Retirement Age Scenarios (What looks best)?

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JeepDaze
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Joined: Sat Mar 26, 2016 9:19 am

Retirement Age Scenarios (What looks best)?

Post by JeepDaze » Wed Apr 05, 2017 3:21 pm

Just for fun, I am running some numbers through my retirement account spreadsheet and have come up with the 4 scenarios below. I tend to lean towards the age 55 scenario since that's when I will likely pay off the mortgage on my current home. I am 39 years old now. Although I am not against moving and renting the house as an investment property. I would like to retire "early", but "early" can mean different things to many people. Would you choose another option (other than 55) if you have a similar situation?

Assume HCOL area (Washington, D.C. suburbs). Mortgage paid off at age 55. Access to Pension at age 48 or older. Current annual expenses ~ $90k (would be much lower without the mortgage which is ~ $38k per year).

Age: 45 (10 years until mortgage payoff)
401k: $645k
Taxable: $522k
Roth: $134k
Total (w/o Pension): $1.30M
Pension: $212k (can't access until age 48)
Total (w Pension): $1.51M

Age: 50 (5 years until mortgage payoff)
401k: $925k
Taxable: $939k
Roth: $195k
Total (w/o Pension): $2.06M
Pension: $373k (full access - early retirement age is 48)
Total (w Pension): $2.43M

Age: 55 (mortgage paid off)
401k: $1.29M
Taxable: $1.45M
Roth: $273k
Total (w/o Pension): $3.01M
Pension: $618k (full access - early retirement age is 48)
Total (w Pension): $3.63M

Age: 60 (mortgage paid off)
401k: $1.74M
Taxable: $2.06M
Roth: $369k
Total (w/o Pension): $4.17M
Pension: $973k (full access - early retirement age is 48)
Total (w Pension): $5.15M

zuma
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Re: Retirement Age Scenarios (What looks best)?

Post by zuma » Wed Apr 05, 2017 4:35 pm

Just an idea, but could you semi-retire at age 45, work part-time and draw from taxable accounts to cover remaining expenses until you have enough saved for a full-time retirement? That's what I would do, but your plan to wait until the mortgage is paid off sounds more prudent.

delamer
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Re: Retirement Age Scenarios (What looks best)?

Post by delamer » Wed Apr 05, 2017 4:40 pm

What is your current mortgage balance? Are you adding to your investment accounts?

JeepDaze
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Re: Retirement Age Scenarios (What looks best)?

Post by JeepDaze » Wed Apr 05, 2017 4:43 pm

Current mortgage balance is ~ $363k

Yes, I add to all my accounts. I max out 401k, get a 2.5% company match. I max out Roth (back-door). My current projections have me adding ~$55k per year to my taxable account. The scenarios I posted include these additional contributions.
delamer wrote:What is your current mortgage balance? Are you adding to your investment accounts?

JeepDaze
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Re: Retirement Age Scenarios (What looks best)?

Post by JeepDaze » Wed Apr 05, 2017 4:45 pm

I guess that could be an option, but I'd be very hesitant to do that. My job is not bad. A bit too stressful, but manageable. The thought of losing out on the potential extra $$ from Scenarios 2 - 4 scares me. Hence my trepidation to go with Scenario 1.
zuma wrote:Just an idea, but could you semi-retire at age 45, work part-time and draw from taxable accounts to cover remaining expenses until you have enough saved for a full-time retirement? That's what I would do, but your plan to wait until the mortgage is paid off sounds more prudent.

jlcnuke
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Re: Retirement Age Scenarios (What looks best)?

Post by jlcnuke » Wed Apr 05, 2017 4:49 pm

At age 50, assuming a 3% SWR, you need a $1,716,000 investment to cover your non-mortgage expenses ($52k x 33). You also would have 5 years of mortgage expenses totaling $190k to cover. Combined, that would require just over $1.9M and you project over $2.4M at that point.

All of the above also assumes you have no SS payments in the future etc, so is likely overly conservative imo.

I would ask, however, what impact you expect medical insurance to have on your annual expenses after you stop working though, as that can cause a significant increase in expenses for some people that isn't taken into consideration with the above numbers.

If health insurance is covered there, I see no reason to continue past 50 though.

JeepDaze
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Re: Retirement Age Scenarios (What looks best)?

Post by JeepDaze » Wed Apr 05, 2017 4:52 pm

Good point on healthcare. My employer offers COBRA and retiree health coverage. I would hope that health insurance would be more affordable given these benefits, but I would have do more research on my company's HR page to figure out expected costs.
jlcnuke wrote:At age 50, assuming a 3% SWR, you need a $1,716,000 investment to cover your non-mortgage expenses ($52k x 33). You also would have 5 years of mortgage expenses totaling $190k to cover. Combined, that would require just over $1.9M and you project over $2.4M at that point.

All of the above also assumes you have no SS payments in the future etc, so is likely overly conservative imo.

I would ask, however, what impact you expect medical insurance to have on your annual expenses after you stop working though, as that can cause a significant increase in expenses for some people that isn't taken into consideration with the above numbers.

If health insurance is covered there, I see no reason to continue past 50 though.

Silk McCue
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Re: Retirement Age Scenarios (What looks best)?

Post by Silk McCue » Wed Apr 05, 2017 4:54 pm

Are your future figures stated in today's dollars equivalents or inflated dollars. Some of the early options look weak to me even if they are in today's dollars let alone inflation dollars. You have a long retirement following these dates.

Bottom line, are these today's dollars or inflation dollars. If inflation dollars I would suggest flattening them with the effect of a reasonable inflation rate such as like and see how you feel then.

delamer
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Re: Retirement Age Scenarios (What looks best)?

Post by delamer » Wed Apr 05, 2017 4:58 pm

JeepDaze wrote:Current mortgage balance is ~ $363k

Yes, I add to all my accounts. I max out 401k, get a 2.5% company match. I max out Roth (back-door). My current projections have me adding ~$55k per year to my taxable account. The scenarios I posted include these additional contributions.
delamer wrote:What is your current mortgage balance? Are you adding to your investment accounts?
Given that you already have significant liquid assets, you could redirect some of the money going to taxable to paying off your mortgage earlier. If you paid off the mortgage by the time you are eligible for your pension, what would your liquid assets numbers look like at age 48?
Last edited by delamer on Wed Apr 05, 2017 4:59 pm, edited 1 time in total.

JeepDaze
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Re: Retirement Age Scenarios (What looks best)?

Post by JeepDaze » Wed Apr 05, 2017 4:59 pm

I used a 4% expected return assumption to generate future estimated returns. You could view that as a real rate of return as I view that to be a somewhat conservative rate of return. I could bump it up to 7% and have much higher estimates than shown in my 4 scenarios.
Silk McCue wrote:Are your future figures stated in today's dollars equivalents or inflated dollars. Some of the early options look weak to me even if they are in today's dollars let alone inflation dollars. You have a long retirement following these dates.

Bottom line, are these today's dollars or inflation dollars. If inflation dollars I would suggest flattening them with the effect of a reasonable inflation rate such as like and see how you feel then.

drawpoker
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Re: Retirement Age Scenarios (What looks best)?

Post by drawpoker » Wed Apr 05, 2017 5:01 pm

What jumps out at me - the projections you have made for your investments (401-k and taxable) five years from now. When you are age 50.

Do you honestly think the present eight year bull is going to continue? What is your asset mix in the 401-k?

The present bull is not the longest in history, true. But it is getting close to it.

Fortune says that bull markets don't age in actual years anyway but in dog years.

So, this present bull market which celebrated its 8th birthday last month is actually, um, not 8 but 133 years old :shock:

http://fortune.com/2017/03/09/stock-mar ... t-longest/

Not trying to be dumping doom and gloom on your retirement plans. But, if I were your age, and contemplating retirement in only five years as a plan = my 2nd biggest worry (right behind health insurance) would be the bears coming within that 5 year window.

JeepDaze
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Re: Retirement Age Scenarios (What looks best)?

Post by JeepDaze » Wed Apr 05, 2017 5:05 pm

If I redirect the $55k per year taxable account funds toward the mortgage instead, I would have a paid off house and my total balance (including pension) at age 48 would be $1.5M.

$1.8M @ age 50
$2.9M @ age 55
$4.3M @ age 60
delamer wrote:
JeepDaze wrote:Current mortgage balance is ~ $363k

Yes, I add to all my accounts. I max out 401k, get a 2.5% company match. I max out Roth (back-door). My current projections have me adding ~$55k per year to my taxable account. The scenarios I posted include these additional contributions.
delamer wrote:What is your current mortgage balance? Are you adding to your investment accounts?
Given that you already have significant liquid assets, you could redirect some of the money going to taxable to paying off your mortgage earlier. If you paid off the mortgage by the time you are eligible for your pension, what would your liquid assets numbers look like at age 48?

Silk McCue
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Re: Retirement Age Scenarios (What looks best)?

Post by Silk McCue » Wed Apr 05, 2017 5:08 pm

JeepDaze wrote:I used a 4% expected return assumption to generate future estimated returns. You could view that as a real rate of return as I view that to be a somewhat conservative rate of return. I could bump it up to 7% and have much higher estimates than shown in my 4 scenarios.
Silk McCue wrote:Are your future figures stated in today's dollars equivalents or inflated dollars. Some of the early options look weak to me even if they are in today's dollars let alone inflation dollars. You have a long retirement following these dates.

Bottom line, are these today's dollars or inflation dollars. If inflation dollars I would suggest flattening them with the effect of a reasonable inflation rate such as like and see how you feel then.
That's good to know. I think 55 is a good target and believe that the mortgage payoff is key along with the account balances at the much higher level for a long retirement. Before that I wouldn't be comfortable envisioning. You will of course know when you get closer. If the Pension numbers are already adjusted in like fashion for inflation that is great, if not they need to be adjusted down as well.

JeepDaze
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Re: Retirement Age Scenarios (What looks best)?

Post by JeepDaze » Wed Apr 05, 2017 5:08 pm

I agree with you. The first scenario is kind of "pie in the sky" fun to talk about hypothetical. I'm hoping to be able to "retire" (become FI) by the time I hit 50 years old (knock on wood that I am in good health). I'm assuming a 4% annual return in my model for all scenarios.
drawpoker wrote:What jumps out at me - the projections you have made for your investments (401-k and taxable) five years from now. When you are age 50.

Do you honestly think the present eight year bull is going to continue? What is your asset mix in the 401-k?

The present bull is not the longest in history, true. But it is getting close to it.

Fortune says that bull markets don't age in actual years anyway but in dog years.

So, this present bull market which celebrated its 8th birthday last month is actually, um, not 8 but 133 years old :shock:

http://fortune.com/2017/03/09/stock-mar ... t-longest/

Not trying to be dumping doom and gloom on your retirement plans. But, if I were your age, and contemplating retirement in only five years as a plan = my 2nd biggest worry (right behind health insurance) would be the bears coming within that 5 year window.

jlcnuke
Posts: 434
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Re: Retirement Age Scenarios (What looks best)?

Post by jlcnuke » Wed Apr 05, 2017 5:09 pm

drawpoker wrote:What jumps out at me - the projections you have made for your investments (401-k and taxable) five years from now. When you are age 50.

Do you honestly think the present eight year bull is going to continue? What is your asset mix in the 401-k?

The present bull is not the longest in history, true. But it is getting close to it.

Fortune says that bull markets don't age in actual years anyway but in dog years.

So, this present bull market which celebrated its 8th birthday last month is actually, um, not 8 but 133 years old :shock:

http://fortune.com/2017/03/09/stock-mar ... t-longest/

Not trying to be dumping doom and gloom on your retirement plans. But, if I were your age, and contemplating retirement in only five years as a plan = my 2nd biggest worry (right behind health insurance) would be the bears coming within that 5 year window.
I'm planning for retirement in the next 5-7 years. I have considered bear market scenarios, but they have historically been fairly short-lived, with 1.5 years to recover being a "long" bear market historically.

Image

Even the "bad" bear markets (>20% drop) recover on average within 2 years historically. As such, I plan on not needing to prolong working but accept that market conditions between now and full retirement may necessitate adjusting plans in the next few years. OP should be able to do the same I'd think.

drawpoker
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Re: Retirement Age Scenarios (What looks best)?

Post by drawpoker » Wed Apr 05, 2017 7:21 pm

Well, that is a very odd chart, isn't it. At least they are honest, showing the 10% to 20% range. Aren't listing the 20% and higher stuff. So as not to frighten the faint-hearted, eh, maybe?

Right off, I saw it doesn't list some of the scarier roller coaster rides I have been on. Like Oct 19, 1987, when the DOW dropped 22.6%, largest one day drop ever. Remember? Funny, that didn't make your list.

And I can't forget August 1990 when that guy (what was his name?) invaded Kuwait, or Saudi Arabia, or whatever country it was. Can't recall now the amount of the drop, but it brought the bears, put us into a recession which didn't end until they decided to hold The First Gulf war in late Jan 1991.

That didn't make your list either. (Maybe because after the dust settled and everything got back to normal, it was either 1992 or 1993, can't remember now which, that the VG Index 500 returned over 22% for the year, either matching or exceeding the S&P index, an all-time record for the time. :D )

I suppose for someone who is 90%-100% invested in the Index 500 for their equities allocation this chart would be of interest. Or, comfort, to be frank. But, IMO, no one should be positioned that way, no matter what their age.

Everybody needs diversification. Large cap, mid-cap, small cap value, Nasdaq, etc. In the years when the 500 slips other sectors can have some fantastic growth (like OTC stocks are doing right now) :D :D

jlcnuke
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Re: Retirement Age Scenarios (What looks best)?

Post by jlcnuke » Thu Apr 06, 2017 5:36 am

The article it's from includes a chart of just the >20% drops as well. For space, simplicity, etc I summarized it for you in the last paragraph with "Even the "bad" bear markets (>20% drop) recover on average within 2 years historically. "

The time to recover also assumes that's your only asset. As you mentioned, it's unlikely an intelligent investor is 100% invested in the S&P 500. Thus, both the severity and the time to recover from bear markets should be lower in many cases.

For the record, the worst performance was a recovery that took almost 6 year (1970's).

Regardless, my statement about being able to adjust to market conditions leading up to retirement still stands. I highly doubt the OP is going to get to a set date and say "golly, I said I'd retire this year so I guess I have to despite my portfolio dropping 75% yesterday and obviously no longer being sufficient to support me financially".

drawpoker
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Re: Retirement Age Scenarios (What looks best)?

Post by drawpoker » Thu Apr 06, 2017 10:10 am

jlcnuke wrote:
For the record, the worst performance was a recovery that took almost 6 year (1970's).
For the record, worst performance was it took 25 years for the Dow to recover its 1929 high.

Aug 24, 1921 to Sept 3, 1929: Up 497%
Sept 3, 1929 to July 8, 1932: Down 89%
Source, WSJ Market Data Group; "The New York Stock Exchange: The First 200 Years" Greenwich Publishing

Granted, with the creation of the SEC and more recent protocols such as implementation of circuit breakers, risk fire walls, etc. chance of a repeat of 1929 is remote. Probably for most investors the Great Recession ( portfolio drops in 40% - 50% range common) is the benchmark. Since it is so fresh in peoples' minds. Also, what should be even fresher is 2015 - The "flat year" when the S&P 500 ended almost exactly where it started, and 70% of investors lost money.

Agree with you that the OP, or anyone planning retirement, should have a backup plan in the event of some calamity in the markets that occurs right around the timed date of retirement.

What is going to be awkward is IF the bear appears a few weeks After he has officially retired, and suddenly all those rosy projections he had made about 4% or 7% growth evaporate. And instead morph into negative territory big time. :(

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