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Hello All!
I've been thinking about this one for a couple of days now (yeah, I know, I need to get a life). But since this is posted in the "land of busted retirements" and not "hoco-mania", I figured I'd post my thoughts on it.
I do not believe that Hocus' plan is qualified as a "busted retirement" as least not just yet. Having said that, it's not a plan I would have ever chosen, but I can say the same thing about the plans of some other board members as well (and vice versa I'm sure). I believe he is quite a bit better off than most his age, but he is definately not the poster child for the 'model' early retirement plan (if there is one).
I believe that Hocus IS FIREd at least for now and possible indefinately (but not with his current portfolio). My definition of financial independence is the ability to live off your passive investments without the need for any kind of job or employement. I also think there are many 'retirees' that work part time because they want something to do or they are doing something that is fun to them and maybe getting paid. If they can quit anytime they want, without affected their FI, I still say they are 'retired'. (Of course, there are plenty of so called retirees over 65 that are working because they are not financially independent.)
My reasoning that he may be ok is based on social security being there in basically it's current form for him. (I'm pretty sure it will not be for me, but it possibly will be for him).
The numbers I used to analyze his situation are:
Budget of $38,000 per year
Portfolio of $400,000
House equity $300,000
SS in 14 yrs of $14,400
Additional spouse SS in 16 yrs of $8000
Also, I assumed that in year 16, that his expenses would drop by $8,000 (due to children being 18 and assuming they are then on their own...a big assumption I know). It's just an estimate, who knows...
Further, I assumed that Hocus could keep his personal inflation rate to 2.5% or below. I know this doesn't appear to be the case over the last 5 years, but I hope it's because of the children.
I assumed a rate of return of 7.5% (5% real) for the portfolio and a 4.5% (2% real) return for the house.
I based my numbers on him selling the big house when the children reach 18 (or so) and having an additional 200K (in today's dollars) to invest, after purchasing a down-sized house.
I think that is about it.
Based on these numbers, firecalc gave Hocus about a 70% chance of success. While that's not a number I would chance things with, the odds are in his favor. Also, I think some of raddr's analysis, shows that withdrawal rates could possibly be higher with the right portfolio allocation (I assume this would yield a higher success rate over firecalc )
So, basically, I believe Hocus, or a family in this situation, WITH the right portfolio has at least a moderate chance of success. I know that Hocus wants to make money writing (I also know that hasn't materialized yet) and, I guess, is willing to 'flip burgers' if that doesn't work out. I just wanted to look at this from the standpoint of what advice would I give someone who found themselves in this situation.
If I made a mistake in my analysis, please let me know (just try to do it as if it's not hocus we are talking about )
CBB
Beachbumz
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