critique my plans?

[mistymoney]

I had formerly solicited some input on contingency plans (https://forum.mrmoneymustache.com/welcome-to-the-forum/what-are-your-contingencies-and-back-up-plans/)

and I have put together a personal plan and would be interested in anyone poking holes in it.

Where I was at that time

Big market drop: Fixed income to take me to social security at a relatively bare bones level:this will feed into the preverbial bond tent
Inflation: fixed income is a mix of locked in interest rates/capital secured and some open ended in case rates go up, might have minor capital fluctuations
Tax rate increases: will do roth conversions to top of 24% bracket until 24% rate is raised and/or pretax is at or under 1.3M and/or IRMAA accounting begins.

Trying to tackle some other stuff like determine where to live first decade of retirement and pay down existing loans rapidly. Currently have about 5k of side income lined up that I will keep going if I can, until sure I have outrun SORR. Can try to boost that a bit too in the first few years.

Where I am at:
Planning retirement around aug/oct this year, will be very close to 59.5 at that point.
Will be at a 5.5% WR at the start for basic life, WR will decline as some debts are paid off (or might pay some off at soon as I hit 59.5/2026 tax year)
Fixed income to take me to 70/social security.
Depending on market, should be around 3% WR at 70

Plans:
Just going to go about my business for about 2-3 years and not let the market worry me (or at least try not to!)
Declutter, do some planned house fixes/upgrades, take some nice vacations, spoil myself a bit with fitness classes.
House fixups may result in some big ticket money coming out of the stache, this may put me at a 6-6.5% WR in one or two of those early years.
If the economy and market progress reasonable well, this should not be an issue. If I hit 70 with inflation adjusted 75% of current stache, I'll be at about 4% WR or less with social security.
If things go south, or I just feel like it, I will downsize.
If things go super south, I'll seek out a LCOL area with houses to be had for 150-200k and wait it out, or settle permanently if it seems quaint and cozy. Was looking at something like La Junta, Co. Amtrak goes through there. might be nice?
Depending on economy from ages 70-80, considering purchasing some annuities/qlacs to make sure about 120-125% of absolute needed expenses are covered by annuity and social security. planning to keep a good chunk in the market

Anything else I might consider?

[AuspiciousEight]

It sounds like you are both more prepared and have thought about retirement more than the average American by a wide margin.

Everything will be ok - Enjoy your retirement!

[Laura33]

I think you should be fine.  Are you using some sort of calculator, and if so, which one?  Because it seems to me that if you need 5.5-6% WR for the next 10 years, but only a 3% WR after that, you should have a really high chance of success, which isn't consistent with the 80% figure you were talking about recently.  For those of us on the older end of the audience here (and you're almost exactly my age, FYI), having SS available has a very large effect on long-term viability, and I like your plan to delay as long as possible to maximize your long-term income stream.  And if things go worse than expected over the next 10 years, you can always draw on SS earlier -- it's a hit on the amount you get every month, but if your full SS at 70 puts you at a 3% WR, then you don't need to maximize every penny of that, particularly if you need it immediately to get from, say, 67 to 70.

Two specific thoughts:

1.  Just be careful about how much you let those house projects eat up.  This first decade is the most vulnerable, both because of SORR, but also because after that you get the big cash boost from SS.  So I'd keep a close eye on that in the early years, maybe delay a few big things until SS kicks in.

2.  I love the idea of a longevity annuity.  This is something I'd think about once you start drawing SS.  By that time, you'll see how your portfolio has done and whether you have some excess cash in there beyond what you'll likely need.  If so, it might be worth spending a few bucks at 70 to ensure sufficient income starting at 80 or 85.  Added bonus is that because of the delay in draws, they're a lot cheaper than immediate annuities.  But also think about your health at that point (part of the reason deferred annuities are so much cheaper is some people die before they draw anything/get their money's worth, and no sense spending that money unless you think there's a legitimate possibility you'll make it to 90+).

[ChpBstrd]

Big market drop: Fixed income to take me to social security at a relatively bare bones level:this will feed into the preverbial bond tent
...
Fixed income to take me to 70/social security.

Clarifying question: By "take me to" do you mean you will sell bonds out of your AA in the event of a big drop and/or as time goes by? This would of course take you to a higher allocation of stocks, but it sounds like you're good with that bond tent approach because you just need to get to 70 for SS.

Assuming the above, the downside would be if an inflationary recession occurred, in which rising interest rates decimate the market price of the bonds you were planning to sell. This occurred in 2022, when both stocks and bonds fell together. That time it lasted less than a year, but in the 70s-80s it became a pattern for years. Perhaps keep your durations low to avoid this specific risks, which seems more likely by the day.

If instead you meant you'd mostly live off the interest payments from the fixed income, then you'd have to have a very large percentage of your portfolio in fixed income. I don't know if I could recommend that, for the same reasons described above.

Inflation: fixed income is a mix of locked in interest rates/capital secured and some open ended in case rates go up, might have minor capital fluctuations

Floating-rate bonds or preferred stocks are appealing as a way to address mild, unanticipated increases in rates and inflation. Note though that if the yield curve was deeply inverted, the financial institutions that issued those securities might opt to call them early (if callable) to sell longer-duration bonds and lock in lower rates. Or if the yield curve became unusually steep, the institution might trade their longer-term debt for shorter-term rates.

Tax rate increases: will do roth conversions to top of 24% bracket until 24% rate is raised and/or pretax is at or under 1.3M and/or IRMAA accounting begins.
...
Planning retirement around aug/oct this year, will be very close to 59.5 at that point.

Maybe I'm missing something, but why do roth conversions if you are about to turn 59.5? At that point, you'll be able to spend from your pre-tax IRA without penalty, and your post-retirement income will probably put you in an even lower marginal tax bracket. If you're wanting to balance out your roth vs. traditional balances to minimize taxes in the future by drawing only up to the first bracket each year from your traditional IRA, then you could probably just start doing that after retirement, when your income will be lower anyway.

Will be at a 5.5% WR at the start for basic life, WR will decline as some debts are paid off (or might pay some off at soon as I hit 59.5/2026 tax year)

Depending on market, should be around 3% WR at 70

Plans:
Just going to go about my business for about 2-3 years and not let the market worry me (or at least try not to!)
Declutter, do some planned house fixes/upgrades, take some nice vacations, spoil myself a bit with fitness classes.
House fixups may result in some big ticket money coming out of the stache, this may put me at a 6-6.5% WR in one or two of those early years.

As noted above, the house fixes/upgrades could present a risk factor, especially since you're at a high WR already.

If the economy and market progress reasonable well, this should not be an issue. If I hit 70 with inflation adjusted 75% of current stache, I'll be at about 4% WR or less with social security.
If things go south, or I just feel like it, I will downsize.
If things go super south, I'll seek out a LCOL area with houses to be had for 150-200k and wait it out, or settle permanently if it seems quaint and cozy. Was looking at something like La Junta, Co. Amtrak goes through there. might be nice?
Depending on economy from ages 70-80, considering purchasing some annuities/qlacs to make sure about 120-125% of absolute needed expenses are covered by annuity and social security. planning to keep a good chunk in the market

Note that in the "super south" scenario (for example, real estate crash plus stocks 45% down), you might not be able to extract much equity from your current home and would not have much of your investment remaining to put into annuities. Plus, this scenario probably involves aggressive rate cuts which will negatively impact the payout rates of annuities. Nonetheless, this is a reasonably good backup plan because an annuity will probably have a very high payout ratio after the age of 70 - much higher than any fixed income investment, and with more safety. Right now, ImmediateAnnuities quotes 8.84% for a 70 year old male. A $500k investment would thus generate $44,200 in income for life, which alongside SS might be enough. Just figure out where the cash to buy it will come from in a world where everything has already been hit hard. 

Making the move to LCOL now rather than in the worst-case scenario could be advantageous because it could reduce your WR and let you pile up the savings for years.

[mistymoney]

It sounds like you are both more prepared and have thought about retirement more than the average American by a wide margin.

Everything will be ok - Enjoy your retirement!

Thanks! :)

[mistymoney]

I think you should be fine.  Are you using some sort of calculator, and if so, which one?  Because it seems to me that if you need 5.5-6% WR for the next 10 years, but only a 3% WR after that, you should have a really high chance of success, which isn't consistent with the 80% figure you were talking about recently. 

been using rich broke dead.

between retiring and age 70, I'll be paying off a series of loans (student loans and car). So fixed expenses will be decreasing at certain years before age 70. Since I will be drawing money out of pretax accounts to pay on these loans, I won't get much if any ACA subsidies and may have irmaa for 1-2 years. So by 70 my base expenses will be significantly lower. I am using 1k/month for insurance and medical/dental/vision expenses, first for ACA, and then medicare/irmaa. By 70 I should have things lined up, debts gone, and will be able to keep my taxable income below irmaa threshold. Assuming average returns of about 6% from here to there WR will be about 3% with social security. Overall returns of 3-4% would be about a 4% WR and still ok to see where it goes. If at 70 it is below 75% I would start to make big changes if I have not already done so. Current AA is 50/50, 25% of fixed income is locked in for 5 or more years, with the average interest rate 5.8%

In terms of % success of 80% currently, looking at that again I do have it out to age 100 and with just 5% flex added it is 82%. If I only put it to age 90, then success rate is 88%.

[mistymoney]

Big market drop: Fixed income to take me to social security at a relatively bare bones level:this will feed into the preverbial bond tent
...
Fixed income to take me to 70/social security.

Clarifying question: By "take me to" do you mean you will sell bonds out of your AA in the event of a big drop and/or as time goes by? This would of course take you to a higher allocation of stocks, but it sounds like you're good with that bond tent approach because you just need to get to 70 for SS.

Assuming the above, the downside would be if an inflationary recession occurred, in which rising interest rates decimate the market price of the bonds you were planning to sell. This occurred in 2022, when both stocks and bonds fell together. That time it lasted less than a year, but in the 70s-80s it became a pattern for years. Perhaps keep your durations low to avoid this specific risks, which seems more likely by the day.

If instead you meant you'd mostly live off the interest payments from the fixed income, then you'd have to have a very large percentage of your portfolio in fixed income. I don't know if I could recommend that, for the same reasons described above.

Inflation: fixed income is a mix of locked in interest rates/capital secured and some open ended in case rates go up, might have minor capital fluctuations

Floating-rate bonds or preferred stocks are appealing as a way to address mild, unanticipated increases in rates and inflation. Note though that if the yield curve was deeply inverted, the financial institutions that issued those securities might opt to call them early (if callable) to sell longer-duration bonds and lock in lower rates. Or if the yield curve became unusually steep, the institution might trade their longer-term debt for shorter-term rates.

Tax rate increases: will do roth conversions to top of 24% bracket until 24% rate is raised and/or pretax is at or under 1.3M and/or IRMAA accounting begins.
...
Planning retirement around aug/oct this year, will be very close to 59.5 at that point.

Maybe I'm missing something, but why do roth conversions if you are about to turn 59.5? At that point, you'll be able to spend from your pre-tax IRA without penalty, and your post-retirement income will probably put you in an even lower marginal tax bracket. If you're wanting to balance out your roth vs. traditional balances to minimize taxes in the future by drawing only up to the first bracket each year from your traditional IRA, then you could probably just start doing that after retirement, when your income will be lower anyway.

Will be at a 5.5% WR at the start for basic life, WR will decline as some debts are paid off (or might pay some off at soon as I hit 59.5/2026 tax year)

Depending on market, should be around 3% WR at 70

Plans:
Just going to go about my business for about 2-3 years and not let the market worry me (or at least try not to!)
Declutter, do some planned house fixes/upgrades, take some nice vacations, spoil myself a bit with fitness classes.
House fixups may result in some big ticket money coming out of the stache, this may put me at a 6-6.5% WR in one or two of those early years.

As noted above, the house fixes/upgrades could present a risk factor, especially since you're at a high WR already.

If the economy and market progress reasonable well, this should not be an issue. If I hit 70 with inflation adjusted 75% of current stache, I'll be at about 4% WR or less with social security.
If things go south, or I just feel like it, I will downsize.
If things go super south, I'll seek out a LCOL area with houses to be had for 150-200k and wait it out, or settle permanently if it seems quaint and cozy. Was looking at something like La Junta, Co. Amtrak goes through there. might be nice?
Depending on economy from ages 70-80, considering purchasing some annuities/qlacs to make sure about 120-125% of absolute needed expenses are covered by annuity and social security. planning to keep a good chunk in the market

Note that in the "super south" scenario (for example, real estate crash plus stocks 45% down), you might not be able to extract much equity from your current home and would not have much of your investment remaining to put into annuities. Plus, this scenario probably involves aggressive rate cuts which will negatively impact the payout rates of annuities. Nonetheless, this is a reasonably good backup plan because an annuity will probably have a very high payout ratio after the age of 70 - much higher than any fixed income investment, and with more safety. Right now, ImmediateAnnuities quotes 8.84% for a 70 year old male. A $500k investment would thus generate $44,200 in income for life, which alongside SS might be enough. Just figure out where the cash to buy it will come from in a world where everything has already been hit hard. 

Making the move to LCOL now rather than in the worst-case scenario could be advantageous because it could reduce your WR and let you pile up the savings for years.

Lots of great points, appreciate the scrutiny.

take me to: Fixed Income interest/dividends will provide about 60% of anticipated costs right now. Will sell out of bonds for the rest.
Plan to let stock dividends reinvest to be doing a little bit of rebalancing into stocks, if sp500 hits 4300, then I would try to put some more money into stocks.

sgov and usfr are the only funds I have in fixed income, everything else is secured principal if held to maturity with locked rates about 1.5 to 2% above these funds.

Would consider preferred stock - but I'm focused on making sure I make it to 70 without touch any stocks and don't want to risk principal. What would be a good way to research preferred stocks? is there an ETF? Are they best considered as stocks or bonds? inbetween?

roth conversion are to get out of pretax and those obligations, of course. While I am mostly focused on the conservative side right now to make sure I get to social security in reasonable shape, if the market does even marginally well, I will be looking at large RMDs by mid 80s - and higher irmaa brackets, and I want to hedge that off. I don't have enough to pay all those taxes!

I'm just looking at the 24% bracket to convert (at this time anyway) and if no one does anything about tax rates, the 22% bracket will become the 25% bracket and this is an instant win. Then I am likely going to be in the 25% (or higher for house fixups) for the long haul. I have very little in taxable, some in roth, but I do not have a balance across these account like most here. I just stuck everything in pretax. Also - a move to California may be on my list of things to do, and they state tax pretax withdrawals, my current state does not. So I really want to shift as much as I can to roth to increase flexibility in retirement down the line.

I understand about the fix ups being a risk factor, but I have been planning those for a while, looked like I was flush for the money in dec-feb, and it just isn't worth it to wait on these. If it works out, market up and inflation down, sooth sailing financially - great. If not, and I sell in 5 years, I'm just going to be ok with it.

In terms of moving to a LCOL are now, I've been looking for a retirement spot but so far have not found it. My preference is California to be near my daughter. Have been looking at the surrounding states too. But I think I need to be retired, take it easy for at least 6 month. Then start planning.

Not only have I been working for about 40 years, most of that time I've been doing more than one job. I have one side gig currently worth about 5k/year and plan to try to beef that up for a few years if I can.

But for now, my mental and physical health is the priority. I need to quit and start the destressification and giving myself a grace period of 2-3 years before making major changes is a gift I need to give myself.

While the current plan is far from fool-proof, I see those risk and have 10+ years of expenses in safety, and have locked in some rates at 5,6,7 year durations, with flexibility to benefit from higher interests rates if those come.

If RE and stocks both crash 50%, I'm still ok for at least a decade. I've anticipated a lost decade and hyper inflation as best I can. If I sell my home for a huge loss and go camp out LCOL somewhere remote, I should be able to live off of just the social security or with some added annuities and have some in the market for recovery.

If my total liquid NW ever dipped below 1M I would likely go into bananapants mode to save it even when it started to look like it might dip there. So I would likely start making the move to a stringent lifestyle/move to LCOL area at about 1.2 to 1.3M.

Overall - I am ok making those big changes, just want to chill out for a bit before I do anything.

[wageslave23]

First of all, I would say you'll be fine. Like you said, you can always cut expenses.  And if you are educated and relatively healthy, you can always get a job and work into your 80s. But for simplification, try taking your current stash and subtracting all outstanding loan balances and any known big ticket items. Then you should have pretty stable expenses without loan expirations to consider. Then plug-in your annual expenses and current net stache and future ss income into an online calculator and see how you do.

[mistymoney]

First of all, I would say you'll be fine. Like you said, you can always cut expenses.  And if you are educated and relatively healthy, you can always get a job and work into your 80s. But for simplification, try taking your current stash and subtracting all outstanding loan balances and any known big ticket items. Then you should have pretty stable expenses without loan expirations to consider. Then plug-in your annual expenses and current net stache and future ss income into an online calculator and see how you do.

thanks, this actually looks better % successwise. in the low to mid 90s based on various estimates.

I think its going to be ok. and if it isn't, I can make changes to make it be ok.

[Must_ache]

I'm kinda scratching my head here.  You have 25 years left on your mortgage and you are trying rapidly pay down [student] loans?  I don't think we have quite enough detail here.  Plus you can conceieve your net worth going below $1M in which case you would enter "bananapants" mode?  This isn't the Mustachian scenario I learned about.  I've been retired for a year but I only have a $32K balance on my 2.625% mortgage.  And I'm making payments on a Tesla too because the interest rate was also good. 

How much do you owe and at what %

[mistymoney]

I'm kinda scratching my head here.  You have 25 years left on your mortgage and you are trying rapidly pay down [student] loans?  I don't think we have quite enough detail here.  Plus you can conceieve your net worth going below $1M in which case you would enter "bananapants" mode?  This isn't the Mustachian scenario I learned about.  I've been retired for a year but I only have a $32K balance on my 2.625% mortgage.  And I'm making payments on a Tesla too because the interest rate was also good. 

How much do you owe and at what %

mortgage is a bit over 320k at <3%, so will just maintain the required payments. But I didn't bother modeling that payment going away, ERN did mention that reductions 20+ years into the start of fire models don't really move the needle hardly at all, so just left mortage as a perm part of annual spend. 

I have detailed these things a little bit more in other thread, more nuts and bolts of things. (such as https://forum.mrmoneymustache.com/welcome-to-the-forum/buckets/  Although - a lot has changed since that thread just 6 month ago, currently non-mortgage balance is below 100k with rates between 5.3 and 6.75% interest rates. Very little left at 6.75 and most below 6%. Have paid off 2 of these student loans since that thread.)

But have modeled in rich broke dead either paying these off as I go, or lump summing before starting and it isn't all that different. Have one more student loan I plan to pay off before quitting, and then the highest rate is 6.59%, but with a .25% reduction for auto paying set up. So actual current highest is 6.5% and will be 6.34% after that one is paid off. After that one is paid off, I will likely just do the minimums until 2026 and reassess where I am at money wise.

But that is all relatively academic. Work is at a cross roads and I no longer have the choice to continue working/saving without sacrificing too much form the health buckets. Might consider something after a break/recupe.

And I am indeed going to yolo with the bananapants back up plan if significant SHTF. This thread was specifically to look at contingencies for bad market/stagflation type issues.

I acknowledge my situation is not ideal, nor am I a mustachian poster child. But I have a relatively large tub of monies, and at least an 80% shot of success. And it is time to pull my toast out of the toaster. If SORR hits hard, then I will bananapants my way as best I can. If the market and economic situation is fair to middling in next decade on average, then I will be in good shape. Bananapantsing will be optional.

Bananapants mode will only be activated if there is worse results than a lost decade, like an annual stock market return of -5% between now 2035. Bananapants mode would only consist of downsizing to LCOL, or maybe trying vanlife, or taking on any work or side hustle to earn some money. So - maybe just the usual contingencies? I guess I said banapants because internally I would be panicking at the thought of dipping below 1M and would be activated to move quickly to make changes?

I would think that after a decade of average -5% returns, most people would be in bananapants mode. But maybe not?

Not sure what you may have envisioned as bananapants mode, but I'd be curious what you thought was not alligning with the mmm ways?