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What are your strategies for the in between time-ER to Roth/SS
Old 06-20-2014, 03:39 AM   #1
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What are your strategies for the in between time-ER to Roth/SS

I am still in the early planning phases. (Haven't seriously tracked expenses) I am 40yo and hoping to retire in my early 50s. At that time I will get a decent pension but take an obvious hit in income. Then in my 60s when I can start withdrawing from retirement accounts and SS so it will rise significantly.

I could semi retire and work part time.
I could stay full time and bank my entire pension in a 1year work/retiring one year earlier.
I could be more frugal now and build up my investments.

I think it gets a little dangerous when you start planning to spend money during those in between times with the anticipation you will use the future earnings from retirement funds to pay off that debt; for example a mortgage.

How does this impact your planning?
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Old 06-20-2014, 05:53 AM   #2
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Difficult to do at your age, but I would try to estimate what I would need at retirement. Once you know that, it's easier to determine how much to save and in what vehicles (401k, Roth, Trad IRA, taxable, etc.).


One trick is to determine your needs over various time periods (time from ER to Pension), Pension to 59 1/2, start of SS, etc. You can build spread sheets to see if can work out, based on projected spending.

Don't forget inflation in your planning

Throw in some slack for miscalculations (e.g., you think you'll spend 50K but you really need 60K, etc.)

It will become more obvious as you get closer when it is time to pull the trigger. Right now, "saving" is even more important than investing (though investing is vital!)

I personally favor Roths before anything else, but that will depend on your estimated tax bracket at retirement (another wrinkle to think about - difficult since you don't know what taxes will be in 10 or 15 years.)

The main thing is that you have begun the process. Learn all you can and apply it. DO be as frugal as is comfortable with "living for today" - you may not get to ER (not to be a downer, just a realist). Also, if you have a partner, you need to include him/her in the planning and execution.

If you want this - it is already yours (hope that doesn't sound too new-agey.) You just have to work through the details. Best of luck because YMMV.
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Old 06-20-2014, 06:14 AM   #3
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I could semi retire and work part time.
I could stay full time and bank my entire pension in a 1year work/retiring one year earlier.
I could be more frugal now and build up my investments.
Of the three options you mention, the one most in your control is being more frugal and building up your investments. You don't know what the landscape will be for working full or part time. Your pension may not be reduced or even eliminated. For example, in my case Megacorp changed the pension formula when I was 41 and then froze future pension growth when I turned 49. The moves knocked about 15-20% off of my pension. For others they were laid off before they expected and had great difficulty finding full or part time work.

My recommendation would be to build up your savings/investments as much as possible.
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Old 06-20-2014, 06:18 AM   #4
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I wish I could say that I planned to have taxable funds sufficient to carry me from ER until 59 1/2, which is really your most viable choice for that period of time from ER until penalty free withdrawals from tax-deferred retirement accounts can be made. It worked out that way, but not because I planned it, but more because we are LBYM and had excess income after maxing out 401k, IRAs and HSAs and the taxable account is just where the saving ended up. At the time, the taxable account was earmarked for college costs but when DD went we found that we could pay for her college costs from cash flow so the taxable accounts became free to support our early retirement. You are at an advantage in that you see the problem and can plan a solution.

Another thing got you to consider is that some 401k plan allow penalty free withdrawals if you leave service after you turn 55 so you can gain up to 4 1/2 years of access to those monies.

There are two views on your debt question and IMO at the end of the day it comes down to risk tolerance. Some people just can't sleep at night with mortgage payments and not a steady source of income and prefer to retire debt free. Others (like me) are fine having mortgage payments because they believe that over the long haul that the income received from their investments will exceed the interest paid on the mortgage and they have comfort in knowing they could pay off the mortgage at any time with a few clicks of a mouse. I would not want to carry a mortgage unless I knew I could easily pay it off if I want to or had a steady source of income (like a job or pension or SS).
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Old 06-20-2014, 06:46 AM   #5
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Also, if you have a partner, you need to include him/her in the planning and execution.
Yep, make sure the spouse keeps working at a great job and money is no problem.
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Old 06-20-2014, 06:49 AM   #6
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Health care premiums are a real wild card here. For my ER I have made sure I have enough post tax savings so I can control my Taxable income in order to keep PPACA premiums low. You are young enough to build a big Roth account and that will allow much flexibility for the future unknowns.
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Old 06-20-2014, 03:10 PM   #7
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If you can stick it out until 55, then you may find that your pension will hit a 'sweet spot' for payout benefit.

And you may want to find out if your companies retirement plan will also let you tap into it at 55 w/o the 10% early withdrawal penalty.

I will be entitled to a pension at my company and when I use the modeling program they have on the benefits page, I find that there is a significant step up in the benefit payout if I work until I am 55 compared to if I quit before then.

And, I verified with my 401k plan that if I quit at age 55, then I can draw out of the 401k with no penalty.

These two sources of income streams are part of my plan for ER to SS (age 70 for me) - along with a percentage coming from after tax investments to pay our estimated expenses.
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Old 06-21-2014, 04:46 PM   #8
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I'm not sure that I see the problem. Are you saying that you'll have more annual income than you need when you can access your tax deferred retirement accounts, but not enough income before that?

If you're currently contributing to something like a 401k, I'd reduce the contribution to just enough to get the company match, then save the extra in after-tax investments (I'd consider paying off the mortgage as one of those investments).

You can also look at "substantially equal periodic payments" - aka 72(t)(2) - as a way to access some of the qualified money sooner.
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Old 06-21-2014, 07:52 PM   #9
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My current plan is to FIRE at 45 and live on after tax savings until at least 60, with the possibility of drawing from my 457 account if needed. I've been looking at this in firecalc lately, putting in just my after tax portfolio and a 15 year time horizon to give me some comfort the after tax $ will last long enough.
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Old 06-21-2014, 08:34 PM   #10
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My current plan is to FIRE at 45 and live on after tax savings until at least 60, with the possibility of drawing from my 457 account if needed. I've been looking at this in firecalc lately, putting in just my after tax portfolio and a 15 year time horizon to give me some comfort the after tax $ will last long enough.
This has been my plan so far, too. I ERed 5 1/2 years ago at 45 and did much of my planning (homemade spreadsheet) to get me to age ~60 intact. Having run Fidelity's RIP program (I am a client), the outlooks after age ~60 only improves when I can begin tapping into my "reinforcements" which are (a) unfettered access to my IRA, (b) my frozen company pension, and (c) Social Security.

I have always split up my overall ER plan into two parts - the first and more difficult part which is getting to age ~60 and the second part which is beyond age ~60.
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Getting to SS
Old 07-07-2014, 06:26 PM   #11
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Getting to SS

I qualify now for retirement with no penalty for withdrawing from 403b (I'm 56) but will wait a year. The "plan" is
-- semi-retire & work half time for the next 3-4 years at about 40% of pay while withdrawing 4.5-5% annually from my 403b. This is about 3% of the total portfolio
--DW also will either consult or take a part-time gig for 4-6 years, at least until she turns 55. Then we can rollover her 401 into an IRA and withdraw using the 72t until she is 59.5 or older. We may not need the 72t, however.
--at 62, I'll recalibrate; if the market goes down or we are in a danger zone use SS as a safety blanket to get DW to full retirement (her SS will be higher) or preferably, wait until full retirement age for SS. One we are both on SS, bring back withdrawal percentage to 3-4%.
--We have about 8% outside of sheltered accounts, but being able to withdraw from mine without a penalty is a big help, although with healthcare coverage.
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Old 07-08-2014, 01:03 PM   #12
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Planning on retiring at 50, and will use taxable accounts to get us to 59.5. About 50% of our investments are in taxable accounts.
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Old 07-08-2014, 01:16 PM   #13
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We did not have a retirement strategy in our early 40's but we did have financial strategy that complemented our eventual retirement strategy.

I worked in the high tech sector. Over the years I saw lots of downsizing and people with good incomes who lived payday to payday. With 2 children and a wife who was a homemaker, I did not want to get caught out in this bind.

Our strategy was simple. Pay of the mortgage as quickly as possible. Avoid all consumer debt. Forget new cars all the time. We took good vacations but did most of our own home renos. I remember my boss at the time telling me that I should live a little and get a new car on lease. Saved and invested the rest-all commissions and bonus money, and eventually stock option excercises. Worked well for us.

Fast forward eighteen years. I retired, FIRE, at 59. At the time my former boss could not understand that...he expects to work to 65 because he has an expensive lifestyle. We prefer to travel.
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Old 07-08-2014, 01:39 PM   #14
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Planning on retiring at 50, and will use taxable accounts to get us to 59.5. About 50% of our investments are in taxable accounts.
Our plans are alike in this manner. As I posted earlier, I split my ER plan into two parts with the more important one getting to age ~60 using only the taxable account. This means the taxable account has to be pretty big in terms of its portion of the overall portfolio. I ERed at 45 in 2008 so I ended up with about 65% in taxable. Fewer years in ER prior to age ~60 would not require as much in taxable, for sure. I hope your plans works as well as mine has so far.
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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 07-08-2014, 01:50 PM   #15
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Starting at age 50 will get money from:

1. 401k (equal lifetime payments).
2. 2 small pensions.
3. Roth contributions (not earnings).
4. Proceeds from sale of house (if needed).
5. Start IRA to Roth conversions which will be available 5 years later (age 55).

At age 65 will add another pension plus social security.
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Old 07-08-2014, 03:09 PM   #16
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I wish I could say that I planned to have taxable funds sufficient to carry me from ER until 59 1/2, which is really your most viable choice for that period of time from ER until penalty free withdrawals from tax-deferred retirement accounts can be made. It worked out that way, but not because I planned it, but more because we are LBYM and had excess income after maxing out 401k, IRAs and HSAs and the taxable account is just where the saving ended up. At the time, the taxable account was earmarked for college costs but when DD went we found that we could pay for her college costs from cash flow so the taxable accounts became free to support our early retirement. You are at an advantage in that you see the problem and can plan a solution.
Ditto. At age 40, our taxable account was only around 6 month's pay. It was an emergency fund, college fund, used car fund, etc. I never really thought of it as part of our retirement plan. We ended up paying for college from regular cashflow, had no emergencies, and continued LBYM in a major way, while household income was continuing to grow. So despite continuing to max-out all tax-deferred accounts, the taxable account grew rather quickly and unexpectedly to a point that made ER possible at 52. We won't touch tax-deferred funds or SS until needed, which could be mid-to-late 60s.

I would definitely recommend your 3rd alternative: "be more frugal now and build up my investments." Just do it in the after-tax account and make LBYM a religion.
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Old 07-08-2014, 04:20 PM   #17
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We are building up our taxable account. My pension will cover about 1/2 of our expenses for the first 10 years, so I need money to fund the rest. Then, SS will start (approximately), and we'll only need about 1/4 of our expenses to come from the portfolio. I plan to use the taxable from 57 to 67, even though I could access our retirement accounts after a few years.
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Old 07-08-2014, 05:47 PM   #18
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54 now, retire at 56. I need ~$40K to retire, and I added in a 50% cushion

Rental income of ~$75K until 65. It's actually projected at $130K (~$295K gross), but I figure that there are many unknowns.

Investment income added in at ~62 ($1M portfolio now)

Sell rentals at 65, buy farm/ranch and rent out
Pension income added in at 65

SS added in at 70

That's it in a nutshell.
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