Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Hi, Trying to figure out early retirement
Old 04-23-2018, 06:19 AM   #1
Dryer sheet wannabe
bfrank12's Avatar
 
Join Date: Apr 2018
Posts: 16
Hi, Trying to figure out early retirement

Hello, I am 52 and planning for early retirement after 2019. There are so much information about it and it can be overwhelming to determine what to do. The plan for full retirement for my spouse is 2024. In have determine the income need for each year and estimated that it should be okay to retire.
We plan to use taxable account to meet income need for few year and then at spouse 67yr withdraw from 401k. Estimation included less than 3% withdrawal yearly and 75% Social security income at 70 years. Return for 401k are 4%. Perhaps I should use a lower return number. The questions that I have are the mechanics.

1)How to handle sequence of return risk before retiring and the first decade.
2) the bucket approach vs rebalancing. Kitces article said yearly rebalance may be better.
3) The value of cash in low bond and low equity market. I plan to us I-Series US treasury and US Bill and ladder these. Since the yield curve is flattening is this a better source on fixed income investment to avoid sequence return risk?
4) I am thinking about Roth conversion after 2024 from 401k to avoid tax for later year when RMD increase income for both spouses.

I have 2 children. One has graduated and another has 2 more years in college. I have been working 29 years since graduation from college. I am not sure that retiring early will create a stigma for me for "not working." Reading the website have been very helpful to understand the many issues of early retirement. Thanks.
bfrank12 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 04-23-2018, 07:27 AM   #2
Full time employment: Posting here.
Whisper66's Avatar
 
Join Date: Apr 2014
Location: Houston
Posts: 957
There are so much information about it and it can be overwhelming to determine what to do. The plan for full retirement for my spouse is 2024. In have determine the income need for each year and estimated that it should be okay to retire.
Work but don't overwork the numbers. There will be lots and lots of guesswork. So just use your best judgement and get a feel for (a) how comfortable you are with your analysis and (b) what would your "plan B " be if you ran into more challenging times in retirement than you expected. Quick runs on Firecalc (tool on this site) are excellent at helping in this analysis.

We plan to use taxable account to meet income need for few year and then at spouse 67yr withdraw from 401k. Estimation included less than 3% withdrawal yearly and 75% Social security income at 70 years. Return for 401k are 4%. Perhaps I should use a lower return number. The questions that I have are the mechanics.
Thats a reasonable basis. Also consider inflation if you haven't already. For example, I use 5% average return but 3% average inflation for a net 2% real return. That feels quite conservative to me but my numbers work out so I didn't take it any further than that. Plus I rerun I-ORP and FireCalc tools each year to reset our allowable maximum budget. So we'll adjust if my early calcs are off by much.

1)How to handle sequence of return risk before retiring and the first decade.
Run Firecalc for your situtation. Firecalc runs a multitude of cases as if you retired at various years....some including bad sequence of return years. Look to see how many of those runs "fail" (ie, you run out of money before you pass) and consider what you could do in those situations. Normally it just means you need to be prepared to cut back expenses to some level that gives you results you are comfortable with.
2) the bucket approach vs rebalancing. Kitces article said yearly rebalance may be better.
It's a personal preference. Many here in both camps. IMHO - The method of withdrawal is seldom going to be the key issue on if you have enough to retire. Flexibility / control of expenses when/if needed is probably the most important for most of us. We rerun I-ORP and Firecalc each year to recheck where we are and will adjust expenses if needed to stay comfortable in retirement.
3) The value of cash in low bond and low equity market. I plan to us I-Series US treasury and US Bill and ladder these. Since the yield curve is flattening is this a better source on fixed income investment to avoid sequence return risk?
Most here recommend some number of months available in cash (I have 6-9) and the rest of your fixed assets in a relatively safe form of investment such as the treasure / us bill ladder you are looking at. Mine is in a less conservative place (bond funds) but everyone's situation and comfort level is different.
4) I am thinking about Roth conversion after 2024 from 401k to avoid tax for later year when RMD increase income for both spouses.
I-ORP (free online tool) is a good way to consider the impact of using Roth conversions. I run this yearly to decide how much to convert. Since I've retired (so low income now) and have high amount of savings in a traditional IRA, it makes sense for me to convert some yearly. I-ORP considers conversions in optimizing how much tax you pay over your lifetime. In addition to this, I am converting to allow my kids to inherit some of our money without having to pay taxes on it.
Whisper66 is offline   Reply With Quote
Old 04-23-2018, 09:02 AM   #3
Moderator
MBAustin's Avatar
 
Join Date: Jul 2010
Posts: 7,925
Welcome bfrank12! Congratulations on getting close to FIRE! If you haven't found them already, we have a helpful list of things to think about as you prepare to give notice:

Some Important Questions to Answer

Personally, I think the most important things are to understand your necessary vs. discretionary expenses and be willing to adjust discretionary to help with sequence of returns risk, and to decide on a strategy for asset allocation and rebalancing and stick with it. There is no one right answer!
__________________
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute." William Feather
----------------------------------
ER'd Oct. 2010 at 53. Life is good.
MBAustin is offline   Reply With Quote
Old 04-23-2018, 09:23 AM   #4
Full time employment: Posting here.
 
Join Date: May 2017
Posts: 797
Quote:
Originally Posted by MBAustin View Post
Welcome bfrank12! Congratulations on getting close to FIRE! If you haven't found them already, we have a helpful list of things to think about as you prepare to give notice:

Some Important Questions to Answer

Personally, I think the most important things are to understand your necessary vs. discretionary expenses and be willing to adjust discretionary to help with sequence of returns risk, and to decide on a strategy for asset allocation and rebalancing and stick with it. There is no one right answer!
+1 Fully agree with this. Expenses and Consistency in your strategy are such a huge part of RE.
brokrken is offline   Reply With Quote
Old 04-23-2018, 12:19 PM   #5
Thinks s/he gets paid by the post
 
Join Date: Jul 2015
Posts: 1,103
How are you handling health insurance??
__________________
Living the dream...
FreeBear is offline   Reply With Quote
Old 04-23-2018, 06:42 PM   #6
Dryer sheet wannabe
bfrank12's Avatar
 
Join Date: Apr 2018
Posts: 16
Thanks for everyone's responses. It seems that retirement requires the same common sense approach before retirement. I never though of implementing plan b or at what point to stop running the numbers. I will look into the I-ORP calculator. I am not sure with the new tax law if there has been any changes. I used a 3% return on investment and 2.5 % inflation. For the healthcare portion I hope to purchase health insurance through the government's FERS retirement benefit.
bfrank12 is offline   Reply With Quote
Old 04-25-2018, 12:32 AM   #7
Recycles dryer sheets
 
Join Date: May 2017
Posts: 256
Quote:
Originally Posted by bfrank12 View Post
Thanks for everyone's responses. It seems that retirement requires the same common sense approach before retirement. I never though of implementing plan b or at what point to stop running the numbers. I will look into the I-ORP calculator. I am not sure with the new tax law if there has been any changes. I used a 3% return on investment and 2.5 % inflation. For the healthcare portion I hope to purchase health insurance through the government's FERS retirement benefit.
Don't you usually have to be at least 56 to retire from the federal government with the option of buying health insurance?
NomDeER is offline   Reply With Quote
Old 04-25-2018, 06:43 AM   #8
Dryer sheet wannabe
bfrank12's Avatar
 
Join Date: Apr 2018
Posts: 16
Yes, my spouse has the FERS benefit. The minimum years of service at any age is 25 years for voluntary retirement. The age requirement is 62 yrs to receive FERS retirement benefit without a reduction penalty. He currently has 31 years of service and 2024 is a tentative earliest date for his retirement when he will be 62. I am learning slowly about the different benefits from FERS. My husband likes to work and does not think about retiring so I was not informed about FERS benefits until I started planning for retirement. Thanks for your response.
bfrank12 is offline   Reply With Quote
Old 04-26-2018, 01:17 AM   #9
Recycles dryer sheets
 
Join Date: May 2017
Posts: 256
I'd consider looking at your husband's TSP G Fund for some of the fixed income portion of your portfolio. Also, if he isn't currently doing a Roth TSP, he might consider doing that when you retire if your tax bracket is going to be lower.
NomDeER is offline   Reply With Quote
Old 04-27-2018, 08:05 AM   #10
Dryer sheet wannabe
bfrank12's Avatar
 
Join Date: Apr 2018
Posts: 16
Great suggestion. I realized that the 401k will supply at least 50% of income need in retirement. Given a long time horizon and an article I read about schiller pe/10 I changed my estimate for return on investment to 3% instead of 4%.
But I have not figure how to best preseve income in 401k and also decrease tax consequences in my portfolio.

I have no background in finance and are learning as I am going along. I have learn from some mistake such as buying long term US treasuries and thinking they are always safe.

I will have a higher income and tax when RMD and Social security occurs for both spouse.
ROTH 401k is a very good idea .
Should some income be going to Roth ira because of step up basis ?
I plan to go to 60/40 allocation on 401k 7 years before withdrawal. I realized that I have a long time horizon if I take early retirement. That is why I like to read about other's experiences.
Thanks.
bfrank12 is offline   Reply With Quote
Old 05-17-2018, 07:34 PM   #11
Thinks s/he gets paid by the post
HI Bill's Avatar
 
Join Date: Dec 2017
Posts: 2,534
After you turn 59.5, you may want to start withdrawing funds from the 401(K) each year, to minimize the RMDs when you hit 70 (and SS earnings will be taxable). I'm planning to start with $24K annual withdrawals from the 401(k) at 59.5, which equals the $24K annual exemptions for 2 (so it's essentially tax-free). Prior to that, I'm planning to take out $24K distribution from an inherited IRA (essentially without penalty, as the decedent was over 59.5). You can take ROTH distributions of the principal tax-free anytime, and distributions on earnings tax-free after 59.5. Anyway, there are a lot of things to juggle when trying to minimize the tax bite. I never realized until 2 years ago, the tax value of having both taxable and tax-deferred accounts. You could also consider taking SEPP payments from your 401(k) if needed.
HI Bill is online now   Reply With Quote
Old 05-17-2018, 07:42 PM   #12
Thinks s/he gets paid by the post
HI Bill's Avatar
 
Join Date: Dec 2017
Posts: 2,534
Quote:
Originally Posted by bfrank12 View Post
But I have not figure how to best preserve income in 401k and also decrease tax consequences in my portfolio.
I believe it's best to decrease the 401(k) balance by taking distributions when your tax rates are lower. Once you start taking RMDs along with SS, your income tax bracket may be higher. I'd start to distribute money from the 401(k) at the earliest possible age (59.5), re-investing what you don't need to spend in taxable accounts. That way, your tax basis starts over, and your 'return of principal' won't be taxable.
HI Bill is online now   Reply With Quote
Old 05-22-2018, 04:11 PM   #13
Dryer sheet aficionado
Mark24609's Avatar
 
Join Date: Feb 2012
Location: Newark
Posts: 47
Quote:
Originally Posted by bfrank12 View Post
Hello, I am 52 and planning for early retirement after 2019. There are so much information about it and it can be overwhelming to determine what to do. The plan for full retirement for my spouse is 2024. In have determine the income need for each year and estimated that it should be okay to retire.
We plan to use taxable account to meet income need for few year and then at spouse 67yr withdraw from 401k. Estimation included less than 3% withdrawal yearly and 75% Social security income at 70 years. Return for 401k are 4%. Perhaps I should use a lower return number. The questions that I have are the mechanics.

1)How to handle sequence of return risk before retiring and the first decade.
2) the bucket approach vs rebalancing. Kitces article said yearly rebalance may be better.
3) The value of cash in low bond and low equity market. I plan to us I-Series US treasury and US Bill and ladder these. Since the yield curve is flattening is this a better source on fixed income investment to avoid sequence return risk?
4) I am thinking about Roth conversion after 2024 from 401k to avoid tax for later year when RMD increase income for both spouses.

I have 2 children. One has graduated and another has 2 more years in college. I have been working 29 years since graduation from college. I am not sure that retiring early will create a stigma for me for "not working." Reading the website have been very helpful to understand the many issues of early retirement. Thanks.


There is not a stigma per se of retiring early. If wife is working, what will you do? Kids will be leaving. There is a certain amt of disconnect you may feel from the world. Your network of people will go. I say if you can afford it don’t withdraw more than 2% of your portfolio or the 10 year yield risk free rate which is currently 3%. Your portfolio should last into perpetuity
Mark24609 is offline   Reply With Quote
Old 05-22-2018, 04:21 PM   #14
Recycles dryer sheets
MikeWillRetire's Avatar
 
Join Date: Apr 2012
Posts: 216
Quote:
Originally Posted by bfrank12 View Post
Yes, my spouse has the FERS benefit. The minimum years of service at any age is 25 years for voluntary retirement. The age requirement is 62 yrs to receive FERS retirement benefit without a reduction penalty. He currently has 31 years of service and 2024 is a tentative earliest date for his retirement when he will be 62. I am learning slowly about the different benefits from FERS. My husband likes to work and does not think about retiring so I was not informed about FERS benefits until I started planning for retirement. Thanks for your response.
If he has 31 years, he can retire once he hits his minimum retirement age (probably 56) without a reduction in his pension. But he wouldn't get a cola until 62.
MikeWillRetire is offline   Reply With Quote
Old 05-23-2018, 09:02 AM   #15
Dryer sheet wannabe
bfrank12's Avatar
 
Join Date: Apr 2018
Posts: 16
Thanks again for your input. I see that I have to learn the details of FERS and spousal benefits before actually retiring early.

The most basic assumption is the calculated amount needed to fund retire.
The confidence in this number can be confusing since results varies based on input and calculator programs. Also I have read the blog on the article if 3 million is not enough to retire.

It appears that there are different results with different retirement calculators : the I-ORP, New Retirement, and esplanner.

However I assume by planning ahead it should prepare one's portfolio to last for retirement. I think the following steps will enable to plan for all market conditions.

1) Withdrawal amount is $25,000 per year less than the calculators result
2) maybe working a little longer
3) maintain a 60/40 equity/bond portfolio
4) low withdrawal rate 2% until 75yrs
5) To alleviate sequence of return risk allocate a spending plan for first 10
years using a 60/40 equity/bond portfolio.
65% bucket 1&2 portfolio will supply living for first 10 years.

I hope that by educating myself about the subject and having confidence in my plan that I can stop worrying and enjoy early retirement.
Thanks
bfrank12 is offline   Reply With Quote
Old 05-23-2018, 12:16 PM   #16
Thinks s/he gets paid by the post
HI Bill's Avatar
 
Join Date: Dec 2017
Posts: 2,534
Sounds very conservative and achievable to me, with very little risk (other than risk you can't control). My only question is whether you have a strong handle on your budget...you seem to have worked out the income portion!
HI Bill is online now   Reply With Quote
Old 05-23-2018, 02:24 PM   #17
Dryer sheet wannabe
bfrank12's Avatar
 
Join Date: Apr 2018
Posts: 16
Yes, I have tracked my expenses for a 1&1/2 years.
All bills in credit card balance, plus bank account, and cash adds up to expenses. I don't pay attention to food budget or other expenses because they are in credit card balance that automatically gets paid off monthly .


We saw an advisor last year and she said we can retire now.
But then I realized I forgot to include taxes in my budget and also her projection did not have taxes on the RMD.

So I created an excel spreadsheet to include 75% social security benefit, FERS benefit amount already deducted for taxes and health insurance cost, projected taxes on RMD based on projected growth of retirement portfolio, 3% return on investment , 2.5% inflation for cost of living and deduct portfolio balance based on yearly source of income.

The only issue not address is long term care. I hope to retire early to maintain health with less mental and physical stress.
I have provide financially for my family for many years with 2 jobs income and was able to be there for my family during the week by working flexible schedule. I am cautious but think I will make the move to retire early.
bfrank12 is offline   Reply With Quote
Old 05-23-2018, 04:10 PM   #18
Recycles dryer sheets
texcurtis's Avatar
 
Join Date: Oct 2014
Posts: 125
Quote:
Originally Posted by bfrank12 View Post
Yes, I have tracked my expenses for a 1&1/2 years.

All bills in credit card balance, plus bank account, and cash adds up to expenses. I don't pay attention to food budget or other expenses because they are in credit card balance that automatically gets paid off monthly .





We saw an advisor last year and she said we can retire now.

But then I realized I forgot to include taxes in my budget and also her projection did not have taxes on the RMD.



So I created an excel spreadsheet to include 75% social security benefit, FERS benefit amount already deducted for taxes and health insurance cost, projected taxes on RMD based on projected growth of retirement portfolio, 3% return on investment , 2.5% inflation for cost of living and deduct portfolio balance based on yearly source of income.



The only issue not address is long term care. I hope to retire early to maintain health with less mental and physical stress.

I have provide financially for my family for many years with 2 jobs income and was able to be there for my family during the week by working flexible schedule. I am cautious but think I will make the move to retire early.


Might look into LTC that your spouse can get (pay for) as a govt employee. I found the rates competitive when I researched it years ago.
texcurtis is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Trying to figure me out Pavo Young Dreamers 27 05-08-2009 05:26 PM
Trying to figure out Ameriprise fees and my options hunger FIRE and Money 17 05-01-2009 01:44 PM
25 and trying to figure out which direction to take... Perd Young Dreamers 12 10-09-2008 09:25 PM
FIREd 2 years ago, and still trying to figure it out harley Hi, I am... 10 06-30-2008 01:00 PM

» Quick Links

 
All times are GMT -6. The time now is 07:47 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.