Author Topic: Am I too optimistic about FIRE?  (Read 2084 times)

RetirementDreaming

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Am I too optimistic about FIRE?
« on: November 08, 2017, 12:17:02 PM »
Hi Everyone,
I am a glass half full type person but I wonder for FIRE if I am too optimistic.  Here are my numbers and question:

Annual spending = 72K
FIRE Target = 1.8M
Stache = 1.4M
Yes, I am 400k short but my husband is 56 and will take SS at 62 which I included my calc.  Our children will also be eligible (1 for 6 months and 1 for 2.5 years) but I donít include in the calc.

cFIREsim Results:
97% with husband SS and my SS
89.92% with husband SS, zero for me

Inputs
1.4K Stache, retire 2018 to 2058, 72K annual spending
95 Stocks/5 Cash
SS Husband Ė 23K (2024 to 2048)
SS Me Ė 19k (2034 to 2058)


Question: I want my husband and me to both FIRE Mayí18.  Iím I too optimistic to count SS in my calculation?  Waiting for 1.8M just seems like over kill.  I could get a part time job if we need it and likely will earn some money in the next 40 years. 

Thanks for reading and any input. 

wordnerd

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Re: Am I too optimistic about FIRE?
« Reply #1 on: November 08, 2017, 02:40:21 PM »
This seems reasonable, unless a large amount of your stache is home equity that you don't plan to liquidate. Assuming it's not and you're willing to generate income as needed (my dad still makes $30K or so a year tutoring at age 75), I don't see an issue. I think SS is likely safe for anyone over 50. Any changes are likely to be implemented for people not so close to retirement age (and not as consistent a voting bloc ;)).

The easier option than increasing income in retirement, though, would be reducing your expenses as a safety net. $72K/yr is reasonably high for two people (at least around here). I'm not sure if health insurance is included in your included in your spending, but that would likely decrease as you and your DH get Medicare.

You might consider posting a case study for more detailed feedback, but your basic premise seems tenable.

pecunia

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Re: Am I too optimistic about FIRE?
« Reply #2 on: November 08, 2017, 06:50:09 PM »
.04 X 1,400,000 = 56 K

What's the average pay in the US?

Quote
The average salary of 45-to-54-year-olds is $962 per week, $50,024 per year. Thatís the highest average salary of any of the age groups the BLS tracks. Again, the gender income gap is significant in this age group. Men between the ages of 45 and 54 earn an average of $1,102 per week while women in the same age bracket average $840 per week.

https://smartasset.com/retirement/the-average-salary-by-age

I think that would be enough for a lot of folks and I'm thinking I am one of them.   Free Days!

Bicycle_B

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Re: Am I too optimistic about FIRE?
« Reply #3 on: November 08, 2017, 09:57:31 PM »
Like poster upthread, I figure you're ok because you could cut expenses if you really need to.

Taking your question on its own terms, though, the issue seems to be whether your Social Security is enough to compensate for the missing 400k in establishing a safe 72k income.  'm not an expert, so I'll just offer my reasoning and let you decide.  Someone smarter will probably offer a better model and I'll learn something.

Social Security's income adjusts to inflation, so the amounts you have are relatively safe there.  Risks are primarily whether the govt cuts benefit rates.  The SS fund is supposedly on track to cut benefits about 30%.  You could put SS at 70% for each of you in cFireSim and see what you get.  It won't be 100% success, as you already learned.  So you can't get a "yes it's safe" unless you can accept some risk.

In the end you'll be balancing a few percent chance of needing to cut expenses vs the gain in life enjoyment of quitting work now.  What that chance is depends on the assumptions you use. The life enjoyment is personal decision.  A judgment call eventually. 

IMHO you should also ponder the chance of dying in the next 15 years - you'll have enough money during that period regardless, but the time spent off the job will only come if you seize the opportunity.  I bet that the chance one of you will die in 15 years is larger than the chance you run out of money in 40.  Add up the probabilities from the Social Security's actuarial table.  I think you'll see over 20% chance one or the other goes in the shorter time.  Seize the day!

https://www.ssa.gov/oact/STATS/table4c6.html

I guess the judgment issue is separate from whether you are completely safe.  cFireSim is under 100% already so you're not guaranteed 72k if you retire.  You wouldn't even be guaranteed if it was 100%, you'd just have good odds.  So you'll have to decide for yourself which is more important:  the last few percent of financial near-certainty, or several more years of work.


 

RetirementDreaming

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Re: Am I too optimistic about FIRE?
« Reply #4 on: November 09, 2017, 10:19:41 AM »
Thanks Bicycle.  Nicely put.

There are many levers we can pull if needed 1) reduce expenses 2) part-time (or full time job) 3) sell house and downsize (when kids graduate from high school). 

I think May'18 will the date.  40 years is a long time and I'll have time to adjust if needed.

nexus

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Re: Am I too optimistic about FIRE?
« Reply #5 on: November 09, 2017, 12:06:40 PM »
There was a podcast by Paula Pant where she interviewed someone (sorry, memory fuzzy). The dude was supposedly a financial guru. Long story short, every 10k you're willing to work for is the equivalent of having another $300k stashed. (I think he factors in a 3% withdrawal rate due to 1% in advisory fees or taxes). *shuffle, shuffle, ctrl+F,* Oh, it was the JD Stein podcast. http://podcast.affordanything.com/95-money-rest-us-jd-stein/

So if things start looking bleak, if you're willing to work part-time, you'll be just fine.

damyst

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Re: Am I too optimistic about FIRE?
« Reply #6 on: November 09, 2017, 09:48:57 PM »
As another spendypants FIRE wannabe, I'm wondering: how does income tax figure into the calculation?
If OP's stash is in taxable or tax-deferred accounts, then to reach 72k in take-home income they would need to draw far more than that from their stash.
What's the right way to think about this?

Dicey

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Re: Am I too optimistic about FIRE?
« Reply #7 on: November 10, 2017, 07:34:53 AM »
One other little calculation is that should DH die, OP can collect SSI at his rate instead of hers. Might move the needle a bit. I'm a carpe diem type, so that's my vote.

Rubic

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Re: Am I too optimistic about FIRE?
« Reply #8 on: November 10, 2017, 07:57:11 AM »
@RetirementDreaming: Is there any reason your husband couldn't wait later than age 62
to begin taking social security benefits?

rab-bit

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Re: Am I too optimistic about FIRE?
« Reply #9 on: November 10, 2017, 08:25:40 AM »
PTF, since my situation is pretty similar.

RetirementDreaming

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Re: Am I too optimistic about FIRE?
« Reply #10 on: November 10, 2017, 09:47:52 AM »
damyst: 72k includes all taxes.  We have a mortgage ($20k year in payments) which is why it's so high.  After the kids graduate from high school we will move and pay cash for house.  ~10 years.  My husband really wants to move out of state but it's unlikely. 

Rubic:  My husband could wait for SS but I figure since the kids were eligible (they will be under 18 years old) he should take it.  Our family amount would be $4845/month for 6 months for my husband, son and daughter.  After that it would be $3998 for the next 2 years.   I think that out weights taking his later.    I have worked full time so I plan to take my SS around 70 (32K/year less any reduction that happens).   

Laura33

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Re: Am I too optimistic about FIRE?
« Reply #11 on: November 10, 2017, 11:25:33 AM »
damyst: 72k includes all taxes.  We have a mortgage ($20k year in payments) which is why it's so high.  After the kids graduate from high school we will move and pay cash for house.  ~10 years.  My husband really wants to move out of state but it's unlikely. 

Right.  But I think damyst was asking whether you have considered the taxes you will pay on your withdrawals to meet your $72K nut.  E.g., if most of your money is in a Roth or a regular brokerage account, your taxes when you take that out will be very low to nonexistent (zero taxes on Roth withdrawals, preferential CG rates for selling assets from a regular brokerage account).  OTOH, when you take out money from a 401(k) or traditional IRA, that distribution is taxed as regular income at whatever your rates are at that point -- so if you are in the 28% federal bracket and have no state tax, to get $72K in hand from your traditional 401(k)/IRA, you would need to withdraw $100K.  Also, at some income levels, SS is partially taxed, too (I don't know the ins and outs of this).

Note that these issues are usually not significant here, because many folks are looking to retire needing only $30k-$40k/yr, so the taxes tend to be very low to nonexistent.  But your planned income level is high enough that these things might -- might -- become an issue.  Sounds like you have accounted for that to some degree, if you have included "pay taxes" as part of your $72K needed.  But it's worth crunching the numbers a little more closely.