33 Trying to gauge how much longer to work

[brokrken]

Quote:

Originally Posted by Koolau Honestly, I wouldn't worry about the tax free growth as that's also available within a Roth - if you can make that switch as suggested. I've mentioned many times that I had (and to a lesser extent) have too much money in tax-deferred status. Way past 59 1/2 but it's a tax cluster flop in the making as RMDs will increase. SO, now when one is young, it's time to balance the tax-deferred, Roth, taxable accounts. Don't do what I did. Don't put TOO much in tax-deferred. It's a time bomb waiting to explode. YMMV of course since it's your money.

Good point, and agree with not putting too much in tax deferred. That's why I recommended he beef up the after tax accounts before he pulled the cord. Also, if he is only converting to Roth just to then spend it, the tax deferred growth doesn't happen

[NgineER]

Quote:

Originally Posted by ShieldWolf13 This doesn't really seem true though. I could use a Roth conversion ladder to move funds from the 401k/traditional to the Roth and withdraw the contributions after 5 years.

Hey ShieldWolf - you are at an enviable position WRT your peers. Keep minimizing taxes while making the big bucks. Convert to Roth IRA while you take out less income and optimize taxes that way. You probably need to double your Roth IRA/taxable in order to get through the five year Roth roll over ladder. Are taxes included in your $100k expenses?

Although you are in an enviable position at this point, I think you'd still need to beef up your accounts to ensure that you'd get through another 60 years.

Keep going the way you have and you'll be there in no time. Just avoid life style creep.

[Koolau]

Quote:

Originally Posted by ShieldWolf13 Interesting. I know Elizabeth Warren had a book around the same time as that called "The Two-Income Trap". I never read it, but watched a talk on it at some point

If I'm right on the source (or even if I'm not) the basic concept was the idea of the second earner falling into the various "systemic" traps.

Here's some of what I recall (don't quote me, 'cause I'm old and it's been a long time since I read the treatise on the subject.) I don't have numbers so let's stick to the principles.

Primary Earner earns more than secondary earner (by definition )

1) Every dollar secondary earner makes is taxed at THE highest level the couple pay (forget fungibility of dollars for a moment.)
2) By virtue of both w*rking, stuff that a secondary earner could have done (child care, house work, menus/cooking, etc.) may need to be at least partially farmed out. (DW cooked for 6 months after we got married. She then got a j*b and we ate out from then on.) We DID share household j*bs, so... don't go there.
3) Biggie here: Secondary pays full SS (up to the limits) BUT may not make enough over life time to come out BETTER OFF by taking SS on own record. ALL paid in by secondary under that circumstance was "lost." Secondary would have gotten 1/2 of primary without w*rking.
4) Secondary earner (perhaps) requires more clothes/dry cleaning, whatever. Requires (perhaps) secondary transportation - cars are incredibly expensive - especially per mile if only driven a few miles to work.

Pretty sure there were other issues.

I am NOT against two earners in the family. DW and I did that most of our w*rking years. I realize that some folks need the w*rk experience for fulfillment, etc. BUT I can see that DW's income was ravaged by the things I gleaned from my reading of (I think) Burns and Kotlikoff. SWAG: We'd have been better off if she had not w*rked. At best, she took a huge cut in realized pay. As always, YMMV.

[ShieldWolf13]

Another angle I've gotten some commentary on is the $100k spending estimate. That is a pretty rough average number calculated by taking gross income minus contributions to savings and taxes over a few years.


Spending has certainly decreased during COVID and we save a lot of money by not going into the office. All those lunches, dinners, drinks, and coffees out together with together and with friends really added up...particularly for me.

[Koolau]

Quote:

Originally Posted by ShieldWolf13 Another angle I've gotten some commentary on is the $100k spending estimate. That is a pretty rough average number calculated by taking gross income minus contributions to savings and taxes over a few years. Spending has certainly decreased during COVID and we save a lot of money by not going into the office. All those lunches, dinners, drinks, and coffees out together with together and with friends really added up...particularly for me.

Good point. I brown bagged it for a while back when I was trying to become financially independent (because, at the time, I hated my j*b but was wearing the proverbial golden handcuffs.) I saved a small fortune. But it was a bit of a pain. Once I reached financial independence I kind of let that slip. Heh, heh, it was about that time I began liking my new assignment - the one I had all but created for myself. Again, YMMV.

[ShieldWolf13]

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Originally Posted by Good_Life I would of course also look at your portfolio. We all have different risk tolerances and I don't know how much fixed income you have in your 401(k)/Roth etc. but it look like your portfolio might be more on the conservative side for a person so young.

There is an elevated level of cash due to selling a townhome we used to live in earlier this year. There isn't really any fixed income inside of those portfolios but there are some dividend focused stocks and ETFs in there.


We are working to get cash lower through time, but also preferring a margin of safety for upcoming events.

[pb4uski]

Quote:

Originally Posted by ShieldWolf13 This doesn't really seem true though. I could use a Roth conversion ladder to move funds from the 401k/traditional to the Roth and withdraw the contributions after 5 years.

Yes, you can withdraw contributions and conversions more than 5 years old at any time.

[pb4uski]

Quote:

Originally Posted by brokrken Maybe, but then you're taxing that money super early and missing out on years of tax deferred growth. As others have mentioned, I just don't think your numbers justify a possible 60 year retirement. You are, though, as I said, in excellent shape. I'd focus on beefing up your after tax accounts for the next 10 years or so. That, along with some market growth should really set you up.

No, the "tax-deferred growth" thing for a tIRA is a red-herring... its really the tax rate arbitrage that makes the difference.... if tax rates are the same then tax-deferred growth doesn't make a difference.

Example. Joe has $10k in a tIRA and $2k in a taxable account and a 30 year time horzizon and an estimated 6% pa return assumption.

If he converts the tIRA to a Roth then then next day he has $10k in a Roth and after 30 years his Roth will be worth $57,435 that can be spent.

If he doesn't convert because he believes the urban legend of "tax-deferred growth" then his $10k tIRA grows to $57,435 and he owes $11,487 in tax at 20%. Meanwhile, his taxable account has only grown to $8,163... so after he withdraws the tIRA, pays the tax he only has $54,111 available to spend.

Why are these different? Because the taxable account really only yields 4.8% for the 30 years because the income is taxed each year. 2000*(1+(6%*(1-0%)))^30 - 2000*(1+(6%*(1-20%)))^30 = $3,324

But let's say that the taxable account didn't have to pay taxes... perhaps it is in muni bonds, or the income is 0% qualified dividends and LTCG... then the taxable account grows to $11,487 and Joe is no better off.

Where Joe becomes better off is if he converts today at a tax rate/bracket that is lower than what he expects to pay when he withdraws the money.

[brokrken]

Quote:

Originally Posted by pb4uski No, the "tax-deferred growth" thing for a tIRA is a red-herring... its really the tax rate arbitrage that makes the difference.... if tax rates are the same then tax-deferred growth doesn't make a difference. Example. Joe has $10k in a tIRA and $2k in a taxable account and a 30 year time horzizon and an estimated 6% pa return assumption. If he converts the tIRA to a Roth then then next day he has $10k in a Roth and after 30 years his Roth will be worth $57,435 that can be spent. If he doesn't convert because he believes the urban legend of "tax-deferred growth" then his $10k tIRA grows to $57,435 and he owes $11,487 in tax at 20%. Meanwhile, his taxable account has only grown to $8,163... so after he withdraws the tIRA, pays the tax he only has $54,111 available to spend. Why are these different? Because the taxable account really only yields 4.8% for the 30 years because the income is taxed each year. 2000*(1+(6%*(1-0%)))^30 - 2000*(1+(6%*(1-20%)))^30 = $3,324 But let's say that the taxable account didn't have to pay taxes... perhaps it is in muni bonds, or the income is 0% qualified dividends and LTCG... then the taxable account grows to $11,487 and Joe is no better off. Where Joe becomes better off is if he converts today at a tax rate/bracket that is lower than what he expects to pay when he withdraws the money.

Great example, makes sense and thanks for posting. The question then becomes if OP is talking about pulling the money out 5 years after converting does the math still work?

[Katiek]

I echo the comments about your doing great and putting your family on a very solid foundation. Even if you're not ready to retire right now, you can feel secure if anything unexpected happens at work, or you decide this job isn't right for you or the hours are too long. You have the freedom to take another job that you'd like more or that may be more flexible.


But as others have pointed out, you have a lot of future ahead of you, and I would want more cushion to deal with all the things that could happen in the next 60 years, including health care costs, child expenses etc.

[JJpop]

Lots of excellent advice here.
Mine is simple, don’t even think about it.
You also do not sound like the absolute bare bones living type of person. Be realistic.

[patela6]

You're on a great path OP. Key us don't do anything stupid. These forums will provide adequate guardrails.

A lot of us in our 30s and 40s in the roughly 100k to 150k spending camp. Set your targets around age 50 and $3.5M (someone earlier said that too).
Setting specific goals like this should help your motivation. At least that's what I tell myself. 7 years and counting down! Best of luck.

[Kroeran]

You can train yourself to take pleasure in almost anything, and training yourself to take pleasure in frugality and saving is worthwhile.

It will give you options and power. Decision space. Same with investing in your health. Same with investing in a broad social network.

Try real hard to figure out how to enjoy working. Find a gang for breaks and lunch. Find a boss with mutual respect. Find work that suits your personality.

Once you get close to financial escape velocity, you will hold the balance of power with your boss, have leverage, to trade with.

Filling the day post ER is harder than it looks. Not a ticket to paradise.

You need great weather, an interest in sports, some self employment activity, interaction with family and so on.

[Vanbookie]

I live in Indian Land. 69yo, retired at 63. I agree with others, you have no idea how much money a child will set you back over a lifetime, so keep working. Maybe change jobs, as maybe that itchy time to switch careers came earlier for me than 40 yrs old for me. Pay off your house. Wifey and I have a expense budget of $95,000 or so at age 69, and have greater assets now than 6 yrs ago. But I do not expect that to continue. We have lived thru and especially easy time to increase our wealth. Don't expect that to continue.


Vanbookie

[WhenIsItTime]

You are doing great! Congrat’s.

I was in a somewhat similar situation where in my final working years my annual savings ability was still significant to my net worth. I worked a couple more years to meaningfully reduce my expected WR, get kids college funds loaded before retiring, and ensuring my non-retirement portfolio could support me. I retired in late 40’s and wanted no risk of having to work again.

I’m budgeting $25k annually for healthcare for family of 4. I am sure everyone has a different opinion/strategy on this.

[Koolau]

Quote:

Originally Posted by Vanbookie I live in Indian Land. 69yo, retired at 63. I agree with others, you have no idea how much money a child will set you back over a lifetime, so keep working. Maybe change jobs, as maybe that itchy time to switch careers came earlier for me than 40 yrs old for me. Pay off your house. Wifey and I have a expense budget of $95,000 or so at age 69, and have greater assets now than 6 yrs ago. But I do not expect that to continue. We have lived thru and especially easy time to increase our wealth. Don't expect that to continue. Vanbookie

If you believe the Bull market is winding down, how are you dealing with it? I'm pretty low equities so don't worry too much, but always like to know how others are preparing for a bumpier ride than we've had of late. Even at my age, I can still learn from others.

[daylatedollarshort]

When we had kids, DH worked while I stayed home. Evenings and weekends I took classes to brush up my tech skills after being in management and learn about something new called the Internet. When the kids got old enough to go to school I had the tech skills again to do contract work and we developed a couple of online businesses while DH worked a day job. We saved all the money from the small businesses and my contract work to ER. If the ACA had been in place back then for health insurance, it probably would have worked out for DH to drop the day job and do contract and small business work, too. After I left full-time work, former co-workers and vendors offered me some more flexible jobs, like coming back to work at my former employer as a contractor or part-time, contract work in my old industry for different clients and a sales job working from home. There's a lot of work options out there other than 8-5 with 2 weeks vacation.

If you don't like your jobs, can one or both of you work part-time, do contract work or develop a business? You have a big cushion if either option didn't work out so it wouldn't be too risky. What if you cut your spending and/or both did some combination of part-time, contract, small business or do what you love type work? You have a lot of options in between both working full-time at salaried jobs and both FIREing at your relatively young ages and never working again. You don't have enough to FIRE but you do have enough to to look for work you might enjoy more with more free time.