Need advice! Want to RE, but not sure if I can!

[flyingaway]

IMHO, you could do it by either working for a few more years or cutting your expenses down a little bit.

 

[sanjeev0276]

Looks good. Quick question, you said " I think we can live on $110k per year pre-tax". If you need $110 a year, with 4% safe withdraw rate you can draw roughly $80,000 only on $1.9 million. When you get 250K inheritance, you can pay off mortgage.
SS is great but you still have 14 years to wait. For 110K, I would say you probably need 2.5 million - 3 million investment and paid off house. This is for peace for mind.

You can always semi retire. Work 3 - 6 months a year. NOT completely retire.

 

[walkinwood]

Plug your number into ESPlanner
ESPlanner Inc.

The free version uses static investment returns, but has utility in figuring out your expenses, taxes etc. Also good for what if calculations - delaying SS, picking which account to bleed first etc.

Even though most of your $s are in tax advantaged accounts and you want ~ $100K pre-tax annually, you may not end up paying a lot in income tax as long as you have your kids as dependents. But best be sure. Plug your numbers into turbo tax to be sure.

Also as some have already suggested. You need to KNOW your expenses. Start tracking every $ today if you're not already doing so and categorize. I used Quicken to do that and kept it up for 5 years before ER.

Good luck.

 

[pb4uski]

....I want to get debt free before ER and the mortgage is the only thing left that I owe on. I would be more inclined to wait for another couple years to build up my taxable reserves. ....

I get as much peace of mind knowing that I can be debt-free with few clicks of a mouse as I would if I were debt free.

But given that you want to be debt-free, keep working.

 

[Clone]

From all of the responses so far, it is looking like 54 or so is a more likely scenario for me than 51...

One other thing to look at-

Does your 401k have a Rule of 55 withdrawal plan? If it is part of your plan, then you can withdraw money from your 401k without penalty if you retire during the year when you turn 55.

This would give you access to the 401k money. One thing that is bothering me just a bit with this big bull market is when is the music going to stop? Sequence of returns risk is huge when you are trying to stretch your money between retirement date and age 59.5. If the market takes a big ol' dump, will you be OK? Or will you need to pull cash at a penalty form your 401k or IRA?

If you are looking at 54, then it may be only a few more months to put yourself in a position where you reach the Rule of 55 position.

The important thing now is to continue developing the plan and learning about what things should be considered. I always looked at the actual date as a series of probabilities. 25% chance of retirement at 58, 50% at 59, 90 at 60, etc. The opportunity to do something different at 57 happened, and it was easy to check the numbers and bail! If we had not been working the numbers and talking about our plan for the future, it would have been very difficult to grab onto the opportunity to do something different.

 

[Erbragg1]

One other thing to look at-

Does your 401k have a Rule of 55 withdrawal plan? If it is part of your plan, then you can withdraw money from your 401k without penalty if you retire during the year when you turn 55.

This would give you access to the 401k money. One thing that is bothering me just a bit with this big bull market is when is the music going to stop? Sequence of returns risk is huge when you are trying to stretch your money between retirement date and age 59.5. If the market takes a big ol' dump, will you be OK? Or will you need to pull cash at a penalty form your 401k or IRA?

If you are looking at 54, then it may be only a few more months to put yourself in a position where you reach the Rule of 55 position.

The important thing now is to continue developing the plan and learning about what things should be considered. I always looked at the actual date as a series of probabilities. 25% chance of retirement at 58, 50% at 59, 90 at 60, etc. The opportunity to do something different at 57 happened, and it was easy to check the numbers and bail! If we had not been working the numbers and talking about our plan for the future, it would have been very difficult to grab onto the opportunity to do something different.

Thanks Clone! I have not heard of the Rule of 55. I will have to look into that. Sounds like if I am able to in my plan, that may be a real good option for me.

 

[Erbragg1]

Plug your number into ESPlanner
ESPlanner Inc.

The free version uses static investment returns, but has utility in figuring out your expenses, taxes etc. Also good for what if calculations - delaying SS, picking which account to bleed first etc.

Even though most of your $s are in tax advantaged accounts and you want ~ $100K pre-tax annually, you may not end up paying a lot in income tax as long as you have your kids as dependents. But best be sure. Plug your numbers into turbo tax to be sure.

Also as some have already suggested. You need to KNOW your expenses. Start tracking every $ today if you're not already doing so and categorize. I used Quicken to do that and kept it up for 5 years before ER.

Good luck.

Thanks! I will check it out.

 

[Doc0]

By law in 2034 SS will reduce it's benefit 23% if nothing is done by Congress. Likely nothing will get done. You are already going to take reduced benefits which will further be reduced about 10 years after you retire. Include that in your plan. If Congress acts, lucky you.

Taxes matter. The Government will collect them. I would find out how to accumulate some LT Cap loss to pair against your post tax capital appreciation in your retirement and have a good understanding of things like RMD at age 70 and what it will do to your tax picture. The same is true of 1099 work you may think you made $1000 but by the time you pay taxes double SS and medicare it's more like $700 in your pocket and that $300 estimated tax is due quarterly. Some of that is overcome by making your 1099 wage high enough but you need to know the numbers to get someone to pay you 30% more.

Retirement is a race between when your funds will expire and when you will expire. Wealth accumulation is generally some form of piling some money into an account and letting investments grow over a long time. You are in that exact dilemma of "assuming" you have enough, but spending your wealth has a long term consequence as well and it may take a decade or two before you realize you were too aggressive. I would explore various distribution models beside $110K per year to understand how you can change "in case"

For expense tracking I'm using Mint which is an online Intuit product (free). I pay for everything that I can via a Fidelity credit card which pays me cash (not airline miles) and pay it off every month. I also track my checking account in Mint. The transactions come categorized so I spend little time manually categorizing and it's very close to dollar to dollar tracking. I don't like its budgeting feature, because things like tuition don't show up as monthly expenses but it puts all the data on one screen and that's good enough to do the analysis. I don't track my investments in that program but it will do that. I think personal capital is a better aggregate portfolio tracker. I have a proprietary program I use but if I didn't use that it would be Personal Capital. The single most informative thing I ever did was to include EVERYTHING under one tracking program. It's the only way to get a real overview. Before that I used the bucket method, very non unifying and hard to get an accurate day to day understanding of net worth vs expenses. Your portfolio behaves as a whole so you should look at it as a whole. It makes things like asset allocation much more granular and you can more easily plan for things like "what if inflation happens?" Maybe a little gold plus a CD ladder is a better choice than just a CD ladder.

One thing I found useful was to get into "MySocialSecurity" at SSA.gov. This gives you a list of every income tax form you ever filed. You can then pretty easily project what quitting will look like compared to continue working. Using that info you get a better idea of how working another year or two or ten fits into your overall earnings in your life. I personally found it very illuminating. At 51 you are maybe 68% through a normal work life and you may see in the past 10 years your productivity has really taken off. Opting out too early may really rob yourself of pretty dramatic earning potential. For me this analysis showed me it was time to quit. Another year or two or four made NO DIFFERENCE, and getting out early gave me a chance to readjust my portfolio and do some Roth conversion at a lower tax rate (taxes matter). The opportunity presented and it was AMF. FIREcalc is a great tool but it isn't the whole story. The devil is in the details.

If your going to move have all of those expenses doped out ahead of time and keep them updated and understand how your going to pay for them. One thing I did was to move all of my expenses like a new roof and a new car into my working period so those expenses were all paid for before I pulled the trigger.

Best

 

[REWahoo]

By law in 2034 SS will reduce it's benefit 23% if nothing is done by Congress. Likely nothing will get done.

At some point a lynch mob of senior citizens will form outside the halls of Congress and they will act. Self-preservation is a strong motivator.

 

[Doc0]

By 2034 Millennials will outnumber boomers in terms of voting populations. Millennials already believe they are getting essentially nothing. The most expedient thing would be to just let the law do the work while the congress stands by "helplessly", and they can then offer Millennials at least something.

Best

 

[REWahoo]

By 2034 Millennials will outnumber boomers in terms of voting populations. Millennials already believe they are getting essentially nothing. The most expedient thing would be to just let the law do the work while the congress stands by "helplessly", and they can then offer Millennials at least something.

By 2034 the oldest Millennials will be approaching senior citizenship and join in the lynch mob with the rest of us. Maybe I can talk one of them into pushing my wheelchair for me...

 

[street]

By 2034 the oldest Millennials will be approaching senior citizenship and join in the lynch mob with the rest of us. Maybe I can talk one of them into pushing my wheelchair for me...

Lol

 

[pb4uski]

By 2034 Millennials will outnumber boomers in terms of voting populations. ....

Perhaps in terms of population but boomers are much more likely to actually vote than millenials.... and that scares politicians who would like to keep their jobs.

 

[Erbragg1]

One thing I found useful was to get into "MySocialSecurity" at SSA.gov. This gives you a list of every income tax form you ever filed. You can then pretty easily project what quitting will look like compared to continue working. Using that info you get a better idea of how working another year or two or ten fits into your overall earnings in your life. I personally found it very illuminating. At 51 you are maybe 68% through a normal work life and you may see in the past 10 years your productivity has really taken off. Opting out too early may really rob yourself of pretty dramatic earning potential. For me this analysis showed me it was time to quit. Another year or two or four made NO DIFFERENCE, and getting out early gave me a chance to readjust my portfolio and do some Roth conversion at a lower tax rate (taxes matter). The opportunity presented and it was AMF. FIREcalc is a great tool but it isn't the whole story. The devil is in the details.



If your going to move have all of those expenses doped out ahead of time and keep them updated and understand how your going to pay for them. One thing I did was to move all of my expenses like a new roof and a new car into my working period so those expenses were all paid for before I pulled the trigger.



Best

I have gone in and looked at MySocialSecurity and much like you, adding a few more years does very little to my projected benefit. I believe you are correct that SS will have to take a haircut at some point. In my estimates for SS income, I am assuming 20% less than what their calculator says I should get.

I also assumed a lot of my anticipated big expenditures into my estimate of expenses. I planned for new cars, replacing major appliances, etc. I just replaced my roof and windows and am redoing the kitchens and baths now. I feel good about what my expenses are going to be, but am just concerned with having to prematurely hit my tax advantaged accounts. I think my fears were confirmed by several of the folks that responded to my post. Sounds like 54 or so is a more realistic plan than 51. [emoji22][emoji22][emoji22]

 

[Doc0]

pb4uski: 20 year old mils don't vote. 2034 is 17 years away. 37 yo mils probably will vote and half us present day geezers will be dead.

Best

 

[pb4uski]

Maybe, maybe not.... however, the crisis will peak politically long before 2034, probably around 2025.

 

[pb4uski]

....I would find out how to accumulate some LT Cap loss to pair against your post tax capital appreciation in your retirement and have a good understanding of things like RMD at age 70 and what it will do to your tax picture. The same is true of 1099 work you may think you made $1000 but by the time you pay taxes double SS and medicare it's more like $700 in your pocket and that $300 estimated tax is due quarterly. Some of that is overcome by making your 1099 wage high enough but you need to know the numbers to get someone to pay you 30% more. ....

Most of us believe it preferable to accumulate long-term capital gains rather than long-term capital losses.... if I have a $100 gain and pay $15 in tax then I am ahead by $85... if you have a $100 loss and save $15 or even $25 in tax then you are $75 to $85 worse off.

Thanks for the advice, but I'll accumulate gains rather than losses.

 

[Doc0]

If we invest $100 let's say in S&P, and it goes up to $150 and the market drops in half, I now have $75 and a $25 dollar loss, so I sell the S&P at $75, book the $25 loss and reinvest in something with a similar but not the same market segment exposure and growth. Let's say you just ride it out in the S&P. The return will be about the same in either investment but I have $25 of capital loss to use when needed. To get back to $150 takes the same 100% growth in either fund and about the same amount of time since their returns are similar. Lets say both funds grow to $200 and we want to re-balance. So we sell let's say 50% or $100 keep $100 of principal invested. Let's say our tax bracket is 25%. Cap gains are 15%. You pay $15 per hundred, I pay (100-25)*15% or $11.25 per hundred, a net saving of $3.75 which I have to reinvest and you do not.

Imagine you play this scenario with $1 mil investment (as in 2008-2009 or 2000) instead of $100. Imagine you play the scenario many smaller times over the course of 30 year market drops because LT capital loss is accumulative. You wind up with similar 30 year portfolio values but with the benefit of what I consider a separate asset class of capital loss which you can pair against cap gains. You have to understand the IRS rules.

I just sold $600,000 of appreciated stock last month to stick in a home brew annuity to live on for the next 5 years. I have an accumulated LT cap loss of about 500K. Your tax bill on the 600K of appreciated stock with your method is $90K The tax bill with my method is $0 and I still have 410K of capital loss to apply against my next sale.

Best

 

[Doc0]

https://www.fidelity.com/viewpoints/personal-finance/tax-loss-harvesting

 

[retired1]

Bradaz, Thanks for your honest input. How much of a "buffer" do you think I should have to protect against something going south?

I can reduce my expenses in ER. The $115k number includes $10k in travel/vacations and $5k for entertainment. If things were not going well, I could certainly cut way back on those areas. However, the whole reason I want to retire early is to be able to travel while we are young enough and healthy enough to do it. If the numbers do not work, I think I would rather work a couple more years than to risk having to scrimp...

Is it possible to share a copy of the "Budget Plan" template? After reading this post, I feel my budget plan has lot of holes

 

[pb4uski]

If we invest $100 let's say in S&P, and it goes up to $150 and the market drops in half, I now have $75 and a $25 dollar loss, so I sell the S&P at $75, book the $25 loss and reinvest in something with a similar but not the same market segment exposure and growth. Let's say you just ride it out in the S&P. The return will be about the same in either investment but I have $25 of capital loss to use when needed. To get back to $150 takes the same 100% growth in either fund and about the same amount of time since their returns are similar. Lets say both funds grow to $200 and we want to re-balance. So we sell let's say 50% or $100 keep $100 of principal invested. Let's say our tax bracket is 25%. Cap gains are 15%. You pay $15 per hundred, I pay (100-25)*15% or $11.25 per hundred, a net saving of $3.75 which I have to reinvest and you do not.

Imagine you play this scenario with $1 mil investment (as in 2008-2009 or 2000) instead of $100. Imagine you play the scenario many smaller times over the course of 30 year market drops because LT capital loss is accumulative. You wind up with similar 30 year portfolio values but with the benefit of what I consider a separate asset class of capital loss which you can pair against cap gains. You have to understand the IRS rules.

I just sold $600,000 of appreciated stock last month to stick in a home brew annuity to live on for the next 5 years. I have an accumulated LT cap loss of about 500K. Your tax bill on the 600K of appreciated stock with your method is $90K The tax bill with my method is $0 and I still have 410K of capital loss to apply against my next sale.

Best

Ok, let say after those positions recover to $200 and that we each sell half of our positions as you suggest.

My gain is $50 ($100 sales proceeds - $50 basis) and my tax is $7.50.

Your gain is $62.50 ($100 sales proceeds - $37.50 basis) and you can deduct the $25 loss carryforward so your net gain is $37.50 and your tax is $5.62.

However, let's say things go sideways and 6 months later we both sell our remaining positions for $100... my gain is $50 and tax is $7.50.... your gain is $62.50 and your tax is $9.38.

In the end, we both have $100 of net gains and pay $15 in tax.... so what is your point?

Math is hard? It's all just timing.

I'm well aware of loss carryforwards, and have harvested loss carryforwards in the past.

 

[Doc0]

since things went sideways, in the mean time in another part of my portfolio my gold dipped into loss so I sold some, and I accumulated another $25 cap loss, I waited a month, and bought gold miners instead, to cover the wash sale rule. Gold miners are little more volatile but essentially occupies the same spot that asset allocation category and when gold turns up miners will tend to make back my money faster. in your scenario my gain is $62.50, my tax is $0 and I still have $15 cap loss to use in the future on some other trade. In the mean time you make $50 and pay $7.50 tax 3 years later my gold + miners has recovered and then some and I am still carrying forward $15 LT cap loss.

The benefit is not endless, if you are fortunate eventually every thing in the portfolio is deeply profitable and you run out of opportunity to harvest the loss, and it will run out, and it only works in taxable accounts but I have found it very useful to minimize taxes especially when re balancing. I consider moving some stocks into muni's a re-balance.

Part of the reason it works because during the portfolio accumulation phase you are constantly adding new money (new tax lots) to the portfolio, which haven't yet had time to become deeply profitable and the new money is often subject to loss in a downturn, even though the old money is profitable Since you can choose which lots to sell, sell the losers book the loss and repurchase something similar but not the same. The overall quality of he portfolio remains about the same. You have to pay attention to when the new lots become long term otherwise you will accumulate short term loss which generally is not as useful. Unless you're a trader.

I use 3 popular brokers to house my portfolio and they allow for tracking basis and choosing tax lots when selling. I'm sure most all of them do these days.

I use DFA funds through an adviser which are very cheap, very efficient, and has a wide variety of funds with similar returns and asset mixes that are different enough to avoid wash sale issues. My adviser has software that keeps close track of tax consequences for me. Every time I trade I am clear on my tax consequence. Vanguard has enough fund variety to get the job done as well, but not as good as DFA. I manage my daughters portfolio with Vanguard funds.

That's my point.

Let me post another couple links which explains the utility of this approach. I'm not sure why people would keep writing articles on this technique if it wasn't useful? Maybe they do not understand the math either. I think the horse has been pretty much beat to death so I'll let him RIP. You pays your money and takes your choices. If you need to have the last word be my guest.

Tax-Loss Harvesting: Reduce Investment Losses

Using Tax Lots: A Way To Minimize Taxes

Best

 

[pb4uski]

I guess that I just invest differently from you Doc, as I rarely have significant losses to harvest. As a former CPA who worked in finance I fully understand the benefit and on those rare occasions that I have had significant losses I took full advantage of harvesting losses.

You think losses and loss carryforwards are the cat's meow.... I think it is just a timing thing and a useful tool but that it is better to avoid losses in the first place. I guess that we'll agree to disagree and leave it at that.

 

[Erbragg1]

Is it possible to share a copy of the "Budget Plan" template? After reading this post, I feel my budget plan has lot of holes

Are you asking to see the details of my planned expenses?

 

[Doc0]

I invest using a more or less standard "modern portfolio theory" portfolio using low cost funds and ETF's and a few stocks like BRK.B. I'm split about 70% post tax and 30% pre tax, and historically 70% equities / 30% bond or bond equivalents since I am investing in alternatives which are bond equivalent in the bond aspect of my portfolio. Presently I'm 58:42. The equivalents have a higher return but similar correlation to bonds. I use a program called QPP from Quantext to try and adjust volatility but that program is no longer available. I try for best tax efficiency in post tax equities. Also GLD and REIT exposure, and something close to 50:50 foreign:USA in both stocks and bonds with a bias toward USA, aka standard format

I agree it's best to not loose money, but sometimes the market doesn't agree. Whoda thunk GE would be $59 in Sep 2000 and $26 3 years later? Whoda thunk S&P would be 1500 in 2007 and 700 in 2009? Prime times to harvest some loss and reinvest. I'm not hung up on tax loss harvesting but neither am I going to look a gift horse in the mouth.

I get the best of both worlds, I get to consider your wisdom, and I mean that seriously and I get to eat a ham sammich funded by the tax money I saved.