Case Study - Reality check : FIRE in Sept/Dec 2019?

[grobinski]

Have been lurking for a while but kept quiet. My numbers indicate that we may reach FIRE in 2019 but I would greatly appreciate review and feedback before we do anything un-doable.

Life Situation:
Married couple filing joint
51 & 52 YO
no dependants
Mpls, MN

Gross Salary/Wages:
$144,000

Individual amounts of each Pre-tax deductions:
403b $24,500
457 - $19,000
457 - $19,000
IRA - $10,000

Other Ordinary Income:
NA now - possible future gig income

Qualified Dividends & Long Term Capital Gains:
NA now - I have not yet figured out how this will change once we start drawing off of savings

Rental Income:
NA

Adjusted Gross Income:
$74,000

Taxes:
$26,000

Current expenses:
Since close to FIRE-more interested in ER expenses

Expected ER expenses: (optional, if relevant)
TOTAL   79590
HEALTH INSURANCE   15000
HEALTH EXPENSES   3000
PROPERTY TAXES   4000
HOME INSURANCE   670
AUTO INSURANCE   1120
UTILITIES  2500
INTERNET/TV   1200
CELL PHONE   420
HOME AND GARDEN   3000
CLOTHING   600
CHARITIES   600
GROCERIES   5200
PERSONAL CARE   360
BEVERAGE   1560
DINING OUT   2600
ENTERTAINMENT    600
GAS   1040
AUTO MAINTENANCE   2000
AUTO TABS   300
AIRFARE ($1600 x 3X/YR?)   4800
TRAVEL ($2000/WK x 12WKS   24000
FED TAXES   5000
STATE TAXES   ?

Assets: Amount & description:
90% of these are in broad-based, low fee index funds

liquid assets - available immediately - $613,700
J's 457   $361,000
J's Brokerage   $167,400
K's 457   $113,800
K's Brokerage   $24,500
HSA  $25,000
cash   $25,000
vaca buy out  $9000
   
age dependant assets - available January 2027 - $572,400
K's 403b   $341,000
K's FRP   $138,200
K's IRA   $43,700
J's IRA   $49,500

At 67 (2033) - $119K annually - could start drawing on pensions as early as 55yo.
$66k - (2) inflation adjusted pensions
$53k - SS


Home - $300,000


Liabilities:
$ 0.00

Specific Question(s):

Am I crazy? Can we FIRE in Sept and Dec 2019?

Here is a spreadsheet that includes a few growth scenarios - all except !CRASH! look good. We greatly appreciate anybody willing to review this model as it (+MINT goals ) is pretty much what our FIRE plan is based on.
https://docs.google.com/spreadsheets/d/1wwQVDUkEP8CP1ZCRjmmL6v4rf6H95ONLMNSjSaa_BLI/edit?usp=sharing

We feel that we were mostly generous with the expenses, consistent with or above current spending. But is there something we've missed?
Obviously health care is the great unknown. Any tips for better planning to that? (we are both in good health with no chronic conditions, prescriptions, expenses).

Any advice on things we should do RIGHT NOW?

What other questions should we be asking ourselves or MMM as we push on with the decision to FIRE?

Thanks in advance, please don't crush this dream (though we're well aware it could be crushed and are extreme realists so appreciate the check).


Cheers!
-grobinski

[RWD]

Well the stock market isn't going to crash 25% every year. The worst 16 year period ever was a -1.5% per year (adjusted for inflation).

Your projected spending is ridiculous (especially travel). Have you played around with cFIREsim? I tried entering your numbers and I was getting 82% - 92% success rates (depending on if the pensions are inflation adjusted). I may have misinterpreted some assumptions though.

[grobinski]

Thanks RWD,

The intent of the CRASH scenario is to model a one-time 25% market drop - sort of a worst-case scenario.

Do you think the projected spending is ridiculously high or low? Most of this based on actual current spending (we're of the frugal set).

The $2000/wk for travel is actually high compared to similar recent travel (airfare is seperate, groceries/food/entertainment higher than other predicted spending is in the $2000).

best!

[RWD]

Do you think the projected spending is ridiculously high or low? Most of this based on actual current spending (we're of the frugal set).

It is high. That puts you roughly in the top 25% of this forum.

[marty998]

Do you think the projected spending is ridiculously high or low? Most of this based on actual current spending (we're of the frugal set).

It is high. That puts you roughly in the top 25% of this forum.

It is high, but what use is money in retirement if you are not going to spend it. I don't think $24k for travel per year is unreasonable if you are going to be regular travellers. In a bad year you can simply cut that line and when good times return reinstate it.

But you should add an expense line in for travel insurance - that can get exxy for older people.

[MikeO]

You sound similar to mine.  I'm currently 46 hoping to fire nlt 55.  Currently we spend 10k a year on travel, figuring to double that in fire.  I estimate our total spending in fire to be about 60k per year. 

Based on that and 4% withdrawal we need at least 1.5m, if like to get to 2Mil as a buffer. 

Your trying to do it on what? 1.1 million.

You do have the pensions at 67, something i don't have. Only SS assuming it's still solvent. 

I don't have an answer for you but I'm going through my own mathematical dilemma on how much do i need.  My opinion might be it'll be a tight income to expense ratio.  As long as your have the ability to cut back on lean years you should be able to make it work.  If you can't cut back you might find yourself in trouble. 

I'd love to hear more from you as you go.  When you retire, how it worked out.  Was it enough, do you end up wishing you had more or spend less. 

All the best

Mike

[InSearchOfFire]

One nitpick - In your Expected Expenses, for airfare you have AIRFARE ($1600 x 4X/YR?)   4800.  That should be 6400.

There is a Windfall Elimination Provision (WEP) that affects people getting both a pension and Social Security; the SSA will reduce your Soc Sec if you have a pension.  You might want to look at that to see how it would affect your income.

And definitely look at cFIREsim.

Cheers!

[reeshau]

I have two observations:

First, you do not have any inflation adjustments in your spending.  Flat spending, projected out 10 years and beyond, is equivalent to reduced spending power.  Over a decade, 3% inflation will cut that spending by 1/3.  Inflation has been low in the last decade, but that is the exception.  And even 2% inflation will have a noticeable impact.  As a corollary to this, is your pension projection for an inflation-adjusted payout, or a flat payout?  If it's just a flat payout, you will have an increasing amount of the gap you will need to cover when you pension kicks in.  +1 for cFireSim, which will allow you to factor just this into the plan.

Second, you list projected retirement expenses without commenting on current expenses.  I would ask how sure you are of this; if you are expecting a lot of cost reductions, you might be surprised by increases.  I would also suggest trying to live on your retirement budget immediately, if it is lower, to test yourself on it before you have committed to leave.

[ZMonet]

There is a Windfall Elimination Provision (WEP) that affects people getting both a pension and Social Security; the SSA will reduce your Soc Sec if you have a pension.  You might want to look at that to see how it would affect your income.

I'd definitely take a look at it but the WEP only impacts people who earned a pension from a job where they did not pay Social Security taxes.  I don't know if this is relevant to most people currently in the workforce, but maybe you fall into that small number of exceptions.

[freya]

You can retire now, but you would spend down almost all your savings before the pension and SS kick in.  Even if your projected income at age 67 is sufficient to cover expenses, having virtually no savings at that point might be uncomfortable. Is the pension indexed for inflation?  If not, you may well find that your income at age 67 is not sufficient.  Being in that situation with minimal or no savings sounds kinda scary.

Without the travel budget, you're easily OK to retire now.  So I guess you have a decision to make:  limit travel and retire as planned, or work a few more years to save up enough to splurge on travel as desired.

[grobinski]

Thanks for the feedbacks!  I'm relieved that nobody found anything fundamentally flawed with this scenario.

I have updated relevant numbers in the OP and the Google spreadsheet model.
https://docs.google.com/spreadsheets/d/1wwQVDUkEP8CP1ZCRjmmL6v4rf6H95ONLMNSjSaa_BLI/edit?usp=sharing

Regarding a few of the specific comments/questions.

Glad to learn that projected RE spending is comparatively high as it is somewhat intentionally so to provide a margin of error. We really don't expect to spend that much, probably more like $25k + travel + healthcare.

Travel is intentionally high as we hope to spend 4-6 weeks out of the country 3-4 times a year. If that goes well and we find our nirvana it could turn to relocation or 4-6 months at a time (finances permitting).

I have plugged several scenarios into the cFIREsim (thanks for the tip), and they all look highly probable. Similar results with several other calculators, none set off any alarm bells.

Pensions are inflation adjusted (and one a bit higher than initial input), we are not subject to the WEP and have paid FICA throughout our earning careers.

Next steps are meeting with retirement counselors at work, using some health insurance for check ups, figuring out FIRE health care options, thinking about a draw down schedule (brokerage or 457s first?). Employer discussions could be interesting as they might make another year more appealing.

At this point we're leaning heavily to doing it!

More perspectives greatly appreciated!

[reeshau]

@grobinski, It still seems like you are not adjusting for inflation.

As an example, you have 8 years' expenses = 8 * 80,000 = $640,000

But with 3* inflation, 8 years' expenses = $711,386.90, with year 8 expenses inflating to $98,389.91.

Obviously, the farther out you go the larger this gets, but even in the 8 year timeframe, this takes crash from mildly negative to significantly negative, and reduces the cushion for all scenarios.

[grobinski]

thanks Reeshau,

I haven't figured out a formula to inflation adjust the spending projection - Can anybody help with that one?

[reeshau]

For the final year:

=80000*(1.03)^7 = 98389.91

So, = <base amount> * (1+inflation) ^ (<number of years>-1)

Whether you want to sum() all the years in a formula, or display them to see the progression is up to you.  Not sure if there is a shortcut to do the summation by formula in Sheets.

[freya]

Inflation is built into the safe withdrawal rate, so there's no need to make any extra adjustments.  The only concern was the pension being inflation indexed, and you've already answered that question.  Another question is how you are valuing Social Security.  I think it's safe to assume it'll be there for you, but at a reduced benefit compared to current predictions.  I discount it 25%.

When you run cfiresim scenarios, you'll see that the portfolio will generally drop in value, and then start increasing again once you start drawing pensions + SS.   I suggest looking at not only the success rate, but also the minimum value of the portfolio at that time (mid 60s).  Ask yourself what a minimum portfolio value (in today's dollars) you'd be willing to accept.

It's nice that you have extra cushion built into your budget.   Some ideas for healthcare.  Look at local Obamacare plans, which if you are careful about spacing out your retirement account withdrawals, will be heavily subsidized.  However, be careful about this.  The only Obamacare plans in my state are either Medicaid managed care, which severely restricts physician/hospital options, or really crappy plans (e.g. GHI) that hardly anyone accepts and that would expose you to potentially large medical bills.  If you have no pre-existing conditions, take a look at health cost sharing groups like Sedera.  The plan restrictions and extra bookkeeping are worth it, in exchange for low premiums and complete protection from the dreaded out of network trap.

Regarding spending down accounts - you'll want to start Roth converting your tax-deferred accounts the year after you retire.  That money will then be available to you after a 5 year waiting period, regardless of your age.  Ideally, when you start your pensions/SS, you should have all your savings in Roth accounts so there will be no other tax liability. The iORP calculator is very useful for planning this to minimize taxes.

[reeshau]

Inflation is built into the safe withdrawal rate, so there's no need to make any extra adjustments.

in cfiresim, yes.  In OP's own spreadsheet, no.  He's forecasting flat nominal spending for 8-16 years, so his spending power is decreasing, and he picks up pension-funded spending on that flat rate at the moment.  Easily fixed, though.

The other way to handle it is to adjust all growth factors to be "net of inflation" (i.e. reducing expected returns) but this wasn't spelled out--I think the spreadsheet was a simple calculation.

[Trifle]

OP, you may want to check your projected health insurance costs.  Looks like you would not qualify for Exchange subsidies, but a quick look at the MNSure website shows "Silver" plans for a couple of your age [no subsidy, assuming non-smokers] in the range of $10,000 to $11,000 per year. 

[freya]

They should be able to qualify for Obamacare subsidies for at least part of their early retirement years.  No other income and more than half their savings in taxable, which means they won't have to pay tax on their cost basis.   A suggestion:  If you decide to go the Obamacare route, take COBRA when you leave your jobs and devote the first year to selling then rebuying taxable investments, to take the tax hit on the gains - as much as you can stomach.  After you start Obamacare, you can use this cost basis to help you stay under the fiscal cliff.

reeshau, I believe your intentions are good but please stop beating that inflation horse.  Go take a look at portfoliocharts.com's retirement withdrawal section to get a better understanding of the issue.  Yes, expenses will rise due to inflation, but good investment portfolios provide a real return of 4-6%, which is where your living expenses come from.  Real return means after keeping up with inflation.  Yes, the OP will be spending down part of their portfolio before starting their pension + SS income, but the spend-down is NOT determined the way you're suggesting.

[Trifle]

They should be able to qualify for Obamacare subsidies for at least part of their early retirement years. 

The MNSure calculator says no subsidies for a couple with no dependents, AGI of $74k . . . ?

ETA:  But if somehow that's wrong and there are subsidies great -- it just lowers the cost further

[reeshau]

reeshau, I believe your intentions are good but please stop beating that inflation horse.  Go take a look at portfoliocharts.com's retirement withdrawal section to get a better understanding of the issue.  Yes, expenses will rise due to inflation, but good investment portfolios provide a real return of 4-6%, which is where your living expenses come from.  Real return means after keeping up with inflation.  Yes, the OP will be spending down part of their portfolio before starting their pension + SS income, but the spend-down is NOT determined the way you're suggesting.

Of course not freya, which is why I commented on how it is calculated. (factoring inflation in on both, or out of both)  My main point is that spending will be much higher when the OP enters the pension phase.  While there is still cushion there, it's 1/2 of what is currently listed.  The pensions may be inflation adjusted, but the starting values are not.