I have been working through the ERE book and have been trying to apply it to my situation. I am close to 50 years of age and have been saving for close to 10 years under an ER plan. I seem to be on track according to the original plan but thanks to the book and this forum, I have realized that I need to cut expenses if I want to accelerate early retirement.
My situation is that I will have a defined benefit pension at age 60. It is not tied to inflation so I need additional cash to cover inflation. At 65, social security kicks in (???). In approximate terms, the defined benefit pension will be about 25k, and social security 10k, if it is still available. My DW also has a retirement benefit, which is in Euros and we don't know exactly how much it will be. It may be substantial or not, depending on how politics affect the pension.
My ER mission is to bridge the time from early retirement to when the defined benefit pension kicks in. I currently have about 145k assets, mostly in a 457 plan, similar to a 401k but which allows early withdrawal.
Current annual expenses are about 50k, annual savings about 15k. Expenses include about 10k in mortgage payments which should be going away in a few years, two car payments totaling about 7.5k annually, and some savings for unexpected major purchases (fridge, washer, etc.) which are actually savings but are counted as expenses.
I know how to reduce my expenses to about 5k per year by selling my home and cars, and moving on to my sailboat. However that is not acceptable to my DW. So my target expense for retirement is about 30k, living in the same house, driving paid for cars, and trying to cut food and entertainment expenses to a more reasonable level. I am reviewing all expenses to find things to cut, but it is somewhat difficult to cut things we are used to.
My current strategy is to continue to work and save for about five years, then retire early, withdrawing 30k per year from the 457 account until the pension kicks in at age 60. Then I would make up the difference between the pension and 30k budgeted expense until social security kicks in at age 65.
So under these conditions, the key is to live with extremely low expenses between the time of early retirement and age 60. The lower annual expenses, the earlier I can retire. Another key is to pay off the mortgage and cars. Once that is done, my early retirement will be very close. When my DW's retirement income is known, we can be a little more sure about when we can quit the current jobs.
I enjoyed reading the ERE book and if I were single, I would sell the house and cars and move on to the boat, socking away the cash. In fact, as a single person, I could retire today with my current assets plus the equity in my home. However it has to be a mutual decision, so I continue to work. After having gone through the spreadsheet exercise, it is a very liberating feeling to know that your net worth is enough to live on (with some lifestyle changes).
Not so extreme, not so early
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AlexOliver
- Posts: 461
- Joined: Tue Aug 03, 2010 7:25 pm
Person (a) draws Social Security at age 62. (early)
Person (b) draws Social Security at age 66. (full retirement age)*
They will break even with each other on benefits drawn at the age of 78.
*These figures based on my age group. (My full retirement benefit age is 66.)
Break even age is 78. I hope to live to be age 78.
Since I could not get a certified statement from anyone saying I would live LONGER than age 78, I opted for early benefits. A bird in the hand if you will. Also the majority of my retirement benefits are not based on Social Security, but I wanted back a portion, at least, of what I have paid in.
Person (b) draws Social Security at age 66. (full retirement age)*
They will break even with each other on benefits drawn at the age of 78.
*These figures based on my age group. (My full retirement benefit age is 66.)
Break even age is 78. I hope to live to be age 78.
Since I could not get a certified statement from anyone saying I would live LONGER than age 78, I opted for early benefits. A bird in the hand if you will. Also the majority of my retirement benefits are not based on Social Security, but I wanted back a portion, at least, of what I have paid in.
To the OP: Other than you being married, I thought you were describing my situation. Same age, same early retirement age, same 457 plan, about the same amount of time doing ER things, and you have a little less in assets than I do. My big plus is my house will be paid off within 12 months.
Back to your original post, I see the big hurdle not being the money you have, but your expenses. $30k per year is the cheapest you can do when you have no housing or transportation costs? Ok, car & home insurance, fuel, utilities, maintenance can easily add a few thousand yearly. Add in food and clothing, and lets be real generous here... Add up all the previous items and call it $10k total per year. Add in another $5k for frugal entertainment and travel (again, this should be do-able for less, but allow for some extra). You should be able to cut out most of the rest (unless medical costs are a major issue). Anyway... just my opinion.
Back to your original post, I see the big hurdle not being the money you have, but your expenses. $30k per year is the cheapest you can do when you have no housing or transportation costs? Ok, car & home insurance, fuel, utilities, maintenance can easily add a few thousand yearly. Add in food and clothing, and lets be real generous here... Add up all the previous items and call it $10k total per year. Add in another $5k for frugal entertainment and travel (again, this should be do-able for less, but allow for some extra). You should be able to cut out most of the rest (unless medical costs are a major issue). Anyway... just my opinion.
Expenses are definitely my focus now. I had tracked expenses closely from about 2005 to 2009, but had not looked at them for a few years, other than following my budget plan and noticing when there was a shortfall.
In January 2011, I started tracking expenses again, here are 2010 numbers:
$3,782 utilities (landline, long distance, gas, water, electric, cable)
$17,180 debt service (home mortgage, two car payments)
$16,800 monthly variable expenses (food, entertainment, anything out of pocket)
$8,700 annual expenses (anything paid once or twice a year, insurance, property taxes, condo fees, boat haulout, christmas and birthday gift cash)
$2,400 strategic expenses (saving up for larger purchases, vacations, appliances, etc. This is savings but usually gets spent.)
$48,862 Total
If you take away the debt service, the total is 31,682. So that is my starting point, and I am hoping to work on whittling that amount down by focusing on frugality.
My DW controls the $16,800 monthly variable expenses (the amount is annual expense), so some psychological voodoo or other tough talk is going to be required to reduce that amount.
In January 2011, I started tracking expenses again, here are 2010 numbers:
$3,782 utilities (landline, long distance, gas, water, electric, cable)
$17,180 debt service (home mortgage, two car payments)
$16,800 monthly variable expenses (food, entertainment, anything out of pocket)
$8,700 annual expenses (anything paid once or twice a year, insurance, property taxes, condo fees, boat haulout, christmas and birthday gift cash)
$2,400 strategic expenses (saving up for larger purchases, vacations, appliances, etc. This is savings but usually gets spent.)
$48,862 Total
If you take away the debt service, the total is 31,682. So that is my starting point, and I am hoping to work on whittling that amount down by focusing on frugality.
My DW controls the $16,800 monthly variable expenses (the amount is annual expense), so some psychological voodoo or other tough talk is going to be required to reduce that amount.
Ok, lets see, you could cut cable. There was an article in today's Mashington Post with the columnist explaining how easy ditching the cable was without losing anything. You can use MagicJack for $25/year for local and long distance phone service. Err, boat haulout? But as I said out before, if you can't get control of the $16,800 your wife seems to be controlling without you, you have bigger fish to fry (IMO).
The cable is actually cable internet with a $11 cable tv plan for my DW, I do not watch tv. I am trying to lead by example in cutting costs and so far we have had some good conversations about how cutting costs can allow us to retire earlier.
I have been working on a spreadsheet projection that shows what retirement income will be like. It is not complete yet, I still need to figure out how much health insurance will cost, and how much income tax I would pay on pension income. I also have to run projections on the case if one partner dies, will the other have a good retirement.
I am using a spreadsheet, each row is one year, and the various retirement income sources are listed in each column when they kick in for us.
When we have both pensions and both social security payments going in 13 years, we will have 52k in revenue before income taxes. That is more than our current expenses including mortgage and car payments.
If we could cut our expenses to 30k per year for 6 years, we could retire in 2013. However this would mean paying off the mortgage, which I have not included in the calculation, so a more reasonable estimate is 2015. It also means using up almost all of the 457 plan dollars, which I don't want to do because they are a hedge against inflation. In any case, we are getting very close to being able to retire. I will be able to retire anytime after about age 53, so the early retirement plan seems to work.
This knowledge is very helpful, because before I was very afraid of losing my job. Now I know that I only have to hang on a few more years, pay off the mortgage and the cars, and we will be ready.
While we did not do the extreme early retirement plan, we were able to accomplish this starting at zero at age 35, when I lost a business due to fire and essentially lost everything (but had no debt). So 14 years into this career, it looks like it will pay off and the good news is the ER plan is working. There was a lot of pain and anguish related to the career though. ERE would have been a better strategy, had I known about it at the time.
I have been working on a spreadsheet projection that shows what retirement income will be like. It is not complete yet, I still need to figure out how much health insurance will cost, and how much income tax I would pay on pension income. I also have to run projections on the case if one partner dies, will the other have a good retirement.
I am using a spreadsheet, each row is one year, and the various retirement income sources are listed in each column when they kick in for us.
When we have both pensions and both social security payments going in 13 years, we will have 52k in revenue before income taxes. That is more than our current expenses including mortgage and car payments.
If we could cut our expenses to 30k per year for 6 years, we could retire in 2013. However this would mean paying off the mortgage, which I have not included in the calculation, so a more reasonable estimate is 2015. It also means using up almost all of the 457 plan dollars, which I don't want to do because they are a hedge against inflation. In any case, we are getting very close to being able to retire. I will be able to retire anytime after about age 53, so the early retirement plan seems to work.
This knowledge is very helpful, because before I was very afraid of losing my job. Now I know that I only have to hang on a few more years, pay off the mortgage and the cars, and we will be ready.
While we did not do the extreme early retirement plan, we were able to accomplish this starting at zero at age 35, when I lost a business due to fire and essentially lost everything (but had no debt). So 14 years into this career, it looks like it will pay off and the good news is the ER plan is working. There was a lot of pain and anguish related to the career though. ERE would have been a better strategy, had I known about it at the time.
@sky, I try to look at any recurring expense as a parasite on my wealth, or a leak in my hypothetical bucket. I'll bet you do the same.
When you retire, perhaps you could cut back to one car, eliminating the insurance, registration, maintenance etc... all parasites. As you work toward retirement and get things paid off, again perhaps your insurance can be adjusted downward.
When you retire, perhaps you could cut back to one car, eliminating the insurance, registration, maintenance etc... all parasites. As you work toward retirement and get things paid off, again perhaps your insurance can be adjusted downward.
February progress
I have been eating a low cost healthy diet for two months now, averaging about 5 days a week. Muesli breakfast, PBJ sandwich lunch and beans and rice tacos for dinner (documented here: http://metropioneer.com/index.php?optio ... Itemid=109 ).
I have been cooking in batch mode, cook once for 9 days of food.
We had the "its unhealthy to eat the same thing every day" argument, which I backed up with data showing my meals are very healthy and only need an addition of fish and eggs to make up for a deficiency of B12.
http://www.ars.usda.gov/News/docs.htm?docid=20820
The battle was won when DW asked me if she could eat beans and rice tacos for dinner too. "Not every day, but once and awhile." So tomorrow is the big day.
I have used my car only twice this month, once for a job interview. I did drive my wife's car as well. I would hate to get rid of my car but its nice to know I could.
I increased my 457 contribution by $200 per month, to about 20% of my gross pay.
I increased my mortgage payment by $100 to increase debt reduction.
Leading by example seems to be working, I expect that credit card bills will be very low this month.
I researched some retirement strategies and the most viable method will take between 3 to 5 years, involving paying off a 40k mortgage and saving 60k to 100k. I am not quite on track to do that in 3 years yet but I can do it in 5 years with the current savings rate. The key to retire earlier is to decrease expenditures.
The boat is for sale.
Next month I will stock up on food, buying beans and rice in bulk (20lbs). I have been checking prices of food and will start documenting which stores have the best deals.
I will call my insurance agent and try to get my insurance costs reduced.
I have been able to make some big improvements the past two months and will keep looking for more improvements next month.
I have been eating a low cost healthy diet for two months now, averaging about 5 days a week. Muesli breakfast, PBJ sandwich lunch and beans and rice tacos for dinner (documented here: http://metropioneer.com/index.php?optio ... Itemid=109 ).
I have been cooking in batch mode, cook once for 9 days of food.
We had the "its unhealthy to eat the same thing every day" argument, which I backed up with data showing my meals are very healthy and only need an addition of fish and eggs to make up for a deficiency of B12.
http://www.ars.usda.gov/News/docs.htm?docid=20820
The battle was won when DW asked me if she could eat beans and rice tacos for dinner too. "Not every day, but once and awhile." So tomorrow is the big day.
I have used my car only twice this month, once for a job interview. I did drive my wife's car as well. I would hate to get rid of my car but its nice to know I could.
I increased my 457 contribution by $200 per month, to about 20% of my gross pay.
I increased my mortgage payment by $100 to increase debt reduction.
Leading by example seems to be working, I expect that credit card bills will be very low this month.
I researched some retirement strategies and the most viable method will take between 3 to 5 years, involving paying off a 40k mortgage and saving 60k to 100k. I am not quite on track to do that in 3 years yet but I can do it in 5 years with the current savings rate. The key to retire earlier is to decrease expenditures.
The boat is for sale.
Next month I will stock up on food, buying beans and rice in bulk (20lbs). I have been checking prices of food and will start documenting which stores have the best deals.
I will call my insurance agent and try to get my insurance costs reduced.
I have been able to make some big improvements the past two months and will keep looking for more improvements next month.
March report
I have made it through another month covering all of the planned investments (457) and extra mortgage payments. I also invested a good amount that was end of the year bonus money from work (actually, unused sick time) and some other savings.
Part of my savings strategy is to take things like tax returns and save them, so that will be coming in soon. I also budget based on four weeks of income per month, so months with five Fridays are bonus income that I save.
I set up a savings account for health care, so it does not come out of the monthly cash anymore, and this account should be replenished each year by proceeds from the health savings plan (tax free).
Drove the car two times. Paid a car payment and insurance in the amount of 467.33 for the luxury of parking a car in my driveway for a month.
Continued eating low cost dinners about 5 out of 7 days a week, usually tacos with beans, rice, cabbage and tomatoes for dinner.
Cooked in bulk twice, each time making 12 servings of beans and rice and freezing them.
Baked whole wheat/rye bread twice, for about half of my lunch sandwiches.
Bought 20 lbs of pinto beans, and 25lbs of brown rice, plus some other bulk food.
Downsides:
Dropped my laptop, it is acting funny.
Went out for dinner too many times. I don't feel good after I eat restaurant food and it costs way too much.
Disagreements with DW about money.
I have been trying to work out how much food I eat, how much it costs and how much of it I would need to buy to have a years supply. I have my breakfast worked out. I have eaten muesli with dried milk for breakfast for many years.
Put a few spoons of Nido dry milk in a mug, add a couple teaspoons roasted/salted sunflower seeds, and a few handfuls raisins. Add water and mix. Add oatmeal to fill mug (less than a quarter cup). Mix and eat. As you can tell, I don't really measure that carefully. I have been looking at how much of the ingredients I use between refills of the container and have worked out the following for one person:
Nido: 1.3 oz/day, $0.33 $/day, 30.8 lbs/year, $121.44 $/year
S. seeds: 1.1 oz/day, $0.15 $/day, 25.3 lbs/year, $55.64 $/year
Raisins: 2.4 oz/day, $0.29 $/day, 54.6 lbs/year, $106.48 $/year
Oats:3.3 oz/day, $0.19 $/day, 76.4 lbs/year, $68.8 $/year
Total: 8.2 oz/day, $0.97 $/day, 187.1 lbs/year, $352.35 $/year
So I estimate roughly $30 a month and $360 a year for breakfast for one person who tends to eat a lot. This is buying ingredients in 5lbs amounts, not the big 50lb bags, although it may be worth it to buy oats and raisins in 50 lb amounts if there is a discount.
So the good news for this month: put about $3,600 into investment accounts. Stayed on target with savings and extra mortgage payoff, continued to eat low cost food.
Bad news, was not able to reduce expenses, increased spousal resistance.
I have made it through another month covering all of the planned investments (457) and extra mortgage payments. I also invested a good amount that was end of the year bonus money from work (actually, unused sick time) and some other savings.
Part of my savings strategy is to take things like tax returns and save them, so that will be coming in soon. I also budget based on four weeks of income per month, so months with five Fridays are bonus income that I save.
I set up a savings account for health care, so it does not come out of the monthly cash anymore, and this account should be replenished each year by proceeds from the health savings plan (tax free).
Drove the car two times. Paid a car payment and insurance in the amount of 467.33 for the luxury of parking a car in my driveway for a month.
Continued eating low cost dinners about 5 out of 7 days a week, usually tacos with beans, rice, cabbage and tomatoes for dinner.
Cooked in bulk twice, each time making 12 servings of beans and rice and freezing them.
Baked whole wheat/rye bread twice, for about half of my lunch sandwiches.
Bought 20 lbs of pinto beans, and 25lbs of brown rice, plus some other bulk food.
Downsides:
Dropped my laptop, it is acting funny.
Went out for dinner too many times. I don't feel good after I eat restaurant food and it costs way too much.
Disagreements with DW about money.
I have been trying to work out how much food I eat, how much it costs and how much of it I would need to buy to have a years supply. I have my breakfast worked out. I have eaten muesli with dried milk for breakfast for many years.
Put a few spoons of Nido dry milk in a mug, add a couple teaspoons roasted/salted sunflower seeds, and a few handfuls raisins. Add water and mix. Add oatmeal to fill mug (less than a quarter cup). Mix and eat. As you can tell, I don't really measure that carefully. I have been looking at how much of the ingredients I use between refills of the container and have worked out the following for one person:
Nido: 1.3 oz/day, $0.33 $/day, 30.8 lbs/year, $121.44 $/year
S. seeds: 1.1 oz/day, $0.15 $/day, 25.3 lbs/year, $55.64 $/year
Raisins: 2.4 oz/day, $0.29 $/day, 54.6 lbs/year, $106.48 $/year
Oats:3.3 oz/day, $0.19 $/day, 76.4 lbs/year, $68.8 $/year
Total: 8.2 oz/day, $0.97 $/day, 187.1 lbs/year, $352.35 $/year
So I estimate roughly $30 a month and $360 a year for breakfast for one person who tends to eat a lot. This is buying ingredients in 5lbs amounts, not the big 50lb bags, although it may be worth it to buy oats and raisins in 50 lb amounts if there is a discount.
So the good news for this month: put about $3,600 into investment accounts. Stayed on target with savings and extra mortgage payoff, continued to eat low cost food.
Bad news, was not able to reduce expenses, increased spousal resistance.
Is the $3,600 savings for a single month just your savings, or does this count as savings between a spouse's job and your own? Because that is a great amount of savings for one person when you have a mortgage and a non-cooperative spouse. For me living by myself, I can only put $2,000 into retirement / savings accounts while I am prepaying my mortgage down (extra $1,500/mo in my case).
Long term I would say you need to come to some type of compromise with your spouse, because being an ERE martyr in a two person household is going to get old realllllly fast.
Long term I would say you need to come to some type of compromise with your spouse, because being an ERE martyr in a two person household is going to get old realllllly fast.
My normal savings rate is $1,000 per month into a 457 plan, but I also find other sources of funds to move to an investment account, such as bonuses, tax refunds, fifth week paychecks, a small side business and sales of excess junk. The extra amount for March actually came from December and January, I was holding it in case of an unpleasant surprise in my taxes, but found I did not need to pay the IRS. I have a somewhat complex budget system with a savings accounts for annual expenses, emergency expenses, strategic expenses and health expenses. If any of those savings accounts reaches their max limit, I shift the monthly deposit to the investment account.
I probably should not complain about my DW on the internet, it is really a private matter. Some of our discussions are just the usual reminding ourselves that we cannot buy everything we want. Thats normal, I need to remind myself the same way. We have been saving money for quite a few years now, and have been successful. The issue we are having is in trying to reduce expenses from what we have been used to for many years. From my perspective, reducing expenses would allow me to retire earlier, perhaps within 3 or 4 years, but she is not willing to take a cut in "her" monthly household money.
I probably should not complain about my DW on the internet, it is really a private matter. Some of our discussions are just the usual reminding ourselves that we cannot buy everything we want. Thats normal, I need to remind myself the same way. We have been saving money for quite a few years now, and have been successful. The issue we are having is in trying to reduce expenses from what we have been used to for many years. From my perspective, reducing expenses would allow me to retire earlier, perhaps within 3 or 4 years, but she is not willing to take a cut in "her" monthly household money.
@sky,
I like your honest matter-of-fact reporting of your progress. Impressive savings rate as BennKar points out.
"but she is not willing to take a cut in "her" monthly household money."
I've seen many households that have issues at this point. Jacob blogs it somewhere (and gets a lots of stick in the comments too as I recall). Keep going. This is the point of inflexion
BTW, the fact that you acknowledge that getting your DW on board is not a piece of cake is a big plus in my eyes. We all have disagreements with our respective spouses (and vice versa). It's a fact of life.
How we resolve it is where we differentiate ourselves. If you feel you're 5 or 6 on the scale you're already part of a very relative minority. Very very few people operate beyond 4.
HTH.
EDIT:
I found the blog post
I like your honest matter-of-fact reporting of your progress. Impressive savings rate as BennKar points out.
"but she is not willing to take a cut in "her" monthly household money."
I've seen many households that have issues at this point. Jacob blogs it somewhere (and gets a lots of stick in the comments too as I recall). Keep going. This is the point of inflexion
BTW, the fact that you acknowledge that getting your DW on board is not a piece of cake is a big plus in my eyes. We all have disagreements with our respective spouses (and vice versa). It's a fact of life.
How we resolve it is where we differentiate ourselves. If you feel you're 5 or 6 on the scale you're already part of a very relative minority. Very very few people operate beyond 4.
HTH.
EDIT:
I found the blog post