I Think I Can

[FishingGuy]

Hello Everyone,
I found this wonderful site and here I am introducing myself and my financial situation to ask for your opinions on my exit plan.

Me - 54, Working at a high-pressure MC, would like to ER in March 2019.
DW - 52, Federal govt employee, planned ER in 2024.
Twins (boy/girl) - Daugther first year in a local university, Son first year in community college (free tuition in CA)
and plan to transfer to the same local university in 2 years.

Current Finance
---------------
Combined 401K - 1.65M
Cash Saving - 150K
College 529 - 150K, almost enough for the 4yrs. They're on their own for grad school , will see.
House - Paid off (~1.2M)
1 Rental - 300k equity, current value 600k, ~0 net income
DW current salary - $150k/yr
DW govt supplement in 2024 ER - $21k/yr until 2029 (regular SSI at 62)
DW govt pension in 2024 ER - 40k/yr
72T early withdrawal at my ER next year - 24k/yr

Projected living expenses (Everything - necessities and fun) - $98k/yr (Very nice to live in SoCal but the sunshine is very expensive)

I ran through FIRECALC and some other finance calculators and they all seemed to look good. But I still feel very uneasy to pull the trigger. Here's where I need more pair of eyes for a sanity check.

Thanks very much for reading.

 

[bingybear]

why are you doing a 72t? If DW makes more than spending, would it not be better just to use her income to live on? In this way you are not paying tax on both her income and the 72T (you likely will pay on one or the other, but why do both?

 

[FishingGuy]

You're right, we may not need to use the 72T. According to our calculation, we may be a little tight with just her net salary after 401k and tax. This will be an option we can do if need to. We'll wait for a few months post ER to see if our projected expense is correct. We probably use some of the reserved cash (150k) first.
Thanks,

 

[Aerides]

I think you can too. Someone will be along with a handy list of links for "can i?" type questions for new members.


Two questions:
What's your plan for the rental? Is it worth the bother or do you plan to keep it for a 2nd home later, or are you waiting for a good time to sell?

Obvs your wife staying working makes sense given her pension etc. Have you talked about that? Even if you think it'll be fine, and she has said "it'll be fine!", no really, have a plan. There are a few threads about what happens when one spouse ER's and the other doesn't, and it really depends on your family dynamic, and self-awareness goes a long way to making that a success. Pro-tip: You don't want to be napping on the couch when she comes home after work.

 

[WyomingLife]

Hello Everyone,
I found this wonderful site and here I am introducing myself and my financial situation to ask for your opinions on my exit plan.

Me - 54, Working at a high-pressure MC, would like to ER in March 2019.
DW - 52, Federal govt employee, planned ER in 2024.
Twins (boy/girl) - Daugther first year in a local university, Son first year in community college (free tuition in CA)
and plan to transfer to the same local university in 2 years.

Current Finance
---------------
Combined 401K - 1.65M
Cash Saving - 150K
College 529 - 150K, almost enough for the 4yrs. They're on their own for grad school , will see.
House - Paid off (~1.2M)
1 Rental - 300k equity, current value 600k, ~0 net income
DW current salary - $150k/yr
DW govt supplement in 2024 ER - $21k/yr until 2029 (regular SSI at 62)
DW govt pension in 2024 ER - 40k/yr
72T early withdrawal at my ER next year - 24k/yr

Projected living expenses (Everything - necessities and fun) - $98k/yr (Very nice to live in SoCal but the sunshine is very expensive)

I ran through FIRECALC and some other finance calculators and they all seemed to look good. But I still feel very uneasy to pull the trigger. Here's where I need more pair of eyes for a sanity check.

Thanks very much for reading.

Welcome aboard, and nice planning. If FIRECalc says you're good to go, I would feel comfortable. Some observations nonetheless.

1. It looks like after your DW ER's in 2024 at age 58 (in six more years), your $98K/year expenditures (which are fairly high) exceed pension-related income of about $61K/year at least until she reaches age 62. So you would be tapping your retirement savings, at least in part, for several years (which explains the 72t).

2. If #1 is correct, have you thought about: (a) how solid your estimates are of post-RE costs (you did not provide a specific budget breakdown)?; (b) health care costs until each of you reaches age 65?; and (c) the reliability of the pensions?

3. I thought federal employees of that vintage were in TSP, not on a pension. I am no expert though. You are putting a lot of faith in government "supplemental" and "pension" funding aspects that aren't clear to me for several years post DW turning 58. If they are federal, I suppose that is more reliable than state or local. Or maybe she did a stint as a state employee at some point? Teacher?

4. Are you walking away from MC-provided health care next year? Make sure you are making that decision thoughtfully, as it could be a hit of ~$20-30K annually thereafter until age 65 (or at least after DW exits the workforce at age 58, and you both presumably have to self-fund HC until age 65). You both are healthy?

5. I know it is an option, but since I'm cautious having to go the 72t route would make me slightly nervous as it suggests some budgetary tightness, as you have already noted. Still, if the math works and FIRECalc is looking good, then ....

6. Does your plan count on selling the rental property or tapping the equity of your home? Again, those are valid tools, but doing so early in your RE journey would make me slightly nervous again. Separately, I read an article today about a rent control ballot initiative in California that could impact the value of rental properties in that state.

7. I assume you have looked at the SS impacts of you both leaving the workforce when you plan to do so. It is most likely you both will be beyond the proverbial "second inflection point" (or whatever that is called), so you should be fine in that regard. Still, it might be something to specifically nail down.

8. We moved from HCOL to LCOL as a further financial back-up plan. But that choice isn't for everyone.

 

[SecretlyFI]

I don’t think he’ll need the 72t between the time when his wife retires and when she turns 62. When she retires in 6 years he’ll be 60 and have regular access to 401k funds.

I agree with tapping the cash reserves if needed before that-much simpler than 72t. Maybe secure a HELOC before you retire in March just to have another backup source for cash in a pinch.

 

[FishingGuy]

Thanks for the all the comments so far. The best one, it's funny but I'm taking it seriously, is the tip from Arides, "Pro-tip: You don't want to be napping on the couch when she comes home after work." We already talked and she's the one who keeps on encouraging to do it. In any case, dinner will be on the table when she comes home, cooked by a fairly good 'chef'.

Rental house - Plan to pay off in about 10 years and then enjoy the income. I can tap into it if I need to or give it to my S&D. So the rental income would be a nice bonus to our plan but we don't want to count it in the calculation for now.

DW has to work until 2024 to qualify for her "pension", it's a guaranteed federal lifetime annuity called FIRS. Separately she also has the normal 401k (TSP).

Our expenditures estimation is fairly conservative, therefore the high 98k/yr. It would support our current lifestyle. It includes normal bills, unplanned cars & house fix, entertainments, hobbies, travels, and the lifetime govt subsidized HC costing 9k/yr (yes year). Saying 'a little tight' I meant it does not include charities or unplanned items (>$500) that we can live w/o. I counted the 24k/yr 72T withdrawal just to make it even more conservative in FireCalc.

Yes, moving to LCOL is one of our backup plans. We love our current house/area and will try to stay here as long as we can, financially, or until we cannot walk up the stair anymore.

 

[cnocmmz]

Hello Everyone,
I found this wonderful site and here I am introducing myself and my financial situation to ask for your opinions on my exit plan.

Me - 54, Working at a high-pressure MC, would like to ER in March 2019.
DW - 52, Federal govt employee, planned ER in 2024.
Twins (boy/girl) - Daugther first year in a local university, Son first year in community college (free tuition in CA)
and plan to transfer to the same local university in 2 years.

Current Finance
---------------
Combined 401K - 1.65M
Cash Saving - 150K
College 529 - 150K, almost enough for the 4yrs. They're on their own for grad school , will see.
House - Paid off (~1.2M)
1 Rental - 300k equity, current value 600k, ~0 net income
DW current salary - $150k/yr
DW govt supplement in 2024 ER - $21k/yr until 2029 (regular SSI at 62)
DW govt pension in 2024 ER - 40k/yr
72T early withdrawal at my ER next year - 24k/yr

Projected living expenses (Everything - necessities and fun) - $98k/yr (Very nice to live in SoCal but the sunshine is very expensive)

I ran through FIRECALC and some other finance calculators and they all seemed to look good. But I still feel very uneasy to pull the trigger. Here's where I need more pair of eyes for a sanity check.

Thanks very much for reading.

Something to consider is the supplemental SS for your DW most likely will NOT be there.
-You do not mention if you will have a defined guaranteed pension just the DW's? Unless I am missing something, you will have to make up 58K in guaranteed income to reach your 98K budget at least until you can claim your SS?
-College Grad school? We all say they're on their own, but in reality REALLY
-I know you like SOCAL; however, since the home is paid off you could move and almost have no mortgage at much cheaper area and live very well.
* Overall you can make it but I would recommend look at it hard.

 

[AprM]

DW has to work until 2024 to qualify for her "pension", it's a guaranteed federal lifetime annuity called FIRS. Separately she also has the normal 401k (TSP).

Have you asked DW whether her agency is preparing for a VERA/VSIP? Some federal agencies will allow her to retire early but consider it "on time" in order to lower their numbers on board and not have to conduct a reduction in force (RIF). Her eligibility will depend on how many years of service she has. Additionally, if you can get her VSIP portion approved (voluntary separation) they will actually pay her to go. Payouts range from 25-40k before taxes. Something to think about.

 

[HI Bill]

If you're retiring when you are between 55 and 59.5, can't you take penalty-free withdrawals from the 401(k) [not IRA] instead of using 72t?

 

[MBAustin]

Welcome! Here's the list of questions referenced earlier:

Some Important Questions to Answer

Have you considered some part-time or seasonal work to give you a little cash cushion while DW is still employed? Home Depot, helping a CPA with tax returns in season, Uber/Lyft, etc. - lots of options to think about. Overall, if you are willing to be flexible, you're probably good to go. We look forward to hearing more!

 

[Ready2Go]

If you're retiring when you are between 55 and 59.5, can't you take penalty-free withdrawals from the 401(k) [not IRA] instead of using 72t?

I was going to ask the same question. Many plans have an ERA (early retirement age) of 55 and allow partial withdrawals at any time after that. You'd have to be 55 when you separate from service though.

 

[Dtail]

If you're retiring when you are between 55 and 59.5, can't you take penalty-free withdrawals from the 401(k) [not IRA] instead of using 72t?

That is correct and I took one distribution at 57 yo.

 

[FishingGuy]

My wife said it is very certain that she will get the supplemental SSI. If at the small chance that her supplemental SS goes away, then I guess we will have to fall back on our backup plans for a few years (withdraw more from 401k, rental house, moving ...).

Only my wife has the pension. We will have to use our 401k for various amounts for the in-between years until we both get our SSI. Even when we're at SSI age, we still have to withdraw the calculated ~10k-15k/year.
She likes to work and her job so she not ready to quit yet. She will get the full benefit when she hits the 30 years.

I did not know you can withdraw between 55-591/2. No need for 72t. I will look into it.
Yet another option.

I plan to take at least 6-12mo to enjoy ER, work on the house, and then anything goes including part-time work.

My ER plan is a little complicated so I really appreciate your patience.

Whew, so far no one shoots me down yet. I think I can ...

 

[HI Bill]

1 Rental - 300k equity, current value 600k, ~0 net income

Are you keeping this for the appreciation? As someone looking to RE, I'd be selling this, and inveseting the proceeds into something requiring less work, and possibly, with less risk.

 

[FishingGuy]

For now, I'm keeping it because it is appreciating very nicely. My plan for the future is to give it to my S&D or use it as income. I don't want to count it as part of the plan for now.
Yes, your suggestion is an option to consider.

 

[Franklin]

Fish, from one SoCal guy to another. U are good to Go!!I know its a bit freaky to jump but your numbers are sound. Like u I have used this site as a sounding board....the members make good sense. My DW has caught me napping a few days (she is still working) but about 2 or 3 days a week she calls and ask if I can do lunch Life is good.

 

[targatom2019]

Jus do it, tuna fishing has been hot in SoCal [emoji1]

 

[Cayman]

Welcome Fishing Guy. You look good to go - kudos. You might consider opening an equity line if you don't have one yet. And hang on to your wife - she's terrific to encourage you to RE.

 

[Ready2Go]

That is correct and I took one distribution at 57 yo.

Not every retirement plan has a 55 ERA and not all plans allow partial w/d's. I am in the retirement biz and while many do have these provisions, not all do...and it is not a requirement.

 

[rodi]

Seconding the suggestion to see if your 401k allows for early retirement withdrawals... Some do, some don't. Some are similar to 72Ts where you need to take periodic, equal, payments. Some allow random withdrawals. Talk with your 401k plan administrator.

Seconding the suggestion to line up a HELOC before you pull the trigger. We have yet to tap ours (4 years into retirement) but it's nice to have that safety net. We found a HELOC that we only had to pay for the appraisal - no fees, points, etc.

Have you run it through firecalc?

Does your $98k include income taxes (state and federal).

Having a paid off house in SoCal is nice... We paid off our house and I don't count it in my nest egg calculations... Just include the $0 mortgage in our budget. (Did you account for property taxes, insurance, maintenance on the house.) Selling the house and moving to a lower cost of living location can be a plan B or C.... It doesn't have to happen unless you need it.

 

[MRG]

Not every retirement plan has a 55 ERA and not all plans allow partial w/d's. I am in the retirement biz and while many do have these provisions, not all do...and it is not a requirement.

+1

The SPD generally has it defined if the plan supports the rule of 55. Mine did and was described under hardship withdrawals. Then the administrator has to allow for partial withdrawals.

Mine had all this and I took 12k out yearly since retiring.

 

[FishingGuy]

Hi All Again,
An update. I just turned in my resignation letter today and 4/11/19 is my last w**ing day, hopefully for life. I was a difficult and emotional decision, even after countless times looking at the numbers. This forum has helped me make the decision, so thank you all. If it is not working hour I probably go and have a beer ... but wait, I can go, I know I can.

 

[targatom2019]

Congrats, I am also in Socal, turning 50 this June and will pull the plug in July.

 

[FishingGuy]

Thanks Vipertom, and early congrats to you. See you on the party boat.