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45 and ready to pull the trigger!
Old 02-08-2019, 09:14 AM   #1
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45 and ready to pull the trigger!

Hello,

Want to introduce myself and share my situation/concerns with a community that gets it and hopefully get some good advice and cheerleading. I used to hang out on the Fool boards quite a few years ago and miss the FIRE community.

Anyway, Iím a government employee that has been planning on FIRE since I started 21 years ago. Made a few mistakes along the way that delayed me a bit (marriage/divorce/big house) but am still in pretty good shape. The last couple months Iíve had the epiphany that now is the time to cash in my chips and quit. I expect to pull the trigger in 2020. Hopefully not a victim of One More Year Syndrome but I want time to figure out a few things and I think the administration of my quitting will flow better at work if I wait one more year (Iíll try to max out my TSP contributions early in 2020 prior to leaving).

Situation:

TSP (401k equivalent): $700K
Roth IRA: $220K
Taxable Equities: $290K (about half of that unrealized LT gains)
Cash: $160K (home equity recovered)

Deferred pension will pay about $25K annually starting on my 60th birthday and be adjusted for COLA after that. SS calculator (not that I trust it to be there at all) seems to point to about $1400/mo starting at age 62 if I donít earn anymore.

I am 45 years old and currently renting a house. I intend to move this year and am debating purchasing a home (reducing my investable assets but also reducing my monthly cash flow slightly while protecting myself from rent increases) or renting an apartment for a while and possibly buying in the future if my assets grow in my ER.

Since my situation has changed so much recently with the house sale, I have to project my spending going forward without having a track record at this level. I estimate Iíll need about $42K/year to cover basic expenses (including healthcare obtained from the marketplace). Fortunately, Iíve been tracking my spending since 1998 so even though circumstances have changed a bit over the years, I have a pretty good idea how I spend.

Withdrawal strategies: Current thought is to live off of cash for a year or two which will allow me to figure out my true costs in retirement as well as find out how much I will earn doing whatever I want. ĖI imagine Iíll earn $5-10K a year doing something but donít want to count on any earned income in my planning. After that Iím all over the map, should I start a SEPP from my TSP (transferred to an IRA) which should cover most of my expenses (made up for as I burn down some of my cash) and let my Roth and taxable ride for a while (I do want to maintain my taxable assets for liquidity/emergencies and if I decide to buy a house), tap my Roth contributions next, and then my taxable investments. That should get me past 62 so I can end my SEPP withdrawals and have flexibility with my TSP. By then, the additional income from my pension and whatever SS may pay would be my cushion and I should have more than enough funds.

Knowing I'm almost there is a bit terrifying and exhilarating but I think I am in pretty good shape, I just need to figure out the details and get the courage up to make the leap (I am miserable at work).

Thanks for listening and for your thoughts suggestions!

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Old 02-08-2019, 09:31 AM   #2
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Welcome FLSUnFIRE! If you haven't found them already, we have a helpful list of things to think about before you make the leap:

Some Important Questions to Answer

Your plan seems a bit aggressive at first glance but if you are willing to w*rk part-time, that could make it do-able. With 15 years to go before your (smallish) pension, I think you are particularly exposed to sequence-of-returns risk, especially if you have any "lumpy" expenses in the early years (medical deductible for a major event, vehicle replacement, etc.)

You didn't mention your AA which is also important.

I'm sure you'll get more advice and we look forward to your participation here!
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Old 02-08-2019, 09:43 AM   #3
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Welcome! This is a wonderful site.
The questions posed in the link by MB were extremely helpful for me as I planned for retirement.
Have you run Firecalc or another retirement calculator and are you satisfied with their results?
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Old 02-08-2019, 10:12 AM   #4
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IMO, you're not close to there yet at 45 years young. Have you actually priced out health insurance? 42k a year INCLUDING health insurance just doesn't seem a realistic budget.
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Old 02-08-2019, 12:17 PM   #5
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Thanks for taking the time to respond; some additional info:


Quote:
I think you are particularly exposed to sequence-of-returns risk, especially if you have any "lumpy" expenses in the early years (medical deductible for a major event, vehicle replacement, etc.)
I think, especially, if I don't buy a house, the first couple years will be insulated from bad returns since I'll be paying cash. I don't have a lot of exposure to lumpy expenses. I currently own two vehicles (2002 Chevy and a 2016 BMW) and if one fails I will not need to replace it to meet my immediate transportation needs. I plan to sell the BMW around 2020 when it is still under warranty/maintenance contract to maximize the price I can get for it and not have exposure to maintenance costs of a luxury car. Depending on the market, I may be able to buy a replacement vehicle at no net cost. In addition, my projection of $45K includes a sinking fund of $200/mo towards a future vehicle purchase.


Quote:
You didn't mention your AA which is also important
Definitely a good point.. I may be a bit aggressive (mitigated somewhat by my large cash holding) as I am 100% equity other than cash and inclined to stay that way for now. Ideally, I'd hope to withdraw no more than 3% of the equity funds per year making up the balance with cash as needed. My tolerance may change and I may decide to adjust to something less volatile. I can also adjust my expenses some. $37K covers Food/Shelter/Health Insurance/Auto (which will go down when I cut out my 60 mile R/T commute) the balance is mostly entertainment and gifts.


Quote:
Have you actually priced out health insurance? 42k a year INCLUDING health insurance just doesn't seem a realistic budget
I currently have a HDHP and HSA which will have a value of about $30K in it in 2020. I intend to continue to contribute the full amount allowed into my HSA each year after I FIRE myself (the contribution is included in the $45K). Looking at the marketplace, I can get a policy close to the one I currently have (and my Dr accepts it!) for ~$450/mo without subsidies (included in the $45K). However, it should cost me closer to $100-150/mo if I manage my income smartly and get subsidized. The plan has a deductible and max out of pocket of $7,900/yr. With my current HSA balance, I am covered for the first few years from worst case of hitting my max out of pocket. Over time, the risk should decrease as I expect the HSA balance to increase as I am investing about half in the market and will contribute each year. -Typically, I pay my routine medical expenses out of my pocket and for normal stuff I will continue to do so when FIREd unless I need to tap the HSA. Projected annual expenses/allowance in my projected budget for medical is: Premiums of $5,400, HSA contribution of $3,600, routine medical/dental bills of $1,200 (spent before tapping the HSA) for a total of $10,200/year.


I'm pretty healthy and take care of myself with respect to diet and exercise... no guarantee but I try to increase my odds of an active healthy life. My job is definitely the most unhealthy thing I do regularly.



The one risk I am knowingly taking on is long term care.... Statistically, my odds are good at having an increasing portfolio and I hope to self insure. If I need it, I'll probably be happy that I retired early and enjoyed life before entering an institution.



Thanks again!
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Old 02-08-2019, 12:53 PM   #6
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Out of curiosity, what do you plan to do in retirement over the next 20 years? After rent/mortgage and HI, we're talking about ~2 grand a month to cover the rest of your expenses and whatever it is you plan to do in retirement. I couldn't come close to funding my lifestyle on that, but if you can.......it seems you've got your plan in place.
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Old 02-08-2019, 01:49 PM   #7
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Quote:
Out of curiosity, what do you plan to do in retirement over the next 20 years?

I enjoy being outside and active so I would ramp up those activities (paddling, running, cycling). I used to homebrew beer and have quite a few friends and acquaintances that now own breweries and pubs and may work for them for fun (extra money too but wouldn't be my prime motivator and not something I would count on). My parents and nieces and nephews are getting older and are about 900 miles away so I'd likely visit several times a year instead of once a year -my mother was recently diagnosed with Alzheimer's so I'd be able to help out with her when that point comes. I've helped tutor a few friends kids and enjoyed the experience and I may volunteer to tutor motivated kids born into crappy circumstances.



Fortunately, I live where other's vacation so I can enjoy vacation everyday for cheap but would still like to take advantage of cheap travel opportunities that are only available to those with time flexibility (last minute fares, etc) when they fit my budget.


My spending would be in line with what I spend now - the only thing I lack is time... any additional money ends up being saved so I can have more time.


Still need to fill in some blanks and make sure I'm not missing anything (hence jumping on the forum) and have the courage to quit. Keep throwing rocks at my plans!

Thanks!
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Old 02-08-2019, 02:55 PM   #8
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Quote:
Originally Posted by FLSUnFIRE View Post
TSP (401k equivalent): $700K
Roth IRA: $220K
Taxable Equities: $290K (about half of that unrealized LT gains)
Cash: $160K (home equity recovered)

Withdrawal strategies...After that I’m all over the map, should I start a SEPP from my TSP (transferred to an IRA) which should cover most of my expenses (made up for as I burn down some of my cash) and let my Roth and taxable ride for a while (I do want to maintain my taxable assets for liquidity/emergencies and if I decide to buy a house), tap my Roth contributions next, and then my taxable investments. That should get me past 62...[/FONT]
I would tap the taxable equities first and then the ROTH IRA. Since the SEPP is easy to mess up (and that comes with drastic penalties), why not let the TSP accounts continue to grow? I'm assuming that at least half of your ROTH IRA are contributions, which means you have about 3 years covered there with your projected expenses without paying taxes.

So my strategy would be minimize taxes and allow tax-deferred accounts to grow. I'd take out just enough from your taxable equities so that the distribution, minus your Standard Deduction (currently $12K single or $24K married) keeps you to an Adjusted Gross Income of less than $39.375K (single) or $78.750K (married, filing jointly). That way, your long-term capital gains tax rate on those gains is 0%!!! You could balance these withdrawals with ROTH IRA contributions, and end up paying no federal taxes for the first six or so years. Note that this may result in a higher tax bill later; but waiting on the SEPP would give you larger distributions as you'd be older, and the RMD would be a greater %. I'd recommend setting up a retirement spending spreadsheet with different rows showing where the income is taken from each year, and how much in taxes are owed on any taxable distributions. Good luck!
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Old 02-08-2019, 04:35 PM   #9
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I would tap the taxable equities first and then the ROTH IRA. Since the SEPP is easy to mess up (and that comes with drastic penalties), why not let the TSP accounts continue to grow? I'm assuming that at least half of your ROTH IRA are contributions, which means you have about 3 years covered there with your projected expenses without paying taxes.

So my strategy would be minimize taxes and allow tax-deferred accounts to grow. I'd take out just enough from your taxable equities so that the distribution, minus your Standard Deduction (currently $12K single or $24K married) keeps you to an Adjusted Gross Income of less than $39.375K (single) or $78.750K (married, filing jointly). That way, your long-term capital gains tax rate on those gains is 0%!!! You could balance these withdrawals with ROTH IRA contributions, and end up paying no federal taxes for the first six or so years. Note that this may result in a higher tax bill later; but waiting on the SEPP would give you larger distributions as you'd be older, and the RMD would be a greater %. I'd recommend setting up a retirement spending spreadsheet with different rows showing where the income is taken from each year, and how much in taxes are owed on any taxable distributions. Good luck!

I don't disagree - and I have lots and lots of spreadsheets and one is just as you describe! I guess I am a bit hesitant to draw down my taxable funds too soon beyond spending down my cash the first few years because that is my liquidity should I need it. If I spend down too much of my "touchable" money up front and then start SEPP and have a contingency come up that requires a sizable chunk of money I would have no liquidity to address the emergency.



How do others manage liquidity or am I worrying too much? I could maintain my cash balance (CD, MMF, High Yield Savings,etc) but I'd rather have more of my money working for me. If I decide to buy a house, I could tap the equity but then I'd be using my taxable funds to buy the house.
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Old 02-08-2019, 04:43 PM   #10
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Originally Posted by FLSUnFIRE View Post
I don't disagree - and I have lots and lots of spreadsheets and one is just as you describe! I guess I am a bit hesitant to draw down my taxable funds too soon beyond spending down my cash the first few years because that is my liquidity should I need it. If I spend down too much of my "touchable" money up front and then start SEPP and have a contingency come up that requires a sizable chunk of money I would have no liquidity to address the emergency.



How do others manage liquidity or am I worrying too much? I could maintain my cash balance (CD, MMF, High Yield Savings,etc) but I'd rather have more of my money working for me. If I decide to buy a house, I could tap the equity but then I'd be using my taxable funds to buy the house.
I think you are on the edge of having enough...working till 50 would put you on much firmer ground. If you had a paid-off house, I'd say you were fine, but the $160K will need to be spent for either a house or rent!
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Old 02-08-2019, 05:16 PM   #11
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welcome fellow ex-fool. Looks pretty close for the numbers since you have a really solid handle on your spending and healthcare costs. You are taking a similarly conservative take to me on will we eventually get SS, etc. (Gen-Xers not trusting the safety net, whaaaat?). I'm currently looking at 3% WR for a 60 year timespan retirement since I'm hoping to be done soon too.
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Old 02-09-2019, 09:34 PM   #12
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Welcome to the site. Looks like you already got great info.
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