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Is it retirement time yet?

Posted: Thu Jun 18, 2020 7:09 pm
by chiquitita
Posting for my sister since she has not registered for this site. She's 47, her hubby is 52, both employed. She's heard about BH before and wanted feedback from the forum to see whether it may be close to retirement for one or both of them. Combined income 500k/yr for the past 5 years. House equity at 1.25m. Stock portfolio at 3.75m. Combined retirement at 1.25m. Cash at 250k. Any useful advice would be greatly appreciated.

Re: Is it retirement time yet?

Posted: Thu Jun 18, 2020 7:46 pm
by onthecusp
Welcome to Bogleheads :D

The main additional thing to consider is what their expected spending in retirement might be. It may be quite different from their recent income. Even with their considerable resources it would be much less than 500k/yr in order to retire now.

Other things to clear up:
What does "combined retirement 1.25 m" mean? If it means additional investments in 401ks or IRAs, that is a total of 5m in investments. That might reasonably be expected to support an annual spend of 175 to 200,000/yr.

Smaller but significant considerations.
Would a downsized house add a bit to the investments?
Is there social security in their future?

Re: Is it retirement time yet?

Posted: Thu Jun 18, 2020 7:47 pm
by GenawithanE
They are right to be thinking about it. In my opinion, they still have some years to go.
Here is what I would do:
Make sure they understand what they spend each year and make a realistic estimate of how that will change in retirement. Are they planning to downsize or move? Or will they still have upkeep and taxes on a seven figure house?
Figure out where and for how much they will get health insurance, at least until Medicare. It is far from certain that ACA will be available for the next 18 years, and it increases with time and also with age. When we were 59 and 62, decent coverage cost over $3k each month in our HCOL.
Use a calculator like Financial Engines or I-ORP (optimal retirement planner) to assess their financial ability to pay for retirement. Lots of other posters will explain how to get to the free I-ORP. My rough sense is they don’t have enough to keep their current standard of living and retire early, but they are setting up very well for a normal age retirement.
Get a good handle on how they plan to spend their time. Keep in mind that travel costs money and plug that into the budget. Maybe they only want to work part time or do something rewarding but less remunerative.
Take this time to do or plan for portfolio structuring to simplify and optimize their tax burden.

We planned for several years before we retired a bit early. Even so, it felt like zip lining, scary but exhilarating.

Re: Is it retirement time yet?

Posted: Thu Jun 18, 2020 8:23 pm
by Golf maniac
Two big issues: what will be their annual expenses in retirement and how will they handle health care. Just a general observation, once you have a certain lifestyle it may be hard to downsize. It can be done but some people may bristle at the changes. For my lifestyle I could easily retire with their financial picture, but they have to determine what lifestyle they want.

Re: Is it retirement time yet?

Posted: Thu Jun 18, 2020 8:26 pm
by sailaway
By the salary x 12 guideline, they aren't quite there yet.

To get more personal, would require knowing their expenses, as well as what changed they expect to make in retirement.

Re: Is it retirement time yet?

Posted: Thu Jun 18, 2020 8:34 pm
by sport
chiquitita wrote: Thu Jun 18, 2020 7:09 pm Posting for my sister since she has not registered for this site. She's 47, her hubby is 52, both employed. She's heard about BH before and wanted feedback from the forum to see whether it may be close to retirement for one or both of them.
You might suggest to your sister that she could register for the site and ask her questions herself. We don't bite. :happy
Communicating through a "third person" is never as good as doing it directly.

Re: Is it retirement time yet?

Posted: Thu Jun 18, 2020 8:53 pm
by marcopolo
sailaway wrote: Thu Jun 18, 2020 8:26 pm By the salary x 12 guideline, they aren't quite there yet.

To get more personal, would require knowing their expenses, as well as what changed they expect to make in retirement.
Where does the "salary x 12" come from?
Hard to see how salary is all that relevant.
What if high income couple lives on 20% of their income.
That would imply 60x expenses, seems excessive.

Re: Is it retirement time yet?

Posted: Thu Jun 18, 2020 8:54 pm
by marcopolo
GenawithanE wrote: Thu Jun 18, 2020 7:47 pm They are right to be thinking about it. In my opinion, they still have some years to go.
Here is what I would do:
Make sure they understand what they spend each year and make a realistic estimate of how that will change in retirement. Are they planning to downsize or move? Or will they still have upkeep and taxes on a seven figure house?
Figure out where and for how much they will get health insurance, at least until Medicare. It is far from certain that ACA will be available for the next 18 years, and it increases with time and also with age. When we were 59 and 62, decent coverage cost over $3k each month in our HCOL.
Use a calculator like Financial Engines or I-ORP (optimal retirement planner) to assess their financial ability to pay for retirement. Lots of other posters will explain how to get to the free I-ORP. My rough sense is they don’t have enough to keep their current standard of living and retire early, but they are setting up very well for a normal age retirement.
Get a good handle on how they plan to spend their time. Keep in mind that travel costs money and plug that into the budget. Maybe they only want to work part time or do something rewarding but less remunerative.
Take this time to do or plan for portfolio structuring to simplify and optimize their tax burden.

We planned for several years before we retired a bit early. Even so, it felt like zip lining, scary but exhilarating.
Not sure how you can determine that they are still some years away without know their expense needs. I suspect many people can safely retire with OP level of assets.

Re: Is it retirement time yet?

Posted: Thu Jun 18, 2020 9:00 pm
by David Jay
Three items needed to evaluate if they can retire:
1. Expenses
2. Expenses
3. Expenses

Your post failed to provide these three items...

Re: Is it retirement time yet?

Posted: Fri Jun 19, 2020 9:03 am
by onthecusp
marcopolo wrote: Thu Jun 18, 2020 8:53 pm
sailaway wrote: Thu Jun 18, 2020 8:26 pm By the salary x 12 guideline, they aren't quite there yet.

To get more personal, would require knowing their expenses, as well as what changed they expect to make in retirement.
Where does the "salary x 12" come from?
Hard to see how salary is all that relevant.
What if high income couple lives on 20% of their income.
That would imply 60x expenses, seems excessive.
Detailed expenses is the only way to get an answer that I would have any confidence in. But this discussion of 10-12 times current income got me thinking. For those not ready to dive deep into expense projection it is not the worst starting place, but only if it is held as a starting place. Sort of like our 4% rule is a great starting point, but you better understand the assumptions before applying it to a particular situation.

The trouble is that the conditions where it might be the right number are unstated and it winds up glossing over many issues in retirement planning. To make it fit with my assumed median retirement of a 4% rule, 30 year retirement, little reduction in lifestyle it:
  • equates income with spending (marcopolo's main point)
  • seems to assume a reduction in spending, without defining how much,
  • provides no differentiation between retirement at 70 with one at 50 or even earlier,
  • misses any account of social security or other pension income,
  • misses investment asset allocation issues,
  • etc.
12 is roughly half of 25x or the 4% rule. This 12x rule should come with the preface, "If you can live on half your current income in retirement," 12x your current income is a decent place to aim for a target 10 or more years in the future; start getting a handle on your expected expenses and pension income now. You might find you need nowhere close to 12x.

For myself I'm very close to pulling the trigger with about 5x current income in investments and retirement accounts. No credit for home equity. We save about half of our current income and expect social security, a predicted lower tax rate, and the end of mortgage payments to pull the rest of the weight. My day to day spending, except for the mortgage is likely to be similar to now but we have already become more frugal than earlier in our lives. We are also more than 10 years older than OP with little more than half the income and half the ball and chain (I mean house).

Edited to fix list formatting.

Re: Is it retirement time yet?

Posted: Fri Jun 19, 2020 9:12 am
by Jack FFR1846
In retirement, they will spend what per year?

Multiply that by your favorite factor. 25 for 4%.....33 for 3%......50 for 2%.

As a gross estimate, that should tell you what they'd need and if they're there. The salary times factors are very misleading. Our family went from about $150k income, where we spent about $55k per year to $230k income, where we spend about $55k per year. Going by the times salary, my wife's new job would put us way behind on retirement readiness.

Re: Is it retirement time yet?

Posted: Fri Jun 19, 2020 9:18 am
by Mr.BB
Jack FFR1846 wrote: Fri Jun 19, 2020 9:12 am In retirement, they will spend what per year?

Multiply that by your favorite factor. 25 for 4%.....33 for 3%......50 for 2%.

As a gross estimate, that should tell you what they'd need and if they're there. The salary times factors are very misleading. Our family went from about $150k income, where we spent about $55k per year to $230k income, where we spend about $55k per year. Going by the times salary, my wife's new job would put us way behind on retirement readiness.
Thats why I look at what we spend per year to estimate what we need in retirement (and add an extra $3,000 for unseen expenses) instead of our portfolio total.

Re: Is it retirement time yet?

Posted: Fri Jun 19, 2020 10:02 am
by tibbitts
sailaway wrote: Thu Jun 18, 2020 8:26 pm By the salary x 12 guideline, they aren't quite there yet.

To get more personal, would require knowing their expenses, as well as what changed they expect to make in retirement.
I have never heard of a salary x guideline. Some years your salary is $200,000, the next $20,000, the next $80,000... how is that useful?

Re: Is it retirement time yet?

Posted: Fri Jun 19, 2020 10:09 am
by TxAg
They're worth $6.5 million. They can retire if they want. Expenses matter but they have plenty of dough.

Re: Is it retirement time yet?

Posted: Fri Jun 19, 2020 10:13 am
by sport
tibbitts wrote: Fri Jun 19, 2020 10:02 am
sailaway wrote: Thu Jun 18, 2020 8:26 pm By the salary x 12 guideline, they aren't quite there yet.

To get more personal, would require knowing their expenses, as well as what changed they expect to make in retirement.
I have never heard of a salary x guideline. Some years your salary is $200,000, the next $20,000, the next $80,000... how is that useful?
You are correct that it is very poor guideline. It is useful only because it is easy. It is difficult to project future expenses and it actually requires the use of some arithmetic (percentages - gasp!). OTOH, most people know their income and can manage to multiply that number by 12.

Re: Is it retirement time yet?

Posted: Fri Jun 19, 2020 10:51 am
by JimmyJammy
Why does income matter? The general rule of thumb is that you can retire once your reach 25 X Annual Expenses. What do you people think of this rule, by the way? 25x is for 4%? 33x is for 3%?
Was there a critique to the Trinity Study that says 3% is a better target?

Re: Is it retirement time yet?

Posted: Fri Jun 19, 2020 11:06 am
by sailaway
JimmyJammy wrote: Fri Jun 19, 2020 10:51 am Why does income matter? The general rule of thumb is that you can retire once your reach 25 X Annual Expenses. What do you people think of this rule, by the way? 25x is for 4%? 33x is for 3%?
Was there a critique to the Trinity Study that says 3% is a better target?
Not if you read the literature aimed at the general population. Goals are almost always in terms of salary outside of talk of financial independence. The 12x I used is from a common guideline that expresses goals as a function of age and salary, with 12x being the final. Another common one is enough to replace 80% of salary as a stand in for actual expenses.

The whole point of the response was that without more information, all we can do to help is to pick a random guideline that may or may not apply to the situation.

Re: Is it retirement time yet?

Posted: Fri Jun 19, 2020 11:08 am
by Nowizard
Retirement is a significant decision and well worth the inconvenience of registering for this site. She does need to read the responses, and it would quite likely be advantageous for you in the long run if you played a helpful role rather than taking the full responsibility. Not meant to be a criticism, just a comment about the fact that retired people do need to maintain or develop at least basic financial literacy.

Tim

Re: Is it retirement time yet?

Posted: Fri Jun 19, 2020 11:17 am
by investingdad
sailaway wrote: Fri Jun 19, 2020 11:06 am
JimmyJammy wrote: Fri Jun 19, 2020 10:51 am Why does income matter? The general rule of thumb is that you can retire once your reach 25 X Annual Expenses. What do you people think of this rule, by the way? 25x is for 4%? 33x is for 3%?
Was there a critique to the Trinity Study that says 3% is a better target?
Not if you read the literature aimed at the general population. Goals are almost always in terms of salary outside of talk of financial independence. The 12x I used is from a common guideline that expresses goals as a function of age and salary, with 12x being the final. Another common one is enough to replace 80% of salary as a stand in for actual expenses.

The whole point of the response was that without more information, all we can do to help is to pick a random guideline that may or may not apply to the situation.
True.

But BHs are not gen pop.

It's how many times expenses that matters. Salary is irrelevant.

Re: Is it retirement time yet?

Posted: Fri Jun 19, 2020 12:33 pm
by TimeTheMarket
Who can say? It sounds like they're in good shape with the non-house net worth, but only if their spending isn't crazy. At their age they can only safely afford to pull out $150k/year, $200k/year max. Can they live on that?

I see no value in them having to save a multiple of salary. All that matters is what their expenses will be, not how much they used to make.

Re: Is it retirement time yet?

Posted: Fri Jun 19, 2020 12:47 pm
by Cruise
"I'm posting for my sister." For a first time poster to say this, it sounds like when someone asks a personal question and they say, "I know someone who.." They just want anonymity.

Re: Is it retirement time yet?

Posted: Fri Jun 19, 2020 1:32 pm
by Glockenspiel
They certainly have the savings to do so, IF their expenses are around $150,000-$175,000 per year, or less.

Re: Is it retirement time yet?

Posted: Mon Jun 29, 2020 9:48 am
by GuyInFL
FWIW, 12X salary assumes working up till Social Security https://www.fidelity.com/viewpoints/ret ... -to-retire

Since these numbers are based on averages, it’s definitely worthwhile to know your own expenses for you specific situation.