From 2017 until early 2018 I ran a series of ten case studies for readers who volunteered to open their books and serve a real-world safe withdrawal rate guineapigs. The second case study in July 2017 was for Captain Ron (not his real name) who was planning to FIRE and enjoy early retirement with his wife on a sailboat! That title picture you see up there, that’s their actual boat! Sounds like a great adventure, not just the financial aspects but also the lifestyle changes are daunting! So, how did that all go? Captain Ron just sent me an update on how life has been, so Ron, please take over the wheel…
We retired in September 2017 as planned and are really enjoying life. Financially things are great and we have adjusted to the sailing life, but that first year of cruising was a surprisingly difficult transition. More on that later.
First, an update on our finances. Our Net Worth has grown from the $3.135M at the time of Big ERNs case study (June 2017) to $3.481M today. Here’s an asset allocation as of today:
We took your advice to sell our house. My wife insisted we list the house for more than I expected to get and as usual, she was correct. We sold for $939k which is the range I didn’t expect it to reach until about 2020. Selling the house ourselves (FSBO.com) saved a little on closing costs (3% on the selling agent side). After paying all FSBO fees, closing costs and remaining mortgage, we netted $569k in Oct 2017. To date, we have invested $250k into Vanguard (VHDYX=Vanguard High Dividend Yield Index Fund). About $25k went towards initial boat projects when we moved aboard in the fall of 2017. The remaining added to our cash reserves (Ally Bank, 2.2%) and we are using it for our day-to-day expenses. I will probably get dinged for having so much cash but it does two things for us: (1) by not having to sell stocks for spending money, we keep our taxable income lower and have more room for Roth conversions, (2) I can invest into our taxable account if/when the market dips.
[ERN: Nice job! Very impressive numbers! We have a similar situation in that we sold our condo, moved a large chunk in our options trading account but also kept some of the money in a money market fund at Fidelity to be used for purchasing our house later in 2018 as well as living expenses in 2019. So, no need to “get dinged” because we did something very similar! As long as you keep your equity allocation at 70%+ you’re OK!]
Speaking of day-to-day expenses, I track our expenses on a monthly basis and compare to what the variable withdrawal rate formula says we can spend, with a=1.5% and b=0.5.
[ERN: Just to provide a little bit of background: Ron is using the CAPE-based withdrawal rule, where he adjusts the SWR every month, depending on equity market valuations. See my SWR Series Part 18 for a primer on CAPE-based rules and why I like them so much!]
I pasted those monthly numbers below. I know your case study said we could increase the value of “a” from 1.5% to 2.5%, thus allowing about a 4.25% withdrawal rather than 3.25%. However, we decided to leave “a” at 1.5 and see how that went. I’m happy to report that in 2018 our actual spend was 2.77% which is well below any of the numbers proposed or calculated. It not surprising either that we find that $93.5k a year is plenty even after big expenses like insurance (boat, medical) and boat storage. We are living a really full life and it’s nice to have some surplus there should anything come up.
[ERN: Nice! Thanks for the detailed time series! This illustrates why I like this rule so much. For example, from the 2018 equity market peak, the S&P500 dropped by almost 20%. But your allowable withdrawals fell by only a few percents in the fourth quarter. The CAPE-rule takes into account that the market was much more attractively valued at the end of 2018. Of course, the flipside of this rule is that in light of the impressive gains in the stock market so far in 2019 you can raise your withdrawal amounts, just not as much as the market gained!]
We completed our first Roth conversion last year. The fall of 2017 was incredibly hectic so I didn’t do anything with respect to our retirement accounts until 2018. Once back in the states after our first cruising season, we had easy access to mail and the internet. I had our various 401k plans transferred out and consolidated into Vanguard Traditional and Roth accounts for each of us. In the last week of 2018 when I could assess how much income we had accumulated from interest and dividends, I did a Roth conversion for my wife of $67,500. This used up the remaining space we had in the 12% tax bracket. I will continue to do these conversions to the top of the 12% bracket and am pondering whether it would be worthwhile to expand into the 22% bracket. Perhaps this is something that you might have an opinion on?
[ERN: You should go for the Roth conversion into the 22% bracket if you are reasonably confident that you will hit the 22% bracket again later in retirement due to RMDs from your 401k. I remember from the case study that you were certainly a candidate for this with a very large 401k that might eventually grow big enough to create that dreaded RMD issue! And Roth conversions become even more attractive if you believe that marginal taxes will be higher in the future – a pretty reasonable assumption, looking at the budget deficits these days! An additional rationale would be the prospect of eventually moving to a different state with an income tax. Make good use of your Florida residency where you can avoid state income taxes!
But be advised that there’s no point doing aggressive Roth conversions now and going deep into the 22% or even 24% bracket now when this completely wipes out the entire (or close to the entire) 401k after a few years and you live almost completely tax-free later in retirement and pay 0% taxes later.]
I had a tough lesson learned with our 2018 taxes. It was our first full retirement year and I didn’t have any federal withholding performed on our dividend income. As a result, the dividend, interest and Roth conversion income resulted in a tax bill of $5,775, including a penalty of about $200 for underpaying so drastically. For 2019 I have scheduled quarterly payments and will keep better tabs on our tax burden.
[ERN: Good reminder! But a bit too late, of course, because the deadline first deadline for the 2019 tax year was on April 15. Here in the ERN household, we’ve calculated our expected tax bill (as well as I could) and made our first estimated tax payment!]
Insurance is a big cost for us so I’ll include it here. From Oct 2017 to Dec 2018 we used an ACA bronze plan costing about $800 per month. The pricing reflects our new home state of Florida for two healthy, non-smoking individuals age 47 and 46 in 2018. For 2019 we decided to drop the ACA plan and instead use a plan more suited to our transient life. For $2,500 annually we are now covered by an IMG international medical insurance plan that requires us to be outside the US for at least 6 months of the year but provides domestic and international coverage. ACA only covered us in the US. We will be in the US only 3 months in 2019.
Boat insurance was about $2,300 annually for 2018 but geographically limited to the coastal waters of the US and extending south to Turks and Caicos. In 2019 we switched underwriters to increase our cruising grounds. The cost jumped up to $5,600 but this is also somewhat inflated because we will store the boat inside the hurricane zone this summer (Fajardo, Puerto Rico) and we asked them to increase some liability limits.
So from a financial perspective life is good. My monthly financial review provides the insight needed into our spending without being too burdensome. It’s not surprising that we found our expensive months are when we are working in the boatyard (Sep, Oct) making significant investments in repairs, upgrades and spare parts that will cover us for the rest of the year. Months spent provisioning the boat for cruising season (Jan 2018, Nov, Dec) are obviously expensive as well. Our cruising months let us live well below the budget (Jan 2019, Feb 2018/2019, Mar 2018/2019, Apr, May) even though I drink plenty of pina coladas. Traveling around the US (June, July, Aug) we essentially spent what the budget allows. I didn’t keep monthly totals for the remainder of 2017 after we stopped working. We allocated $25k towards boat projects (spent it) and just spent as necessary for the transition to boat life, probably about $5-7k additionally per month.
Finally on to boat life, which is likely what your readers are more curious about. We drastically underestimated the amount of change we would have to digest when moving aboard and becoming cruisers. Nearly every aspect of our life changed:
- Mother Nature rules. Daily checks (or more) are required to keep us and the boat safe. Also, just knowing what weather was ok and what required action took a bit of learning, some the hard way. Suitable weather and location for being at anchor at night is one skill. Picking suitable times to sail to a new destination is another.
- Boat system use. We left without fully understanding our electrical system, autopilot, radar and probably a few other systems. Sure we could have stayed in a slip somewhere studying the manuals or doing day sails, but instead we did some OJT learning. We have manuals for everything and are both capable. We did know how to sail (took ASA sailing classes 101,102 and 104 back in 2013) but even learning the specifics of our new-to-us boat was an adjustment.
- Boat system maintenance. This one will never end as we are constantly learning. It’s amazing what you can figure out using the manuals, YouTube, Google and other cruisers’ knowledge. We do nearly all the work ourselves. Just to list a few items from our first season we: replaced the fuel tank, replaced the engine raw water impeller, replaced the external voltage regulator for the alternator, adjusted the shaft stuffing box, replaced the galley sink drain pump, replaced the head including cleaning and painting the old holding tank, lubed the propeller, fixed the fiberglass securing the anchor locker, replaced sacrificial anodes, fixed several deck leaks and associated rotted deck, oil changes for the engine, and replaced our solar panels. There’s always something to do on the boat.
- Daily life items have all changed. The stove uses a solenoid that is turned on and off to allow propane flow (it was broken when we moved aboard and I had to replace it). The sinks use a pump that has to be turned on and off to drain them. The water comes from a foot pump and is limited to 82 gallons (we use about 20 gallons a week for washing. Our reverse osmosis water maker supplies us with fresh drinking water). Our bed is smaller with an overhanging ceiling that we can’t seem to stop bonking our heads into. The toilet is a composting head that requires us to monitor #1 and #2 so that either can be dealt with (3-4 days for #1, 3-4 weeks for #2). We “shower” in the cockpit. There is about 1.5 square feet total of food prep space in the galley (kitchen). The fridge likes to freeze things close to the cold plate and let things farther away spoil. There are probably just as many other things I’m not thinking of but you get the idea. It’s not that any of these things are impossible to deal with, but it’s just a lot of things to get used to.
After we survived our first year I read in a cruising book that moving aboard is much like the culture shock people experience when visiting or moving to foreign countries. There are several ways to deal with that shock and stress, and it took us that first year to figure out what worked. Certainly, time helped us adjust, communication was key, and building upon a few successes brought confidence. Sometimes just surviving was enough to learn about our limits and the limits of the boat (she’s much better at coping than we are). We also recognize that we have a really healthy budget in retirement which means we can afford to solve a problem with money. Sometimes that means hiring an expert to fix a problem or do a repair we find gross (toxic bottom paint), or hiring a guide to help with language barriers, or buying a used iPad and associated apps so that we have a dedicated iPad for boat navigation and weather planning. Less successful coping mechanisms we tried were, in no particular order: arguing, alcohol, swearing, and ignoring the problem.
We are absolutely loving this lifestyle and will continue to cruise on the sailboat for the foreseeable future. It has an amazing community which we were instantly welcomed into. Cruising life certainly gave us plenty to do and satisfied the advice you hear about “retire to something.” We are also happy with our approach to cruising seasonally, meaning that during hurricane season (July 1 – Nov 30) we store the boat someplace and leave for other travels. Last year that was traveling around the US. This summer we’re going to spend a few months in Europe. And while we both worked hard at our previous careers, neither one of us were the types whose personal identities were intertwined with our careers. It’s no surprise that we do not miss working one single bit.
I’d highly recommend boat life but give yourself a couple years to make sure you can get past the adjustment phase. I’m happy we did. It still feels new to us though and sometimes we can’t help but grin when we look around and realize we sailed our boat to that day’s particular anchorage. For example, this photo is from a beautiful anchorage in the Bahamas. And last week we anchored on the north coast of the Dominican Republic all by ourselves at one of the most beautiful spots we’ve seen so far. Hopefully, we’ll meet some other Big ERN readers and retirees out here someday on their own boat.
And back to ERN: Thanks for the update! I’m glad you’re doing well with your finances. Not that I had too many doubts back in 2017 when we did the case study. As I indicated in the original case study, your particular situation would allow for an additional full percentage point in your SWR thanks to the substantial additional cash flows coming your way (pension, Social Security). Your main “problem” might be too much money later in retirement, especially when the RMDs kick in. That’s a good problem to have, especially as a hedge against health expenses later in life. Happy and smooth sailing for many years ahead!
35 thoughts on “Where are they now? A Case Study Update with “Captain Ron””
Hi. A quick comment about paying estimated taxes. My tax guy said federal taxes aren’t due until a Roth conversion happens, so no need to pay estimated taxes all year and no concern about a tax penalty. Not true for Maine state tax though. I am paying quarterly estimated tax in anticipation of converting to the top of the 12% bracket.
Nice! That’s good to know!
Of course, the tax liability for Ron comes not just from the Roth conversions but also from dividend, interest and cap gains income. So, everybody, better get your butt moving with the estimated taxes! 🙂
Nice update from Captain Ron! I have been using the same CAPE-based SWR with 1.5 and 0.5 since I FIREd in 2015 and my net worth today is higher than four years ago. A 20-30% market drop would actually not change my SWR in $ by much based on my current asset allocation. That boat life sounds fun!
It’s good to hear other folks are using the CAPE based formula with success.
Yes, boat life is fun most of the time. Yesterday’s slog into big seas and wind was a reminder that it’s not all pretty sunsets and daiquiris. But when it’s good it’s really amazing!
Hi Capt’n Ron! Great to hear from you! A good reminder that even the most fabulous-looking lifestyle can have its more mundane moments! Best of luck sailing through FI and FIRE!
Nice! Thanks for sharing. That’s exactly my thinking. Your initial SWR is a bit low but at least you hedge against big drops! Thanks for confirming with real-world data! 🙂
An excellent article – a great lesson in what happens when a largely theoretical retirement plan encounters reality!
Key thing I noted is the amount of significant changes in the period (<2 years) since the plan was drawn up e.g. tax rates, house sale, allocation to cash; and implementation of what looks much more like a floor plus upside approach – to name just four!
My own experience (I "retired" about the same time as Captain Ron) has included a similar level of change – albeit in different areas.
So, in essence, a really good illustration of just how important monitoring is to the retirement planning process and a great indicator of the level of flexibility any practical retirement plan must support.
Thanks, Al! But looks like your post was cut off?!
It’s great to read a case study update and know that they are doing well financially and in other aspects of life.
I had given notice to retire early next month. But plans changed and my new director at work asked me to stay longer since a co-worker was retiring and there are a lot of projects going on this year. I agreed to stay till early next year…guess I have the OMY syndrome. I regret staying when I have stressful crappy days but I guess it gives me an opportunity to save up a bit more.
Please ignore this thought/encouragement if it is not helpful.
I see the words ‘regret, stressful & crappy’ in your post. My guess is that you are in regular pain while working. I can’t be sure, but possibly your ‘heart/mind/body’ is asking you to stick to your original plan.
There is a lost opportunity cost to OMY. Who can you become if you are not working?
Guy M – The decision to stay OMY wasn’t an easy one. I had planned my exit from corporate cubicle life to coincide with getting a puppy and starting a blog just for fun. When the puppy didn’t happen (I’m on a wait list for a puppy next year) and knowing that I was a bit nervous with the stock market volatility in December last year, I decided that it wouldn’t hurt to save a bit more. The good news is that I know I can still walk away from this job if it really becomes intolerable or negotiate something better if the company I work for really needs my help.
I recognize that I’m an internet stranger. Please do me, and you, a favor and go to your local shelter. If you can go and not adopt a loving companion then keep waiting, but I don’t think you’ll be able to. There are so many loving animals waiting. Please save a life.
Very good advice! 🙂
Nice! I remember your case study! You will do great with the extra time of savings/contributions! Best of luck! But don’t go overboard (pun intended) with the OMY! 🙂
Where do I get monthly CAPE values?
I FIRE’d July 2018. Everyday I feel grateful to Joseph R. Dominguez, Monique Tilford, and Vicki Robin for starting me on the path.
After reading this article I added a spreadsheet to ERNs SWR tool that mirrored Ron’s table. I got my data from:
Nice link! Thanks!
If you’re using Google Sheets you can do this:
=query(IMPORTHTML(“http://www.multpl.com/shiller-pe/table”, “table”, 1), “SELECT * LIMIT 1”)
That formula seems to generate an error in my sheet. Any way to fix this? Would be greatly appreciated! 🙂
It’s a problem with the smart quotes. Hopefully, the following cut-and-pastes correctly:
=query(IMPORTHTML(“http://www.multpl.com/shiller-pe/table”, “table”, 1), “SELECT * LIMIT 1”)
Robert Shiller has the whole time series at
Especially this link:
I’ve been using this site as I need the CAPE for the UK Stock Market: https://www.starcapital.de/en/research/stock-market-valuation/?SortBy=Shiller_PE
I like starcapital as a quick international comparison. Very nice link!
I love this! We are currently doing the RV life until our dogs pass, at which point I hope to switch to a sailboat.
SWR and real life spending are my favorite topics that I can’t get enough of. Keep it coming Big ERN.
Nice! Best of luck with the RV trips! Let me know if you ever want to share your financial and RV adventures here! 🙂
Big ERN, in the article you have a little blurb where you are discussing his cash holdings and you say “as long as you keep your equity allocation at 70%+ you will be ok”. I’m curious where the 70%+ comes from? Was that a specific recommendation for this case study or is that your general rule of thumb for people trying utilize a 3-4% safe withdrawal rate type strategy.
For most early retyirees I’d recommend 70-80% equities to sustain a very long retirement. I played around with the Google Sheet (see SWR Series part 28) to calibrate the asset allocation to minimize the failure rate of my WR and you’d end up with an ideal equity portion around that value.
But it’s not a universally optimal weight. It could be higher or lower depending on personal circumstances.
Thanks for the update. Sailing is on my list of FIRE adventures and reading your story gives a sense of what that may be like. Also, nerdy side bonus, I got to googling sacrificial anodes after reading your post and it is a super interesting side topic for those engineers and tech nerds that may be reading
Nice! I feel the same but since I don’t trust myself on a sailboat I’ve only done the Royal Caribbean cruises so far. Probably safer for non-engineers like me! 🙂
Love this update as our retirement adventure likely also includes extended sailing on our 43’ sloop. Especially appreciate the insight re international health coverage options/boat insurance beyond coastal waters. And also Karsten’s general endorsement of a 70/30 stock/bond allocation. Probably won’t sell the home in CA, but will rent it out instead as it’s otherwise unencumbered, in a great school district/family oriented community, and we benefit from legacy Prop 13 tax rate (1994) that would triple if we were to simply downsize.
Given that all one’s home furnishings never fit on a boat, did you sell/gift/store your possessions?
I’ve been planning to use the CAPE withdrawal strategy, and I love the spreadsheet Ron has here. What I’m struggling to figure out is: let’s say over the course of the year you perform withdrawals according to need, and calculate the delta from the CAPE “allowed” amount. If you end up in the positive, would you consider that delta to be “funny money” to play with the following year?
Good question. The original CAPE-based rule assumes that you consume the excess and cut your spending when times get tough. Personally, I’d prefer putting any excess into a “rainy day fund.” Then you avoid cutting withdrawals in the next bear market! 🙂
What a lovely spreadsheet! @CAPT’N RON, do you mind sharing it please? 🙂
Just wondering why one would keep cash reserves in a fully taxable savings account when similar yields can be achieved in an at least partly tax free treasuries money market account?
Convenience/liquidity, I presume.