Advice for a newbie

[syd03]

Hello

I am very happy to have finally found a site such as this! I have also been checking in for the last several days and have decided it is time to ask my question. (I've always been a little slow to 'jump in'). First, my profile;

-Resident of Pennsylvania
-40 year old male, wife is 37, one daughter
-We both work full time/combined household income of $195,000
-Home assessed at $429,000/we hold $51,000 mortgage/Equity= $378,000
-Home will be paid off in 4 years 10 months at the rate at which we are
paying down principal
-401K's, IRA's, and other tax deferred saving= $727,000
-Taxable accounts and stock= $174,000
-Cash= $25,000
-529k= $22,000
-no credit card debt or any other debt other than mortgage/2 cars, bought used and now paid for

Current net worth= $1.33 million

We both max out our 401k's and our overall asset mix is 65% stocks (majority in mutual funds), 32% bonds, 3% cash.

We are saving $62k per year ($26k in 401ks and $36k after tax) toward retirement and we save $500 per month in a Vanguard 529K.

I would like to retire at 46 years old. My wife would stop working in 3 years (at the age of 40).If we earn 7% on current savings (I have been earning more than that but I am always a pessimest, so my wife says) and continue to add at the above rate our nest egg would be worth $1.72 million, 529k = $60K plus, house=$429K plus/for a net worth=$2.2 million. I would then (at age 46) look for a part time job with health benefits and work there until I am 48 or 49 years old. There are a few such jobs out there catering to older folks, but not many! Our daughter is looking to go to a state school (presently $16,000 per year) and wants to work to subsidize any shortage in 529K. My wife does not have a defined pension and I only have a small one from a former employer ($7000 per year). We do not live extravagantly but we do like to do some traveling. The home we live in was built 1.5 years ago. I figure we could live off the interest on $1.72 million and about 1.5% of the principal annually.

So my question is this: We will need a substantial taxable account to live off between the age of 46 and 55 until such a time that I can touch, without penalty, 401ks and so on (will set up 72's if necessary). As you can see above we do not presently have much in taxable accounts. Where is the best place to put the after tax money we are able to save to finance years 46 through 55? I have thought about reducing our 401k contributions to have more to invest after tax but when I crunch the numbers, it is difficult to swallow! We don't qualify for Roth's anymore and they wouldn't help in this situation anyway. I would really appreciate any suggestions!!

Thank You!

[bots2019]

You could tap your 401k early using 72t withdrawls (equal periodic payments based on your life expectancy at the time you start taking withdrawls). I believe you have to take these withdrawls until age 59.5 or for 5 years, whichever occurs later (so 59.5 in your case).

Run a forum search on 72t as this option has been discussed here a number of times before. Or for more info check out Welcome to 72t on the Net

[maldini]

welcome syd03,

nice work on your savings and good luck making your ER date!!

As the previous poster said, should you need their are ways to take money out of the 401k with out penalties as long as you follow the 72T rules.

One thing I did not get out of your profile was your expected expenses in retirement. Could you detail those out more? See my post here for some details of items that are helpful to include for people to look over your numbers.
http://www.early-retirement.org/foru...rum-30406.html

My numbers are similar to yours but I will need a much larger nest egg than $1.72 in retirement due to my expenses. Please give some thoughts to yours expenses for us to look over.

basically an easy way to take a first swipe at expenses is to

1) keep lifestyle the same as today sans mortgage
2) add travel budget
3) add health care budget
4) remove the cost of the daughter (this may be hard so just estimate)

Then using that number in todays $'s, we will be able to take a swag at whether the $1.72 would be enough for you.

Maldini

[syd03]

Quote:

Originally Posted by maldini welcome syd03, nice work on your savings and good luck making your ER date!! As the previous poster said, should you need their are ways to take money out of the 401k with out penalties as long as you follow the 72T rules. One thing I did not get out of your profile was your expected expenses in retirement. Could you detail those out more? See my post here for some details of items that are helpful to include for people to look over your numbers. http://www.early-retirement.org/foru...rum-30406.html My numbers are similar to yours but I will need a much larger nest egg than $1.72 in retirement due to my expenses. Please give some thoughts to yours expenses for us to look over. basically an easy way to take a first swipe at expenses is to 1) keep lifestyle the same as today sans mortgage 2) add travel budget 3) add health care budget 4) remove the cost of the daughter (this may be hard so just estimate) Then using that number in todays $'s, we will be able to take a swag at whether the $1.72 would be enough for you. Maldini

Thanks Maldini for replying

Our total monthly expenses right now are $4000. However, included in that amount is a $1070 mortgage that as I had mentioned will be paid off in 4 years 10 months. Although I know it is not a true expense, I always include the $500 we put into our daughters 529K in there as well. 'Out of sight out of mind'. So once I back those two items out I am at $2430. Basically I then figure in about $1000 a month for health insurance and another $1300 to $1500 a month for spending. That takes me to $4900 per month. I'll round it up to $5000 per month. I also have a maid service included in that expense amount that I'm certain we will eliminate once we 'hang it up'. I do have 2 term life insurance policies included in that amount too. We are going to be cutting those back in a couple of years but I don't want to reduce my monthly expense amount because we are going to be buying nursing home insurance so that will at least cancel out any savings.

Please let me know your thoughts. Also, you mentioned 72t as an option. I was thinking that would be an option at age 55, are you saying you can do that prior to age 55 without penalty? And lastly, what investment vehicles have you had success with for your after tax savings that you plan to use to fund the portion of your retirement when you are still in your forties?

Thanks so much for your insight!!

[maldini]

Quote:

Originally Posted by syd03 I'll round it up to $5000 per month. I also have a maid service included in that expense amount that I'm certain we will eliminate once we 'hang it up'. I do have 2 term life insurance policies included in that amount too. We are going to be cutting those back in a couple of years but I don't want to reduce my monthly expense amount because we are going to be buying nursing home insurance so that will at least cancel out any savings.

So lets set some basic assumptions here: Please edit where you feel you need to:

Nest Egg at time of retirement: $1.72 million
Expenses per year in first year of retirement: $47,000 ($4500/month - 7k(pension)), before taxes
Growth rate after retirement: 7%
Inflation: 4%
Age of death of wife: 92
Age of retirement for you: 49
Effective Tax Rate: 17%

Using the above assumptions, the money will run out when you turn 82 and your wife is 79.

Note that this not include social security.

Quote:

Also, you mentioned 72t as an option. I was thinking that would be an option at age 55, are you saying you can do that prior to age 55 without penalty?

There is no lower age limit on 72t as I understand the rule. As long as you follow the Substantially Equal Periodic Payments rule, you should be able to do it in your late 40's and early 50's.

Quote:

And lastly, what investment vehicles have you had success with for your after tax savings that you plan to use to fund the portion of your retirement when you are still in your forties?

I only invest in mutual funds, whether it be in an IRA, 401K or after tax brokerage account.

[syd03]

Quote:

Originally Posted by maldini So lets set some basic assumptions here: Please edit where you feel you need to: Nest Egg at time of retirement: $1.72 million Expenses per year in first year of retirement: $47,000 ($4500/month - 7k(pension)), before taxes Growth rate after retirement: 7% Inflation: 4% Age of death of wife: 92 Age of retirement for you: 49 Effective Tax Rate: 17% Using the above assumptions, the money will run out when you turn 82 and your wife is 79. Note that this not include social security. There is no lower age limit on 72t as I understand the rule. As long as you follow the Substantially Equal Periodic Payments rule, you should be able to do it in your late 40's and early 50's. I only invest in mutual funds, whether it be in an IRA, 401K or after tax brokerage account.

Thanks Maldini. I believe it may be time to rethink my original gameplan.