52 yo with another can I do it.

[viking111]

Hello all. New in here. Hope to get some advice.

Both of us 52 years old.

Home value 950K no mortgage

Investments in 3 fund portfolio with 10% cash, 45% stock (10% international, the rest VTSAX) and 45% bonds (divided intermediate treasury and VBTLX).

Total investible net worth 4.8 million. plus social security at 65.

Expenses pre tax 155K

Stopped working last year for several reason not including pandemic. No sure I really need to go back. Should I be comfortable with retiring now?

 

[MBAustin]

Welcome viking! You look pretty well set, but you can take a look at this to see if you missed anything:

Some Important Questions to Answer

We're glad to have you and look forward to hearing more about your retirement!

 

[viking111]

Welcome viking! You look pretty well set, but you can take a look at this to see if you missed anything:

Some Important Questions to Answer

We're glad to have you and look forward to hearing more about your retirement!

I looked at the link. I have looked at those issues in detail. Taxes, healthcare, no kids, expenses etc.

155K is all in before taxes.

Firecalc give me 100%. When I look at the different outcome lines it concerns me. I get 100% even if the assets drop by 40 or 50% but the thing that I wonder about is how my WR goes up so much from the initial yet I would still make it.

 

[braumeister]

I'm not sure I know what you mean when you say "Expenses pre tax 155K"

FIRECalc assumes your expenses include all taxes, so are they part of the 155?

 

[REWahoo]

Firecalc give me 100%. When I look at the different outcome lines it concerns me. I get 100% even if the assets drop by 40 or 50% but the thing that I wonder about is how my WR goes up so much from the initial yet I would still make it.

Did you leave the "years" setting at 30 or increase the time based on living beyond the age of 82 (52+30)?

 

[viking111]

I'm not sure I know what you mean when you say "Expenses pre tax 155K"

FIRECalc assumes your expenses include all taxes, so are they part of the 155?

I mean I take out 155k each year for the next 45 years, pay the taxes (if any, since most of my money is in taxable) and live on it the rest.

 

[viking111]

Did you leave the "years" setting at 30 or increase the time based on living beyond the age of 82 (52+30)?

I did. I set it for 45 to 47 years and run both scenario. I include SS starting at 65 for both of us.

52 + 47 = 99

The drop is in the middle years and mostly in the start. At the end, I have a good sized surplus.

 

[viking111]

I'm not sure I know what you mean when you say "Expenses pre tax 155K"

FIRECalc assumes your expenses include all taxes, so are they part of the 155?

Yes. 155 all in.

 

[REWahoo]

I ran FIREcalc using your numbers and got similar results to those you describe. $99K in annual SS income starting in 13 years is a huge boost to the survivability of your portfolio.

 

[viking111]

I ran FIREcalc using your numbers and got similar results to those you describe. $99K in annual SS income starting in 13 years is a huge boost to the survivability of your portfolio.

I was using 36600 for ss.

 

[REWahoo]

I was using 36600 for ss.

Gotcha. Misread the 99 as SS income (see my sig line).

Using 33.6k for SS at 65 I show the following results:

 

[viking111]

Gotcha.

Using 33.6k for SS at 65 I show the following results:

Right. Now see how if there is a bad sequence of return and the money drops by 40 to 50 % and stays there? According to firecalc (historical) and Fideltiy retirement calc (montecarlo), we would have still made it even though our WR would have gone up significantly from the initial if the market had a drop like that.

So my questions is if that is basically accurate or if I'm missing something?

 

[REWahoo]

So my questions is if that is basically accurate or if I'm missing something?

Looks good to me. I think the only thing you may be missing is some peace of mind due to needlessly worrying about running out of money.

A bad sequence of returns right out of the gate can torpedo some portfolios but FIREcalc tells you that would not have happened to you no matter how bad the market has performed in the past 180+ years. Unless we are unfortunate enough to see something worse than the Great Depression or the high inflation of the 1970's, you have nothing to be concerned about.

 

[viking111]

Looks good to me. I think the only thing you may be missing is some peace of mind due to needlessly worrying about running out of money.

A bad sequence of returns right out of the gate can torpedo some portfolios but FIREcalc tells you that would not have happened to you no matter how bad the market has performed in the past 180+ years. Unless we are unfortunate enough to see something worse than the Great Depression or the high inflation of the 1970's, you have nothing to be concerned about.

LOL I agree. I do worry about it so much.

One other question.

In what order should I be removing the money?

I was going to start with the taxable until I reach a point that I have to do a RMD.

Which order in taxable? When do I know if I should remove from stocks vs. bonds or stick to cash etc.?

 

[REWahoo]

One other question.

In what order should I be removing the money?

I was going to start with the taxable until I reach a point that I have to do a RMD.

Which order in taxable? When do I know if I should remove from stocks vs. bonds or stick to cash etc.?

This topic gets a lot of attention and discussion on this forum. Suggest you do a search on "decumulation" , "withdrawal strategy", etc to find threads on this subject.

 

[viking111]

This topic gets a lot of attention and discussion on this forum. Suggest you do a search on "decumulation" , "withdrawal strategy", etc to find threads on this subject.

Got it. Thank you.

 

[ILikeStarTrek]

Edit: There have been several other posts on this thread in just the past hour, while I was composing my reply. I think that some of what I said is not applicable, e.g. it seems like the OP has just clarified that the 155k already includes taxes, which is not what I thought he meant. Also I see there have been other comments about how Firecalc works (which I have just now skimmed but haven't read in detail). I'm just going to leave my reply as it stands, and if the OP gets something useful from it then fine but if this has already been covered in the past few replies then feel free to ignore my comments.

Total investible net worth 4.8 million. plus social security at 65.

You don't say anything about how much of your your investable assets are pre-tax retirement, Roth, or non-retirement. Make sure you have enough non-retirement or Roth assets to last until age 59.5, otherwise there will be a 10% withdrawal penalty, which Firecalc won't be including in the calculations.

155K is all in before taxes.

You need to include taxes in your data for Firecalc. E.g., if you will be using up non-retirement money until age 60 and then drawing from pre-tax retirement sources thereafter, at a 25% income tax rate you will need to pull 207k to have 155k of spending money. One way to do this in Firecalc is to add the extra amount as "Off Chart spending" starting the year you are 60 (or whatever age you will start pulling from pre-tax).

Firecalc give me 100%. When I look at the different outcome lines it concerns me. I get 100% even if the assets drop by 40 or 50% but the thing that I wonder about is how my WR goes up so much from the initial yet I would still make it.

When the assets drop by 40-50%, it is due to early years in the Firecalc simulation being very bad years (like the Great Depression). But historically, the several bad years have always been followed by enough good years to raise the assets back up per Firecalc.

As useful as Firecalc is, it can only tell us so much since real life is not an historical simulation. On the one hand, it's extremely unlikely that a scenario as bad as the Great Depression will happen right after you retire. On the other hand - if that did happen, and you watched your assets drop by 40% over the first 8-10 yrs of your retirement due to a long-lasting bear stock market, you wouldn't know for sure that this will be followed up by several good years in the future. I imagine there would be a lot of hand-wringing by a lot of retirees to try to preserve their assets by going back to work, cutting expenses, etc.!

 

[viking111]

Edit: There have been several other posts on this thread in just the past hour, while I was composing my reply. I think that some of what I said is not applicable, e.g. it seems like the OP has just clarified that the 155k already includes taxes, which is not what I thought he meant. Also I see there have been other comments about how Firecalc works (which I have just now skimmed but haven't read in detail). I'm just going to leave my reply as it stands, and if the OP gets something useful from it then fine but if this has already been covered in the past few replies then feel free to ignore my comments.



You don't say anything about how much of your your investable assets are pre-tax retirement, Roth, or non-retirement. Make sure you have enough non-retirement or Roth assets to last until age 59.5, otherwise there will be a 10% withdrawal penalty, which Firecalc won't be including in the calculations.



You need to include taxes in your data for Firecalc. E.g., if you will be using up non-retirement money until age 60 and then drawing from pre-tax retirement sources thereafter, at a 25% income tax rate you will need to pull 207k to have 155k of spending money. One way to do this in Firecalc is to add the extra amount as "Off Chart spending" starting the year you are 60 (or whatever age you will start pulling from pre-tax).



When the assets drop by 40-50%, it is due to early years in the Firecalc simulation being very bad years (like the Great Depression). But historically, the several bad years have always been followed by enough good years to raise the assets back up per Firecalc.

As useful as Firecalc is, it can only tell us so much since real life is not an historical simulation. On the one hand, it's extremely unlikely that a scenario as bad as the Great Depression will happen right after you retire. On the other hand - if that did happen, and you watched your assets drop by 40% over the first 8-10 yrs of your retirement due to a long-lasting bear stock market, you wouldn't know for sure that this will be followed up by several good years in the future. I imagine there would be a lot of hand-wringing by a lot of retirees to try to preserve their assets by going back to work, cutting expenses, etc.!

I also ran my calculations through the fidelity retirement calculator after putting in all the spending details and reductions after I get older. So I won't be spending as much when in my 80's (if I make it) on vacations etc. I believe the calculator adjusts for taxes but I'm not sure. With that said the majority of our money is in taxable. only about 550 to 600 will be in 401K and IRA.

The worry is the last situation you mention. But I guess that is where everyone is in the same situation. It could happen if I retire at 65 as well.

 

[ILikeStarTrek]

I also ran my calculations through the fidelity retirement calculator after putting in all the spending details and reductions after I get older. So I won't be spending as much when in my 80's (if I make it) on vacations etc. I believe the calculator adjusts for taxes but I'm not sure. With that said the majority of our money is in taxable. only about 550 to 600 will be in 401K and IRA.

The worry is the last situation you mention. But I guess that is where everyone is in the same situation. It could happen if I retire at 65 as well.

There is no certainty about the future. If we didn't already know that, Covid-19 has given us a rude awakening this year. We just plan as best we can and hope that we won't face some worst-case scenario.

On another note - if most of your money is in taxable, you should be in a pretty low tax bracket compared to when you were working. I recommend you consider some annual Roth conversions to get some of that 550-600 pre-tax money converted to Roth.

 

[viking111]

There is no certainty about the future. If we didn't already know that, Covid-19 has given us a rude awakening this year. We just plan as best we can and hope that we won't face some worst-case scenario.

On another note - if most of your money is in taxable, you should be in a pretty low tax bracket compared to when you were working. I recommend you consider some annual Roth conversions to get some of that 550-600 pre-tax money converted to Roth.

I would have to pay taxes on the 401K funds if converted, wouldn't I?

 

[pb4uski]

Yes, you would have to pay taxes on Roth conversions. The big idea is to do as much as you can when you are in a lower tax bracket before SS and/or RMDs put you into a higher tax bracket. I've converted a lot over the last 6 years and paid about 8.5% on average...a combination of 0%, 10% and 12%.

 

[viking111]

Yes, you would have to pay taxes on Roth conversions. The big idea is to do as much as you can when you are in a lower tax bracket before SS and/or RMDs put you into a higher tax bracket. I've converted a lot over the last 6 years and paid about 8.5% on average...a combination of 0%, 10% and 12%.

I think perhaps if you have a large 401k it's worth it. If most of assets are in taxable, I'm not sure if it's worth it.

 

[ILikeStarTrek]

I would have to pay taxes on the 401K funds if converted, wouldn't I?

Yes, that's why you want to do it when you will be in the lowest possible tax bracket for you. Convert a little year by year so you don't jump to a higher tax bracket.

 

[ILikeStarTrek]

I think perhaps if you have a large 401k it's worth it. If most of assets are in taxable, I'm not sure if it's worth it.

You will pay taxes on your 401k money eventually (unless you die first, in which case your heirs will pay the taxes). When you are in your 70s, you will be forced to pull money out in the form of Required Minimum Distributions. Your 401k money may have grown by then so it could have 3 times the value it does now, and thus be more likely to put you into a higher tax bracket.

In general, 401k withdrawals/conversions/RMDs is all about doing it when you are in the lowest possible tax bracket. From how you have described your situation, it seems like in your case that could be over the next few immediate years.

 

[viking111]

"You need to include taxes in your data for Firecalc. E.g., if you will be using up non-retirement money until age 60 and then drawing from pre-tax retirement sources thereafter, at a 25% income tax rate you will need to pull 207k to have 155k of spending money. One way to do this in Firecalc is to add the extra amount as "Off Chart spending" starting the year you are 60 (or whatever age you will start pulling from pre-tax)."

One other thing. As we age we won't be spending as much and most of our money is in taxable. So although the higher tax rate is important, I don't think it will cause us too much problems. But I will take your advice and start to slowly convert some of the 401K money to a Roth. Thank you.

Based on what I have read and you and others have stated on this site, it seems I'm we are in good shape for retirement. I also have some good options for part time work. About 8 hours per week that pays well enough to make a difference but not too much of a difference to put me in a higher tax bracket.