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How do you fill the gap when ER? (that age between say 50-60)
Old 11-21-2012, 07:26 PM   #1
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How do you fill the gap when ER? (that age between say 50-60)

So I feel we are on target for an ER at around age 55. Current ages are 40(me) and 43 for wife. We both work full time in mega corp jobs. We have been maxing out 401ks and ROTH’s each year(using the conversion loophole on the ROTH’s) . We have accumulated around $500k in our 401ks and ROTHs. Our monthly spend (with our daughter) is around $10k per month today – I estimate we will spend about $8k per month in retirement. We have 14 years left on our mortgage and have timed this with our ER date. Currently this home is where we intend to stay for the “long haul”.

I have a pension that should pay 1k per month, wife’s pension will include medical coverage and hers will pay about $2.5k per month – COLA adjusted. In addition to these pensions we have been investing in rentals and somewhat created another non-passive pension via rental income. We currently have 8 properties – half of which are paid for. The others will be paid off in 5-10 years. This rental income adds up to around $8k per month – and expenses could be assumed at around 60% of this.

My prediction is we will buy and sell a few more rentals over the years, but probably end around 8 properties at $8k per month gross, $4k per month net (conservative as they will all be paid off at this time).

I feel we are on track to hang it up perhaps even earlier than 55. We would like to do this as we are wearing down from our full time day jobs and managing our rentals. However, I am struggling with how do you fill the gap between the ages of say 50-60 - before you start adding in your pensions and ss? The rental income will really help, but it won’t be enough and I don’t want to withdraw from my 401k until 59.5. I would rather leave the already taxed ROTH until much later. Social security has to wait, pensions don’t start yet…, etc

“Ballpark usher” type jobs are something we are looking at, but we want to travel quite a bit and I anticipate these first few years might be higher spending ER years – How do you fill this gap? Do I need to stop maxing everything out as I get close and build a cash bucket outside of retirement accounts? I am certain we will be in a much lower tax bracket once we retire – so I was thinking we would do ROTH conversions from our pretax 401k enough to fill the low tax brackets. Then start withdrawing this money. Is this the best strategy here?

Thanks - Really enjoy this forum.
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Old 11-21-2012, 07:44 PM   #2
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As someone who ERed 4 years ago at age 45, I had to develop a plan which focused more on non-retirement accounts to get me from age 45 to age ~59.5 when I would begin to gain unfettered access to my retirement accounts (I call them my "reinforcements") such as my rollover IRA, my frozen company pension, and SS. For example, when I further reduced my weekly work hours in 2007, I stopped contributing to my 401(k) (I was ineligible for company match).

Your plan is very good for ER at age 60 or a little sooner, with the pensions and health insurance and going debt-free at around that time. Health insurance was my biggest (and final) piece of my ER plan in 2008.
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Old 11-21-2012, 08:09 PM   #3
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Wow.. age 45 congrats! Can I ask what investments you went with in your non-retirement accounts? I like this approach. We are doing some of this with DRIP programs and some company stock - but this is more of our emergency fund at this point.
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Old 11-21-2012, 08:54 PM   #4
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Thanks. The bulk of my investment income comes from the Fidelity Focused High Income Fund, a fund which invests in corporate bonds at or just below (BB) investment grade. I also have a considerable amount in a growth and dividend stock fund which acts as an inflation hedge in the taxable account. I also have some muni bond funds as a holdover from my working days. Not much in them, just under 10% of my total portfolio.

When I first bought into that Fidelity fund, its price was very low due to the market crash in late 2008 (quite a good break for me) while its monthly dividends per share was pretty high. The number of shares I own in that fund has risen by about 20% but the monthly DPS has dropped by 20% so I am still even.
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Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

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Old 11-21-2012, 10:15 PM   #5
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Some folks recommend 3-5 years worth of cash stashed away for expenses. I don't go that far, and will probably keep only 2-2.5 years worth of normal expense level, or put another way, 4-5 years of survival level expenses in cash (meaning food, prop tax & mortgage if you have one, health insurance, utilities, etc., but little to no play money). In your case, you also have the rental income, conservative at 4k/month. So you need to find another $4k in today's dollars.

My own suggestion would be to make sure to have a taxable account that had enough in it to pour off interest and dividends sufficient to cover the $4k, or most of it, and rely on the emergency fund (above) to cover a little of the shortfall.

In 5 years or so after pulling the trigger at 55ish, the pensions will start, and you can then begin re-building your emergency fund.

In my case, I have not had access to a 401k for 14-15 years, and I make too much to contribute tax free to an IRA. I do have a deferred compensation account at megacorp, which will begin paying out 6 years after I leave, and will pay out over 10 years. Christmas day this year is my first day of retirement. Roughly 18% of my total portfolio is in the deferred acct.

So, I have just gone the taxable route, but have included a good chunk of tax-free muni bonds in it (which I got in 2009 or so at decent prices, yields, and quality, that are very hard to find these days). My "good chunk" represents about 35% or so of my taxable acct at face value, or closer to 40% at current prices. The rest of my taxable is in a good mix of things, but with a slight to moderate value and dividend paying slant.

I do believe that with some 13-15 years to go, you stand a very, very good chance of developing your taxable account, along with your 401ks, Roths, IRAs, and a 2-3 year cash fund, not to mention your rentals to the point that they will carry you quite nicely to the start of your pensions.

Hope that helps. I am not a financial advisor, and I do not claim to have a crystal ball that can tell where we will go with the tax situation (particularly as is relates to munis, dividends, and cap gains). The above only represents broadly what I have done myself to prepare. I am 51, and while I may eventually have some role with compensation attached, I do not figure that into my financial plan post-Dec 25th.

Good luck

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Old 11-22-2012, 06:28 AM   #6
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In my case, I plan to use lots of CDs and munis expiring every year. I just reinvest what I don't spend. I am 47 and plan to retire this year.
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\However, I am struggling with how do you fill the gap between the ages of say 50-60 - before you start adding in your pensions and ss?
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Old 11-22-2012, 06:50 AM   #7
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lots being the key word.....
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Old 11-22-2012, 07:51 AM   #8
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Sorry I cannot share more details about exact nest egg size or amounts. Sometimes I feel ashamed of making a very good living and being LBYM. Everything is relative anyway.
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lots being the key word.....
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Old 11-22-2012, 08:08 AM   #9
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I think taxable savings is your best bet. That is what I am living off from ER until pension and ss come on line. I now appreciate more the value for diversity in tax accounts (taxable, tax deferred and tax free) in addition to diversification across asset classes.
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Old 11-22-2012, 08:27 AM   #10
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structuring the right asset classes in the right types of accounts can add as much as 20% to the bottom line.

paying regular income tax rates on equities can be nuts sometimes.
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Old 11-22-2012, 08:32 AM   #11
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I think taxable savings is your best bet. That is what I am living off from ER until pension and ss come on line. I now appreciate more the value for diversity in tax accounts (taxable, tax deferred and tax free) in addition to diversification across asset classes.
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Old 11-22-2012, 08:40 AM   #12
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I think taxable savings is your best bet. That is what I am living off from ER until pension and ss come on line. I now appreciate more the value for diversity in tax accounts (taxable, tax deferred and tax free) in addition to diversification across asset classes.
We think alike......
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Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

"I want my money working for me instead of me working for my money!"
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Old 11-22-2012, 03:23 PM   #13
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Thanks all... I will start on the non-retirement taxable savings account in earnest as I get close.

My thought was those first few years of retirement when my earned income will be almost nill, I could use this time to convert funds from my 401k IRA money to a ROTH enough to fill up the lower income tax brackets. This should help reduce taxes and the RMD when I get to that point.

Thanks for all the responses...you all confirmed my thoughts.
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