Author Topic: When should we retire? UPDATE  (Read 3166 times)

tomorrowsomewherenew

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When should we retire? UPDATE
« on: January 03, 2018, 04:32:15 PM »
Original post is down below. Update:

Six months have gone by. Our 3 yr old is now 4. We're still 33 & 32. 

Our net worth is currently about $565,000, and our investments alone are worth around $530,000, maybe slightly more. We recently finished major work on our house (which is why our investments are not as high as you would expect). Our mortgage balance is about $233,000. The payment hasn't changed.

We talked it over, and decided my husband will continue working for a while. His 25-30 hours a week have fallen to about 20-25, and even less some weeks. His salary increased very slightly from $90k to $92k. The job has gotten pretty dull and boring, but we really can't justify leaving for something else just yet--especially when it could not possibly get any easier.

We discovered my husband could keep the life insurance from his job if he leaves, but doesn't "retire." In order to be considered a retiree a distribution must be made from the University's retirement plan. So, we'll just not do that, and he can keep the life insurance he has now. This insurance isn't term. It's based on age, and cost increases as age goes up, but it stays what I would consider a reasonable price. So, we consider it a good option for us.

I don't expect the next six months will see any major changes for us, but we'll see where we are in January (when I do another update). We're taking things a paycheck at a time, and when we've either had enough of the job or get enough money we'll pull the plug.


1/3/18:
I'm not sure when we should retire. Please give me your assessment of our somewhat complicated situation:

Husband: 33, Wife, 32, a 3 yr old son. We won't be having more kids.

Our investments are about $500,000 right now. We would like to have $50,000/yr to live on.

Our mortgage, taxes and insurance are about $1,400/month, and we have 28 years left, so living expenses will not be dropping much any time soon. (30 yr at 3.375%) Also, we'd rather not move.

My husband receives VA disability (tax free) of $1,922/month. However, this will stop if he dies. Technically, the VA disability payment *could* go away, but due to his conditions, I'd say the chances of that are virtually zero. 

My husband has $200,000 of life insurance through the VA, and an additional amount through his work, however only the VA life insurance will remain if he stops working. I think he could probably get life insurance through a private insurer, but I expect the rate to be quite a bit higher than average. I have $500,000 in term life insurance, (17 yrs left on policy) and am basically in perfect health.

My husband makes $90,000/yr at his job (professor). He has mandatory retirement plan contributions of 3%, in addition to being able to contribute to the maximum to a 403b and a 457. Due to this, our effective tax rate is 0%. We live in FL so we have no state income taxes. I am a SAHM, although I am employable at a decent wage, should the need arise.

As far as stress and things like that, the job is pretty easy, minimal hours, probably 25-30 hrs a week, so we'd rather be safe than sorry when it comes to jumping ship. I'd say we're looking for a 95%+ chance of success.

The GI bill he earned while in has not been touched yet. He has 13 years left to use it. From this, we can get about $1,700/month in tax free housing allowance for a total of 36 months. If he retired, he'd probably take a full semester off before starting school. There's no real reason for him to get additional education, but we'd be throwing away the $1,700/month housing allowance if he didn't go. Tuition would be covered 100%.

The VA also provides my husband with free healthcare. We could go on retiree insurance through his job, but the cost is astronomical in comparison to what we could get on the exchange. The retiree insurance would be around $2,000/month for our family, and my husband would be required to be on it so we'd be wasting a considerable amount of money.

We're saving about $50,000/year right now, and we have no reason to expect that will change anytime soon.

Our parents are in their 60s, and are in average health. I'll get little to no inheritance from my parents. My husband will likely get a decent amount from his parents--over $500,000, but could go as high as $2,000,000 depending on how long my FIL works, and their end of life healthcare/LTC expenses.

So Mustachians, what say you? When do you think we should pull the plug?
« Last Edit: July 24, 2018, 12:47:00 PM by tomorrowsomewherenew »

tomorrowsomewherenew

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Re: When should we retire?
« Reply #1 on: January 04, 2018, 10:40:42 AM »
Anyone?

YoungGranny

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Re: When should we retire?
« Reply #2 on: January 04, 2018, 11:33:24 AM »
You have $500k in your stache so far - you want $50k per year in retirement so that's a FIRE amount of $1.25m. Contributing $50k a year to your stache and assuming it grows at 7% a year (assuming a 4% SWR as well) you will reach $1.25m in 7.25yrs.

Obviously any inheritance along the way would speed that up but that's adding a lot of unknowns. Just over 7 years if you stay the course you're on right now, not bad! Not bad at all :)

Laura33

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Re: When should we retire?
« Reply #3 on: January 04, 2018, 11:35:25 AM »
So if you want $50K/yr to live on, the 4% rule suggests that you need $1.25M invested.  You can plug your current savings and savings rate into a calculator to figure when you will hit that mark.

If you wanted to, you could include your husband's disability income in that analysis, which would bring the target date down quite significantly (e.g., if you need $50K/yr, and that provides $23K/yr, you really only need another $27K/yr from your investments, which means your 'stache needs to be only $675K).  The problem is that if he dies before you, that leaves you high and dry with a $23K/yr income gap, and since you are not working now (and may not have been working for quite some time at that point), you may not have the ability to make that up.  You could also plan to cover the gap with life insurance, but it sounds like that will be expensive for him.  So this really depends on your own comfort level with that downside risk.

If you really want to focus in on a fairly specific date, then I think your next step is likely two-fold:  first, develop a more detailed estimate of your post-retirement expenses, which would start by tracking in detail what you are actually spending now and researching some of those new future expenses (e.g., post-RE healthcare); and second, use one of the more detailed calculators folks talk about here a lot (many people seem to use cFIREsim).

One other approach that I picked up here and that has been very helpful to me has been to think of my post-FIRE years in several "buckets," based on different income streams and expenses over various periods of time.  So for example for us, our first "bucket" is post-RE up until we draw SS -- that is a high-cost period as we tend to travel a lot and will still have one kid in college, and we will not have access to SS income, so that will take a good chunk of the budget.  So I multiply our annual spend for that period times the number of years involved, and then I present-value it to find out how much I need to have saved today to cover that period.  Then maybe you have a "both alive, pension/SS provide additional income" period; then maybe you assume one of you dies and adjust the income stream accordingly (in our case, we also assume expenses will go up somewhat because of higher end-of-life medical costs).  Etc.  The key here is that you start out figuring out how much you need to have invested now to fill your furthest-out bucket -- given the power of compounding, that may actually be a low number.  Then you do the math for the next-furthest-out one, and keep going towards the present until you run out of money.  That might tell you that your current 'stache will be sufficient to cover your needs from say 50 on -- so now all you need to do is save enough more to cover your costs between now to 60.  And when your 'stache finally fills up your closest-in-time bucket, poof! -- you're ready to FIRE.

I mention this because I found the standard 4% rule really overestimated the amount we need to FIRE -- as I mentioned, our first post-FIRE years are going to be our most expensive, and the 4% rule tends to assume that we will spend at that level forever, which is clearly not the case.  So over a long post-FIRE lifespan, which will cover a variety of different incomes/expenses that come and go, this might give you a more realistic picture.

affordablehousing

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Re: When should we retire?
« Reply #4 on: January 04, 2018, 11:45:51 AM »
if it were me, I'd stop working now for at least until your kid goes away to college. with disability covering half of your expenses, you have around 20 years of run rate on your investments. That's fun time to spend with your kid, and you could then decide whether to work again or not when the kid is out of the house and there's nothing to do anymore. just my two cents.

tomorrowsomewherenew

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Re: When should we retire?
« Reply #5 on: January 05, 2018, 05:31:38 AM »
So if you want $50K/yr to live on, the 4% rule suggests that you need $1.25M invested.  You can plug your current savings and savings rate into a calculator to figure when you will hit that mark.

If you wanted to, you could include your husband's disability income in that analysis, which would bring the target date down quite significantly (e.g., if you need $50K/yr, and that provides $23K/yr, you really only need another $27K/yr from your investments, which means your 'stache needs to be only $675K).  The problem is that if he dies before you, that leaves you high and dry with a $23K/yr income gap, and since you are not working now (and may not have been working for quite some time at that point), you may not have the ability to make that up.  You could also plan to cover the gap with life insurance, but it sounds like that will be expensive for him.  So this really depends on your own comfort level with that downside risk.

If you really want to focus in on a fairly specific date, then I think your next step is likely two-fold:  first, develop a more detailed estimate of your post-retirement expenses, which would start by tracking in detail what you are actually spending now and researching some of those new future expenses (e.g., post-RE healthcare); and second, use one of the more detailed calculators folks talk about here a lot (many people seem to use cFIREsim).

One other approach that I picked up here and that has been very helpful to me has been to think of my post-FIRE years in several "buckets," based on different income streams and expenses over various periods of time.  So for example for us, our first "bucket" is post-RE up until we draw SS -- that is a high-cost period as we tend to travel a lot and will still have one kid in college, and we will not have access to SS income, so that will take a good chunk of the budget.  So I multiply our annual spend for that period times the number of years involved, and then I present-value it to find out how much I need to have saved today to cover that period.  Then maybe you have a "both alive, pension/SS provide additional income" period; then maybe you assume one of you dies and adjust the income stream accordingly (in our case, we also assume expenses will go up somewhat because of higher end-of-life medical costs).  Etc.  The key here is that you start out figuring out how much you need to have invested now to fill your furthest-out bucket -- given the power of compounding, that may actually be a low number.  Then you do the math for the next-furthest-out one, and keep going towards the present until you run out of money.  That might tell you that your current 'stache will be sufficient to cover your needs from say 50 on -- so now all you need to do is save enough more to cover your costs between now to 60.  And when your 'stache finally fills up your closest-in-time bucket, poof! -- you're ready to FIRE.

I mention this because I found the standard 4% rule really overestimated the amount we need to FIRE -- as I mentioned, our first post-FIRE years are going to be our most expensive, and the 4% rule tends to assume that we will spend at that level forever, which is clearly not the case.  So over a long post-FIRE lifespan, which will cover a variety of different incomes/expenses that come and go, this might give you a more realistic picture.

Thanks Laura. These are good suggestions. I'm a fan of a massive Excel spreadsheet, so I'll whip out one of those and see if I can calculate our needs better. I don't think the straight 4% rule works very well in our case for a number of reasons--substantial income for the GI bill, possible loss of VA income, probable inheritance, and eventually the house will be paid off.

I think I'll also see what I can do about getting my husband life insurance from different sources. If we can come up with another $200k-$300k to go with the what he already gets from the VA, then I'll feel pretty good about our odds.

As far as expenses go, fortunately I know exactly how much we spend, and on what. I use Gnucash to record all of our transactions.

For now, my husband I have decided we'll continue saving and see where we are this time next year. It's possible, but not overly likely (I think we will still be short on $$) that he could announce his "retirement" then.

tomorrowsomewherenew

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Re: When should we retire?
« Reply #6 on: January 05, 2018, 05:37:29 AM »
if it were me, I'd stop working now for at least until your kid goes away to college. with disability covering half of your expenses, you have around 20 years of run rate on your investments. That's fun time to spend with your kid, and you could then decide whether to work again or not when the kid is out of the house and there's nothing to do anymore. just my two cents.

This is not a terrible idea, but I don't think it would work very well in my husband's case. It's not very likely he could get back into academia after 15 years off. The other problem is he can't just quit like most people can. In order to maintain accreditation the university has to maintain certain faculty within their programs. The university would need several months to a year to find a replacement. BUT, given all of that, I want to know ASAP when he's done, so we can start their clock, and also so we can start making our own plans. (celebratory road trip!)

nereo

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Re: When should we retire?
« Reply #7 on: January 05, 2018, 07:35:42 AM »
Laura33 pretty much knocked it out of the park (as she often does), but I'd just like to add that with your present circumstances you have a ton of options available to you.

First, as noted by both you and Laura, that $50k/year spend is probably not terribly accurate long-term, as the eventual pay-down of mortgage and growing-up of your son will drastically change your monthly budget.

Second, it seems you are over-insured (life insurance at $500k) - currently he brings in $90k/year + $23k/yr (VA) and has a life insurance of $200k + something more from work.  You've have a $500k policy to be the stay-at-home-parent. If you were to pass on he would need full-time daycare long enough to become completely FI. Bottom line - you'd probably be better served at your age at getting a 10y term life insurance ofr $250k.  I'd check it out.

Third, given your investments, your home, his VA payments and the GI bill there's a lot of possibilites where you could declare yourself FIRE very soon if you were willing to think outside the box.  For example; you could rent out your current home while he went back to school under the GI bill.  You could temporarily try out a new location (using the $1,700/mo GI housing stipend) while earning some money from renting your home and living off his VA payments of $1,922 (which is tight but totally doable).

Fourth - given your assets there's the 'glide' path into retirment option. With the VA payments you do not need to earn $90k or even $50k.  If either one of you can >$27k a year (+the $23k from the VA) that's enough for you to live on, and lets your investments compound.  That's a pretty low target to hit.  You said your husband is working as a professor - would the university be willing to let him teach fewer classes (either one less class per semester, or take one semester off completely per year?).  This is basically our long-term plan which we hope to implement in another 4-5 years. You won't be fully retired but he could find himself with 3 months of 'vacation' per year while your investments slowly compounded untouched.  By the time your son is ready for college you'd be able to pull the plug on working forever

tomorrowsomewherenew

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Re: When should we retire?
« Reply #8 on: January 05, 2018, 11:31:02 AM »
Laura33 pretty much knocked it out of the park (as she often does), but I'd just like to add that with your present circumstances you have a ton of options available to you.

First, as noted by both you and Laura, that $50k/year spend is probably not terribly accurate long-term, as the eventual pay-down of mortgage and growing-up of your son will drastically change your monthly budget.

Second, it seems you are over-insured (life insurance at $500k) - currently he brings in $90k/year + $23k/yr (VA) and has a life insurance of $200k + something more from work.  You've have a $500k policy to be the stay-at-home-parent. If you were to pass on he would need full-time daycare long enough to become completely FI. Bottom line - you'd probably be better served at your age at getting a 10y term life insurance ofr $250k.  I'd check it out.

Third, given your investments, your home, his VA payments and the GI bill there's a lot of possibilites where you could declare yourself FIRE very soon if you were willing to think outside the box.  For example; you could rent out your current home while he went back to school under the GI bill.  You could temporarily try out a new location (using the $1,700/mo GI housing stipend) while earning some money from renting your home and living off his VA payments of $1,922 (which is tight but totally doable).

Fourth - given your assets there's the 'glide' path into retirment option. With the VA payments you do not need to earn $90k or even $50k.  If either one of you can >$27k a year (+the $23k from the VA) that's enough for you to live on, and lets your investments compound.  That's a pretty low target to hit.  You said your husband is working as a professor - would the university be willing to let him teach fewer classes (either one less class per semester, or take one semester off completely per year?).  This is basically our long-term plan which we hope to implement in another 4-5 years. You won't be fully retired but he could find himself with 3 months of 'vacation' per year while your investments slowly compounded untouched.  By the time your son is ready for college you'd be able to pull the plug on working forever

Thanks for the suggestions.

Me switching to a lower amount of life insurance wouldn't save much. My $500k policy is $200-something a year. If I died he could quit work forever and have plenty. It's worth the (unnecessary) cost.

I wouldn't be completely against renting out our home. I estimate we'd get $2,200/month for it. A good 2 bedroom in our area is around $1,400/month. Unfortunately, ff we leave the area for him to go to school, the amount of housing allowance will change. If it is a less expensive area we'll get less money and if it's a more expensive area, then we'd get more money.

I don't think his current university would let him go down to just a small, part-time position. He's in a weird field, and even being "full-time" he teaches only 2 classes the entire academic year. But, those two classes are 12 contact hours each. He might be able to teach in a different position though, and go down to part-time. Introductory level classes (although boring to teach) are usually 3-4 credits each. It's just that after one other professor retires next year, he's the only person at the university who can teach those courses.

Another option would be for him to quit and for me to go back to work part-time. I could do make $27k without a problem.

nereo

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Re: When should we retire?
« Reply #9 on: January 05, 2018, 11:45:20 AM »
I'm just trying to spur you to think out of the box.  Detailing your expenses and expected future expenses will help.
The idea with renting out your home is to net some money while relying.

As things currently stand, you are saving ~$50k/year and have $500k in investments.  You are fast approaching a reasonable level of FI (with your husband's VA disability benefits - roughly $675k needed in investments) where you could in theory never work again.  Depending on market conditions you could hit that in 2 years (or 5, if we hit a down market). 
.... BUT... if somehow you or your husband can earn the minimum $27k/year you can downshift whenever you want.  It might mean doing that for several years until your investments grow and you can subsist on them alone.  Regardless you're on track to do this well beofre you turn 40, which is awesome.

tomorrowsomewherenew

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Re: When should we retire?
« Reply #10 on: January 05, 2018, 01:23:10 PM »
I'm just trying to spur you to think out of the box.  Detailing your expenses and expected future expenses will help.
The idea with renting out your home is to net some money while relying.

As things currently stand, you are saving ~$50k/year and have $500k in investments.  You are fast approaching a reasonable level of FI (with your husband's VA disability benefits - roughly $675k needed in investments) where you could in theory never work again.  Depending on market conditions you could hit that in 2 years (or 5, if we hit a down market). 
.... BUT... if somehow you or your husband can earn the minimum $27k/year you can downshift whenever you want.  It might mean doing that for several years until your investments grow and you can subsist on them alone.  Regardless you're on track to do this well beofre you turn 40, which is awesome.

You're exactly right. Even if we change nothing at all, full retirement is not far off. I had talked with my husband about the idea of me working part-time a few weeks ago. He thinks it's easier for him to work "full-time" than it is for me to work part-time. Of course we have a 3 yr old, so it's not exactly like we can just put our feet up on the couch and spend all morning reading and surfing the internet.

My husband will be publishing a textbook soon, which will generate some income. We have no idea how much, but I guess we'll find out. I don't think it'll be $27k though!!

tomorrowsomewherenew

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Re: When should we retire? UPDATE
« Reply #11 on: July 24, 2018, 12:48:17 PM »
Update posted above.

nereo

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Re: When should we retire? UPDATE
« Reply #12 on: July 24, 2018, 01:08:54 PM »
Nice update. 
This part stood out: His 25-30 hours a week have fallen to about 20-25, and even less some weeks. His salary increased very slightly from $90k to $92k. The job has gotten pretty dull and boring, but we really can't justify leaving for something else just yet--especially when it could not possibly get any easier.

At 20-25 hours/week and $92k I'd do almost any boring thing until I was certain I could pull the plug for good.  For you that might just be another 12-18 months.
That said if an opportunity to do something you actually  like comes along and it pays enough to meet expenses ($50k for you) you can jump on it with no regrets.

Looking forward to the 2019 update, and maybe a "we're FIRED" celebration soon thereafter.  Let's just hope our economy doesn't tank in the meantime.

historienne

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Re: When should we retire? UPDATE
« Reply #13 on: July 24, 2018, 01:12:22 PM »
I am very curious what field your husband is in.  I'm an academic at a research-focused institution.  There's no department here where one could work that schedule and be meeting the expectations of the role.  If tenured, you might not get fired, but you'd be shirking work that you were hired to do. 

tomorrowsomewherenew

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Re: When should we retire? UPDATE
« Reply #14 on: July 24, 2018, 01:38:33 PM »
I am very curious what field your husband is in.  I'm an academic at a research-focused institution.  There's no department here where one could work that schedule and be meeting the expectations of the role.  If tenured, you might not get fired, but you'd be shirking work that you were hired to do.

I don't want to give you an exact answer, because it would be easy to determine my/our identity. But I agree with you--in virtually all other cases, you'd probably get fired.

tomorrowsomewherenew

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Re: When should we retire? UPDATE
« Reply #15 on: July 24, 2018, 01:55:48 PM »
Nice update. 
This part stood out: His 25-30 hours a week have fallen to about 20-25, and even less some weeks. His salary increased very slightly from $90k to $92k. The job has gotten pretty dull and boring, but we really can't justify leaving for something else just yet--especially when it could not possibly get any easier.

At 20-25 hours/week and $92k I'd do almost any boring thing until I was certain I could pull the plug for good.  For you that might just be another 12-18 months.
That said if an opportunity to do something you actually  like comes along and it pays enough to meet expenses ($50k for you) you can jump on it with no regrets.

Looking forward to the 2019 update, and maybe a "we're FIRED" celebration soon thereafter.  Let's just hope our economy doesn't tank in the meantime.

Yes, things are very easy, and they are also pretty boring. I told my husband earlier this week, every job I've been in has been good for about 9 months, and then my interest wanes until I'm dead bored at the 18 month mark. He said he agreed with me on that.

I would LOVE to be done in 12-18 months, but I'm not sure that'll happen. We'll see where we are as we approach 2019 & 2020. We're close enough that I feel we could make FIRE work if we were careful or if I took a part-time job. But for now, we'd prefer more padding.

nereo

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Re: When should we retire? UPDATE
« Reply #16 on: July 24, 2018, 02:09:21 PM »

I would LOVE to be done in 12-18 months, but I'm not sure that'll happen. We'll see where we are as we approach 2019 & 2020. We're close enough that I feel we could make FIRE work if we were careful or if I took a part-time job. But for now, we'd prefer more padding.

Unless things have changed from before, you need roughly $675k in investments + your husband's VA benefits to be fully FI.  Currently you have $535k (ish).  $140k short in principle, or 26% in market gains, or some combination thereof. Will depend a lot on what the economy does - in 18 months you could easily save $60k and realize the rest in gains... or we could hit a recession and it might take another 2 years to dig outselves out. Time will tell...

Regardless you are in an awesome position, with a high paying, full time job, youth and lots of options.