Can we safely retire early?

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Sammy_M
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Can we safely retire early?

Post by Sammy_M » Mon Oct 08, 2018 11:44 am

I'd appreciate some perspectives on whether we might be approaching a "safe" early retirement age in our mid-40s. Our idea of early retirement is for me to do a little consulting when I feel like it, but I don't want to count on that income. If consulting income is there, we'd invest a little of it to further reduce risk, but we'd mostly gift and travel more.

EXPENSES
Excluding our current mortgage payment, which we could payoff now if we wished, we spend around $85K annually. We have kids in the household, so that could drop after they are out on their own.

Healthcare. A few expenses would reduce, but with increased healthcare expenses due to loss of employer contribution, we expect our expenses would go up $10K in early retirement. It is possible that HC would actually be lower with ACA, but we do not want to count on it in case the law changes.

Kids. College funding is accounted for separately. We presently have enough for them to go to state school. If I retired early and my income dropped to minimal levels, financial aid eligibility would probably mean present savings could get them through private college and possibly post-grad. Kids' weddings, vehicles, etc. are not budgeted. The way I look at it, we'll help if we can, but are not altering our own plans for those things.

Care. We have not budgeted for long-term care. I think that is the biggest wild-card as respects planning. We live healthy lifestyles now, but one never knows when a debilitating illness might hit.

SUPPLEMENTAL INCOME
No pensions. We have $15k NET annual rental income that we anticipate will keep pace or slightly beat inflation. Our estimate of SS benefits for me and spouse totals $40K/yr, but we assume starting at age 70. This is the currently calculated PIA, but we expect full retirement age will be bumped back a few years by that time.

SUMMARY BUDGET

Code: Select all

ANNUAL		A45	FIRE	A70
EXPENSES	$85	$95	$90
less RENTS	-15	-15	-15
less SS		  0	  0	-40
plus TAXES	  	  5	  5		
NEEDED			 85	 40
FUNDING
After mortgage payoff, deducting 15% from pre-tax accounts, and excludng education accounts, we presently have $1.6M in investments. There is enough in Taxable and Roth so that withdrawals from Tradl accounts would not be needed before 60.

Inputting the above figures and our current 70/30 portfolio and not adjusting with age, FIRECalc.com suggests the success rate of 68%. However, we have options of liquidating real estate to generate additional lump sum income if required, though that cuts into ongoing rental income. Ideally, we'd like to leave the real estate to the kids (hopefully with stepped-up basis).

How far away do you think we are from being able to safely retire early based on the above numbers?
What else should we be thinking about?

livesoft
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Re: Can we safely retire early?

Post by livesoft » Mon Oct 08, 2018 11:48 am

Have you used any of those calculators to check your numbers?

www.cfiresim.com
www.firecalc.com
One's at Fidelity and other brokers.

If this is your dream, then you should be very familiar and adept with running these online calculators and also in understanding their results. Opinions from the peanut gallery are not what I would base any early retirement decision on.
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abner kravitz
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Re: Can we safely retire early?

Post by abner kravitz » Mon Oct 08, 2018 11:59 am

From my seat in the peanut gallery, I think you are a little light to retire in the mid-40s. That's a lot of years, and you would be starting off drawing over 4%. Certainly possible, but not what I would consider "safe". Health care is a huge unknown.

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FiveK
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Re: Can we safely retire early?

Post by FiveK » Mon Oct 08, 2018 12:37 pm

Sammy_M wrote:
Mon Oct 08, 2018 11:44 am
After mortgage payoff, deducting 15% from pre-tax accounts, and excludng education accounts, we presently have $1.6M in investments. There is enough in Taxable and Roth so that withdrawals from Tradl accounts would not be needed before 60.
The quick rule of thumb says $64K from investments + $15K from rentals = $79K/yr. Thus $85K/yr until SS starts is a bit over 4%, so the firecalc 68% number seems consistent.

Whether you look at that as ~2:1 odds in your favor, or ~1/3 chance of failure, is up to you.

You probably won't need to pay 15% on pre-tax accounts if you start traditional->Roth conversions ASAP after retiring, so that's a little safety factor in your favor.

delamer
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Re: Can we safely retire early?

Post by delamer » Mon Oct 08, 2018 2:48 pm

For lack of a better word, I think you are being too “casual” about acquiring and paying for health insurance for a family for the 20 years until Medicare.

Insurance availability and costs are very much in flux. And what if one of you develops a serious acute or chronic condition?

I’d reassess the cost assuming that you had to pay full premiums, full deductibles, and macimum out-of-pocket costs using a decent ACA plann in your state.

Consider whether there is a way to get closer to your preferred lifestyle via a lower-stress job, moving to a lower cost area, etc. rather than stopping work altogether.

Texanbybirth
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Re: Can we safely retire early?

Post by Texanbybirth » Mon Oct 08, 2018 2:54 pm

Don't SS estimates assume you keep working/earning at the same pace until you file (age 70 for you)? Meaning, you'll have lots of years of $0 or little income to put in the calculator. Have you done that to see how that will affect the $40k you're estimating?

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FiveK
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Re: Can we safely retire early?

Post by FiveK » Mon Oct 08, 2018 2:59 pm

Texanbybirth wrote:
Mon Oct 08, 2018 2:54 pm
Don't SS estimates assume you keep working/earning at the same pace until you file (age 70 for you)? Meaning, you'll have lots of years of $0 or little income to put in the calculator. Have you done that to see how that will affect the $40k you're estimating?
Depends on the SS estimate. One of the ss.gov tools does that.

A couple of spreadsheets and a web tool that use no assumptions, relying only on earnings entered:
- The 'SocialSecurity' tab of the personal finance toolbox spreadsheet.
- The Downloadable Social Security Benefit Estimator (repost) - Bogleheads.org.
- Social Security Calculator

euroswiss
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Re: Can we safely retire early?

Post by euroswiss » Mon Oct 08, 2018 3:07 pm

I usually consider myself pretty bullish on these questions but based on the numbers you provided, I would NOT be comfortable pulling the plug anytime soon. If you were, say, both between 55 and 60 years old, then I'd go for it, but you have potentially 50 years of retirement to deal with, so I think you are running too thin.

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Sammy_M
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Re: Can we safely retire early?

Post by Sammy_M » Mon Oct 08, 2018 3:17 pm

delamer, I agree healthcare is a major consideration. I'm using 1750/mo and 2k individual and 4k family deductible based on fiqures obtained from the state exchange. That'll go up as we age, but we will also reduce from family to couple plan too. I assume at 65 we'll go on Medicare at 600/mo. I'm using our historical average out of pocket costs for the next decade, then jumping them up to 400/mo from 55-70 and 600/mo from 70 on.

The fallback on my strategy, to both unexpected expenses or a downturn in the market, is to aggressively seek for more consulting work or alternatively go back to a lower-paid lower-stress employee position that offers HC. I'm confident that will be a viable strategy for five years or so, but if I am out of the business more than that, I'll be unemployable.

livesoft, thanks for the pointer to cfiresim.com. The results are slightly worse than firecalc with less ability to tweak the asset allocation. Neither allow for a 50:50 US/Intl equity portfolio and 50:50 TIPS/Nominal fixed income, which is closer to my actual.

I agree the calculators are far better than just saying "do you think this enough?", but bogleheads are a thoughtful bunch and I expect will be able to point out some things the calculators do not consider (and I may not be considering).

FiveK, good point on Roth conversions potentially avoiding the assumed 15% tax. If I run that assumption through firecalc, it increase the number of successful runs by a few percent.

Texanbybirth, I am indeed using a SS calculator similar to what FiveK mentioned.

aristotelian
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Re: Can we safely retire early?

Post by aristotelian » Mon Oct 08, 2018 3:21 pm

You are solidly in "one more year" territory, where you could retire early and be fine, but it would probably be safer to wait.

I am getting a budget of $56K @ 3.5% withdrawal rate. If I understand correctly, you need to cover $70K until claiming SS. Seems like you are pushing it a bit. Then again, with $1.6M, you are never going to be eating dog food. If you want to retire now, I am sure you can, but you may need to tighten your budget.

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Watty
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Re: Can we safely retire early?

Post by Watty » Mon Oct 08, 2018 3:34 pm

Sammy_M wrote:
Mon Oct 08, 2018 11:44 am
Excluding our current mortgage payment, which we could payoff now if we wished, we spend around $85K annually. We have kids in the household, so that could drop after they are out on their own.

Healthcare. A few expenses would reduce, but with increased healthcare expenses due to loss of employer contribution, we expect our expenses would go up $10K in early retirement.
So with healthcare you would be spending around $95K a year. It was not clear if that "spending" amount includes taxes, if not then you would need income somewhere in the ballpark of $120K a year to have $95K left after taxes.

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FiveK
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Re: Can we safely retire early?

Post by FiveK » Mon Oct 08, 2018 3:49 pm

Watty wrote:
Mon Oct 08, 2018 3:34 pm
It was not clear if that "spending" amount includes taxes, if not then you would need income somewhere in the ballpark of $120K a year to have $95K left after taxes.
Good point to clarify.

Although, even in a very high tax state (e.g., Oregon) taking 50% from traditional and 50% from stock sale (with only 25% basis in the stock), taxes would be only ~$10.5K to match $95K other spending. One could envision worse cases, but perhaps even a larger fraction of better cases.

furikake
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Re: Can we safely retire early?

Post by furikake » Mon Oct 08, 2018 3:58 pm

If the market tanks 50% tomorrow, will you still be ok with your plan?

JoeRetire
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Re: Can we safely retire early?

Post by JoeRetire » Mon Oct 08, 2018 4:31 pm

Sammy_M wrote:
Mon Oct 08, 2018 11:44 am
I'd appreciate some perspectives on whether we might be approaching a "safe" early retirement age in our mid-40s.

Excluding our current mortgage payment, which we could payoff now if we wished, we spend around $85K annually. We have kids in the household, so that could drop after they are out on their own.

with increased healthcare expenses due to loss of employer contribution, we expect our expenses would go up $10K in early retirement

We presently have enough for them to go to state school. If I retired early and my income dropped to minimal levels, financial aid eligibility would probably mean present savings could get them through private college and possibly post-grad. Kids' weddings, vehicles, etc. are not budgeted. The way I look at it, we'll help if we can, but are not altering our own plans for those things.

Care. We have not budgeted for long-term care.

No pensions. We have $15k NET annual rental income that we anticipate will keep pace or slightly beat inflation. Our estimate of SS benefits for me and spouse totals $40K/yr, but we assume starting at age 70. This is the currently calculated PIA, but we expect full retirement age will be bumped back a few years by that time.

Code: Select all

ANNUAL		A45	FIRE	A70
EXPENSES	$85	$95	$90
less RENTS	-15	-15	-15
less SS		  0	  0	-40
plus TAXES	  	  5	  5		
NEEDED			 85	 40
After mortgage payoff, deducting 15% from pre-tax accounts, and excludng education accounts, we presently have $1.6M in investments.

Inputting the above figures and our current 70/30 portfolio and not adjusting with age, FIRECalc.com suggests the success rate of 68%.
You are looking at 40-50 years of retirement. With these facts, I wouldn't use the word "safe" at all.

You could spend a few hours with a fee-only fiduciary financial adviser to go over your numbers if you like. You should particularly focus on your planned expenses. Because your retirement period is so long, it hard not to feel like you are underestimating things. But I suspect you'll get the same answer.

Every situation is different. My priorities (particularly around kids and around long term care) were clearly not your priorities. But there's no way I'd call it quits so early with those numbers.

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Sammy_M
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Re: Can we safely retire early?

Post by Sammy_M » Mon Oct 08, 2018 7:47 pm

aristotelian (and Watty), while I believe I'm conservative in my assumptions, it is indeed $85K/yr drawdown that I estimate we will need until age 70. From 70 on, after SS kicks in, I figure we'll drawdown $40K/yr. We're not in a low-cost state.

My calculations, even prior to using the online calculators, suggest we're about 3-4 years out from "safety". Thus my considering Plan B options as outlined below.

JoeRetire, to each his own, but my priorities are shifting based on the realization that giving time (to aging parents and adolescent kids) may be more important than making/giving money. Trouble is, one cannot be assured that if they step away from their career, they will be able to come back to it. Thus I feel it prudent to examine the early retirement scenarios.

My Plan "B"
Just tell colleagues and neighbors that I'm starting my own a consulting business. If the numbers aren't working, seek employment again after a few years, or however long it is.
Downsize/move to lower cost of living area.
Liquidate investment real estate. Kids inherit less.

Grt2bOutdoors
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Re: Can we safely retire early?

Post by Grt2bOutdoors » Mon Oct 08, 2018 7:55 pm

You asked if you can "safely" retire early - 68% probability of making it sound safe to you? It isn't for me - I'd feel more confident if the number was 85%+.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

HEDGEFUNDIE
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Re: Can we safely retire early?

Post by HEDGEFUNDIE » Mon Oct 08, 2018 9:12 pm

There are people here who will say that even 100% success rate is not good enough, because the calculators are using rosy assumptions.

*If* Obamacare goes away it will likely be replaced by “skinny”, catastrophic plans that still would cover the worst case scenarios. And coverage for pre-existing conditions is the one thing everyone loves and wants to continue.

If I were you I’d be retired already.

smitcat
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Re: Can we safely retire early?

Post by smitcat » Tue Oct 09, 2018 8:16 am

Sammy_M wrote:
Mon Oct 08, 2018 7:47 pm
aristotelian (and Watty), while I believe I'm conservative in my assumptions, it is indeed $85K/yr drawdown that I estimate we will need until age 70. From 70 on, after SS kicks in, I figure we'll drawdown $40K/yr. We're not in a low-cost state.

My calculations, even prior to using the online calculators, suggest we're about 3-4 years out from "safety". Thus my considering Plan B options as outlined below.

JoeRetire, to each his own, but my priorities are shifting based on the realization that giving time (to aging parents and adolescent kids) may be more important than making/giving money. Trouble is, one cannot be assured that if they step away from their career, they will be able to come back to it. Thus I feel it prudent to examine the early retirement scenarios.

My Plan "B"
Just tell colleagues and neighbors that I'm starting my own a consulting business. If the numbers aren't working, seek employment again after a few years, or however long it is.
Downsize/move to lower cost of living area.
Liquidate investment real estate. Kids inherit less.
"My calculations, even prior to using the online calculators, suggest we're about 3-4 years out from "safety". Thus my considering Plan B options as outlined below."
I agree with your conclusion.
"but my priorities are shifting based on the realization that giving time (to aging parents and adolescent kids) may be more important than making/giving money"
In our actual experiences we found that the ability to pay some bills for aging parents were extremely valuable and life altering. Also the very to assist with grad school costs were very valuable - we did have plenty of time with all of our parents and kids along the way.

Plan "B" suggestions:
"Just tell colleagues and neighbors that I'm starting my own a consulting business. If the numbers aren't working, seek employment again after a few years, or however long it is."
Plan and start the consulting business now on a lower scale to test the viability of your plan.
"Downsize/move to lower cost of living area."
Determine one or more areas where you would go and detail a plan for that move and budget going forward with the intent to activate that pan upon actual retirement.
"Liquidate investment real estate. Kids inherit less."
I have no idea if this will pay or not, detailing what this actually represents (rent vs sell) to your after tax position when retired would be another project I would outline and detail now.

TropikThunder
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Re: Can we safely retire early?

Post by TropikThunder » Tue Oct 09, 2018 10:23 pm

HEDGEFUNDIE wrote:
Mon Oct 08, 2018 9:12 pm
There are people here who will say that even 100% success rate is not good enough, because the calculators are using rosy assumptions.

*If* Obamacare goes away it will likely be replaced by “skinny”, catastrophic plans that still would cover the worst case scenarios. And coverage for pre-existing conditions is the one thing everyone loves and wants to continue.

If I were you I’d be retired already.
There are two parts to the current ACA pre-existing conditions coverage requirements: you can't be denied due to pre-existing conditions, and perhaps more importantly, you can't be charged more either. It's quite naive to think that separating those two requirements can't happen.

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