Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Last minute advice before I pull trigger?
Old 03-10-2013, 07:29 PM   #1
Confused about dryer sheets
 
Join Date: Mar 2013
Posts: 1
Last minute advice before I pull trigger?

I believe I’m FI and ready to RE, but I’m realizing that choosing to retire is one of the biggest decisions remaining in my life. So I’m getting cold feet and would like to know if I’ve overlooked anything that could seriously impact my retirement years.

I’m 54 and will turn 55 in Oct 2013.
No kids.
No wife -- but that could change in the unlikely event I meet the right person(s)
Assets: 1.3M comprised of:
700K Deferred Tax Retirement accounts (401Ks and IRAs)
600K Non-deferred Tax accounts (personal investing accounts plus checking and saving accounts, and small Roth IRA)

Diversification:

635K in US Lg Cap
11K in Mid Cap
52K in Small Cap
198K in Foreign Lg Cap
48K in Emerging Mkts
20K in Target Date Retirement Fund
19K in REIT
320K in cash
0K in Bonds
Much of the above is in low-cost index funds. My 401Ks have limited, but good choices and have low expenses.
I’d like to sell some US Lg Cap and buy bond fund when conditions are right. I'm probably too heavy in cash, also.

Annual Living Expenses: 24K (not including Fed & State Income Tax). I’ve tracked it for the last few years and am surprised that it is this low.
No debt of any kind (house paid off 11 years ago).
There are some relatively large expenses looming:
New car (current car is 11 years old)
Home furnace and air conditioner are well past their life expectancy and will need replacing soon.

I conservatively estimated my retirement expenses at 50K annually which includes:
-Health Insurance (a new expense for me. I have budgeted $400 per month to cover medical and dental insurance.)
-Replacement costs for normal wear-n-tear (car, home appliances, and home roof eventually)
-Classes that I’d like to take both locally and in distant US cities (for interest and hobby)

-In the first few years, I expect my expenses to be higher as I hope to do some extended (but not extravagant) travel -domestic and international.

If my health continues to be good, I will take Soc Sec at age 70 in 2028. $4,560 per month (in 2028 dollars).

If my health continues to be good, I will take pension at age 65 in 2023. $1,500 per month (in 2023 dollars).

I ran FIRECalc a number of different ways and it looks good.

After I retire and before age 59 I will pay for my living expenses from my savings and from my current employer’s 401K. I will try to limit my income (including 401K withdrawals) so that I am no higher than the 15% tax bracket. (I believe) I’ll qualify as an exception to the 10% early withdrawal penalty tax because I will be separating from service “in or after the year” I reach age 55. Although I will retire before age 55, calendar year 2013 is “in” the year that I’ll reach age 55, so I think I’m exempt from that penalty tax.

Between age 59 and 65, I will pay for my living expenses from 401K, IRAs and savings. Again, I will try to keep my income to no higher than the 15% tax bracket.

Between 65 and 70, I will pay for my living expenses from pension, 401K, IRAs and savings. Again, I will try to keep my income to no higher than the 15% tax bracket.

At age 70 and beyond, I will pay for my living expenses from social security, pension, and the Required Minimum Distributions from my 401Ks & IRAs. These RMDs may push me over the 15% tax bracket, according to my assumptions and calculations.

Lots of assumptions in all of this! What do you think? Do you see any red flags or cautions?
__________________

__________________
dragbunt 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!

Old 03-10-2013, 08:06 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,616
Although it is legal to withdraw from 401(k) and not have to pay a penalty, you should check that your employer will service your 401(k) in the way you want. Some 401(k) plans will not do that.
__________________

__________________
LOL! is offline   Reply With Quote
Old 03-10-2013, 08:07 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2006
Posts: 11,017
Welcome dragbunt. Good first post. Seems like your numbers work with room to spare. You have a well thought out withdrawal plan that minimizes taxes. I suggest you go buy the new car and drive off into the sunset!

__________________
Meadbh is offline   Reply With Quote
Old 03-10-2013, 08:15 PM   #4
Thinks s/he gets paid by the post
 
Join Date: Feb 2011
Posts: 1,629
Sounds like you've thought out things pretty well. My only suggestion would be to budget more for HI (& other health expenses like copays/deductibles/meds/dental etc.). And I would stay abreast of changes in tax laws to ensure you are optimizing timing of your retirement account withdrawals.

Look forward to reading updates as you RE.
__________________
ERhoosier is offline   Reply With Quote
Old 03-10-2013, 08:59 PM   #5
Recycles dryer sheets
 
Join Date: Jan 2010
Posts: 143
Hi Dragburnt:

Your numbers and scenario (age, household composition, etc) are almost exactly the same as mine , so I find the replies you are receiving very encouraging! I was "released from service" last month, a few months earlier than I had planned to ER (but that saved me from "one more year" syndrome.)

You wrote:
If my health continues to be good, I will take Soc Sec at age 70 in 2028. $4,560 per month (in 2028 dollars).
How did you do this SS payout calculation? The only Social Security calculator I've found which will allow me to stop earning at 55 then assumes that I will take benefits at 62.

Thanks!

BarbWire
__________________
BarbWire is offline   Reply With Quote
Old 03-10-2013, 09:52 PM   #6
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 609
Quote:
Originally Posted by BarbWire View Post
[/INDENT]How did you do this SS payout calculation? The only Social Security calculator I've found which will allow me to stop earning at 55 then assumes that I will take benefits at 62.

Thanks!

BarbWire
Here is one calculator to maximize SS payouts. It's $40.

Our Products | ESPlanner Inc.
__________________
NanoSour is offline   Reply With Quote
Old 03-10-2013, 11:23 PM   #7
Recycles dryer sheets
FinancialDave's Avatar
 
Join Date: Nov 2012
Location: Olympia
Posts: 110
I see this very doable, especially with your low living expenses. Even though you are pretty close to 4% rate in the next 10 years, waiting on SS, and the pension certainly makes it look pretty safe, unless the next 10 years totally blows up on us, which I don't see.

fd
__________________
FinancialDave is offline   Reply With Quote
Old 03-10-2013, 11:32 PM   #8
Recycles dryer sheets
FinancialDave's Avatar
 
Join Date: Nov 2012
Location: Olympia
Posts: 110
Dragbunt, I am looking at your $320k in cash and wondering why not spend that down and pull just enough out of the 401k (if you can) to keep you in the 10% bracket over the next few years. Also, I would be putting some of that into I-bonds as a better return on your money, and make sure the rest is earning at least better than 1% at some place like GE interest Plus.

I salute the no-bonds stance, as I am there myself in retirement.

fd
__________________
FinancialDave is offline   Reply With Quote
Old 03-11-2013, 06:16 AM   #9
Thinks s/he gets paid by the post
 
Join Date: Mar 2009
Posts: 1,433
Quote:
Originally Posted by LOL! View Post
Although it is legal to withdraw from 401(k) and not have to pay a penalty, you should check that your employer will service your 401(k) in the way you want. Some 401(k) plans will not do that.
Yeah I found that out the hard way. I can't w/d from my 401k after separation. I had planned on the after age 55 rule but found out the rest of the story. I have the choice of keeping the 401k intact -no w/d, buying an annuity, or rolling it over to an IRA. However if I roll it over I lose the after age 55 exclusion and need to wait until age 59 1/2 to w/d without the 10% penalty.
Since the 401k is the bulk of my investments I'm kind of stuck til I get closer to 59 1/2. I wish I had saved more in taxable rather than maxing out the 401k for decades. But it could be worse
__________________
Retired in 2016. Living off dividends / interest and a mini pension. Freedom.
foxfirev5 is offline   Reply With Quote
Old 03-11-2013, 08:21 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,965
Congrats!

I take it you don't want to continue with your present career, and have something better to retire to (that does not provide income).

If so, your $, AA and withdrawal plans look very well thought out. You've thought about health care, and those major unusual expenses like cars, home repairs etc. that some folks forget (and are then surprised by). With your nest egg, Soc Sec, and pension I am not surprised that FIRECALC results look good, congrats.

And the fact that you're planning on expenses that are twice your current spending suggests your fixed costs are low and you can easily scale back if necessary. Even though I'm not responsible, I worry more for folks whose plans are based on dramatically reducing spending without having actually given it a trial run to some extent at least. You're smart IMO!

The only questions I had were:
- $400/month for health care insurance sounds awfully low even for a healthy single individual unless that's some sort of subsidized retiree plan from a former employer? Have you tried any of the calculators showing estimates after 2014 & PPACA - just for planning purposes?
- Maybe the facepalm meant you were kidding but it's hard for me (my issue, not yours) to imagine planning on being single while entertaining the thought of marrying in retirement, but there's certainly no reason that can't work. Two FI spouses should be able to improve their quality of life indeed.
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is online now   Reply With Quote
Old 03-11-2013, 12:03 PM   #11
Recycles dryer sheets
FinancialDave's Avatar
 
Join Date: Nov 2012
Location: Olympia
Posts: 110
Quote:
Originally Posted by foxfirev5 View Post
Yeah I found that out the hard way. I can't w/d from my 401k after separation. I had planned on the after age 55 rule but found out the rest of the story. I have the choice of keeping the 401k intact -no w/d, buying an annuity, or rolling it over to an IRA. However if I roll it over I lose the after age 55 exclusion and need to wait until age 59 1/2 to w/d without the 10% penalty.
Since the 401k is the bulk of my investments I'm kind of stuck til I get closer to 59 1/2. I wish I had saved more in taxable rather than maxing out the 401k for decades. But it could be worse
Foxfire, I'm a little confused by your post - you imply you can't use the 55 rule to withdraw from your 401k, yet you say you lose the age 55 exclusion if you roll it over -- can you explain?
__________________
FinancialDave is offline   Reply With Quote
Old 03-11-2013, 01:00 PM   #12
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,827
dragbunt, welcome to the Early Retirement Forum, and congratulations! You are about to step into a new, rewarding part of your life as you ease into early retirement.

Your situation is very similar to mine in many respects, and I believe that your portfolio is large enough to support your present ($24K + income tax) standard of living.

I echo the concerns about health insurance and its costs once one reaches one's late 50's or older. Maybe you can get something lined up before you pull the plug.

One way to handle buying a new car right off the bat, is to set that money aside - - subtract what you would be spending on it from your portfolio, as though you had already bought it. Then base your withdrawals and other computations on the smaller portfolio size.

Good luck and let us know how things work out for you.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is offline   Reply With Quote
Old 03-11-2013, 01:42 PM   #13
Thinks s/he gets paid by the post
walkinwood's Avatar
 
Join Date: Jul 2006
Location: Denver
Posts: 2,676
Welcome!

I would put aside a substantial emergency fund. It could be in a separate acount or be included in your portfolio, but not used for SWR calculations. Track it separately from annual expenses.

Look carefully into dental insurance. You'll find threads on the subject here & most do not find it financially sound.

Healthcare costs are more than just the premiums, so look into your history there carefully. A big emergency fund helps in the off chance that you have a medical emergency.

You have an advantage because your core costs ($24K) is much lower than your planned budget ($50K), so you'll have a lot of flexibility.

Congrats & all the best.
__________________
walkinwood is offline   Reply With Quote
Old 03-11-2013, 03:31 PM   #14
Full time employment: Posting here.
GalaxyBoy's Avatar
 
Join Date: Jul 2009
Location: The Beautiful Blue Ridge Mountains
Posts: 844
Quote:
Originally Posted by BarbWire View Post
How did you do this SS payout calculation? The only Social Security calculator I've found which will allow me to stop earning at 55 then assumes that I will take benefits at 62.
The estimator at ssa.gov will do this. You just have to first do the estimate that retires you at 62, then hit the "add a new estimate" button at the bottom.

I'm also wondering why the OP had SS estimates in future dollars? Normally one does planning in constant, present-value dollars. How does one know future inflation rates?

Also, the OP mentioned that he would re-allocate investments from stock to bonds "when conditions are right." How does one know when that is? I would just re-allocate, ignoring "conditions" but giving careful consideration to tax consequences, etc. Or if one fears jumping in all at once, do it a bit at a time. The future is hard to predict.

I'm also in a very similar situation. Glad to see others who are near me and feel like it's time. I need to just yell "Geronimo!" and jump myself, but I'm still sitting on the floor of the plane, shaking like a leaf.
__________________
GalaxyBoy is offline   Reply With Quote
Old 03-11-2013, 03:44 PM   #15
Recycles dryer sheets
Felix Mulier's Avatar
 
Join Date: Feb 2013
Posts: 99
Quote:
Originally Posted by dragbunt View Post
If my health continues to be good, I will take pension at age 65 in 2023. $1,500 per month (in 2023 dollars).
Do you have an option to/have you considered taking your pension in a lump sum? I retired just before my former employer filed for bankruptcy. I took my money and ran - it's a good thing I did too because 2 months later they announced that no one would be able to take lump sums anymore. A lot of my former colleagues were/are still very angry

The point is, if there is even a remote chance your employer could file bankruptcy before you turn 65, you might consider taking a lump sum now if you can. That puts you in control of your pension. If the pension fund got turned over to the PBGC for example, it's possible you could get some fraction of the pension you're expecting.

Good luck! You're in fine company here.
__________________
I generally avoid temptation unless I can't resist it.

Felix

Felix Mulier is offline   Reply With Quote
Old 03-11-2013, 06:37 PM   #16
Recycles dryer sheets
BOBOT's Avatar
 
Join Date: Aug 2006
Posts: 415
You will probably be expected to say a few words at your retirement party; I recommend you practice your best .

Have fun!
__________________
I still don't get it...
BOBOT is offline   Reply With Quote
Old 03-11-2013, 06:46 PM   #17
Thinks s/he gets paid by the post
obgyn65's Avatar
 
Join Date: Sep 2010
Location: midwestern city
Posts: 4,061
If Firecalc says you are good to go, then you are good to go.
Quote:
Originally Posted by dragbunt View Post
I ran FIRECalc a number of different ways and it looks good.
__________________

__________________
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
obgyn65 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


 

 
All times are GMT -6. The time now is 06:36 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.