analyze my FIRE dream...

[joebloe]

Age: 43, married w/ 1 kid
Debt: zero
Cash saving: $2.0 mil
SEP-IRA: $470 (all in Vanguard lazy fund)
rental income: $7k/mo net

One of my scenarios is to FIRE in 2014 with MAGI of no more than $78K passive income from rental properties. This will keep my federal tax rate in 15% range and at 400% poverty level to qualify for obamacare exchange subsidy. There's no ss and medicare tax to pay. State income tax is 6%. This will result in $62K after tax income.

The IRA is left alone. What if I pass away without touching it...do my kid inherit it? Do I have to withdraw from it if I don't want to?

My $2mil cash hoard is withdrawn equally over 25 years, at $80k per year.

$62K+$80K annually is $12K monthly cash to live on for the next 25 years. I'll run out of cash at 68yo, at which ss and medicare kicks in. I then sell my properties as needed. The IRA is passed on to my kid.


What do you think? Am I missing anything important?

 

[GrayHare]

With $2m in cash, seems you are passing up lots of yield/growth just to get some subsidy. An IRA will be inherited by whoever you specify to its custodian as beneficiary.

 

[joebloe]

With $2m in cash, seems you are passing up lots of yield/growth just to get some subsidy. An IRA will be inherited by whoever you specify to its custodian as beneficiary.

I understand but current saving rates are pathetic. 0.5% saving return or $10k more per year will simply kick that extra income into the higher 25% tax bracket plus I lose all my subsidies. And then there's the added headache and liability of looking rich on paper. Not much net income gained at the end of the day.

 

[GrayHare]

So use T-bills instead, or TIPs to protect against inflation. During a 25-year period of historically average inflation the buying power of $2m will be reduced by more than half. Basically throwing away $1m to get some subsidy worth less would be a huge mistake IMO.

 

[pb4uski]

....What do you think? Am I missing anything important?

I think you are probably well positioned to retire if your rationalize your living expenses.

I think you also need to take another look at your planned withdrawals because it isn't feasible to drop from $142k a year to SS when you run out of cash at 68yo without a lot of pain. Also, even when you are in your early 60s $142k a year won't have nearly the same buying power as it will today so you might suffer a slow steady decline in buying power.

To combat this inflation risk I think you need to invest in a prudent portfolio of bonds and stocks (say like Wellington - or at least 40% stocks). Also, try running your situation through Quicken Lifetime Planner and see when/if you run out of money.