KF's Worst Case Retirement Plan [KlangFool's]

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HomerJ
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Re: KF's Worst Case Retirement Plan

Post by HomerJ » Fri Jun 02, 2017 12:54 pm

KlangFool wrote:
UncleBen wrote:You are proposing a 6% WD rate for 8 years until SS, then probably continuing at about 6% withdrawing $30k from the remaining $520 or so? It sounds risky to me. Without the mortgage it would be more acceptable. But otherwise early retirement doesn't sound like great idea (unless there is a pension you aren't telling us about).
UncleBen,

I may be forced into early retirement. I may not have a choice.

KlangFool
Then you may have to cut back on your expenses. You may not have a choice.

(okay, you always have a choice. With your low expenses, working a low-paying job for a few years will actually make a real difference).

KlangFool
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Re: KF's Worst Case Retirement Plan

Post by KlangFool » Fri Jun 02, 2017 1:23 pm

HomerJ wrote:
KlangFool wrote:
UncleBen wrote:You are proposing a 6% WD rate for 8 years until SS, then probably continuing at about 6% withdrawing $30k from the remaining $520 or so? It sounds risky to me. Without the mortgage it would be more acceptable. But otherwise early retirement doesn't sound like great idea (unless there is a pension you aren't telling us about).
UncleBen,

I may be forced into early retirement. I may not have a choice.

KlangFool
Then you may have to cut back on your expenses. You may not have a choice.

(okay, you always have a choice. With your low expenses, working a low-paying job for a few years will actually make a real difference).
HomerJ,

You are correct.

KlangFool

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HomerJ
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Re: KF's Worst Case Retirement Plan

Post by HomerJ » Fri Jun 02, 2017 1:33 pm

KlangFool wrote:I hope so but I cannot count on it. The IT world is too volatile and we are in a major paradigm shift.
Which shift is that?

smitcat
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Re: KF's Worst Case Retirement Plan

Post by smitcat » Fri Jun 02, 2017 1:48 pm

KlangFool wrote:
smitcat wrote:
KlangFool wrote:
smitcat wrote:
I guess with your knowledge of your home country and the data you have just posted my question would be why are you not there already?
20-30 / full heath care / a location you know well and like - do those facts not make the rest of this post a worthless excercise?
smitcat,

1) My kids are in college. We cannot leave for the next 3 years.

2) My portfolio is growing 100K per year as long as I am employed.

3) My wife would like to take care of her elder mother living in this area.

KlangFool

Respectfully given those 3 constraints my thoughts would be.....
We have recently discovered that there are a number if jobs with homeland security and the port authority that have lower but reason able salaries but full health care coverage. Many of these are adjacent to lower costs areas in the southeast where we have looked - this could be one of a few ideas on how to bridge a potential gap in both funds and health care. Others may include teaching, offshore representation for larger companies and translating positions.
smitcat,

As per my understanding, if I move away from the state of Virginia, my kids would have to pay out-of-state tuition. That would double their tuition cost. That cost increase would be at least 30K per year.

KlangFool

There are three separate but potential solutions to that problem:

1. Look for these same types of job opportunities in Virginia , they do exist all over
2. Have the kids set up residence in Virginia and receive both the lower tuition and other discounts as a result. My daughter is about 6 years ahead of yours but she has many friends who have done just that with good results. The last one accomplished it by setting up residence in Penn. to achieve in state tuition and other local area benefits (currently still completing grad school there).
3. Have the kids qualify for the benefits in the new location , it can be done quickly if/as necessary but research ahead of time is key.

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Re: KF's Worst Case Retirement Plan

Post by KlangFool » Fri Jun 02, 2017 1:50 pm

HomerJ wrote:
KlangFool wrote:I hope so but I cannot count on it. The IT world is too volatile and we are in a major paradigm shift.
Which shift is that?
HomerJ,

1) It is getting CLOUDy. -> Cloud computing

2) Software Defined Network (SDN)

3) Network Function Virtualization (NFV)

4) IoT

5) Big Data

6) AI / Neural Network

7) Quantum computing

I could go on. But, it is not clear that which trend will hold on or it is a passing fad.

KlangFool

KlangFool
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Re: KF's Worst Case Retirement Plan

Post by KlangFool » Fri Jun 02, 2017 1:56 pm

smitcat wrote:
There are three separate but potential solutions to that problem:

1. Look for these same types of job opportunities in Virginia , they do exist all over
2. Have the kids set up residence in Virginia and receive both the lower tuition and other discounts as a result. My daughter is about 6 years ahead of yours but she has many friends who have done just that with good results. The last one accomplished it by setting up residence in Penn. to achieve in state tuition and other local area benefits (currently still completing grad school there).
3. Have the kids qualify for the benefits in the new location , it can be done quickly if/as necessary but research ahead of time is key.
smitcat,

1) It is possible.

(2) and (3) are possible if my kids are not in college and about to graduate in 2 to 3 years. It is cheaper and safer just bite the bullet and hang on here for that 2 to 3 years.

I understand your suggestion. It is something that I might explore in 3 years' time.

KlangFool

marcopolo
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Re: KF's Worst Case Retirement Plan

Post by marcopolo » Fri Jun 02, 2017 1:57 pm

KlangFool wrote:
As per my understanding, if I move away from the state of Virginia, my kids would have to pay out-of-state tuition. That would double their tuition cost. That cost increase would be at least 30K per year.

KlangFool

Double check that. In some states, once you have enrolled as an in-state student, you maintain that status even if your parents move out of state, as long as you are continuously enrolled. I am not sure in VA is on of those states.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: KF's Worst Case Retirement Plan

Post by marcopolo » Fri Jun 02, 2017 1:59 pm

KlangFool wrote:
HomerJ wrote:
KlangFool wrote:I hope so but I cannot count on it. The IT world is too volatile and we are in a major paradigm shift.
Which shift is that?
HomerJ,

1) It is getting CLOUDy. -> Cloud computing

2) Software Defined Network (SDN)

3) Network Function Virtualization (NFV)

4) IoT

5) Big Data

6) AI / Neural Network

7) Quantum computing

I could go on. But, it is not clear that which trend will hold on or it is a passing fad.

KlangFool

I don't quite get it. IT, and technology in general, is always in some kind of "paradigm shift" How did you handle that the last 20 years?
Once in a while you get shown the light, in the strangest of places if you look at it right.

KlangFool
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Re: KF's Worst Case Retirement Plan

Post by KlangFool » Fri Jun 02, 2017 2:05 pm

marcopolo wrote:
KlangFool wrote:
HomerJ wrote:
KlangFool wrote:I hope so but I cannot count on it. The IT world is too volatile and we are in a major paradigm shift.
Which shift is that?
HomerJ,

1) It is getting CLOUDy. -> Cloud computing

2) Software Defined Network (SDN)

3) Network Function Virtualization (NFV)

4) IoT

5) Big Data

6) AI / Neural Network

7) Quantum computing

I could go on. But, it is not clear that which trend will hold on or it is a passing fad.

KlangFool

I don't quite get it. IT, and technology in general, is always in some kind of "paradigm shift" How did you handle that the last 20 years?
marcopolo,

By working 40 hours per week and spending another 20 to 40 hours per week learning on the side.

KlangFool

marcopolo
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Re: KF's Worst Case Retirement Plan

Post by marcopolo » Fri Jun 02, 2017 2:25 pm

KlangFool wrote: marcopolo,

By working 40 hours per week and spending another 20 to 40 hours per week learning on the side.

KlangFool

Yeah. I can see not wanting to do that as one get close to being able to pull the rip cord on early retirement.

I think you are in good shape, and have several contingencies in case things go worse than expected.

Best of luck,
Marcopolo
Once in a while you get shown the light, in the strangest of places if you look at it right.

harvestbook
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Re: KF's Worst Case Retirement Plan

Post by harvestbook » Fri Jun 02, 2017 2:38 pm

I'd like it better without the mortgage but it's certainly doable. There are worst-case scenarios largely dealing with health, but given the bond market is likely to return less than your mortgage rate over the next 10 years--I'd try to stay employed till I got that mortgage knocked off. That would certainly make any subsequent belt-tightening easier. (Either way, I think it's doable--we too often overlook the probable outcomes by focusing on the possible disasters too much. I'd certainly be full retired if I had a million).
I'm not smart enough to know, and I can't afford to guess.

KlangFool
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Re: KF's Worst Case Retirement Plan

Post by KlangFool » Fri Jun 02, 2017 2:45 pm

Folks,

This is OT. I lost a few hundred thousand (50% of my investment at that) in stock during Telecom bust 10+ years. If I did not make that mistake, I would have been Financially Independent a few years ago. That mistake costs me at least 5 years in reaching my FI.

KlangFool

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Re: KF's Worst Case Retirement Plan

Post by bloom2708 » Fri Jun 02, 2017 3:12 pm

Going into retirement with an upper $2XXk mortgage would not sit well with me.

I know some Bogleheads love them some big mortgages, but that would be my hurdle to tackle before quitting.

But then, we borrowed $125k on our first house and $130k on our second house. Paid it off as fast as possible. No regrets. Hope to downsize when last of three kids is approaching graduation.

But then, you could take out a new cash out mortgage and invest that to prop up your retirement portfolio. :wink:
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

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Re: KF's Worst Case Retirement Plan

Post by delamer » Fri Jun 02, 2017 3:28 pm

harvestbook wrote:I'd like it better without the mortgage but it's certainly doable. There are worst-case scenarios largely dealing with health, but given the bond market is likely to return less than your mortgage rate over the next 10 years--I'd try to stay employed till I got that mortgage knocked off. That would certainly make any subsequent belt-tightening easier. (Either way, I think it's doable--we too often overlook the probable outcomes by focusing on the possible disasters too much. I'd certainly be full retired if I had a million).
It is pointless to try to incorporate black swan events -- like nuclear war -- into retirement planning.

But the reason for planning is to test out a variety scenarios that may not be probable but are possible. There are several financial catastrophes that have occurred in the last 100 years that could happen again.

KlangFool just mentioned that he lost half of his savings in the recent tech bust. Maybe there is a low probability that he would lose that much again. But it would be a low probability attached to a very high cost, for a retiree.

KlangFool
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Re: KF's Worst Case Retirement Plan

Post by KlangFool » Fri Jun 02, 2017 4:36 pm

Folks,

As per the 300K mortgage, I have the money in my taxable account to pay it off. It just does not make any financial sense in term of tax planning, liquidity and so on to do it at this moment.

KlangFool

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Re: KF's Worst Case Retirement Plan

Post by KlangFool » Fri Jun 02, 2017 4:37 pm

delamer wrote:
harvestbook wrote:I'd like it better without the mortgage but it's certainly doable. There are worst-case scenarios largely dealing with health, but given the bond market is likely to return less than your mortgage rate over the next 10 years--I'd try to stay employed till I got that mortgage knocked off. That would certainly make any subsequent belt-tightening easier. (Either way, I think it's doable--we too often overlook the probable outcomes by focusing on the possible disasters too much. I'd certainly be full retired if I had a million).
It is pointless to try to incorporate black swan events -- like nuclear war -- into retirement planning.

But the reason for planning is to test out a variety scenarios that may not be probable but are possible. There are several financial catastrophes that have occurred in the last 100 years that could happen again.

KlangFool just mentioned that he lost half of his savings in the recent tech bust. Maybe there is a low probability that he would lose that much again. But it would be a low probability attached to a very high cost, for a retiree.
delamer,

I was 100% stock at that time. Now, I am 63/37 gliding towards 60/40.

KlangFool

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Re: KF's Worst Case Retirement Plan

Post by indexonlyplease » Fri Jun 02, 2017 5:10 pm

Klangfool, see it this helps,

Maybe if you follow the plan on this webstie it will work. I have been reading this site for a couple of years. The family lives frugal and both retired early. I beleive 40s.. I believe they live off of $30,000yr

http://www.mrmoneymustache.com

KlangFool
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Re: KF's Worst Case Retirement Plan

Post by KlangFool » Fri Jun 02, 2017 5:27 pm

indexonlyplease wrote:Klangfool, see it this helps,

Maybe if you follow the plan on this webstie it will work. I have been reading this site for a couple of years. The family lives frugal and both retired early. I beleive 40s.. I believe they live off of $30,000yr

http://www.mrmoneymustache.com
indexonlyplease,

Thanks for the information. But, I do not think it will help me. My annual expense excluding mortgage and medical is only 20K per year. And, I live in an HCOL area.

KlangFool

delamer
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Re: KF's Worst Case Retirement Plan

Post by delamer » Fri Jun 02, 2017 5:36 pm

KlangFool wrote:
delamer wrote:
harvestbook wrote:I'd like it better without the mortgage but it's certainly doable. There are worst-case scenarios largely dealing with health, but given the bond market is likely to return less than your mortgage rate over the next 10 years--I'd try to stay employed till I got that mortgage knocked off. That would certainly make any subsequent belt-tightening easier. (Either way, I think it's doable--we too often overlook the probable outcomes by focusing on the possible disasters too much. I'd certainly be full retired if I had a million).
It is pointless to try to incorporate black swan events -- like nuclear war -- into retirement planning.

But the reason for planning is to test out a variety scenarios that may not be probable but are possible. There are several financial catastrophes that have occurred in the last 100 years that could happen again.

KlangFool just mentioned that he lost half of his savings in the recent tech bust. Maybe there is a low probability that he would lose that much again. But it would be a low probability attached to a very high cost, for a retiree.
delamer,

I was 100% stock at that time. Now, I am 63/37 gliding towards 60/40.

KlangFool
Yes, so hopefully losing 50% of your assets again is unlikely.

I was trying to make the point to harvestbook that planning needs to include possible disasters. In fact, to me, that is the point of planning. If assets always increased in value by the average amount and no one was ever involuntarily unemployed, then there would be much less need for anyone to post in this forum.

smitcat
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Re: KF's Worst Case Retirement Plan

Post by smitcat » Fri Jun 02, 2017 6:00 pm

indexonlyplease wrote:Klangfool, see it this helps,

Maybe if you follow the plan on this webstie it will work. I have been reading this site for a couple of years. The family lives frugal and both retired early. I beleive 40s.. I believe they live off of $30,000yr

http://www.mrmoneymustache.com

Certainly some of the ideas on that site are very good - but he definitely does not live on $30,00/year.
That site was and is a business play that worked out pretty well.

curmudgeon
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Re: KF's Worst Case Retirement Plan

Post by curmudgeon » Fri Jun 02, 2017 6:42 pm

I am of the camp that considers a mortgage to be like a "negative bond". It's not an exact thing, but it has aspects of that nature if you don't have income. If you take it in that form, then your logical AA would be 90/10, a bit aggressive for this scenario. On the other hand, I also think of SS as having fixed-income characteristics, so when you start collecting SS, the AA flips the other way. Since your mortgage has 24 years to run, arguably in the long term it is somewhat balanced by SS.

One question: where is your property tax bill in the budget? Is it in with the mortgage, or is part of the $20K basic budget?

On a very basic level, yes, you could make it work. For simplicity sake, we will assume you take SS and go on medicare at the same time, Age 65. At that point your medical expenses should drop significantly, perhaps giving you a budget of $45K with mortgage or $25K without. If you have spent $660K across those 11 years, then you are at about $40K SS income and a 4% SWR on $340K (something like $13K).

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Re: KF's Worst Case Retirement Plan

Post by KlangFool » Fri Jun 02, 2017 6:50 pm

curmudgeon wrote:
One question: where is your property tax bill in the budget? Is it in with the mortgage, or is part of the $20K basic budget?
curmudgeon,

The property tax is about $4,500 per year. It is part of the 20K mortgage. So, I have to pay that even with the mortgage gone.

KlangFool

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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by LadyGeek » Fri Jun 02, 2017 7:26 pm

This thread is now in the Personal Finance (Not Investing) forum (retirement planning). I also retitled the thread to help with the username.

Have you tried Retiree Portfolio Model spreadsheet?
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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by AmericaFirst » Fri Jun 02, 2017 7:47 pm

KlangFool wrote:Folks,

This is my worst-case retirement scenario. Please review and criticize.

1) Retire at 54 years old with a portfolio of 1 million and the AA of 60/40

2) 300K Mortgage. 6 years into 30 years 3.49% fixed rate mortgage.

3) Taxable/Roth/Tax-deferred 45/10/45

4) Annual expense = 60K with the mortgage, 40K without the mortgage. Out of that 40K/60K, 20K is budgeted for medical expense.

5) I had passed the second bend point with social security. Below is my estimated social security income.

20K at 62 years old
29K at 67 years old
36K at 70 years old

Stay-at-home spouse received 50% of my social security income.

Thanks in advance.

KlangFool
It's a solid plan and very doable! $40k for living expenses is more than enough.

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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by qwertyjazz » Fri Jun 02, 2017 7:55 pm

KF
I see a disconnect that comes from not understanding the utility you personally place in living in VA. Given your expenses, I see it hard to imagine that as a backup you could not find a job making 20-30K a year near where you lived (1/6 of your current salary I think) as a back up. You might not like the job but there is usually something. That would let you protect your nest egg for a couple of years if you had to. Now, if leaving VA is preferable to that, it does not have anything to do with income availability but rather employment differential. Would you to a grunt IT job or data entry etc or Walmart or etc etc? I am not sure I would want that degree of change, especially given other choices in living experience. But you can control sequence of return and potential firing if willing to do that.
So deep down, how much do you want to stay in Virginia if you were let go and could not get anything even close to comparable?

Regards
QJ
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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by KlangFool » Fri Jun 02, 2017 8:09 pm

qwertyjazz wrote:KF
I see a disconnect that comes from not understanding the utility you personally place in living in VA. Given your expenses, I see it hard to imagine that as a backup you could not find a job making 20-30K a year near where you lived (1/6 of your current salary I think) as a back up. You might not like the job but there is usually something. That would let you protect your nest egg for a couple of years if you had to. Now, if leaving VA is preferable to that, it does not have anything to do with income availability but rather employment differential. Would you to a grunt IT job or data entry etc or Walmart or etc etc? I am not sure I would want that degree of change, especially given other choices in living experience. But you can control sequence of return and potential firing if willing to do that.
So deep down, how much do you want to stay in Virginia if you were let go and could not get anything even close to comparable?

Regards
QJ
QJ,

1) I only need to live in Virginia for the next 3 years until my kids graduated from college.

2) So, if I was laid off and could not find comparable employment, I only need to endure up to 3 years.

3) And, when my kids graduated from college and if they could find employment in this area, we could live in the same household and share expenses.

4) All else failed, it makes a lot more sense for me to sell the house and move to a lower cost section of Virginia, different States or a different country. The move will more than makes up the difference of having a 30K job.

KlangFool

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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by qwertyjazz » Fri Jun 02, 2017 8:14 pm

KlangFool wrote:
qwertyjazz wrote:KF
I see a disconnect that comes from not understanding the utility you personally place in living in VA. Given your expenses, I see it hard to imagine that as a backup you could not find a job making 20-30K a year near where you lived (1/6 of your current salary I think) as a back up. You might not like the job but there is usually something. That would let you protect your nest egg for a couple of years if you had to. Now, if leaving VA is preferable to that, it does not have anything to do with income availability but rather employment differential. Would you to a grunt IT job or data entry etc or Walmart or etc etc? I am not sure I would want that degree of change, especially given other choices in living experience. But you can control sequence of return and potential firing if willing to do that.
So deep down, how much do you want to stay in Virginia if you were let go and could not get anything even close to comparable?

Regards
QJ
QJ,

1) I only need to live in Virginia for the next 3 years until my kids graduated from college.

2) So, if I was laid off and could not find comparable employment, I only need to endure up to 3 years.

3) And, when my kids graduated from college and if they could find employment in this area, we could live in the same household and share expenses.

4) All else failed, it makes a lot more sense for me to sell the house and move to a lower cost section of Virginia, different States or a different country. The move will more than makes up the difference of having a 30K job.

KlangFool
KF
So you have answered your own question. You could make it work.
Hopefully, it will not come to it, but you should not fear it if it did.
In other words, you are FI and not reliant on your job with your expenses and willingness to make changes.
Regards,
QJ
G.E. Box "All models are wrong, but some are useful."

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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by bhough » Fri Jun 02, 2017 8:38 pm

Dear KlangFool,

Thank you for your comments on this board. They are all very insightful. I look forward to seeing your name when I read a post in the reply portion.

I sympathize with your situation as I have my own sense of job insecurity. My wife feels that my job is more secure than I think it is. I wonder what your wife thinks. She probably has more insight than we do to your situation.

In my mind, if you are clever enough to have three kids in college, save all that money, work in IT and live on only $40,000, you are adaptable enough for any future setbacks. Future setbacks may include: losing your job. Having your job change. Having your boss change. Having your house change. Having the country where you live change. Living in an apartment rather than a house. Living in the backroom of your grown kids' houses instead of your own. Having less money each month. If they fire you tomorrow, you may not have enough money to go golfing everyday for the next 50 years and buy a new car every two years, but is that really important to you? I also suspect that your kids are like my kids. They love you because you are nice to them and love them. While you don't want to depend on them, they will be there if you need them.

In brief, I can tell that you are smart, resourceful, persistent and wise. You have more than enough money. As my father says, "relax and keep working". Don't forget the relax part. Hope this helps. It probably won't. But your anxiety is what has caused you to save so diligently. This is a problem we all face, especially on this board-turning off the emotion that has caused us to be financially successful/frugal when it starts to bother us,...

B

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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by KlangFool » Fri Jun 02, 2017 8:43 pm

qwertyjazz wrote:
KF
So you have answered your own question. You could make it work.
Hopefully, it will not come to it, but you should not fear it if it did.
In other words, you are FI and not reliant on your job with your expenses and willingness to make changes.
Regards,
QJ
QJ,

Thanks for your questions. It helps me to run through the thought process. It would be great for the job to last a bit longer. But, I would have to make do with whatever comes next.

KlangFool

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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by knpstr » Fri Jun 02, 2017 9:23 pm

$1M quite reliably will allow for $30,000/yr. If your bare bones budget is $20,000/yr, it would seem you are likely fine if you lose your job tomorrow.

Ideally, you'd want to afford your full lifestyle of $60,000/yr which requires a full $2M for sleep well at night reliability.

$1.5M gives you $45,000/yr which is sufficient with the mortgage paid off, (which would require $1.8M then subtract 300K).

Even the numbers as they are: $60K with $1M could even still work if you are lucky in the market. But you may not sleep well.

Note:
With my conservative withdrawal rate of 3%: your $20,000/yr in mortgage cash outflow requires $667,000 in nest egg to maintain that payment. It could be worthwhile to simply pay off the $300K mortgage thereby "freeing up" an extra $367K in nest egg potential for living expenses, which translates to any extra $11,000 per year.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by MikeWillRetire » Fri Jun 02, 2017 9:28 pm

Assuming your expenses are $60k for most of your retired life. From age 54 to 62, you need 8x60k=$480k. At age 62, you and your spouse will receive a total of $30k from SS, so you will need an additional $30k per year from age 62 onward. Assuming a 4%WR, you will need an additional 25x30k=$750k. So $1.3 million minimum.

KlangFool
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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by KlangFool » Fri Jun 02, 2017 9:42 pm

bhough wrote:Dear KlangFool,

Thank you for your comments on this board. They are all very insightful. I look forward to seeing your name when I read a post in the reply portion.

I sympathize with your situation as I have my own sense of job insecurity. My wife feels that my job is more secure than I think it is. I wonder what your wife thinks. She probably has more insight than we do to your situation.

In my mind, if you are clever enough to have three kids in college, save all that money, work in IT and live on only $40,000, you are adaptable enough for any future setbacks. Future setbacks may include: losing your job. Having your job change. Having your boss change. Having your house change. Having the country where you live change. Living in an apartment rather than a house. Living in the backroom of your grown kids' houses instead of your own. Having less money each month. If they fire you tomorrow, you may not have enough money to go golfing everyday for the next 50 years and buy a new car every two years, but is that really important to you? I also suspect that your kids are like my kids. They love you because you are nice to them and love them. While you don't want to depend on them, they will be there if you need them.

In brief, I can tell that you are smart, resourceful, persistent and wise. You have more than enough money. As my father says, "relax and keep working". Don't forget the relax part. Hope this helps. It probably won't. But your anxiety is what has caused you to save so diligently. This is a problem we all face, especially on this board-turning off the emotion that has caused us to be financially successful/frugal when it starts to bother us,...

B
bhough,

1) I have 2 kids in college.

2) I had to be resourceful in order to survive. Throughout my working lives of 30+ years, I did not have any long stretch of a good time. I was in Houston during Houston 80s Oil Bust. I was in Texas during Texas Saving & Loan crisis. I was in Asia during Asian currency crisis. Then, I was in Telecom during Telecom bust.

KlangFool

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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by KlangFool » Fri Jun 02, 2017 9:44 pm

Folks,

So, it looks like 1 million is challenging. 1.3 million is quite safe. 1.5 million should be very safe.

KlangFool

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whodidntante
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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by whodidntante » Fri Jun 02, 2017 9:59 pm

If you could cut your housing expenses and free up that 100k equity it would be a bit easier.

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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by letsgobobby » Fri Jun 02, 2017 10:13 pm

KlangFool wrote:Folks,

So, it looks like 1 million is challenging. 1.3 million is quite safe. 1.5 million should be very safe.

KlangFool
the problem is sequence of returns. Starting with a 6% withdrawal for 8 years could be fine if stocks go up 10% per year. Very bad if stocks are +2%. Catastrophic if stocks are down or even flat.

finite_difference
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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by finite_difference » Fri Jun 02, 2017 10:19 pm

Here's a worst case scenario. The day you retire at 54 with $1,000,000, the stock market crashes by 50% and takes 15 years to recover. Let's say it remains flat over 8 years, until you collect SS at 62. Since you are 60/40 you lose 30%, so you are down to $700,000. You need to withdraw $60k per year for expenses, but you tighten your belt and only end up withdrawing $50k per year.

So after 8 years you are down to $300,000. Then you start to collect SS, which yields $20k + $10k = $30k per year with your spouse. Now you only need to withdraw $30k. That year stocks shoot up 50%. You sold all your bonds waiting for the market to recover ($400k of bonds), so you have $300k in stock. After a 50% increase you now have $450k. You then rebalance back to 60/40.

Assuming no further growth, your money will last you another 15 years @ 30k/year or 22.5 years @ $20k/year. So that would put you at 77 or 84.5. A 3% SWR on $450k would yield $13.5k per year or $43.5k per year when combined with SS.

Basically I think you would be in pretty good shape but would be really bulletproof if you had your mortgage paid off since that drops your expenses down to $40k per year (which would basically be the same as having $1.3 million instead of $1.0 million.) Also, the above scenario I outlined is really quite terrible.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by KlangFool » Fri Jun 02, 2017 10:20 pm

letsgobobby wrote:
KlangFool wrote:Folks,

So, it looks like 1 million is challenging. 1.3 million is quite safe. 1.5 million should be very safe.

KlangFool
the problem is sequence of returns. Starting with a 6% withdrawal for 8 years could be fine if stocks go up 10% per year. Very bad if stocks are +2%. Catastrophic if stocks are down or even flat.
letsgobobby,

If the return rate of my portfolio is less than 3.49%, then, paying off the 300K mortgage and getting a guaranteed 3.49% return makes a lot of sense.

KlangFool

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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by KlangFool » Fri Jun 02, 2017 10:29 pm

finite_difference wrote:
Here's a worst case scenario. The day you retire at 54 with $1,000,000, the stock market crashes by 50% and takes 15 years to recover.
finite_difference,

If the stock market crashes and take 15 years to recover, there will be a lot more people in trouble than me. The majority will not survive for more than 2 years. I would not worry about my investment. There will be a worse problem than having enough money to survive. I kept some gold jewelry for that kind of situation.

https://en.wikipedia.org/wiki/1997_Asia ... ial_crisis

I had lived through those kinds of situation before during 97 Asian financial crisis. It was only 2 to 3 years. And, the average saving rate of those countries is much higher than the USA.

KlangFool

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Leif
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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by Leif » Fri Jun 02, 2017 11:01 pm

It is not surprising (to me) that bogleheads say a million bucks, plus SS will not do the job for early retirement. But with the info you've given I think you should be able to manage just fine. Lavish retirement, no. But a vast majority of retires would love to have a million on retirement. Subtract your liability is $700,000 (not including your home's value).

According to Investopedia, the estimated median savings of fifty something is $117,000. They say by 60 you "should have" six times your final salary. Estimated median is $172,000.

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Re: KF's Worst Case Retirement Plan

Post by unclescrooge » Fri Jun 02, 2017 11:35 pm

smitcat wrote:My brother spends about 10 months each year in Thailand two trips an year for the past 6-7 years.
His costs have been pretty low and controllable and he has some funds established over there now for quite some time.
As shown by his actions he absolutely loves the country....
The recent politics there have him very concerned and rethinking his longer range plans.
I was going to suggest KF live in Thailand on $30k/ year.

Haven't been tracking the local politics, but then again U.S.politics is just as concerning.

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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by AlohaJoe » Sat Jun 03, 2017 12:08 am

KlangFool wrote:If the stock market crashes and take 15 years to recover, there will be a lot more people in trouble than me. The majority will not survive for more than 2 years.
The Japanese stock market crashed and has taken 30 years to recover but everyone there seems fine.

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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by davidsorensen32 » Sat Jun 03, 2017 12:30 am

I wouldn't do it if I had a choice. Work till you bank $2M at least. Depending on the kindness of relatives to keep you from the poor house is bad planning IMO. Ditto on absconding to a foreign country, unless its one of the handful of OECD countries with excellent health coverage. Kill the mortgage. Save $2M if you can. Then hang up your boots. And start SS as soon as you qualify. Don't let the government hoodwink you out of your hard earned entitlements. I'm the exact same situation BTW. If I lose my job - can happen anytime - I expect a long period of under or unemployment because I'm on the wrong side of the paradigm shift currently underway in IT and the wrong side of the age divide with age discrimination so rampant that I'm planning to write a letter to our President.

KlangFool wrote:Folks,

This is my worst-case retirement scenario. Please review and criticize.

1) Retire at 54 years old with a portfolio of 1 million and the AA of 60/40

2) 300K Mortgage. 6 years into 30 years 3.49% fixed rate mortgage.

3) Taxable/Roth/Tax-deferred 45/10/45

4) Annual expense = 60K with the mortgage, 40K without the mortgage. Out of that 40K/60K, 20K is budgeted for medical expense.

5) I had passed the second bend point with social security. Below is my estimated social security income.

20K at 62 years old
29K at 67 years old
36K at 70 years old

Stay-at-home spouse received 50% of my social security income.

Thanks in advance.

KlangFool
Last edited by davidsorensen32 on Sat Jun 03, 2017 12:36 am, edited 2 times in total.

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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by willthrill81 » Sat Jun 03, 2017 12:32 am

KlangFool wrote:
finite_difference wrote:
Here's a worst case scenario. The day you retire at 54 with $1,000,000, the stock market crashes by 50% and takes 15 years to recover.
finite_difference,

If the stock market crashes and take 15 years to recover, there will be a lot more people in trouble than me. The majority will not survive for more than 2 years. I would not worry about my investment. There will be a worse problem than having enough money to survive. I kept some gold jewelry for that kind of situation.

https://en.wikipedia.org/wiki/1997_Asia ... ial_crisis

I had lived through those kinds of situation before during 97 Asian financial crisis. It was only 2 to 3 years. And, the average saving rate of those countries is much higher than the USA.

KlangFool
That's quite true, but it wouldn't change your level of pain. That happened in Japan and could happen here, though I personally doubt very much that it will.

Frankly, I think that you may be borrowing trouble from tomorrow that may not materialize. If you do lose your job, the economy seems good enough that you shouldn't have any trouble, even at your age, of getting a job making at least half as much as you do now, even if the work is totally different. The beauty of HCOL areas is that even low wages, in this instance, would be enough to give you a enough safety to make $1M work out very nicely.

Regarding medical expenses, if you see that those are getting out of hand, then just become a medical tourist or leave the country, as you've already said you would be willing to do.

As another option, if this did materialize, I would recommend that you consider either paying off your mortgage entirely with your bond money or at least continue to make the mortgage payments with the bond money, leaving your stocks alone. Yes, this would result in an increase in your stock allocation, but you mortgage rate is probably the same or higher than current bond yields anyway.

And even if you were 'forced' to use a 6% WR, the likelihood of the portfolio failing in 16 years is very low. If you could wait until age 70 to start SS, it sounds like you would be in great shape, even if your portfolio is a fraction of what it is now.

You'll be fine. :beer
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by unclescrooge » Sat Jun 03, 2017 12:54 am

KlangFool wrote:
bhough wrote:Dear KlangFool,

Thank you for your comments on this board. They are all very insightful. I look forward to seeing your name when I read a post in the reply portion.

I sympathize with your situation as I have my own sense of job insecurity. My wife feels that my job is more secure than I think it is. I wonder what your wife thinks. She probably has more insight than we do to your situation.

In my mind, if you are clever enough to have three kids in college, save all that money, work in IT and live on only $40,000, you are adaptable enough for any future setbacks. Future setbacks may include: losing your job. Having your job change. Having your boss change. Having your house change. Having the country where you live change. Living in an apartment rather than a house. Living in the backroom of your grown kids' houses instead of your own. Having less money each month. If they fire you tomorrow, you may not have enough money to go golfing everyday for the next 50 years and buy a new car every two years, but is that really important to you? I also suspect that your kids are like my kids. They love you because you are nice to them and love them. While you don't want to depend on them, they will be there if you need them.

In brief, I can tell that you are smart, resourceful, persistent and wise. You have more than enough money. As my father says, "relax and keep working". Don't forget the relax part. Hope this helps. It probably won't. But your anxiety is what has caused you to save so diligently. This is a problem we all face, especially on this board-turning off the emotion that has caused us to be financially successful/frugal when it starts to bother us,...

B
bhough,

1) I have 2 kids in college.

2) I had to be resourceful in order to survive. Throughout my working lives of 30+ years, I did not have any long stretch of a good time. I was in Houston during Houston 80s Oil Bust. I was in Texas during Texas Saving & Loan crisis. I was in Asia during Asian currency crisis. Then, I was in Telecom during Telecom bust.

KlangFool
Please let me know where you are heading next! :shock:

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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by itstoomuch » Sat Jun 03, 2017 1:15 am

I bought portfolio insurance :oops: .
Older Bro's Bank previously thought that they had failsafe stops in volatile markets and didn't need "insurance". The stops were removed or ignored. So now the Bank has high monitoring expenses (ie pseudo Insurance) and hedging mechanisms (Insurance). The third path that this bank had ignored was good prudent banking.

So, you need to have alot & excessive assets (money) to weather a worse case scenario, Derisk (assets are unaffected), or buy insurance (sell off risk) for risk management. As in most cases, there are really only three alternatives :annoyed .
YMMV
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by Dandy » Sat Jun 03, 2017 7:56 am

I given thought to how to determine if you have enough to retire i.e. have you reached your number. There should be some rule of thumb like I mention below - but so far as I know there isn't.

Assume a 50% drop in your equities and then subtract 2 years of estimated withdrawals to fund your retirement expenses? After that math how comfortable are you with the number?
If you are, your number appears solid if not you may need to look at your allocation and/or the size of your number.

Retirement at age 54 adds additional concerns i.e. funding several extra years of retirement. I am not sure how to assess what the extra level of risk is but is it likely significant. e.g. longer funding to collect SS, Medicare, pension? greater chance of market/inflation risk, longer period with little or no human capital etc.

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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by KlangFool » Sat Jun 03, 2017 8:51 am

willthrill81 wrote:
KlangFool wrote:
finite_difference wrote:
Here's a worst case scenario. The day you retire at 54 with $1,000,000, the stock market crashes by 50% and takes 15 years to recover.
finite_difference,

If the stock market crashes and take 15 years to recover, there will be a lot more people in trouble than me. The majority will not survive for more than 2 years. I would not worry about my investment. There will be a worse problem than having enough money to survive. I kept some gold jewelry for that kind of situation.

https://en.wikipedia.org/wiki/1997_Asia ... ial_crisis

I had lived through those kinds of situation before during 97 Asian financial crisis. It was only 2 to 3 years. And, the average saving rate of those countries is much higher than the USA.

KlangFool
That's quite true, but it wouldn't change your level of pain. That happened in Japan and could happen here, though I personally doubt very much that it will.

Frankly, I think that you may be borrowing trouble from tomorrow that may not materialize. If you do lose your job, the economy seems good enough that you shouldn't have any trouble, even at your age, of getting a job making at least half as much as you do now, even if the work is totally different. The beauty of HCOL areas is that even low wages, in this instance, would be enough to give you a enough safety to make $1M work out very nicely.
willthrill81,

<< you shouldn't have any trouble, even at your age, of getting a job making at least half as much as you do now, even if the work is totally different.>>

I was unemployed for more than 1 year until 16 months ago. So, I know that statement is not true. I had applied for many of those jobs. In my case, it is more of a hit or miss. For people that need my area of expertise, money is not the problem. For people that do not need me, they would not give me a chance even with 50% cut in salary.

KlangFool

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Re: KF's Worst Case Retirement Plan

Post by indexonlyplease » Sat Jun 03, 2017 9:10 am

smitcat wrote:
indexonlyplease wrote:Klangfool, see it this helps,

Maybe if you follow the plan on this webstie it will work. I have been reading this site for a couple of years. The family lives frugal and both retired early. I beleive 40s.. I believe they live off of $30,000yr

http://www.mrmoneymustache.com

Certainly some of the ideas on that site are very good - but he definitely does not live on $30,00/year.
That site was and is a business play that worked out pretty well.
I can't prove it but on his web site he state all the money made form the blog is donated. I am sure this helps with his taxes.

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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by danaht » Sat Jun 03, 2017 9:58 am

Once you decide to retire - I would sell the house, and move to a lower cost area. You don't need a big house for retirement. That's what I plan to do. I am 45 and also in the IT field (Java developer) - but have been lucky so far in that I have only been laid off once (and found work the next day at a higher pay). But because of all the outsourcing - I can't count on this job / career lasting for much longer. I am in OK shape if it ends right now though.

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Re: KF's Worst Case Retirement Plan [KlangFool's]

Post by willthrill81 » Sat Jun 03, 2017 10:01 am

KlangFool wrote:
willthrill81 wrote:
KlangFool wrote:
finite_difference wrote:
Here's a worst case scenario. The day you retire at 54 with $1,000,000, the stock market crashes by 50% and takes 15 years to recover.
finite_difference,

If the stock market crashes and take 15 years to recover, there will be a lot more people in trouble than me. The majority will not survive for more than 2 years. I would not worry about my investment. There will be a worse problem than having enough money to survive. I kept some gold jewelry for that kind of situation.

https://en.wikipedia.org/wiki/1997_Asia ... ial_crisis

I had lived through those kinds of situation before during 97 Asian financial crisis. It was only 2 to 3 years. And, the average saving rate of those countries is much higher than the USA.

KlangFool
That's quite true, but it wouldn't change your level of pain. That happened in Japan and could happen here, though I personally doubt very much that it will.

Frankly, I think that you may be borrowing trouble from tomorrow that may not materialize. If you do lose your job, the economy seems good enough that you shouldn't have any trouble, even at your age, of getting a job making at least half as much as you do now, even if the work is totally different. The beauty of HCOL areas is that even low wages, in this instance, would be enough to give you a enough safety to make $1M work out very nicely.
willthrill81,

<< you shouldn't have any trouble, even at your age, of getting a job making at least half as much as you do now, even if the work is totally different.>>

I was unemployed for more than 1 year until 16 months ago. So, I know that statement is not true. I had applied for many of those jobs. In my case, it is more of a hit or miss. For people that need my area of expertise, money is not the problem. For people that do not need me, they would not give me a chance even with 50% cut in salary.

KlangFool
I mean completely different work, like the local big box stores.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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