FIRE? Need second pair of Bogle-eyes for retirement plan

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Topic Author
Bogletoon
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FIRE? Need second pair of Bogle-eyes for retirement plan

Post by Bogletoon » Sun Feb 10, 2019 8:34 pm

I am planning to retire in about 1 year (age 63) and until that date I have agreed with my employer that I can continue to work part time (allowing me to get used to more freedom, ease into retirement). I’ll be making about $80K in the coming year plus I’ll be receiving a bonus of $50K in July of this year. I am still a bit nervous about my retirement decision (my employer wants me to stay on longer so my decision is possibly reversible). I’d love to have a second pair of Bogle-eyes so if you could give me your opinion about the (financial) wisdom of my decision and projected annual spend that would be fantastic. Since I often see similar posts result in requests for more details, I may have gone a bit over the edge here but do hope this sums it up nicely:

I am turning 63 in the summer and my wife will turn 61 around the same time. We are happily married for well over 33 years and we are both in good health. We immigrated from Europe in the ‘90’s and became US citizens years ago. My wife gave up her job when we moved to the US and has been a homemaker (no income) ever since. We have two children, ages 21 and 20. They have respectively 0.5 and 1 year left in college. Our estimated remaining contribution to their cost will be about $30,000 in total. Any additional cost they should pay for themselves and they should be able to land a decent job after graduation because they both do well in school and are very active, responsible.

Assets:
- $996K in cash (I want to be able to weather an extended market downturn and be able to sleep at night)
- $2,066K in taxable brokerage
- $591K in an IRA
- $76K in a Roth
- $550K home resale value (based on Zillow and price we paid at the time). Home fully paid for.

Asset mix (all with Vanguard, plus Internet savings accounts; investments mostly in low cost index funds):
54.2% stocks, 21% bonds, 24.8% short-term reserves/cash.
- Stocks: 70% US Stocks, 30% International stocks
- Bonds: 40% taxable, 60% Municipal bonds

Liabilities/Debt:
- None

Annuity/Pension/Social Security:
- Starting next month I’ll receive about $1,500 per month from an annuity for as long as I live (reduced by 50% for my wife after I die).
- By my 67th birth date I will start receiving SS (from a European country, over the years worked there) of about $500 per month.
- My wife will also be receiving about $500/month for European SS when she reaches the age of 67.
- My US SS statement shows that I’ll be receiving about $2K/month in US SS when retiring at Full Retirement age (but I am willing to wait if that is more beneficial).
- My wife has never earned any income since we moved to the States so we assume she will not have any US SS (but perhaps a survival benefit from my US SS after I die?).

Health Care Insurance:
Me and my wife and kids will stay on my employer’s plan until I retire in a year from now. After that and until Medicare, all bets are off (Cobra? Obamacare? Private insurance?).

Estimated annual expenses:
$175K based on our historical spending (incl. insurance premiums, deductibles, out-of-pocket, study kids, cars, etc.). Except for inflation, we would estimate that with kids gone but with increased healthcare costs things will stay pretty much at the current spend level.

Any thoughts or advice regarding my retirement plan, our projected annual spend, or other things we have not considered?
Thank you so much for your time and feedback!

KlangFool
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Re: FIRE? Need second pair of Bogle-eyes for retirement plan

Post by KlangFool » Sun Feb 10, 2019 8:39 pm

Bogletoon wrote:
Sun Feb 10, 2019 8:34 pm

- My wife has never earned any income since we moved to the States so we assume she will not have any US SS (but perhaps a survival benefit from my US SS after I die?).
Bogletoon,

I do not think this statement is correct. As long as she is married to you for at least 10 years, she qualifies for half of your benefits. If your statement is true, all the US homemakers will have no social security benefits.

Someone on the forum could confirm this.

KlangFool

radiowave
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Re: FIRE? Need second pair of Bogle-eyes for retirement plan

Post by radiowave » Sun Feb 10, 2019 8:49 pm

OP welcome. I'll make some basic comments on this post, others may chime in later.

First congratulations on reaching retirement.

2. my back of the envelope calculation is you have a bit over $3.6M in cash and invested assets

3. you have anticipated expenses of 175K, dividing this into your current assets = 21.3 years not counting taxes or growth of the portfolio or the overall income in retirment. So I think these high expenses will be a drag on your investment and you may want to see if there are ways you can reduce them in the long run.

4. nearly 1M in cash, you may want to find ways to make better use of your cash such as high yield savings, CDs, treasury bills/notes, etc. A municipal bond fund like VWITX may be helpful.

Wife just called me to dinner, I'll follow up later.

and welcome to the forum!
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page

donall
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Re: FIRE? Need second pair of Bogle-eyes for retirement plan

Post by donall » Sun Feb 10, 2019 9:17 pm

In theory: (3,600,000 X 0.04) + ((1500+500) X 12) + ((2000+1000) X 12) = 204,000
- wife should qualify for 1/2 of your Social Security
- with 25% cash, the multiplier may be lower than 4%
- investigate treaty with US and foreign county, as there may be Social Security offsets

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jabberwockOG
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Re: FIRE? Need second pair of Bogle-eyes for retirement plan

Post by jabberwockOG » Sun Feb 10, 2019 9:29 pm

Suggest you find a way to send less than $175k a year. With that level of assets 98% of folks your age would be set for life.

Topic Author
Bogletoon
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Re: FIRE? Need second pair of Bogle-eyes for retirement plan

Post by Bogletoon » Sun Feb 10, 2019 9:33 pm

radiowave wrote:
Sun Feb 10, 2019 8:49 pm

4. nearly 1M in cash, you may want to find ways to make better use of your cash such as high yield savings, CDs, treasury bills/notes, etc. A municipal bond fund like VWITX may be helpful
Sorry: I meant to say: the nearly 1M in cash sits in a number of (FDIC) saving accounts like ALLY, etc.

Thanks for you feedback!

Topic Author
Bogletoon
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Re: FIRE? Need second pair of Bogle-eyes for retirement plan

Post by Bogletoon » Sun Feb 10, 2019 9:45 pm

donall wrote:
Sun Feb 10, 2019 9:17 pm
In theory: (3,600,000 X 0.04) + ((1500+500) X 12) + ((2000+1000) X 12) = 204,000
- wife should qualify for 1/2 of your Social Security
- with 25% cash, the multiplier may be lower than 4%
- investigate treaty with US and foreign county, as there may be Social Security offsets
Thanks for your feedback!

You calculate (4% of assets) + (annuities & SS) = annual spend amount. This made me think: Should one not calculate as (expected average conservative investment return, e.g. 5%) + (annuities & SS) = Annual spend. And assuming that doesn’t get me to the 175K desired spend level, I should fill in the missing piece by drawing down from my investments?

Topic Author
Bogletoon
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Re: FIRE? Need second pair of Bogle-eyes for retirement plan

Post by Bogletoon » Sun Feb 10, 2019 9:46 pm

KlangFool wrote:
Sun Feb 10, 2019 8:39 pm
Bogletoon wrote:
Sun Feb 10, 2019 8:34 pm

- My wife has never earned any income since we moved to the States so we assume she will not have any US SS (but perhaps a survival benefit from my US SS after I die?).
Bogletoon,

I do not think this statement is correct. As long as she is married to you for at least 10 years, she qualifies for half of your benefits. If your statement is true, all the US homemakers will have no social security benefits.

Someone on the forum could confirm this.

KlangFool
Thank you Klangfool!!

Thecallofduty
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Re: FIRE? Need second pair of Bogle-eyes for retirement plan

Post by Thecallofduty » Sun Feb 10, 2019 9:55 pm

Assuming all things stay the same and no downturn: if you were to retire and simply use ur current investments( minus the house) and withdraw 4% that would be a withdrawl rate of 145k roughly. Add the pension and your at 163k yearly.

A little shy of 175k until you are taking social security unless I am missing something.
-thecallofduty

delamer
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Re: FIRE? Need second pair of Bogle-eyes for retirement plan

Post by delamer » Sun Feb 10, 2019 10:04 pm

Bogletoon wrote:
Sun Feb 10, 2019 9:45 pm
donall wrote:
Sun Feb 10, 2019 9:17 pm
In theory: (3,600,000 X 0.04) + ((1500+500) X 12) + ((2000+1000) X 12) = 204,000
- wife should qualify for 1/2 of your Social Security
- with 25% cash, the multiplier may be lower than 4%
- investigate treaty with US and foreign county, as there may be Social Security offsets
Thanks for your feedback!

You calculate (4% of assets) + (annuities & SS) = annual spend amount. This made me think: Should one not calculate as (expected average conservative investment return, e.g. 5%) + (annuities & SS) = Annual spend. And assuming that doesn’t get me to the 175K desired spend level, I should fill in the missing piece by drawing down from my investments?
You can’t use a 5% return because your actual return will fluctuate so much from year-to-year. Some years you’ll have returns of plus 20% and some years you’ll have returns of negative 20%, or even more extreme variation. Averages bear little resemblance to any one year’s return.

Not to mention that part of a 5% conservative return comes from share appreciation, so you’d have to sell shares to spend that return. Your portfolio only will kick off about 2.5% in dividends and interest.

You should become familiar with the concept of a safe withdrawal rate (the 4% donall used is a good start). Here is some info from the wiki: https://www.bogleheads.org/wiki/Safe_withdrawal_rates

Remember to take income taxes into account when estimating your expenses.

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Watty
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Re: FIRE? Need second pair of Bogle-eyes for retirement plan

Post by Watty » Sun Feb 10, 2019 10:13 pm

Bogletoon wrote:
Sun Feb 10, 2019 8:34 pm
Health Care Insurance:
Me and my wife and kids will stay on my employer’s plan until I retire in a year from now. After that and until Medicare, all bets are off (Cobra? Obamacare? Private insurance?).
Most larger companies are required to let you use COBRA coverage for 18 months, and a few states like California extend that to 36 month but they may call it something else for the additional 18 months.

This means that if you can work until you are a bit more than 63.5 years old that you can use COBRA until you turn 65 and get on Medicare.

I did not realize it until recently but there is also a provision in COBRA that will extend COBRA an additional 18 months for a spouse if the employee who was working starts Medicare while on COBRA. This means that your wife could use COBRA for 36 months if you can time your retirement just right.

This would leave your wife with about a years gap between COBRA and Medicare but even if it is expensive you can afford to buy her some sort of health insurance for that year. The health insurance options are changing so much that there is no telling just what will be available then but you can figure that out later.
Bogletoon wrote:
Sun Feb 10, 2019 8:34 pm
$175K based on our historical spending (incl. insurance premiums, deductibles, out-of-pocket, study kids, cars, etc.). Except for inflation, we would estimate that with kids gone but with increased healthcare costs things will stay pretty much at the current spend level.


You can find out what COBRA will cost from your HR department.

Once you get on Medicare you have several options but often people take the options which include;
1) Medicare part B premium of $135 a month which is paid from your Social Security once you start that.
2) Medicare part D premium for drugs. This varies but might be in the ballpark of $50 a month.
3) A Medicare supplement. This varies but might be in the ballpark of $250 a month for nearly full coverage. There are various copays and deductibles will be covered by this supplement.

There may be some other modests costs for some common prescriptions and if you have unusually high drug costs there may be some additional costs but at least in our case we are budgeting around $600 a month per person for healthcare once we are both getting Medicare. That would not include things like dentists, hearing aids, nursing homes, and eyeglasses.

There are a lot of other options that people can choose to pay less if they want or need to so that is just an example of what we are doing.

I hate the title but I would highly recommend the book "Medicare for Dummies" to help you learn about how medicare works and what options and costs you will have.

You also need to look at your spending at different ages. I have seen relatives naturally slow down when they reached their mid 70 even though they were in relatively good health. At that point they didn't want to travel much and only rarely did things like go out for an expensive evening out. They were typically more interested in downsizing than buying more stuff. Since they lived in a paid off house their expenses were pretty low and there were often months when they didn't even spend all of their Social Security checks.

I think that your cost estimate is probably way high unless you live a very extravagant lifestyle equivalent to someone who earned something like $500K a year when they were working.

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willthrill81
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Re: FIRE? Need second pair of Bogle-eyes for retirement plan

Post by willthrill81 » Sun Feb 10, 2019 10:27 pm

Retiring at age 63 is hardly 'retiring early' (i.e. the RE in FIRE).

That being said, between the portfolio, pension, and SS, the OP should be fine, especially if he can put most of that $1 million in cash to better use. More than six years of portfolio withdrawals is cash is just too conservative for prudence. A 5 year TIPS ladder would be better and still guaranteed.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Topic Author
Bogletoon
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Re: FIRE? Need second pair of Bogle-eyes for retirement plan

Post by Bogletoon » Sun Feb 10, 2019 10:35 pm

delamer wrote:
Sun Feb 10, 2019 10:04 pm
Bogletoon wrote:
Sun Feb 10, 2019 9:45 pm
donall wrote:
Sun Feb 10, 2019 9:17 pm
In theory: (3,600,000 X 0.04) + ((1500+500) X 12) + ((2000+1000) X 12) = 204,000
- wife should qualify for 1/2 of your Social Security
- with 25% cash, the multiplier may be lower than 4%
- investigate treaty with US and foreign county, as there may be Social Security offsets
Thanks for your feedback!

You calculate (4% of assets) + (annuities & SS) = annual spend amount. This made me think: Should one not calculate as (expected average conservative investment return, e.g. 5%) + (annuities & SS) = Annual spend. And assuming that doesn’t get me to the 175K desired spend level, I should fill in the missing piece by drawing down from my investments?
You can’t use a 5% return because your actual return will fluctuate so much from year-to-year. Some years you’ll have returns of plus 20% and some years you’ll have returns of negative 20%, or even more extreme variation. Averages bear little resemblance to any one year’s return.

Not to mention that part of a 5% conservative return comes from share appreciation, so you’d have to sell shares to spend that return. Your portfolio only will kick off about 2.5% in dividends and interest.

You should become familiar with the concept of a safe withdrawal rate (the 4% donall used is a good start). Here is some info from the wiki: https://www.bogleheads.org/wiki/Safe_withdrawal_rates

Remember to take income taxes into account when estimating your expenses.
Thank you. You make very good points and I think I got it!

Grt2bOutdoors
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Re: FIRE? Need second pair of Bogle-eyes for retirement plan

Post by Grt2bOutdoors » Sun Feb 10, 2019 10:44 pm

Bogletoon wrote:
Sun Feb 10, 2019 9:33 pm
radiowave wrote:
Sun Feb 10, 2019 8:49 pm

4. nearly 1M in cash, you may want to find ways to make better use of your cash such as high yield savings, CDs, treasury bills/notes, etc. A municipal bond fund like VWITX may be helpful
Sorry: I meant to say: the nearly 1M in cash sits in a number of (FDIC) saving accounts like ALLY, etc.
$3.6 million in assets. 54% equity with expected annual returns of 5-6%. Cash is 24.8%~25% returns 2-2.50%. Bonds are 21%, returning 3%.
Total weighted average rate of return = 3% + 1% + 0.60%. Total expected annual return of 4.6%.

Your spend rate of $175 is high, but that is reduced by $18k annuity starting next year taking portfolio withdrawal to $157k. The European Social Security reduces your need to $145k. At 67, you receive additional $24k, that takes withdrawal down to $121K. Or you can wait until age 70 to collect roughly $30k from Social Security.

Retirement looks doable.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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willthrill81
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Re: FIRE? Need second pair of Bogle-eyes for retirement plan

Post by willthrill81 » Sun Feb 10, 2019 10:45 pm

Grt2bOutdoors wrote:
Sun Feb 10, 2019 10:44 pm
Bogletoon wrote:
Sun Feb 10, 2019 9:33 pm
radiowave wrote:
Sun Feb 10, 2019 8:49 pm

4. nearly 1M in cash, you may want to find ways to make better use of your cash such as high yield savings, CDs, treasury bills/notes, etc. A municipal bond fund like VWITX may be helpful
Sorry: I meant to say: the nearly 1M in cash sits in a number of (FDIC) saving accounts like ALLY, etc.
$3.6 million in assets. 54% equity with expected annual returns of 5-6%. Cash is 24.8%~25% returns 2-2.50%. Bonds are 21%, returning 3%.
Total weighted average rate of return = 3% + 1% + 0.60%. Total expected annual return of 4.6%.

Your spend rate of $175 is high, but that is reduced by $18k annuity starting next year taking portfolio withdrawal to $157k. The European Social Security reduces your need to $145k. At 67, you receive additional $24k, that takes withdrawal down to $121K. Or you can wait until age 70 to collect roughly $30k from Social Security.

Retirement looks doable.
Delaying SS benefits until age 70 or a big market downturn, whichever comes first, seems potentially prudent for the OP.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Topic Author
Bogletoon
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Joined: Tue Aug 28, 2018 3:51 pm

Re: FIRE? Need second pair of Bogle-eyes for retirement plan

Post by Bogletoon » Sun Feb 10, 2019 10:48 pm

Watty wrote:
Sun Feb 10, 2019 10:13 pm
Bogletoon wrote:
Sun Feb 10, 2019 8:34 pm
Health Care Insurance:
Me and my wife and kids will stay on my employer’s plan until I retire in a year from now. After that and until Medicare, all bets are off (Cobra? Obamacare? Private insurance?).
Most larger companies are required to let you use COBRA coverage for 18 months, and a few states like California extend that to 36 month but they may call it something else for the additional 18 months.

This means that if you can work until you are a bit more than 63.5 years old that you can use COBRA until you turn 65 and get on Medicare.

I did not realize it until recently but there is also a provision in COBRA that will extend COBRA an additional 18 months for a spouse if the employee who was working starts Medicare while on COBRA. This means that your wife could use COBRA for 36 months if you can time your retirement just right.

This would leave your wife with about a years gap between COBRA and Medicare but even if it is expensive you can afford to buy her some sort of health insurance for that year. The health insurance options are changing so much that there is no telling just what will be available then but you can figure that out later.
Bogletoon wrote:
Sun Feb 10, 2019 8:34 pm
$175K based on our historical spending (incl. insurance premiums, deductibles, out-of-pocket, study kids, cars, etc.). Except for inflation, we would estimate that with kids gone but with increased healthcare costs things will stay pretty much at the current spend level.


You can find out what COBRA will cost from your HR department.

Once you get on Medicare you have several options but often people take the options which include;
1) Medicare part B premium of $135 a month which is paid from your Social Security once you start that.
2) Medicare part D premium for drugs. This varies but might be in the ballpark of $50 a month.
3) A Medicare supplement. This varies but might be in the ballpark of $250 a month for nearly full coverage. There are various copays and deductibles will be covered by this supplement.

There may be some other modests costs for some common prescriptions and if you have unusually high drug costs there may be some additional costs but at least in our case we are budgeting around $600 a month per person for healthcare once we are both getting Medicare. That would not include things like dentists, hearing aids, nursing homes, and eyeglasses.

There are a lot of other options that people can choose to pay less if they want or need to so that is just an example of what we are doing.

I hate the title but I would highly recommend the book "Medicare for Dummies" to help you learn about how medicare works and what options and costs you will have.

You also need to look at your spending at different ages. I have seen relatives naturally slow down when they reached their mid 70 even though they were in relatively good health. At that point they didn't want to travel much and only rarely did things like go out for an expensive evening out. They were typically more interested in downsizing than buying more stuff. Since they lived in a paid off house their expenses were pretty low and there were often months when they didn't even spend all of their Social Security checks.

I think that your cost estimate is probably way high unless you live a very extravagant lifestyle equivalent to someone who earned something like $500K a year when they were working.
Wow! What a great feedback and advice! Thank you so much for taking the time to respond so detailed. Especially the part about a provision in COBRA that will extend COBRA an additional 18 months for a spouse was totally new to me and a very pleasant surprise!

Viking65
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Re: FIRE? Need second pair of Bogle-eyes for retirement plan

Post by Viking65 » Mon Feb 11, 2019 5:21 am

Bogletoon wrote:
Sun Feb 10, 2019 8:34 pm

- By my 67th birth date I will start receiving SS (from a European country, over the years worked there) of about $500 per month.
- My wife will also be receiving about $500/month for European SS when she reaches the age of 67.
Since you will be receiving a pension from a foreign country, your US Social Security benefits may be reduced under the Windfall Elimination Provision.

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happysteward
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Re: FIRE? Need second pair of Bogle-eyes for retirement plan

Post by happysteward » Mon Feb 11, 2019 8:45 am

firecalc.com gives you a 90%+ chance of success based on my interpretation of the data you provided...I chose what I consider to be a very generous spending pattern over 30 years...you should learn this online tool yourself and make a judgement...

Image
"How much money is enough?", John Rockefeller responded, "...just a little bit more." | "He who loves money will not be satisfied with money..." Ecclesiastes 5:10

The Wizard
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Re: FIRE? Need second pair of Bogle-eyes for retirement plan

Post by The Wizard » Mon Feb 11, 2019 8:54 am

Bogletoon wrote:
Sun Feb 10, 2019 9:46 pm
KlangFool wrote:
Sun Feb 10, 2019 8:39 pm
Bogletoon wrote:
Sun Feb 10, 2019 8:34 pm

- My wife has never earned any income since we moved to the States so we assume she will not have any US SS (but perhaps a survival benefit from my US SS after I die?).
Bogletoon,

I do not think this statement is correct. As long as she is married to you for at least 10 years, she qualifies for half of your benefits. If your statement is true, all the US homemakers will have no social security benefits.

Someone on the forum could confirm this.

KlangFool
Thank you Klangfool!!
Doesn't apply to OP, but I'm wondering if that ten year marriage duration is accurate for current spouse?
I've only seen that number with respect to divorce situations...
Attempted new signature...

Topic Author
Bogletoon
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Re: FIRE? Need second pair of Bogle-eyes for retirement plan

Post by Bogletoon » Mon Feb 11, 2019 12:33 pm

happysteward wrote:
Mon Feb 11, 2019 8:45 am
firecalc.com gives you a 90%+ chance of success based on my interpretation of the data you provided...I chose what I consider to be a very generous spending pattern over 30 years...you should learn this online tool yourself and make a judgement...

Image
Thanks for going through the trouble of data entry. I'll try this calc myself going forward. I think I could live with a 90% chance as we can be flexible with our spend pattern if push comes to shove. Thanks again!

TNIRISH
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Re: FIRE? Need second pair of Bogle-eyes for retirement plan

Post by TNIRISH » Mon Feb 11, 2019 1:27 pm

Are you including the college expenses in your $175K living expense figure? By your post those are going away fairly quickly. No comment on your lifestyle but with being able to get Medicare soon and supplemental insurance your costs should not be prohibitive. I think your annual expense figure seems a bit high, but with that said you should be able to retire. At those spending levels, you will have a fabulous retirement but you may not have a huge nest egg left over when all is said and done.

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Wiggums
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Re: FIRE? Need second pair of Bogle-eyes for retirement plan

Post by Wiggums » Mon Feb 11, 2019 1:48 pm

I think your expenses are a bit high, but you may find that they are lower in retirement. For example, you won’t have the college expense forever. Currently, you have taxes withheld now that are not applicable once you retire. The part time hours is great for the income in addition to easing into retirement. I agree with the others that you have too much cash.

Congratulations on your upcoming retirement.

ExitStageLeft
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Re: FIRE? Need second pair of Bogle-eyes for retirement plan

Post by ExitStageLeft » Mon Feb 11, 2019 5:36 pm

I agree with the others, you're probably well positioned for a comfortable retirement. Congratulations are in order! :sharebeer

A few other pairs of eyes:

http://cfiresim.com/

https://www.i-orp.com/DropHSA/extended.html

https://www.portfoliovisualizer.com/financial-goals

These round our the online tools I have used and recommend. There are many others. FIRECalc and CFIRESim use historical returns, iORP uses parameterized returns and can run Monte Carlo analysis, and PV can look at all of those.

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