Author Topic: Case study: Do I REALLY need a $1M 'stache?  (Read 9268 times)

ChillPhill

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Case study: Do I REALLY need a $1M 'stache?
« on: November 26, 2014, 08:50:35 PM »
Am I doing something wrong? Like many here, I stumbled upon Mr. Money Mustache and as the song says, “felt the earth move under my feet.” 

I’m 55 years old, in good health, and live in one of the most walkable, bikeable cities in the US—San Francisco, CA.

I’ve taken a look at some of the best ER calculators out there, like FireCalc, the Flexible Retirement Planner and the Financial Mentor Ultimate Retirement Planning Calculator--and they all say the same thing: If I cut my annual expenses to $28,800 a year, I’m at FI, now. And my portfolio would keep growing

Yet, compared to the badass MMMers on this site, my savings are actually not that high:
$370,000 in 401(k) and IRAs
$130,000 in post tax ETFs and Mutual Funds (Betterment and Scottrade) 
$75,000 in dividend-paying stock from my company (one of the largest and most established Silicon Valley firms). Dividend yield is 2.5% and the stock has appreciated steadily in value since 2008.
Total Portfolio today: $575,00
 
In terms of the retirement calculators, unlike some on these boards, I firmly believe SS will exist when I hit 67, so I’ve used that in my models, at approximately $2,000 a month at that time.

As for debts, I have none. No kids, either. I’m seeing a wonderful woman, and if/when we get married, I’d be in for half of the $300K mortgage she has on a 3 bedroom condo in San Francisco (being in SF, the condo is now valued at $1.2M).

Thanks to Obamacare (yay!), a Kaiser Permanente HMO high deductible health care plan under Covered CA would run me a maximum of $530, but the site says I’d qualify for “low income” subsidies that would cut the premium to under $50 a month.

Expenses are pretty simple now:
$1,300 rent.
$400 for groceries (incl. wine & beer)
$100 cleaning lady
$100 natural gas/electric/trash
$100 month for gas/insurance for my Smart Car
$100 clothing
$400 eating out/ lunch
$500 travel/vacation (taken in semi annual trips)
Total expenses: $3K/month

That’s a $36K annual run rate, but I’d easily cut out the cleaning lady, work clothing, shop a bit more carefully for groceries and halve the eating out to get to my desired $28K.

So, MMMers, am I doing something wrong? Do I need to keep working until I accumulate that $800K to $1M ‘stache that everyone seems to be aiming for? Or should I ditch the cubicle, and start learning how to handle a nail gun—today?

Zamboni

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Re: Case study: Do I REALLY need a $1M 'stache?
« Reply #1 on: November 26, 2014, 09:20:59 PM »
Welcome to the board!

You already pointed out a couple of easy to dump expenses, and you don't really need to trim much to get to your target $28K/year.  No idea how you are spending so much on food, for example.  I spend half of what you spend and I am feeding three adult size people here.  So each person here (including a teenage boy who eats more than a normal amount of calories) is eating 1/6 as much money per month as you spend?  And I feel like we eat pretty well.

Is anything missing from your budget?  Do you have cable or internet, for example?

Try trimming to the lower budget, track very carefully, and see if you can do it for at least 6 months straight.  Then you will have your answer.


Exflyboy

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Re: Case study: Do I REALLY need a $1M 'stache?
« Reply #2 on: November 26, 2014, 09:28:40 PM »
I think a lot of this comes down to how comfortable you are with the stash.

I mean at the standard 4% SWR you need a stash of $720k... And remember the market could still tank.

Because I'm a weenie I finally quit (at 52) in January at $1.2M with an ongoing $15k of rental income, wife still works for 2 more years with great bennies ($30k) and expected pensions of $42k in 7 years time.

House and rentals are paid off. Re taxes $2k per year for everything.

Annual expenses for the Wife and I I'm guessing are around $30k (we have yet to do a full year and add them up).

And I still work occasionally just for fun/interest.. of course I don't have to, especially as the market has done quite well this year so far.

Frank
« Last Edit: November 26, 2014, 10:02:38 PM by Exflyboy »

EricL

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Re: Case study: Do I REALLY need a $1M 'stache?
« Reply #3 on: November 26, 2014, 10:26:17 PM »
You may be OK.  By my calculations if your investments make 6% (kinda low) with inflation at 4% (kinda high) and you stick to spending $36k annually you can theoretically live to 100 (beating average life spans nicely) and have $31k left for the funeral.  And that doesn't include SS, which I agree you'll probably get though I'm not sure it will get to 100 with you. 

$1 million dollars is just a nice big round number a lot of people (including myself) feel comfy with.  It provides a nice buffer if the market hiccups badly or some financial emergency hits you out of left field.  For instance, what if your SO's condo gets severely damaged in an earthquake and the insurance company decides it won't pay?  It may be worth your while to work and save more.


Ricky

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Re: Case study: Do I REALLY need a $1M 'stache?
« Reply #4 on: November 26, 2014, 10:40:55 PM »
How are you going to retire any less than 4.5 years from now considering most of your investments are in retirement accounts?

At any rate, if you care anything about the preservation of your capital, I wokld stick it out until $800-900k. Im assuming high income since SF so do your trimming now.

1. Cut out travel and clothing completely. Seriously, you live in an amazing international city full of culture and free things to do. There will be plenty of time for traveling.
2. Reduce restaurant spending snd increase public transportation use. I'm not sure if taking the bus/train will save you tons of money, but every little bit counts when you're in the home stretch.
3. Ditch the cleaning lady?
4. Learn to make more efficient meals.

Your expenses could be more like $22k quite easily. Shockingly easily. That would boost your savings considerably!

ChillPhill

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Re: Case study: Do I REALLY need a $1M 'stache?
« Reply #5 on: November 26, 2014, 10:58:11 PM »
Yep, there's a lot of ways to cut expenses. But I'm glad to see I'm not making some fundamental error in my calculations. For me, it's not so much 'early retirement' as financial independence. I plan to do some free lance writing and also start up a radio show once I leave the cubicle...if both of those streams only yield $12-24K per year for the next 5-8 years, I figure I'll be golden. Then I'll start my "how to build a cabin in wine country" blog.

rweba

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Re: Case study: Do I REALLY need a $1M 'stache?
« Reply #6 on: November 27, 2014, 03:42:18 AM »
I think you can do it. Especially since you're already planning to work part time in your retirement.

The advice to have a 6 month trial run of tracking your expenses and seeing if you meet your budget is good. Also probably a good idea to start spinning up your side hustles now, so they'll be in place when you quit.

Monkey Uncle

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Re: Case study: Do I REALLY need a $1M 'stache?
« Reply #7 on: November 27, 2014, 05:03:52 AM »
The one caution I would offer is to be careful about assuming you will get health insurance through the current version of the ACA.  It is in potential trouble with the Supreme Court right now, and if the Repubs win the White House in 2016, it might be gone or significantly altered in a very short time.  If I were you, I would run the calcs with the assumption that you are going to be paying full price for your health insurance.

Monkey Uncle

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Re: Case study: Do I REALLY need a $1M 'stache?
« Reply #8 on: November 27, 2014, 05:06:03 AM »
How are you going to retire any less than 4.5 years from now considering most of your investments are in retirement accounts?

Google "SEPP."

Bateaux

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Re: Case study: Do I REALLY need a $1M 'stache?
« Reply #9 on: November 27, 2014, 05:23:02 AM »
Like others have mentioned,  I'd work till after the 2016 election.  The ACA could come under attack if the Republicans control the Whitehouse.  Also if you get married and decide to keep her home pay it off.   Hell pay it off, sell the damn thing and move to a cheaper place.

Davids

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Re: Case study: Do I REALLY need a $1M 'stache?
« Reply #10 on: November 28, 2014, 08:17:07 AM »
Like others have mentioned,  I'd work till after the 2016 election.  The ACA could come under attack if the Republicans control the Whitehouse.  Also if you get married and decide to keep her home pay it off.   Hell pay it off, sell the damn thing and move to a cheaper place.
I agree, if a republican wins in 2016 then say bye bye to ACA. Now not to get political but I hope that happens because the ACA is a complete joke.

geekette

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Re: Case study: Do I REALLY need a $1M 'stache?
« Reply #11 on: November 28, 2014, 10:30:12 AM »
Like others have mentioned,  I'd work till after the 2016 election.  The ACA could come under attack if the Republicans control the Whitehouse.  Also if you get married and decide to keep her home pay it off.   Hell pay it off, sell the damn thing and move to a cheaper place.
I agree, if a republican wins in 2016 then say bye bye to ACA. Now not to get political but I hope that happens because the ACA is a complete joke.
So you're okay with people having to work full time until 65 in order to have medical insurance?  Seems at odds with the purpose of this site.  I doubt half of people over 50 would be able to get insurance on the "open" market.  If that.

sheepstache

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Re: Case study: Do I REALLY need a $1M 'stache?
« Reply #12 on: November 28, 2014, 10:43:16 AM »
How are you going to retire any less than 4.5 years from now considering most of your investments are in retirement accounts?

Google "SEPP."

Also the 72t rule and five year roth ira ladder conversion.

GizmoTX

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Re: Case study: Do I REALLY need a $1M 'stache?
« Reply #13 on: November 28, 2014, 10:46:59 AM »
Why are you OK with Obamacare charging more than 4x for less coverage? As the waivers go away, more & more will not be able to afford health insurance. Oh, you're counting on the subsidy? Why are you OK with this completely unfair redistribution of the costs?

I am for portable insurance not tied to an employer or state lines. Allow coverage for pre-existing conditions as long as the person is insured. Allow for differences in coverage as well as the variations in premium vs deductible -- coverage for routine exams or multiple visits is not something everyone needs or wants. NONE of this is possible with Obamacare. I expect that getting rid of it will save everyone a lot of money.

sheepstache

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Re: Case study: Do I REALLY need a $1M 'stache?
« Reply #14 on: November 28, 2014, 11:03:16 AM »
Guys, I do love a good debate but it's a little early on a case study thread to go OT. The OP deserves some more feedback before it runs off the rails. There are plenty of other threads to debate the ACA on.

kib

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Re: Case study: Do I REALLY need a $1M 'stache?
« Reply #15 on: November 28, 2014, 01:53:12 PM »
On another post someone mentioned mom's realization that she wasn't going to be "jetsetting in retirement" and it brought up a thought for me.  So many of the retirement advisors out there seem to be upper middle class strivers with very traditional upper middle class lifestyles, and I think they may be a bit myopic about what constitutes "enough".  Surely, you don't want to drive a used Honda when you retire!  Surely, you don't want to wear second hand clothes when you retire!  Surely, you don't want to do without an annual cruise when you retire!  Well, Shirley ... if you've never lived like that before, why would you necessarily want or need (or expect) any of that just because you're no longer working?

I put my 500,000 worker dollars in harness when I hit 38.  They've provided me with a modest lifestyle that I enjoy, plus enough extra to keep up with inflation.  Sometimes I think I'd want more, and becoming more aggressive about earning is certainly an option, but for me, a .5 stache is adequate.

« Last Edit: November 28, 2014, 01:59:32 PM by frufrau »

Monkey Uncle

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Re: Case study: Do I REALLY need a $1M 'stache?
« Reply #16 on: November 29, 2014, 04:29:31 AM »
On another post someone mentioned mom's realization that she wasn't going to be "jetsetting in retirement" and it brought up a thought for me.  So many of the retirement advisors out there seem to be upper middle class strivers with very traditional upper middle class lifestyles, and I think they may be a bit myopic about what constitutes "enough".  Surely, you don't want to drive a used Honda when you retire!  Surely, you don't want to wear second hand clothes when you retire!  Surely, you don't want to do without an annual cruise when you retire!  Well, Shirley ... if you've never lived like that before, why would you necessarily want or need (or expect) any of that just because you're no longer working?

I put my 500,000 worker dollars in harness when I hit 38.  They've provided me with a modest lifestyle that I enjoy, plus enough extra to keep up with inflation.  Sometimes I think I'd want more, and becoming more aggressive about earning is certainly an option, but for me, a .5 stache is adequate.

At the risk of hijacking the OP's thread, I'd like to get some details on your situation so we can see how you're doing it on a .5 stache.

What's your personal situation?  Spouse?  Kids?
Do you own a house?  Paid off?
How much do you spend annually?
How long have you been FIREd?  Did you go through either the 2000-2002 or 2008-09 market crashes?
Are you counting on any SS, pension, or other benefits in your later years?
Is your lifestyle more ERE or MMM?

I think this info should be pertinent to the OP's original question (and helpful to me as well as my stache approaches the .5 mark ;) ).  Thanks!

rweba

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Re: Case study: Do I REALLY need a $1M 'stache?
« Reply #17 on: November 29, 2014, 01:35:13 PM »
To the OP: I think it also depends on your appetite for risk, which only you can decide for yourself, but can make a big difference on when you feel you have "enough".

I tend to be a bit more on the "risk taker" side personally: I tend to assume that financially everything will work out as expected over the long run(e.g. the market will return 7-8% IN THE LONG RUN) and that if something unexpected happens (unemployment, accident, illness), I will be able to weather the storm.

In mathematical terms I would say a 90% confidence of things going right is good enough for me. If things go much worse than expected and I fall in the unlucky 10%, I will just roll with the punches and deal with it. I feel like you can't live your life trying to avoid anything bad happening to you.

I liked these two MMM posts which deal with risk and safety:

http://www.mrmoneymustache.com/2011/10/17/its-all-about-the-safety-margin/

http://www.mrmoneymustache.com/2012/06/07/safety-is-an-expensive-illusion/

Having different kinds of backups in case things go pear shaped definitely sounds like a good idea.

Mesmoiselle

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Re: Case study: Do I REALLY need a $1M 'stache?
« Reply #18 on: November 29, 2014, 05:02:45 PM »
How are you going to retire any less than 4.5 years from now considering most of your investments are in retirement accounts?

Google "SEPP."
http://www.mrmoneymustache.com/2011/11/11/how-much-is-too-much-in-your-401k/

HMMM talks about SEPP in the above

kib

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Re: Case study: Do I REALLY need a $1M 'stache?
« Reply #19 on: November 29, 2014, 08:06:26 PM »
At the risk of hijacking the OP's thread, I'd like to get some details on your situation so we can see how you're doing it on a .5 stache.

What's your personal situation?  Spouse?  Kids?
Do you own a house?  Paid off?
How much do you spend annually?
How long have you been FIREd?  Did you go through either the 2000-2002 or 2008-09 market crashes?
Are you counting on any SS, pension, or other benefits in your later years?
Is your lifestyle more ERE or MMM?

I think this info should be pertinent to the OP's original question (and helpful to me as well as my stache approaches the .5 mark ;) ).  Thanks!

ok let's see.  I worked from age 18-38, I retired in 1998, single.  Busted my hump with 60 hours work a week in NYC, low six figures, and bought cheap real estate with my extra $.  My money was in bonds - ala Joe Dominguez - and real estate.  My living space was a 1000 sq. condo - no mortgage - in a safe but dreary neighborhood within commuting distance of NYC, I got the city benefits but my cost was much, much less than living in the city.  My expenses at the time were about 18K.  Over time I shifted some of that real estate, for a while I was flipping fixer-uppers, with lucky timing I boosted my assets, which is a good thing because the bond investment market went to crap.  But I didn't lose my shirt in stocks because they've never been my thing.  I could have lost my shirt in real estate but I've been riding it out as a landlord, so the income stream has been steady.  I was without healthcare for about 7 years, and then got married and DH has a job that allows me to buy a policy for about $120 a month.  No kids.  We have separate finances, but our combined income is close to 6 figures and it's clearly beneficial to have 2 people and double the income. 

At this point I'm netting about $45K, about 10K left over per year to invest after expenses.  I do need to get more focused with the landlording.  I am not counting on ss or pension although it's possible I may receive both, plus some inheritance.  Who knows how the wind will blow.  So ... I was determined from a very early age, I made some good decisions and some lucky ones, I worked hard and I was in the right place at the right time.  I also moved to a place with a much lower COL when I retired, and I went back and forth with working for a few years until I found my sweet spot.

I did take a SEPP and I regret it, I estimated the return much higher than it turned out to be and instead of lasting to 84, the funds will run out when I'm 54.  I've been reinvesting that $ because it turns out I didn't actually need it, but it would have been simpler to leave it alone.

I think my ideals are closer to ERE, but I'm not entirely sure where the difference lies between ERE and MMM.  So far the things I've read on the MMM blog seem to agree with my principles.  I have some radical ideas, but my life doesn't look that different from anyone else's on the outside.
« Last Edit: November 29, 2014, 08:24:06 PM by frufrau »

DarinC

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Re: Case study: Do I REALLY need a $1M 'stache?
« Reply #20 on: November 29, 2014, 09:38:36 PM »
Is there anything preventing you from keeping the cubicle and learning how to handle a nail gun?

AshStash

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Re: Case study: Do I REALLY need a $1M 'stache?
« Reply #21 on: November 30, 2014, 03:56:40 AM »
Yep, there's a lot of ways to cut expenses. But I'm glad to see I'm not making some fundamental error in my calculations. For me, it's not so much 'early retirement' as financial independence. I plan to do some free lance writing and also start up a radio show once I leave the cubicle...if both of those streams only yield $12-24K per year for the next 5-8 years, I figure I'll be golden. Then I'll start my "how to build a cabin in wine country" blog.

How sure are you of the $12-14k/year? I agree, you'd be doing fine if that income materialized but if you haven't started establishing your writing business or radio show, it might take you several years to build your reputation in those fields and start seeing any money from them.

I agree with the other posters who suggest cutting your expenses now while you're still working and seeing if you can live on that for 6-12 months. I'm a bit cautious, which is why I'd go for a year, myself. That would also let you see if you really missed travel etc, whereas in 6 months, you might not miss anything all that much. I'm also in the group of people worried about what happens to healthcare costs if the ACA goes away.

Monkey Uncle

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Re: Case study: Do I REALLY need a $1M 'stache?
« Reply #22 on: November 30, 2014, 04:09:05 AM »
@frufrau - thanks!!