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Time to ask some ?'s
Old 05-21-2014, 07:33 PM   #1
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Time to ask some ?'s

Hi all, I've been lurking & learning for a couple months now. This is a great forum! I've been wanting to ER for some time & now the decision has been made for me. I need some input on how I should proceed. I'll list my assets, then talk about what I think I should do. I'm married, 57 DW55, she runs a small cafe & will keep working for awhile yet.

We have

142K taxable @ Vanguard
189K rollover IRA @ Vanguard
90K Roth IRA @ Vanguard (his)
6.5K Roth IRA @ Vanguard (hers)
115K 401K @ Fidelity

With a local FA we have

135K taxable
29.5K His Roth
37K Her Roth

I assume I will spend down our taxable first & hopefully we will need very little of the other money before I reach 66.5. Our bare bones budget in today's dollars is approx 24K. I have run Firecalc up to about 36K & it looks OK, but who knows.

I plan to use the 135K the FA has as a "cash bucket" spending it down first. I will transfer our Roth's to Vanguard & run my own show from there on out.

I will not start drawing from this money for about a year yet. Now for my questions.

1. Should I stop reinvestment of all my taxable accounts now, letting some cash build up in them before I need to start spending?

2. Is there a case for spending some of the 401K when I reach 59.5 instead of completely draining the taxable first?

3. Anyone have anything to offer as far a advice? It would be most welcome!

Sorry for the ramble.
Murf2
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Old 05-21-2014, 07:54 PM   #2
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Quote:
Originally Posted by Murf2 View Post
Hi all, I've been lurking & learning for a couple months now. This is a great forum! I've been wanting to ER for some time & now the decision has been made for me. I need some input on how I should proceed. I'll list my assets, then talk about what I think I should do. I'm married, 57 DW55, she runs a small cafe & will keep working for awhile yet.

We have

142K taxable @ Vanguard
189K rollover IRA @ Vanguard
90K Roth IRA @ Vanguard (his)
6.5K Roth IRA @ Vanguard (hers)
115K 401K @ Fidelity

With a local FA we have

135K taxable
29.5K His Roth
37K Her Roth

I assume I will spend down our taxable first & hopefully we will need very little of the other money before I reach 66.5. Our bare bones budget in today's dollars is approx 24K. I have run Firecalc up to about 36K & it looks OK, but who knows.

I plan to use the 135K the FA has as a "cash bucket" spending it down first. I will transfer our Roth's to Vanguard & run my own show from there on out.

I will not start drawing from this money for about a year yet. Now for my questions.

1. Should I stop reinvestment of all my taxable accounts now, letting some cash build up in them before I need to start spending?

2. Is there a case for spending some of the 401K when I reach 59.5 instead of completely draining the taxable first?

3. Anyone have anything to offer as far a advice? It would be most welcome!

Sorry for the ramble.
Murf2
Welcome to the forum! I like your idea of using up the FA money first.

To address some of your questions:
1. Cash build up? This depends on your asset allocation and emergency fund ideas. Lots more to say here. Others will be along shortly.

2. The case for spending down the 401k after 59.5 is that your RMD at 70.5 years will be less. This will hurt because it and your pension and SSA will be fixed with no room to adjust down for taxes. All of IRA type income is usually taxable as regular income rates. If you have capital gains from non-retirement income, there will be little or no taxes for the gain at your tax bracket.

3. Advice? $24k for the both of you on a bare bones budget sounds low even by my standards. Have you considered health care expenses? Speaking of health care, have you considered subsidies base on your AGI via the ACA?
You can use Roth withdrawals to provide income yet keep out of the higher tax brackets.
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Old 05-21-2014, 08:46 PM   #3
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The $24k bare bones budget makes me a little nervous... but there are plenty of folks on the board who are excellent at living frugally. Does your $24k include taxes... when you start drawing from the tax deferred accounts?

Does the $24k also include the income from your wife's work? Or is it just what you'll need to draw.

As far as the cash build up... Several members here have dividends and/or cap gains distributions not reinvested- choosing that as a way to fill up the cash bucket that gets drawn on for living expenses. Others choose to address their cash needs when they rebalance their asset allocations periodically.

There's no right or wrong... just different styles and preferences.
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Old 05-21-2014, 09:12 PM   #4
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Cash buildup - depends on your AA to some extent. If your ER plans are on a firm timeline, then you should be adjusting your AA to accommodate the spending you'll be seeing in the short/medium term. If your ER timeline is flexible, you can stay all equities (or whatever) and convert to your post-retirement AA just before you retire. The risk there is that if the market declines too much, DW may have to work another year. The benefit is potentially better portfolio growth.

2. You want to get your IRA/401k money out at the lowest tax rate. Specifically a rate lower than you end up with at 70.5 with SS, RMD's, and any other income. This probably means Roth conversions or withdrawals as soon as your income drops, which may be this year. As long as the taxable funds last, do partial Roth conversions for as much as you can squeeze into a lower tax bracket. After taxable funds are spent, switch to IRA/401k withdrawals instead of conversions to fill the same tax bracket and use Roth withdrawals to provide any additional income you need. At the very least you will want to pull out anything you can at a 0% tax rate, including capital gains in the taxable accounts.
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Old 05-22-2014, 01:16 AM   #5
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In the spring 2008, we had approximately what you had, 59 and 62. Planned on two more years to FIRE. A Black Swan crapped on our plans. By Sept 2008 in the mist of Presidential Elections, I was researching hard and trying to run all types of scenarios. I won't bore you on what we did-You can find my posts on this. Today, we are comfortably above our retirement numbers (except spending-taking care of aged parents), put a hard floor on half of retirement funds while increasing the potential for big gains.

Which bucket you take your retirement funds will matter little if another Black Swan lands.
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Old 05-22-2014, 04:09 AM   #6
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Thanks for all the replies! Some more info to help you help me.

24K budget includes everything we could think of except HC. I ran Firecalc up to 36K, figuring 1K per month for HC. That's about what my Cobra would run, 1K/month. Looking at ACA it would be approx $200-$300, as it is today.

Our AA is aggressive, 80/20. FA money is in single stocks, which will be changed soon. I hope to be in a "three fund" or maybe "four square" portfolio by the beginning of 2015.

The wife's income could probably cover the budget, if squeezed hard. I ran Firecalc @ 30 yrs but 25 maybe more realistic. It gave slightly better results starting SS @ 62 but would like to wait till 66.5 for more for the wife after I'm gone.

No children, no legacy needs, just need enough to get there.

Thanks again! & LongPrime, I'll check out your threads, Thanks.

Murf2
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