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New to retirement... How to sleep at night?

#1
I'm 63 my wife is 60. I sold my company in March of this year for 1.5m to be paid over the next 5 1/2 years at 20k per month. Sale includes paying our medical insurance until I reach Medicare age. After that I pay my wife's insurance until she's medicare age as well as all supplements for both. I also have stocks and mutual funds worth about 1m, savings at approx 800k (not invested sitting in Ally @ 2.5%) A paid off home @ 500k and paid off lake house at 200k. I am putting approx. 250k into the lake house then we will sell our home and live at the lake full time. I paid off both our kids homes and they are paying us 1k per month each interest free for about another 15 years (I have this in separate accts. in hopes of never using it and giving it back to them when paid off). Right now we spent about 150k a year but 25k of that is for our home. I've done the retirement calculator and it seems okay but I worry about where and how I should be invested.
After 5 1/2 years the only income will be SS about 41k per year for both. I've made about 10% a year investing but I am concerned going forward. The great unknowns are stock market, taxes, medical... Basing plans on living to 85 the wife 95.
Any advice on how to stop worrying or is it warranted?
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#2
Since your business sale nets you a lot more than your $150K annual expenses, it seems like you might have some money to fatten up the investment account over the next 5 years. Maybe that's where some of the investment in the lake house is coming from? Can't tell. Overall you look fine, but from what you say you will need to start tapping investment/retirement accounts for about $100K/year when the business sale income ends. Thus, I'm suggesting you should do what you can to juice up investment accounts, implying you should have $2.5M invested in order to draw $100K, under the 4% guideline.

Where your investment dollars are matters, but from what you said it appears you don't have qualified plans. Don't know what to say about the $800K in CD's; at this late stage of the bull market, I don't know what you might do to put it to better use. Short term it may be a smart move, giving you a lot of investing power out the other side of the next recession.
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#3
I don't know you or the all the specifics of your finances, but to me it seems like you are in good shape. There are probably some financial moves you can make at this point that are better than others and I will let some of the better qualified on the board chime in. I would say that worrying is not warranted. Now, that doesn't mean you don't think about how to manage your assets. It seems like we all think about it a lot when we first retire. I found that true for me. After a couple years of retirement, I could see what my expenses are, and get a better picture of how my retirement will play out. At the beginning, though, there is more uncertainty about spending for sure.



I also think that you can be assured that you have made good financial decisions to this point, to get to where you are at now, and you can continue to make good financial decisions in your retirement years. To me, it seems like you are in a very good spot. Of course, it will be different types of decisions in a different situation, but there is no reason why you cannot continue to make the right financial choices.



As for sleeping at night, I would ask you to consider volunteering or otherwise spending time with others who are less fortunate. When I retired I had more time, and I spent probably too much time thinking about financial things. Spending time with those who are less fortunate gave me a wider perspective of things. Eight years into retirement, I now volunteer for 4-6 organizations a week (10-12 hours/ week) and I find it tremendously fulfilling and a big part of my retirement.



Congratulations on your retirement!
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#4
The worry is concern for the unknown as you navigate the major financial transition to retirement when there are uncertainties and factors you can't control. It takes a while to develop a plan and you have a strong asset base to work with.
 
Looking at the expense side [b][i]long[/i][/b] term, annually you have:
          living expenses            $ 150,000
          minus SS                          41,000
          minus CD income             20,000
          minus house expense       25,000 (I presume this is temporary due to either renovation costs or the cost of maintaining a second house)
                                                 _______
          net expenses to cover    $ 64,000
 
Using the 4% rule as an approximation, you would need $ 1.6 million invested, which is almost entirely covered by current equities plus investing the proceeds from either the house you plan to sell or the business. The business sale income in excess of your [b][i]current[/i][/b] living expenses ($ 240,000 - (150,000-20,000 CD income)) = 110,000 a year for 5.5 years) is $ 605,000. You will need to decide how to invest the house cash and the ongoing excess business sale cash, which together are $1.1 million.  Another cushion is that you make more than 4% on your investments. Also, dividends can cover most of the 4% without tapping capital. Stock market risk can be mitigated by more conservative equity choices or putting part of the portfolio in high quality bonds, including munis.  Your large cash allocation is a better choice, in my opinion, than the risks some take on the fixed income side with leveraged bond funds. There is a range of alternatives. Even if you simply put the entire $1.1 million in the bank at today's rate of 2.5%, you would make $27,500 annually, reducing your income need from the existing $1 million in equities to $36,500 a year. This is 3.65% withdrawal from the current equity portfolio without additional equity investments or interim growth. There is no rush and you can simply accumulate the money for now in the bank or dollar cost average into more investments with the monthly business sale cash.
 
You have a long transition period because of the business sale installments and your ages for SS. There are big moving pieces in your financial picture and it bears close watching. I'm in the middle of a 5 year transition myself. I made a list of projected income by year because the sources and amounts vary by year over the transition period. In early 2021, I have SS starting at age 70, my first and only small RMD, and my final Roth conversion, after which it's smooth sailing with a large bump in income and no further Roth conversion FIT expense. I've been converting more than my annual income, so the swing is large.
 
Enjoy this part of life's journey. Stewardship of financial assets is one of the purposeful, productive activities of retirement for individuals and society.
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#5
Your explanation and analysis was very thorough and thoughtful.
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#6
There is a 4% rule of thumb for expenditures in retirement, which is just that - a rule of thumb.  Historically, a 4% withdrawal/spend rate has been sustainable for the vast majority of people who retire.  But, if you retire very early, it may not be.  Or, if the future is not like the past (many believe there will lower returns), then it may not be. A 2.5-3.0% rate is much safer, but means you need more money to be highly certain of achieving a given target level of income. (An annuity might be possible, but you give up some upside.)
 
I retired a little early at 58.  Several years before retirement, I worked up a retirement budget.  I looked at recent expenses and trends, and then estimated how things would change once I retired.  I broke the expenses down into various categories, as I will summarize below.  In each category I not only estimated a total figure but also a minimum figure for what I called "essentials/necessities".  When I was done, the essentials made up about 50% of the total.
 
I entered retirement debt-free, which I recommend to anyone if you can do it. Not only will it reduce your expenses and the need for income, but I think there can be "psychological" benefits as well.
 
My Categories
===========
Car - Car payments / Repairs / Periodic Replacement / Registration / Tolls / Gasoline / Insurance
Utilities - Gas / Oil / Electricity / Internet / Cable / Home Phone / Wireless / Water
Housing - Mortgage / Rent / Property taxes / Insurance / HOA fees / Appliance Repair / Appliance Replacement / Roof replacement / Insect treatment / Painting / Other maintenance
Food / Local Dining Out / Local Entertainment - Groceries / Restaurants / Movies / Live performances
Dental/Medical - Premiums / Prescriptions / Co-pays / Deductibles
Reading Material/Media - Newspaper / magazines / Books / Music
Gifts - Charity / Family
Travel - Airfare / Accommodation / Tours / Entertainment / Dining
Clothing - Clothes / Laundry / Dry Cleaning
 
To these items I added a 10% contingency for whatever I forgot or for other unforeseen circumstances.
 
This total then gave me an After-Tax requirement.  From that After-Tax requirement, I estimated what the Before -Tax equivalent would be. (I used a conservative assumption; ordinary income tax rates).
 
Once I knew what I needed before tax, then I used that rough rule of thumb, a 4% withdrawal rate, to define what I needed to have by way of financial assets.  In my case, my total annual expenses for necessities amount to less than 1% of my financial assets and the total annual expenses are less than 2% of my financial assets.  As such, I believe there is a close to zero chance we will run out of money.  If things were a bit tighter, I would look at trying to come up with a fixed income stream that would at least cover the necessities. I might also look at working longer or cutting expenses.
 
If I wanted to figure social security (or an annuity or a pension) into the calculation, I would subtract social security (and/or the annuity/pension) from my expenses (for necessities first) and then look to my financial assets (and a withdrawal rate of no more than 4%) to cover the remaining expenses.  If I retired much earlier (or if future returns are lower), the 4% rate might be too high.
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#7
Most importantly, have you asked your spouse yet? That is the first step and she may ask you bunch of questions that will make you do your due diligence about expenses/income  with life expectancy around 84-85. Also, does your spouse work? If not, is she ready to see you 24-hr a day?
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#8
Simple, you are not sleeping since you are trying to maintain a rather lavish lifestyle!  $150K a year?  What do you spend this on?  With your house paid off and little debt, no insurance costs for now, plus the income you have coming in, you should be able to live on $50K a year . . .
 
Perhaps it is time to start another business to keep up your expensive lifestyle?  Or, do yourself a favor and seriously downsize, including your expenditures so you can easily sleep at night.
 
My god man, you've done amazing, put yourself in a position to not worry about anything!
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#9
If you was not coerced into retirement, accept your decision and think positive of all of the new possibilities -retirement is what we make it.

Stay in Budget, maintain 30 month expense/cash reserve and enjoy retirement without worries.
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#10
One of the better ways to sleep at night is to have a plan. I think you are headed there.

1) I think you are wise to consolidate real estate investing
and move to where you would like to stay. Simplify.

2) Realize that if the business that you sold is mis-managed or goes bust, that stream of funds will dry up. Nothing you can do about that without paying a huge premium that I don't think would ever be worthwhile. Are you going to be OK if that evaporates? OK doesn't mean being able to do everything that you would like to do. OK means being relatively comfortable. If not, can you develop a contingency plan that would get you there?

3) I try to keep a buffer of 3-5 years in safe cash or near-cash holdings. Personally a significant portion of our available cash flow across all our accounts comes from dividend payments from companies and ETFs that focus on company's that have long records of paying their dividends. While they are not guaranteed, (I probably shouldn't) but I tend to view those payments as near-cash. I also use iBonds to provide some inflation protected returns while avoiding the interest-rate risk that the principle of other bonds is exposed to when interest rates tend to rise. I don't want to take that money out unless we move into a prolonged market downturn. That money is there as a hedge to prevent us from having to sell assets when the market is down or falling. At least for a number of years. IMO, if you spend your reserves during normal times, they won't be there when you need them.
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