Can I retire?

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45andout?
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Can I retire?

Post by 45andout? » Sat May 11, 2013 7:38 pm

45 years old, married, two small kids. I'm looking to retire in the US in a city with a cost-of-living index in the 105-110% range.

$2,000,000 in brokerage accounts (index funds)
$500,000 in retirement accounts (mostly 401(k), also some Roth)
$215,000 in 529 plans for college for the kids
Home paid for/no mortgage (worth $500k, though I don't think that's too relevant)
No debts

I anticipate drawing about $80k/year to live on, though we could surely manage on less (and will if necessary).

I plan to deal with medical expenses by getting very high-deductible insurance to cover catastrophic illnesses (none anticipated; we're healthy); otherwise will basically just be paying for those.

We drive 5-10-year-old cars (van to transport the kids, who are in the 5-year-old ballpark, and a car); will continue to buy reliable used cars when needed, i.e. when those become too much of a pain and expense to maintain.

Are there flaws with this plan? (I know that I haven't described my asset allocation; I need to pay attention to that, with the help of a fee-based advisor, though it is broadly in accord with what various online tools suggest.)

lawman3966
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Re: Can I retire?

Post by lawman3966 » Sat May 11, 2013 10:07 pm

Honesty, I think it's a close call, too close for me to really be able to answer yes or no with a lot of confidence.

For sake of simplicity, and to be conservative, in my own retirement calculations, I've assumed that my assets will simply match but not surpass inflation during retirement. There are many who'd argue that that's too pessimistic and a few who'd say it's too optimistic. (Note that the real return on 10-year bonds is about -1%. Thus, if you were invested in TIPS, there is essentially a guarantee of your investments shrinking by 1% a year).

I will use the above admittedly extremely rough math, and an expected life expectancy of 90 (many live longer these days) to assess your withdrawal rate.

A 45 year period would allow you to withdraw 2.22% a year (so long as you start living dangerously at age 86 or so). Assuming that your useable assets equal 3 million (counting all but the 529 plans), your proposed 80K spending rate corresponds to a 2.66% withdrawal rate. Thus, your spending rate exceeds my conservative estimate of your safe withdrawal rate. My very roughly calculated safe rate would allow a 3M * 2.22% (100%/45 years= 2.22%) = $66.6K per year. If you can live within this boundary, it might be enough. You didn't mention your spouse's financials, so I have considered only your assets.

In brief, it's possible, but not definite that your assets would last you until you turn 90. Since I tend to play safe, I would probably not do it. A few more years of saving would tip the scales significantly in your favor, by both increasing your assets and reducing the number of years over which you will draw from those assets.

So much depends on future variables such as stock market returns, bond returns, the general inflation rate, and health care costs, that any estimate will have a large degree of uncertainty. This is another reason why I find it risky to retire at your age on the assets you have listed.

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Grandpaboys
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Re: Can I retire?

Post by Grandpaboys » Sun May 12, 2013 5:42 am

$80,000 a year income with your assets would be OK for you and your wife, but not enough with two 5 year old kids. Medical expense can do you in and it is going to get a lot worse. Congrats for being in such good shape at a young age but I feel there is something we do not know about your situation whether it be job or some other reason you wish to retire so early. Without knowing more, I would advise against retiring at 45.
Good Day | GP

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bottlecap
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Re: Can I retire?

Post by bottlecap » Sun May 12, 2013 6:43 am

You can swing it, if that's all you need. The only thing I'd worry about is the effect it might have on your young children. You might have a harder time instilling a work ethic if they can't learn by example. Can you switch gears to a less demanding career for a time?

Just something I worry about when I daydream about early retirement....

JT

dickenjb
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Re: Can I retire?

Post by dickenjb » Sun May 12, 2013 6:46 am

What will you do when you retire? Do you have sufficient hobbies / interests that you will be busy and fulfilled?

retired recently
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Re: Can I retire?

Post by retired recently » Sun May 12, 2013 7:06 am

I am 45 and retired; have been for 4 years. I have two kids, 15 and 10, and we live in a pretty low cost of living city.

Since retirement, I have comprised a monthly balance sheet and as long as our assets equal or exceed our starting balance plus inflation plus 1% we live and spend as we want. As of now we are about 15% above where we need to be but if the market were to correct we could easily be below and would need to reduce our spending. We draw about 2.75%. Our biggest expenses are recreation and vacation so that should not be too hard to adjust. We spend more than I thought we would as we have a lot more time. We are pretty frugal overall. We have a high deductible health plan which has worked out well to date (fingers crossed).

I would be hesitant to retire just yet if I were you. You probably can do it but it seems a little too close. I believe I would work a few more years if I were you. Perhaps you could do part time work?

I am much closer to my kids/wife, much happier and much healthier than I was when I was working so I highly recommend doing it when you can.

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kramer
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Re: Can I retire?

Post by kramer » Sun May 12, 2013 7:15 am

Some good suggestions here and I would take your analysis to the next level. This means examining your current spending in more detail and coming up with a more detailed estimate for retirement spending, including health insurance. And to carefully evaluate the effect of taxes, both federal and state. Think about what would happen if you got a divorce? It is not a statistically small possibility over the course of a long retirement.

Personally, I would not retire at a 3.2% withdrawal rate for a retirement that, for you and your wife, is statistically likely to last 45 years, give or take a few years (you did not give us the age of your wife). Today's market conditions of below zero real interest rates, *ex ante*, are basically a new phenomenon suggesting lower returns going forward and a lower ex ante SWR. Also, I assume you will have a stream of income from social security starting at age 70 (perhaps de-rated a bit due to future uncertainty in that area).

I do think you are doing well in the college savings area. My own belief is that a parent of means should pay roughly between 30% and 70% of a child's college education costs, depending on lots of different personal factors. But this is another of those details you should sort out before pulling the trigger.

Additional things to think about are that high deductible health insurance plans like you describe are probably a thing of the past with the ACA due to new rules. And you might be paying full freight at your income level (no subsidies), you should look that up.

I retired 6 years ago at age 41 but I was (and am) single. This is totally different than retiring when you have the responsibility of a family and young kids. Even as a single guy at age 47, I would not be comfortable with a withdrawal rate at 3% or above given the rich valuations of stocks and bonds today.

lwfitzge
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Re: Can I retire?

Post by lwfitzge » Sun May 12, 2013 7:21 am

at 25X income needs, you certainly are within range but for someone a tad older than you (e.g., 30 yrs expected retirement). More is better but it's possible. You have the mortgage paid and 529's well sourced. Do you have pensions to draw on and what are your expected SS benefits? Factor that in the equation at full retirement: income needs - SS -pension X 25 as that will provide additional cushion. The medical piece is always a wildcard but you have good health to get high deductible plan which will roll into the ACA. The ACA provides subsidy that's income progressive and caps at 400% poverty level for family of 4, eg., $94K. So far they are not needs testing on assets (just income) so you would be expected to get a smaller subsidy at $80K. If you go with mid service level (silver level) you can perhaps expect monthly payments in the $1250-$1500/month range (just guestimates at this time until rollout in Oct) and even less for bronze service level. I'd be flexible in your lengthy retirement - monitor along the way and see how disciplined your spending was, is your expected returns on the portfolio showing up? Adjust spending or seek part-time work if necessary. Last, you have $500k of home equity to tap if needed, and you either down size or rent (not an awful last resort). As other mentioned, psychologically, it's a long retirement,so figure out what you will do with you time that provides enough meaning, self identify and happiness outside or your role as parent/spouse. My situation has financial similarities to you but I still work part-time and will follow that glide path to 58 or so. I also have a working spouse so we have some human capital and health care "cushions". Good luck.

Sidney
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Re: Can I retire?

Post by Sidney » Sun May 12, 2013 8:13 am

45andout? wrote:I plan to deal with medical expenses by getting very high-deductible insurance to cover catastrophic illnesses (
This may be a good funding model but you need to budget out of pocket costs based on a realistic assessment of medical expenses. Things happen (accidents, illnesses) and they cost money. Dental expenses can be very expensive and most dental insurance isn't really insurance.
I always wanted to be a procrastinator.

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Cut-Throat
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Re: Can I retire?

Post by Cut-Throat » Sun May 12, 2013 8:20 am

45andout? wrote:45 years old, married, two small kids. I'm looking to retire in the US in a city with a cost-of-living index in the 105-110% range.

$2,000,000 in brokerage accounts (index funds)
$500,000 in retirement accounts (mostly 401(k), also some Roth)
$215,000 in 529 plans for college for the kids
Home paid for/no mortgage (worth $500k, though I don't think that's too relevant)
No debts

I anticipate drawing about $80k/year to live on, though we could surely manage on less (and will if necessary).

I plan to deal with medical expenses by getting very high-deductible insurance to cover catastrophic illnesses (none anticipated; we're healthy); otherwise will basically just be paying for those.

We drive 5-10-year-old cars (van to transport the kids, who are in the 5-year-old ballpark, and a car); will continue to buy reliable used cars when needed, i.e. when those become too much of a pain and expense to maintain.

Are there flaws with this plan? (I know that I haven't described my asset allocation; I need to pay attention to that, with the help of a fee-based advisor, though it is broadly in accord with what various online tools suggest.)
You can retire. Most folks in the U.S. do it with far, far Less.

Snowjob
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Re: Can I retire?

Post by Snowjob » Sun May 12, 2013 8:26 am

Yes you can retire.

2M in index funds, the dividend on that will cover your 80k per year w/o even touching the 500k in your tax advanged accouts or your home (as a source of funds if needed) that's a huge margin of safety. In addition if things went really wrong you could always get a job or cut back on expenses for a while. (your wife can help out also in this regard!) That's more than enough level of safety for me to pull the cord in your situation. you only need to look at three other things.

1.) do you want to help your kids with college (200+ in the 529 already, you got that take care of)
2.) have you spent enough time looking at your future expenses etc (cant hurt to double check)?
3.) and most importantly do you have enough insurance?

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jeffyscott
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Re: Can I retire?

Post by jeffyscott » Sun May 12, 2013 9:55 am

Grandpaboys wrote:$80,000 a year income with your assets would be OK for you and your wife, but not enough with two 5 year old kids.
The median income for 4 person households is about $75,000, this makes me think $80K with no mortgage is likely more than "enough".

https://www.federalregister.gov/article ... r-ffy-2013
press on, regardless - John C. Bogle

stan1
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Re: Can I retire?

Post by stan1 » Sun May 12, 2013 10:11 am

Personally I would want another $500K-$1M since you or your wife might live for another 45-55 years, but I'm rather conservative.

Any chance of working part time as a consultant or by taking a few short term assignments per year?

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momar
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Re: Can I retire?

Post by momar » Sun May 12, 2013 10:15 am

jeffyscott wrote:
Grandpaboys wrote:$80,000 a year income with your assets would be OK for you and your wife, but not enough with two 5 year old kids.
The median income for 4 person households is about $75,000, this makes me think $80K with no mortgage is likely more than "enough".

https://www.federalregister.gov/article ... r-ffy-2013
How about we take the OP at his word and believe that he knows how much income he needs, since he is the one spending it? 80k is certainly reasonable for a family, even if they didn't have paid off house.
"Index funds have a place in your portfolio, but you'll never beat the index with them." - Words of wisdom from a Fidelity rep

freebeer
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Re: Can I retire?

Post by freebeer » Sun May 12, 2013 10:20 am

You didn't mention qualification for Social Security benefits. Even with future zero years added in you may have a healthy estimated benefit. This would make a huge difference in viability of early retirement.

As a personal note we were not in too different a financial situation 7 years ago but I decided to keep working, and 2+ years ago to down-shift my job from senior manager at a Big Co to running a non-profit association. Our financial situation now is enhanced such that (not quite as) early retirement would be way way more safe (and with more ability to spend). Although I'm enjoying the work and DW has even gone back to work part time, it's nice to have the option. But I'm glad we didn't pull the trigger then (and I see a lot of early retirees who seem to be drifting).

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nedsaid
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Re: Can I retire?

Post by nedsaid » Sun May 12, 2013 10:49 am

My guess is that yes you can retire, but it depends on your lifestyle choices.

You would be perceived as "rich" being able to retire at 45 and you might have social pressure to live a bit higher on the hog. Also in being "rich", you would have to restrain your own desires in order to make the money last.

It would be tempting. If it were me with small kids and all that responsibility, I would keep working for a while. We tend to underestimate the value of an income stream from a job and the benefits from the employer. Once that gets shut off, it isn't so easy to turn it on again.

What you could look into is temp work, contract work, or a home based business. You could pick your spots and work with the people you want to work with. I think you need to have something coming in other than investment income.
A fool and his money are good for business.

lawman3966
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Re: Can I retire?

Post by lawman3966 » Sun May 12, 2013 11:58 am

momar wrote:How about we take the OP at his word and believe that he knows how much income he needs, since he is the one spending it? 80k is certainly reasonable for a family, even if they didn't have paid off house.
The issue isn't whether $80K is enough to live on or not. I think that everyone here accepts the OP's word on this point. If the OP had a defined-benefit, inflation-indexed pension of $80K a year, there'd be no issue, and the thread likely wouldn't have been started.

The issue is whether the stated assets can support an inflation-adjusted $80K per year withdrawal rate for what might be a 50 year period. Under some SWR models, the mean expected duration of a an $80K/year withdrawal rate might equal or slightly surpass 50 years. However, that means the likelihood of failure could be equal to or slightly below 50%!

Some seem to conclude, because of the uncertainty, that the OP should go ahead and retire. Others conclude, because of the uncertainty, that the OP should wait and diminish that "failure probability" to 1% or 0. I suppose this dichotomy in risk tolerance will always exist. I'm one of those "others" as I doubt I'd enjoy retirement if I were worrying about the durability of my nest egg.

One thing that could change the analysis here is the OP's ability to adjust to circumstances either by earning more income, or lowering his expenses when circumstances require. That is more important than asset allocation in determining the viability of this retirement plan.

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momar
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Re: Can I retire?

Post by momar » Sun May 12, 2013 12:09 pm

lawman3966 wrote:
momar wrote:How about we take the OP at his word and believe that he knows how much income he needs, since he is the one spending it? 80k is certainly reasonable for a family, even if they didn't have paid off house.
The issue isn't whether $80K is enough to live on or not. I think that everyone here accepts the OP's word on this point. If the OP had a defined-benefit, inflation-indexed pension of $80K a year, there'd be no issue, and the thread likely wouldn't have been started.
Read what I quoted next time.
"Index funds have a place in your portfolio, but you'll never beat the index with them." - Words of wisdom from a Fidelity rep

Levett
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Re: Can I retire?

Post by Levett » Sun May 12, 2013 12:16 pm

"Are there flaws with this plan"

Seriously, there are flaws--unknown unknowns--in every plan. When we think about it we always live in the midst of uncertainty.

If you need to pull the trigger, do it. If you can wait (especially with young children), it might be best to wait.

Whatever you do, all the best.

Lev

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jeffyscott
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Re: Can I retire?

Post by jeffyscott » Sun May 12, 2013 12:40 pm

lawman3966 wrote:The issue isn't whether $80K is enough to live on or not. I think that everyone here accepts the OP's word on this point.
No, they don't, the poster I had responded to stated that $80K is not enough for a family with two kids. This struck me as a very questionable opinion and so I posted evidence as to why it is questionable.

My post and the response to it had absolutely nothing to do with whether or not the assets are sufficient to support that withdrawal rate.
press on, regardless - John C. Bogle

45andout?
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Re: Can I retire?

Post by 45andout? » Sun May 12, 2013 1:37 pm

Thank you all for your comments so far. You've identified a few things that I need to investigate in more detail. The absence of a consensus or majority opinion from this educated forum of people saying "you are insane" gives me a good deal of comfort. I can adjust expenses downward, make some money by working on the side, etc. as needed to deal with unexpected problems as they arise.

I think that some investment/retirement thinking (such as the very notion of a bulletproof "safe" withdrawal rate) is driven by fear. Saving money and planning how to make it work is just wise and prudent, of course, but one can have too much prudence if the result is that you spend far too much of your time and energy doing something other than exactly what you want to do.

Also, I've never seen this sort of analysis, but it must exist. We talk about various sorts of risk when planning investments and retirements, like inflation risk, etc. What about "death risk"? "Disability risk"? (These being the risk of dying before you get to enjoy the retirement you're planning or becoming permanently disabled and less able to enjoy it before you do.) And so on. My point is that the risks don't all point towards working longer and saving more; many point towards stopping sooner.

Scooter57
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Re: Can I retire?

Post by Scooter57 » Sun May 12, 2013 1:46 pm

Why isn't anyone questioning the assumption that $2M will generate $80K in dividends.

Right now TSM is paying around 2% and the SEC yield of any bond fund that isn't investing in highly risky crap is 2.52% or or less--and--this is important--dropping every month as older, higher-paying bonds mature or get called.

So living on dividends will give you $40-50K. If you start taking out $30K a year to live on it would take only a few unexpected big ticket items to erode capital to a point where there is no way you'd ever sustain that $80K figure.

Plus, $80K in ten years won't be buying what it buys today, so much of the dividends your money earns needs to be reinvested to protect against inflation, even modest inflation. 25 years of "very modest" inflation at 2% would reduce the earning value of your money by 50% or more.

So it seems to me that the only way to retire on $2M is if you are willing to cut back on your living expenses or, as some others have said, still pursue some money making activities.

Sidney
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Re: Can I retire?

Post by Sidney » Sun May 12, 2013 1:51 pm

Scooter57 wrote:Why isn't anyone questioning the assumption that $2M will generate $80K in dividends.
OP shows $2.5M (including retirement accounts) and doesn't mention expecting to only take dividends. $80K is 3.2% - not riskless but might be doable if flexible and "lucky".
I always wanted to be a procrastinator.

dreamjob9
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Re: Can I retire?

Post by dreamjob9 » Sun May 12, 2013 1:52 pm

45andout? wrote:Thank you all for your comments so far. You've identified a few things that I need to investigate in more detail. The absence of a consensus or majority opinion from this educated forum of people saying "you are insane" gives me a good deal of comfort. I can adjust expenses downward, make some money by working on the side, etc. as needed to deal with unexpected problems as they arise.

I think that some investment/retirement thinking (such as the very notion of a bulletproof "safe" withdrawal rate) is driven by fear. Saving money and planning how to make it work is just wise and prudent, of course, but one can have too much prudence if the result is that you spend far too much of your time and energy doing something other than exactly what you want to do.

Also, I've never seen this sort of analysis, but it must exist. We talk about various sorts of risk when planning investments and retirements, like inflation risk, etc. What about "death risk"? "Disability risk"? (These being the risk of dying before you get to enjoy the retirement you're planning or becoming permanently disabled and less able to enjoy it before you do.) And so on. My point is that the risks don't all point towards working longer and saving more; many point towards stopping sooner.
Very well said.

Scooter57
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Re: Can I retire?

Post by Scooter57 » Sun May 12, 2013 2:56 pm

Sidney,

The IRA's earnings can't be spent at his age, so he'd end up having to burn some principal to get to that $80k. That turns into a problem as it is very likely to happen long before he can withdraw the IRA money.

If he is generating most of that 3+% from stock, not fixed income just 5 years of a down market could be very damaging. If he's comfortable living more frugally should the investment climate darken, then the plan is workable. But it could be very difficult to maintain that $80k lifestyle for decades on what he has saved if he's walking away from the ability to earn that much. Just 3 years away from many high-paying jobs is enough to make a person unemployable.

retirementandpf
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Re: Can I retire?

Post by retirementandpf » Sun May 12, 2013 3:15 pm

45andout? wrote:Thank you all for your comments so far. You've identified a few things that I need to investigate in more detail. The absence of a consensus or majority opinion from this educated forum of people saying "you are insane" gives me a good deal of comfort. I can adjust expenses downward, make some money by working on the side, etc. as needed to deal with unexpected problems as they arise.

I think that some investment/retirement thinking (such as the very notion of a bulletproof "safe" withdrawal rate) is driven by fear. Saving money and planning how to make it work is just wise and prudent, of course, but one can have too much prudence if the result is that you spend far too much of your time and energy doing something other than exactly what you want to do.

Also, I've never seen this sort of analysis, but it must exist. We talk about various sorts of risk when planning investments and retirements, like inflation risk, etc. What about "death risk"? "Disability risk"? (These being the risk of dying before you get to enjoy the retirement you're planning or becoming permanently disabled and less able to enjoy it before you do.) And so on. My point is that the risks don't all point towards working longer and saving more; many point towards stopping sooner.
+1! - Well said and I agree with it 100%

I have been reading different blogs and forums about personal finance. It is my hobby and I do learn new things and I see others perspective on personal finance.

Some of the sites/forums advocate for stash as much cash as you can, live very frugal to a point that you deny yourself and your family for basic joys, have a very large retirement portfolio yet still constantly worry about it, account for zero return on your portfolio, and completely disregard receiving any money from social security…. Enough already!

Is everything doom & gloom? What is it with people who are trying control every aspects of their life? You CANNOT control everything, period! You cannot predict the future! Stop trying so give yourself a break already!

As far as I am concerned, a happy and healthy life is possible if you follow a few basic personal finance principals; such as

-Live below your means and save as much as you can

-Marry wisely

-Be happy with what you have, NOT what you could have thus do not compete with Joneses

Whenever you feel that your seven+ figure portfolio is not good enough, think about those you live a fraction of your portfolio!

Life is not just accumulating money, worrying about it all the time and then dying with stash of money.

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Cut-Throat
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Re: Can I retire?

Post by Cut-Throat » Sun May 12, 2013 3:23 pm

retirementandpf wrote: +1! - Well said and I agree with it 100%

I have been reading different blogs and forums about personal finance. It is my hobby and I do learn new things and I see others perspective on personal finance.

Some of the sites/forums advocate for stash as much cash as you can, live very frugal to a point that you deny yourself and your family for basic joys, have a very large retirement portfolio yet still constantly worry about it, account for zero return on your portfolio, and completely disregard receiving any money from social security…. Enough already!

Is everything doom & gloom? What is it with people who are trying control every aspects of their life? You CANNOT control everything, period! You cannot predict the future! Stop trying so give yourself a break already!

As far as I am concerned, a happy and healthy life is possible if you follow a few basic personal finance principals; such as

-Live below your means and save as much as you can

-Marry wisely

-Be happy with what you have, NOT what you could have thus do not compete with Joneses

Whenever you feel that your seven+ figure portfolio is not good enough, think about those you live a fraction of your portfolio!

Life is not just accumulating money, worrying about it all the time and then dying with stash of money.
+1......Probably the best post I have ever read on this forum!

lwfitzge
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Re: Can I retire?

Post by lwfitzge » Sun May 12, 2013 3:26 pm

Cut-Throat wrote:
retirementandpf wrote: +1! - Well said and I agree with it 100%

I have been reading different blogs and forums about personal finance. It is my hobby and I do learn new things and I see others perspective on personal finance.

Some of the sites/forums advocate for stash as much cash as you can, live very frugal to a point that you deny yourself and your family for basic joys, have a very large retirement portfolio yet still constantly worry about it, account for zero return on your portfolio, and completely disregard receiving any money from social security…. Enough already!

Is everything doom & gloom? What is it with people who are trying control every aspects of their life? You CANNOT control everything, period! You cannot predict the future! Stop trying so give yourself a break already!

As far as I am concerned, a happy and healthy life is possible if you follow a few basic personal finance principals; such as

-Live below your means and save as much as you can

-Marry wisely

-Be happy with what you have, NOT what you could have thus do not compete with Joneses

Whenever you feel that your seven+ figure portfolio is not good enough, think about those you live a fraction of your portfolio!

Life is not just accumulating money, worrying about it all the time and then dying with stash of money.
+1......Probably the best post I have ever read on this forum!

+2... indeed..good perspective

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jeffyscott
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Re: Can I retire?

Post by jeffyscott » Sun May 12, 2013 3:31 pm

Scooter57 wrote:The IRA's earnings can't be spent at his age, so he'd end up having to burn some principal to get to that $80k. That turns into a problem as it is very likely to happen long before he can withdraw the IRA money.
I don't believe that is correct, I think you can start taking IRA early if you take a "substantially equal" amounts each year. I think that is moot anyway, as he has $2 million in "brokerage account", presumably this is a taxable account.
press on, regardless - John C. Bogle

Sidney
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Re: Can I retire?

Post by Sidney » Sun May 12, 2013 3:35 pm

Scooter57 wrote:Sidney,

The IRA's earnings can't be spent at his age, so he'd end up having to burn some principal to get to that $80k. That turns into a problem as it is very likely to happen long before he can withdraw the IRA money.

If he is generating most of that 3+% from stock, not fixed income just 5 years of a down market could be very damaging. If he's comfortable living more frugally should the investment climate darken, then the plan is workable. But it could be very difficult to maintain that $80k lifestyle for decades on what he has saved if he's walking away from the ability to earn that much. Just 3 years away from many high-paying jobs is enough to make a person unemployable.
If he burns through the $2M before he gets to 59.5, he won't make it anyway. What he should be doing, once he stops earning is converting the IRA to a ROTH in increments that do not trigger taxes.

With such a high percentage of his assets in a taxable account, he owns most of the assets. For many people with large percentage in tax-deferred accounts, they don't own nearly as much as it seems.
I always wanted to be a procrastinator.

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nedsaid
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Re: Can I retire?

Post by nedsaid » Sun May 12, 2013 4:51 pm

What you have is excellent. I call it go to heck money. If you run into a boss or co-workers or other work situations you don't want to deal with, you can just walk away. From here on out, you can work the jobs you want to work and work with the people you want to work with. Perhaps this is an opportunity to follow a long held passion, work if enjoyable enough hardly seems like work at all.

So this gives you some life options. Start a business, go back to school, maybe work for a non-profit company pursing a cause you are really passionate about. Exposing your children to unusual and unique life experiences. The list is endless.

You have given yourself and your family an excellent gift. The gift of options and flexibility.
A fool and his money are good for business.

Mitchell777
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Re: Can I retire?

Post by Mitchell777 » Sun May 12, 2013 5:23 pm

45andout? wrote:Thank you all for your comments so far. You've identified a few things that I need to investigate in more detail. The absence of a consensus or majority opinion from this educated forum of people saying "you are insane" gives me a good deal of comfort. I can adjust expenses downward, make some money by working on the side, etc. as needed to deal with unexpected problems as they arise.

I think that some investment/retirement thinking (such as the very notion of a bulletproof "safe" withdrawal rate) is driven by fear. Saving money and planning how to make it work is just wise and prudent, of course, but one can have too much prudence if the result is that you spend far too much of your time and energy doing something other than exactly what you want to do.

Also, I've never seen this sort of analysis, but it must exist. We talk about various sorts of risk when planning investments and retirements, like inflation risk, etc. What about "death risk"? "Disability risk"? (These being the risk of dying before you get to enjoy the retirement you're planning or becoming permanently disabled and less able to enjoy it before you do.) And so on. My point is that the risks don't all point towards working longer and saving more; many point towards stopping sooner.
That is the big question in my mind as I consider retirement. I'm older but I do worry about not living long enough to enjoy a long retirement. Do you have a plan to cover nursing home care should you or your spouse need it for an extended period of time?

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flipflopliving
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Re: Can I retire?

Post by flipflopliving » Sun May 12, 2013 5:47 pm

Hello 45,
Not sure how you are planning on carrying through, so forgive some of my assumptions.

a)If you need 80k and are only drawing from taxable that will mean collecting interest and dividends and then taking some of out of principal yearly to close the gap. You can let the deferred money compound and likely double by 59.5 and that will give you a nice increase in income in 15 years. The only concern with taking 80k out of the 2 million is that you need 4% and that could be just fine as long as there are no serious back to back negative returns early or if inflation holds to 3 percent or so. I hear you about not everyone lives until age 86 and wanting to live now. One idea I picked up from another blog was to track your net worth and watch to make sure that is higher 4 years from now plus inflation. In other words if you are at 2 million nq right now and next year it is 1.9 million, stay the course, if the next year it is 2.2 again stay, if it is higher in year 4 than 2.25 million you will be okay and if it is lower than you need to scale back or work a bit for income. I thought this was a novel way of looking at it and not having to worry about the one year ups and downs and instead just use a rolling 4 year number.
b)Another way is to figure how much your dividends and yearly interest is on the 2 million and then take the yearly gap to get to 80k and place that money in cash to get you through 59.5 So if your dividends are 60k build up cash to 300k and take 20k a year out of cash, that way you are not ever selling principal. The downside to this approach is that it may take some time to build up this cash.
c)You could also downsize the house for a little extra money too.

By the by, hats of how well you have done and how well you know what you want to do. I suspect you will be fine no matter what.
Take the course opposite to custom, you will almost always do well. Rousseau

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archbish99
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Re: Can I retire?

Post by archbish99 » Sun May 12, 2013 6:09 pm

As noted, the $80k/year is 3.2%, higher than I'd be comfortable with over that long a time frame. The "perpetual" withdrawal rate that I've read is around 2%, though you probably don't need to go quite that low as 45 isn't perpetual. You'd be admirably set to retire, but I'd hesitate about going to little or no income this early in life. 2% would be around $50k; waiting would both increase your stockpile and decrease the amount of time you need it.

I don't think there's such an issue with making sure you have solid health coverage and the money to cover the deductible -- especially if you can put money in an HSA each year to cover any needs that arise.
I'm not a financial advisor, I just play one on the Internet.

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Re: Can I retire?

Post by rnitz » Sun May 12, 2013 8:09 pm

Dear 45andout,

First, congratulations on a great savings history. I was in a similar situation at 45 (I'm now 55) - on the cusp of being able to retire, but conservative and unsure about having thought out all possible futures. For me, the problems with retirement seemed twofold: a) unforeseen financial circumstances (health costs, bad stock markets, etc.), and b) wondering if I'd be lost for spending my time and feeling fulfilled.

Might I suggest an option: find a way to work part time. Because you CAN retire, it gives you a lot of power at your company to say you want to work half time (or less). The company can either say no, or get the benefit of your experience at a fraction of the cost. If they say no, you may be able to consult or work other part time options. I started downscaling at 45, first Fridays off, then taking an afternoon off, and now I'm down to a few mornings a week. It's kept me busy (along with hanging around with the kids, golf, and tennis) but it's also delayed the time from which we've needed to draw down on our retirement savings. As a result, now that I'm nearing REAL retirement, our savings are far higher, allowing a much higher standard of living, and I feel like I've been "sort of " retired for 10 years. I don't know your situation and whether it would work for you, but you now have the option (and the power) to try this if you wish. Good luck.

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Watty
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Re: Can I retire?

Post by Watty » Sun May 12, 2013 9:55 pm

I think you are underestimating the chances that you or your wife will get at least a part time "fun job" just to give you something interesting to do. This is especially true while your kids are in school and traveling would be difficult to do during the school year. Having some income each year will not only help your numbers but it will allow you to make future Roth or IRA contributions and will help you get a larger social security retirement benefit too. Even bringing in $1,000 a month between you and your wife from part time jobs would make a big difference.
Are there flaws with this plan?
Nobody plans for it but even if your numbers are workable now that could all change if you end up getting divorced and your assets are split and you end up buying separate houses. There are lots of other unexpected things that can happen so it would be good to have a large margin of safety when you are doing your planning.

J295
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Re: Can I retire?

Post by J295 » Sun May 12, 2013 10:40 pm

As you well know, nothing in the future is guaranteed. Your prospects look excellent for financial viability, and I suspect that if you do retire now that as time goes by you will be nimble and be able to spend less or create income opportunities as necessary. Best of luck on forging your own path for you and your family.

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Re: Can I retire?

Post by LFKB » Mon May 13, 2013 12:05 am

Fire Calc says at $2.5 million portfolio and $80,000 per year spend for 50 years you will have a 100% success rate. I guess a lot of people in this thread are either overly pessimistic or don't trust Fire Calc.

letsgobobby
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Re: Can I retire?

Post by letsgobobby » Mon May 13, 2013 12:53 am

Health care is too big an uncertainty, so I'd say you have enough to stop saving but try to find some occasional part time income of $10-$30k per year. It grows your SS benefit a little and delays your initial drawdown.
Last edited by letsgobobby on Mon May 13, 2013 8:26 am, edited 1 time in total.

lawman3966
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Re: Can I retire?

Post by lawman3966 » Mon May 13, 2013 1:05 am

LFKB wrote:Fire Calc says at $2.5 million portfolio and $80,000 per year spend for 50 years you will have a 100% success rate. I guess a lot of people in this thread are either overly pessimistic or don't trust Fire Calc.
Either that, or "those people" subscribe to the bizarre view that past results don't guarantee future returns.

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Re: Can I retire?

Post by LFKB » Mon May 13, 2013 1:28 am

lawman3966 wrote:
LFKB wrote:Fire Calc says at $2.5 million portfolio and $80,000 per year spend for 50 years you will have a 100% success rate. I guess a lot of people in this thread are either overly pessimistic or don't trust Fire Calc.
Either that, or "those people" subscribe to the bizarre view that past results don't guarantee future returns.
Fire Calc analyzes every 50 year cycle from 1871 on. While I realize that past results don't guarantee future returns, it seems to be a safe assumption that the OP could retire. It's unbelievable how negative, pessimistic and conservative many people are on this board. Something completely out of the ordinary relative to every single 50 year period over the last 140 years to have a problem, yet 75% of the people in this thread say the OP is retiring too early. While there has been some good advice in this thread, some people come off as either jealous or overly pessimistic.

Good luck OP. I would recommend playing around on Fire Calc and adjusting some assumptions on AA and inflation to make sure there is still a high level of success but I think based on your posts you should be fine.

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Re: Can I retire?

Post by lawman3966 » Mon May 13, 2013 1:36 am

It appears that the annuity approach hasn't yet been tried. So I thought I'd give it a whirl, using the closest data I could find from the Elm Annuity site.

I found the following ratios of lump sum to inflation adjusted annual income (using the inflation rider) for the following starting ages

Starting age: 65; Lump sum multiple: 22.5; Implied life expectancy for annuity calculation purposes : 87.5.
Starting age: 55; Lump sum multiple: 21.75; Implied life expetancy for annuity calculation purposes: 86.75.

For a quote starting at age 45, we could use a life expectancy of 86 (which may include Elm's internal profit calculations, and thus may not jibe with other life expectancy data)
To remain consistent with the above quotations a life expectancy of 86 requires a multiple of 41, that is: 41 times the first year's income, which yields:
41 * 80K = $3.28 million.
(No doubt, someone with an advanced Math degree will shoot holes in the above logic. But, it's all I could think of in view of Elm's annuity quote data only starting at age 55).

If the OP needs 80k on top of the paid-off home, this results implies that 2.5 M is significantly short of the mark. If we count the paid off home as wealth, leading to a net worth of $ 3 M, then the OP is pretty close. There are bound to be contrary views. As I recall, it was Moshe Milevsky (in his "7 equations . . ." book) who said that inflation-adjusted annuities are 20% overpriced according to the objective life expectancy data. Perhaps a disproportionate number of people with higher than average expectations of longevity end up buying annuities.

Oh well. Firecalc says 2.5 mill is enough. My attempt at extrapolating out from the Elm data says that 3.28 mill is needed. I guess one picks one's calculator, and one takes one's chances.

If there is some flexibility with regard to income and expenditures, the OP would swing it. But, from a purely mathematical standpoint, I think there is some doubt that 2.5 M can generate an inflation adjusted $80K/year for the OP's lifespan.

Elm Annuity Quote page:

http://www.principal.com/retirement/inc ... income.htm

45andout?
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Re: Can I retire?

Post by 45andout? » Mon May 13, 2013 6:01 am

Surely one problem with the annuity approach is that it includes a profit for the insurance company? You pay them that in exchange for eliminating the risk of running out of money (and swapping it for the risk of running out of insurance company, and the promise that your money will be used up when you die).

Creating your own "annuity" means you might run out, but if you don't you get to keep everything that you manage to hold onto.

midmoder
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Re: Can I retire?

Post by midmoder » Mon May 13, 2013 8:30 am

45andout? wrote:Also, I've never seen this sort of analysis, but it must exist. We talk about various sorts of risk when planning investments and retirements, like inflation risk, etc. What about "death risk"? "Disability risk"? (These being the risk of dying before you get to enjoy the retirement you're planning or becoming permanently disabled and less able to enjoy it before you do.) And so on. My point is that the risks don't all point towards working longer and saving more; many point towards stopping sooner.
Over the last few years, the "death" risk has become the greatest factor in my desire to retire as soon as possible. It started as a faint drumbeat a few years ago, but now with each passing month it gets louder and more insistent.

I'm 57, my husband 56. My dad died at 62 (cancer) before he could retire. DH's dad died at 61 (cerebral aneurysm). At least he and my MIL had retired at 55 and were living a full and active life.

We have both worked full-time since we were 21. I get 3 weeks vacation/year, he gets 4 weeks, and in all these years, we've only had a few vacations that lasted longer than 12 consecutive days. A lot of "vacation" time is spent on chores and house projects, and weekends are spent catching up and getting ready for the next work week. We have a comfortable life and I can't complain, but each week, week after week after week, is a blur of sameness. We're not making memories and I worry for our health that we sit 9 or 10 hours a day, 5 days a week in front of computers doing our jobs.

I'm terrified that the pattern of our parents could repeat itself and I'll find myself a widow in my early 60s. I want us to retire NOW and start seeing the country. We could swing it, but if we can hold out another year or two, we'll be much better off. And so we'll wait another year.

I'd think 45 is young to be thinking of the death risk, but perhaps you have a poor family history. It sounds, though, as if you're hearing that drumbeat too.

ieee488
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Re: Can I retire?

Post by ieee488 » Mon May 13, 2013 8:43 am

I haven't taken a 2 week long vacation since 1997.
I find that I have much less energy than when I was younger.

I am almost 50 and because I started a new job last year, I get 2 weeks + 9 days which gets eaten up fast.
I have been sick twice in the last 4 months with nasty colds where I lay in bed all day.
My immune system must be weak and it is probably due to the stress from the job.

I am seriously thinking about quitting my job. My health is too important to let degrade.
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lwfitzge
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Re: Can I retire?

Post by lwfitzge » Mon May 13, 2013 9:10 am

midmoder wrote:
45andout? wrote:Also, I've never seen this sort of analysis, but it must exist. We talk about various sorts of risk when planning investments and retirements, like inflation risk, etc. What about "death risk"? "Disability risk"? (These being the risk of dying before you get to enjoy the retirement you're planning or becoming permanently disabled and less able to enjoy it before you do.) And so on. My point is that the risks don't all point towards working longer and saving more; many point towards stopping sooner.
Over the last few years, the "death" risk has become the greatest factor in my desire to retire as soon as possible. It started as a faint drumbeat a few years ago, but now with each passing month it gets louder and more insistent.

I'm 57, my husband 56. My dad died at 62 (cancer) before he could retire. DH's dad died at 61 (cerebral aneurysm). At least he and my MIL had retired at 55 and were living a full and active life.

We have both worked full-time since we were 21. I get 3 weeks vacation/year, he gets 4 weeks, and in all these years, we've only had a few vacations that lasted longer than 12 consecutive days. A lot of "vacation" time is spent on chores and house projects, and weekends are spent catching up and getting ready for the next work week. We have a comfortable life and I can't complain, but each week, week after week after week, is a blur of sameness. We're not making memories and I worry for our health that we sit 9 or 10 hours a day, 5 days a week in front of computers doing our jobs.

I'm terrified that the pattern of our parents could repeat itself and I'll find myself a widow in my early 60s. I want us to retire NOW and start seeing the country. We could swing it, but if we can hold out another year or two, we'll be much better off. And so we'll wait another year.

I'd think 45 is young to be thinking of the death risk, but perhaps you have a poor family history. It sounds, though, as if you're hearing that drumbeat too.

The health/wellbeing risks have to be weighed by the individual like the financial risks. I once checked out the actuary table for life expectancy in US. From age 59 to 65 (early retirement to average age) at least 15% of 59 year old male die before reaching 65. So...it's kind of unbalanced if one were so determined over reducing firecalc failure rate from 5% to 0% or 10% to 0% during this period by slaving at work for just a few years to be absolutely safe, when the odds of greater one won't be alive. All things should be considered. Life is short and unpredictable...spend time to enjoy while we can.

lawman3966
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Re: Can I retire?

Post by lawman3966 » Mon May 13, 2013 11:36 am

45andout? wrote:Surely one problem with the annuity approach is that it includes a profit for the insurance company? You pay them that in exchange for eliminating the risk of running out of money (and swapping it for the risk of running out of insurance company, and the promise that your money will be used up when you die).
No doubt, the insurance company makes a profit on these products. However, for annuities to sell at all, the effect of mortality credits would have to more than compensate for the insco profit.

When I've run various scenarios in the past, the effective "rate of return" (in quotations, because technically it isn't really a return on investment) of immediate annuities (equal to the first year's payout divided by the initial lump sum investment) was usually higher than the safe withdrawal rate arrived through various stock and bond invesments coupled to various possible withdrawal strategies.

The principal problem with a "personal annuity" consisting only of stocks, bonds and other standard securities is the lack of knowledge of how long one will live. If preparation is made for survival until age 95, one would forfeit income if the investor/annuitant dies at 82, by leaving a large amount of money unspent. If the withdrawal rate is increased by predicting an earlier demise, at say 85, a rather serious problem arises if the investor lives to be 87, 90, and then 95.

That said, I understand that most feel this is a bad time to buy annuities. I recall seeing much better income numbers when I ran scenarios on the old AIG-Gold annuity calculator between 2006 and 2010 or so. I recall seeing an insurance company executive address this annuity-timing issue on Wealthtrack a few years ago by having his company offer to sell "shares" of an annuity over various years, effectively enabling annuitants to dollar-cost-average their way into an annuity purchase rather being at the mercy of the prevailing interest rate at one moment in time. I think the company was Mass Mutual. But, this would have to be verified for anyone who is seriously interested in such a product.

I understand that there are medical, emotional and other reasons to retire early. However, those things are too personal and too specific to one person for a stranger on a forum to chime in on. Thus, I've limited my comments to the mathematical aspect of the issue.

if it were me, I'd do some serious reading of Pfau, Otar, Milevsky, and Bodie before pulling the trigger, and even then, leave some wiggle room (earnning and spending flexibility) for the unexpected. That said, if my physical and emotional health were being adversely affected by my work, I'd go ahead and retire.

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floydtime
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Re: Can I retire?

Post by floydtime » Mon May 13, 2013 12:55 pm

To the OP, yes, of course you can as long as you will remain flexible and it sounds like you will. Congratulations! :beer
bottlecap wrote:You can swing it, if that's all you need. The only thing I'd worry about is the effect it might have on your young children. You might have a harder time instilling a work ethic if they can't learn by example. Can you switch gears to a less demanding career for a time?

Just something I worry about when I daydream about early retirement....

JT
I think that's only true if by "retirement", one means sitting around. Like many retirees I know, I do much more tangible and rewarding work when I'm at home than I've ever done sitting at a desk. Once I retire, I get to work for "yours truly" full time. :happy And as a bonus, my kids can help with this (real) work.
"Do not value money for any more nor any less than its worth; it is a good servant but a bad master" - Alexandre Dumas

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Re: Can I retire?

Post by texasdiver » Mon May 13, 2013 1:45 pm

The OP sounds like they are in great shape. However to truly answer the question I think it would help to know your plan B. If the unforseen happens and you either lose substantial assets or have substantial unanticipated expenses (i.e. medical catastrophe) then what is your plan B?

Some of us are in professions that we can easily walk back into even after an extended hiatus. I'm currently in my second career teaching. Should I walk away from it today it would not be that difficult to find some sort of teaching job down the road as there is constant turnover in education, especially in the less desired schools. In other fields, a couple of years hiatus may make you unemployable if licenses and the like retire, or the field passes you by. Some medical professions are like this. If you don't keep your skills up they atrophy. If the worst happens, how easy would it be for you to go back to work in 5-10 years? I think that is a point to consider. And if your future employment prosects are good that makes one more comfortable walking away.

The second way to deal with the unforseen is to just dial back your living expenses. $80 grand/year is pretty far towards the high end of the curve in terms of retirement income, especially before SS is taken into account. Many millions retire on half or less. If your situation melts down, how easy would be be to cut back? Some people have a lot of fixed expenses, others less so. My wife and I could probably cut our income in half and be relatively fine with a few adjustments. However we have friends with fixed expenses such as elderly parents in nursing homes that would be problematic should they want to cut back.

Bottom line, I'd be very comfortable taking early retirement in your situation if I knew that I had the ability to recover from the unforseen by either returning to work or cutting back. That's something only you can decide.

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Re: Can I retire?

Post by RenoJay » Mon May 13, 2013 3:27 pm

I'm 41 and am seriously considering calling it quits at 45, so I've been reading books about early-retirement and visiting early-retirement.org for discussion and support. One thing that took my by surprise: on the firecalc.com site which helps you estimate if your savings will last based on monte carlo simulations, it asks for your "spending." What I learned later was that your "spending" should also include the taxes you're going to incur when you receive dividends/interest/capital gains, etc. So you may actually have costs higher than the $80k/year you're estimating.

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