Retire in 6 years

[K. B. Sharkstooth]

Hi everyone. I've been lurking on this board for a few months now. What a wealth of information.
I'm 44 and my wife is 56 and we plan to retire in 6 years. We have a net worth of 1.2 million equally divided between retirement accounts, non retirement accounts and equity in our house and a beach condo. With additional savings and appreciation we should have 1.8 million in 6 years.
We will also have 40K a year in a pension not tied to inflation and my wife SS at ~ 20K a year.
We think that should be enough but would like to here from people on the board regarding this.
Our retirement and non retirement accounts are ~ 90% in equities. Index funds, Mutual Funds and individual stocks. We are in the process of diversifing so that 50% is in Bonds. Also we have stock options that we are exercising yearly and holding for a year to keep the capital gain costs low. With the options and the capital gains on the stocks that we have to sell in order to diversify I think we will be thrown into AMT every year before we retire. Anybody got any ideas on how to avoid this?
BTW. K. B. Sharkstooth is not my real name it's what I want to be doing in 6 years. At Kure Beach looking for sharksteeth.
Thanks for the advice.
K. B Sharkstooth

 

[unclemick]

With the amounts you have, take a real hard look at NOT diversifying - at least not until after you retire. Stock options - I'm not conversent with - so - can you defer cap gains - ?? or is the stock too volitile for your taste.

 

[Jarhead*]

Hi everyone. I've been lurking on this board for a few months now. What a wealth of information.
I'm 44 and my wife is 56 and we plan to retire in 6 years. We have a net worth of 1.2 million equally divided between retirement accounts, non retirement accounts and equity in our house and a beach condo. With additional savings and appreciation we should have 1.8 million in 6 years.
We will also have 40K a year in a pension not tied to inflation and my wife SS at ~ 20K a year.
We think that should be enough but would like to here from people on the board regarding this.
Our retirement and non retirement accounts are ~ 90% in equities. Index funds, Mutual Funds and individual stocks. We are in the process of diversifing so that 50% is in Bonds. Also we have stock options that we are exercising yearly and holding for a year to keep the capital gain costs low. With the options and the capital gains on the stocks that we have to sell in order to diversify I think we will be thrown into AMT every year before we retire. Anybody got any ideas on how to avoid this?
BTW. K. B. Sharkstooth is not my real name it's what I want to be doing in 6 years. At Kure Beach looking for sharksteeth.
Thanks for the advice.
K. B Sharkstooth

Sharkstooth:
You should be in fine shape in 6 years. (In my opinion, if you were highly motivated, you could probably figure out a way to "pull the pin" before the 6 years were up.)
Reducing your exposure to equities is something I would certainly do. With your net worth, and future pension, and soc. securities benefits, in my opinion, there is no need to have exposure to the risk of the stock market. (You'll want a smoother ride when you are in not in accumulation stage.) A 50% equity exposure should (at your ages be enough).
Regarding avoiding AMT exposure, I doubt if anybody on the board could answer that for you. That is something that your CPA, having full knowledge of your entire financial situation would find challenging.
In any case, welcome to the board.
Appears to me that the Sharktooth family is in very good financial shape.
Regards, Jarhead

 

[K.B. Sharkstooth]

With the amounts you have, take a real hard look at NOT diversifying - at least not until after you retire. Stock options - I'm not conversent with - so - can you defer cap gains - ?? or is the stock too volitile for your taste.

Hi Unclemick,
Why shouldn't I diversify with the amount I have? And why should I wait to diversify until I retire? How would that benefit me?
In regards to the options, my wife has these options every year back to 1996 and they make us way over invested in this one company so in attempt to diversify we decided to exercise some every year and sell the ones we exercised the year before and buy bonds. Not a good idea?
Thanks for the advice.

Thanks,
K. B. Sharkstooth

 

[K. B. Sharkstooth]

Sharkstooth:
You should be in fine shape in 6 years. (In my opinion, if you were highly motivated, you could probably figure out a way to "pull the pin" before the 6 years were up.)
Reducing your exposure to equities is something I would certainly do.  With your net worth, and future pension, and soc. securities benefits, in my opinion, there is no need to have exposure to the risk of the stock market.  (You'll want a smoother ride when you are in not in accumulation stage.) A 50% equity exposure should (at your ages be enough).
Regarding avoiding AMT exposure, I doubt if anybody on the board could answer that for you.  That is something that your CPA, having full knowledge of your entire financial situation would find challenging.
In any case, welcome to the board.
Appears to me that the Sharktooth family is in very good financial shape.
Regards, Jarhead

Hi Jarhead,
Thanks for the words of encouragement. If it were up to me we would retire now. My wife doesn't think we have enough money yet with Monte Carlo and all.
I guess we'll use our retirement accounts to diversify out of equities to avoid capital gains since we are bumping up against AMT. I don't want to hit AMT again which happened one time before because of 20k capital gain from a managed account. I manage my own accounts now.
BTW, Where do most people get the actual money they spend? I assume dividends and bond returns. I need to learn more about bonds. I haven't found a thread on that topic.
Thanks again
K. B. Sharkstooth

 

[cute fuzzy bunny]

One line of thinking is that the larger ones assets, the more one can think about reducing risk by reducing the number of asset classes one is involved in. For example, most of Bill Gates' investments are of the rather staid fixed income variety.

As far as monte carlo goes, we may be creating more complexity than needed. If you have ~25x the amount in your portfolio than you expect to need to spend annually, you're probably ok to go now.

If you're a big spender, it doesnt look like you have enough until the pensions kick in. Sell the second home, simplify your life a little, and you could enjoy 6 extra years of sleeping until 10am and filling a good number of jars up with sharks teeth.

Monte carlo has a lot of detractors when it comes to analyzing the stock market. The problem is uncertainty vs risk. Risk assumes you know what the distribution of future returns might be...and thats the primary input to the simulation. The future distribution on stock market returns is not particularly predictable. Using historic data certainly gives one a good idea as to how well they'd have done in the past.

Watch how the same people who laughingly throw out "Its going to be 'different this time', right?!" also expect lower returns in the future than in the past. What a paradox!

As far as your asset allocation, most analyses show that in portfolio mixes of more than 75-80% stocks, you are taking on a lot of extra risk for not a lot of extra return. Same for those under 30-35% stock...you give up a lot of extra return for not a lot of reduced volatility.

I could be wrong, but if you believe in long term historic data as a predictor via monte carlo, and you can see that our equity valuations are WAY above the historic means, you have to start thinking that equities may not be where you want most of your assets...

 

[brewer12345]

BTW, Where do most people get the actual money they spend? I assume dividends and bond returns. I need to learn more about bonds. I haven't found a thread on that topic.
Thanks again
K. B. Sharkstooth

Sharktooth: Most people get dough from interest on bonds, dividends from stocks, and some capital gains (possibly pension and SS, too). I wouldn't get too hung up on getting your income from portfolio cash flow versus cap gains. What you really care about is total return rather than cash flow, since you can always liquidate a small portion of your portfolio, if that is where all the return is, and it is usually pretty tax-efficient.

If you are interested in learning about bonds, start a thread asking questions and you are sure to get lots of helpful responses.

 

[unclemick]

I mis - spoke. What I should have
said was diversify to the extent possible while avoiding triggering AMT. Perhaps completing the process - ? when in a lower tax bracket in retirement? Can you live off petty cash for a couple of years in retirement - complete your diversification - and then have pensions/SS kick in?

The caveat about current high valuations is appropriate.

 

[John Galt]

Hi unclemick! I would be very interested in how many
visitors here pay no federal income tax. I had no idea
this would be my situation, but if you have total control over your income and are living off your savings to
some extent, it's pretty easy. So, I am asking. For
those already ERed, are you paying no income taxes?
Was it a surprise? It was for me.

John Galt

 

[Surfs_Up]

John Galt,
Next year will be my first year of ER tax wise and I plan to pay little to no taxes for the forseeable future....until I start tapping into my IRAs. I'm curious what the maximum yearly income you can have and still pay no taxes? I'm currently a California state resident, so state taxes would also be a consideration.

Surf

 

[retire@40]

I'm curious what the maximum yearly income you can have and still pay no taxes?

It depends on your situation based on whether you are married, single, or head of household. Then it depends on how many dependents you are claiming, and if you itemize or take the standard deduction.

But as an example, if you are married with one dependent and claim the standard deduction, you can make about $29,000 before any FEDERAL tax would be due.

 

[K. B. Sharkstooth]

If you're a big spender, it doesnt look like you have enough until the pensions kick in.  Sell the second home, simplify your life a little, and you could enjoy 6 extra years of sleeping until 10am and filling a good number of jars up with sharks teeth.

Hi TH,
Thanks for the information. I don't think I'll have enough until the pension kicks in. Or at least my wife doesn't think so and that's what matters.
I can't sell the 2nd house because that's where I find the sharks teeth. It's actually a 1 bedroom condo that's about to fall into the ocean that I bought 6 years ago for $70,000. Now, thanks to a federal grant it's going to be a new 2 bedroom , 2 bath condo across the road worth $300,000. BTW, I've got 2 pint jars full of sharksteeth already.

Thanks,
K. B. Sharkstooth

 

[cute fuzzy bunny]

Then sell the big house and move into the tooth gathering one!!!

 

[Jarhead*]

Hi unclemick!  I would be very interested in how many
visitors here pay no federal income tax.  I had no idea
this would be my situation, but if you have total control over your income and are living off your savings to
some extent, it's pretty easy.  So, I am asking.  For
those already ERed, are you paying no income taxes?
Was it a surprise?  It was for me.

John Galt

John: Enjoy it while you can.
As you stated, it is relatively easy not to pay income tax if you have neither a defined benefit retirement, or an annuity program. I have largely escaped the IRs for the last 17 years, but my times coming to pay up when my RMD starts in about 4 years. (I'll be happy to pay when I consider the alternative.)

 

[farmerEd]

So, I am asking.  For
those already ERed, are you paying no income taxes?
Was it a surprise?  It was for me.

John Galt

Yep, count me in...I no longer pay federal income taxes and pretty sure state was zero or close to it...but then again with a wife and 4 kids, thats a lot of deductions...I think I can make close to 55K or so and still not owe any fed tax....one of the things I really, really enjoy about having er'ed and downsized my life...my last full year of work I paid well over 100K just in federal taxes...and that s*cked!

 

[Cut-Throat]

Yep, count me in...I no longer pay federal income taxes and pretty sure state was zero or close to it...but then again with a wife and 4 kids, thats a lot of deductions...I think I can make close to 55K or so and still not owe any fed tax....one of the things I really, really enjoy about having er'ed and downsized my life...my last full year of work I paid well over 100K just in federal taxes...and that s*cked!

I always look at income taxes as a nice problem to have. I hope someday I have to pay six figures in income taxes. Life will be very good

 

[farmerEd]

>>I always look at income taxes as a nice problem to have. I hope someday I have to pay six figures in income taxes. Life will be very good

There are worse problems to have I suppose...but when you are self-employed, and you are actually sitting down and writing those checks and signing them yourself (as opposed to just having things withheld) and figuring out how many hours you worked/billed each year just to send it to the govt it gets discouraging...I live on a fraction of what I used to, and am much happier to NOT have to pay the taxes...

 

[John Galt]

And I am delighted, ecstatic, elated and happy as a pig in slop to be paying -0- fed. income tax. They would
just waste it anyway.

John Galt

 

[unclemick]

I file single - even at twenty k last year - still had to pay - at least it's not as bad as working.

I can hardly wait to tap my IRA - then taxes will jump.