Author Topic: I need a plan, would like some advice on this scenario...  (Read 4568 times)

Sojourner

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I need a plan, would like some advice on this scenario...
« on: April 23, 2015, 02:21:00 PM »
The number$ look about like this:

$420K (401k)
$450K (savings, taxable investments, mutual funds/equities)
-----
$870K (total stache)

Age 48

Personal interest in job: not much, eager to FIRE, which is why I've been reading this forum

Income: Will reduce to $102K after 2015 (will be switching to a part-time sched)

Pension scenarios: (inflation adjusted)
If retired 2017: $30K/yr
If retired 2023: $36K/yr

2nd pension starts 2028: addl $15K/yr (inflation adjusted)

Social security scenarios: (includes SO)
Age 62: $41K/yr
Age 67: $61K/yr
Age 70: $76K/yr
(figures are from SSA, assuming the program doesn't change)

Current annual budget: ~$60K (mainly due to house costs, HCOL/high tax area; otherwise about $27K)
This budget amt is anticipated to increase mainly due to more desired travel.  Up it to Say, $72K/yr projected.

Home equity: $300K
SO loves the house, so probably won't be moving anytime soon.

DINKs (no kids); no debt other than mortgage

So by age 62, there SHOULD be more than enough income to meet needs without considering the stache.  Quandary is, there seems not enough to FIRE now, but too much income later.  Ideas for balancing this?

If this were your scenario, how would you proceed?  Ideally, the goal is to spend down to zero upon death (other than maybe the value of the house left for someone we like to inherit).

mikesinWV

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Re: I need a plan, would like some advice on this scenario...
« Reply #1 on: April 23, 2015, 02:30:42 PM »
Couple things that jump out at me...

How much do you owe on the mortgage?
Does your SO work? 
How would you handle health insurance if you stop working?


Sojourner

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Re: I need a plan, would like some advice on this scenario...
« Reply #2 on: April 23, 2015, 02:52:16 PM »
$350K on the mortgage
SO does not work after recent job departure
Health coverage costs if I were to retire today $290/mo for both of us

Thanks
« Last Edit: April 23, 2015, 02:55:04 PM by Sojourner »

JLee

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Re: I need a plan, would like some advice on this scenario...
« Reply #3 on: April 23, 2015, 03:53:07 PM »
You would get a $30k pension starting in 2017?

I would want to move/downsize and retire right now...

mozar

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Re: I need a plan, would like some advice on this scenario...
« Reply #4 on: April 23, 2015, 06:09:04 PM »
If it were me I would retire now and spend down my taxable investments at 60k a year until 2017. Then take the 30k from pension in 2017 and add to 30k stache withdrawal yearly.

BlueHouse

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Re: I need a plan, would like some advice on this scenario...
« Reply #5 on: April 23, 2015, 06:53:41 PM »
I would rent out the house for three years, get a used RV and go travel to every national park on the cheap. If you want to do it even cheaper, volunteer at the parks in exchange for room and board and change parks every 3 to 6 months. When you've seen and done enough of that, decide if you even want to come back home and nest. You may decide to keep on traveling.

Retired To Win

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Re: I need a plan, would like some advice on this scenario...
« Reply #6 on: April 23, 2015, 07:35:34 PM »
If it were me I would retire now and spend down my taxable investments at 60k a year until 2017. Then take the 30k from pension in 2017 and add to 30k stache withdrawal yearly.

This is along the lines of what I also would recommend.  Notwithstanding that (1) I would still strongly urge you to find a way to relocate away from your HCOL area and (2) your spending rates feel too high to/for me, in your shoes and mindset I would spend down now my taxable investments to the extent that they would be made up for by pensions and social security income coming online later.  Figure that, for example, the $30K per year pension is equivalent to $750,000 in stash money ($30K x 25 = $750K).

Good luck.  It seems like you have lots of pension money coming online and a big enough stash to bridge you to the collection of those pensions.

mikesinWV

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Re: I need a plan, would like some advice on this scenario...
« Reply #7 on: April 24, 2015, 06:14:36 AM »
Is your SO also in agreement on FIRE?

Although SO loves the house, if you sold it, you could easily live mortgage free w/o having to touch any savings you have.  Does the SO love the house or the area?  Could you downsize if you have to stay in the area? 




nereo

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Re: I need a plan, would like some advice on this scenario...
« Reply #8 on: April 24, 2015, 06:43:03 AM »
I'm just not getting where the problems are here...

You currently have 'reduced' earnings of $102k/year, and expenditures around $60k, leaving $42k (assuming that's net, but maybe taxes aren't factored in) to save currently.
Retiring on/around 2017 you will get a $30k pension

Investments total $870k currently.  4% WR = $34.5k/yr.  3.4% SWR = $30k/yr

your pension + current investments should cover your current expenditures indefinitely, even with a 3.4% WR.  You have increased security in SS payments ~17 years after retirement, so no worries there.

You mentioned wanting to increase spending to ~$72k to travel more during ER.  Ok, well assuming that's true you should be able to save save an additional $60-80k over the next ~2 years. If you use a 4% WR (which I consider prudent given your time to SS, your pension and your ability to NOT travel shoudl SHTF), then a simplistic way of looking at it is the money you save over the next 2 years can augment the $64.5k/year you will get from pension + WR.  That leaves you a shortfall of $9.5k - the next two years will fund your additional travel for 7-10 years.  However, your increase in travel budget seems absurdly high to me.  I think you'll find once you ER it will be easy to purge your budget of work-related expenses, AND given your new scheduling freedom you can take advantage of off-season rates and travel all over the world for a lot less.

If you are TRULY wanting to spend $72k/year and can't/won't optimize your life further, then work through 2018.  You should be able to save enough in 3 years to fund the increase in spending while keeping a sub 4% WR.

EDIT:  Of course there would be no worries WHATSOEVER if you just sold your place and moved to a lower COL area.  BUt do what makes you and your SO happy - that's the whole point of money.
« Last Edit: April 24, 2015, 06:45:32 AM by nereo »

JLee

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Re: I need a plan, would like some advice on this scenario...
« Reply #9 on: April 24, 2015, 08:42:07 AM »
I'm just not getting where the problems are here...

You currently have 'reduced' earnings of $102k/year, and expenditures around $60k, leaving $42k (assuming that's net, but maybe taxes aren't factored in) to save currently.
Retiring on/around 2017 you will get a $30k pension

Investments total $870k currently.  4% WR = $34.5k/yr.  3.4% SWR = $30k/yr

your pension + current investments should cover your current expenditures indefinitely, even with a 3.4% WR.  You have increased security in SS payments ~17 years after retirement, so no worries there.

You mentioned wanting to increase spending to ~$72k to travel more during ER.  Ok, well assuming that's true you should be able to save save an additional $60-80k over the next ~2 years. If you use a 4% WR (which I consider prudent given your time to SS, your pension and your ability to NOT travel shoudl SHTF), then a simplistic way of looking at it is the money you save over the next 2 years can augment the $64.5k/year you will get from pension + WR.  That leaves you a shortfall of $9.5k - the next two years will fund your additional travel for 7-10 years.  However, your increase in travel budget seems absurdly high to me.  I think you'll find once you ER it will be easy to purge your budget of work-related expenses, AND given your new scheduling freedom you can take advantage of off-season rates and travel all over the world for a lot less.

If you are TRULY wanting to spend $72k/year and can't/won't optimize your life further, then work through 2018.  You should be able to save enough in 3 years to fund the increase in spending while keeping a sub 4% WR.

EDIT:  Of course there would be no worries WHATSOEVER if you just sold your place and moved to a lower COL area.  BUt do what makes you and your SO happy - that's the whole point of money.

Also, travel does not have to be expensive. If he's willing to slow travel (instead of fly everywhere and spend time in resorts), I am 100% positive they could spend a lot less while traveling than their cost of living is right now.

Sojourner

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Re: I need a plan, would like some advice on this scenario...
« Reply #10 on: April 24, 2015, 10:42:34 AM »
Really appreciate the feedback.

To answer some questions...
The house is an ongoing killer for me (financially), I know, but we took about 5 years to pick out our ideal spot and ended up buying around a year after the market peaked in 06/07 (it has a unique site that rarely becomes available).  I failed to mention we're also tied to the HCOL area in that we have elderly parents nearby.  We feel compelled to stay close to assist them with (non-financial) needs.

The $102K figure is gross (before tax).  After tax, it's not much more than we need to cover the $60K current budget.

Have to work the rest of 2015 and all of 2016, then in early 2017 would be eligible for entry level pension ($30K/yr).  Each year worked after that would equate to about $1K/year additional pension.

Regarding travel, I just threw a rough figure out there of ~$12K.  Some years it would be less, some more I'd imagine.  I suppose it's more of a cushion figure since, for example, property taxes will continue to increase (or decrease) with home values, and some of that cushion would be used for probable cost increases of such things.

Water utility is another example...just keeps going up in this drought area.  Rear yard vegetation is in bad shape as we've cut water usage.  Front yard is monitored by HOA gestapo so that needs water.

A trip to Asia last year where we visited several countries over 4 weeks cost about $7K (no resorts, just hotels in the $90 or less/nt range).  I'd hope to travel a lot more than 4 weeks once retired, so that's sort of where the $12K figure came from.

To answer whether SO is on board with the whole FIRE idea...umm, I'd say SO is happier with perceived greater stability and conventional working lifestyle.  I talk about FIRE all the time and there is no push back, but then again no excited enthusiasm.  I sense some skepticism whether SO believes there's enough funds to make it the rest of the way without working and not having to downsize significantly.

Regarding frugality, I don't feel we're doing too badly.  We have 2 cars we paid cash for: 2002 truck (87K miles) and 2003 Honda (113K miles).
TV bill: $59/mo + $8/mo Netflix
Phone: $130 pays for our 2 lines and parent's 2 lines (only 1 line has data plan, rest are dumb phones)
SO loves to cook.  We eat out about 3 or 4 times a month at restaurants, but we don't get spendy with it.  We shy away from expensive dinners when invited by friends/family, although we do from time-to-time get sucked in for "mandatory" special occasions.  We eat take-out about 3 or 4 times a month.
We have no child expenses like many of our friends.  We have no pets, mainly for frugality reasons.
We do all of our own yard work and DIY maintenance, even car maintenance.  We rarely pay for any services.
My computer is now 7 years old.  SO has a Kindle reader bought 2 years ago and it gets heavy use.  No iPhones, iPads, iPods, etc.
Furniture is sparse and all cheap stuff.  TV and appliances were purchased cash when we bought the house 7 years ago.

I think it's just all the regular costs that have us at about $5K/mo expenditures.  As mentioned, house related costs are the bulk of it.

I must say how amazing it is to read responses, suggestions, ideas directly pertaining to our situation.  Again, thanks, it's really very interesting.

Shoot, I rambled this into a long post...better stop there.
 



MDM

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Re: I need a plan, would like some advice on this scenario...
« Reply #11 on: April 24, 2015, 01:30:41 PM »
Same conclusion as nereo's just done a different way:

For example, if current mortgage (P+I) payments are $24K/yr then your non-mortgage annual spending need is $72K - $24K = $48K.  Balance due on mortgage = $350K per OP.

Assume worst case pension ($30K/yr) and no SS at all.

Approximate stash needed in 2017 = ($48K - $30K) / .04 + $350K = $800K.

You have $870K now - you are all set.  Enjoy!   

Sibley

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Re: I need a plan, would like some advice on this scenario...
« Reply #12 on: April 24, 2015, 02:33:09 PM »
First, I'm assuming you're in California? Regarding your water usage - if you're in a drought, then the outdoors only gets watered by the rain. If the HOA really wants to contribute to the drought, then maybe you should report them to the local authorities.

nereo

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Re: I need a plan, would like some advice on this scenario...
« Reply #13 on: April 25, 2015, 01:39:51 PM »
First, I'm assuming you're in California? Regarding your water usage - if you're in a drought, then the outdoors only gets watered by the rain. If the HOA really wants to contribute to the drought, then maybe you should report them to the local authorities.
+1.   Regardless of where you actually live (and I too suspect California) I'd say you have a moral obligation to not use up water when you are in a severe drought.  Fight it if you can.

Besides that, you seem to understand perfectly that your home is your biggest expense.  If you're fine with that, and if you want an extra $12k/year "just to make sure", then you'll probably need to work until 2018-2020.  If you accept moving as an option you can retire as soon as your pension is available, and live like a king.  $300k in equity will buy you a very nice home in all sorts of different places, with money to spare.

One final thought: you mentioned that you have a $102k income, but "After tax, it's not much more than we need to cover the $60K current budget.".  That surprises me.  If you care to break down your expenses there might be some massive tax savings you are missing.