In the bell lap and don't want to chicken out

[Hnicols]

In my last year before retirement 54 Now plan to hang it up in December. *

Life has been good to me, but once I stop, no going back especially at these income level. *Make tons, but spend a fair amount. *Figure I want about 200k after tax annual, that is actually small percent of current income but I devote most of my money to savings and tuition for kids (about to end)

Will exit assuming market doesn't change too much. *Hard to cut the cord. *So looking for advice on how you all did it. *I watch people years my senior as they get within a few years of retirement run scared, less for money reasons and more because they are their job. *So far I amholding holding it together but can't decide if that is just because I am naive as to risk. *Guidance of all sorts appreciated.

Finance facts:*
Will close out year with almost 5 mill on head
2.5 in tax deferred rest in taxable. *
May be able to work some roth conversion strategies to reduce my tax load as I can have virtually nontaxable income if I choose for a couple of years. *So could conniver 50k a year without facing an effective tax rate north of 15 percent.*

Current investments 17% international 50% domestic (some dogs and cats in stock but all in close to s&p 500 with a modest current overweight financials and energy) 25% cash or cash equivalents and 8% bonds

Will get pension of *1000 month but no adjusting for inflation

No debt but prop tax, insurance of all sorts including health and utilities tv internet pushes me to about 60k fixed cost before I hit food clothes and fun. *So have some spend flexibility but reasonably high fixed nut. *But I live in the woods with lots of land so high prop tax but I like what I have got and I am not down sizing.

Wife does everything in moderation so sure to live'to 95

**Worried that I never have had financial stress as We have always made more than We need. *Hence the savings and no debt. But never had to deny ourselves anything so reasonably spoiled(helps that our wants run towards Chevys,trail horse, and family, *not jags and country clubs)

Read all this stuff about needing 70 percent of pre retirement income but think *and hope it is nonsense as I live well on what I am projecting at 200k annual -- aside from what I think of as exceptional kids cost -- *they are all out of house but you know how that is -- even once I have their colleges covered (Putting the last of three through college now) and I am close, they come with surprises and needs.

Also would like some guidance on what you all think ofnannutiites. *I know the buckets of money guy says cover half your nut with annuities is best, but I hat insurance like projects, always feel I am justmlettingothers make the skim and the though of taking a couple of mill so someone can rake format he top in order to put it where I would anyway makes me nuts - but that may be ego not smarts talking.

Sorry for length but looking to learn!

 

[Lazarus]

Welcome to the board.

Obviously you don't "need" 70% of your income to retire if you are a high earner. The median household income in the U.S. is about 50K. But you do need 100% of whatever you spend on your lifestyle. Sounds like 100K or so would cover you ok. Five mil at 4% would give you 200K so I would think you would have no problem.

I have nothing like the net worth or income you do but above average. I think I can do it on 50% of my present income.

 

[NW Landlady]

Welcome to the Forum!

+1 that you have a nest egg/net worth larger than most in this forum & if you can live on $200K annually or less, you should be OK...big congrats!

You can search the foum on annuities...most peeps here are not big fans although a few have them. When I took a look at them, it made more sense to buy bonds & live off that if I wanted regular income.

 

[Arnie]

Welcome and congrats! Have you tried the FIRECALC link at the bottom of the page? Educational.

 

[yakers]

Welcome,
you have enough financially because of you income and pension and eventually SS, but most of all because you have your costs covered. That is the ultimate test. And you have a wide financial margin to cut with perhaps some discomfort but no damage if the financial world were to get nasty.
A person is not their job unless they want it to be so. Nothing wrong with working if you want, financial independence is actually more important than retiring early or even late. It just highlights the fact that one is doing what they want to do and can no longer claim that they 'have' to do it. I liked work but retirement is better

 

[Hnicols]

Thanks

Thanks all for replies. *I gave the details I did because that is what the posting guidance suggested, certainly not meant as a who is biggest. *And i don't want my post to *be off-putting. *You can trust that where I am doesn't tell you anything about where I have been * (although where I have been certainly helped to drive me to get to where I am ending up, and really helps me to appreciate my luck along the way.)*

Strikes me that fundamental issues of can I make it aren't different for anyone. *What i want is unfortunately completely scaled to what I have. Especially if you believe in the 4 percent withdrawal guidance. *And what strikes me as exactly the same as everyone else are the fears of am I doing something too early?*

How do/did you overcome those doubts (reinforced by friends pointing out that those who retire in their mid fifties are generally doing so in their wheelhouse years when their earnings are generally the highest)? *We all know stepping back into the workforce, if we call it wrong, is tougher at 55 then 45. *

And how do you wind down from the workaholic pattern that i am sure got at least some of you to where you were before you took the leap? *Love to hear what some of you did in your last year before sailing free to convince your selves to push off from the dock. *Any thing that you found especially helpful as you transitioned into the pace of retirement? *Big surprises that hit you?**

*I plan to start scouting these threads pretty hard, but any particular threads you would recommend? *Books or articles that you found especially useful? *

And to those who have been ten years or so in retirement, I found the suggestion in the firecalc planning tool that expenses scale down as we age intuitively appealing and sensible. But what has your real world experience suggested?

And on the 4% withdrawal rate, seems to me that ought to have some sort of tax caveat. *Because of where I draw from in the early years, 4% is met just fine as I need 4% on the head. *But about 10 years in I start seeing tax effect approaching 25% effective. *That means i have to do about a quarter more 250 instead of 200 to meet the same after tax spend. How does that effect guidance? *I thought the firecalc tool was pretty good, but produces results more favorable to me than the fidelity retirement income planner, which I always thought was quite sophisticated. *Why such a difference? *Could be the tax effect?*

On roth comversions, taxes get high for me down the road (and likely higher for all of us if as a nation we ever start addressing the deficit). *So I am thinking about converting say 50k a year from iras to Roth and paying the 15 percent effective rate now to avoid the higher tax later. *My draw for the first four years for me can come from after tax cash so I will have almost no taxes owed for those years. *Accelrating Ira conversions into that period would seem to optimize whatni have. *Any of you looking at that? *See downsides? **

Sorry for all the questions, and tHanks all for the welcome to the forum. *Look forward to the learning. * **** *

 

[travelover]

Welcome.

Just a comment - your post is long and our attention spans are short. If you don't get all the questions answered that you asked, repost again with shorter posts and one or two questions per post. Also check out the FAQ and search function, as the same questions continue to reappear - we all face similar dilemmas.

 

[Lazarus]

No need to apologize for being successful.

 

[REWahoo]

Hnicols, welcome to the forum. Sounds to me like you have some really good (as in I wish I had them ) problems to sort out.

Two suggestions:

- check out some of the threads in the FAQ section. Given your situation, you might find this one especially informative: http://www.early-retirement.org/forums/f29/handling-the-just-one-more-year-syndrome-20091.html

- See if you can locate a container of "canned air" and blow out your keyboard. Looks like you have a stuck "*" key.

 

[Hnicols]

Thanks

REWahoo -- thanks so much. That is a great thread. Feel like I just spent a week in therapy.

 

[REWahoo]

Glad you found it useful. As you can see, many people have been down the trail you're on.

 

[Hnicols]

Hit 55 tonight at midnight.....hit freedom ( ER) 61 days after that! But who is counting.....

 

[Trawler]

Welcome to the board.

On the conversion to Roth during lower income years is part of our plan.
The amount each year will be determined by that years tax brackets and will convert as much $$ as we can unitl we would hit a higher bracket. The only issue with accelerated conversions I see are lost opportunity cost on the tax $$ paid earlier and the possibility tax laws and brackets could change dramatically by the time we are ready to do it.
Over the long haul the lost opportunity cost is an offset to tax free WD later. It can also provide living $$ if needed prior to 59.5 with out the 10% early WD penalty if we meet the seasonong requirements.

Not yet fired and looking forward to responses to your other questions.

 

[Hnicols]

Thanks. Like I said, I have been lucky so I have the time until 59.5 covered but your opportunity cost point is a good one.

As to the other (that tax rates s may change), that is only a risk if they reduce them below 15 percent ....... somehow I don't think that is too likely

If you want some guidance on a Roth conversion plan, take a look at i-orp.com as it has a calculator that actually builds in a roth conversion strategy. Suggests to me that with my deductions I may be able to roll almost six figures over each year without violating 15 percent bracket.

My current thinking is to do that from 55 to 66 At which point I will have exhausted my taxable accounts, will be able to use my tax deferred accounts hopefully without getting too crushed on taxes and will have SS kick in as a supplement (we hope).

 

[Sirka]

My current thinking is to do that from 55 to 66 At which point I will have exhausted my taxable accounts, will be able to use my tax deferred accounts hopefully without getting too crushed on taxes and will have SS kick in as a supplement (we hope).

I looked at the conventional wisdom, but came up with this plan:
1. draw down the After-tax account first and convert enough IRA into Roth IRA each year to fill up the 15% tax bracket
2. draw down the Roth IRA second (as needed), while making RMD from IRA
3. draw down the IRA last to minimize taxes

In order to level out taxes paid over time, money taken from the IRA before it is needed, should be stored somewhere:
1. Roth IRA
2. After-tax account
3. The IRA itself, by keeping a limited amount in the IRA until the very end.

The essential element of the optimal plan is that when the tax situation is favorable money is withdrawn from the tax-deferred account and transferred to other types of accounts and later those accounts supplement tax-deferred withdrawals to meet spending requirements.

There is lot more info and research papers you can use for 'your' plan. Just Google: Withdrawals for the IRA/After-tax Scenario

 

[Hnicols]

Thanks. Sounds close to the same. Will look at the google search you suggest.

The only add I want to think through is estate planning -- may be reasons to leave it in Roth to avoid taxation then but don't have to make that call till after 66.

You been retired since 05?

 

[Sirka]

Yes, I Fired at 55. It's been great, in spite of the bad market. Next year I will start my S.S. and face the higher taxes. That is the big unknown: 85% of SS will be taxed and the rate will probably go up.

 

[FreeAtLast]

Welcome to the forum. I just retired last month at age 59.

 

[Hnicols]

Congrats to both of you. I have 60 days left and look forward to it. Confess to still being nervous but I have burned the boats so there is no going back. Someday I will figure out what comes next. Advice on how you did that appreciated as well.

 

[obgyn65]

Welcome.

Re: annuities, I like the concept but you will find plenty of people here who don't like them...

Also would like some guidance on what you all think ofnannutiites.

 

[walkinwood]

Welcome.
Look at this thread for peoples expenses as the years pass
http://www.early-retirement.org/forums/f28/how-much-did-you-spend-in-2010-a-53971.html

and search for similar threads from earlier years.

Knowing your expenses in DETAIL is one of the key things to successful ER - not only financially, but also for peace of mind. If you are not recording every $ of expense, start now & build a history so you can look at any new expense in relationship to past experience.

In my experience, getting off the hard-work-grind is not difficult if you are curious and have some interests outside of work. It is harder to accept the loss of status (or whatever you want to call it). You are no more an executive, owner, manager, engineer or whatever-you-were that commanded respect in an organization. In social settings, you'll hear people talk about work & you may find yourself giving them advice. But, you're not in the game any more, and your input will not have the same weight as it once did (irrespective of the accuracy of what you're saying). That is hard to see and accept.

On the other hand, your stress levels will fall drastically. You'll have the time to take care of yourself - health, food, family, friends, spiritual, community - you name it, and you'll have time to do it.

Once last piece of advice. Don't over commit your time. Relax for a year or so and then decide how you want to divide your time - if at all.

All the best. The best years are ahead. Always ahead.

 

[Hnicols]

As to annuities, I understand, I think, some of the reasoning behind annuities but can't bring myself to paying others a skim For essentially promising to give me back the money I gave them minus the time value of money. And yes I know it is possible they will return more than that, although the annuity companies come with offsetting credit risk too. All in that leaves me a bit frozen as I debate adding annuities. Scares me not to have them but here is how I rationalize what I am doing.

I look at my modest pension (about 12 percent of my desired income) and my eventual social security (about 12 percent more) as an annuity weighting to my portfolio. When I think of my asset allocation (about 65 percent equities) I measure the percentage against all sources dedicated to funding my retirement (so I include in my portfolio the present value of my pension and socialsecurity). Allof this means I am pretty heavy equities. So to balance risk and keep from going crazy in this volatile market I have my first four years of retirement covered in current money market accounts so I am not watching the market bounce everyday. A weird approach I guess but it keeps me thinkingmedium to longer term and since I have to protect a 40 plus year retirement that seems right to me.