Retire Now or Wait

[FR2000EE]

Hello MMM readers,

I am trying to decided to pull the trigger on full retirement, but seem reluctant. I would appreciate any tips or advice about the way forward.

Single Male, age 54.

Current Spending:

Fixed Overhead   Current Monthly
Home Insurance   $55
Home Taxes   $110
Water   $55
Gas/Electric   $120
Phone   $55
Cable   $0
Internet   $55
Food   $550
Entertainment   $200
Gas Car   $90
Medical premiums   $50
Car Insurance   $40
Subtotal Fixed   $1,380
   
Other Costs   
Travel   $200
Medical Expenses   $50
Home maintenance   $200
Car maintenance   $100
Other Subtotal   $550
   
Total before Taxes   $1,930
Annual $23,160

Expected Spending:

Fixed Overhead    Expected Monthly
Home Insurance   $55
Home Taxes   $110
Water   $55
Gas/Electric   $120
Phone   $55
Cable   $100
Internet   $60
Food   $600
Entertainment   $500
Gas Car   $120
Medical premiums   $600
Car Insurance   $100
Subtotal Fixed   $2,475
   
Other Costs   
Travel   $1,000
Medical Expenses   $500
Home maintenance   $400
Car maintenance   $300
Other Subtotal   $2,200
   
Total before Taxes   $4,675
Annual Total:$56,100

So, mainly I expect travel, home projects, and medical costs to increase, but I can trim many areas back to original spending if required, but think with more time, I will spend more at least the first few years in retirement.

Assets:

Taxable Stock Account: 1.314M
IRA/401K - 725K
Company Retirement Stock - 98K
Total Assets 2.137M

Small Home is paid off. Value maybe 150K.
13 year old car is paid off, but needing more maintenance.

I am curious to hear how people would invest these assets. I could probably retire provided I didn't lose any money. And I am have been an investor for many years, but seem very sensitive to losing money these days. I don't like the return of bonds with the risk of rates eventually rising. They may be a good trade for the next few years as rates will likely go lower.

So, I have been mostly following the dual momentum plan from Gary Antonacci to try to time the market. It does pretty well, except in times of sharp drawdowns like we had in December.  I feel more confused than ever about an investment plan I can emotionally stand in retirement.

I originally tried to retire in August of 2017, with assets of about 1.66M, but my boss suggested part time work. It has been good, but I am starting to feel like the work deadlines are tiresome and I don't really enjoy reading the RFP's at all. I have appreciated the structure of work, but now feel like my years on earth are limited or as Your Money or Your Life Put it, you only have a finite amount of hours on earth, how do you want to spend them.

I would appreciate advice on how people changed their investments in retirement, how to actually stop working and trust the process, and how to create a structure in your days or maybe that they are not needed.

Also, I will mostly likely have dividend, interest, and capital gains income taxes, but really don't know how to plan that spending. I suspect it will be about 20K a year tax bill, but it could be less. Is there a good way to forecast or don't worry about it, since it will be more money and always a percentage of income. Thoughts?

I am very tempted to buy a high deductible medical plan for emergencies only. I really hate the idea of paying 500-600 a month for something I believe I will rarely use. Has anyone else chosen this more risky option, since high unexpected medical costs have the ability to kill the nest egg. Thoughts?

Thanks for reading.

Larry

[shrimpwd]

I am starting to feel like the work deadlines are tiresome and I don't really enjoy reading the RFP's at all. I have appreciated the structure of work, but now feel like my years on earth are limited or as Your Money or Your Life Put it, you only have a finite amount of hours on earth, how do you want to spend them.

Larry,

Based on the 4% Rule and your vastly increased expected budget post-RE, you're good to quit now. You have a $33k/yr cushion, in a sense, built in to your budget.

I'll let more knowledgeable people answer the investment questions.

[ZMonet]

My guess is that your real concern, like most, is that you want 100% certainty that your plan will survive anything thrown at it.  Maybe this is causing you to overcomplicate your choice of investments?  You got to this point, you understand and utilize dual momentum, so you know what you are doing, but I'm guessing you want what nobody can give you: a failsafe plan.  I think you just need to come to grips with the fact that you've done everything you can -- you'll be living off of lower than 4%, you don't even seem to be counting SS, and it sounds like you are willing to cut if need be.  If I were you, I'd read up some of the blogs on mitigating sequence of return risk and invest accordingly. 

[FR2000EE]

ZMonet,

Failsafe plan is a definitely part of it. I have slowly been coming to the idea that every plan has risks. If i keep working, I risk missing out on the freedom to explore a different life, where I get to choose what I do, and when I do it. While that sounds awesome and what I have been looking towards, it also has risk of having to fill every hour in the day, which frankly, I think this is part of what I am fearing. Will I be bored and need the purpose of a job? And the fear to me feels like it is a switch that once I turn on retirement, I can't go back to work in the same capacity, should I miss the structure or opportunity to contribute, or just the safety of a job.

If the budget got tight and I had to cut spending, overall it seems within my control for the most part, except medical. so, I guess that is my only spending fear.

The investment fear is losing a substantial portion of my nest egg. I believe it will be painful. And this is the part I want the failsafe investing plan. I have often thought if Governments Bonds were paying 5%, I would put all of it in there and be done with it. So, once again, coming to the idea that the self wants a plan without resistance or risk. I suppose risk is the price you pay and there are no guaranteed outcomes. It can only be based on probabilities, and I have a high probability of success money management and being able to live within my means reasonably comfortably.

Perhaps it comes down to three risks for me to accept the unknown outcomes:

1. Will medical costs eat my nest egg = if I pay the high monthly premiums, most likely not. Also, if I get really sick with cancer or a terminal disease, I would much rather say I tried the early retirement journey.

2. Risk of not investing well or losing my nest egg. I don't know the answer to this question, but I do know that i have done okay up to this point thru a few difficult times. While this issue is still present with a job, when I have more of a safety net. I can adapt to a lower spending level to add the safety net instead of a job. And know that if the Government bonds don't rise, then I will have to keep searching for a investment plan.

3. Risk of Bordom and loss of structure. This risk will have to be accepted as a challenge to mange my own time from my own values and purposes. I can accept this challenge.

Thanks for making me really think about my concerns.

[ZMonet]

I think you are on the right track.  It is hard to let go.  Really hard.  But you're right to identify the downsides of continuing to work to attempt to (not successfully) mitigate all risks.  A couple of questions: (1) Why don't you factor in social security into your plan?; and (2) Perhaps an annuity is right for you with at least some of your money.  You sound like you're fine with limiting your upside if you can guarantee your down.  I don't think an annuity is optimal, but if it makes it so you feel more comfortable retiring it might be for you.

Also check out sequence of return risk mitigation strategies like bond tents and equity glide paths.  You can start here:  https://earlyretirementnow.com/2017/05/17/the-ultimate-guide-to-safe-withdrawal-rates-part-14-sequence-of-return-risk/

Good luck!  I'm about 7 years behind you and, despite my advice to "just do it," I share many of your concerns (and I'm not even to where you are at now! -- Like I said, this can be hard.)

[marty998]

You could hold 3 years worth of cash ($150k) and just keep the rest in index funds.

You'll never need to sell at the bottom of a market crash in this scenario.

[Steeze]

Congratulations on FI and your upcoming FIRE!!!

2 cents from a 32 year old person who is not retired:

At 56k spend you need about 1.4M invested to carry you through. You have an extra 735k! In that scenario I would take the extra 735k and create an equity glide path. Essentially buy treasuries or CDs that mature every year for the next 10 years. When they mature each year, take what you need for spending and throw the remaining ~20k into index funds. 10 years from now you will be through your most expensive retirement days, collecting social security, and your nest egg will have compounded for an extra decade with periodic investment. This is essentially starting with a 60/40 stock/bond split and working your way back toward a 100/0 allocation when Social security is kicking in. Social security acting as the bond portion of your portfolio from then on.

Investment strategy/ asset allocation - this is a personal thing. I’m a big fan of keeping it simple with a 1-5 fund strategy. You already won the game, no need to swing for the fences. Find something easy to understand and rebalance each year so you don’t have to spend so much time tinkering with it or keeping up with the financial news.

Medical, again a personal decision. For the young and healthy I think a HDHP/HSA makes a ton of sense. For a mid-50’s person with a bunch of extra savings... why not just spend the extra couple grand a year on health insurance premiums and know you are covered no matter what? That extra few grand is not in any way going to overstress your portfolio.

As for the boredom - start figuring this out immediately! Go do the things you think you will do when you are retired. Never too late to pick up old hobbies or start new ones. Find something that will fill the void of being good at your job. Consider volunteering or helping your family, friends, and neighbors with projects.

Congrats again. Hope to be in your shoes one day.

[FR2000EE]

Thanks for the encouragement and replies.

I have always thought of social security as a way to mitigate runaway inflation. However, I have never thought of the idea of using it as a bond portion of your portfolio. This is a very interesting idea. I am going to read about it. In my spending models, I have it planned social security to kick in at 67, but perhaps earlier now.

When I first started this journey with Your Money or Your Life, I thought all I needed was housing plus 800 a month. And oddly enough, I still think for basic living I could do that, with good health. As I have gotten older, I stopped doing some of the things to keep my expenses that low, like eating cheaper, working on my own cars, and going to the dollar movies, and doing my own home maintenance. I don't really mind the spending increase. Sometimes its very nice. Last week, I paid my neighbor $100 to pull my yard weeds and remove some chinese elm trees. I felt very anti mustachian at first paying for the service, but then I realized I have been a saver my whole life and paying for services makes you feel rich. I am really starting to think retiring now might make me feel more rich, such that perhaps needing to perform my own maintenance again would be a good trade off, but mostly I can still afford to pay for anything I don't want to do.

I can feel the excitement building.

[Steeze]

Thinking of SS as part of a bond allocation has merit in both sides of the argument. Really it is an income stream that will offset the need for you to withdraw from your portfolio, similar to an inflation adjusted annuity. It cannot be sold to rebalance stock, cashed out for a major expense, etc.

When I think of my “bond” allocation I am including any fixed income assets (bonds, cds, annuities, etc). For that reason I include SS in that group.

I should also add to the above comment that starting at 60/40 and ending up at 100/0 + SS is arbitrary. I would just as soon advocate starting at 30/70 and working your way toward 70/30 + SS. All depends on your comfort level. The idea is to protect your portfolio against a 50% decline in the first 5-10 years of retirement by guaranteeing you don’t have to sell a ton of  shares at a huge discount.

You are in a situation where you don’t need your portfolio to grow hardly at all. As long as you track inflation you have nearly 40 years of savings. That means even if you achieve a modest 4-5% return you will leave a pile of cash behind.

[Villanelle]

You are able to spend much less.  So I'd consider that the failsafe (or nearly so).  If the market tanks, you drop your spending. You travel less.  You pull your own weeds (figuratively) and eat out less and have beans and rice once a week.  You travel a bit less, or a bit closer to home. 

That will allow you to keep from pulling out much money in a down market.

Since boredom is a possible concern, you could also consider a part-time hobby job.  Find something you are interested in (or a place you spend a lot and could get an employee discount) and look for a related part-time job.   If you love gardening (sounds like no!), get a job at a nursery. If you are a reader, consider a library job if that's available part-time.   This could be a good step down into full retirement.

(And if you don't want to work at all anymore, great, but still consider some volunteer commitments in order to combat that boredom.  That can provide some structure and sense of contribution as an underlying framework while you figure out the rest of retirement.)

Lastly, since your employer was willing to work with you to go part-time, is going down even more hours (even if you become a contractor) and offloading some of the parts of the job you hate most a possibility worth at least asking about.

So often here, it seems like people are afraid to quit entirely, yet the in-between options aren't really considered.  You already did that once when you went to part-time instead of quitting as planned.  So look to even more part-time (either at your current employer or another, more low-key one) or volunteering. 

[Car Jack]

There's nothing wrong with waiting until it feels right to you and that you're sure that you'll survive anything that gets thrown at you.

Because that describes me.

I'm already at 50X spending.  Still working while kids are in college.  My plan?  With the extra money being saved, I'll be able to do some completely un-mustachian things if I want to.  For the moment, we're having the roof replaced.  Just got the estimate back this morning and my response...... "That's all?".