Can I Retire?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
RenoJay
Posts: 746
Joined: Tue Nov 17, 2009 11:20 am
Location: Nevada

Can I Retire?

Post by RenoJay » Mon Apr 09, 2012 7:45 pm

I have created a plan that calls for me to stop working at age 55. Now, at age 40, I'm starting to think work isn't such a wonderful concept and I'd like the ability not to depend on it for income. (I work on commissions which can be feast or famine.) I have been keeping careful track of my investments for years, and my risk-tolerance is pretty good. (I was a net purchaser of equities during the crash in '08/'09 and even though I had bouts of anxiety, I always stayed the course.)

What I'm looking for is a smart Boglehead or two who can review the plan I've put together for myself and help me figure out if my assumptions seem reasonable.

If you are a smart Boglehead and you're willing to review my spreadsheets, please private message me.

Here are the broad strokes:

(All equities are at Vanguard and are primarily index funds.)

Roth IRAs: About $440,000 in equities
Taxable Equity Accounts: About $4,150,000
CD's in Taxable Accounts: $700,000
Cash (money markets, etc.): $420,000 (I'm currently evaluating some riskier, high yielding opportunities for about $300k)
Primary Home Value: $700,000
Primary Home Mortgage: $400,000 (15 years remaining, 3.5% fixed)
Vacation Home Value: $260,000 (could be turned into a rental which would make it roughly a break even on cashflow.)
Vacation Home Mortage: $185,000 (28 years remaining, 4.37% fixed)
Other Assets: About $300k in LendingClub/Prosper and about $150k in an income-producing rental house)
College Savings for each rugrat: About $45k each with well over a decade left until needed

Monthly Expenses including mortgage servicing: About $14k/month

I'll get into detail with the people who PM me about questions I anticipate such as why I keep my fixed income in taxable accounts, why I hold mortgage debt despite having the assets to pay it off, etc.) Thanks in advance.

xerty24
Posts: 4827
Joined: Tue May 15, 2007 3:43 pm

Re: Can I Retire?

Post by xerty24 » Mon Apr 09, 2012 7:56 pm

2.5% withdrawal rate on $6M in assets is $15k/month. That's a pretty safe withdrawal rate, given your mortgage costs are eventually going away, SS shows up eventually, etc. You could probably retire now. Got health care?

PS If you want to explain your rationales for your AA and location choices in a later post, that would probably be useful rather than explaining to people individually.
No excuses, no regrets.

mosu
Posts: 170
Joined: Wed Jan 26, 2011 4:54 pm

Re: Can I Retire?

Post by mosu » Mon Apr 09, 2012 7:57 pm

.....
Last edited by mosu on Thu Mar 12, 2015 9:25 pm, edited 1 time in total.

mosu
Posts: 170
Joined: Wed Jan 26, 2011 4:54 pm

Re: Can I Retire?

Post by mosu » Mon Apr 09, 2012 7:59 pm

.....
Last edited by mosu on Thu Mar 12, 2015 9:24 pm, edited 1 time in total.

livesoft
Posts: 62776
Joined: Thu Mar 01, 2007 8:00 pm

Re: Can I Retire?

Post by livesoft » Mon Apr 09, 2012 7:59 pm

If you want positive reinforcement and a definite yes answer, you need to go visit http://www.early-retirement.org/forums/f21/ but they are gonna ask you: "What does FIRECalc say?"
Wiki This signature message sponsored by sscritic: Learn to fish.

TRC
Posts: 1893
Joined: Sat Dec 20, 2008 5:38 pm

Re: Can I Retire?

Post by TRC » Mon Apr 09, 2012 8:05 pm

Side question, but you've amassed an inspiring amount of assets for someone at age 40. Out of curiosity sake, what do you sell?

RenoJay
Posts: 746
Joined: Tue Nov 17, 2009 11:20 am
Location: Nevada

Re: Can I Retire?

Post by RenoJay » Mon Apr 09, 2012 8:05 pm

Thanks everyone for the speedy back-of-the-envelope responses. No, there are no big regular expenses I left off (a little student debt, but that's factored into the monthly spend and will be gone in 3 years at which time I'm sure my wife will find another way to use the money :oops: ) and yes, we have health coverage. The expenses laid out are the ordinary, ongoing expenses. I do expect surprises here and there like needing new cars eventually or doing a major home repair. Those costs are not factored into the $14k/month.

One of the big questions in my head is that I've heard the 4% rule only applies to people of traditional retirement age and that younger folks should use a lower number (but no one ever says what that lower number should be.)

RenoJay
Posts: 746
Joined: Tue Nov 17, 2009 11:20 am
Location: Nevada

Re: Can I Retire?

Post by RenoJay » Mon Apr 09, 2012 8:08 pm

TRC wrote:Side question, but you've amassed an inspiring amount of assets for someone at age 40. Out of curiosity sake, what do you sell?
I didn't make the money as a commission salesman. I've had something like 12 jobs, including 4 companies I've started myself, since college. I just kept trying different things to make money until I finally stumbled onto a simple website idea from which I amassed the majority of the savings. I like to say that I got rich quick...after 10 years of trying. My "career" has been tumultuous and anxiety-producing which is a large part of the reason I'm considering early retirement. In a way, I envy people who have a job for 30 years and actually enjoy it.

mosu
Posts: 170
Joined: Wed Jan 26, 2011 4:54 pm

Re: Can I Retire?

Post by mosu » Mon Apr 09, 2012 8:10 pm

.....
Last edited by mosu on Thu Mar 12, 2015 9:24 pm, edited 1 time in total.

RenoJay
Posts: 746
Joined: Tue Nov 17, 2009 11:20 am
Location: Nevada

Re: Can I Retire?

Post by RenoJay » Mon Apr 09, 2012 8:13 pm

mosu wrote:
RenoJay wrote: One of the big questions in my head is that I've heard the 4% rule only applies to people of traditional retirement age and that younger folks should use a lower number (but no one ever says what that lower number should be.)
At your age, I would shoot for 2.5% to 3%. If after accounting for taxes (only you will know this), you can cover all of your spending, then you're all set. Congratulations, by the way. This is a heck of an achievement.
Thanks. I feel like I'm close to a sustainable 3% withdrawl rate, although taxes seem to vary with me as does the overall portfolio due to the heavy equity exposure. In five years, I wouldn't even be asking the question most likely, but given that I feel "close" I thought it would be prudent to seek some BH input rather than do something rash.

Nukeboilermaker
Posts: 294
Joined: Mon Apr 11, 2011 9:49 am

Re: Can I Retire?

Post by Nukeboilermaker » Mon Apr 09, 2012 8:16 pm

RenoJay,

As a 25 year old who is saving as much as possible and can only hope to be in a similar financial standing as you are in 15 years... Do you have any books you would recommend for people that have a specific website idea but who do not work in the tech industry? Also do you have any advice on at what point you make the jump from a 6 figure steady job to full time entrepanuer?

Congrats on all the success

Khanmots
Posts: 1233
Joined: Sat Jun 11, 2011 2:27 pm

Re: Can I Retire?

Post by Khanmots » Mon Apr 09, 2012 8:17 pm

RenoJay wrote:Thanks everyone for the speedy back-of-the-envelope responses. No, there are no big regular expenses I left off (a little student debt, but that's factored into the monthly spend and will be gone in 3 years at which time I'm sure my wife will find another way to use the money :oops: ) and yes, we have health coverage. The expenses laid out are the ordinary, ongoing expenses. I do expect surprises here and there like needing new cars eventually or doing a major home repair. Those costs are not factored into the $14k/month.

One of the big questions in my head is that I've heard the 4% rule only applies to people of traditional retirement age and that younger folks should use a lower number (but no one ever says what that lower number should be.)
The safety of a 4% withdrawl rate is only checked for a 30 year withdrawl period. It won't be safe for longer periods as it has you drawing principal down.

The playing with firecalc I did a while back seemed to indicate 2% was safe for indefinate withdrawls.

Dave76
Posts: 564
Joined: Sat Mar 03, 2012 9:05 pm

Re: Can I Retire?

Post by Dave76 » Mon Apr 09, 2012 8:22 pm

RenoJay wrote: ...and I'd like the ability not to depend on it for income.
Wouldn't we all...

Userdc
Posts: 260
Joined: Tue Jun 21, 2011 9:30 am

Re: Can I Retire?

Post by Userdc » Mon Apr 09, 2012 8:24 pm

I'd say you have sufficient assets to be financially independant. Congrats. You could probably afford to take a lot of risk off the table.

Now figure out what you do like to do and go do it.

Saving$
Posts: 1623
Joined: Sat Nov 05, 2011 8:33 pm

Re: Can I Retire?

Post by Saving$ » Mon Apr 09, 2012 8:39 pm

Congrats. You are already financially independent.

I would suggest you consider looking at this a bit different: You are asking if you can afford to retire. You note your expenses are about $14k/month. I have not done the math, but others have noted, you can perhaps afford to retire and sustain your current level of spending. But if you REALLY want to retire and want that freedom more than you want anything else, there is no question you can afford it - however, depending upon the math, perhaps you adjust your spending a bit to make that work.

To put things in perspective, there are some on this board who spend in an entire year what you spend in a month. Many on this board can go an entire year on 2-3 months of your monthly spending rate. Even if you lower your spending by 25%, you still have more than $10k/month to spend.

RenoJay
Posts: 746
Joined: Tue Nov 17, 2009 11:20 am
Location: Nevada

Re: Can I Retire?

Post by RenoJay » Mon Apr 09, 2012 8:42 pm

Khanmots wrote: The safety of a 4% withdrawl rate is only checked for a 30 year withdrawl period. It won't be safe for longer periods as it has you drawing principal down.

The playing with firecalc I did a while back seemed to indicate 2% was safe for indefinate withdrawls.
Interesting. That's kind of the heart of the question right there. 2% strikes me as pretty low (given that the average dividend and fixed income yields are higher than that) but figuring out if it's 2%, 2.5% or 3% is really my aim. I've played around with Firecalc a bit but I have trouble figuring out how to control some of the variables. (For instance, my plan calls for reducing my equity exposure a little bit each year until it's 50/50. With Firecalc, I haven't figured out such nuances, so I made my own spreadsheet and assumptions.)

livesoft
Posts: 62776
Joined: Thu Mar 01, 2007 8:00 pm

Re: Can I Retire?

Post by livesoft » Mon Apr 09, 2012 8:46 pm

RenoJay wrote:I've played around with Firecalc a bit but I have trouble figuring out how to control some of the variables. (For instance, my plan calls for reducing my equity exposure a little bit each year until it's 50/50. With Firecalc, I haven't figured out such nuances, so I made my own spreadsheet and assumptions.)
Here's the deal: If your retirement depends on such nuances, then you ain't there yet. Furthermore, none of these things are gonna give you the precision you want. It just is not possible even if they hint that it is. You are back to the age-old question: "What's a legit sustained withdrawal rate?" which simply cannot be answered other than "It's 2% to 4% or maybe something else."

Check out Otar's "Unveiling the Retirement Myth" to get some more confidence on how much luck plays an overwhelming role.
Wiki This signature message sponsored by sscritic: Learn to fish.

RenoJay
Posts: 746
Joined: Tue Nov 17, 2009 11:20 am
Location: Nevada

Re: Can I Retire?

Post by RenoJay » Mon Apr 09, 2012 8:49 pm

Saving$ wrote:Congrats. You are already financially independent.

I would suggest you consider looking at this a bit different: You are asking if you can afford to retire. You note your expenses are about $14k/month. I have not done the math, but others have noted, you can perhaps afford to retire and sustain your current level of spending. But if you REALLY want to retire and want that freedom more than you want anything else, there is no question you can afford it - however, depending upon the math, perhaps you adjust your spending a bit to make that work.

To put things in perspective, there are some on this board who spend in an entire year what you spend in a month. Many on this board can go an entire year on 2-3 months of your monthly spending rate. Even if you lower your spending by 25%, you still have more than $10k/month to spend.
Thanks. I totally agree and I personally could happily live on $30/day bouncing around youth hostels in exotic locations for the rest of my life. Unfortunately, my wife doesn't agree and 'needs' certain things I don't. Also, a large part of the $14k/month goes toward housing-related costs, and the main house is worth $400k less than we paid, so I don't want to downsize until we're less underwater than we are currently. I would be much happier in a smaller, less expensive house, but I feel house prices are bottoming in our area so I'd like to wait at least a few years before looking seriously at the option of downsizing b/c I'll kick myself later if I sell at the nadir of the market.

leod
Posts: 595
Joined: Tue Sep 22, 2009 2:54 pm

Re: Can I Retire?

Post by leod » Mon Apr 09, 2012 9:41 pm

should we be the ones asking you for advise? my net worth is on the single digit percentage compared to your wealth :oops:

RenoJay
Posts: 746
Joined: Tue Nov 17, 2009 11:20 am
Location: Nevada

Re: Can I Retire?

Post by RenoJay » Mon Apr 09, 2012 10:01 pm

jenny345 wrote:Did you sell the web site you made the money from? If so, since you have already made money from the web can you put some low maintenance web sites up for ongoing income? You have enough funds to buy some existing sites if you do not want to start from scratch. Then you can still have business deductions for things like business travel and health insurance even though you aren't actually working 40 hours a week.

There are probably some post Panda sites going cheap these days that could be profitable again with a little TLC.
Funny you should mention this. My commission-based day job is that I sell websites, and yes, there are lots of post-Panda sites selling for 2x-2.5x annual income. But I don't want to buy one because I feel it's over-exposure. (Just like Realtors who loaded up on investment property in the mid-2000's. They weren't well diversified.) That said, I did not sell my original site; it just kicked out a ton of cash flow then fell off a cliff after four years. I have a few sites now that kick off about $1,000 in total income but I can't count on it and it doesn't come close to covering spending requirements. I do have an S-corp through which I run deductions, but the costs of it (business licenses, accounting fees, etc.) kind of balance out the benis.

User avatar
market timer
Posts: 5954
Joined: Tue Aug 21, 2007 1:42 am

Re: Can I Retire?

Post by market timer » Mon Apr 09, 2012 10:44 pm

Nukeboilermaker wrote:RenoJay,

As a 25 year old who is saving as much as possible and can only hope to be in a similar financial standing as you are in 15 years... Do you have any books you would recommend for people that have a specific website idea but who do not work in the tech industry? Also do you have any advice on at what point you make the jump from a 6 figure steady job to full time entrepanuer?

Congrats on all the success
RenoJay has in fact written a book on the subject: http://www.amazon.com/The-Bathrobe-Mill ... 422&sr=8-1

RenoJay
Posts: 746
Joined: Tue Nov 17, 2009 11:20 am
Location: Nevada

Re: Can I Retire?

Post by RenoJay » Mon Apr 09, 2012 10:50 pm

market timer wrote:
Nukeboilermaker wrote:RenoJay,

As a 25 year old who is saving as much as possible and can only hope to be in a similar financial standing as you are in 15 years... Do you have any books you would recommend for people that have a specific website idea but who do not work in the tech industry? Also do you have any advice on at what point you make the jump from a 6 figure steady job to full time entrepanuer?

Congrats on all the success
RenoJay has in fact written a book on the subject: http://www.amazon.com/The-Bathrobe-Mill ... 422&sr=8-1
Thanks. As mentioned, I did write a book although I figured it would be against forum rules if I promoted it directly. It has pretty good advice for non-techies (like you and me) about how to run with a website idea. As far as making the leap, my belief is that you should start the website on the cheap and on the side. If, and only if, it starts generating sustainable cashflow that's enough to cover your expenses do I think you should quit your job. (I personally didn't follow my own advice, but that's more because I simply don't like working for people period. I would be an entrepreneur even if the pay were zero, which it often is.)

User avatar
CaliJim
Posts: 2984
Joined: Sun Feb 28, 2010 8:47 pm
Location: California, near the beach

Re: Can I Retire?

Post by CaliJim » Mon Apr 09, 2012 11:01 pm

you need 10m at 40 to be totally in the clear. in your position - you have enough -if you are careful. *IF*

keep working.

pay off all debt. ALL.

then see where you are.
-calijim- | | For more info, click this Wiki

RenoJay
Posts: 746
Joined: Tue Nov 17, 2009 11:20 am
Location: Nevada

Re: Can I Retire?

Post by RenoJay » Mon Apr 09, 2012 11:04 pm

CaliJim wrote:you need 10m at 40 to be totally in the clear. in your position - you have enough -if you are careful. *IF*
Man, that's the dream. I had a plan a few years ago that would have me there by now but...well, we all know how this sentence ends. I feel like I'm on the cusp of being "there" but my intuition says to work for at least five more years out of the next six.

User avatar
CaliJim
Posts: 2984
Joined: Sun Feb 28, 2010 8:47 pm
Location: California, near the beach

Re: Can I Retire?

Post by CaliJim » Mon Apr 09, 2012 11:19 pm

you are. you are on the cusp. it is hard. I know. stay focused. you are still young. enjoy. pay attention to your family. you are the role model for your kids. what do you want to teach them?
-calijim- | | For more info, click this Wiki

User avatar
ClevrChico
Posts: 1293
Joined: Tue Apr 03, 2012 8:24 pm

Re: Can I Retire?

Post by ClevrChico » Mon Apr 09, 2012 11:54 pm

CaliJim wrote:you need 10m at 40 to be totally in the clear. in your position - you have enough -if you are careful. *IF*

.
It depends on your spending requirements, I think. If you like the outdoors, and most entertainment is "free", this is a game changer. I plugged in $1m @ 40 into firecalc, with 100% success. That's with no debt living in a rural area, and a middle-class lifestyle.

Nukeboilermaker
Posts: 294
Joined: Mon Apr 11, 2011 9:49 am

Re: Can I Retire?

Post by Nukeboilermaker » Mon Apr 09, 2012 11:59 pm

Thanks for the reply! For future reference you can always send an inquiring mind a PM ;)

I am all ready checking it out on Amazon. I have done well for myself by listening and learning from people who have achieved success at things that interest me.

Cheers,
Adam

RenoJay
Posts: 746
Joined: Tue Nov 17, 2009 11:20 am
Location: Nevada

Re: Can I Retire?

Post by RenoJay » Tue Apr 10, 2012 12:03 am

ClevrChico wrote:
CaliJim wrote:you need 10m at 40 to be totally in the clear. in your position - you have enough -if you are careful. *IF*

.
It depends on your spending requirements, I think. If you like the outdoors, and most entertainment is "free", this is a game changer. I plugged in $1m @ 40 into firecalc, with 100% success. That's with no debt living in a rural area, and a middle-class lifestyle.
That sounds great to me. Unfortunately my housing costs alone are way higher than what I could realistically earn off $1 MM. Once the kids are grown up, I have no problem downsizing the house and associated lifestyle, but I think that would be very disruptive to do at this point.

FinanceFun
Posts: 722
Joined: Mon Nov 28, 2011 9:29 am

Re: Can I Retire?

Post by FinanceFun » Tue Apr 10, 2012 7:13 am

If I were in your shoes I would:

Pay off all debt
Move to a 50/50 portfolio
Work part time doing something I love

You sound burnt out. But retirement of 40-50 years for someone with a driver personality like yours is untenable. You will get unbearably bored.

User avatar
HomerJ
Posts: 11832
Joined: Fri Jun 06, 2008 12:50 pm

Re: Can I Retire?

Post by HomerJ » Tue Apr 10, 2012 9:27 am

RenoJay wrote:
CaliJim wrote:you need 10m at 40 to be totally in the clear. in your position - you have enough -if you are careful. *IF*
Man, that's the dream. I had a plan a few years ago that would have me there by now but...well, we all know how this sentence ends. I feel like I'm on the cusp of being "there" but my intuition says to work for at least five more years out of the next six.
What's more important to you? Freedom from work, or $2k a month in "fun" money?

Personally, I think you have enough to retire and keep your same standard of living... But if you're nervous, can you cut back your spending at all? $14k a month is a lot of money.

Would your standard of living and happiness be higher with the extra money or with waking up each morning, not worrying about making money?

Actually, given your profession, couldn't you go part-time? Keep the $14k spend, but work only 2 days a week?

User avatar
HomerJ
Posts: 11832
Joined: Fri Jun 06, 2008 12:50 pm

Re: Can I Retire?

Post by HomerJ » Tue Apr 10, 2012 9:36 am

RenoJay wrote:
ClevrChico wrote:
CaliJim wrote:you need 10m at 40 to be totally in the clear. in your position - you have enough -if you are careful. *IF*

.
It depends on your spending requirements, I think. If you like the outdoors, and most entertainment is "free", this is a game changer. I plugged in $1m @ 40 into firecalc, with 100% success. That's with no debt living in a rural area, and a middle-class lifestyle.
That sounds great to me. Unfortunately my housing costs alone are way higher than what I could realistically earn off $1 MM. Once the kids are grown up, I have no problem downsizing the house and associated lifestyle, but I think that would be very disruptive to do at this point.
Careful with your kids. They are growing up feeling a $14k/month lifestyle is "normal". You may be able to downsize someday, but they may not. I hope they can make a great as living as you have.

This is a good thread... It IS tough deciding when you have "enough". I could retire today to a rural area with a million bucks, but I'm waiting to get $2 million for the extra buffer, and so we can have a little "extra" fun in retirement.

But when I hit $1.5 million or $1.6 million, it's going to be an interesting debate in my head... Work another 3-5 years or retire today? What are 3-5 years of my life worth?

Valuethinker
Posts: 36331
Joined: Fri May 11, 2007 11:07 am

Re: Can I Retire?

Post by Valuethinker » Tue Apr 10, 2012 9:43 am

[quote="RenoJay"] Also, a large part of the $14k/month goes toward housing-related costs, and the main house is worth $400k less than we paid, so I don't want to downsize until we're less underwater than we are currently. I would be much happier in a smaller, less expensive house, but I feel house prices are bottoming in our area so I'd like to wait at least a few years before looking seriously at the option of downsizing b/c I'll kick myself later if I sell at the nadir of the market.[/quote]

That, right there, is the nub of your conceptual problem.

You can indeed afford to retire now. *If* you can adjust your lifestyle.

If you sold that house now and downsized you would be:

- reducing your exposure to housing
- probably cutting running costs (maintenance, property taxes, utilities)

Yes you would lose $400k on the deal-- or rather crystallize a loss you have already made. Conversely, you can stay leveraged into the housing market and hope things recover. History says after housing busts like this one they *do* recover, but they tend to stagnate for quite a while before they do. Your Mileage May Vary.

The 400k is a Sunk Cost. What matters is only future returns from that money VS future returns from other uses of that money. You can wait a looong time for housing prices to recover (not always, not everywhere, but it's a risk).

In my view for someone about to retire you have too many property assets (vacation home etc.). The good side of that is a degree of inflation protection (to be precise, a fixed rate mortgage is a kind of inflation hedge).

So it boils down to:

- for how many years does delaying taking the pain in the housing market delay me retiring?
- and what could I have done with those years?

400k sounds c. 5% of your total portfolio? You could take the pain, downsize, maybe cut your cost base by $1k pcm, be a lot closer to D Day when you press the button and retire.

FWIW I would want to retire with 10-20% 'headroom' on monthly income v. expenses. At least 10% maybe more. The reason being retiree inflation tends to creep up on you-- the real prices of the services you buy tends to rise faster than CPI: things like (aha!) property taxes, property repairs etc.

Your other big issue is health care, because that can wipe anyone out-- you need to be able to have good insurance now to medicare.

In terms of SWR you should also consider phasing in SPIAs at various moments. This will give you some security of income and a higher SWR. You also want to defer SS (can you keep paying in? Even if not working?) because that is inflation protected income-- it's very valuable in the later stages of retirement.

RenoJay
Posts: 746
Joined: Tue Nov 17, 2009 11:20 am
Location: Nevada

Re: Can I Retire?

Post by RenoJay » Tue Apr 10, 2012 10:29 am

I really appreciate all the insights and advice. Believe me, these are the same debates I have going on in my head all the time. I totally agree with the camp that says cut expenses, and that's certainly the long run plan. I also understand that the $400k down on the house is sunk cost, and I don't necessarily intend to wait to get "back to even" before selling, but I also feel like my local market is bottoming so an extra couple of years of holding may not hurt.

Overall, I think I'm going to do a hybrid of what most people are suggesting...

Keep working for a few years, but treat the job a little more casually. Frankly, there's no pressing reason for me to run to an office by 8:30am five days a week. I could probably earn 80% of my current income even if I only worked during the busiest six months of the year. Then work would feel more like a hobby than a job.

Over time, I will look to decrease expenses. I've already hit all the easy buttons and reduced insurance costs, mortgage rate, etc. I may consider renting out the vacation home which would cut about $1,400/month from the monthly nugget. (A nice clean 10% reduction in spending!) Now the biggest thing is teaching me family to get by with less. Regarding the kids, I really take the comment to heart that someone made about them growing up with $14k/month in expenses. When I grew up, I was lucky if my parents bought me new shoes when I outgrew the old ones, and that kind of frugality helped me be a hungry and successful business person. With my kids, I intend to have them to do some chores for their allowance, pay part of their way through college, get summer jobs when they're teenagers, etc. to try to instill a work ethic and appreciation for money. That said, I understand why some BH's will think that's all pointless when they're growing up in a big, nice house.

I'm still amazed at how lifestyle creep affected me even though I was aware of it the whole time. I was living on about $40k/year ten years ago and my wife, then a grad student, was living on around $20k/year. What changed is that we bought a home in one of "those" kind of neighborhoods, and even though we drive old cars and don't do much to the house, there are still lots of built in expenses like watering a one acre plot or paying utilities on a huge place. Biggest advice to younger folks: Buy LESS house than you can afford. Anything in the 1,700 - 2,000 square foot range is plenty of room to raise a family.

Anyway, thanks again. This whole exercise has been very cathartic and I feel a lot more free merely by having sought your opinions.

Valuethinker
Posts: 36331
Joined: Fri May 11, 2007 11:07 am

Re: Can I Retire?

Post by Valuethinker » Tue Apr 10, 2012 11:01 am

RenoJay wrote: I'm still amazed at how lifestyle creep affected me even though I was aware of it the whole time. I was living on about $40k/year ten years ago and my wife, then a grad student, was living on around $20k/year. What changed is that we bought a home in one of "those" kind of neighborhoods, and even though we drive old cars and don't do much to the house, there are still lots of built in expenses like watering a one acre plot or paying utilities on a huge place. Biggest advice to younger folks: Buy LESS house than you can afford. Anything in the 1,700 - 2,000 square foot range is plenty of room to raise a family.

Anyway, thanks again. This whole exercise has been very cathartic and I feel a lot more free merely by having sought your opinions.
Makes me think even more you need to get out of your house but I don't know about timing. I don't know the market though, prices may indeed rebound-- in fact it may be a good investment. But look at it from the point of view of an investment *from here* ie expected returns on your housing equity minus (certain) costs.

I understand living in the right neighbourhood-- location, location, location. That's usually about schools and commuting proximity rather than the houses per se. But a big 'bling' house on an acre? Not so much.

(my version of bling is a Victorian house so please don't be offended by my use of the term! It's not large, but it costs a fortune to heat (no insulation on the walls, original windows leak air) and the location was good. There is *always* something else to spend money on).

probably your solution is to do a managed glide down to an easier lifestyle, with a view to getting out of that house in a couple of years, say, and moving to a lifestyle where you can work part time and get more out of life. Full retirement may wait another few years (say 5?).

YDNAL
Posts: 13774
Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

Re: Can I Retire?

Post by YDNAL » Tue Apr 10, 2012 11:02 am

RenoJay wrote:Here are the broad strokes:

(All equities are at Vanguard and are primarily index funds.)

Roth IRAs: About $440,000 in equities
Taxable Equity Accounts: About $4,150,000
CD's in Taxable Accounts: $700,000
Cash (money markets, etc.): $420,000 (I'm currently evaluating some riskier, high yielding opportunities for about $300k)
You have some location problems by having $1.12 million in CDs/MM in Taxable and $440K Equities in Roth IRAs.
Primary Home Mortgage: $400,000 (15 years remaining, 3.5% fixed)
Vacation Home Value: $260,000 (could be turned into a rental which would make it roughly a break even on cashflow.)
Vacation Home Mortage: $185,000 (28 years remaining, 4.37% fixed)
Other Assets: About $300k in LendingClub/Prosper and about $150k in an income-producing rental house)
College Savings for each rugrat: About $45k each with well over a decade left until needed

Monthly Expenses including mortgage servicing: About $14k/month
Vacation homes are money pits. Sell it and use the equity to paydown and refinance the primary residence. Use monthly payments to further contribute to primary mortgage. When you have time and want to go on vacation, then rent.

With $14K in expenses, you should have $5.6 - $8.4 million to retire at 40yo. The more you have, the safer and more secure the retirement. IMO, settle the real estate issue and work on expenses.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

jhh9327
Posts: 253
Joined: Sat Mar 31, 2007 9:06 am

Re: Can I Retire?

Post by jhh9327 » Tue Apr 10, 2012 11:53 am

Seems pretty simple to me. You are 40 and have a history of flexible employment. If you aren't happy with where you stand financially 5 years or so from now, then at that point get back in the employment game to supplement your finances/lifestyle.

I always find it quite strange that people would rather 100% guarantee a longer working career than to retire at a point that has a good chance of working out just fine but does have a minority chance that they might need to be flexible in their future spending/plans if they are unlucky with the way the future unfolds. This, of course, assumes the person has the ability to be somewhat flexible going forward. You have the age, expenses, and career background that screams out flexibility. No need to hold yourself at your job until you have enough assets to meet some extremely conservative SWR, IMO.

User avatar
renditt
Posts: 601
Joined: Fri Apr 25, 2008 2:05 pm

Re: Can I Retire?

Post by renditt » Tue Apr 10, 2012 12:06 pm

RenoJay wrote:I have created a plan that calls for me to stop working at age 55. Now, at age 40, I'm starting to think work isn't such a wonderful concept and I'd like the ability not to depend on it for income. (I work on commissions which can be feast or famine.) I have been keeping careful track of my investments for years, and my risk-tolerance is pretty good. (I was a net purchaser of equities during the crash in '08/'09 and even though I had bouts of anxiety, I always stayed the course.)

What I'm looking for is a smart Boglehead or two who can review the plan I've put together for myself and help me figure out if my assumptions seem reasonable.

If you are a smart Boglehead and you're willing to review my spreadsheets, please private message me.

Here are the broad strokes:

(All equities are at Vanguard and are primarily index funds.)

Roth IRAs: About $440,000 in equities
Taxable Equity Accounts: About $4,150,000
CD's in Taxable Accounts: $700,000
Cash (money markets, etc.): $420,000 (I'm currently evaluating some riskier, high yielding opportunities for about $300k)
Primary Home Value: $700,000
Primary Home Mortgage: $400,000 (15 years remaining, 3.5% fixed)
Vacation Home Value: $260,000 (could be turned into a rental which would make it roughly a break even on cashflow.)
Vacation Home Mortage: $185,000 (28 years remaining, 4.37% fixed)
Other Assets: About $300k in LendingClub/Prosper and about $150k in an income-producing rental house)
College Savings for each rugrat: About $45k each with well over a decade left until needed

Monthly Expenses including mortgage servicing: About $14k/month

I'll get into detail with the people who PM me about questions I anticipate such as why I keep my fixed income in taxable accounts, why I hold mortgage debt despite having the assets to pay it off, etc.) Thanks in advance.
Sounds like you have 77% in Equities of your investable assets of $6m, am I reading this correctly? In addition you have 5% in Lending Club (which is basically a High Yield Bond) and you want to move another 5% from your cash in riskier assets???

If that's correct, that's in my view an insane level of risk for somebody with your net worth, especially if you are considering early retirement and you can't take advantage of a potential drop in the markets with new earnings. But maybe I'm just missing something.

Curlyq
Posts: 787
Joined: Tue Jul 08, 2008 5:26 pm

Post by Curlyq » Tue Apr 10, 2012 12:07 pm

.....
Last edited by Curlyq on Tue Apr 10, 2012 10:12 pm, edited 1 time in total.

User avatar
HomerJ
Posts: 11832
Joined: Fri Jun 06, 2008 12:50 pm

Re: Can I Retire?

Post by HomerJ » Tue Apr 10, 2012 12:16 pm

jhh9327 wrote:Seems pretty simple to me. You are 40 and have a history of flexible employment. If you aren't happy with where you stand financially 5 years or so from now, then at that point get back in the employment game to supplement your finances/lifestyle.

I always find it quite strange that people would rather 100% guarantee a longer working career than to retire at a point that has a good chance of working out just fine but does have a minority chance that they might need to be flexible in their future spending/plans if they are unlucky with the way the future unfolds. This, of course, assumes the person has the ability to be somewhat flexible going forward. You have the age, expenses, and career background that screams out flexibility. No need to hold yourself at your job until you have enough assets to meet some extremely conservative SWR, IMO.
Agreed... He could easily get back in the game in 5 years if needed.

Me, I wish the U.S. offered more part-time jobs... My goal now is to work full-time for 10 years then quit forever, but I would easily drop to 60% pay for 3 days a week for the next 20 years if such a job existed.

brad_g
Posts: 80
Joined: Sun May 15, 2011 5:14 pm

Re: Can I Retire?

Post by brad_g » Tue Apr 10, 2012 12:26 pm

Another thread that might be of interest:

Perpetual Withdrawal Rates: http://www.bogleheads.org/forum/viewtopic.php?t=75598

Which quickly summarized suggests:
  • - For fixed distributions the starting perpetual distribution rate is 2.8% of the initial asset value.
    - For inflation-indexed distributions the starting perpetual distribution rate is 2.3% of the initial asset value.
I think you can do it. Do you have a plan for what you'll do in retirement?

User avatar
ascenzm
Posts: 257
Joined: Sat Mar 10, 2007 8:16 am
Location: PA

Re: Can I Retire?

Post by ascenzm » Tue Apr 10, 2012 1:07 pm

RenoJay wrote:
I'm still amazed at how lifestyle creep affected me even though I was aware of it the whole time. I was living on about $40k/year ten years ago and my wife, then a grad student, was living on around $20k/year. What changed is that we bought a home in one of "those" kind of neighborhoods, and even though we drive old cars and don't do much to the house, there are still lots of built in expenses like watering a one acre plot or paying utilities on a huge place. Biggest advice to younger folks: Buy LESS house than you can afford. Anything in the 1,700 - 2,000 square foot range is plenty of room to raise a family.

Anyway, thanks again. This whole exercise has been very cathartic and I feel a lot more free merely by having sought your opinions.
Excellent advise in regards to the house. Housing is an expense to be minimized. Unless you're planning to be a landlord, your house should be considered an expense, not an investment. In my area, the problem with "those" kind of neighborhoods is that the housing prices are bid up by parents looking for "good" schools. The local taxing authorities know they have the parents hostage and really pile on the property taxes.

If I were you and wanted to RE, I'd unload the vacation home.

Mike
Avatar is a Japanese Cherry tree in Washington, DC during the peak cherry blossom time.

User avatar
HomerJ
Posts: 11832
Joined: Fri Jun 06, 2008 12:50 pm

Re: Can I Retire?

Post by HomerJ » Tue Apr 10, 2012 1:10 pm

RenoJay wrote:I'm still amazed at how lifestyle creep affected me even though I was aware of it the whole time. I was living on about $40k/year ten years ago and my wife, then a grad student, was living on around $20k/year. What changed is that we bought a home in one of "those" kind of neighborhoods, and even though we drive old cars and don't do much to the house, there are still lots of built in expenses like watering a one acre plot or paying utilities on a huge place. Biggest advice to younger folks: Buy LESS house than you can afford. Anything in the 1,700 - 2,000 square foot range is plenty of room to raise a family.
Don't beat yourself up too much... You have been a paragon of restraint considering your income and savings.

Many many people would have jumped to a $50k/month lifestyle when the money was rolling in, and be totally screwed right now instead of sitting on $6 million in savings and contemplating retiring at 40.

hsv_climber
Posts: 3969
Joined: Tue Sep 22, 2009 7:56 pm

Re: Can I Retire?

Post by hsv_climber » Tue Apr 10, 2012 1:21 pm

RenoJay wrote:watering a one acre plot

Here is another way to cut costs :wink: . Don't do it.
Most people in our neighborhood water their lawns and we don't.

RenoJay
Posts: 746
Joined: Tue Nov 17, 2009 11:20 am
Location: Nevada

Re: Can I Retire?

Post by RenoJay » Tue Apr 10, 2012 1:26 pm

rrosenkoetter wrote:
RenoJay wrote:I'm still amazed at how lifestyle creep affected me even though I was aware of it the whole time. I was living on about $40k/year ten years ago and my wife, then a grad student, was living on around $20k/year. What changed is that we bought a home in one of "those" kind of neighborhoods, and even though we drive old cars and don't do much to the house, there are still lots of built in expenses like watering a one acre plot or paying utilities on a huge place. Biggest advice to younger folks: Buy LESS house than you can afford. Anything in the 1,700 - 2,000 square foot range is plenty of room to raise a family.
Don't beat yourself up too much... You have been a paragon of restraint considering your income and savings.

Many many people would have jumped to a $50k/month lifestyle when the money was rolling in, and be totally screwed right now instead of sitting on $6 million in savings and contemplating retiring at 40.

Thanks a lot. I appreciate that. The way I justified the increased lifestyle initially was that we moved from CA to NV and ended up saving something like $250k/ per year on state income taxes, so that seemed to justify some lifestyle creep. The challenge is that once the cash flow slows down, it's much harder to rein in the lifestyle.

At least I didn't do something like this: http://features.blogs.fortune.cnn.com/2 ... d=HP_River

stoptothink
Posts: 4455
Joined: Fri Dec 31, 2010 9:53 am

Re: Can I Retire?

Post by stoptothink » Tue Apr 10, 2012 2:38 pm

RenoJay wrote:I'm still amazed at how lifestyle creep affected me even though I was aware of it the whole time. I was living on about $40k/year ten years ago and my wife, then a grad student, was living on around $20k/year. What changed is that we bought a home in one of "those" kind of neighborhoods, and even though we drive old cars and don't do much to the house, there are still lots of built in expenses like watering a one acre plot or paying utilities on a huge place. Biggest advice to younger folks: Buy LESS house than you can afford. Anything in the 1,700 - 2,000 square foot range is plenty of room to raise a family.

Anyway, thanks again. This whole exercise has been very cathartic and I feel a lot more free merely by having sought your opinions.
Quite a refreshing comment, even on here. The fact that you didn't try to rationalize it is very rare for someone that can easily afford it.

actor10
Posts: 61
Joined: Mon Jan 09, 2012 4:44 pm

Re: Can I Retire?

Post by actor10 » Tue Apr 10, 2012 3:38 pm

I wish guys would stop blaming their wives for their expensive lifestyles.

Post Reply