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41 and had enough of work
Old 05-23-2014, 06:32 AM   #1
Confused about dryer sheets
 
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41 and had enough of work

Hi everyone, my apologies if this isn't an interesting post, but I'm new to online chat forums like this. I'll stumble through it eventually. My situation:
41 yr old with 38 yr old wife, two kids 8 and 9 yrs old.

net worth about 8.5M
equities 30%
vanguard intermediate term tax exempt: 30%
401K 50-50 stocks and bond funds: 10%
farm land 25%
5% cash
150K in 529 plans
spend 8K/month
no debt

My mind and health aren't holding up to the long hours I've put in last 14 years and I no longer value income as the only priority in life. I'm changing my outlook to being more like enough is enough rather than we can never have enough. So, I have taken on partners with a 10 year phase out plan which allows me to work less... and make less income. I am here because I enjoy the topic of investing and out of fear that I can afford to execute my phase out plan.

My specific question: Firecalc seems to be used by people on this board and it seems misleading to me. Please tell me if I'm looking at it incorrectly, but with no variable input for taxes, aren't the numbers meaningless? It doesn't appear that allowances for tax on dividends, bond interest, capital gains... nothing is ever paid out on the portfolio gains so the error is magnified every year as money that would be due for taxes continues to compound.

thanks!
Oh, what does GW stand for on other threads?
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Old 05-23-2014, 06:44 AM   #2
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FIRECalc considers taxes to be an expense. The calculator deliberately omits taxes for that reason and because they are 1) complex 2) vary significantly by individual circumstances and 3) are constantly changing. You need to estimate your personal tax bite then factor that into the gross annual income you will need in retirement.

"GW" doesn't ring a bell for me. Can you link to where it is used?
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Old 05-23-2014, 06:46 AM   #3
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Experts will come along shortly but FIRECalc does not model taxes. When using it you should estimate future taxes as best you can and input them as expenses. There are other retirement calculators that do model taxes. Search the forums.
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Old 05-23-2014, 06:50 AM   #4
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From the creator of FIRECalc:

Quote:
Why don't you have a space for taxable portfolio and another space for nontaxable portfolio?

FIRECalc ignores taxable versus nontaxable portfolios right now. Since it only uses historical data to determine how a portfolio would behave, with no guesses by anyone about what will happen to inflation, market performance, and so forth, and we don't have historical tax rates for the period for which I have market data, I can't add tax planning without changing the philosophy of the program. Just planning on x% tax rates would make all the historical examples meaningless, when changing tax rates would have at least some effect on the market returns.
If I can figure out how to do this in a way that would not corrupt the results, I'll do it. For now, I prefer to leave the tax planning portion to programs like www.i-orp.com -- an outstanding tool!
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Old 05-23-2014, 07:10 AM   #5
Confused about dryer sheets
 
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Thanks for replies. I had read all the info on the firecalc page, but I didn't think to add estimated taxes to expenses. That would seem to resolve the problem for the first year, but if your nest egg grows by more than you spend and more than inflation, it would seem that there would still be compounding error as the dollars which should be going to taxes every year are counted as reinvested. It would seem that the annual expenses escalation simply tied to inflation would over time lead to a misleading high portfolio value. It is a very interesting tool and I do realize its purpose isn't to give you exact numbers but just a sense of where you stand. I was just making sure I wasn't missing anything. Thanks!
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Old 05-23-2014, 07:24 AM   #6
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Quote:
Originally Posted by Landro View Post
I am here because I enjoy the topic of investing and out of fear that I can afford to execute my phase out plan.
You might be interested in this: Some Important Questions to Answer Before Asking - Can I Retire?
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Old 05-23-2014, 08:49 AM   #7
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If your expenses, excluding taxes, are $96k a year you are probably good to retire with your assets. That is only a 1.1% withdrawal rate.

One good way to incorporate taxes is to do a pro forma return as if you were retired (excluding any earned income and with other adjustments based on changes in retirement). Ditto for your expected numbers in 10 years, 15 years, etc.

Another thing you can do as a check is have Vanguard do a financial plan for you and also take a look at Financial Engines (available through your Vanguard account).
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Old 05-23-2014, 09:37 AM   #8
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Landro…Congrats on amassing 8.5M at such a young age. You're in a great shape to stop working anytime…96K/8.5M is about 1.1% WR. Why put in 10 more years? My only suggestion is that you increase 529 plan…at least 200K/Kid…College cost go up by 4-6% per year and who knows your kid may opt for Masters or Med School(8 years).
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Old 05-23-2014, 10:20 AM   #9
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Landro…Congrats on amassing 8.5M at such a young age. You're in a great shape to stop working anytime…96K/8.5M is about 1.1% WR. Why put in 10 more years? My only suggestion is that you increase 529 plan…at least 200K/Kid…College cost go up by 4-6% per year and who knows your kid may opt for Masters or Med School(8 years).
Or they may opt for something different and you have a bunch of $$$$ stuck in a 529 plan.
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Old 05-23-2014, 10:35 AM   #10
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I'll answer with a different approach. Congratulations on reassessing your priorities and looking to make a change. Great job on accumulating the assets and getting a succession plan in place.

My only question is why wait 10 years? Speed that up and slow down before you have physical or mental effects. It sounds like your job takes a big toll on your mental and physical health. Having a lot of money and bad health is no real advantage. Get out of that and start repairing your health issues, so you can live long and enjoy your family and retirement for many years.

Your spending may seem high, but not sure where that is allocated to. It may or may not be sustaining for long term.
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