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Is $4.3 million enough?
Old 02-12-2015, 06:42 AM   #1
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Is $4.3 million enough?

Hello all. I have lurked here for awhile and have enjoyed the various posts and perspectives from members. While some may question the seriousness of this title thread; I think we all have a fear....irrational or valid....as to the question of "Do I have enough" to see me through retirement especially when considering "worst case scenarios" i.e stock markets crash at the start of retirement, unforeseen health issues and related expenses, etc.
Here is our scenario ( me and my wife):

Ages: 55 & 54

Wife will work until next year. I am already retired.

Current assets ( general idea):

Cash: $860,000 = 20%
Stock mutual funds: $2,000,000 = 46%
Bond Mutual funds: $1,460,000 = 34%

Total: $4,300,000

House paid off. No debt of any kind. 2 children. Youngest finished with school in 2 years.
Estimate as best we can that annual expenses to be approx. $80,000/year until age 65 when Medicare kicks in.
This includes taxes, insurance, all fixed expenses, 1 nice vacation per year, health care premiums and deductibles, and also accounts for "unforeseen" expenses.......busted furnace, appliance, etc.

I realize that the amount of cash on hand is ....obscene.... but as we will have to pay for health care out of pocket...... I need to keep taxable income low..... to potentially take advantage of ACA subsidies. ( please no judgements on taking advantage of this I didn't make the rules).
Income between ages of 55 and 62 will consist of muni bond income and some inherited IRA income as well as dividend income from taxable stock funds. Estimate annual income of $45,000/year.
At ages 63 and 62, wife I and will collect pensions (hers is COLA mine is not) totaling $45,000/ year and we will delay SS until FRA or later. Then at age 701/2 RMD's from Trad IRA will kick in. Will do Roth conversion between ages 65-70 as much as possible.

Also no LTC insurance. Will self insure.

So will this work? Any unforeseen problems? Just trying to cover all bases. Thanks!
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Old 02-12-2015, 06:52 AM   #2
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Welcome to the forum.

We've had a couple of threads on millionaires collecting ACA subsidies. There aren't many people that will fault you for taking advantage of any legal tax deduction or government benefit.

I assume you've run your numbers through FireCalc. If you haven't, you need to do that. You will see that you can spend much more than you are planning to spend.
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Old 02-12-2015, 06:55 AM   #3
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Originally Posted by MrLoco View Post
While some may question the seriousness of this title thread; I think we all have a fear....irrational or valid....as to the question of "Do I have enough" to see me through retirement...
I'd place your fear definitely in the irrational column.

Yes, you are good to go, but if you really have serious doubts you should keep working until you have $10M+, you turn 70, or your health fails - whichever comes first.
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Old 02-12-2015, 07:01 AM   #4
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Originally Posted by MrLoco View Post
Hello all. I have lurked here for awhile and have enjoyed the various posts and perspectives from members. While some may question the seriousness of this title thread; I think we all have a fear....irrational or valid....as to the question of "Do I have enough" to see me through retirement especially when considering "worst case scenarios" i.e stock markets crash at the start of retirement, unforeseen health issues and related expenses, etc.
In terms of total financial position you are perfectly fine.

Two numbers: $80k per year / $4300k total assets is a withdrawal rate of 1.9%, so that's 53 years of living expenses at your current withdrawal rate right there, assuming you can succesfully keep up with inflation.

In 53 years you'll be 108 and 107 years old respectively. There is a <0.2% chance either of you will be alive by then.

And that's excluding SS, pensions and the fact that with progressing age you'll likely spend less.

My guess is you know this already though.

So .. where is the fear coming from? Focus on that
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Old 02-12-2015, 07:03 AM   #5
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Estimate annual income of $45,000/year.
How do you keep your income so low with that amount of assets? Think you could easily do better for yourself.
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Old 02-12-2015, 07:04 AM   #6
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So what will you do if we say it's not enough? Tell the wife she must remain in harness? Good luck with that.

Actually, your situation looks great. You have $45K in pensions coming on line and then, if you each get the maximum social security check (and I presume you probably paid in at the max in order to have had employment to generate a nest egg that large), you'll get another $60k or so. If your spending is really $80k a year, you'll be able to cover that with pension and SS alone. The only issue is the next 8 years, and a $4.3 million portfolio should easily cover double your spending.

I'll bet that FIRECalc gives you a 100% success rate.
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Old 02-12-2015, 07:12 AM   #7
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I realize that the amount of cash on hand is ....obscene.... but as we will have to pay for health care out of pocket...... I need to keep taxable income low..... to potentially take advantage of ACA subsidies. ( please no judgements on taking advantage of this I didn't make the rules).
Just one comment on this - it only makes sense to limit income when the forgone income is less than the subsidy received. If the potential income is greater than the additional cost of healthcare, you might want to rethink that part of your strategy.
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Old 02-12-2015, 07:21 AM   #8
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Welcome, MrLoco,

Looks to me that you have more than enough $. Although your financial future looks set, here's a list of questions to ask yourself. Some Important Questions to Answer Before Asking - Can I Retire?

Are you mentally/emotionally ready? Make sure that you have your non-work interests amped up to the point that they can fill the void created by leaving work behind.
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Old 02-12-2015, 07:32 AM   #9
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well according to firesim, you kids will be very happy. Even without SS, your LOWEST ending portfolio will be $4M and your median will be $8M. I hope they earned it ;-)
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Old 02-12-2015, 07:38 AM   #10
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Old 02-12-2015, 07:48 AM   #11
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What are you earning on the $820K in cash? If inflation is 2%, you are losing $16,000 a year in buying power, less any earnings.
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Old 02-12-2015, 07:52 AM   #12
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Sounds solid
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Old 02-12-2015, 07:58 AM   #13
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it only makes sense to limit income when the forgone income is less than the subsidy received. If the potential income is greater than the additional cost of healthcare, you might want to rethink that part of your strategy.
Strong endorsement of this idea. An extra $800k in productive investments could certainly pay for plenty of unsubsidized health insurance. Also, it's highly likely to leave a lot leftover for heirs.

As for your retirement question, yes, this is certainly enough. Run FireCalc to see just how much enough it is. As for the fear, imagine that things somehow were so bad that even your $4.3 million assets were not enough for a comfortable retirement, that would also mean that virtually no one else could retire either. These are wild scenarios for which no amount of preparation is sufficient. Worrying won't help.
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Old 02-12-2015, 08:30 AM   #14
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....So will this work? Any unforeseen problems? Just trying to cover all bases. Thanks!
Let's put it this way... if you don't have enough then DW and I are toast because we have less and spend more.

You have plenty. No problems, but you might be able to fine tune things a bit.

I decided that I was better off to forgo ACA subsidies and do Roth conversions to the top of the 15% tax bracket from now until 70 to avoid the 25% tax bracket once pensions and SS start. The difference between 25% and 15% later in life far exceeded the value of the subsidy for us. An added benefit of forgoing subsidies was avoiding the hassles of dealing with Obamacare. Since you have more than we do it may be an issue for you too if you have substantial tax-deferred balances.

So additional thoughts. If the cost of the lowest cost bronze plan exceeds 8% of your income you can buy catastrophic health insurance even though you are over 30 which in some areas of the country is substantially lower (40% where I live) but in other areas is not all that much different. Also, be aware of the difference between aggregate and stacked deductibles. My wife and I each have separate policies because the insurance starts covering costs earlier that way because cat policy deductibles are aggregate in our state.

You know you have too much cash. I go with 6% cash, 60% stock and 34% fixed income. For you, the 6% cash is probably plenty as it is over 3 years of withdrawals and probably much more years of withdrawals net of taxable account income. You could value average from cash to stocks until you get to a your target AA.

Also, look at the tax efficient placement of your assets to take full advantage of 0% qualified dividends and long-term capital gains if you expect to be in the 15% tax bracket in ER. See Principles of tax-efficient fund placement - Bogleheads
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Old 02-12-2015, 08:35 AM   #15
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Strong endorsement of this idea. An extra $800k in productive investments could certainly pay for plenty of unsubsidized health insurance. ...
+2 Figure it this way. If you went with 6% cash (which is plenty) you would have ~$200k in cash and move $400k from cash to stocks over some period of time. Once that is done, if stocks only earn 8% (historical average is 10%) and cash earns 2% the 6% difference is $24k a year, and that is conservative and I'm guessing far exceeds the subsidy. Plus you avoid the administrative hassles of Obamacare. Worth thinking about.
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Old 02-12-2015, 08:36 AM   #16
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retired.

Current assets ( general idea):

Cash: $860,000 = 20%
Stock mutual funds: $2,000,000 = 46%
Bond Mutual funds: $1,460,000 = 34%

Total: $4,300,000
Your AA isn't much different than mine except most of my cash is in laddered CDs. I have my 2015 available spending and a small emergency fund in actual money markets and bank accounts but not much else. The CD yields are barely worth talking about.
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Old 02-12-2015, 08:39 AM   #17
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Odds are probably better that global conflict breaks out with us on the losing side, an EMP event wipes your investment records away in a moment, our new king decrees rules that are punitive for the savers among us, or you get hit by one of those roving killer buses than that you run out of money.

Frankly, I find worrying about fat finances much more comforting and less scary than disaster, disease, death, divorce...
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Old 02-12-2015, 11:04 AM   #18
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Total no brainer
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Old 02-12-2015, 11:24 AM   #19
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Thanks all who responded. I do actually plan to invest about half ($400k) of the cash back into the market. Will probably end up DCA over the next year to 18 months as I want want my AA to reflect at least 50% equities. As far as the ACA subsidies, I will need to take another look at it as you are correct....there are opportunity costs related to delaying future Roth conversions until age 65 plus the hassles of dealing with Obamacare and trying to manipulate one's income to qualify for the subsidies. Thanks again.
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Old 02-12-2015, 11:24 AM   #20
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I don't think your cash percentage is obscene. You need to pull from the nest egg the next seven or eight years for about half your expenses, and this chunk should easily last that long (even if the dividends decrease or disappear), allowing the other chunks of your nest egg to grow untouched in the meantime, we hope. We had a similar strategy in far lesser dollar amounts til DH started SS at 66, and it worked out well (so perhaps I have a little bias there .

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