Need clarification on the 4% rule

[rdjrn]

Does this mean 4% net withdrawal (after taxes),... or 4% gross??

 

[brewer12345]

4% gross, and its really more of a rule of thumb.

 

[REWahoo]

rdjrn, this thread may help: http://www.early-retirement.org/forums/f28/explain-the-4-withdrawal-rate-19234.html

 

[rdjrn]

That being the case, I've got about $530,000 in a 401K, plus another $450,000 in lump sum pension. Thinking of retireing in about 13 months at age 55 and with 31 years at the same megacorp. I get about $15,000 per year (tax free) from VA disability and will start getting about $9,000 per year USAR retirement at age 60. Plan to start taking SS at age 62 ($18,000/year). Does it look feasible for me to withdraw a net $65,000 per year? FireCalc says I'm ok, and so does my financial advisor at the bank. Final question,... what will my tax rate (%) be in retirement?

 

[brewer12345]

The best way to road test your retirement taxes is to buy a copy of turbotax and prepare a dummy return with your expected numbers. It will not be exact to the penny, but you will have a good idea of where you stand.

 

[rdjrn]

I misspoke. I don't plan to "withdraw" $65,000, but I need/want a total of $65,000 (net) using 4% withdrawal + VA pension + USAR pension (60) + SS (62).

 

[nun]

At 55 you'll need to generate $41k a year from you nest egg ($24k pensions) which will drop to $23k when SS starts. You have $980k and 4% of that is...........$39.2k. So you might be spending a little principal up to age 62, but you should be fine.

However, you might want to just trim your spending a bit and one suggestion I have is getting rid of the financial advisor if they are charging you for this advise. Next question should be how are you going to generate that 4%.

 

[donheff]

I misspoke. I don't plan to "withdraw" $65,000, but I need/want a total of $65,000 (net) using 4% withdrawal + VA pension + USAR pension (60) + SS (62).

If $65K fully supports your needs you seem to be there. Do you have wiggle room if things get hairy? Do you have health care covered? It would seem that the first few years are critical. You will be drawing down a larger percentage of your portfolio as you want for the USAR pension and then SS. A major downturn during that period would be the worst case scenario. If you have flexibility to cut back or work part time you would be in great shape.

 

[RonBoyd]

... $65,000 (net) ...

You keep hinting that Taxes are not an expense (cost) item. Why is that?

It's like saying $65,000 (after Groceries).

 

[rdjrn]

Health care is covered. At 55 I can keep my company plan in retirement at same cost. Tricare will kick in at age 60, plus the wife works at a medical clinic and has access to good health insurance.

$65,000 does allow for wiggle room since it's a little more than I bring home now, plus we should have the mortgage paid off in 2-3 years.

 

[Rich_by_the_Bay]

Health care is covered. At 55 I can keep my company plan in retirement at same cost. Tricare will kick in at age 60, plus the wife works at a medical clinic and has access to good health insurance.

$65,000 does allow for wiggle room since it's a little more than I bring home now, plus we should have the mortgage paid off in 2-3 years.

Yes, just think of taxes like any other expense when planning for retirement. The nice part is that early in retirement if you rely on post-tax dollars to meet expenses, you won't usually have a lot of taxes to pay.

FIRECalc is your friend in such matters.

 

[rdjrn]

I used 70K take home with FIRECalc and the results were still good. That's considerably more than I'll need to live comfortably (in the south).

 

[REWahoo]

I used 70K take home with FIRECalc and the results were still good. That's considerably more than I'll need to live comfortably (in the south).

If by "take home" you mean "after taxes", that is not the correct number to use with FIRECalc. It doesn't know anything about your tax situation.

 

[Aiming_4_55]

When you say "results were still good" does that mean 100% success or 90% success? Just curious.

I used 70K take home with FIRECalc and the results were still good.

 

[rdjrn]

96.3% as I recall.

 

[Alan]

The best way to road test your retirement taxes is to buy a copy of turbotax and prepare a dummy return with your expected numbers. It will not be exact to the penny, but you will have a good idea of where you stand.

This is what I did about 18 months before I RE'd and it worked well. Preparing a tax return with only your pension, dividends and some capital gains etc will give you an estimate of your taxes which you will add to your $65k of expected expenses. This is the figure you then use in FIRECALC.

 

[Aiming_4_55]

The 96% seems reasonable however it really depends on your expense/spend estimate. Was your number conservative with fair wiggle room? or tight where the least bump can hurt?

For me, it might be a mental issue, as I don't feel FI or serious RE situation even with 100% success from FIRECalc.

96.3% as I recall.

 

[rdjrn]

I've considered working a couple more years and retiring at 57 just to enhance my safety factor (more nest egg, less years to spend it).

 

[REWahoo]

For me, it might be a mental issue, as I don't feel FI or serious RE situation even with 100% success from FIRECalc.

So what will be your trigger to retire? Death?

 

[brewer12345]

So what will be your trigger to retire? Death?

Like he said: his issue is "mental."

 

[rdjrn]

My "Trigger" will probably be when my company tells me to travel to Mexico to assist in starting up our sparkling new, high-tech Research facility down there. I ain't taking a bullet for any one!!

 

[REWahoo]

My "Trigger" will probably be when my company tells me to travel to Mexico to assist in starting up our sparkling new, high-tech Research facility down there. I ain't taking a bullet for any one!!

Ah, not death, just the threat of it....

 

[mh]

Oh boy.. i feel a "mexico is safe... / no it's not! .." thread hijack coming on..

 

[Aiming_4_55]

I don't want to hijack OP's thread. I posted a new thread for my concern, but if my health changed adversely, I would ER and adjust my spend numbers to be FI, even if it was earlier than planned.

So what will be your trigger to retire? Death?

 

[Aiming_4_55]

Depending on where in Mexico as some areas in USA are just as questionable. I understand your concerns tho. Be safe.

My "Trigger" will probably be when my company tells me to travel to Mexico to assist in starting up our sparkling new, high-tech Research facility down there. I ain't taking a bullet for any one!!