Originally Posted by tophcfa
Wow Craig, I could write a book on this.
Ask yourself three critical questions.
Do I work to live, or live to work?
Do I have lots of interests outside of work that would keep me busy and am I willing to take on new interests as I age and can not necessarily do some of the things I currently enjoy?
Does my financial situation allow it?
Retirement was a no brainer for me. I worked to live, the day I got out of graduate school I was planning my retirement. I have more interests than the day is long, and have taken on new interests as my body ages and I can't do some of the things I used to love (skiing, basketball, hiking the white mountains, mountain biking in the woods, etc...). And I was/am fortunate to have adequate financial resources. I retired just before I turned 50 and am rapidly approaching 12 years of retirement. I could have retired much sooner if I was willing to take one of the several offers I had to work on Wall Street which would have increased my income multiple times. However, there was not enough money to get me to work long hours in NYC. Not living in a beautiful rural area, with a great school system, and being around to be a big part of our daughter growing up simply was not an option.
The way I looked at it, and still do, is every day I went to work was one day that I was closer to being dead and not doing the things I would rather be doing. Time is the most precious resource we have in life (along with health).
Craig, based on other posts I have read, you seem to be the type that has lots of interests and will not get bored, and you seem to be the type that worked to live. So it comes down to finances. Both the integrity of the financial model as well as the key assumptions put into the model, are critical to accurate projections. Since I am a finance guy (MBA with a concentration in Finance, CFA (Chartered Financial Analyst), and worked a professional career in the investment management field (managed fixed income mutual funds, the General Account of a Life Insurance Company, various structured finance vehichles, etc...) I built my own financial model and was very careful to put in conservative assumptions. The three critical assumptions are your expenses, inflation, and income sources/ investment returns. Based on that you can project future yearly sources and uses of funds statements and personal balance sheets.
I would advise the following regarding assumptions:
Expenses - Health Care is by far the biggest and most unpredictable expense until you reach 65 and become eligible for Medicare (assuming Medicare is still around and has not been gutted by politicians by the time 65 rolls around). Identify what other expenses are necessary as well as those that can be managed if necessary. Non manageable expenses are things like food, property taxes, utilities, energy prices, auto/homeowners insurance, etc... Manageable expenses are stuff like a travel and entertainment budget.
Inflation - This is the assumption that is the most difficult. Do not put in what the government publishes as the Consumer Price Index, that is a big mistake. This gets back to non manageable expenses. The main expenses for retirees are things like health care, food, homeowner and auto expenses including insurance, gas, utilities, associated taxes, and for me green fees. To make the assumption that these types of expenses will run at the rate of the CPI is a dangerous mistake. Actual inflation of these critical expenses runs in the double digits, and more some years. Inflation as reported by the government is a big lie, and it has to be or interest rates would correspondingly go up and every penny of revenue the government collects would go toward paying the debt service on our countries out of control debt. And that leads into the assumption about another mostly unmanageable expense, taxes. The debt of our country is unsustainable, so taxes have no where to go but up.
Income sources/investment returns - For most retires, the income sources include some or all of the following. Investment returns on savings and a 401K (traditional or Roth), Social Security, and pension. The only certainty is that you can spend your savings. Returns on your investments, as well as the future viability of both Social Security and a pension are a crap shoot. We all know about our governments unsustainable debt burden and the problems with adequate Social Security funding from an actuarial prospective, so counting on Social Security not being gutted is a big mistake. Pensions are another uncertainty. Most pension plans are underfunded and turbo charged with equity exposure and their viability will be stressed with a major long term correction of the equity markets. Also, since the equity markets are at or near all time highs and fixed income returns are very low, assuming a high ROR on your investments is very dangerous.
What does all this mean. Be very careful to make conservative assumptions in your financial model, including high inflation on non manageable expenses and returns on your investments. And don't hang your hat on Social Security and your Pension as being your primary source of funds in retirement.
If your financial model has you not running out of money until you're late 80's or 90's, using conservative assumptions, go for it. I have several friends and acquaintances who have died of heart attacks, cancer, and other nasty ailments while still working. Why wait? What good is having money when your body can no longer do the stuff that makes you happy. Enjoy your money now rather than being the old curmudgeon that has lots of money in their bank account and their primary expense is to pay someone to come and wipe the drool off your chin. One last piece of advise, responsibility and a happy retirement are at odds. By all means, follow up on your current responsibilities, but avoid new ones like the plague. When people ask me what I do with all my free time in retirement, my answer is whatever the fuc$ I please. Responsibility gets in the way with that.
Here is wishing you the best of luck : )
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