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Old 11-04-2014, 09:29 AM   #21
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OP - so you got the idea that the pension and SS can REDUCE the "number" we may be shooting for because they reduce the amount of income we need to withdraw from our portfolios.

But you did ask how we get our "number". My "number" for SWR purposes is just my investments and bank accounts. I hope to retire, in 12 years, with $2.5M. But I would be comfortable with $2M. That, plus my pension and SS in the later years, will give us enough to withdraw less than 4% of the portfolio over time.

I do also keep track of my "net worth" which includes the equity in our real estate, but I don't count that as part of my 'number' for retirement purposes.
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Old 11-04-2014, 10:24 AM   #22
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Originally Posted by mistermike40 View Post

A couple more questions:
- My 401k allows me to withdraw without penalty at 56 if I retire. Why do I need enough taxable investments?

Thanks again!!
If I am understanding your question correctly, it is desirable to have different buckets of money that are treated differently for tax purposes (tax deferred and money that has already been taxed) so you have a choice, depending on your income, if you want to:

(1) withdraw from a 401K knowing you will be taxed on your withdrawal (before the RMD-Required Minimum Distribution at age 70 and 1/2)
(2) withdraw from a Roth IRA knowing you will not be taxed (if you were able to qualify for a Roth)
(3) withdraw from a "taxable account" which is typically money you have already paid taxes on thru the years so the basis is not taxed again.

ex: If I have 200K in an account and I have already paid tax on, I can use it without having to pay additional taxes and do not have to book it as income on taxes. If I need a new roof, I have the money to pay for it without having to worry about "withdrawing from a tax deferred account and pay taxes on the withdrawal.

It is also the reason some of us who may not have been able to qualify for a Roth are doing some Roth Conversions. i.e. paying the tax now so in the future we can withdraw from it tax free (growth and basis).
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Old 11-04-2014, 10:33 AM   #23
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Originally Posted by mistermike40 View Post

A couple more questions:
- My 401k allows me to withdraw without penalty at 56 if I retire. Why do I need enough taxable investments?
There's two parts to this. Many 401ks have the verbage to allow penalty free withdrawals. The second part is how does the administrator distribute monies. There is more than one post on this board of people having issues with that part. As I recall some plans are a one time withdrawl only.



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Old 11-04-2014, 10:36 AM   #24
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A few thoughts in general:

- Agree with using a pension/SS as a reduction in spending, rather than trying to calculate NPV or something for a worth calculation. I should have a significant COLA'd pension, and when calculating my "number" for FI, I simply reduce spending by the amount of the pension; my portfolio needs to make up the difference.

- Re: 95% or 100% in FIREcalc: I don't think it matters, but you should have some conservativism (is that a word?) built into your plan for FIRE. To me, if you're counting every last penny in your plan, using Bernicke's, overestimating your SS, or not thinking about taxes and then aiming for 95%, you're doing it wrong. If you're aiming for 95% but using more aggressive spending models which overestimate your spending, not counting SS or some other "questionable" income stream, etc... or you're aiming for 150% of your number... you're fine.

Personally, my FIREcalc numbers:
- Do not include SS payments.
- Use constant spending power instead of Bernicke's, even though I think reality is closer to Bernicke's.
- Probably overestimate my spending based on the observations of many retirees.
- Aim for 95%.

I am in a situation where I have to work until 42 to secure my pension anyway, so everything's built around that age. I'm not going to be working longer to secure my financial future, so I have the latitude to make some of these assumptions. I suspect I will work some after that, but I want to be FI by then, and just keep adding gravy until I no longer feel like it.

Others might view that approach as too conservative or that I may work a few years too long, but it's worth a lot to sleep well at night. HOW you plan for that is up to you, just don't overreach. It doesn't seem like you are!
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Old 11-04-2014, 01:02 PM   #25
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There's Net Worth and there's ER net worth.

I have a very good friend who has no 401K, very little in investments ( think maybe less than 300K), no Pension, no annuity or any regular income stream. He doesn't work.

He does have about a million dollars in farm equipment, 1000+ acres of excellent farmland, a $400K house, a large barn, silo and dryer, a top of the line pickup truck, a new Buick Lacrosse and a museum that he created for the public, filled with antique farming equipment.

He's 87... how would you calculate his "net worth"?
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Old 11-04-2014, 01:26 PM   #26
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How to calculate your worth?

Ask your wife or girlfriend.
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Old 11-04-2014, 01:44 PM   #27
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Ask your wife or girlfriend.
Reminds me of a business trip to Texas. Sitting in Billy Bob's with some co-workers and their friends... Conversation turned to cattle farming.
I asked one of the friends how many cattle he had...
Received a kick under the table from a co-worker, and an answer from the friend.
"Don't rightly know... best way to figure is to count the number of legs, and divide by four."
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Old 11-04-2014, 01:50 PM   #28
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Originally Posted by imoldernu View Post
There's Net Worth and there's ER net worth.

I have a very good friend who has no 401K, very little in investments ( think maybe less than 300K), no Pension, no annuity or any regular income stream. He doesn't work.

He does have about a million dollars in farm equipment, 1000+ acres of excellent farmland, a $400K house, a large barn, silo and dryer, a top of the line pickup truck, a new Buick Lacrosse and a museum that he created for the public, filled with antique farming equipment.

He's 87... how would you calculate his "net worth"?
His net worth is a straight up addition of all of the assets' present values. Then subtract out any liability.

But his ER net worth is the money that can be used to live on. That would be his savings, any farm equipment and land he's willing to sell to generate cash, and any income streams from the museum.
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Old 11-04-2014, 01:52 PM   #29
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Ask your wife or girlfriend.
Or your wife's lawyer.
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Old 11-04-2014, 02:09 PM   #30
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Originally Posted by sheehs1 View Post
If I am understanding your question correctly, it is desirable to have different buckets of money that are treated differently for tax purposes (tax deferred and money that has already been taxed) so you have a choice, depending on your income, if you want to:

(1) withdraw from a 401K knowing you will be taxed on your withdrawal (before the RMD-Required Minimum Distribution at age 70 and 1/2)
(2) withdraw from a Roth IRA knowing you will not be taxed (if you were able to qualify for a Roth)
(3) withdraw from a "taxable account" which is typically money you have already paid taxes on thru the years so the basis is not taxed again.
For (3) yes the basis is not taxed, but you are likely to have substantial gains that may be if invested in the typical index fund. And then you have to factor in whether you want to maximize ACA subsidies as much as possible by keeping your reported taxable income low or max out Roths instead.

It's not as simple as it looks, withdrawal-wise. Some thought needs to be put into how you're going to take the money out regardless of how you calculate how much you have available, or which buckets they're in.
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