Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
estimating potential yearly income after FIRE
Old 10-28-2006, 12:17 PM   #1
Thinks s/he gets paid by the post
simple girl's Avatar
 
Join Date: Sep 2006
Posts: 2,505
estimating potential yearly income after FIRE

OK, DH and I are several years away from ER (current NW ~$500K, ages 38 & 43), but we are trying to track what our potential yearly income would be if we FIRED "today"...and how it changes as time goes on.

We did some research this morning on the SEPP method from IRA's. We figure we would probably use the amortization method, but plan on choosing an interest rate for withdrawal that would equal no more than 4% of the account balance (since you can choose less than 120% of the mid-term applicable Federal rate).

Do these numbers make sense?

4% of IRA's (including 401k's rolled over, currently ~ $235K) = $9400/yr
4% of taxable account plus cash, CD's (~141K) = $5640/yr
yearly net income from rental property = $1277

So total potential yearly income as of today = $16,317


We don't plan to FIRE on this, but want to track it to see when we feel we'll be ready. Thoughts?

thanks,
simple girl

P.S. Can you work part-time (if we so choose) once you start SEPP's from IRA's

P.S.S. We also have Roth's, but thought it makes sense to wait as long as possible to tap these, so they aren't included in the calculations. Also, we didn't include pension that will be received later.




__________________

__________________
simple girl
less stuff, more time

(49, married; DH 53. I am fully retired as of 2015 (well ok, I still work part-time but only because I love the job and have complete freedom to call off if I want to travel with hubby for work), DH hopes to fully retire 2018 when he turns 55 to access 401K penalty-free...although he may decide to do part-time consulting)
simple girl 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!

Re: estimating potential yearly income after FIRE
Old 10-28-2006, 06:39 PM   #2
Thinks s/he gets paid by the post
retire@40's Avatar
 
Join Date: Feb 2004
Posts: 2,670
Re: estimating potential yearly income after FIRE

I doubt you will be able to sustain a 4% SWR with about 40% of your non-real estate assets sitting in cash accounts probably earning around 5%. So, I'd bring the cash SWR down to 2% if you plan on keeping it there.

And yes, you can still work while SEPPing. And yes, it doesn't make sense to draw from your Roths if you don't need to at a zero or 10% tax bracket.
__________________

__________________
No man is free who is not master of himself. --- Epictetus
Enjoy Yourself (It's Later Than You Think). --- Guy Lombardo
retire@40 is offline   Reply With Quote
Re: estimating potential yearly income after FIRE
Old 10-28-2006, 06:55 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Re: estimating potential yearly income after FIRE

Quote:
Originally Posted by simple girl
Do these numbers make sense?

4% of IRA's (including 401k's rolled over, currently ~ $235K) = $9400/yr
4% of taxable account plus cash, CD's (~141K) = $5640/yr
yearly net income from rental property = $1277

So total potential yearly income as of today = $16,317

4% IRA, only if you plan on drawing 4% from the IRA. Given the fact that you have $141K in taxable assets, I'm not sure why you want to draw anything from the IRA unless you are forced to.

4% of taxable account doesn't sound right. Your taxable account will generate taxable income, and potentially taxable gains. Excluding gains, your income from your taxable account will be something like [bond/cash principal] * [bond interest rate] + [equity principal] * [equity yield]. If all of your holdings are in cash, you'll probably have more than 4% income whereas if it is invested mostly in equities your income will probably be a lot lower than 4%.
__________________
Retired early, traveling perpetually.
Gone4Good is offline   Reply With Quote
Re: estimating potential yearly income after FIRE
Old 10-29-2006, 11:42 AM   #4
Thinks s/he gets paid by the post
simple girl's Avatar
 
Join Date: Sep 2006
Posts: 2,505
Re: estimating potential yearly income after FIRE

Quote:
Originally Posted by retire@40
I doubt you will be able to sustain a 4% SWR with about 40% of your non-real estate assets sitting in cash accounts probably earning around 5%. So, I'd bring the cash SWR down to 2% if you plan on keeping it there.
Good point. We do have some of our $$ in taxable accounts (not all in cash accounts)...but we are heavy in cash and working on converting more to our taxable account. We are heavy in cash b/c we sold our house recently and the new house we bought is cheaper.

__________________
simple girl
less stuff, more time

(49, married; DH 53. I am fully retired as of 2015 (well ok, I still work part-time but only because I love the job and have complete freedom to call off if I want to travel with hubby for work), DH hopes to fully retire 2018 when he turns 55 to access 401K penalty-free...although he may decide to do part-time consulting)
simple girl is offline   Reply With Quote
Re: estimating potential yearly income after FIRE
Old 10-29-2006, 11:57 AM   #5
Thinks s/he gets paid by the post
simple girl's Avatar
 
Join Date: Sep 2006
Posts: 2,505
Re: estimating potential yearly income after FIRE

Quote:
Originally Posted by 3 Yrs to Go
4% IRA, only if you plan on drawing 4% from the IRA. Given the fact that you have $141K in taxable assets, I'm not sure why you want to draw anything from the IRA unless you are forced to.
Well, I guess we were just thinking we'd have to take $ from both the taxable and IRA accounts at the same time, as the $ in the taxable account would only last a few years. It sounds like what you are saying is draw down your taxable accounts first, then set up the SEPP when you need to start drawing down them. Is that right?

OK, so how does this work with rebalancing? Our taxable account is composed of Vanguard tax-advantaged large cap index funds. So our withdrawal amount would be 4% based upon our networth (minus equity in rental property). We would take this amount by selling off the proper amount of index funds. Then, to keep our overall asset allocation, we would transfer funds within our IRA's to regain our large cap holdings

__________________
simple girl
less stuff, more time

(49, married; DH 53. I am fully retired as of 2015 (well ok, I still work part-time but only because I love the job and have complete freedom to call off if I want to travel with hubby for work), DH hopes to fully retire 2018 when he turns 55 to access 401K penalty-free...although he may decide to do part-time consulting)
simple girl is offline   Reply With Quote
Re: estimating potential yearly income after FIRE
Old 10-29-2006, 01:58 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Re: estimating potential yearly income after FIRE

Quote:
Originally Posted by simple girl
Well, I guess we were just thinking we'd have to take $ from both the taxable and IRA accounts at the same time, as the $ in the taxable account would only last a few years. It sounds like what you are saying is draw down your taxable accounts first, then set up the SEPP when you need to start drawing down them. Is that right?

OK, so how does this work with rebalancing? Our taxable account is composed of Vanguard tax-advantaged large cap index funds. So our withdrawal amount would be 4% based upon our networth (minus equity in rental property). We would take this amount by selling off the proper amount of index funds. Then, to keep our overall asset allocation, we would transfer funds within our IRA's to regain our large cap holdings
Yes and yes. Generally speaking you want to prolong your tax deferral as long as possible, which means drawing down the taxable accounts first. If that means you have to reallocate the IRA account to maintain your desired investment allocation, that's fine. You won't owe any capital gains taxes on sales in the IRA, so the IRA is the perfect vehicle for rebalancing transactions.

Also keep in mind that your large cap mutual funds are probably throwing off a yield of 1.5%-1.75% and your cash & CDS could be yielding in the 5% area. If you stop reinvesting those dividends, that income should reduce the amount of principal you have to sell and take taxable gains on.


__________________

__________________
Retired early, traveling perpetually.
Gone4Good is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
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
Multiple Streams of Income hocus Young Dreamers 30 06-08-2004 09:23 PM
Annuity w/guaranteed floor PLUS upside potential Jer FIRE and Money 8 06-07-2004 11:49 AM
Question for Ted on Long Term Fixed Income Holding Cut-Throat FIRE and Money 19 01-14-2004 07:54 AM
Starting fixed income ladders woolybully FIRE and Money 2 07-25-2003 03:46 AM

 

 
All times are GMT -6. The time now is 10:42 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.