Saving money will give you more options when you retire, but if you leave the workforce too early, you can end up returning to your former job, if it's available. That's the reality a 45-year-old husband risks if he quits his job right now.
He posted some financial details on Reddit and asked if he can semi-retire or take a different career path in a decade. Redditors asked him several questions that made him think twice and reflect on how life can change within 10 years.
Expenses Can Change
The original poster didn't include any information about his annual expenses, but after requests from the comments, the husband said that the family spends roughly $150,000 per year. That's equal to half of their combined $300,000 annual income.
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The couple owes $280,000 on a $525,000 home and doesn't have any car payments. Once the mortgage is paid off, the couple will have more financial flexibility. However, a few expenses will change before the couple pays off their mortgage.
They have two teenage kids who will need cars soon and will eventually go to college. Both of those financial decisions represent significant expenses that may require the husband to work for more than 10 years. One commenter also mentioned weddings and grandkids as additional expenses that will come up in the future.
Making The Nest Egg Last
The Redditor has a $750,000 401(k) balance and a $450,000 brokerage account. That comes to $1.2 million, excluding home equity, and most of the brokerage account is allocated toward the S&P 500. He invests $1,000 per week into the brokerage account.
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If the couple can still invest $1,000 per week for a decade, and they don't have to pull from their investment accounts for college or cars for their teen kids, they will invest an additional $520,000 in a decade. Investing in the S&P 500 has been a reliable strategy for many years, and if the nest egg continues to grow, the couple will have more options when the husband turns 55.
To avoid running out of money, the couple should start with their annual expenses and reverse engineer how much money they need in their retirement accounts. Using the 4% withdrawal rule, a couple that spends $150,000 per year should have a $3.75 million portfolio before they both retire. Using the safer 3% withdrawal rule requires a $5 million portfolio.
Calculating The Impact Of Healthcare And Part-Time Work
It's unlikely that the couple has a $5 million portfolio in a decade unless their assets perform very well. A $3.75 million portfolio is challenging but feasible in 10 years since the couple has $1.2 million and invests $52,000 per year.
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A part-time job may be feasible if the couple continues to invest $1,000 per week over that 10-year stretch. The important thing about the 10-year timeline is that both teenage kids will have graduated college at that point. However, if the couple has to pull funds from their brokerage account, it makes it harder to tell if the husband can switch to part-time work at 55.
While many Redditors asked about the couple's expenses, one Redditor specifically asked about healthcare.
"What will your monthly expenses look like in 10 years? How will you get health insurance before qualifying for Medicare at 65?" the commenter asked. "That could easily cost a couple thousand a month for two people."
Waiting until Medicare at 65 or looking for a part-time job that offers healthcare can preserve the couple's nest egg and give it additional mileage.
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