54 and been waiting for Rule of 55 -What now

[Unclesy]

I will be 55 in September and I like my job, but would like more time for travel. My wife(52) and I are fortunate to be in excellent health. We live in the midwest in a low cost of living area. We have zero debt and we plan to keep our home (~$400,000). We have recently purchased a new RV and truck to travel in retirement.
Retirement Assets:
$200,000 taxable investments and cash
$350,000 plan to roll out of defined benefit plans to IRA
$100,000 ROTH
$1,900,000 Stock
$250,000 Bonds
~2,800,000 total

I expect to take SS at 67 at ~$36,000 per year and my wife collecting two years later on mine at $18,000 for ~$54,000.

I keep running the numbers and think we are good and then some, but I always have doubts. I have been running numbers with a 20% market correction and everything still looks doable if we start conservative.

I plan to retire at some point mid year and live on $80,000 for the first 3 years and then reevaluate everything after that. I explain how safe I think everything is to my wife and she is afraid we will die with way more money than we should. I worry that the economy will go belly up and I will wish I never left my good job.

We have never lived on a budget and just spent less than we made while saving for kid's college, new cars, toys and paying cash for everything. I think we are living on 70,000 or so now the best I can tell. We don't feel like we are too frugal now, but would travel more with more time. I have been fortunate to work for employers with generous 401K plans with defined benefit plans as well.

I am worried about getting hit with taxes with RMDs because I never really planned much past saving for this day. Do you agree with my plan? Should I be spending more? Can I count on Social Security to be there in 12 years? Is it too late for ROTH conversions? I have so many doubts and would welcome outside input. I haven't really bounced it off anyone besides my wife who thinks I will not let us spend as much as we should in retirement.

 

[Dtail]

You look to be in good shape. I ran your numbers through Firecalc and came up with 100% success and 122k maximum spending at 100%.
It is not too late for Roth conversions.
What are your plans for medical coverage?

 

[street]

Looks like 40X expenses and a WR of 2.5 with 70K expenses a year. Will SS down the road and growth of portfolio it would appear you should be fine.

 

[Unclesy]

I plan to sign us up for a high deductible plan with Medi-Share. We also have around $30,000 in our HSA that I wish I understood the full benefits of earlier.

 

[Dtail]

I plan to sign us up for a high deductible plan with Medi-Share. We also have around $30,000 in our HSA that I wish I understood the full benefits of earlier.

That's 30k more than I have.
Will still help you.
It looks good overall.
Retire while still healthy.

 

[pb4uski]

You have a solid plan. You can spend more if you want to... I get that you could spend as much as $128k a year safely. I think SS will be there, but worst case it will be haircut about 25%, which would reduce your income by $15k a year in today's dollars, but still well under your spending level.

Actually, it is an ideal time for Roth conversions in the 12-14 years between when you retire and when SS starts. If you levelized your lifetime income at $125k a year in 2021 dollars and spent $80k, that would leave $45k for Roth conversions in your first full year of retirement. Using 2020 standard deduction and tax tables that would be $6,332 (8%) in tax on the $80k for spending and $7,302 (16%) on the $45k in Roth conversions. That 16% tax on Roth conversions is a combination of 12% and 22% tax brackets and is probably a lot less than what you saved when you deferred that income.

 

[Markola]

Congrats! Wife and I both started Rule of 55 when we were 54.

The only thing I can suggest from your post is to consider tracking your spending so you can understand and optimize it. I find YNAB to be good, easy to use software, and there are others. I love the sense of control it provides.

 

[pb4uski]

Actually, the rule is that you leave in the year that you turn 55.... since you'll be 55 in September 2021, technically you could leave now! Also, please be aware that the rulle of 55 only applies to your current employer 401k and not to any previous employer 401ks so if you have previous employer 401ks and your current employer allows transfers then you may want to transfer into the current employer 401k to give you penalty-free access to more money.

...The following additional exceptions apply only to distributions from a qualified retirement plan other than an IRA:

1. Distributions made to you after you separated from service with your employer if the separation occurred in or after the year you reached age 55...

 

[2017ish]

I'd verify the current spend rate to make yourself comfortable. Pull up your credit card bills from past year and your bank statements. Add up the spends, deduct those that are job related.

Agree with others that you look really good though. May want to consider a bit of an allocation shift to more bonds (say 40%?), particularly if you are worried about sequence of return risk.

Retire when you can if you are ready. We exited at 57/56, then DW's eyesight unexpectedly started to deteriorate just 2 years later. Dunno how quickly this will progress, but there is no cure for it and it will substantially curtail her photography hobby, as well as critter spotting underwater.

If we would have known, we'd have exited earlier with less retirement spending so as to maximize early retirement years. As it is, she would have been forced out at probably 58 due to the problems it would have caused when she was doing surgery. So you never know....

 

[USGrant1962]

Regarding Rule of 55, that is only for 401(k)s. You didn't list which of your assets are 401(k) - is it your $1.9M stock and $250K bonds?

Make sure you check your 401(k) summary plan description (SPD) for Rule of 55. While the IRS allows it, not all 401(k)s support it.

 

[Unclesy]

Regarding Rule of 55, that is only for 401(k)s. You didn't list which of your assets are 401(k) - is it your $1.9M stock and $250K bonds?

Make sure you check your 401(k) summary plan description (SPD) for Rule of 55. While the IRS allows it, not all 401(k)s support it.

I really appreciate the responses and taking the time to ask the questions. I understand if some think I am too conservative and should retire already. I am just a little nervous with stock evaluations right now and I am trying to plan for the worst possible case this side of a total collapse of the economy.

I don't want to retire and a month later the market drops 22% or more and doesn't rebound for 15 years similar to the way it did in 1966 with rampant inflation. I am troubled by the government printing all of the money making our money worth less than when we started retirement. I realize that is why we do the calculations and can't be avoided, but that is why my WR is so low. I am concerned about sequence of returns risk, means testing for SS and future tax rates. I plan to live more conservative the first few years and then ramp it up as I get more comfortable with the direction of the economy.

Now to get off the soap box and answer the question. I moved my largest 401K balance that I thankfully didn't roll out to an IRA to my current employer after I determined they supported the Rule of 55. I have more than I need (most of the bond and ~1.1M of stock) to get me to 59 1/2.

 

[USGrant1962]

It sounds like you are in great shape.

Have you tried building a simple FIRECalc model for yourself? If you do, it includes the Great Depression and the awful 1966 retirement scenario so there is a lot of the "worst possible case this side of a total collapse..." built in.

Here's one with your numbers to get you started:
https://www.firecalc.com/index.php?...y=10&goal=95&portfloor=0&FIRECalcVersion=3.0&

It includes a 25% SS haircut for conservatism, and I left the default 75/25 equity/fixed income asset allocation (AA). You can see the max spending referenced above by playing with the Investigate tab.

I pulled the megacorp plug the week I turned 55 to ensure I had the Rule of 55 available. And luckily I haven't even needed to use it.

 

[Dtail]

I really appreciate the responses and taking the time to ask the questions. I understand if some think I am too conservative and should retire already. I am just a little nervous with stock evaluations right now and I am trying to plan for the worst possible case this side of a total collapse of the economy.

I don't want to retire and a month later the market drops 22% or more and doesn't rebound for 15 years similar to the way it did in 1966 with rampant inflation. I am troubled by the government printing all of the money making our money worth less than when we started retirement. I realize that is why we do the calculations and can't be avoided, but that is why my WR is so low. I am concerned about sequence of returns risk, means testing for SS and future tax rates. I plan to live more conservative the first few years and then ramp it up as I get more comfortable with the direction of the economy.

Now to get off the soap box and answer the question. I moved my largest 401K balance that I thankfully didn't roll out to an IRA to my current employer after I determined they supported the Rule of 55. I have more than I need (most of the bond and ~1.1M of stock) to get me to 59 1/2.

Keep in mind that Firecalc and other historical sequencing based calculators are including the starting retirement year 1966 in the calculations as the worst result and conceptually helps form the basis of the 4% conservative WR.
Your ending lowest result in Firecalc gives you the same monies as your starting point.

 

[Unclesy]

Yes, I have used Firecalc, FI Calc and quite a few others. I have been running the numbers every way I can think of including after a 25% hair cut and have concluded that I should leave this year regardless of the economy. They all say it can be done safely if I manage expenses. I considered going a few years ago, but decided that I should wait till I was 55 or the year I turn 55 to easily access the funds.

I am a firm believer in doing things while we still have our health. We have active outdoor hobbies anyway and most don't have high expenses. I have been lurking off and on for a few years now and thought it would be nice to have a sounding board before I pull the trigger. I have thought about seeking professional help, but I don't think most advisors are as well versed as many on this board. I will not be turning the money over to one and I would use fee based consultation if I found someone I trusted.

 

[Koolau]

I think it's a good sign that you have your doubts. You won't make any "dumb" mistakes. I'd say you're golden, but YMMV. Good luck.

 

[cat4ever]

Regarding expenses, if you say you've spent 70K in years past, I'm guessing you aren't including the taxes and health insurance costs in that figure as they were likely withheld/paid by your employer. You need to include those costs in your Firecxalc calculations. I know we spent 90K/year while working, but for FireCalc purposes I set that at 140K/year to cover taxes and insurance. Note that we're using COBRA for insurance and not going the less expensive media-share route.