Topic Title: Looking to retire early, always helpful to have a second (3rd, 4th..) set of eyes on the data to see if i’m thinking straight or not 8-)
Life Situation: Married filing jointly, i’m 46, DW is 44 (and plans to work forever). One child in college (full ride scholarship). US citizen living in US.
Gross Salary/Wages: $168k for me, $88k for DW. Total HH gross = $256k/yr.
Individual amounts of each Pre-tax deductions $18.5k for me, $8k for DW’s 403Bb
Other Ordinary Income: None.
Qualified Dividends & Long Term Capital Gains: None.
Rental Income, Actual Expenses, and Depreciation: No rental properties. Annual expenses are averaging between $60-70k for the past few years.
Current expenses: No real estate expenses except for taxes (approx $7k annually). Total annual expenses are between $60-70k, which do include monies i spend for reimbursable work expenses - approximately $10k. Should i stop working, we’d anticipate our total annual expenses to be in the $60k area, w/o changing our lifestyle at all. Up until this point we've been hammering away at mortgage (paying 6x the monthly payment each month towards principle until it hit zero).
Assets:
Home - $500k - no payment, we own it.
Total retirement funds - $1,040,000
Own 3 vehicles outright
Short term reserves (banks) - $140k cash
Liabilities: None.
Specific Question(s):
For our planning purposes, DW plans to continue to work at her job for at least the next 20 years, with a current annual salary of $88k, of which $8k goes towards her 403b. We are debt free. Our goal is to have a very high level of confidence that we’d generate $100k/year for 30 years, starting drawdown at 65. Our retirement funding will come from:
- Standard retirement funds (401k/403b) - by my math - at a valuation of $1,040,000 today - if i work for another 12 months and we continue to contribute at the rate we have been, assuming a 5% annual return, it’s value should be about $1,125,000 in 12 months. If i stop working at that point, and DW continues funding at 8% of her salary for the next 20 years, assuming a 5% return annual, that should grow to approx $3.3mm USD - giving us $132k/year to live off of at a 4% withdrawal rate. Our 10 year historical average return rate is 11.4%. Using a 25x multiple of our spend - we’d seem to need ~$1.5mm USD at time of retirement to maintain our standard of living. At a $100k spend level (increasing our standard of living in retirement), we’d need $2.5mm USD balance in 401k. If it grows to north of $3mm USD - that feels like we’re in pretty good shape?
- Social Security estimates place us (jointly) receiving ~$50k/year if we start taking at 67. Lets be cautious and say it’s $40k - if we add that to our retirement funds - that takes the annual pretax annual retirement funds to $172k/year ($132k+$40k)
- Pension - I’ll get about $18k/year pension starting at 65. Adding that to the above - that brings us to $190k/year.
- House - we could, of course - sell our house (currently valued at $500k). Not working that into the above figures just because i don’t think we need to….
If i were to stop working 40hours 12 months from today - our annual expenses are ~$60k/year, and we’ve got 20 years before we pull from retirement accounts, DW’s salary should be able to cover our annual expenses until retirement, and we’ve got a healthy cash buffer if we find that there are years where it doesn’t. Her employment will provide our health care should i stop working. DW is a tenured professor - which basically means she has to kill someone to lose her job, and even then it better be one heckuva brutal murder. High confidence in her job stability, and in her own words 'she wants to work forever' (or at least until 'conventional' retirement age).
Net/Net - to me - the above all seems to be pointing to me feeling comfortable with walking away from corporate america in 12 months. I’d love it if the ‘wisdom of the crowds here’ would be willing to take a look at the above and see if you’re seeing something that I’m not….
Thanks in advance folks!