development. Our taxes run about $100k a year in state/fed taxes, expenses run about $115-120k today, and we invest the remaining ~$130k per year. We also have no debt - we paid off the house in 2008 which was a big nut that did not get invested. Also no auto loans or credit card debt.

Our expenses do include income taxes. We have assumed a 13% effective tax rate from 60-90 years old, down from 23% today.

Ultimately I may end up working a couple of more years at the higher income just to pad the accounts and keep the wife happy. But it is good to know I have options.
Some on this forum get a bit worked up about why people don’t have more saved based on their reported current income.

I think they assume that the current income has been available from the womb, or at least age 22. :?

Speaking for my family, there was a period when our income went up 175% over the course of a dozen years. And our ability to save went up commensurately.

Posters also sometimes don’t take into account home equity when evaluating a financial picture. There is a big difference between you with a paid off house and someone with exactly the same financials otherwise but who owes $400,000 on their home.

What ultimately matters is whether you are meeting your financial goals, and you seem to be in good shape.

Good luck.
Thanks for taking the time to post and the encouragement!

FoolMeOnce
Posts: 289
Joined: Mon Apr 24, 2017 11:16 am

Re: Ready to down shift?

Post by FoolMeOnce » Thu Oct 11, 2018 12:07 pm

Is the $520k emergency fund the same as the $520k listed under retirement assets? Just curious, because either way you are fine. You'd probably be fine even with half the expected pensions and SS.

MrxBuff
Posts: 5
Joined: Mon Oct 08, 2018 5:44 am

Re: Ready to down shift?

Post by MrxBuff » Thu Oct 11, 2018 3:21 pm

Yes the 520k emergency fund is simply our brokerage account. The idea is that if we had a true emergency requiring a bunch of cash we would just sell some shares in the brokerage account to cover what was needed.

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