Author Topic: Case Study--Advice for Retiring Earlier Than Planned?  (Read 8320 times)

CestMoi

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Case Study--Advice for Retiring Earlier Than Planned?
« on: July 14, 2014, 02:19:04 PM »
I’m 49, and considering retiring from full-time work in about year. I was originally planning to continue to work until I hit 1 million in net worth (and I still may do so). But I’m so burned out on corporate work these days that the idea of retiring sooner is very appealing.

My net worth is currently 745k, not counting the value of my co-op apartment, which would probably fetch 100k (after 5-7k worth of repainting, small bathroom tile repair, new carpet/floor refinishing, etc). I have no debt.

I haven’t decided yet whether I’ll retire earlier than planned, but I’d like to hear how best to prepare for the earlier retirement time frame in case I do. Any suggestions for how to better allocate and invest money, any income options to consider, any advice that I ought to start thinking about? My investment asset allocation is about 70% stocks (~90% domestic, 10% foreign), 25% bonds, and 5% cash. What asset allocation might I consider if I’m a year or so away from retirement? Throughout retirement?

My live-in BF isn’t ready to retire yet (net worth $250k, no debt), so it’d just be me for the next number of years.

Thanks much in advance.

Assets:
Roth IRA = $247,000
3 former 401ks (one rolled over into Vanguard IRA) = $253,695
Cash/Emergency Fund = $4,000
Checking Account: $5,400
Current 401K = $65,000
Stock Brokerage Account = $9,000
Extra cash slated to invest = $3,000
S&P500 Fund = $70,000
Pension from one employer (one lump sum, not yearly sum) = $22,700
Stock Holdings: $66,000
Small co-op apartment  = @$100,000
Car = $1,200 (an oldie but goldie Honda Civic!)
Debt = $0 paid off my mortgage, no car payment, no credit card debt.

Budget:
Take Home Pay Per Month (minus maxing out my 401(k), health/dental deductions, and taxes): $3700

Current expenses per month (My BF splits the apartment-related expenses with me):
Co-op Building Maintenance - $540
Internet & Landline Phone - $85
Electric - $80
Cell Phone- pay-as-you-go plan works out to about $30
Car Gas/maintenance (car burns oil so I replace pretty often)- $95
Car insurance: $50
Co-op insurance: $11
Netflix: $9
Food - $250
Gym Membership - $30
Medical Expenses (Rxs) - $20
Roth IRA (for 2014 max out): $639
S&500 contribution: $1400
Money Market (to build up Emergency Fund a bit): $400

Total Payments per Month: $3,639

Catbert

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Re: Case Study--Advice for Retiring Earlier Than Planned?
« Reply #1 on: July 14, 2014, 02:53:33 PM »
Well, in theory you have enough.  4% distribution on 745K is $29800 annual or $2473.  Your current budget of $3639 includes $2439 in savings (IRA, E-fund and S&P) so your barebones is only $1200.

I would urge you to do some more "what ifs".  What expenses have you missed?  (Taxes, vactions, etc.)  Track spending for the next year to see.  What if you and BF broke up:  Could/would you get a room mate? Would BF claim part of the co-op value?  Would you sell and move somewhere else? 

In general I think your asset allocation is okay (70/25/5%) however, I would move more to cash - about 3 years of retirement expenses to cash.  Well, two years in your case since you won't retire for a year.  There is another thread which I couldn't find at the moment where someone asked the question of how much to keep liquid in retirement. 

Cheddar Stacker

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Re: Case Study--Advice for Retiring Earlier Than Planned?
« Reply #2 on: July 14, 2014, 03:07:01 PM »
You're in great shape. I have two issues: 1) the what if that mary w mentioned and I ran some numbers below and 2) you have a very expensive co-op apartment.

So I looked at this from a worst case scenario just to make sure you were prepared. I took what I thought were the housing related costs $540+85+80+11=716 and doubled them to $1,432. This is assuming you don't have a roommate splitting the costs.

As mary w mentioned your actual expenses are only $1,200, but after doubling housing and adding a guestimate of $400 for health/dental costs to replace your current work coverage you end up at $2,316 in ongoing expenses. In my (hopefully) worst case scenario you are only at a withdrawal rate of 3.73% which is well under the 4% SWR.

In addition since you have so much in your Roth Ira you should have no problem never paying taxes again. I'll assume you've read strategies on this from madfientist/gocurrycracker/others. If not, let me know and I'll send some links. If you do it right, some of the health costs may even be subsidized by the government.

I think it's time to pull the plug. Congrats, you have enough!

Señora Savings

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Re: Case Study--Advice for Retiring Earlier Than Planned?
« Reply #3 on: July 14, 2014, 03:18:14 PM »
My advice to you is to write out your plan.  You have more than enough money to retire, even if we add a $1000 per month healthcare + fun money fund, it seems like insecurity is what is keeping you back.  To fix this I would write out an answer to the following questions:

What is my bare-bones budget in an extreme situation? (No BF, no Condo)
What will inspire a return to work? (500k net worth, 200k net worth)
How will I access money? (Roth conversion ladder, dividends, selling stock)
What will I do if the stock market halves in value?

Having a plan is worth way more than any specific asset allocation.

Also, that condo fee will cover half of a super swanky apartment in many parts of the country, so you have an easy way to decrease expenses once BF retires

CestMoi

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Re: Case Study--Advice for Retiring Earlier Than Planned?
« Reply #4 on: July 14, 2014, 05:01:41 PM »
Wow, great, thoughtful replies. Thank you.

Mary W, I'll do that. Great advice to do more "what ifs" and track more spending.

Cheddar Stacker, the amounts listed for my co-op are the total expenses, so for example, my monthly maintenance is $540, which my BF and I split. Yes, it's pretty high for a maintenance fee for many areas of the country, but where I live, that's about as affordable as it gets. Retirement will definitely involve a move to a much less expensive area.

It's great that you did that worst-case scenario, though. These are the kinds of things I need to be thinking about.

Please do send me the links for the Roth IRA strategies. I'd like to check them out.

Senora Savings, good questions to ask myself. If it's not too much trouble, I'd be interested in hearing what you would do if you were me and stocks halved in value. My off-the-cuff answer for that would be to reduce my expenses at the time, and to consider ways to bring in new income (part-time work, rent out a room, etc).

Yes, there's some insecurity here. I've been working (slaving) for what seems so long that it's a little scary to imagine not having that regular paycheck every month, even though it is draining the life out of me.
« Last Edit: July 14, 2014, 05:05:33 PM by CestMoi »

Thegoblinchief

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Re: Case Study--Advice for Retiring Earlier Than Planned?
« Reply #5 on: July 14, 2014, 05:13:13 PM »
Consolidate the old 401(k)s that have not been rolled over yet.

Given your age, the Roth and SP500 fund give you plenty of "young" money to last until you can get access to the "old" money in the 401(k).

RapmasterD

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Re: Case Study--Advice for Retiring Earlier Than Planned?
« Reply #6 on: July 14, 2014, 05:29:44 PM »
<<I’m so burned out on corporate work these days that the idea of retiring sooner is very appealing.>>

I hear ya! And I'm following in your footsteps in the next several weeks. And yes, it's scaring the shit out of me on multiple fronts. But I feel like I have to do this thing. Oh gosh, I'm talking about me....OK....back to you.

Take heed on other's advice and write out a plan (financial plan, life plan, what you'll do with your day plan, what you'd LIKE to achieve plan, diet plan, exercise plan, spiritual plan, financial plan). Who cares if you DO any of this? Just put something in writing. Oh, and since money will be no object -- what about a "What I would spend my time doing, work-wise, if money were not an object?" plan.....

Best of success to you.

CestMoi

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Re: Case Study--Advice for Retiring Earlier Than Planned?
« Reply #7 on: July 14, 2014, 05:57:54 PM »
I agree on consolidating the old 401ks. I could no doubt get a better overall management fee and more efficient self-management by doing that.

And yes on writing down all my plans. I know as an artist, being creative more often encompasses a lot of what I intend to do in retirement, but it'll help me to do some deeper thinking/visualizing how I'd like my life to go once outside work's no longer an issue. Wow, what a change for me. No more outside work.

Feel free to talk about yourselves, too. I learn a lot reading about other users' lives.


ZiziPB

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Re: Case Study--Advice for Retiring Earlier Than Planned?
« Reply #9 on: July 15, 2014, 10:10:03 AM »
One thing that I did not see mentioned in your original post or by anyone else are health insurance costs and medical costs not covered by insurance.  Have you considered what options you will have and what the cost of those options would be?  That definitely needs to be included in your planned budget. Right now it appears that you are covered through your employer with the costs deducted from your paychecks, with the only out of pocket being prescriptions.  I am assuming that will change when you retire.

Exflyboy

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Re: Case Study--Advice for Retiring Earlier Than Planned?
« Reply #10 on: July 15, 2014, 10:14:07 AM »
Ok I want to add a little note of caution without dousing the flames..:)

Bear in mind I am VERY conservative.

I am a bit concerned that we might be at the top of the market and with just $750k, if the market took say a 30% drop and your 70% invested in equities.. well you might be closer to $500k for a while. With a long retirement planned I'd also chose a SWR of 3%.

if I was in your shoes I would save like crazy for the next year and see if you can get your net worth nearer to 900k or $1M. If the market continues to rise then great.. adjust your portfolio before you pull the plug to have nearer say 40% bonds and wave goodbye.

If the market tanks, well then you can still choose to work longer as required.

Like I said I am conservative and it would be a shame to give up a great job only to have to go back.

Frank

Cheddar Stacker

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Re: Case Study--Advice for Retiring Earlier Than Planned?
« Reply #11 on: July 15, 2014, 10:30:12 AM »
ZiziPB - I added $400/month in medical costs to my "worst case scenario" model which was overstated by $716/month as CestMoi pointed out. I incorrectly doubled housing costs which were already conservatively doubled by the OP. After removing my error of $716, her ongoing monthly costs would only be $1,600, including health costs.

$1,600*12=19,200/745K=2.58%.

I think she's ready.

frankh - consider your own situation, then chop everything in half since there is only one of her (you have to account for your wife since your NW is shared). Isn't her asset base roughly half of yours? Doesn't she have nearly the same SWR as you?

I think she's ready.


Exflyboy

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Re: Case Study--Advice for Retiring Earlier Than Planned?
« Reply #12 on: July 15, 2014, 10:56:46 AM »
ZiziPB - I added $400/month in medical costs to my "worst case scenario" model which was overstated by $716/month as CestMoi pointed out. I incorrectly doubled housing costs which were already conservatively doubled by the OP. After removing my error of $716, her ongoing monthly costs would only be $1,600, including health costs.

$1,600*12=19,200/745K=2.58%.

I think she's ready.

frankh - consider your own situation, then chop everything in half since there is only one of her (you have to account for your wife since your NW is shared). Isn't her asset base roughly half of yours? Doesn't she have nearly the same SWR as you?

I think she's ready.

Hmm yeah kinda.. of course a single person has more than 50% the living expenses of a couple.. Like I said I am very conservative, not saying it can't be done.. I like cushions.. big fluffy overstuffed cushions...;)

Frank

DoubleDown

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Re: Case Study--Advice for Retiring Earlier Than Planned?
« Reply #13 on: July 15, 2014, 11:19:22 AM »
Congratulations on your success to date!

It sounds like you're well prepared financially, so since you're burned out at work, I say go for it! Some options for you to consider, if it helps you make the mental jump (I was in a similar position myself):

1. You don't have to consider quitting right now permanent, never to be undone. You can retire right now and give yourself all the time you need to decompress. Let's call that a minimum of 6-12 months (preferably 12 months). Consider that time off you've earned through your savings, and time that you don't have to do one damn thing you don't want to. You don't have to be "productive." See how it suits you, and where you want to go from there.

2. Now that you've reached the point where you could leave any time you like, it might give you a new peace at work. That is, you might see how many more days you want to stick it out, just padding your stash, knowing that any time you're fed up you can leave. It can make corporate bullsh*t much more tolerable IMO. You've already got enough, so forget arbitrary goals of "$1 million". Just stay until you don't want to any longer. I squeezed out about 1.5 years this way, and it was actually easy to do since I got to remind myself "I can leave this whenever I want."

3. Leaving the corporate world doesn't have to be the end of your earning potential. You can always earn some $ here and there, part time or seasonally, doing things you love. Anything you earn will be a bonus you can spend or save however you like, or add to your future security. Or maybe you'll want to go back to work full time for a spell, one day; who knows.

Good luck!

Señora Savings

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Re: Case Study--Advice for Retiring Earlier Than Planned?
« Reply #14 on: July 15, 2014, 11:32:42 AM »

Senora Savings, good questions to ask myself. If it's not too much trouble, I'd be interested in hearing what you would do if you were me and stocks halved in value. My off-the-cuff answer for that would be to reduce my expenses at the time, and to consider ways to bring in new income (part-time work, rent out a room, etc).

Yes, there's some insecurity here. I've been working (slaving) for what seems so long that it's a little scary to imagine not having that regular paycheck every month, even though it is draining the life out of me.

I would do the same thing, try to lower withdrawals by bringing in some side income (tutoring or retail).  I think the big thing to do is give yourself a point when you will start worrying.  If you agree to start worrying when you're down to 500k, then you have the luxury of not worrying until you get to that point, because you know that you aren't falling down a slippery slope.

tomsang

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Re: Case Study--Advice for Retiring Earlier Than Planned?
« Reply #15 on: July 15, 2014, 02:40:16 PM »
How will this effect your relationship with your BF?  He clearly is not financially ready to retire, but this could put strain on the relationship if he doesn't support this. Get your head wrapped around all of the numbers. Insurance, etc.  If you aren't there you are close.

CestMoi

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Re: Case Study--Advice for Retiring Earlier Than Planned?
« Reply #16 on: July 15, 2014, 03:33:36 PM »
frankh, I hear what you're saying. I'd like my cushion to be as big and fluffy as possible. :)  The current height of the markets worries me a bit in terms of the future; naturally I don't assume they're going to stay that high. So saving like mad as long as I'm still working is good advice.

As is the advice of DoubleDown that since now I know I can retire, work may go a little more smoothly. Realizing that I'm not stuck there will help keep that taut smile on my face through the challenging corporate moments to come.

Thanks to all the input here, I intend to take very good stock of my goals and finances before I leave the job. And yes, ZiziPB, health insurance is an important consideration.

tomsang, luckily my BF is supportive of me and grateful for the opportunities he's had in his working career, even though he didn't manage to save as much as he could have. He's also receptive to any financial advice I offer; maybe I'll have him post a case study on these forums.

Thegoblinchief

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Re: Case Study--Advice for Retiring Earlier Than Planned?
« Reply #17 on: July 16, 2014, 06:31:16 AM »
Granted, I only work 14 hours a week, but when I realized that because of Mustachian changes my income was 100% going towards NW, my job got a LOT more tolerable. So I would definitely echo what DoubleDown said.

Any time I get frustrated at my job, I tell myself I can pull the plug anytime, though ideally I need to stick it out about a year or two while DW's income rises, that way our savings rate stays high even after I "retire" and we get weekends as a family again.

deedeezee

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Re: Case Study--Advice for Retiring Earlier Than Planned?
« Reply #18 on: July 16, 2014, 07:31:07 AM »
I came to the conclusion about 2 months ago that I am financially prepared to walk away at any time.  And, like PP, it has made a HUGE difference in my burnout and stress.  Don't get me wrong, I still have bad days/weeks but at the end of the week, I literally think to myself "suckers, I'm cashing that check again and it is going right to my financial freedom!!"  I haven't set a date yet - should be no later than fall 2015 - but every week/month that I can keep accumulating in my stash, the better.  And if work gets worse, so long, I don't have any additional prep or planning, I can just walk away.

Note: the only issue is "one more year" itis, where you keep pushing the date out again and again.  I don't have any concerns about this for myself.  I am itching to walk away, and I am not yet 40.  But I want to be thoughtful and as prepared as possible when I pull the plug.

dude

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Re: Case Study--Advice for Retiring Earlier Than Planned?
« Reply #19 on: July 16, 2014, 08:09:44 AM »

I know as an artist . . .

Holy shit, how does an ARTIST amass this kind of wealth?!  So much for the "starving artist" stereotype!  Congrats to you!

I second what others have said about having a 2-3 year stash in a cash equivalent that won't lost value.  That's how you weather a severe market downturn (that, and cut expenses for a while, i.e., no expensive travel, etc).  If you cut expenses, you can put some of that cash to work by buying up that cheap market.

Fishingmn

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Re: Case Study--Advice for Retiring Earlier Than Planned?
« Reply #20 on: July 16, 2014, 08:12:43 AM »
You might go look at this post regarding good questions to examine before retiring - http://www.early-retirement.org/forums/f47/some-important-questions-to-answer-before-asking-can-i-retire-69999.html

dude

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Re: Case Study--Advice for Retiring Earlier Than Planned?
« Reply #21 on: July 16, 2014, 08:18:02 AM »
I came to the conclusion about 2 months ago that I am financially prepared to walk away at any time.  And, like PP, it has made a HUGE difference in my burnout and stress.  Don't get me wrong, I still have bad days/weeks but at the end of the week, I literally think to myself "suckers, I'm cashing that check again and it is going right to my financial freedom!!"

At times, I'm a bit jealous of you folks who can walk at any time.  I've got the double-edged sword of a pretty good pension keeping me working another 5 years (golden handcuffs, anyone?), even though I so want to go now, now, now!  But the pension is crucial to my FIRE plans, so it's worth it.  And hey, it's only another 5 years, right?  At least I keep telling myself that . . .

deedeezee

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Re: Case Study--Advice for Retiring Earlier Than Planned?
« Reply #22 on: July 16, 2014, 09:44:12 AM »
At times, I'm a bit jealous of you folks who can walk at any time.  I've got the double-edged sword of a pretty good pension keeping me working another 5 years (golden handcuffs, anyone?), even though I so want to go now, now, now!  But the pension is crucial to my FIRE plans, so it's worth it.  And hey, it's only another 5 years, right?  At least I keep telling myself that . . .

Even having a time frame is good.  Knowing that you can count it down (four years, then three years...).  What kills me most about my friends is this idea that they have to work until 65: +/- 30 years.  Why?  Many of them make six figures and with careful planning, even starting late!, they could be retired in 15 years or less. 

p.s. the idea of a pension would probably keep me going for 5 years!! 

CestMoi

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Re: Case Study--Advice for Retiring Earlier Than Planned?
« Reply #23 on: July 16, 2014, 12:40:40 PM »
Holy shit, how does an ARTIST amass this kind of wealth?!  So much for the "starving artist" stereotype!  Congrats to you!

-Thank you! I always knew as a creative there'd be no cushy pensions or high salaries for me. But I never wanted to take or rely on financial help from parents, the men in my life, inheritances, etc. I'm a single woman in one of the most expensive areas of the country, who's working in the arts field, weathered three bad layoffs (for years at a time), and rented a separate art studio much of the time as well as paying mortgage/rent.

I did it by being consistent and conscious. By opening and contributing to my IRA as soon as I started earning anything at all. By staying the course in my financial plans, even when the markets tanked. By being flexible with my skillset and constantly learning things I didn't particularly want to spend time on, then putting myself into the market and landing jobs. By totally maxing out every 401k and IRA I owned.

I realized early that saving on the big expenses (car, home, extraneous luxuries) can make up for a multitude of small financial sins. I always lived in reasonable (but nice) apartments, bought a reasonable car and kept it until it died (alas, poor car!), and didn't automatically purchase every new fashion or gadget that advertising shrieked at me to buy. I consciously chose what I spent my "fun" money on. And I still have way more fancy stuff than I can ever use.
« Last Edit: July 16, 2014, 01:23:29 PM by CestMoi »

DoubleDown

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Re: Case Study--Advice for Retiring Earlier Than Planned?
« Reply #24 on: July 16, 2014, 02:20:09 PM »
At times, I'm a bit jealous of you folks who can walk at any time.  I've got the double-edged sword of a pretty good pension keeping me working another 5 years (golden handcuffs, anyone?), even though I so want to go now, now, now!  But the pension is crucial to my FIRE plans, so it's worth it.  And hey, it's only another 5 years, right?  At least I keep telling myself that . . .

I'm assuming you've gone through all the scenarios of doing a deferred annuity instead of "officially" retiring in place? I certainly hear you on the golden handcuffs aspect -- I had a difficult time getting past all the benefits I was giving up by departing ahead of official retirement age. However, I determined that the amount I would draw once I reached minimum retirement age was enough when coupled with other savings (TSP, taxable accounts, real estate, etc.). Have you investigated whether you could make a go of it without officially retiring?

Yeah, you'd lose the FEGLI health care for life, the social security supplement, etc....

Five years is a tough spot, right on the edge. I had 9 to go, and that was too much for me (plus would have resulted in way more retirement savings than needed. So I can see how it's a tough call!