Social Security / FIRE / Savings %

[Bigjones]

So im currently 51yrs old, my wife is 48. We are late starters with big dreams but are also scared a bit of those dreams.  We have two kids currently still supporting in alot of ways.

However we have 275k in 401k savings only, we contribute 48k annually to our 401k and can do this for another 5 years where we dream of FIRE. We have our mortgage currently down to a little over $5000 left, we have been throwing upwards of $35k at the mortgage these past two years as well to get to this point.

I guess our real questions and concerns are around Social Security our age difference in trying to retire early. So on my spread sheet in its basic forms it appears that If i was able to make 6% annually there is a 'chance' we could make this work. This would entail paying off our mortgage, and continuing to save the 35K in a taxable account to be used once we FIRE as a partial bridge to SS. Once I hit 59.5 i would also use 3 years of 401k money to finish the bridge to SS.  Once SS starts to come (me 65, wife 62) it would equal roughly 39k annually.  This would let us take 30k out of retirement savings along with SS for an income of roughly 70k.  The number are pretty tight.

The concern that we have and im sure others have is we are banking on a 6% interest rate from now till old age. And somewhere in the near future im sure we would want to exit the stock market and risks or at least a larger portion of it.  Once we get below 6% the numbers appear to be very shaky in chances for success.

[yachi]

What chance does FIRECalc give your plan? 
www.firecalc.com

[bacchi]

Can you reduce your expenses? $70k with no mortgage is a lot.

[simonsez]

You have a lot of black and white in your plan.  When the time comes to pull the plug, if your numbers and chance of success aren't where you want them, then something has to give.  You and/or your spouse could work more (i.e. longer, more years), you could increase income in your last 5 years, you could reduce spending (no spending numbers listed but if you are able to save 83k per year at least now I would imagine there is fat to trim), you could decide to not financially prop up your children as much, etc.  If you're unwilling to budge on any facets of your plan (timing, income, spending, etc.), then you will have to accept more risk.

I'd examine all aspects and decide which are most important to you and if you need to exercise contingency plans, then you'll know how to prioritize changes to make retirement work.  Just a note on the spending, if you are able to reduce expenses both now and moving forward during retirement, each dollar you don't spend is roughly twice as powerful compared to earning one more dollar.

[Bigjones]

Currently 60k annually give me 51.7%

[secondcor521]

A few thoughts:

1.  It's unclear if your 6% number is nominal or real.  If nominal, it may be reasonable.  If real, many people would say it is not reasonable, especially if you're going to reduce your stock allocation as you imply.

2.  What does opensocialsecurity.com say about your claiming strategy?  It may be better for you to hold off until 70.

3.  Are you familiar with the Rule of 55?  Depending on your employer, you may be able to withdraw from your 401(k) earlier than 59.5.

4.  You also might consider SEPPs / 72(t) instead of building up your taxable in order to build a bridge to SS.  It probably comes down to your expected tax rates over the next decade or so.

5.  Ditto what @bacchi said.  You might want to do a deep dive on what your expenses will be when you quit work.  They could be much less than you expect.  Be sure to account for changes in income taxes and also health insurance costs.

51.7% would give me the heebie jeebies, but YMMV.

[Bigjones]

sorry I just realized i mest up a cal in firecal on the SS page, i put in the monthly value vs the Annual value.

So taking 60k right now is showing me 70.7% for 35 years.

[Bigjones]

All of the success or failures ALL come down to the selections on "your portfolio" :(

[Bigjones]

Even just changing that section to 6% return 3% inflation turns it into 0.00% scary

[Bigjones]

Using the TOTAL MARKET tick box and having FireCal figure out my spending power to bring my % to 95% = $43,990

[ericrugiero]

Honestly, if you want to safely retire when you are proposing, you need to cut your spending.  It looks very doable at $40K/year but pretty risky at $70K.  Also, the less you spend the more you can save while still working. 

Obviously, each year working gets you closer to SS so you can spend more (less years of your portfolio supporting 100% of your spending).  The goal is to make it to SS age without depleting your overall portfolio more than it can support. 

You and your wife are going to have to agree on your priorities.  At what point does spending more become worth working longer (and vice versa)?  How flexible are you willing to be with your spending?  If you can cut spending when the market is doing poorly you will greatly increase your success rate. 

[Anon-E-Mouze]

You also might want to consider downsizing your work commitments, instead of fully retiring, for a few years in order to provide yourselves with more of a cushion. Are you both working full-time right now? Do you have the kinds of jobs that can be done on a part-time basis, or on a short-term contract basis (e.g. seasonal work)? Are your current employers open to such arrangements? What about work outside your current professions? Is there work that you'd enjoy doing on a part-time basis for a while?

One of the reasons I moved to my recent employer (from a boutique law firm) is that it's large enough (and has demonstrated the willingness to accommodate) some people working part-time. I also have the kind of role that can be fairly easily shrunk into a part-time position. But even if I didn't have that option, I'd be looking at taking on a part-time job doing something I enjoy (for example, in certain retail sectors) for a couple of years.

[Bigjones]

My wife and I are for the area we live in, at the peak of our earning potential position wise and salary wise (within 3% each year).  My wife especially is in a VERY stressful position and at this point is just trying to hold on for the next x years.  Neither of us could make the salary we are making now without moving away.  My oldest daughter is in Grad School, my youngest will be in 11th grade this year so moving just yet isnt doable for us.

We both could maybe work part time somewhere at some point or we could work an extra year or two (its def not  ideal), however its funny that im seriously into planning and consider just 5 years from now how absolutely terrified i am that i could run out of money with a big market turndown etc.

I know we spend WAY too much right now on College expenses , eating out, traveled alot this summer with the kids but we have two years left of my youngest in the house we have been over spending on experiences and things right now.  And with my wife working enormous hours and under great stress, i havnt really attempted the food costs and eating out costs as she is on teh road, working all hours of the day and night its just not a battle im willing to enter at this time.

My ideal situation and the thing that gives us HOPE to continue on this job is just knowing there could be a light at the end of the tunnel.  I know what everyone is going to say here, well than if you want that light, you need to reduce your current spending :(.

[Bigjones]

FIRECalc Results
Your spending in every year after the first year will be adjusted for inflation, so the spending power is preserved.

Because you indicated a future retirement date (2026), the withdrawals won't start until that year. Your contributions will continue until then. The tested period is 5 years of preretirement plus 30 years of retirement, or 35 years.

FIRECalc looked at the 116 possible 35 year periods in the available data, starting with a portfolio of $275,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 116 cycles. The lowest and highest portfolio balance at the end of your retirement was $-379,307 to $4,328,285, with an average at the end of $1,185,077. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

For our purposes, failure means the portfolio was depleted before the end of the 35 years. FIRECalc found that 11 cycles failed, for a success rate of 90.5%.

Understanding the charts below: Don't try to follow any individual line -- with most scenarios, there are just too many of them. But if you look at the mass of lines, and the zero axis, you can get a clear visual representation of how frequently your strategy would have failed (dropped below zero) or succeeded. The objective of presenting the information this way is to allow you to get a "big picture" sense of the way your strategy would have performed historically.

[ericrugiero]

My ideal situation and the thing that gives us HOPE to continue on this job is just knowing there could be a light at the end of the tunnel.  I know what everyone is going to say here, well than if you want that light, you need to reduce your current spending :(.

Obviously, that's the most efficient way but you can also choose to reduce costs after you retire or go to part time when you have more energy to focus on lowering your expenses. 

[PDXTabs]

My take is:
1. Do look into the Rule of 55.
2. If not 72T is an option
3. If you continue to save at the rate that you are and throw that 35k/yr into taxable you can afford a comfortable FIRE. But probably not on the budget that you had in mind.

[American GenX]

6% interest rate?  That would be amazing to get 6% guaranteed FDIC insured.  I'm currently getting under 1% interest rate.  And, even in my stable value fund, I'm only get 1.75%, and after the plan admin fee, it's just under 1.5% interest net.

[rmorris50]

Maybe focus on the psychological part for a moment. What’s your worse case scenario? Living off social security only in a paid for house in your old age? Not glamorous but probably still comfortable. You’ll also see financial ruin coming well in advance, outside a major medical crisis or swan tail event the economy. We are human, we adapt, we manage. You’ll be fine. You’ll cut spending, get a part time job at Lowe’s, family/friends help each other, etc.

I have to tell myself this all the time, I get too hung up looking at the numbers.


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[henramdrea]

This hits fairly close to home for me.  I'm personally looking up the road a little further than you are @Bigjones but in about the same boat with one "kid" returned to the nest after a failed relationship, another in community college and the youngest in middle-school still.  We did spend a little money this summer on some short vacation experiences for the youngest (money well-spent, I might add) so you deserve no face-punches there.  I work in healthcare, so I'll leave that to your imagination on how long I'd like to continue doing that.  I've been in my career now for 30 years and thought I'd about seen it all until 2020 rolled around.  All that to say, my retirement date (January 2029) just can't get here soon enough and I'd also like to live to see it!

My plan roughly revolves around down-sizing.  Right now, I have a ridiculously large home with a pool and 5 people living in it.  4 cars crowd the garages and driveway.  I have a long-ass commute to work (I reverse commute to a small rural hospital).  The goals will be to cut all this out:
  1.  Stop the commute by age 62 and reduce to 1 car
  2.  Have all adult children exit the home and live independently or interdependently with room mates, etc
  3.  Downsize big clown house by 50% (includes both size and value). 
  4.  Invest the substantial $$ difference of #3

Just doing those 4 thngs above saves over $20K per year and relieves a lot of stress from the portfolio in retirement.  But this is my situation and may not be yours exactly.  I think the main take-away would be to sharpen the pencil a little more and see what's really necessary in retirement.  Ask the hard questions like, "do I really need 2 cars?"  "Is a 2 bedroom 1 bath townhome an acceptable option for a retirement residence?"  "Will we really use that many groceries in retirement?"  Etc.  You may find your actual "needs" to be much less than you expected! 

Best wishes to you and your DW!

[Ron Scott]

I would hate to see you in a bind, where you NEED a consistent 6% return. We have no idea what to expect during our retirement period. Then there’s inflation, which could eat into any return you get.

One of the most important assets you have is your ability to earn. Shutting that off or reducing your earnings potential in some way is the needle you have to thread.

I would approach these decisions conservatively.

Remember the order: ready, aim, FIRE.

[Rosy]

Maybe focus on the psychological part for a moment. What’s your worse case scenario? Living off social security only in a paid for house in your old age? Not glamorous but probably still comfortable. You’ll also see financial ruin coming well in advance, outside a major medical crisis or swan tail event the economy. We are human, we adapt, we manage. You’ll be fine. You’ll cut spending, get a part time job at Lowe’s, family/friends help each other, etc.

I have to tell myself this all the time, I get too hung up looking at the numbers.


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Yup, that's how I see it too. Numbers are crucial but they are easily manipulated - so that is what I set out to do - manipulate them in my favor.
That might include pursuing a side gig and will most certainly include changing my spending habits if they preclude me from reaching my goals.
You don't seriously think that without changing your current lifestyle you will have a comfortable retirement?
Optimize the hell out of everything - right now - while you still can and you are both healthy.

If your wife is working too hard and stressed beyond bearing it will impact her health and well-being. You already see the effects of her working so much, but brush it aside with excuses for spending more on food and eating out.
What are you thinking?

If you are not interested in picking up the slack (batch cook on the weekend) and you and the kids choose to spend money like water the consequences are she ruins her health for nothing and retirement will be further out of reach for both of you.
Would it really be that hard to limit your take-out or eating out to once a week?
Take your lunches to work?

You will have to find deliberately make the time of course.
Convenience costs money and unless you have a high income you can't afford to buy time and convenience.

Many of the high earners here find the time to batch cook - shopping smartly and cooking well is a skill you would do well to pass onto your children. Have the kid cook once a week for instance - you have a favorite restaurant dish - learn to cook it at home...
Make it fun, have a Mexican or Asian night or whatever. It is entirely possible to buy ingredients for convenience food cooking that make a good meal within fifteen to twenty minutes and please don't use paper plates:).

You can make mealtime fun and easy on any budget. In my book it represents 'an experience', a family gathering, an opportunity to talk.
Maybe an opportunity to ease your wife's stress, she can come home to a homecooked ready-to-eat meal even if she worked overtime or a weird shift it will be a stress reducer, more relaxing than running off to a restaurant when she is already beaten up from work.

Experiences and conveniences are great but if you are realistic you know they are preventing you from reaching your goals.
Take a good hard look at the price you paid for those experiences - smile and be grateful.
Then you declare a temporary halt on everything while you focus on lowering your expenditures.

Think out of the box - get fired up - optimize, when was the last time you compared your insurance premiums or challenged yourself to find a cheaper alternative to whatever expensive thing you were planning on doing?
Set an unrealistic spending goal for your next vacation and you will be surprised how your mind will rise to the challenge with solutions - change your mindset.

That firecalc is great for a wake-up call to see where you stand financially - right now.
Change what you can, take good care of your health and know in your heart that no matter what - you got this if you really want to.
You are not that far off from being able to retire comfortably... if you make a few changes now, you'll be fine.

The choice is yours.
If you change nothing, keep experiencing what you really can't afford, keep having meals out you will "experience" the consequences.
Simple truth.

[ender]

So im currently 51yrs old, my wife is 48. We are late starters with big dreams but are also scared a bit of those dreams.  We have two kids currently still supporting in alot of ways.

However we have 275k in 401k savings only, we contribute 48k annually to our 401k and can do this for another 5 years where we dream of FIRE. We have our mortgage currently down to a little over $5000 left, we have been throwing upwards of $35k at the mortgage these past two years as well to get to this point.

I guess our real questions and concerns are around Social Security our age difference in trying to retire early. So on my spread sheet in its basic forms it appears that If i was able to make 6% annually there is a 'chance' we could make this work. This would entail paying off our mortgage, and continuing to save the 35K in a taxable account to be used once we FIRE as a partial bridge to SS. Once I hit 59.5 i would also use 3 years of 401k money to finish the bridge to SS.  Once SS starts to come (me 65, wife 62) it would equal roughly 39k annually.  This would let us take 30k out of retirement savings along with SS for an income of roughly 70k.  The number are pretty tight.

The concern that we have and im sure others have is we are banking on a 6% interest rate from now till old age. And somewhere in the near future im sure we would want to exit the stock market and risks or at least a larger portion of it.  Once we get below 6% the numbers appear to be very shaky in chances for success.

Just so I understand, you're more or less starting with:

• $275k in liquid investments
• $48k + $35k in savings a year (so $81k/year)
• Paid off mortgage
• 5 more years working planned
• 70k in non-mortgage expenses
• Unknown mortgage equity
• Unknown income
• 14 years until SS

By the time you want to retire, in 5 years, assuming 0% in growth you're going to have $680k in savings/investments.

The first thing is figuring out these unknowns. Many people think that paying off their mortgage helps them with FIRE but if it makes you cash/investment poor (which it seemed to here), then it's problematic.

Why do you need to spend $70k/year with no mortgage? That's pretty high.

[Bigjones]

@ender

Mortgage has under 7K remaining

5 more years of working - Only if im positive i can make this happen,i can work longer i just dont want to if i dont have to :)

70k in non-mortgage expenses - This is an arbitrary number, it can be less i feel like.  I honestly at that point wont have major bills - Car, Health insurance, property tax on house and camps, lights, heat, gas , food.  I would like to help my kids, id like to travel a bit, id like to snowbird if possible

Mortgage equity - House is worth roughly $140k, Camp 1 is worth roughly $110k, Camp 2 is worth roughly $100k  Both camps are in my name but relatives are living there with a life estate.

Unknown income - unsure what you mean here.

[Bigjones]

We are pretty much living almost on ONE of our incomes and savings/paying off mortgage with the other.

[Bigjones]

In its most basic form i came up with the following (see attachment)

[fuzzy math]

5 years from now your college student will be done with college and your 11th grader will be finishing college. They likely will both have lives and you would be lucky for them to have time to go on a lavish vacation. Most likely they will want to come home to your house for holidays - unless your oldest is married with kids by that point.

The biggest years in question are going to be those first 10 or so before you can draw social security, where you're drawing only from your stash. They will have the biggest effect on your portfolio. So cutting spending during those years is essential. Its also highly likely that we will have a recession during the next 5 years, and if so there may not be a full recovery by 2026.

So how can you cut spending?  If that means your 11th grader has to fund their own college with loans, with you promising to help them pay them off later, then so be it. You might have to do driving distance vacations only, and utilize places with full kitchens that allow you to cook. There are a million ways to be creative and enjoy an experience on less, most of it coming down to adjusting your expectations. If you're currently living a harried life of 2 ships passing in the night, eating take out to survive, it can be a huge adjustment to a slower pace.

Another thing to look at would be living off your taxable funds in those first few years, logging a very low income on paper, and using a Roth conversion ladder during that time so you can later have more withdrawl flexibility. Are your combined incomes lower than the Roth IRA limit right now?