Author Topic: Early retirees - HOW did you financially transition to retiring?  (Read 5508 times)

nottoolatetostart

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Hi! I've read about Roth laddering, a safe withdrawal rate of 4% of assets, etc.

In doing some calculations and really thinking through our annual expenses (mainly based on the case study MMM posted last night), I realized that end of the year we have more than enough assets to cover our ~$20K annual expenses. We've done a ton of cost cutting in the last few months to make this possible (move to Ting, cut home security monitoring, cut unnecessary life insurance, raised deductibles, cut vacations, cut food, started shopping at Costco). We could even cut some expenses further and would probably want to leave our current house and move to a more desirable to us area (we live in this town for DH's work right now). However, I feel nowhere near ready financially of HOW we would pay our bills and need to convince DH a bit more.

While it may sound like a stupid question, exactly HOW would we fund our expenses?  We or he will likely work a bit longer to continue to fund luxuries in our life since we are so young (he is 33, me 34) and still have college on the horizon (currently pregnant with #2 and have a 18 month old).

For those that have retired, how did you do it? Did you have a year or two of cash (in a savings account or money market) saved before making the plunge? Did you just liquidate some of your taxable account investments to pay for living expenses? Did you prepay some expenses while working? If you liquidate your taxable accounts while waiting for the Roth laddering, do you sell mutual funds monthly? Annually? Just live off dividends?  What are the mechanics of what to do? I just feel like we need to get our financial house in order to move from wealth building to transitioning to actually USING the funds. It seems confusing to me.

Thanks in advance.

jhartt3

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Re: Early retirees - HOW did you financially transition to retiring?
« Reply #1 on: February 24, 2014, 08:13:37 AM »
my plan for retirement is to have enough principal in roth accounts and a cash account bridge to get us to our ladder for the first 5 years of retirement.  Congrats on getting that at 33 we are 27&26 right now and our current goals are still 40. 

C. K.

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Ozstache

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Re: Early retirees - HOW did you financially transition to retiring?
« Reply #3 on: February 24, 2014, 03:24:40 PM »
I am fortunate enough to have a semi-COLAed pension that covers all of my ER expenses currently. I also have a stash that will be used to fund my expense shortfall when inflation eventually takes its toll. The stash is split roughly evenly between accessible now and later (after age 60) investments, mostly weighted in shares, a dash of cash and no property (IMO too much management effort for similar return to index funds long term). When I get to using my stash, I will live off dividends and interest as long as possible (potentially for the rest of my life), then will liquidate index funds as required.  I am 45 BTW.

nicknageli

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Re: Early retirees - HOW did you financially transition to retiring?
« Reply #4 on: February 24, 2014, 03:47:44 PM »
When I get to using my stash, I will live off dividends and interest as long as possible (potentially for the rest of my life), then will liquidate index funds as required.  I am 45 BTW.

  Very cool!

travelbug

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Re: Early retirees - HOW did you financially transition to retiring?
« Reply #5 on: February 24, 2014, 07:28:01 PM »
We are FI, but DH is not quite ready to FIRE. Another couple of years for him to finish achieving some career goals for his personal satisfaction.

We are planning to have most of our funds invested in shares and live off the dividends. We will have no mortgage and also a decent rental income from some commercial real estate.

We may also have our business, or if not we will have extra funds (YAY), and will take a wage from that but not be involved in the day to day running of it at all. We may have to attend b-yearly meetings, but we are cool with that.

But our day to day living will be drawing only the dividend payments and not touching the principal of any investments.

nicknageli

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Re: Early retirees - HOW did you financially transition to retiring?
« Reply #6 on: February 25, 2014, 02:49:35 PM »
But our day to day living will be drawing only the dividend payments and not touching the principal of any investments.

As a person gets closer to retiring, does it make more sense to take money from a total stock index or an S&P index, for example, and buy a dividend only index fund?

Are there retirees out there who only own dividend paying stocks, index or ETFs that own only dividend paying stocks?

Bateaux

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Re: Early retirees - HOW did you financially transition to retiring?
« Reply #7 on: February 25, 2014, 04:35:35 PM »
I has seemed so easy to save for retirement.   The big step of withdrawal of those funds eeems scary.

Nords

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Re: Early retirees - HOW did you financially transition to retiring?
« Reply #8 on: February 25, 2014, 11:05:48 PM »
For those that have retired, how did you do it? Did you have a year or two of cash (in a savings account or money market) saved before making the plunge? Did you just liquidate some of your taxable account investments to pay for living expenses?
Yep.  We keep a couple years' expenses in cash (money market and CDs) and replenish it during good years by selling some taxable investments.  In bad years we don't replenish it.  12 years so far, so good.

I can almost hear the "Yeah, but..." of other posters from here, so I've written an example that goes through a six-year slice of the stock market cycle:
http://the-military-guide.com/2014/02/20/how-should-i-invest-during-retirement/

nottoolatetostart

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Re: Early retirees - HOW did you financially transition to retiring?
« Reply #9 on: February 26, 2014, 04:59:22 AM »
Thanks all for the responses. It seems that the first couple years are the most important, especially dependent on whether bull or bear market. What will help me/us sleep well at night will probably to have a couple years worth in cash or money market and try to keep laddering that so we don't get into a desperate situation of selling when the market is down (if anything, it would be awesome to have cash to buy when everything is on sale). As time rolls on, there will be less of this need to be concerned as our investments will (hopefully) grow faster than inflation and spending.

I read your article, Nords, and I agree that maybe we should ease up on Roth contributions for a couple years leading up to the retirement and use those extra funds for dividend paying funds or something else similar. The impact of additional contributions is minimal as much of the ground work is already laid to be its own engine.

So it seems like in our scenario, we'll have about $12K in dividends per year and then if we have enough cash for a year or two, then our actual withdrawl rate would be a little less than 4%. If the previous year was bearish, then we know the following year, we will have to cut back or rely more on cash. If it was bullish, then maybe we could withdraw more from the gains to build our cash reserves. I'd really have to keep an eye on this though and manage it well with our Roth conversions to make sure our income doesn't get too high.

Because of the large amount we will have in our taxable account, I don't see us tapping into our Roth IRA's for 15-20 years as we'd like to burn through our taxable accounts first.

Thanks again for the responses. I think we have something here that we can plan on. Back to the calculations....

quilter

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Re: Early retirees - HOW did you financially transition to retiring?
« Reply #10 on: February 26, 2014, 05:29:21 AM »
I think most people have several alternatives to figure out their funding. One where you can have enough money to fund not working at a barebones level if you never intend to work again and as you have said, figure out the dividend, taxable account strategy.  But don't forget to think about a higher second number includes what extras you might need or want as time progresses. Cars and roofs need replacing, health insurance will go up and kids need new sneakers. A move is expensive too. A third alternative is to continue to work at a lower pace, have other income streams like rentals etc.  and supplement your income with modest withdrawals.  And yet another is to continue working as you have been, and accumulate at the current rate. With two young kids number one seems risky.  If your DH is not comfortable with not working at his current salary level at your young ages, I can understand that. Just keep hanging on and following the course. We had different levels of comfort in my house as to how big the stash should be.  I was much more comfortable with a lower number.
It sounds like you are doing great.

quilter

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Re: Early retirees - HOW did you financially transition to retiring?
« Reply #11 on: February 26, 2014, 05:46:46 AM »
After I posted I thought about something else. There is another forum you might want to read. Early-retirement.org. I recognize several posters who contribute there. They are really into discussing these financial topics and I learned a lot about money, investing, withdrawal rates etc by reading there. Of course, like here, you have to educate yourself and take everything with a grain of salt, but you may pick up some valuable information.

nottoolatetostart

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Re: Early retirees - HOW did you financially transition to retiring?
« Reply #12 on: February 26, 2014, 06:42:43 AM »
I think most people have several alternatives to figure out their funding. One where you can have enough money to fund not working at a barebones level if you never intend to work again and as you have said, figure out the dividend, taxable account strategy.  But don't forget to think about a higher second number includes what extras you might need or want as time progresses. Cars and roofs need replacing, health insurance will go up and kids need new sneakers. A move is expensive too. A third alternative is to continue to work at a lower pace, have other income streams like rentals etc.  and supplement your income with modest withdrawals.  And yet another is to continue working as you have been, and accumulate at the current rate. With two young kids number one seems risky.  If your DH is not comfortable with not working at his current salary level at your young ages, I can understand that. Just keep hanging on and following the course. We had different levels of comfort in my house as to how big the stash should be.  I was much more comfortable with a lower number.
It sounds like you are doing great.

Quilter, you are totally right. DH and I grew up differently. I feel quite wealthy right now thinking that our bare bones (including the contingencies of buying kids' supplies, extra money for our dog, blocks of lovely parmesan cheese, a few dollars for car repairs, and misc to cover Christmas and other random stuff that happens) are covered for life since I saw how my single mom struggled financially and many days, I was hungry as a kid. DH, on the other hand, grew up flying first class to Four Seasons' around the world with his parents and has a much different perspective on "wealthy" or being comfortable. To get to his idea of being comfortable, I don't actually see him leaving his corporate job for quite some time and he knows he is basically working right now to fund his creature comforts and is totally ok with that. Since knowing we have our basics covered for life, he has felt a lot less stress with his job and not so focused on getting promoted now, as just maintaining his current salary.

And, thanks for the tip on early-retirement.org. Will check it out.

soccerluvof4

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Re: Early retirees - HOW did you financially transition to retiring?
« Reply #13 on: February 26, 2014, 07:07:08 AM »
For those that have retired, how did you do it? Did you have a year or two of cash (in a savings account or money market) saved before making the plunge? Did you just liquidate some of your taxable account investments to pay for living expenses?
Yep.  We keep a couple years' expenses in cash (money market and CDs) and replenish it during good years by selling some taxable investments.  In bad years we don't replenish it.  12 years so far, so good.

I can almost hear the "Yeah, but..." of other posters from here, so I've written an example that goes through a six-year slice of the stock market cycle:
http://the-military-guide.com/2014/02/20/how-should-i-invest-during-retirement/
I think most people have several alternatives to figure out their funding. One where you can have enough money to fund not working at a barebones level if you never intend to work again and as you have said, figure out the dividend, taxable account strategy.  But don't forget to think about a higher second number includes what extras you might need or want as time progresses. Cars and roofs need replacing, health insurance will go up and kids need new sneakers. A move is expensive too. A third alternative is to continue to work at a lower pace, have other income streams like rentals etc.  and supplement your income with modest withdrawals.  And yet another is to continue working as you have been, and accumulate at the current rate. With two young kids number one seems risky.  If your DH is not comfortable with not working at his current salary level at your young ages, I can understand that. Just keep hanging on and following the course. We had different levels of comfort in my house as to how big the stash should be.  I was much more comfortable with a lower number.
It sounds like you are doing great.

Quilter, you are totally right. DH and I grew up differently. I feel quite wealthy right now thinking that our bare bones (including the contingencies of buying kids' supplies, extra money for our dog, blocks of lovely parmesan cheese, a few dollars for car repairs, and misc to cover Christmas and other random stuff that happens) are covered for life since I saw how my single mom struggled financially and many days, I was hungry as a kid. DH, on the other hand, grew up flying first class to Four Seasons' around the world with his parents and has a much different perspective on "wealthy" or being comfortable. To get to his idea of being comfortable, I don't actually see him leaving his corporate job for quite some time and he knows he is basically working right now to fund his creature comforts and is totally ok with that. Since knowing we have our basics covered for life, he has felt a lot less stress with his job and not so focused on getting promoted now, as just maintaining his current salary.

And, thanks for the tip on early-retirement.org. Will check it out.


I am in ER my wife still wants to work 25-30hrs a week for our biz we own which is fine by me. I think its important to spend time everyweek educating yourself as much as possible on this subject. I find i am learning stuff from Site like this everyday and feel thats a goodthing. I also feel/and have the same as Nord a couple years in Cash in Money Markets as well.  I get attacked all the time for using the word drypoweder in case the market drops but when people dont know the percentages or the exact details and what makes you sleep at night....it just doesnt bother me. Just keep educating yourself and you will find what works for you and sure there will be times you tweak along the way.