41 y/o case study – do you think early retirement is possible?

[ghart832]

Life Situation: 41 y/o male in a big city in Texas, no dependents

Gross Salary/Wages: I currently have a nice salary over 125K salary; however my work in the company is going down, so I am not feeling confident that I will be able to keep this job for a long time and I have been thinking about early retirement recently, so I want to check on here whether I am ready to quit or if I am ready in case of a forced layoff.
 
Other Ordinary Income: Annual $12.5K interest income from a number of CDs

Qualified Dividends & Long Term Capital Gains: Annual $5.5K dividend income from after-tax brokerage account

Rental Income: Annual $7K rental income from one rental property (it is paid off, this is net income after taxes, expenses, insurance, etc.)

Total current passive income: $25K
 
Current expenses:
Housing: $700/month (property tax, insurance, maintenance, utilities, etc.) the house is already paid off
Car/transportation: $250/month (gas, insurance, maintenance) Note: I currently have a $450 monthly car loan, but it will be paid off in 5 months or so, so I don’t need to include that car payment long term.)
Groceries: $300/month
Restaurants/misc. entertainment: $300/month
Healthcare: $100/month
Cell phone: $75/month
Gym membership:  $75/month
Other misc: $200/month
Total: $2000/month

Expected ER expenses: I expect my ER expenses to be very similar or little less compared to above except for an increase for healthcare since I will need to get my own healthcare insurance. I will assume it will go up to $300/month, so the total monthly expenses goes to $2200.

Assets:
Cash in a number of variable maturity CDs: 625K (The average interest earned is currently 2%) I know this is a high amount of assets in CDs, but I am very conservative and didn’t want to invest in equities or bonds recently with the markets getting pretty high and then now being very choppy. I am hoping that with the ongoing interest rate increases, this will start creating a bigger income and rate of return.

After tax brokerage account: 215K (All of this money is invested in equities with majority in US and international index ETFs and some individual stocks. The average dividend rate is 2.5%)
Company 401K: 480K (majority of this is invested in equity mutual funds, 10% or so is probably invested in bonds)
Primary residence: 125K
Rental property: 175K
Health Savings Account: 7.5K
Company pension current value: 90K (will be payable after age 55)
Car value/equity: 10K (after the loan balance)

Total: 1.335M without property value
1.635M with property value included

Liabilities: No debt expect for remaining 2k car loan.

Specific Question: I have been a very conservative saver/investor in my life (as you can see above), so I probably should have more invested in the stock market or bonds. Do you think this portfolio is enough to be financially independent without a day job or do you think I will need to continue working or change my investments?

Thank you in advance for all the help!! 

[Evildunk99]

I did some back of the napkin calculations, and you are in great shape IMO. 

Consider that if you invested the $625k into an income-focused 60/40 portfolio (60% stocks / 40% bonds), you would begin to generate annual dividend income of $31,250 if the portfolio has a yield of 5% (withdrawal rate).  Simply multiply 5% x $625k to get that number.

If you combine that with your existing $25k in passive income, that would total $56,250.  After deducting capital gains tax, you are left with roughly $4,000 of income per month.  Against your $2,000 / mo expenses you are in good shape if you can maintain those expense levels.  Even better, your investment balance should appreciate or remain near the original amount over a 30+ year life time.

You could also seek opportunities to reduce expenses or get a stress free part time job to leave yourself even more cushion.  Again, this isn't a detailed analysis, but the simple back of the napkin calculations indicate that you are in great shape!

[chickinyow]

Whatever you are doing is working very well for you. I don't think you need to change a thing, and yes, I think you could retire tomorrow if you wanted. Congratulations!

[ghart832]

Thank you both for your responses. Hopefully I can manage to stay on the job for a few more months. If I take the big step, I will share my experience on here for sure.

[MrThatsDifferent]

I’m not sure I understand: your expenses are $24k a year and you have 1.3m of liquid assets and rental property that covers 1/3 of your expenses and you’re wondering if ER is possible? I’d be more interested in whatever thinking you’ve got going on that would make it not possible? You could have probably retired years ago. Life is short, start living it.

[Phoenix_Fire]

If you follow the 4% rule, based on your $2,200 a month ($26,400 a year) spend calculation you only need $660,000 invested to be able to retire.  Congratulations, you win!  Go retire!

As MrThatsDifferent says, you probably need to examine what is holding you back from retiring now.  Lots of people have that struggle, so it's not an uncommon thing.  You'll find posts about it here. 

While you say that hopefully you can stay on the job for a few more months you should use that time to examine what is holding you back.  If you get let go, and aren't mentally prepared to FIRE, then you are going to struggle adjusting to that.  You might feel like you need more, or that you have something to prove by going back to work and then being able to "leave on your own terms". 

You should take some comfort in knowing that there are a lot of people here who have retired on much less while still having mortgages/rent to pay. 

One question for you though, do you plan on having any dependents in the future?  Even if you do, you are still set right now, but that might be the only consideration to hold you back.

[ghart832]

Thanks MrThatsDifferent and Phoenix_Fire for your responses.

Phoenix_Fire, I heard about the 4% rule (especially from the forums on here); however I thought that it was more relevant for savings in equities and bonds. Since a significant part of my current savings are in CDs, that made me question my situation and whether I need to put more of that money in the market for 4% rule to work or if I was really ready. However, I do appreciate your points and recommendations!

[MrThatsDifferent]

Thanks MrThatsDifferent and Phoenix_Fire for your responses.

Phoenix_Fire, I heard about the 4% rule (especially from the forums on here); however I thought that it was more relevant for savings in equities and bonds. Since a significant part of my current savings are in CDs, that made me question my situation and whether I need to put more of that money in the market for 4% rule to work or if I was really ready. However, I do appreciate your points and recommendations!

Look, I’m not the finance whiz that many are here but this is what I can work out: your expenses are $24k a year and you’re 41. If you just used your CDs alone, that would only be $480k for the next 20 years, taking you to true retirement zone. You’d still have almost a quarter million left over. Then your 401k would grow, untouched for those 20 years, which will be almost 2 million. That alone would cover $80k a year for life, far more than the $24k you live off. And we haven’t even gotten to your other money or rental or SS. Dude, you could have retired years ago.  Quit yesterday and enjoy your awesome life. I hope it involves great sex, wonderful,adventures and lots of laughter.

[jlcnuke]

As sad, the numbers "can" work. However, I think you're numbers are 'soft'. Your car is going to be paid off, but I don't see any savings for the next one. Roof repairs. Etc etc. All those items that aren't regularly recurring expenses don't seem to be accounted for. Your health insurance/care estimate also seems quite low (are you assuming you'll be healthy forever?).

If you had "normal" investment portfolio allocations if say you'd most likely be just fine even with your budget that seems to be optimistic. With hardly any risk in your portfolio, it seems almost tight, but possibly okay anyway.

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