Holy Mackerel - 1st post and reality check

[Random]

Hi Folks,

Very first post.  Connected to MMM via a link in Lifehacker last week.  I have been devouring the content here and just wading into the forums.  My mind is whirling and I am thinking that, holy shit, I could quit my job tomorrow.  Please rain on my parade, cover me with a wet blanket, tell me I am wrong....and tell me why.

Data:
Me, turning 55 this summer
Wife 47
Kid 4, one year of preschool left

House:  Own it outright, value ~$550,000; efficiency apartment rented out that almost covers utilities and taxes.

Retirement (401K and IRAs):  $610K for me; $250K for wife

Non-retirement investments:  $480K

Adequate education fund in lump sum for kids college (not sure amount, it is on my wife's ledger)

When we had a financial analyst run scenarios a few years ago, she plugged in social security starting at 67 for both of us beginning at $27,000.

Annual expenses:  perhaps 55-60K, haven't tracked it that closely, but could recreate from bank/cc statements (obviously could be reduced, especially given that our rental covers property tax and utilities, I hear you seasoned ones coughing into your sleeves)

When I run FIRECalc and the flexibleretirement monte carlo calculator, I come up looking great for immediate retirement.  100% success.  I have played around with the parameters, etc and the only challenging ones are when I crank up the expense to 75k or more

So please please please tell me where the deep flaw in my logic is.  Help me see through the fog, oh seasoned mustachioed ones.

Both wife and I have pretty cool jobs in the non-profit sector doing important work so don't necessarily want to pull the plug tomorrow.  And we have lots of fun ideas and skills that could be parlayed into income in the future.   But just the emotional freedom to contemplate employment freedom (an option, not a necessity) has been mind-blowing to me for the past few days.

thanks in advance.  This site is great and I look forward to being part of the dialog

Rand

[2527]

From what you present, I think it is possible. 

[marty998]

No flaw in the logic. You could quit tomorrow if you want to.

[twinge]

Yes, you have ample assets.  However, if you're trying to be precise make sure you don't put social security in the calculations as high because if you retire right now you'll have lots of 0s that will  lower your benefits somewhat (and there may be changes in COL adjustments, benefits for those with high means etc--though you may be close enough in age where the changes won't be drastic). 

I usually just leave ss out of the calculation and consider it as the "slack" in my budget.  However, I'm younger so there's more time for the fund to dwindle and be changed.

[footenote]

Congratulations Random - You're there, baby, there. Since you and your spouse like your jobs (Wonderful!), lope into retirement (or semi-retirement or whatever) and enjoy the stroll.

[Random]

Thanks for the responses and input.  Great point about SS.  I think I will run scenarios at varying levels from zero to the projected amount to see the impact. 

Regarding loping into retirement, that is the likelihood.  Although I feel like I am in the blush of new love with this realization, I am finding it frees my mind and shifts my perspective in important ways.  I can shift from, "I am doing this job because it is the best way to reach financial security" to "I don't need to be here; I am here out of my own choice; I don't have to endure the things that bug me or put up with the petty stuff; I can try new things without worrying about income (as long as they don't increase my expense stream).  That is a very freeing mind set.

[arebelspy]

Definitely tweak the SS, since the adviser probably assumed you'd work until the time you took it.

Se how that changes your FIRECalc success rate, but if it's still 100%, and you don't want to keep working, you sure don't have to.

Congrats on your success!

[Random]

Whoa.  A reply from the global uber moderator.  Thanks for weighing in.  I will fine tune the SS estimates, though also note that the financial advisor did the projections on retirement at 60 rather than at 67, so they may be not too far off.

Rand

[dragoncar]

Whoa.  A reply from the global moderator.

Also a wizard who ages backward through time.  Age -999.

[unitsinc]

Whoa.  A reply from the global uber moderator.  Thanks for weighing in.  I will fine tune the SS estimates, though also note that the financial advisor did the projections on retirement at 60 rather than at 67, so they may be not too far off.

Rand

Don't let the title fool you. He's just a dirty Rebel Spy.

[Random]

Yeah, but doesn't "dirty rebel spy" just add to the mystique.  That and reversing age, of course.

[Jamesqf]

Don't let the title fool you. He's just a dirty Rebel Spy.

Whoa, there!  We know nothing about his personal cleanliness, or lack thereof.

For the OP, also look at holding off on taking SS until 70.  Almost always a good bet, if you are in reasonable health.

[SunshineGirl]

Well, definitely track your expenses going forward or looking back, but having your utilities and taxes paid for my a tenant is very helpful!

[arebelspy]

You guys are silly.

[yolfer]

If your results on FIRECalc and the "global uber time-travelling, backwards-aging moderator" both say OK, then it's probably OK.

However, just running the numbers in a back-of-the-envelop way, it shows that you're slightly low (assuming a 4% SWR):

(610k+250k+480k) = 1.34MM

1.34MM*4% = 53.6k

Which is slightly lower than your 55-60k annual spending.

I'm assuming you've already noticed this and will use a > 4% SWR until your SS kicks in? Or something like that?

Congrats on reaching FI!

[Random]

Thanks for the input, yolfer.  The success rate changes when SS is added, to be sure.  All of this points to:  getting an accurate as possible estimate of SS and how it would vary with different timing of end of wages and age of SS withdrawal; dialing in current spending accurately and anticipating how and when that would change. 

What is the general wisdom on how equity in a house should be treated in these scenarios?  Include as part of net worth since it is a somewhat fungible asset? Or ignore since high equity is reflected in lower annual expenses?

[mugwump]

House equity is usually ignored when calculating the Safe Withdrawal Rate.

Don't forget to account for health insurance and health care expenses.

Check out earlyretirement.org for lots of other feedback.

[little_owl]

Good for you! Random, how great to have that realization, I am very envious.

Good luck on your journey.

[mgbrin]

The only thing that I don't see explicitly spelled out in your calculations is the cost of health insurance.  While MMM can get insurance for his family at $237/month, in your 40's and 50's, you will not be able to buy health insurance that cheaply. And if you have any health problems at all, you will likely be declined which will push you to COBRA (when you quit your job) at best but for only 18 months and your state's high risk plan at worst.  Might want to price out health insurance until age 65 (for you and your wife, as you will turn 65 at different times) and make sure. 

[Random]

Good, cautionary advice, mgbrin.  Thanks.

[Roland of Gilead]

your wife had a healthy kid at 43?  you already won the lottery...that was risky.

[Hamster]

You can get a more accurate social security estimate by creating an acct on the social security website, look up your contributions for all the years you'be worked, then go to the social security administrations online calculator. You enter what you contributed each year. I think you can put in zeroes for future years. It will tell you exactly what you will get based on current law.

If I'm not mistaken, your social security payments are based on the highest-contributing 35 years you worked.

Sorry this is messy and without links. I'm on my phone.

[footenote]

Healthcare for those of us with pre-existing conditions will change dramatically in Jan 2014 when the Affordable Care Act goes into effect.

If you do not have (or will not have after ER) employer healthcare, you will not have to go the high risk pool route. And premiums for higher risk individuals will be capped at x times the lowest premiums.

Finally: if your income qualifies you, you may be eligible for a subsidy: http://kff.org/interactive/subsidy-calculator/  (There is no asset test.)

[2527]

Even if FI, there may be some good reasons to keep some formal work.  Maybe not both husband and wife full time but something less than that.

Health insurance is one.

Another one is it provides the opportunity to fund 401Ks and IRAs using money from taxable accounts even if not using money from earned income. 

Another is the basic yin and yang of life.  I have found time off only feels good in contrast to time on.  Rest only feels good in contrast to exertion.  Socializing only feels good in contrast to solitude.  Not too much yin and not too much yang.

Also, for many of us, once we close the doors on formal employment, those doors will never open again, unless we have a really marketable skill and a really durable network.  Especially in the economy these days.

A final one, I may think I have $X in the stock market, but the stock market is at all time record highs.  Maybe I only have $.75X in the stock market, and I don't even know it.  What I really own are the shares.

Regardless of these things, FI is great and opens up doors and new ways of thinking about things.  Congrats.
 

[mgbrin]

Healthcare for those of us with pre-existing conditions will change dramatically in Jan 2014 when the Affordable Care Act goes into effect.

If you do not have (or will not have after ER) employer healthcare, you will not have to go the high risk pool route. And premiums for higher risk individuals will be capped at x times the lowest premiums.

Finally: if your income qualifies you, you may be eligible for a subsidy: http://kff.org/interactive/subsidy-calculator/  (There is no asset test.)

I have been talking to numerous people who have their finger on the pulse of health insurance premiums as of January 2014.  It looks like the "exchanges" available in the ACA will be just as expensive as the high risk plans, despite what is being said "in theory".  I'm 52, have some health issues, and I've been watching this very carefully.   It makes sense, right? If you squeeze a balloon one place, it will just bulge someplace else.    You are right about the "subsidy" though to qualify, your income will have to be at 4 times the poverty level or lower.  This is one place where being a Mustaschian will help, because you can minimize your income enough to qualify.  Just don't expect a large subsidy. 

The point is, there is far too much uncertainty when it comes to health insurance to take the issue lightly when it comes to deciding whether you're ready or not; and the OP just needs to know where that will fit with his plan.

[Random]

Thanks to all for such great input and insight, encouragement, and cautionary notes.  JeffL, your post resonates on a number of levels both in terms of what produces satisfaction in life (seems a core message from Mr. MM as well) and how to best hedge bets for an uncertain future.  All of the posts about the uncertainty of health care add to this. 

One of the things that appealed most from reading lots of MMM blog posts is the idea of a financial snowball gaining mass as it rolls along behind you, gathering mass, gathering momentum.  It seems that that occurs best when expenses are managed carefully, when the assets are more than the minimum, and when those assets are added to either regularly or episodically via some income generation.  One at that FI threshold, that income generation becomes a choice, not a necessity.  There is a big difference between the two (I suspect and hope to validate!).

A few days in here and I am impressed with the generosity of advice, experience, and knowledge.  Thank you.

[happy]

Congratulations Random, I think you can pretty well celebrate FI. What a great feeling that must be to suddenly go, "Hey I'm there!"

Now if I were planning what do next I would want to peg down some of those numbers a bit more precisely since small amounts can make a big difference over the long term. The items I would clarify are: the amount of social security and how certain it is (if its not certain I would leave it out of the calculations), cost of health insurance, and a more definite idea of expenses both currently, and whether you either plan to become more mustachian and reduce expenses, or whether you think your expenses would reduce on retirement. Then the calculations become firmer.

Also if you were both going to stop working completely soon you might consider whether you would want a 3%SWR rather than a 4%. At the point you are at, it starts to be about margins of safety and when is enough, enough?

[Random]

Thanks, Happy.  Great specific advice.  Building a margin of safety (e.g, 3% withdrawal rate) and reducing uncertainty of estimates is excellent advice for helping to understand how close to the edge we are.

[mikefixac]

Welcome. If you've just gotten around to MMM, as time goes by you will realize how you'll be able to lower to living expenses even more. That's when it really gets fun.

I read a lot about a 4% SWR, and I have not started either to withdraw any of my monies. So I'm at a 0% SWR but I'm OK with that.

 

[2527]

Random, I like your housing situation. It must feel good to have an efficiency that covers taxes and utilities!  Jeff