Can I Retire?

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Topic Author
fiseek77
Posts: 27
Joined: Mon Oct 22, 2018 1:03 pm

Can I Retire?

Post by fiseek77 »

Have been running simulations on Firecalc for the past year :-) Want to get perspective on whether I can retire.

Emergency Funds: 1 Year in Savings Account, Money Market

Debt: Mortgage balance of $160,000 @2.75%

Tax Filing Status: Married Filing Jointly

Tax Rate: Hoping to stay within 12% there by avoiding LTCG tax and taxes on Dividends. Income from bonds/Cash within standard deduction. Shooting for 0% Federal and 2% State Tax rate.

Age: Self 49/Spouse 43

Desired Asset Allocation : 73.5% Stocks/26.5 % Bonds

Foreign Equity : 25% of the equity portion.

Back testing current portfolio in portfolio visualizer give me a CAGR of 9.53% and S.D of 11.82 %. I am planning to sell some individual stocks that have high S.D to pay off mortgage before retirement. Target portfolio S.D to be within 10%

Taxable Account Total: 800,000
Tax Deferred: 410,000
Tax Free: 260,000
Emergency Funds: 80,000
Total: 1,550,000

Expenses without Mortgage: 48,000. Discretionary Expense: 8,000. Essential 40,000. Includes estimate for healthcare from ACA.
Expenses that will occur monthly: 24,000 (2000/M) Like utilities, groceries, Medical etc.. Expenses that occur yearly: 21,000 (like property taxes, insurance etc)
Mortgage Expense : 28,000 - Planning to pay off mortgage by selling stocks in taxable before I retire. So my expenses will be 48,000
Home Value : 500,000

Other expected Income:
Non inflation adjusted Pension @ 24,000 per year starting at age 65
Social Security @ 70 Estimated at 32,000 per year
Spousal Social Security @67 estimated at 13,000 per year.

I have run simulations in Firecalc, and assuming a 5% return, 2% Inflation and 10%S.D , I am getting an average success rate of 99% and a Median success rate of 100%, Min success rate of 93.4% by running it 11 times.

I have an option to sell the house and buy a 250,000 house if needed - This will bring expenses further down due to reduction in property tax, utilities etc.

I have to thank the boglehead community for all the education that has helped me reach this stage.

My question is
1. Can I retire?
2. What are the blind spots I am not seeing?

Thanks a bunch!
GT99
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Re: Can I Retire?

Post by GT99 »

Taking your mortgage balance out of your total portfolio due to payoff leaves you $1,390,000.
$48,000/$1,390,000 = 3.45% annual withdrawal.

I think I lot of folks here would say you're close, but for early retirement you should probably try to get closer to 3%. I would say the answer depends on how conservative you want to have to be in retirement? If you're OK with being very careful with your money, you're probably fine. Have you factored in inevitable big ticket items over the years, like future car purchases, future house roofing, etc? You're looking at a very long retirement - some of these things are inevitable, even if they are only every 5 years or so.

I'd also factor medical expenses as premiums + deductible. Just plan for hitting your deductible every year, even though it's not likely.

Does $8000 in discretionary spending give you the retirement you want? It's obviously a very personal question, but that's otherwise where you're really at. If the answer is yes, and you're certain of that, I think you can retire. For DW and I, $8,000 in discretionary spending in retirement isn't close to cutting it. I'd expect to use more than that in just travel expenditures annually. But that's us.
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retired@50
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Re: Can I Retire?

Post by retired@50 »

fiseek77 wrote: Tue Dec 17, 2019 5:07 pm
Debt: Mortgage balance of $160,000 @2.75%

Taxable Account Total: 800,000 640,000 after paying off mortgage.
Tax Deferred: 410,000
Tax Free: 260,000
Emergency Funds: 80,000
Total: 1,550,000 1,390,000 after paying off mortgage.

Expenses without Mortgage: 48,000.
Technically, this works out okay. 4% of $1,390,000 is a bit over $55,000, so your withdrawal rate is around 3.45%.
fiseek77 wrote: Tue Dec 17, 2019 5:07 pm Other expected Income:
Non inflation adjusted Pension @ 24,000 per year starting at age 65
Social Security @ 70 Estimated at 32,000 per year
Spousal Social Security @67 estimated at 13,000 per year.
Since you're only 49, you'll need to live off of the taxable portfolio until you're 59.5 years old. This should be possible assuming there isn't a major pullback in the stock market. Maybe add some bonds?
The cavalry doesn't arrive until your pension starts at 65. Is there any chance this number goes down for any reason? Company goes out of business, pension obligation is turned over to PBGC, which only nets you a percentage of your expected number?

Further, you are relying on ACA health care? Politicians might change this...
fiseek77 wrote: Tue Dec 17, 2019 5:07 pm My question is
1. Can I retire?
2. What are the blind spots I am not seeing?

Thanks a bunch!
1. Yes, if you're cautious and don't overspend and things generally go your way...
2. Have you actually already turned in 35 years of work history/earnings for your Social Security benefit? If not, the estimates may shrink in the future as zeroes will be used to fill in for any non-existent work history. The SS formula uses your highest earning 35 years. If you turn in less than 35 years, they fill with zeroes, which will reduce your expected payment.

Regards,
This is one person's opinion. Nothing more.
delamer
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Re: Can I Retire?

Post by delamer »

Have you run simulations with other assumptions, like higher inflation and lower returns?
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willthrill81
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Re: Can I Retire?

Post by willthrill81 »

Yes, you'll be fine. Your 3.45% withdrawal rate should be fine, especially considering that you will get a pension and, relative to your expenses, significant Social Security benefits, and more especially since you have $250k of home equity that you could use if needed.

You won't even need your portfolio at all past age 70, so even if the ACA went away and you had no subsidies, you'd still very likely be in great shape.

And paying off the mortgage before retirement is a good plan.
“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
Jack FFR1846
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Re: Can I Retire?

Post by Jack FFR1846 »

You didn't mention kids. Are there any? I'm of course thinking college costs.
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Topic Author
fiseek77
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Re: Can I Retire?

Post by fiseek77 »

GT99 wrote: Tue Dec 17, 2019 5:33 pm Taking your mortgage balance out of your total portfolio due to payoff leaves you $1,390,000.
$48,000/$1,390,000 = 3.45% annual withdrawal.

I think I lot of folks here would say you're close, but for early retirement you should probably try to get closer to 3%. I would say the answer depends on how conservative you want to have to be in retirement? If you're OK with being very careful with your money, you're probably fine. Have you factored in inevitable big ticket items over the years, like future car purchases, future house roofing, etc? You're looking at a very long retirement - some of these things are inevitable, even if they are only every 5 years or so.

I'd also factor medical expenses as premiums + deductible. Just plan for hitting your deductible every year, even though it's not likely.

Does $8000 in discretionary spending give you the retirement you want? It's obviously a very personal question, but that's otherwise where you're really at. If the answer is yes, and you're certain of that, I think you can retire. For DW and I, $8,000 in discretionary spending in retirement isn't close to cutting it. I'd expect to use more than that in just travel expenditures annually. But that's us.
Thank you! Good points. I have considered a good chuck as medical expenses outside premiums, will consider matching it to deductible.

Regarding 8,000 in discretionary, will consider increasing it after a first 5-10 years. If the 4% rule is too conservative (as many claim), and I have a good balance, then will consider spending more.

Note that I have a pension (though not inflation adjusted) and SS income beyond my portfolio.
Topic Author
fiseek77
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Re: Can I Retire?

Post by fiseek77 »

retired@50 wrote: Tue Dec 17, 2019 5:36 pm
Since you're only 49, you'll need to live off of the taxable portfolio until you're 59.5 years old. This should be possible assuming there isn't a major pullback in the stock market. Maybe add some bonds?
Yes, my EM fund is cash+ MM+ ST Bonds, plan is to fill it annually.
retired@50 wrote: Tue Dec 17, 2019 5:36 pm The cavalry doesn't arrive until your pension starts at 65. Is there any chance this number goes down for any reason? Company goes out of business, pension obligation is turned over to PBGC, which only nets you a percentage of your expected number?
Not likely, do not want to work more years, considering this possibility, can pull some levers like geo arbitrage if this happens.
retired@50 wrote: Tue Dec 17, 2019 5:36 pm Further, you are relying on ACA health care? Politicians might change this...
Same as above. I definitely do not want to work till 65, if health care becomes unaffordable, might move to Costa Rica or somewhere :-).


1. Yes, if you're cautious and don't overspend and things generally go your way...
retired@50 wrote: Tue Dec 17, 2019 5:36 pm 2. Have you actually already turned in 35 years of work history/earnings for your Social Security benefit? If not, the estimates may shrink in the future as zeroes will be used to fill in for any non-existent work history. The SS formula uses your highest earning 35 years. If you turn in less than 35 years, they fill with zeroes, which will reduce your expected payment.
Yes, my calculation includes only working years.


Thank you! for your analysis
Topic Author
fiseek77
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Re: Can I Retire?

Post by fiseek77 »

delamer wrote: Tue Dec 17, 2019 5:44 pm Have you run simulations with other assumptions, like higher inflation and lower returns?
Thank you! I am considering 5% return with 2% inflation, do not want to beat this down further to justify OMY syndrome. Another aspect is I get a good amount approx 40% of the essential expenses in dividend/interest . So only remaining 60% is dependent on market returns. I have about 26.5% in bonds that can carry me through low equity years.
Last edited by fiseek77 on Tue Dec 17, 2019 6:27 pm, edited 1 time in total.
Topic Author
fiseek77
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Re: Can I Retire?

Post by fiseek77 »

willthrill81 wrote: Tue Dec 17, 2019 5:47 pm Yes, you'll be fine. Your 3.45% withdrawal rate should be fine, especially considering that you will get a pension and, relative to your expenses, significant Social Security benefits, and more especially since you have $250k of home equity that you could use if needed.

You won't even need your portfolio at all past age 70, so even if the ACA went away and you had no subsidies, you'd still very likely be in great shape.

And paying off the mortgage before retirement is a good plan.
Thank you!
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JoeRetire
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Re: Can I Retire?

Post by JoeRetire »

fiseek77 wrote: Tue Dec 17, 2019 5:07 pm Debt: Mortgage balance of $160,000 @2.75%

Age: Self 49/Spouse 43

Back testing current portfolio in portfolio visualizer give me a CAGR of 9.53% and S.D of 11.82 %. I am planning to sell some individual stocks that have high S.D to pay off mortgage before retirement. Target portfolio S.D to be within 10%

Total: 1,550,000

Expenses without Mortgage: 48,000. Discretionary Expense: 8,000. Essential 40,000. Includes estimate for healthcare from ACA.

Other expected Income:
Non inflation adjusted Pension @ 24,000 per year starting at age 65
Social Security @ 70 Estimated at 32,000 per year
Spousal Social Security @67 estimated at 13,000 per year.

My question is
1. Can I retire?
Yes, you can retire, assuming all of your assumptions and estimates are correct.
2. What are the blind spots I am not seeing?
1) Don't pay off a 2.75% mortgage using stocks earning 9.54%

2) Make sure your calculations regarding pension, social security, and expenses consider what would happen to the survivor should one of you die young.

3) Determine if you have considered Long Term Care plans, legacy plans, etc.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
delamer
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Re: Can I Retire?

Post by delamer »

fiseek77 wrote: Tue Dec 17, 2019 6:26 pm
delamer wrote: Tue Dec 17, 2019 5:44 pm Have you run simulations with other assumptions, like higher inflation and lower returns?
Thank you! I am considering 5% return with 2% inflation, do not want to beat this down further to justify OMY syndrome. Another aspect is I get a good amount approx 40% of the essential expenses in dividend/interest . So only remaining 60% is dependent on market returns. I have about 26.5% in bonds that can carry me through low equity years.
It isn’t a question of beating anything down, it’s a question of looking at other plausible scenarios.

And don’t kid yourself that dividends don’t fall when there is a stock market correction. During the Great Recession, it took 3 or 4 years for S&P 500 dividends to return to their previous high.
Grt2bOutdoors
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Re: Can I Retire?

Post by Grt2bOutdoors »

fiseek77 wrote: Tue Dec 17, 2019 6:26 pm
delamer wrote: Tue Dec 17, 2019 5:44 pm Have you run simulations with other assumptions, like higher inflation and lower returns?
Thank you! I am considering 5% return with 2% inflation, do not want to beat this down further to justify OMY syndrome. Another aspect is I get a good amount approx 40% of the essential expenses in dividend/interest . So only remaining 60% is dependent on market returns. I have about 26.5% in bonds that can carry me through low equity years.

Try a 4% return with 3 percent inflation or 1% real, then re-run simulation at 0% real. If you really want to stress test it, imagine your dividends/interest gets cut to 20% of essential expenses. Dividends are not sacrosant, they can and will be cut in times of dire straits.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
renue74
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Re: Can I Retire?

Post by renue74 »

Not a financial question...but a personal question.

At 49, if you retire, what are you going to do? What about the random Tuesday at 10am...any plans?

I'm 46 and we have enough to retire. I grew tired of my business and have slowly been transitioning away from it. My 2 employees left in August and I have been fiddling with a flip house, plus some rental house work....but it still feels strange to not drive into an office and sit at a desk.

What will your friends think?
What is your next chapter in life?
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willthrill81
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Re: Can I Retire?

Post by willthrill81 »

JoeRetire wrote: Tue Dec 17, 2019 6:52 pm
fiseek77 wrote: Tue Dec 17, 2019 5:07 pm2. What are the blind spots I am not seeing?
1) Don't pay off a 2.75% mortgage using stocks earning 9.54%
If he knew that stocks would return 9.54%, then the decision would be easy. But he doesn't know that. Retaining the mortgage increases sequence of returns, although probably not by much since his investment portfolio is about 10x the size of his mortgage. The mortgage is costing him more than bonds are yielding now on an after-tax basis. So he could just sell off enough fixed income to pay off the mortgage and retain the amount currently invested in stocks.

If he knew that stocks would return 9.54%, then he should move all of his fixed income into stocks, do a cash out refinance and put all of the proceeds into stocks, etc.
Last edited by willthrill81 on Tue Dec 17, 2019 7:58 pm, edited 1 time in total.
“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
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Wiggums
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Re: Can I Retire?

Post by Wiggums »

I’d encourage you to verify your retirement expenses. I.e., medical, dental and vision. Taxes and mortgage. New roof, car, a/c, travel, etc. you will take a hit on social security due to some years with zeros or low wages?

Plot out where you are going to pull the money from each year. For example: 49-59 from taxable account.

If your retirement expenses are accurate, I think you have enough. Hopefully the economy will cooperate. I think your investment return is higher than what I would use.

I retired at 56, but was able to collect my pension immediately. No mortgage, kids college fully funded and a little closer to 59.5.

Good luck to you...
LeftCoastIV
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Re: Can I Retire?

Post by LeftCoastIV »

Do you have enough $ in bonds or fixed income *outside* of retirement accounts to deal with the first five years of your retirement being a bear market, without needing to sell equities?
BlueCable
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Re: Can I Retire?

Post by BlueCable »

Your pension and social security at 70 will cover your expenses when you hit 70, so your withdrawal ratio is really about 3.5% for 25 years, then less than 1% for the rest of your life.

Barring legislation, the Social Security Trust Fund will run out of money in the 2030s. At that point, barring legislation, everyone's benefit will drop to an estimated 78% of what it should have been. Does your social security estimate include this haircut?

If so, I see no reason to hesitate. If not, you are probably still fine but should pause to examine the numbers.
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fiseek77
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Re: Can I Retire?

Post by fiseek77 »

JoeRetire wrote: Tue Dec 17, 2019 6:52 pm 1) Don't pay off a 2.75% mortgage using stocks earning 9.54%

2) Make sure your calculations regarding pension, social security, and expenses consider what would happen to the survivor should one of you die young.

3) Determine if you have considered Long Term Care plans, legacy plans, etc.
I came across the concept of ' success optimization' Vs ' return optimization', that means I will make decisions that will increase the probability of success if it competes with increase in return expectations. Based on that theme, I would pay off mortgage as it increases the success probability, though it might bring down the expected return.

I will consider the other points. Thanks for your insights.
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fiseek77
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Re: Can I Retire?

Post by fiseek77 »

delamer wrote: Tue Dec 17, 2019 7:14 pm
It isn’t a question of beating anything down, it’s a question of looking at other plausible scenarios.

And don’t kid yourself that dividends don’t fall when there is a stock market correction. During the Great Recession, it took 3 or 4 years for S&P 500 dividends to return to their previous high.
Understood about the dividends. It is a portfolio of dividend aristocrats, but there is always a probability that everything might collapse. If one or two fails, impact is far less.

If we look at all plausible scenarios, what action do we take based on that, work more years?
Topic Author
fiseek77
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Re: Can I Retire?

Post by fiseek77 »

renue74 wrote: Tue Dec 17, 2019 7:22 pm Not a financial question...but a personal question.

At 49, if you retire, what are you going to do? What about the random Tuesday at 10am...any plans?

I'm 46 and we have enough to retire. I grew tired of my business and have slowly been transitioning away from it. My 2 employees left in August and I have been fiddling with a flip house, plus some rental house work....but it still feels strange to not drive into an office and sit at a desk.

What will your friends think?
What is your next chapter in life?
I think about that a lot. In a way I think it is like the blue pill/red pill in Matrix. Is keeping busy the best way to live? I am reading some philosophy now and there is beauty in stillness and enjoying doing nothing. I know this will be very hard as we always look to finish something and look for external validation. I am trying my best to change my mind to not care about what others think, but is another hard one.

I am hoping to find a good cause to volunteer/support/ help, keeping fit and active and enjoy life. This is the theory, but not sure what practice will bring.
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fiseek77
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Re: Can I Retire?

Post by fiseek77 »

willthrill81 wrote: Tue Dec 17, 2019 7:42 pm
JoeRetire wrote: Tue Dec 17, 2019 6:52 pm
fiseek77 wrote: Tue Dec 17, 2019 5:07 pm2. What are the blind spots I am not seeing?
1) Don't pay off a 2.75% mortgage using stocks earning 9.54%
If he knew that stocks would return 9.54%, then the decision would be easy. But he doesn't know that. Retaining the mortgage increases sequence of returns, although probably not by much since his investment portfolio is about 10x the size of his mortgage. The mortgage is costing him more than bonds are yielding now on an after-tax basis. So he could just sell off enough fixed income to pay off the mortgage and retain the amount currently invested in stocks.

If he knew that stocks would return 9.54%, then he should move all of his fixed income into stocks, do a cash out refinance and put all of the proceeds into stocks, etc.
True that!
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fiseek77
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Re: Can I Retire?

Post by fiseek77 »

Grt2bOutdoors wrote: Tue Dec 17, 2019 7:22 pm
fiseek77 wrote: Tue Dec 17, 2019 6:26 pm
delamer wrote: Tue Dec 17, 2019 5:44 pm Have you run simulations with other assumptions, like higher inflation and lower returns?
Thank you! I am considering 5% return with 2% inflation, do not want to beat this down further to justify OMY syndrome. Another aspect is I get a good amount approx 40% of the essential expenses in dividend/interest . So only remaining 60% is dependent on market returns. I have about 26.5% in bonds that can carry me through low equity years.

Try a 4% return with 3 percent inflation or 1% real, then re-run simulation at 0% real. If you really want to stress test it, imagine your dividends/interest gets cut to 20% of essential expenses. Dividends are not sacrosant, they can and will be cut in times of dire straits.
I am planning on mitigating if such things happen through following ways.
1. Geo arbitrage. I have a home worth 500K, which I can sell and move to a cheaper location with lower cost of living.
2. Find work - either consulting or something else. I believe I can some work matching my skill sets.
3. Invest the money from home sale in some small business and try that approach.

I can try all these scenarios, but I am not sure how I am going to act based on that analysis. Does that mean if I cannot retire assuming 0% real returns I should not? I do not want assume rosy return expectations, but I do not want to plan for the worst possible scenario. This will mean that I will loosing time. Hope that makes sense. Thanks for your insights.
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fiseek77
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Re: Can I Retire?

Post by fiseek77 »

BlueCable wrote: Tue Dec 17, 2019 8:32 pm Your pension and social security at 70 will cover your expenses when you hit 70, so your withdrawal ratio is really about 3.5% for 25 years, then less than 1% for the rest of your life.

Barring legislation, the Social Security Trust Fund will run out of money in the 2030s. At that point, barring legislation, everyone's benefit will drop to an estimated 78% of what it should have been. Does your social security estimate include this haircut?

If so, I see no reason to hesitate. If not, you are probably still fine but should pause to examine the numbers.
Yes, Social security is a big one. I will run some simulations based on 78%. Thanks!
flyingaway
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Re: Can I Retire?

Post by flyingaway »

willthrill81 wrote: Tue Dec 17, 2019 7:42 pm
JoeRetire wrote: Tue Dec 17, 2019 6:52 pm
fiseek77 wrote: Tue Dec 17, 2019 5:07 pm2. What are the blind spots I am not seeing?
1) Don't pay off a 2.75% mortgage using stocks earning 9.54%
If he knew that stocks would return 9.54%, then the decision would be easy. But he doesn't know that. Retaining the mortgage increases sequence of returns, although probably not by much since his investment portfolio is about 10x the size of his mortgage. The mortgage is costing him more than bonds are yielding now on an after-tax basis. So he could just sell off enough fixed income to pay off the mortgage and retain the amount currently invested in stocks.

If he knew that stocks would return 9.54%, then he should move all of his fixed income into stocks, do a cash out refinance and put all of the proceeds into stocks, etc.
This is a good point about paying off mortgage.
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birdog
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Re: Can I Retire?

Post by birdog »

I'm curious, do you hate your job? What's your current salary? Does your spouse currently work? If so, her salary? I'm assuming that if she does currently work she'll quit when you do?
delamer
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Re: Can I Retire?

Post by delamer »

fiseek77 wrote: Wed Dec 18, 2019 8:45 am
delamer wrote: Tue Dec 17, 2019 7:14 pm
It isn’t a question of beating anything down, it’s a question of looking at other plausible scenarios.

And don’t kid yourself that dividends don’t fall when there is a stock market correction. During the Great Recession, it took 3 or 4 years for S&P 500 dividends to return to their previous high.
Understood about the dividends. It is a portfolio of dividend aristocrats, but there is always a probability that everything might collapse. If one or two fails, impact is far less.

If we look at all plausible scenarios, what action do we take based on that, work more years?
I didn’t suggest that you look at ALL plausible scenarios, I suggested that you look at OTHER plausible scenarios. As another poster noted, a long period of zero real growth is plausible.

Sure, if you try other scenarios, you may conclude that you need to work longer. You also might conclude that you are comfortable with stopping now because even in the worst-case, you’ll have sufficient income. Ultimately, it’s a matter of weighing the odds.

Your original post asked if you can retire and/or if you had any blind spots. My point is that assuming you can retire based on one investment return/inflation scenario is a blind spot.
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JoeRetire
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Re: Can I Retire?

Post by JoeRetire »

fiseek77 wrote: Wed Dec 18, 2019 8:42 am
JoeRetire wrote: Tue Dec 17, 2019 6:52 pm 1) Don't pay off a 2.75% mortgage using stocks earning 9.54%

2) Make sure your calculations regarding pension, social security, and expenses consider what would happen to the survivor should one of you die young.

3) Determine if you have considered Long Term Care plans, legacy plans, etc.
I came across the concept of ' success optimization' Vs ' return optimization', that means I will make decisions that will increase the probability of success if it competes with increase in return expectations. Based on that theme, I would pay off mortgage as it increases the success probability, though it might bring down the expected return.

I will consider the other points. Thanks for your insights.
Very interesting! I'd like to learn more about this.

How did you calculate your success probability?
How does selling your high-return stock and paying off your low interest mortgage increase the success probability for you?
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
milktoast
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Re: Can I Retire?

Post by milktoast »

JoeRetire wrote: Wed Dec 18, 2019 11:18 am How does selling your high-return stock and paying off your low interest mortgage increase the success probability for you?
Simple numbers. These are NOT the OP numbers.

$1M invested, $100k mortgage. Payment $6k / yr.

Two options:
- 4.5% withdrawal on $1M for $45k / yr. $39k / yr to live on.
- Payoff mortgage. $39k / yr of $900k is 4.3% withdrawal.

That slight change in SWR increases probability of success. But the average portfolio balance at the end is better for the first one.
bradpevans
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Re: Can I Retire?

Post by bradpevans »

milktoast wrote: Wed Dec 18, 2019 11:58 am
JoeRetire wrote: Wed Dec 18, 2019 11:18 am How does selling your high-return stock and paying off your low interest mortgage increase the success probability for you?
Simple numbers. These are NOT the OP numbers.

$1M invested, $100k mortgage. Payment $6k / yr.

Two options:
- 4.5% withdrawal on $1M for $45k / yr. $39k / yr to live on.
- Payoff mortgage. $39k / yr of $900k is 4.3% withdrawal.

That slight change in SWR increases probability of success. But the average portfolio balance at the end is better for the first one.
the mortgage doesn't last forever, so at some point the first scenario
becomes 39K withdrawal = 39K to live on

I get the point about de-risking.
But, personally, I'd never accelerate payments on a 2.75% mortgage
(and even worse to sell off a chunk of stocks to do so, imo)
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willthrill81
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Re: Can I Retire?

Post by willthrill81 »

milktoast wrote: Wed Dec 18, 2019 11:58 am
JoeRetire wrote: Wed Dec 18, 2019 11:18 am How does selling your high-return stock and paying off your low interest mortgage increase the success probability for you?
Simple numbers. These are NOT the OP numbers.

$1M invested, $100k mortgage. Payment $6k / yr.

Two options:
- 4.5% withdrawal on $1M for $45k / yr. $39k / yr to live on.
- Payoff mortgage. $39k / yr of $900k is 4.3% withdrawal.

That slight change in SWR increases probability of success. But the average portfolio balance at the end is better for the first one.
Bingo.

Unless you have non-portfolio income that can cover the mortgage in retirement, the 'problem' with a mortgage is that it forces you to make regular portfolio withdrawals even if your portfolio is performing poorly.

It's important to keep in mind that safe withdrawal rates are not determined by average portfolio returns. If they were, the perpetual WR would have been about 7%, and we would recommend 100% stock portfolios with maybe some leverage on top of that for retirees. But in fact, the highest historic SWRs have been achieved with about a 70/30 AA, and only about 4% for a 30 year retirement then. This is because there were several historic instances where the first crucial 15 years of retirement had poor market returns (<1% real).

Paying off a mortgage reduces sequence of returns risk by reducing/eliminating retirees' leverage. On average, this would have resulted in lower ending balances for retirees, but it would have improved the worst historic scenarios.
“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
Grt2bOutdoors
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Re: Can I Retire?

Post by Grt2bOutdoors »

fiseek77 wrote: Wed Dec 18, 2019 8:57 am
Grt2bOutdoors wrote: Tue Dec 17, 2019 7:22 pm
fiseek77 wrote: Tue Dec 17, 2019 6:26 pm
delamer wrote: Tue Dec 17, 2019 5:44 pm Have you run simulations with other assumptions, like higher inflation and lower returns?
Thank you! I am considering 5% return with 2% inflation, do not want to beat this down further to justify OMY syndrome. Another aspect is I get a good amount approx 40% of the essential expenses in dividend/interest . So only remaining 60% is dependent on market returns. I have about 26.5% in bonds that can carry me through low equity years.

Try a 4% return with 3 percent inflation or 1% real, then re-run simulation at 0% real. If you really want to stress test it, imagine your dividends/interest gets cut to 20% of essential expenses. Dividends are not sacrosant, they can and will be cut in times of dire straits.
I am planning on mitigating if such things happen through following ways.
1. Geo arbitrage. I have a home worth 500K, which I can sell and move to a cheaper location with lower cost of living.
2. Find work - either consulting or something else. I believe I can some work matching my skill sets.
3. Invest the money from home sale in some small business and try that approach.

I can try all these scenarios, but I am not sure how I am going to act based on that analysis. Does that mean if I cannot retire assuming 0% real returns I should not? I do not want assume rosy return expectations, but I do not want to plan for the worst possible scenario. This will mean that I will loosing time. Hope that makes sense. Thanks for your insights.
Go for it. If retirement doesn't work out, you can find a different way even if it may not be the most optimal.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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JoeRetire
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Re: Can I Retire?

Post by JoeRetire »

milktoast wrote: Wed Dec 18, 2019 11:58 am
JoeRetire wrote: Wed Dec 18, 2019 11:18 am How does selling your high-return stock and paying off your low interest mortgage increase the success probability for you?
Simple numbers. These are NOT the OP numbers.

$1M invested, $100k mortgage. Payment $6k / yr.

Two options:
- 4.5% withdrawal on $1M for $45k / yr. $39k / yr to live on.
- Payoff mortgage. $39k / yr of $900k is 4.3% withdrawal.

That slight change in SWR increases probability of success. But the average portfolio balance at the end is better for the first one.
Okay.

So in this example, if the individual was only planning on a 4% withdrawal rate, then there would be no change in the "success probability" at all, although there would be a 10% loss in liquidity.

Got it.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
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wander
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Re: Can I Retire?

Post by wander »

Do you drive? In the length of 30-40-or 50 years, you may have to spend money to buy new cars, new roof for your house ... Do you have extra fund for those? What if the ACA is no longer available?
But, I think you can retire.
renue74
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Re: Can I Retire?

Post by renue74 »

fiseek77 wrote: Wed Dec 18, 2019 8:51 am
renue74 wrote: Tue Dec 17, 2019 7:22 pm Not a financial question...but a personal question.

At 49, if you retire, what are you going to do? What about the random Tuesday at 10am...any plans?

I'm 46 and we have enough to retire. I grew tired of my business and have slowly been transitioning away from it. My 2 employees left in August and I have been fiddling with a flip house, plus some rental house work....but it still feels strange to not drive into an office and sit at a desk.

What will your friends think?
What is your next chapter in life?
I think about that a lot. In a way I think it is like the blue pill/red pill in Matrix. Is keeping busy the best way to live? I am reading some philosophy now and there is beauty in stillness and enjoying doing nothing. I know this will be very hard as we always look to finish something and look for external validation. I am trying my best to change my mind to not care about what others think, but is another hard one.

I am hoping to find a good cause to volunteer/support/ help, keeping fit and active and enjoy life. This is the theory, but not sure what practice will bring.
When you stop working, you will feel calmness. No stress about getting to a building at a certain time. No deadlines. No boss.

But you need to plan your next chapter. After the calmness wears off, you'll want to have direction.

Realistically, it could be something as simple as taking up a new hobby like hiking or biking...and doing it in the middle of the day when everybody else is working. It feels really strange to do it when you're so used to working...but as time goes on, it feels normal.

Perhaps you may want to do a part time job. I have thought about that. I even interviewed for some higher level VP jobs a few months ago. I was sitting in a conference room and the GM was showing me PPT slides of his business units and org charts and I thought...w-t-f am I doing here? Is this how I want to spend the next chapter of my life? So I actually turned down the job offer after 3 rounds of interviews.

Think about your next chapter. Make a list of things you want to do and do them.

Plan the work and work the plan.
SlowlySaving
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Re: Can I Retire?

Post by SlowlySaving »

I semi-retired last year at the age of 49, my hobby/second career is a photographer which I enjoy doing. Our numbers are close to yours but house was paid off and wife is still working til 55. She will be able to use the Rule of 55 to access her 403b at 55.

Make sure you have an umbrella policy that covers your net-worth
Make sure all your accounts have the correct beneficiaries assigned to them etc
Read the book How to Retire Happy, Wild, and Free, it is SO inspiring!

Good luck!
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willthrill81
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Re: Can I Retire?

Post by willthrill81 »

JoeRetire wrote: Wed Dec 18, 2019 2:29 pm
milktoast wrote: Wed Dec 18, 2019 11:58 am
JoeRetire wrote: Wed Dec 18, 2019 11:18 am How does selling your high-return stock and paying off your low interest mortgage increase the success probability for you?
Simple numbers. These are NOT the OP numbers.

$1M invested, $100k mortgage. Payment $6k / yr.

Two options:
- 4.5% withdrawal on $1M for $45k / yr. $39k / yr to live on.
- Payoff mortgage. $39k / yr of $900k is 4.3% withdrawal.

That slight change in SWR increases probability of success. But the average portfolio balance at the end is better for the first one.
Okay.

So in this example, if the individual was only planning on a 4% withdrawal rate, then there would be no change in the "success probability" at all, although there would be a 10% loss in liquidity.

Got it.
The withdrawal rate would be lower, so the "success probability" would certainly go up.

While there would be a reduction in liquid assets in the example, the need for liquid assets would also go down.
“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
thelateinvestor43
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Re: Can I Retire?

Post by thelateinvestor43 »

I could EASILY retire on that! Just live simply. No fancy cars, a $200k house, etc. You don't need fancy things and toys to live good.
GodzillaBorland
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Re: Can I Retire?

Post by GodzillaBorland »

fiseek77 wrote: Tue Dec 17, 2019 5:07 pm

Taxable Account Total: 800,000
Tax Deferred: 410,000
Tax Free: 260,000
This is probably a bit off topic, have you considered deploying some of the taxable or even tax deferred into real estate? If you are retired your tax deferred can be rolled into a self directed IRA -> Real Estate IRA and use for buying properties that generate a monthly rental income with possible asset appreciation in the future. Granted this is more work but you are retired, right? Besides this is more of a diversification than stocks, bonds which all financial advisors tout not realizing they are the same asset class anyway..
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JoeRetire
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Re: Can I Retire?

Post by JoeRetire »

willthrill81 wrote: Wed Dec 18, 2019 11:06 pm The withdrawal rate would be lower, so the "success probability" would certainly go up.

While there would be a reduction in liquid assets in the example, the need for liquid assets would also go down.
Well, no.

My premise was that the withdrawal rate is 4% before and 4% after.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
goblue100
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Re: Can I Retire?

Post by goblue100 »

JoeRetire wrote: Thu Dec 19, 2019 7:54 am
willthrill81 wrote: Wed Dec 18, 2019 11:06 pm The withdrawal rate would be lower, so the "success probability" would certainly go up.

While there would be a reduction in liquid assets in the example, the need for liquid assets would also go down.
Well, no.

My premise was that the withdrawal rate is 4% before and 4% after.
I think the withdrawal rate was 4.5% before paying off the loan and 4.3% after, in the example given. However, I think the example has too little money servicing the debt. Does anyone really have a $500 mortgage payment? If you look at an example where someone took out a 200,000 loan and has a 100,000 balance their payment is closer to 900 a month. If we add back in the 39,000 needed living expenses, that gets them to a 4.98% withdrawal rate.
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns
aristotelian
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Re: Can I Retire?

Post by aristotelian »

OP, if I understand correctly, pension and SS cover 100% of your income needs by age 67 (with pension starting earlier). So you have something like $1.3 million to last 18 years. You are fine.

I agree with paying off the mortgage. From one point of view, the mortgage is cheap leverage to invest in stocks. I get that.That would be true if you had 100% stock allocation. However, with 25% bond allocation (more than the balance of the mortgage), our bonds are dragging against the leverage (defeating the purpose of carrying the mortgage), and/or the mortgage interest is offsetting your bond yield. From both a risk standpoint and for simplicity, I don't see the upside of carrying a mortgage at this point in your life.
FoolMeOnce
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Re: Can I Retire?

Post by FoolMeOnce »

When you list your expected SS, is that in 2040 dollars while your expenses are in 2019 dollars? That might be something you are not considering. Either way, it looks like you will be fine. An extra year or two of work would give a bigger cushion, of course, if you don't mind working, but don't torture yourself now to afford a more expensive coffin.
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fiseek77
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Re: Can I Retire?

Post by fiseek77 »

renue74 wrote: Wed Dec 18, 2019 7:32 pm
When you stop working, you will feel calmness. No stress about getting to a building at a certain time. No deadlines. No boss.

But you need to plan your next chapter. After the calmness wears off, you'll want to have direction.

Realistically, it could be something as simple as taking up a new hobby like hiking or biking...and doing it in the middle of the day when everybody else is working. It feels really strange to do it when you're so used to working...but as time goes on, it feels normal.

Perhaps you may want to do a part time job. I have thought about that. I even interviewed for some higher level VP jobs a few months ago. I was sitting in a conference room and the GM was showing me PPT slides of his business units and org charts and I thought...w-t-f am I doing here? Is this how I want to spend the next chapter of my life? So I actually turned down the job offer after 3 rounds of interviews.

Think about your next chapter. Make a list of things you want to do and do them.

Plan the work and work the plan.
Good advice. Thanks. Key is staying curious and nimble.
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fiseek77
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Re: Can I Retire?

Post by fiseek77 »

Grt2bOutdoors wrote: Wed Dec 18, 2019 12:54 pm
Go for it. If retirement doesn't work out, you can find a different way even if it may not be the most optimal.
Thanks. Defining 'optimal' is hard. It may be less comfortable but more fulfilling. Still on the fence though :-)
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fiseek77
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Re: Can I Retire?

Post by fiseek77 »

wander wrote: Wed Dec 18, 2019 2:36 pm Do you drive? In the length of 30-40-or 50 years, you may have to spend money to buy new cars, new roof for your house ... Do you have extra fund for those? What if the ACA is no longer available?
But, I think you can retire.
This is a great point. May be I should have a sinking fund (not counted in retirement dollars) for this. I do not want to create artificial buckets of money but If I have say 50K stashed away separately for one time unexpected expense, it might serve the purpose. I can choose a balanced fund for this..
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fiseek77
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Re: Can I Retire?

Post by fiseek77 »

JoeRetire wrote: Tue Dec 17, 2019 6:52 pm
Very interesting! I'd like to learn more about this.

How did you calculate your success probability?
How does selling your high-return stock and paying off your low interest mortgage increase the success probability for you?
As others have already pointed out, it reduces the amount you need on a monthly basis which relies on a portfolio with return and S.D to fund that amount. Also, more importantly it helps me stay within ACA subsidy cliff and in a lower income tax bracket which also eliminates dividends and capital gain tax.

Looks like you are fundamentally opposed to paying off a low cost mortgage at all costs. Hope this helps.
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fiseek77
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Re: Can I Retire?

Post by fiseek77 »

SlowlySaving wrote: Wed Dec 18, 2019 10:34 pm I semi-retired last year at the age of 49, my hobby/second career is a photographer which I enjoy doing. Our numbers are close to yours but house was paid off and wife is still working til 55. She will be able to use the Rule of 55 to access her 403b at 55.

Make sure you have an umbrella policy that covers your net-worth
Make sure all your accounts have the correct beneficiaries assigned to them etc
Read the book How to Retire Happy, Wild, and Free, it is SO inspiring!

Good luck!
Thanks for this recommendation!
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fiseek77
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Re: Can I Retire?

Post by fiseek77 »

thelateinvestor43 wrote: Thu Dec 19, 2019 1:14 am I could EASILY retire on that! Just live simply. No fancy cars, a $200k house, etc. You don't need fancy things and toys to live good.
Thanks!
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fiseek77
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Re: Can I Retire?

Post by fiseek77 »

FoolMeOnce wrote: Thu Dec 19, 2019 9:38 am When you list your expected SS, is that in 2040 dollars while your expenses are in 2019 dollars? That might be something you are not considering. Either way, it looks like you will be fine. An extra year or two of work would give a bigger cushion, of course, if you don't mind working, but don't torture yourself now to afford a more expensive coffin.
Both are in 2019 dollars to the best of my knowledge. Hope the social security dollars are NOT in 2040 dollars :shock:
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