Author Topic: How to let go?  (Read 9115 times)

Altons Bobs

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How to let go?
« on: September 16, 2015, 05:31:13 PM »
Just found this site.  Dh and I talked about early retirement since we got married, and it's almost time.  There are a few things that I'm not sure about which are causing me stress.  Since we have been living without a budget, I can only use past years' numbers to estimate how much we actually spend each year, and I'm still gathering info.  Based on what I found so far, if we live like how we live now, without having to cut back, we will be doing a 1.6% withdrawal rate each year for living expenses.  And I figured in another 1.6% making the total 3.2% if we need to use that much for just in case if we have a big tax bill that year or if we need a new roof, new car, etc.  DH feels pretty comfortable about that, I don't know if I do since we have been living without a budget and I don't see how much goes to each item, I only see the total.  The reason we have no budget is because we have always been using quite a lot less than what we make and we save the rest.  When I ask him how much toothpaste he uses, or how much toilet paper, etc. so I can start figuring in the numbers in the budget I'm trying to come up with, he says I'm nickle and dimeing him.

Another thing is that dh wants me to sell my business which is bringing in the majority of our current income. I just feel a little uncomfortable to all of a sudden let go of all and not have the income/buffer anymore.  What I want to do is to slowly ease into retirement, and slowly close down or slowly sell my business, but dh wants to do it like ripping off a bandaid.  What should I do?  I need some guidance!

KittyCat

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Re: How to let go?
« Reply #1 on: September 16, 2015, 05:39:54 PM »
Why not start keeping track of the expenses now? It wont paint a complete picture, but it should give you a better ballpark estimate than guesstimating.

Altons Bobs

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Re: How to let go?
« Reply #2 on: September 16, 2015, 05:42:06 PM »
I have started, but won't know for a few more years for the average.

mozar

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Re: How to let go?
« Reply #3 on: September 16, 2015, 05:51:33 PM »
Your DH could retire now, while you take your time winding down the business.

firewalker

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Re: How to let go?
« Reply #4 on: September 16, 2015, 05:55:33 PM »
Give us some bare bones basics about your finances. Round numbers in retirement accounts, expected amount the sold business will be, etc. Maybe we can give you some encouragement.

Altons Bobs

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Re: How to let go?
« Reply #5 on: September 16, 2015, 06:06:44 PM »
I'm uncomfortable disclosing actual numbers, so that's why I mentioned percentages.  If we do what dh says, we will be going from the highest tax bracket to probably 25%-28% tax bracket at the top.  I'm still learning on how to do tax efficiently at retirement, I see that some people are able to have $150k in retirement spending and pay $0 tax.  I'm still reading, so if we can figure out how to do it like that, hopefully we'll go from the highest tax bracket to 0%.

thd7t

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Re: How to let go?
« Reply #6 on: September 17, 2015, 07:49:23 AM »
You don't have to wait several years to find out what you spend.  You have bank statements (and/or credit card bills) that can give you broad strokes.  You don't need to be perfect on the first pass.  Forget counting toilet paper and toothpaste (that was hilarious!), figure out your grocery budget/month, your utilities, and see if there are any other major regular expenses.

I second the suggestion that you and your husband don't have to retire in the same way.

Altons Bobs

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Re: How to let go?
« Reply #7 on: September 17, 2015, 10:18:58 AM »
You don't have to wait several years to find out what you spend.  You have bank statements (and/or credit card bills) that can give you broad strokes.  You don't need to be perfect on the first pass.  Forget counting toilet paper and toothpaste (that was hilarious!), figure out your grocery budget/month, your utilities, and see if there are any other major regular expenses.

I second the suggestion that you and your husband don't have to retire in the same way.

I did that already, that was how I came up with the 1.6% expenses.  Is that sufficient?  I don't know if it is since everybody is talking about budget and we don't ever have one, that made me think that we really needed one to be sure if we had enough money to retire, that's why I'm trying to come up with one with line items on everything we use, hence the toilet paper, toothpaste, etc.  ;-)

My husband quit his job to help me in my business 5 years ago, so he's very important to my business.  He still consults part time on what he likes to do, and he wants to keep doing that after I retire.  He just doesn't like to be involved in my business because it's tedious work, he'd rather just do part time of what he does now.  Or he may also quit that all together, if he gets tired of it.

KittyCat

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Re: How to let go?
« Reply #8 on: September 17, 2015, 11:03:51 AM »
I did that already, that was how I came up with the 1.6% expenses.  Is that sufficient?  I don't know if it is since everybody is talking about budget and we don't ever have one, that made me think that we really needed one to be sure if we had enough money to retire, that's why I'm trying to come up with one with line items on everything we use, hence the toilet paper, toothpaste, etc.  ;-)

My husband quit his job to help me in my business 5 years ago, so he's very important to my business.  He still consults part time on what he likes to do, and he wants to keep doing that after I retire.  He just doesn't like to be involved in my business because it's tedious work, he'd rather just do part time of what he does now.  Or he may also quit that all together, if he gets tired of it.

Well, I don't have a budget; I have kept track of every transaction since 2012, but that was more for amusement purposes (and an excuse to use Excel). I trust that I can wisely spend my money without sticking to a budget... in most cases ;) Or, maybe we are talking about the same thing while calling it differently (expenditure vs budget). I agree with thd7t that you don't have to be perfect the first time around or wait several years. I think a year or even several months would be enough to gauge how much you usually spend on things. Well, whatever puts your mind at ease :)

velocistar237

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Re: How to let go?
« Reply #9 on: September 17, 2015, 11:19:49 AM »
Trust your estimate. You run a business, and you're probably pretty good at this sort of thing. Look around the web for budget line items if you're worried about forgetting something.

thd7t

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Re: How to let go?
« Reply #10 on: September 17, 2015, 11:34:34 AM »
If you've already back-calculated your expenses, you don't need a budget.  Even with conservative investments, it is highly unlikely that you will run out of money in your lifetime (however long that may be).  Budgeting is a valuable exercise, but given that you save most of your earnings and now have over 60 years of expenses saved up, it's probably an unnecessary one in your case.  Discuss how you would like to wind down your business with your husband.  Explain why you want to do it this way and consider taking someone on to do the tedious part that he has done.

tonysemail

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Re: How to let go?
« Reply #11 on: September 17, 2015, 11:47:32 AM »
my wife and I also feel anxious about a sudden drop in income, especially with a mortgage to carry.
one thing that has helped me greatly is modeling different scenarios in cfiresim or other tools.
we also plan to write down our retirement plan, kind of like drafting a business plan.
it's my hope that doing these things will help us deal with our anxiety and let us sleep better at night :)

thd7t

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Re: How to let go?
« Reply #12 on: September 17, 2015, 12:17:02 PM »
my wife and I also feel anxious about a sudden drop in income, especially with a mortgage to carry.
one thing that has helped me greatly is modeling different scenarios in cfiresim or other tools.
we also plan to write down our retirement plan, kind of like drafting a business plan.
it's my hope that doing these things will help us deal with our anxiety and let us sleep better at night :)
My wife and I started looking into early retirement two years ago (next week).  Writing down a plan and modelling scenarios was a big part of getting comfortable with the idea for us.  We are still very far out, but having that plan has allowed us a base point for our optimization.  I agree that it's reduced our anxiety (so far).

Axecleaver

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Re: How to let go?
« Reply #13 on: September 17, 2015, 12:30:54 PM »
People are either bottom-up thinkers or top-down thinkers. I can tell from your description that you are a bottom-up thinker, more comfortable finding details first and assembling the big picture out of a sea of data. I am, too, and most engineers are. Top-down thinkers - perhaps like your husband? - often start with a vague idea of the direction they want to go, perhaps write out an outline, and gradually fill in the details.

The good news is, you can solve a problem either way. So, let's attack your problem from the alien, top-down method.

Figure 1.6% WR a year, and divide that by 12 for a monthly budget. Could you live on that in a typical month? Does it pass the gut check? Remember that you'll need to pay taxes on this, so fill out a 1040 with some estimated dollars using that 1.6% figure. Maybe throw in some estimates for part time work at your current business.

As a bottom up thinker, this exercise will drive you toward filling in more of the details. You'll start building better models and getting more specific about your expenses. You can model what your life would look like on 150k, 120k, and 90k. Incidentally, look up Root of Good's sticky post in the tax forum where he shows how he made 6 figures and paid no taxes. Really inspiring example, but very specific to his situation. There's stuff to learn there, though.

Regarding the method of retiring, most successful ER's seem to ease into retirement, taking some part time work or other tactics to reduce their stress and have more time for family and fun. Especially when a business ownership stake is involved, selling it before you're comfortable with retirement is one way ticket. Best to keep a stake in it for at least a year and see how you like retirement.

thd7t

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Re: How to let go?
« Reply #14 on: September 17, 2015, 01:15:13 PM »
People are either bottom-up thinkers or top-down thinkers. I can tell from your description that you are a bottom-up thinker, more comfortable finding details first and assembling the big picture out of a sea of data. I am, too, and most engineers are. Top-down thinkers - perhaps like your husband? - often start with a vague idea of the direction they want to go, perhaps write out an outline, and gradually fill in the details.

The good news is, you can solve a problem either way. So, let's attack your problem from the alien, top-down method.

Figure 1.6% WR a year, and divide that by 12 for a monthly budget. Could you live on that in a typical month? Does it pass the gut check? Remember that you'll need to pay taxes on this, so fill out a 1040 with some estimated dollars using that 1.6% figure. Maybe throw in some estimates for part time work at your current business.

As a bottom up thinker, this exercise will drive you toward filling in more of the details. You'll start building better models and getting more specific about your expenses. You can model what your life would look like on 150k, 120k, and 90k. Incidentally, look up Root of Good's sticky post in the tax forum where he shows how he made 6 figures and paid no taxes. Really inspiring example, but very specific to his situation. There's stuff to learn there, though.

Regarding the method of retiring, most successful ER's seem to ease into retirement, taking some part time work or other tactics to reduce their stress and have more time for family and fun. Especially when a business ownership stake is involved, selling it before you're comfortable with retirement is one way ticket. Best to keep a stake in it for at least a year and see how you like retirement.
Axecleaver, this is the best post on communicating with someone who you agree with, but have trouble communicating with I've seen in a long time.  Just really good!

former player

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Re: How to let go?
« Reply #15 on: September 17, 2015, 01:35:32 PM »
It seems to me that you and DH have quietly established some very good habits  Because your spending is relatively modest in relation to earnings and the savings habit comes naturally to you, you haven't needed to count the pennies.  I strongly suspect that your natural good habits will continue in retirement, and that you will find the finances in retirement add up pretty much as easily as they do at the moment.  Your projected withdrawal percentages are safely low.

I wonder whether there is something other than finances which is concerning you about retirement?  You say that your business is tedious work, so presumably it's not the satisfaction of the work itself which is causing your hesitation.   I wonder whether you need to find something to retire "to"?  In your case, DH is keen on retirement, so ask him to lay out his plans for the time and freedom you will have together - create for yourselves an idea of the new life you can make once you are not tied to work any more.  Once you have clarified what you are moving towards, that will tell you whether or not to leap into it in one bound or to take slower steps.

Even if you want to take slower steps, I can't see any reason not to free DH from the tedium immediately.  Set him free!  Then follow him into freedom!

Best of luck.

Altons Bobs

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Re: How to let go?
« Reply #16 on: September 17, 2015, 02:55:25 PM »
Thank you guys for your input, I really appreciate it!! 

thd7t: how did you come up with the 60-year number?

Actually I have a lot of things I want to do when I retire which I'm already doing some, and also things dh and I will do together like traveling to another continent for a month but can't do yet because we still have one in middle school.  Dh, however, doesn't know what to do with himself if he retires fully, that's why he says he still wants to do the work he likes part time just like how he does it now.

True, I don't enjoy the tedious part of the work in my business, that's why he's doing it.  :-D  I like doing the non-tedious part which I'm good at.  I'm just not comfortable yet going from what we make now to living on retirement income.  We didn't write down a "plan", we just talked about it from time to time.  Dh thinks I think too much, he thinks like some of you that we are fine.   Part of the reason I'm not comfortable yet is that we moved into a new house last year (I figured in the extra expenses already in my calculation) and I kinda want to see how this is first for the next couple of years before actually transitioning into real retirement.  I use firecalc and cfireism but I think their calculations are too lenient, we also use another tool that's more conservative and they're all saying that we have enough to retire.  I don't know how to get rid of this feeling that we may not have enough.  I'm in my early 40s, not sure if it matters, and no debt.

RWD

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Re: How to let go?
« Reply #17 on: September 17, 2015, 04:15:41 PM »
thd7t: how did you come up with the 60-year number?

I can answer that. 100/1.6 = 62.5. In other words, if you have $1,000,000 and you only spend $16,000 (1.6%) per year it will take 62.5 years to run out (assuming no inflation and your money isn't invested).

A 1.6% withdrawal rate is ridiculously low. If that is even remotely accurate then there isn't even a need to track your expenses because you have more than double what you need. The general rule of thumb is that 4% is a safe withdrawal rate. 3% is considered overly paranoid/safe. At 1.6% it is no longer a question of whether you have enough money as the only things that can mess up your retirement financially are outside of your control (e.g. war).

norabird

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Re: How to let go?
« Reply #18 on: September 17, 2015, 04:23:09 PM »
I will say that I was just advised on 2% by a person who handles endowments for a living. So 1.6% sounds like a nice spot to be.

plainjane

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Re: How to let go?
« Reply #19 on: September 17, 2015, 06:22:14 PM »
I will say that I was just advised on 2% by a person who handles endowments for a living. So 1.6% sounds like a nice spot to be.

Perhaps because they need to make sure the money is always there, whereas the folks here are focused on money lasting for their lifetime, and anything leftover is merely nice to have?  Have you looked into the Trinity study to see where people get that 4% number from?

For the tedious part of your business that neither you nor your husband enjoy, would it be possible to find an employee to do it with a "work from home" scenario?

Altons Bobs

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Re: How to let go?
« Reply #20 on: September 18, 2015, 12:26:20 AM »
For the tedious part of your business that neither you nor your husband enjoy, would it be possible to find an employee to do it with a "work from home" scenario?

Tried it, didn't work out.

patrickza

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Re: How to let go?
« Reply #21 on: September 18, 2015, 01:19:42 AM »
If you think you're living on 1.6% then you have over a 100% safety margin in case you need it. You're good to go :)?
I'm curious as to whether your business couldn't be managed by someone else and still provide you with some income, or if you're considering selling it and using the proceeds as part of your stache?

thd7t

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Re: How to let go?
« Reply #22 on: September 18, 2015, 08:44:28 AM »
I will say that I was just advised on 2% by a person who handles endowments for a living. So 1.6% sounds like a nice spot to be.
I suspect that this person makes most of their money while the money is growing.  In this case, they want people to think they need too much money.  If the endowments are institutional, they probably have to deal with established guidelines that involve different types of draws (building, new positions, etc) than would normally be done in retirement.

Altons Bobs

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Re: How to let go?
« Reply #23 on: September 18, 2015, 09:57:00 AM »
If you think you're living on 1.6% then you have over a 100% safety margin in case you need it. You're good to go :)?
I'm curious as to whether your business couldn't be managed by someone else and still provide you with some income, or if you're considering selling it and using the proceeds as part of your stache?

No, if I sell it, the proceeds will just be extra, I don't count it as a part of my stache.  Just like our house, we don't count it as a part of the stache.  I have considered hiring a company to run it for me and I just collect the income.  It will only be part of my business, the other part I will have to sell off or find someone else who can do it for me full time.  Dh is okay with that.  Maybe I will slowly ease into that transition and won't lose all the income all at once and still have income when someone else is working for me after we retire and won't have to use any of our nest egg for some time.  We talked about this and it didn't come up recently and I forgot about it when I started tracking our yearly expenses.  Thank you for bringing it up!  :-)

Altons Bobs

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Re: How to let go?
« Reply #24 on: September 18, 2015, 10:07:37 AM »
thd7t: how did you come up with the 60-year number?

I can answer that. 100/1.6 = 62.5. In other words, if you have $1,000,000 and you only spend $16,000 (1.6%) per year it will take 62.5 years to run out (assuming no inflation and your money isn't invested).

A 1.6% withdrawal rate is ridiculously low. If that is even remotely accurate then there isn't even a need to track your expenses because you have more than double what you need. The general rule of thumb is that 4% is a safe withdrawal rate. 3% is considered overly paranoid/safe. At 1.6% it is no longer a question of whether you have enough money as the only things that can mess up your retirement financially are outside of your control (e.g. war).

It probably won't be 1.6% every year exactly, that's why I have another 1.6% figured in for taxes and large expenses.  The original 1.6% includes property taxes but not IRS taxes.  So if I max out at 3.2%  like if we have to pay a lot of taxes every year, will we have enough to last a lifetime?!  This is the part I'm unsure about because I think we're cutting it too close at 3.2% and I don't know the sustainability.

thd7t

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Re: How to let go?
« Reply #25 on: September 18, 2015, 10:16:41 AM »
thd7t: how did you come up with the 60-year number?

I can answer that. 100/1.6 = 62.5. In other words, if you have $1,000,000 and you only spend $16,000 (1.6%) per year it will take 62.5 years to run out (assuming no inflation and your money isn't invested).

A 1.6% withdrawal rate is ridiculously low. If that is even remotely accurate then there isn't even a need to track your expenses because you have more than double what you need. The general rule of thumb is that 4% is a safe withdrawal rate. 3% is considered overly paranoid/safe. At 1.6% it is no longer a question of whether you have enough money as the only things that can mess up your retirement financially are outside of your control (e.g. war).

It probably won't be 1.6% every year exactly, that's why I have another 1.6% figured in for taxes and large expenses.  The original 1.6% includes property taxes but not IRS taxes.  So if I max out at 3.2%  like if we have to pay a lot of taxes every year, will we have enough to last a lifetime?!  This is the part I'm unsure about because I think we're cutting it too close at 3.2% and I don't know the sustainability.
As you've mentioned before, you will have opportunities to optimize your taxes in retirement.  If you withdraw at 3.2%, firecalc gives a 0% chance of running out of money during a 50 year retirement.  Obviously, your odds are not quite zero percent, but it would be extremely unlikely that you'd run out of money.  In addition, you've said that most of your years will be less expensive.  Your position is incredibly strong.