Author Topic: Reader Case Study - Is FIRE date of 1/1/18 feasible?  (Read 4491 times)

tealduck

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Reader Case Study - Is FIRE date of 1/1/18 feasible?
« on: January 04, 2017, 11:05:22 AM »
Life Situation: My wife and I will both be 56, married filing jointly, no kids.
Debt & Social Security: We have no debt and we’ll wait until age 70 to collect social security which will be $46K (today’s dollars).
Qualified Dividends & Long Term Capital Gains: 1.24m stash invested in following manner.  $402K – taxable account, $809K tax deferred, and $29K in Roth IRA --- each of these funds is about 60% total stock market index / 40% individual stocks. If this generates 5% annual earnings that should yield $62K. 
Adjusted Gross Income: I ran my numbers through the full program at the i-orp modeling site.  The guidance there indicates to optimize distributions through retirement years to age 100(!) I should begin in the initial year by taking a distribution of (40K tax-def + 25K after-tax + 12K (PTC “aca health insurance” payment) = 77K – taxes = 73K (after-tax, after inflation).  We won’t access it if not needed.
My Question: Is this truly feasible?  On paper it looks like it could be but I’m a bit surprised by that and still a bit uncomfortable?  I’m open to any criticism, deserved face punches (expenses below), or suggestions offered.  Thanks for any input.

Monthly Expenses (categorized) = $4,803                                                                Annual Expenses = $57,636
Rent, electric, rental insurance = 1,675, 40, 14…($1,729)                                                    $20,748
Cable TV/Internet, cell phone, subscriptions = 110, 100, 65…($275)                                    $3,300
Groceries, dining out, entertainment = 825, 350, 200…($1,375)                                            $16,500
Auto (gas), auto insurance, auto maintenance = 150, 68, 50…($268)                                    $3,216
Health club membership, haircare, clothing = 390, 141, 120…($651)                                    $7,812
Health Insurance, dental insurance = 385, 15…($400)                                                            $4,800
Charitable = 55…($55)                                                                                                    $660
Miscellaneous = 50…($50)                                                                                                    $600


trammatic

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Re: Reader Case Study - Is FIRE date of 1/1/18 feasible?
« Reply #1 on: January 04, 2017, 11:52:32 AM »
Looks mostly alright to me.  Are those expenses at current costs or estimated costs?  Specifically, health insurance, auto, etc. or anything else that might change once you retire.  Also, 5% is a tad aggressive, but you only have 13 years until social security kicks in and covers almost 80% of your expenses (assuming COLAs remain relatively consistent with inflation...)

I'd make the jump.

tealduck

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Re: Reader Case Study - Is FIRE date of 1/1/18 feasible?
« Reply #2 on: January 04, 2017, 12:00:14 PM »
Thanks, Trammatic.  The costs are in today's dollars so I'd expect healthcare premium and other expenses would decrease over time.  However, i do realize that as the medicare kicks in we could have higher medical costs just due to the aging process.

trammatic

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Re: Reader Case Study - Is FIRE date of 1/1/18 feasible?
« Reply #3 on: January 04, 2017, 12:18:20 PM »
I wasn't specifically talking inflation...rather, when you leave work, are your premiums going to change?  Are you currently on a group plan that will disappear?  If you have to get an exchange plan (provided something will be available), I don't think you'll be able to get much (or any) coverage for $385/month for two 50-year olds.  I guess I was making sure you'd gone through the thought process of which expenses will go away with retirement (work clothes, work lunches, commuting costs, etc.) and which (if any) would increase.  That's the number you want to project on.

tealduck

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Re: Reader Case Study - Is FIRE date of 1/1/18 feasible?
« Reply #4 on: January 04, 2017, 12:29:55 PM »
Trammatic - sorry, misunderstood comments.  The net premium should stay the same as the $385, I'll explain.  We have our own business that we'll be shutting down this year.  So, we're already paying $1,240 per month ACA premium in state of MN, as small business in this state we're currently caught up in the individual market which is very expensive. But, that $1,240 per month we'll pay this year and after we'd FIRE is subsidized in the amount of $855 leaving us with the net $385 to pay out of our business today, and out of our pocket in 2018.

Another Reader

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Re: Reader Case Study - Is FIRE date of 1/1/18 feasible?
« Reply #5 on: January 04, 2017, 12:43:39 PM »
This forum is frequented by younger folks that tend to be overly optimistic.  For a more realistic appraisal of your chances of success, try the older and more critical eyes at early-retirement.org.

Right away I see you have not considered things like replacing your car.  Also, where are you getting your insurance costs?  Unless you have retiree medical or something similar that covers both of you, the ACA will cost you much more.  At your age, the premiums will rise significantly and the co-pays and out of pocket costs will be substantially more than you have budgeted.  If the ACA is eliminated, getting health insurance at all could be difficult.

Social Security is also under review.  You may find your benefit reduced or eliminated through means testing.  In your shoes, I would consider using 70 percent of your current PIA in my calculations.  That might make the 5 percent withdrawal rate unreasonable.  You are also up against sequence of returns risk because you are so heavily dependent on portfolio withdrawals in the early years.  A 30 percent decline in the value of your portfolio could have both of you scrambling for paid employment.

Unless I could reduce my expenses significantly and had some type of reliable part time or seasonal paid employment, I would not take the risk.

Another Reader

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Re: Reader Case Study - Is FIRE date of 1/1/18 feasible?
« Reply #6 on: January 04, 2017, 12:48:36 PM »
As a follow up:  It would be foolish to rely on the ACA in its' current incarnation.   There is no guarantee it will continue to exist or that coverage will be available at a subsidized price or at all.  In your shoes, I would plan on full cost insurance with high deductibles and co-pays.   It would be better to hold off until the insurance situation is resolved.

tealduck

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Re: Reader Case Study - Is FIRE date of 1/1/18 feasible?
« Reply #7 on: January 04, 2017, 01:03:28 PM »
Another Reader: Good advice, thank you! 

To clarify on health insurance we currently pay $1,240 per month with a nearly 6K deductible.  But, the current ACA cost share works out so that we end up paying $385 per month.  Still we have a 6K deductible annually, we do max out our HSA. 

I've been concerned about the means testing of SoSec so good tip on that.  Regarding the new car we'll be able to survive on one car, we just bought a new 2016 subaru with cash and my other car is 21 years old but still ticking.  But, we're running a test now to see if we can survive with one car and so far so good.  But, i'll take the advice and look building in a cash cushion for new car in several years. 

Thanks again.

Another Reader

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Re: Reader Case Study - Is FIRE date of 1/1/18 feasible?
« Reply #8 on: January 04, 2017, 01:16:37 PM »
In your situation, sequence of returns matters.  If you retired under your plan at the beginning of 2008, where would you be today? At 100 percent equities, how would you survive a 30 or 50 percent drop in your portfolio?  I would want a Plan B (for Back up) for that scenario.