Posted by Tim Stobbs on July 8, 2016
So deegee asked an interesting set of questions the other day:
What would your “number” be if you and your wife were to fully retire and generate zero income (instead of the combined annual $12k) for the next ~5 years? And what would your “number” be if you planned to reduce your WR to 3%, with versus without the added $12k income?
In essence, I took this to ask what were my other alternatives to my given course of action? Which is a very good question as I did actually consider several different scenarios. After all, plans never work out perfectly so it is good to know your potential fail points.
In no particular order, here are a few alternative realities I considered in my plan.
- Skip the part time work and just fully retire for both of us. Our savings target would rise to $666,000 and that would require me working an additional 13 months at my current job.
- Skip the part time work for me by saving an additional $30K upfront. That would take about six more months. I have to comment on the fact I did seriously consider doing this, but in the end realized I would rather do more part time work later to get our full time work sooner. Also I’m aware I will likely end up exceeding our $550,000 threshold by a fair amount, so I might end up more towards this scenario anyway.
- What happens to your savings target at 4% or 3% withdrawal rates? At 4%, we would need $600,000, assuming the entire part time work scenario. While at 3% that jumps up to $800,000, again assuming part time work. I discounted the 3% as it seemed like overkill, but I did consider my initial scenarios at 4%. Actually what ends up happening due to the part time work is we do drop our withdrawals down for a period of time allowing the money to continue to grow. The modelling is not exact, but at one point I estimate we will only be taking out only 1%. Of course, the flip side is our higher withdrawal rate is between 4 to 4.5% initially after I leave work (it floats a bit depending exactly on our final savings amount).
- What if the markets deliver below 4% returns for a few years? Honestly, that is the reason we have included some part time work during the initial five years. It provides a buffer to our withdrawals which should allow the money to grow during that time. If not, as I previously mentioned I’m okay to downsize the house and tap into some of our house equity (up to $75K).
- Why only $6K a year for each of you for part time work income? It’s really just a number that works overall. I wanted something low enough to be easily achievable so that put us at something below $10,000 per person. After that we looked at my wife’s daycare income to the house and it ends up being around $6000/year. So I decided to give myself the same target. The reality is that number is an average over the five years, so we totally have the option of taking in more one year and less on another. So depending what I do, I might make $12,000 for a two years, then drop down to $2000 for the rest. The number doesn’t matter in a year, as long as the average is getting achieved.
- Why not just work longer and be rich? I honestly did look at this one just for fun. Had I kept an normal retirement age of 65 I would have in excess of $5 million assuming we kept a similar pace of saving going forward. Which at a 4% withdrawal rate would give us a spending limit of $200,000 annually or over six times what I currently spend. It’s so overkill it isn’t even funny, it’s ludicrous.
Well I hope you enjoyed this tour of other realities, but hopefully this gives you an idea of my thought process to get to our current plan.