Preparing for retirement in mid 30s

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lecithar
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Preparing for retirement in mid 30s

Post by lecithar »

Hello Bogleheads,

I am preparing to retire within the next year. I would like to lay out my plan and you tell me if I have missed anything important.

My wife and I are mid 30s with two young kids.
We have 1.5M all in after-tax brokerage (90% VOO, 10% BND).
We will withdraw 45k/yr (adjusted for inflation).
We will not have any income except from investments.
No tax-advantaged accounts whatsoever.
We do not own property. We will rent wherever it is affordable (within US).
We do not have any debt.
All of our hobbies are free. We enjoy the simple things in life.

Our only concern is health insurance. But our thinking is that if we only withdraw 45k/yr, our income is low enough that we will qualify for free (or nearly free) health insurance.

Do you see any big problems with our plan? We do not have wealthy family to fall back on, so we cannot fail. FIRECalc says we have 0% chance of failure even if we live to age 100.

Thank you.
Last edited by lecithar on Wed Sep 16, 2020 6:10 pm, edited 1 time in total.
Normchad
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Re: Preparing for retirement in mid 30s

Post by Normchad »

Here is a question I have.

All your accounts are taxable. So when you withdraw from them, you will have *very little* income of any type to report.

I thought I read someplace, that to get ACA subsidies, there is also a *minimum* income you must have. Can anybody corroborate that or explain that?
novemberrain
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Re: Preparing for retirement in mid 30s

Post by novemberrain »

If the market drops 50% ?
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BolderBoy
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Re: Preparing for retirement in mid 30s

Post by BolderBoy »

lecithar wrote: Wed Sep 16, 2020 5:40 pmDo you see any big problems with our plan? We do not have wealthy family to fall back on, so we cannot fail. FIRECalc says we have 0% chance of failure even if we live to age 100.
Sorry but I find it very hard to believe that firecalc reported a 0% chance of failure through age 100. Did you use wildly optimistic numbers? I've had friends with larger portfolios, somewhat higher spending and starting at age 55 who couldn't get a 0% failure rate.

I'd be very careful in accepting that result when you are in your mid-30s with the financials you provided.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
Normchad
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Re: Preparing for retirement in mid 30s

Post by Normchad »

Normchad wrote: Wed Sep 16, 2020 5:48 pm Here is a question I have.

All your accounts are taxable. So when you withdraw from them, you will have *very little* income of any type to report.

I thought I read someplace, that to get ACA subsidies, there is also a *minimum* income you must have. Can anybody corroborate that or explain that?
Aha! Here it is:
Your income can be no more than 400 percent of the federal poverty level. According to the Federal Register, in 2018 the poverty level for an individual is $12,140. So if you are a single person making more than 400 percent of that ($48,560) then you will likely not qualify for subsidies. The federal poverty level varies based on the number of members in your household and on where you live in the United States (contiguous states differ from Alaska and Hawaii, see more poverty levels here). If your income is below the federal poverty level, you generally don’t qualify for ACA subsidies but may qualify for Medicaid.
So it looks like you need to make at least the poverty level income to qualify. is that $12,140 MAGI?
awval999
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Re: Preparing for retirement in mid 30s

Post by awval999 »

Do it!
This is my dream. Same ages. Same number of children.
My only recommendation would be to buy a small house in cash to limit risk of rent increases.
You can easily have a 3/2 1500 sqft for $150,000 in the Midwest/South.
Topic Author
lecithar
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Re: Preparing for retirement in mid 30s

Post by lecithar »

Normchad wrote: Wed Sep 16, 2020 5:48 pm All your accounts are taxable. So when you withdraw from them, you will have *very little* income of any type to report.
I have a lot of capital gains. And I am expecting (hoping) that it will continue growing at a rate of 3% plus inflation so it will fund my family's lifestyle indefinitely.
Normchad
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Re: Preparing for retirement in mid 30s

Post by Normchad »

lecithar wrote: Wed Sep 16, 2020 5:56 pm
Normchad wrote: Wed Sep 16, 2020 5:48 pm All your accounts are taxable. So when you withdraw from them, you will have *very little* income of any type to report.
I have a lot of capital gains. And I am expecting (hoping) that it will continue growing at a rate of 3% plus inflation so it will fund my family's lifestyle indefinitely.
I am concerned about your ability to get ACA subsidies. If I were you, I would look closely at that, and fully understand whether you will qualify for them or not based on your plans. (And post back with the answer, because I have a similar concern for myself)
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TheTimeLord
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Re: Preparing for retirement in mid 30s

Post by TheTimeLord »

BolderBoy wrote: Wed Sep 16, 2020 5:49 pm
lecithar wrote: Wed Sep 16, 2020 5:40 pmDo you see any big problems with our plan? We do not have wealthy family to fall back on, so we cannot fail. FIRECalc says we have 0% chance of failure even if we live to age 100.
Sorry but I find it very hard to believe that firecalc reported a 0% chance of failure through age 100. Did you use wildly optimistic numbers? I've had friends with larger portfolios, somewhat higher spending and starting at age 55 who couldn't get a 0% failure rate.

I'd be very careful in accepting that result when you are in your mid-30s with the financials you provided.
I just ran the numbers in Firecalc. $1,500,000 portfolio, 90/10 AA for 65 year retirement and here is what I got (much to my surprise I might add). People feel free to double-check.
A spending level of $51,965 provided a success rate of 100.0% (85 total cycles, of which 0 failed). This spending level is 3.46% of your starting portfolio.
Last edited by TheTimeLord on Wed Sep 16, 2020 6:02 pm, edited 1 time in total.
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Tingting1013
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Re: Preparing for retirement in mid 30s

Post by Tingting1013 »

TheTimeLord wrote: Wed Sep 16, 2020 6:00 pm
BolderBoy wrote: Wed Sep 16, 2020 5:49 pm
lecithar wrote: Wed Sep 16, 2020 5:40 pmDo you see any big problems with our plan? We do not have wealthy family to fall back on, so we cannot fail. FIRECalc says we have 0% chance of failure even if we live to age 100.
Sorry but I find it very hard to believe that firecalc reported a 0% chance of failure through age 100. Did you use wildly optimistic numbers? I've had friends with larger portfolios, somewhat higher spending and starting at age 55 who couldn't get a 0% failure rate.

I'd be very careful in accepting that result when you are in your mid-30s with the financials you provided.
I just ran the numbers in Firecalc. $1,5000,000 portfolio, 90/10 AA for 65 year retirement and here is what I got (much to my surprise I might add). People feel free to double-check.
A spending level of $51,965 provided a success rate of 100.0% (85 total cycles, of which 0 failed). This spending level is 3.46% of your starting portfolio.
I assume OP has some SS coming to them so it’s probably even better than that
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FelixTheCat
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Re: Preparing for retirement in mid 30s

Post by FelixTheCat »

novemberrain wrote: Wed Sep 16, 2020 5:48 pm If the market drops 50% ?
He's mostly following Warren Buffett's suggestion. Have enough money in short term bonds to ride out the market. 3 years of 45K income is 135K and he's allocated $150K. The rest in S&P 500.

I checked Firecalc and its says you have a 100% success rate until 100.

I don't know about Health Care in your state. In California, you have to make less than $154,500 for a family of four to get financial assistance.
Felix is a wonderful, wonderful cat.
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TheTimeLord
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Re: Preparing for retirement in mid 30s

Post by TheTimeLord »

Tingting1013 wrote: Wed Sep 16, 2020 6:01 pm
TheTimeLord wrote: Wed Sep 16, 2020 6:00 pm
BolderBoy wrote: Wed Sep 16, 2020 5:49 pm
lecithar wrote: Wed Sep 16, 2020 5:40 pmDo you see any big problems with our plan? We do not have wealthy family to fall back on, so we cannot fail. FIRECalc says we have 0% chance of failure even if we live to age 100.
Sorry but I find it very hard to believe that firecalc reported a 0% chance of failure through age 100. Did you use wildly optimistic numbers? I've had friends with larger portfolios, somewhat higher spending and starting at age 55 who couldn't get a 0% failure rate.

I'd be very careful in accepting that result when you are in your mid-30s with the financials you provided.
I just ran the numbers in Firecalc. $1,5000,000 portfolio, 90/10 AA for 65 year retirement and here is what I got (much to my surprise I might add). People feel free to double-check.
A spending level of $51,965 provided a success rate of 100.0% (85 total cycles, of which 0 failed). This spending level is 3.46% of your starting portfolio.
I assume OP has some SS coming to them so it’s probably even better than that
It gets weirder. I keep thinking I must be doing something wrong but if I am I don't see it.
FIRECalc Results
Your spending in every year after the first year will be adjusted for inflation, so the spending power is preserved.
FIRECalc looked at the 85 possible 65 year periods in the available data, starting with a portfolio of $1,500,000 and spending your specified amounts each year thereafter.
Here is how your portfolio would have fared in each of the 85 cycles. The lowest and highest portfolio balance at the end of your retirement was $1,500,000 to $83,169,968, with an average at the end of $35,437,211. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
For our purposes, failure means the portfolio was depleted before the end of the 65 years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%.
Input Data for this model
Withdrawals 45,000
Plan End 65
95% Rule from WorkLess, Live More*
Percentage used for 95% Rule* 0
Bernicke Spending Reductions*
Current Age (for scheduling Bernicke spending reductions)* 48
Starting Portfolio 1,500,000
Percent in Stocks 90%
Expense Ratio 0.03%
Retirement Year* 2020
Contributions until then* 0
Social Security* 0
Starting in* 2033
Spouse Social Security* 0
Starting in* 2035
Other withdrawal change* +0
Starting in* 2023
Inflation adjusted* yes
Other withdrawal change* +0
Starting in* 2025
Inflation adjusted* yes
Other withdrawal change* +0
Starting in* 2029
Inflation adjusted* yes
Lump sum change to portfolio* +0
In year 2023
Lump sum change to portfolio* +0
In year * 2033
Lump sum change to portfolio* +0
In year * 2038
Inflation Rate selected* CPI
Fixed income model * T5
Override start year* 1871
Terminal Value* 0
US Micro Cap** 10
US Small** 10
US Small Value** 10
S&P 500** 40
US Large Value** 40
US LT Treasury** 10
LT Corporate Bond** 15
1 Month Treasury** 5
* - Used in Advanced FIRECalc
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
Tingting1013
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Re: Preparing for retirement in mid 30s

Post by Tingting1013 »

OP my only suggestion is to diversify some of your VOO into VXUS. 60 years is a long time to bet on US equity dominance.
drk
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Re: Preparing for retirement in mid 30s

Post by drk »

Two things that make this riskier:

1. Young kids
2. No income outside of investments

Your spending will have some unpredictability baked in, and your income is relatively fragile. Until the kids are grown, I would maintain a contingency plan to add new income if necessary (e.g., consulting, occasional contracts, seasonal jobs).
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lecithar
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Re: Preparing for retirement in mid 30s

Post by lecithar »

awval999 wrote: Wed Sep 16, 2020 5:51 pm My only recommendation would be to buy a small house in cash to limit risk of rent increases.
You can easily have a 3/2 1500 sqft for $150,000 in the Midwest/South.
Yes, I am seriously considering this. It will require working several more years, but it means my family will not be beholden to landlords. And it means I can withdraw less from my portfolio, which will give more favorable tax benefits and a larger margin of error.
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lecithar
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Re: Preparing for retirement in mid 30s

Post by lecithar »

drk wrote: Wed Sep 16, 2020 6:16 pm Until the kids are grown, I would maintain a contingency plan to add new income if necessary (e.g., consulting, occasional contracts, seasonal jobs).
If financial disaster strikes, I am willing to do whatever it takes, including getting random part-time jobs. But my expectation is that this risk is very low and I do not want to overcompensate for it. If it happens I will deal with it then in whatever way I can.
Last edited by lecithar on Wed Sep 16, 2020 9:39 pm, edited 1 time in total.
Topic Author
lecithar
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Re: Preparing for retirement in mid 30s

Post by lecithar »

Tingting1013 wrote: Wed Sep 16, 2020 6:10 pm OP my only suggestion is to diversify some of your VOO into VXUS. 60 years is a long time to bet on US equity dominance.
I don't trust foreign political systems. There is too much potential for shenannigans. The US political system has its problems but it is one of the the least worst options out there, it is certainly more trustworthy than random countries.
drk
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Re: Preparing for retirement in mid 30s

Post by drk »

lecithar wrote: Wed Sep 16, 2020 6:27 pm If financial disaster strikes, I am willing to do whatever it takes, including getting random part-time jobs. But my expectation is that this risk is very low and I do not want to overcompensate for it. if it happens I will deal with it then in whatever way I can.
I hear you. Based on your situation, I'm assuming that you're in a well-compensated industry. If you can parlay your experience into some infrequent consulting gigs or contract projects, you'll keep your connections warm and hopefully be able to avoid having to take random part-time jobs.
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BolderBoy
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Re: Preparing for retirement in mid 30s

Post by BolderBoy »

TheTimeLord wrote: Wed Sep 16, 2020 6:00 pm I just ran the numbers in Firecalc. $1,500,000 portfolio, 90/10 AA for 65 year retirement and here is what I got (much to my surprise I might add). People feel free to double-check.

A spending level of $51,965 provided a success rate of 100.0% (85 total cycles, of which 0 failed). This spending level is 3.46% of your starting portfolio.
At what inflation rate? I'm still surprised it works and would be biting my nails if I tried it.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
runner540
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Re: Preparing for retirement in mid 30s

Post by runner540 »

lecithar wrote: Wed Sep 16, 2020 6:35 pm
Tingting1013 wrote: Wed Sep 16, 2020 6:10 pm OP my only suggestion is to diversify some of your VOO into VXUS. 60 years is a long time to bet on US equity dominance.
I don't trust foreign political systems. There is too much potential for shenannigans. The US political system has its problems but it is one of the the least worst options out there, it is certainly more trustworthy than random countries.
You can have a strong political system but that doesn’t guarantee that US equities will continue their recent dominance for 2 more generations.
Transparency International puts US at #23. Behind Uruguay, Estonia among others. Tied with France. https://www.transparency.org/en/cpi#
sailaway
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Re: Preparing for retirement in mid 30s

Post by sailaway »

lecithar wrote: Wed Sep 16, 2020 6:21 pm
awval999 wrote: Wed Sep 16, 2020 5:51 pm My only recommendation would be to buy a small house in cash to limit risk of rent increases.
You can easily have a 3/2 1500 sqft for $150,000 in the Midwest/South.
Yes, I am seriously considering this. It will require working several more years, but it means my family will not be beholden to landlords. And it means I can withdraw less from my portfolio, which will give more favorable tax benefits and a larger margin of error.
It doesn't require working any longer, as long as you make a choice that compensates for the rent you would be paying.

The biggest flaw I see is your ability to control your taxable income and how that may affect your plans for medical. You are in danger of too little for ACA subsidies, but too many assets for Medicaid.

Well, that and the normal, how realistic is your budget? How long have you been tracking? Have you taken lumpy expenses, like car repairs, into account? What adjustments have you made for the lifestyle change?
toocold
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Re: Preparing for retirement in mid 30s

Post by toocold »

I think if you saved up 1.5M yourself (and not inherited or won the lotto), you'll be fine. You can make adjustments I'm sure. Just make sure you guys don't get a divorce -- that will kill your plan.

This amount is more than what MMM had when he pulled the trigger. Good luck!
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Re: Preparing for retirement in mid 30s

Post by drk »

BolderBoy wrote: Wed Sep 16, 2020 6:43 pm At what inflation rate? I'm still surprised it works and would be biting my nails if I tried it.
It's using CPI to project the inflation rate, which honestly means that it's probably overestimating.
Last edited by drk on Wed Sep 16, 2020 7:14 pm, edited 1 time in total.
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mrspock
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Re: Preparing for retirement in mid 30s

Post by mrspock »

novemberrain wrote: Wed Sep 16, 2020 5:48 pm If the market drops 50% ?
I love when people ask this.

Better question: when you work yourself into the grave, saving every penny so you have 50x expenses to survive two back to back great depressions. What good is the money to you then? Ya that’s what I thought.

OP, I say do it, but trim the budget a bit if the market drops. You are young, if sequence of return risk happens you can always go back to work. If it doesn’t.... we’ll 50% drops won’t matter at all.
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lecithar
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Re: Preparing for retirement in mid 30s

Post by lecithar »

sailaway wrote: Wed Sep 16, 2020 6:47 pm The biggest flaw I see is your ability to control your taxable income and how that may affect your plans for medical. You are in danger of too little for ACA subsidies, but too many assets for Medicaid.
Good point about ACA. I will need to figure out how the ACA system works. Maybe dividend and bond income is enough to qualify. If not I can realize some capital gains. I have been very good at performing tax-loss harvesting, for example I have never had to pay tax on capital gains.
Last edited by lecithar on Wed Sep 16, 2020 9:33 pm, edited 1 time in total.
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TxAg
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Re: Preparing for retirement in mid 30s

Post by TxAg »

Seems irresponsible to work the healthcare system in your favor when you can clearly keep working. Admittedly, I'm not fully informed on the subject matter, though.


Also, what about college costs for your kids?
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vitaflo
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Re: Preparing for retirement in mid 30s

Post by vitaflo »

You’ll know within 10 years whether your plan will actually work long term or not. If you’re willing to go back to work should the worst happen, I’d go for it. When you retire young you still have that option.
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lecithar
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Re: Preparing for retirement in mid 30s

Post by lecithar »

sailaway wrote: Wed Sep 16, 2020 6:47 pm How realistic is your budget? How long have you been tracking? Have you taken lumpy expenses, like car repairs, into account? What adjustments have you made for the lifestyle change?
I learned an effective budgeting trick in college. Track all of your spending and if you go over your spending level for the month, switch to a stash of rice and beans. Then stop spending until the next month. It requires an emergency fund that you refill periodically during surplus months.
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BolderBoy
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Re: Preparing for retirement in mid 30s

Post by BolderBoy »

drk wrote: Wed Sep 16, 2020 7:14 pm
BolderBoy wrote: Wed Sep 16, 2020 6:43 pm At what inflation rate? I'm still surprised it works and would be biting my nails if I tried it.
It's using CPI to project the inflation rate, which honestly means that it's probably overestimating.
Okay. The average annual inflation rate from 1900 - 2015 comes out to about 3.22%.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
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Re: Preparing for retirement in mid 30s

Post by Dottie57 »

drk wrote: Wed Sep 16, 2020 7:14 pm
BolderBoy wrote: Wed Sep 16, 2020 6:43 pm At what inflation rate? I'm still surprised it works and would be biting my nails if I tried it.
It's using CPI to project the inflation rate, which honestly means that it's probably overestimating.
MMM started a second career.
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simplesimon
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Re: Preparing for retirement in mid 30s

Post by simplesimon »

lecithar wrote: Wed Sep 16, 2020 6:35 pm
Tingting1013 wrote: Wed Sep 16, 2020 6:10 pm OP my only suggestion is to diversify some of your VOO into VXUS. 60 years is a long time to bet on US equity dominance.
I don't trust foreign political systems. There is too much potential for shenannigans. The US political system has its problems but it is one of the the least worst options out there, it is certainly more trustworthy than random countries.
Weird rationale. Which of these random countries are you referring to and how much of your portfolio would actually be exposed to them? https://investor.vanguard.com/etf/profi ... folio/vxus
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lecithar
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Re: Preparing for retirement in mid 30s

Post by lecithar »

TxAg wrote: Wed Sep 16, 2020 7:28 pm What about college costs for your kids?
Public colleges are fine. Besides, with the extra time I will have in retirement, I can give them a head start on education that is likely to be superior to any private school in the world.
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BolderBoy
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Re: Preparing for retirement in mid 30s

Post by BolderBoy »

Dottie57 wrote: Wed Sep 16, 2020 7:35 pm
drk wrote: Wed Sep 16, 2020 7:14 pm
BolderBoy wrote: Wed Sep 16, 2020 6:43 pm At what inflation rate? I'm still surprised it works and would be biting my nails if I tried it.
It's using CPI to project the inflation rate, which honestly means that it's probably overestimating.
MMM started a second career.
Who or what is "MMM"?
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
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simplesimon
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Re: Preparing for retirement in mid 30s

Post by simplesimon »

BolderBoy wrote: Wed Sep 16, 2020 7:48 pm
Dottie57 wrote: Wed Sep 16, 2020 7:35 pm
drk wrote: Wed Sep 16, 2020 7:14 pm
BolderBoy wrote: Wed Sep 16, 2020 6:43 pm At what inflation rate? I'm still surprised it works and would be biting my nails if I tried it.
It's using CPI to project the inflation rate, which honestly means that it's probably overestimating.
MMM started a second career.
Who or what is "MMM"?
Mr. Money Mustache - a guy who blogs about extreme frugality and makes 6-7 figures off his website doing so.
Last edited by simplesimon on Wed Sep 16, 2020 7:53 pm, edited 1 time in total.
random_walker_77
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Re: Preparing for retirement in mid 30s

Post by random_walker_77 »

lecithar wrote: Wed Sep 16, 2020 7:27 pm
sailaway wrote: Wed Sep 16, 2020 6:47 pm The biggest flaw I see is your ability to control your taxable income and how that may affect your plans for medical. You are in danger of too little for ACA subsidies, but too many assets for Medicaid.
Good point about ACA. I will need to figure out how the ACA system works. Maybe dividend and bond income is enough to qualify. If not I can realize some capital gains. I have been very good at performing tax-loss harvesting, for example I have never had to pay federal tax on capital gains.
Dividends, interest, capital gains, and even tax-exempt interest is included into ACA's MAGI.

Be cautious about firecalc. Since it's based on historical data, and there aren't very many independent 60 year periods, the results get squirrely. I'm not sure you can trust it for any period over 40 years. One thought is to take the worst case from a 30 year period and then run that as the starting results for another 30 year period. If you do this, and explore a bit, you'll notice that it gets squirrely if you try to repeat using 3 x 20 year periods. Those discrepancies can give you a feel for how much to trust these sorts of extrapolations.

If your income is high now, but would be low if you had to go back to work, given you're in your mid-30s, it might be worth saving a few more years to build up a bit more safety margin.

I'm also not sure I'd want to go into retirement with a 90/10 portfolio -- that might be fine at that age when you won't be retiring for 30 years, but if you're about to retire and depend on it, it'd seem like a 70/30 or 60/40 would be more appropriate
SCb&b
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Re: Preparing for retirement in mid 30s

Post by SCb&b »

Do you really hate your job that much? What will you do for mental stimulation for the next 50 years?

You have hobbies - will you bore of them after 6 months of doing every day?

Monetarily, probably fine. I'd own a house to protect against inflation.
Longdog
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Re: Preparing for retirement in mid 30s

Post by Longdog »

Kids are expensive, and get more and more so as they age. Do you not plan to send them to college? I am skeptical that your 45K per year, inflation adjusted, is realistic for 20 years or more, especially with children. Will you have a car to pay for and/or maintain? How often will you require a new one? I think your assumption about getting very low cost health insurance for your family for so long is optimistic and naive. I believe you'd be taking a pretty big risk (especially since you said you can't fail), but the fact that you're 90% in stocks suggests you have a high risk tolerance, which seems inconsistent with your inability to fail.

Go for it and keep us posted. Best of luck!
Steve
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Re: Preparing for retirement in mid 30s

Post by Wannaretireearly »

lecithar wrote: Wed Sep 16, 2020 7:41 pm
TxAg wrote: Wed Sep 16, 2020 7:28 pm What about college costs for your kids?
Public colleges are fine. Besides, with the extra time I will have in retirement, I can give them a head start on education that is likely to be superior to any private school in the world.
Mind sharing your career background area?
What else do you plan to do? I.e. what hobbies do you have?
Congrats on a great job saving.
I'm waiting for the kids to be outta the house first, then the party starts :D
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TxAg
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Re: Preparing for retirement in mid 30s

Post by TxAg »

lecithar wrote: Wed Sep 16, 2020 7:41 pm
TxAg wrote: Wed Sep 16, 2020 7:28 pm What about college costs for your kids?
Public colleges are fine. Besides, with the extra time I will have in retirement, I can give them a head start on education that is likely to be superior to any private school in the world.
I agree with public college. Is that cost included in the $45k/yr?
Mr.BB
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Re: Preparing for retirement in mid 30s

Post by Mr.BB »

You really don't have any wiggle room. If you don't work anymore what does Social Security say you will have coming to you at age 70? What if you end up with a big hospital bill? Did you figure in inflation over the next 30 years?
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."
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LilyFleur
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Re: Preparing for retirement in mid 30s

Post by LilyFleur »

lecithar wrote: Wed Sep 16, 2020 6:21 pm
awval999 wrote: Wed Sep 16, 2020 5:51 pm My only recommendation would be to buy a small house in cash to limit risk of rent increases.
You can easily have a 3/2 1500 sqft for $150,000 in the Midwest/South.
Yes, I am seriously considering this. It will require working several more years, but it means my family will not be beholden to landlords. And it means I can withdraw less from my portfolio, which will give more favorable tax benefits and a larger margin of error.
States in the midwest/South may not have Medicaid if that is what your income level certain years puts you at for health care. No one really knows the future of the ACA; it is going before the Supreme Court in the near future. Anyone in your family could acquire a chronic health condition at any time, and getting employment and good insurance may be problematic the longer you've been away from the workplace. Before the ACA, people with pre-existing conditions who didn't get insurance through an employer's group plan were @*#* out of luck. The United States is the only wealthy nation where people, even those with health insurance, suffer from medical bankruptcy. Additionally, since a great deal of your money is in a taxable account, it will not have the legal protections that an ERISA plan (i.e., 401k) would have against creditors.

Have you and your wife worked the 40 quarters required in order to collect social security someday?
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Re: Preparing for retirement in mid 30s

Post by AerialWombat »

Longdog wrote: Wed Sep 16, 2020 7:54 pm Kids are expensive, and get more and more so as they age. Do you not plan to send them to college? I am skeptical that your 45K per year, inflation adjusted, is realistic for 20 years or more, especially with children. Will you have a car to pay for and/or maintain? How often will you require a new one? I think your assumption about getting very low cost health insurance for your family for so long is optimistic and naive. I believe you'd be taking a pretty big risk (especially since you said you can't fail), but the fact that you're 90% in stocks suggests you have a high risk tolerance, which seems inconsistent with your inability to fail.

Go for it and keep us posted. Best of luck!
You do realize that millions of American families with children live just fine on less than $45k per year, right?
jsapiandante
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Re: Preparing for retirement in mid 30s

Post by jsapiandante »

BolderBoy wrote: Wed Sep 16, 2020 7:33 pm
drk wrote: Wed Sep 16, 2020 7:14 pm
BolderBoy wrote: Wed Sep 16, 2020 6:43 pm At what inflation rate? I'm still surprised it works and would be biting my nails if I tried it.
It's using CPI to project the inflation rate, which honestly means that it's probably overestimating.
Okay. The average annual inflation rate from 1900 - 2015 comes out to about 3.22%.
The average return during the same time period is 11.53%. As long as he knows the risk (and he seems to), then based on historical data, he should be fine. A lot of people like to project their own fears to someone else but as long as one is willing to adapt, then go for it.
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lecithar
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Re: Preparing for retirement in mid 30s

Post by lecithar »

TxAg wrote: Wed Sep 16, 2020 7:55 pm I agree with public college. Is that cost included in the $45k/yr?
Having a small loan to pay for public school tuition is fine. If they want, I would be willing to move to whatever college town they are in so they can save on rent. Or they can get a modest loan for living expenses and live bare-bones like I did in college.

When my wife and I die, they will inherit a good chunk of money. It will be roughly equivalent to an inflation-adjusted 1.5M today. Because my retirement plan is to only spend 3% plus inflation and counts on portfolio growth of 3% plus inflation, the true value remains the same forever.

So, assuming we can raise the kids right, college costs is not an issue.
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Re: Preparing for retirement in mid 30s

Post by JGoneRiding »

lecithar wrote: Wed Sep 16, 2020 6:21 pm
awval999 wrote: Wed Sep 16, 2020 5:51 pm My only recommendation would be to buy a small house in cash to limit risk of rent increases.
You can easily have a 3/2 1500 sqft for $150,000 in the Midwest/South.
Yes, I am seriously considering this. It will require working several more years, but it means my family will not be beholden to landlords. And it means I can withdraw less from my portfolio, which will give more favorable tax benefits and a larger margin of error.
No it shouldn't change your immediate numbers at all and if it does your numbers arent strong enough. Right now you are saying you need 45k income to rent. It's being suggested you shift some of your net worth into a fixed asset as a housing inflation hedge. This should immediately drop your projected spend and therefore also drop your needed savings.
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Re: Preparing for retirement in mid 30s

Post by Dottie57 »

BolderBoy wrote: Wed Sep 16, 2020 7:48 pm
Dottie57 wrote: Wed Sep 16, 2020 7:35 pm
drk wrote: Wed Sep 16, 2020 7:14 pm
BolderBoy wrote: Wed Sep 16, 2020 6:43 pm At what inflation rate? I'm still surprised it works and would be biting my nails if I tried it.
It's using CPI to project the inflation rate, which honestly means that it's probably overestimating.
MMM started a second career.
Who or what is "MMM"?
Mr Money Mustache - a FIRE proponent who makes money from his blog.

I replied to wrong post

I replied to the wrong post.
Last edited by Dottie57 on Wed Sep 16, 2020 8:31 pm, edited 4 times in total.
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Watty
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Re: Preparing for retirement in mid 30s

Post by Watty »

One thing to be aware of is that FireCalc and most of the other retirement planners have a big problem with a 60 year retirement plan. That is because the last dataset they can use starts in 1959 so they have a very limits number of trials that they can backtest on. In essence when they say a 0% chance of failure they are saying that for someone who retired in 1959 or before. The world has changed a lot since then.

awval999 wrote: Wed Sep 16, 2020 5:51 pm .....
My only recommendation would be to buy a small house in cash to limit risk of rent increases.
You can easily have a 3/2 1500 sqft for $150,000 in the Midwest/South.
I agree with that idea. Not only do you not have to worry about rent increases but lowering your income needs will also reduce your sequence of returns risk since you will need to make lower withdraws from your nestegg. You could even be getting close to being able to live on your dividends.

My situation was much different and I retired in my late 50s and having a paid off house sure made my retirement numbers work a lot better.

It would be a good idea to rent for a year wherever you move to make sure that area will work OK for you.
Normchad wrote: Wed Sep 16, 2020 5:51 pm If your income is below the federal poverty level, you generally don’t qualify for ACA subsidies but may qualify for Medicaid.
There is a "catch 22" in that. It is possible that your income will be so low that you do not qualify for an ACA subsidy but if you live in a state that has not expanded Medicaid you may not be able to actually get on Medicaid.
lecithar wrote: Wed Sep 16, 2020 5:40 pm Do you see any big problems with our plan?
One huge risk is that your marriage might not survive moving to a different place and living together 24/7 on a frugal budget. This is especially true in a pandemic where you may not be able to get out and do much and your kids may be doing their classes remotely from home.
lecithar wrote: Wed Sep 16, 2020 5:40 pm ....so we cannot fail.
You could greatly improve your odds if you found part time or seasonal work to bring in a little bit of money. For example if you each found jobs that you enjoyed that paid $500 a month, that would be $6,000 a year each or $12,000 a year combined. That could be a quarter to a third of your budget, depending on what you decide to do about renting or buying a house. There are jobs like umpiring high school sports, being a paid church organist, etc that do not pay a lot but people enjoy doing that and it brings in a little bit of money.

Some other advantages would be;
1) You could make Roth or IRA contributions.
2) You Social Security is based on your 35 highest years of inflation adjusted earnings. Right now you would have a lot of zero years so that the extra years of income would noticeably increase your eventual Social Security check.

Just for brainstorming I have also known people that were laid off in their 50s that were not able to find a new job in their field so they ended up being school bus drivers as a bridge job to retirement. At least around here(in normal times) they are always looking for school bus drivers because it does not pay enough for someone that needs a full time job. The job comes with benefits and you get summers and school holidays off so that worked for them. I also know someone that worked in a school cafeteria for similar reasons.
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Re: Preparing for retirement in mid 30s

Post by Dottie57 »

toocold wrote: Wed Sep 16, 2020 6:49 pm I think if you saved up 1.5M yourself (and not inherited or won the lotto), you'll be fine. You can make adjustments I'm sure. Just make sure you guys don't get a divorce -- that will kill your plan.

This amount is more than what MMM had when he pulled the trigger. Good luck!
MMM started a second career As a FIRE blogger who makes a lot of money.....
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lecithar
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Re: Preparing for retirement in mid 30s

Post by lecithar »

JGoneRiding wrote: Wed Sep 16, 2020 8:22 pm
lecithar wrote: Wed Sep 16, 2020 6:21 pm
awval999 wrote: Wed Sep 16, 2020 5:51 pm My only recommendation would be to buy a small house in cash to limit risk of rent increases.
You can easily have a 3/2 1500 sqft for $150,000 in the Midwest/South.
Yes, I am seriously considering this. It will require working several more years, but it means my family will not be beholden to landlords. And it means I can withdraw less from my portfolio, which will give more favorable tax benefits and a larger margin of error.
No it shouldn't change your immediate numbers at all and if it does your numbers arent strong enough. Right now you are saying you need 45k income to rent. It's being suggested you shift some of your net worth into a fixed asset as a housing inflation hedge. This should immediately drop your projected spend and therefore also drop your needed savings.
Agreed. I can sell 150k stock now and use it to buy a house. My income will drop from 45k/yr to 40.5k/yr but I no longer have a rent payment (although I will now have to pay propery taxes, maintenance, and insurance). Overall it is a good trade to make for a more stable housing situation.
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Re: Preparing for retirement in mid 30s

Post by MotoTrojan »

lecithar wrote: Wed Sep 16, 2020 6:35 pm
Tingting1013 wrote: Wed Sep 16, 2020 6:10 pm OP my only suggestion is to diversify some of your VOO into VXUS. 60 years is a long time to bet on US equity dominance.
I don't trust foreign political systems. There is too much potential for shenannigans. The US political system has its problems but it is one of the the least worst options out there, it is certainly more trustworthy than random countries.
If I felt this way I would invest in VEA (excludes emerging markets) but it's frankly silly to say you trust the US political system more than other developed nations.
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