Looking to FIRE in 2018/2019

[Downtown]

Would love to get some feedback on our retirement plans as they begin to take shape.

Current ages: me 53, DW 53
Target retirement ages: me 54, DW 54
Life expectancy used for planning: me 95, DW 95

Anticipated Retirement Spending:
-$110,000 per year (we’ve been living off this ballpark amount last 2 years)
-Rough breakdown = $70k non-discretionary/$40k non-discretionary

Includes
-$20k healthcare (COBRA, then ACA)
-$18k food/restaurants
-$18k travel/fun/hobbies
-$16k property tax/HOA (coastal California)
-$8k utilities
-$6k automotive/gas/fees
-$6k sinking fund for car replacements, capital improvements
-$4k taxes
-$4k clothing
-$4k home maintenance
-$3k insurance
-$3k other

We will be moving to coastal California within 1 year and expect to spend ~$800k cash on a 2BR home/condo.

Income in Retirement:
Pensions
-DW pension1: $22,500 (age 65, no COLA, 50% survivor benefit)
-DW pension2: $4,150 (age 65, no COLA, 50% survivor benefit)

Social Security
-me: $32,000 (conservative estimate, age 70)
-DW: $6,000 (takes into account GPO/WEP impact, age 70)

Net Worth ~$3.3M

Retirement Portfolio = current assets ~$2.2M
-60/40 asset allocation (12% international)
-primarily 3-fund portfolio

Taxable ($504k)
-$360k CD ladder/cash
-$144k Vanguard Total Stock Market

Tax Deferred ($795k)
-$329k S&P 500 fund
-$227k Fidelity US Bond Index Fund
-$141k Vanguard Total Bond Market
-$79k Vanguard Total Bond Market
-$19k Target Date Fund

Tax-Free (Roths, HSA) ($858k)
-$467k Vanguard Total Stock Market
-$338k mostly Vanguard Total International Stock Index
-$53k Vanguard Total Stock Market

Additional assets ($1,145k)
-$665k primary home net proceeds (conservative; will be sold in 2018)
-$400k rental property net proceeds (conservative; will be sold in 2018)
-$80k cash set aside for new car & home/rental renovations

Possible inheritance (not used for planning purposes)
-$1-3M in 10-15 years

FIRECalc says if we don’t save another dime and then start drawing down our nest egg ($2.6M = $2.2M portfolio + $0.4M from rental property) beginning in 2019, we can sustain $110,000 per year with a success rate of 100%. This assumes we pay cash for a new $800k home with no mortgage.

I’ve also been experimenting with i-ORP to determine optimal Roth conversions up to the 15% tax bracket. The Roth conversions seem to get complex when you also attempt to stay below income thresholds to qualify for ACA subsidies. I need to investigate more in this area, but conceptually would like to convert as much as possible of our tax deferred $s to Roths to avoid RMDs later in retirement.

MegaCorp demands have been extraordinary this year - it’s been very stressful for us both. We’re hoping we can down-shift our employment situations somewhat in 2018 to ease our way into a vibrant, active retirement.

Any insights you might be able to provide would be appreciated, including if you think we are on track. Thank you!

 

[Ed B]

No insights to provide, but congratulations!

 

[MBAustin]

Congratulations, and thanks for moving to CA to make room for all the folks coming this way

 

[DrBrisket]

Downtown,
Congrats! Nicely done.

Based on the excellent level of detail you provided, there's enough similarities at a high level between gross assets, income sources after retirement, and spending rate to our situation (after factoring out kiddo college savings/expenses on our end) that it is nice to see someone else come to the same conclusion we have about being FI.

My big concern is how will you survive in CA without Franklin BBQ or Rudy's nearby!?!?!

 

[Ready]

You look like you're ready to go whenever you're ready. Nice job!

What part of Coastal California are you looking at?

 

[Downtown]

@EdB - Thanks!

@MBAustin - We are reluctantly leaving Austin...it's complicated!

@DrBrisket - Love your user name. We will suffer in the BBQ domain after leaving. We enjoy Rudy's about 1x per month, but go easy on it before we get our cholesterol checked.

@Ready - Definitely San Diego County, but we are unsure where exactly. We may rent a place initially so we can get our bearings in a somewhat unfamiliar geography. La Jolla, Little Italy, and Point Loma all look like very nice, walkable communities, but pricey.

 

[38Chevy454]

Downtown, it appears you are set. I think you have it figured out and also good plan for the future. My only comment is move that retirement up date as soon as you can.

 

[Ready]

@EdB - Thanks!

Definitely San Diego County, but we are unsure where exactly. We may rent a place initially so we can get our bearings in a somewhat unfamiliar geography. La Jolla, Little Italy, and Point Loma all look like very nice, walkable communities, but pricey.

Any place in San Diego is about as nice a place as you're going to find. I'm in Orange County, but I never met a beach community in Southern California that I didn't like.

 

[Red Badger]

Downtown, it appears you are set. I think you have it figured out and also good plan for the future. My only comment is move that retirement up date as soon as you can.

+1.

Pull the rip cord!

 

[freedomatlast]

Downtown - Your numbers are similar to mine and I'm also looking to RE in 2019. My primary residence and rental property are worth less, but I have more in stocks and bonds utilizing many of the same funds as you. Glad to see we came to the same conclusion with similar numbers.

 

[Downtown]

-Rough breakdown = $70k non-discretionary/$40k non-discretionary

I just noticed this typo - the $40k is actually discretionary. I'm usually good with technology, but I couldn't figure out how to edit my original post.

 

[REWahoo]

I'm usually good with technology, but I couldn't figure out how to edit my original post.

Posts can only be edited within a six hour window of posting.

 

[Downtown]

@38Chevy454 - I wish I could work a 60% schedule like you did before you retired. That would be ideal (but not possible for me, unfortunately)!

@RedBadger - Thanks for your encouragement. Don't temp me....

@freedomatlast - An $800k home represents 24% of our current net worth. I'd love to get that % smaller (like your situation), but that will be difficult to accomplish with high California RE prices. It also would require continuing to work for MegaCorp for an unacceptable period of time!

 

[Cayman]

Woot! The clock's ticking, get out there and have yourselves some FUN

 

[knucklehead 61]

why would you want to pay cash for the new condo with interest rates as low as they are (and tax deductible!)
history shows over the last 100 years that you should make approx. double the % rate of return on money invested.
i would rater pay 3.5% mortgage interest & keep a larger amount in the market to potentially (although historically proven) get a 7-8% return.

 

[pb4uski]

Congratulations. My cousin live in Carlsbad and loves it there. They have a nice 4 bedroom condo within a short walk of the beach and you should be able to be similarly situated in your $800k budget I would think.

One thing to think through is penalty-free access from ER at 54 to 59 1/2 but between your taxable accounts and Roths I think you are in good shape.

You might want to invest some of the cash in your taxable account in stock and make corresponding changes in tax deferred for tax efficiency purposes (qualified dividends and LTCG in taxable accounts are tax-free if your taxable income is in the 15% tax bracket or lower (12% under the new tax law).

 

[DrBrisket]

why would you want to pay cash for the new condo with interest rates as low as they are (and tax deductible!)
history shows over the last 100 years that you should make approx. double the % rate of return on money invested.
i would rater pay 3.5% mortgage interest & keep a larger amount in the market to potentially (although historically proven) get a 7-8% return.

The "pay cash" versus "take a mortgage" decision is complicated by sequence of returns risk evaluated in light of a person's appetite for exposure to tail risk (i.e., running out of money in retirement).

See Why we will not have a mortgage in early retirement for some in-depth analysis.

For those not into reading 2000+ words of fairly dense analysis, the linked post concludes with:

The decision whether or not to keep a mortgage in retirement is not trivial. The comparison “expected equity return > mortgage rate” is just too simplistic. The median/average retiree will clearly benefit from the leverage but also remember that the median retiree never runs out of money either. For us, not having a mortgage might hurt us in the long-run but only in the scenarios where we’d become fabulously rich anyway. Who cares if we end up with $6 million instead of $7 million when we’re in our 80s? We are willing to pay that cost for the hedge against Sequence of Return Risk, i.e., the very unpleasant tail risk of running out of money after 30 or 40 years due to poor portfolio returns in the first few years after retirement.

 

[Downtown]

@REWahoo - Thanks. Glad to know I'm not becoming a Luddite after all!

@Cayman - You're right, we're looking to inject more FUN in our lives very soon.

@knucklehead 61 - I'll look into the possibility of carrying a mortgage into retirement, but I have to admit we've enjoyed not having those payments even if it's not 100% fiscally prudent.

@pb4uski - $329k of the tax deferred sits in a 457 plan that's accessible anytime after my wife's employment ends, so we should be covered before 59 1/2 between 457, taxable, and Roths. I'll have to investigate your tax efficiency suggestions - thanks. Also, Carlsbad looks like a nice spot - thanks for the recommendation.

P.S. I've often wondered what your user name means - I've thought you must really like Peanut Butter or Pabst Blueribbon, or something. JK - I've really learned a lot from your posts over the years!

@DrBrisket - I really like ERN's in-depth analysis. Digesting his blog posts require a good amount of caffeine, however.