43 and living life in NY & FL - Am I close to FIRE or far far away?

[HI Bill]

...Another scenario allows me to spend 100K a year (35K a year on "necessary" expenses and 65K on "fun" expenses) with a 97.4% rate of success if/when I receive my share of an inheritance (probably about 500K) when my parents pass away at a ripe old age many moons from now (hopefully).

As for my AA, I'm mostly invested in stocks in (65% in a diversified mix of individual stocks, ETFs, some mutual funds, domestic and international 401K funds, etc.); 10% in a variable indexed equity annuity, 3% in PE lending fund, 2% in a REIT fund; 12% in CDs; and 8% in cash.

Does this seem doable or completely unrealistic?

$72 annual spend may be doable; the $100K is too risky, IMHO; with the uncertainty of timing and size of an inheritance, the SORR may have you running out of $ before you hit SS age or receive the inheritance if your withdrawal rate is greater than 3.5%, roughly. What's your allocation of investments between tax-deferred and taxable? Do you have enough taxable accounts to draw from, or will you use a SEPP (IRS Rule 72t) to get you to 59.5?

P.S. In most states, assets owned prior to a marriage are not subject to splitting during a divorce. However, there is a huge financial risk to you, especially if you and her assets are disparate in size, and/or your spending preferences are largely different (e.g., frugal vs. extravagant).

 

[beeboy]

$72 annual spend may be doable; the $100K is too risky, IMHO; with the uncertainty of timing and size of an inheritance, the SORR may have you running out of $ before you hit SS age or receive the inheritance if your withdrawal rate is greater than 3.5%, roughly. What's your allocation of investments between tax-deferred and taxable? Do you have enough taxable accounts to draw from, or will you use a SEPP (IRS Rule 72t) to get you to 59.5?

P.S. In most states, assets owned prior to a marriage are not subject to splitting during a divorce. However, there is a huge financial risk to you, especially if you and her assets are disparate in size, and/or your spending preferences are largely different (e.g., frugal vs. extravagant).

Thanks HNL - really appreciate the advice and share your concerns. To answer your questions - 535K of the 1.7 mil is tax deferred (in a 401K and not accessible without penalty until 59.5). The remaining 1.165 mil are all taxable assets.

The marriage thing really scares me and is definitely a wild card. We would definitely have a prenup, but it is so scary seeing what can happen when divorce (and splitting of assets) occurs. As I said, looking at the situation that my friend is currently in is truly turning me even more off to that whole can of worms. But, I'll be as careful as I can and, if I do decide to go through with it, hopefully have protection with the prenup.

 

[HI Bill]

535K of the 1.7 mil is tax deferred (in a 401K and not accessible without penalty until 59.5). The remaining 1.165 mil are all taxable assets.

Taking 4% of $1.1M is only $44K. You'd need to bridge the gap to $72K or so of at least $28K. I think you should look into how much income could be thrown off by taking SEPP (substantially equal periodic payments) under IRS Rule 72t. SEPP is based on the RMDs, which are based on life expectancies, and other factors. Doing a rough calculation, if your life expectancy is 40 additional years, the SEPP could provide about $13K of annual funding (less taxes).

 

[beeboy]

Taking 4% of $1.1M is only $44K. You'd need to bridge the gap to $72K or so of at least $28K. I think you should look into how much income could be thrown off by taking SEPP (substantially equal periodic payments) under IRS Rule 72t. SEPP is based on the RMDs, which are based on life expectancies, and other factors. Doing a rough calculation, if your life expectancy is 40 additional years, the SEPP could provide about $13K of annual funding (less taxes).

I thought you were allowed to estimate taking 4% from the total nest egg, not just the taxable part, for the purposes of calculating whether it will provide enough yearly income? Would be strange if that wasn’t the case since you’ll have access to that taxable portion at some point down the line.

 

[HI Bill]

I thought you were allowed to estimate taking 4% from the total nest egg, not just the taxable part, for the purposes of calculating whether it will provide enough yearly income? Would be strange if that wasn’t the case since you’ll have access to that taxable portion at some point down the line.

For the overall %, you're right. However, where you're able to take the $ from matters.

If you were to take $72K annually from a starting pool of $1.2M, this is 6% effective withdrawal rate. Then, if you hit a really bad sequence of returns, you may be forced to tap the tax-deferred $ early. The risk is much higher, as the effective withdrawal rate for the $1.2M would be 6%, rather than the recommended 3.5-4%.

If you run Firecalc on the $1.2M with a 6% withdrawal rate, the results won't be so favorable, and you'll see that the SORR means that you could run out of $ in that portfolio starting 12 to 13 years after beginning distributions, with a high % of runs failing.

The question as to whether you should take SEPPs requires requires two-part modelling, IMHO, because you're not going to take SS for at least 22 years, and won't be 59.5 for another 16 years. This is the crux of the SORR impact on wanting to retire many years prior to fixed incomes kicking in.

Let's say you don't take SEPPs, and you withdraw 6% annually from the $1.2M. In 13 years, after a really bad SOR, you deplete that fund. You still have the tax-deferred accounts, but they've also fallen in value. You're not yet 59.5, so the only way to access the $ penalty-free is to use SEPP. But the RMD for someone who's 55 wouldn't be enough for you to live on until SS kicks in. You'd end up having to take SS early, deplete the tax-deferred account, and possible return to w$rk. I know this is really worst-case scenario, but we like to plan for that, here (or nearly worst-case).

Everyone, please shoot holes in my thinking!

 

[beeboy]

For the overall %, you're right. However, where you're able to take the $ from matters.

If you were to take $72K annually from a starting pool of $1.2M, this is 6% effective withdrawal rate. Then, if you hit a really bad sequence of returns, you may be forced to tap the tax-deferred $ early. The risk is much higher, as the effective withdrawal rate for the $1.2M would be 6%, rather than the recommended 3.5-4%.

If you run Firecalc on the $1.2M with a 6% withdrawal rate, the results won't be so favorable, and you'll see that the SORR means that you could run out of $ in that portfolio starting 12 to 13 years after beginning distributions, with a high % of runs failing.

The question as to whether you should take SEPPs requires requires two-part modelling, IMHO, because you're not going to take SS for at least 22 years, and won't be 59.5 for another 16 years. This is the crux of the SORR impact on wanting to retire many years prior to fixed incomes kicking in.

Ok. Yes, that makes more sense (you scarred the bejesus outta me for a minute [emoji23]). I will be 46 and more than half a year old when I retire so really it’s only 13 years until I hit 59.5. Regardless, I know nothing is 100% certain (not only the markets, but unforeseen expenses and life events, etc.), especially when one retires (or FIREs) so far before traditional retirement age. Perhaps I should look into taking SEPPs at some point if need be. But, I’m hopefully my basic plan has a high degree of success at this stage.