am i ready ?

[Bayarea_engineer]

Hi Folks,
I have been reading the posts on these forums for a very long time.I finally reached 6 m net in investment account (post tax) today !! 1.5m in 401k and rest 4.5m in outside account.I worked in a tech company for 19 years and had its stock go up 6.5X in the last several years. most of money is from the RSU's and grants and then some from savings.
I am 45 years old and am currently renting with two kids ( both middle school) and wife is stay at home.
living in silicon valley and getting paid at a senior position ( ~400k/year) and I plan to stay in the valley till kids graduate.
my total expense including the rent is 130k/year. I am setting aside 1m for both of my kids entire education.
With left over money of 5m at 4% SWR, i can get 200k per year. post tax around 170k. I will use 72t for 401k withdrawl.
do you guys think i am ready ? i think i am ready but its not as easy as it sounds when you have to really pull the trigger. want to make sure i am not missing anything.
I plan to move into volunteering after i am done and into other hobbies. i got burnt out with the hectic corporate life and want to be done.

[Love This Community]

Based on your expenses, financially you are more than ready. Only thing I would consider is if you’re planning on living in the Bay Area long term, you’ll have to buy a house which can get pretty expensive. Even with buying a modest house without going crazy, you’re good to go. I’m sure others will chime in.

Great job on accumulating those numbers at such an young age.

[ILikeStarTrek]

Generally speaking I agree that you are good. To offer a few other thoughts:

If you have been reading this forum for a while, hopefully you have read this:
https://www.early-retirement.org/for...ire-69999.html
It suggests, among other things, that you make sure your estimate of expenses is very solid and that you consider health care and any other expenses that may change pre- vs post-retirement.

You are also probably aware that some on this forum are not sold on 4% being a Safe Withdrawal Rate - they think it should be more like 3% to 3.5%. I suggest that you don't push it to the edge of 4% at least the first few years of your retirement. 3.25% withdrawal rate should give you the $130k after taxes that you need.

Finally - even though history and tools like Firecalc say that 3-4% is a SWR, emotionally there can be hand-wringing if there is a stock market downturn shortly after retirement. E.g., for anyone who retired last January or February and then watched what happened in the world (and the stock market) in March, they may have felt that they made a big mistake! Hopefully those people didn't do anything crazy like selling all their stock when the market was at its low point, but rather stayed the course. We're not totally out of the woods yet on the pandemic, but the vaccines give us the likelihood of a more stable country & economy in a few months. But the world can still be unpredictable. Try to be stable with your asset allocation and don't panic if something unexpected happens and the market drops again.

To repeat the previous poster, great job on accumulating those numbers at age 45!

[obsessed]

Overall, you look to be FI and ready to RE but I have a couple questions/comments since you asked.

Do you expect your desired post-retirement expense to be $130k or is that your current expense. Having time to travel and spend money could push that number up but you certainly have a fair amount of wiggle room.

You are in a good position with a high ratio of after-tax money vs pre-tax. Have you modeled out your future taxes considering your basis in after-tax? You could be pleasantly surprised if your tax basis is on the higher side.

I don't see a reason to do a 72T on your 401K. I think you would be better off converting the balance to a Roth over the next few years.

Welcome to the board.

[Bayarea_engineer]

my expense includes 20k for travel. thanks for the Roth suggestion. I'll do the math based on future taxes.i am accounting for 20k for health insurance. also don't plan to buy a house. will just stay here till kids are done. very helpful feedback so far.
i am not counting on SS and keep it as an extra

[Surewhitey]

Definitely do the math on taxes and maybe make some assumptions about long-term capital gains taxes going up with current covid spending. Also, living in California, we found that they really like to tax you. Not sure if this still applies to unearned income though.

Secondary, but calling it quits after 25 years leaves around $1k/mo on the SS table. I decided to take on a side gig to round out the SS payout for myself. But then I don't plan on having your treasure chest or expenses.

Awesome to be in your shoes. Enjoy the kids while they still want you around...

[Exchme]

It sounds like you are good to go, I presume you've checked online calculators like FireCalc. Make sure you are properly diversified with low cost, broad based index funds. While the company stock has done great for you, holding a lot of it would be the one thing most likely to derail your retirement.

Also, write yourself an investment Policy Statement that includes desired goals and plans, checklist asking if you have your legal work in order (wills, medical directives), asset allocation and rebalancing plan, etc. using the Bogleheads.org Wiki on the subject. The idea is to develop a plan and stick to it.

[The Cosmic Avenger]

How much of your total assets are in your company stock? I really have never dealt with RSUs, but I'm assuming you are or will be fully vested? I wouldn't want my portfolio to be more than 10% of any one stock, but if you really have confidence in the long-term stability of the company, I could see tolerating a little higher. But remember, everyone thought Enron and Lehman Brothers were incredibly stable, too, until they weren't.

So while I agree that your numbers look good, what is your plan (if any) to reduce your risk in this one stock?

[Bayarea_engineer]

10% of my money is still in company stock, rest i put in VTSAX. SS is maxed out ( in paychecks till now)

[Dtail]

Quote:

Originally Posted by Bayarea_engineer 10% if my money is still in company stock, rest i put in VTSAX. SS is maxed out.

Bolded by me - How could SS be maxed out, if you haven't worked 35 years yet, or am I misinterpreting your comment?

[OldShooter]

Quote:

Originally Posted by Bayarea_engineer 10% if my money is still in company stock, rest i put in VTSAX. SS is maxed out.

Glad to hear. "Diversification?" was the question that came immediately to mind when I read your OP. At some point you should probably tune on this a bit and set some cash aside for SORR and diversify a bit outside the US. But no rush on that.

Looking ahead as far as you are, you might like playing with a tool called "ES Planner (https://esplanner.com/). It requires a lot of detailed input, but the goal is to identify a standard of living that you can maintain from day zero all the way through retirement. It will take inputs like your college expense expectations, house sale, house purchase, pensions, SS, any possible inheritances and crank through all the tax consequences. Data input is not for the faint-hearted but as a techie you might actually enjoy it.

Larry Kotlikoff is a pretty big deal economist but when I used esplanner I ended up talking to him personally on a tech support phone call. He is the real deal, not just some figurehead hired by a software company. He's passionate about getting and helping people use this approach and this software. (Now looking at their web page I see that the product has changed a bit: https://esplanner.com/esplanner-going-forward I still recommend that you look hard at the product.)

[Fielding]

It's great you are diversified already out of your company stock into VTSAX. So many well-compensated SV engineers have trouble doing this, and it is a gamble many seem blind to. Well done containing that risk.

I agree with ILikeStarTrek about the withdrawal rate. It's exhaustive and repetitive, but Early Retirement Now's series on picking a safe withdrawal rate may be the best single resource we have on the topic. He recommends a withdrawal rate between 3.0% and 3.5%. 3.25% of $5M is $162k a year, so I think you'd be fine up to at least there. This is comfortably above your current stated spend of $130k. But I would caution you about relying on the full $200k that 4% would get you. If the market continues to rise even modestly for a few more years, you could re-evaluate and take a bit more, but I suggest you try and tread a bit gently in the first few years.

Keeping a lower withdrawal rate initially will also allow you to avoid 72t stuff. You should have enough in taxable to avoid it entirely.

I think you might be overestimating what you are going to pay in taxes, even in California, assuming you are pulling entirely from your taxable brokerage account. If you have 50% appreciation in what you are selling (basis of $80k), and you sell $160k/ year, are married, live in California, and have no other income (no W-2 or 1099), I'm coming up with capital gains tax of $1,819 / year. All of that is state tax, by the way, and might be $0 in another state if you move once the kids are gone. Try it yourself.

Given how brutally expensive homes are in Silicon Valley, I support your decision to rent for the moment. Anywhere else and I'd encourage you to buy a house, but if you change your mind and want to change locations before the kids are grown, renting will have been the best choice.

In short, I think you are good to go, just tamp down the withdrawal rate for a few years. It's likely compounding will get you to a $200k/year withdrawal amount before you know it.

[saydiver]

Become very familiar with https://www.ftb.ca.gov/forms/misc/1004.html

[Bayarea_engineer]

looks like i was over estimating the taxes. thanks for pointing. some have raised concern about the 4%. my taxes will be lower during the initial years as my basis will be high ( low gain versus starting point) so i guess i can have lower SWR initial years @ 3.25% and get 160k. that would give me ~ 20% buffer versus expenses.
i didn't get the concern regarding 72t. any pro's versus cons ? someone suggest doing roth ladder which is probably better.
also there is a suggestion of keeping some cash. what % ?

[Fielding]

Quote:

Originally Posted by Bayarea_engineer i didn't get the concern regarding 72t. any pro's versus cons ?

It just looks like an enormous hassle to me. Others who have actually used it can contradict me and I'll gladly accept their wisdom. Like you I have a large enough taxable account to make it irrelevant, and that's been my intended approach for retirement.

Quote:

Originally Posted by Bayarea_engineer also there is a suggestion of keeping some cash. what % ?

I personally would want 2-3 years worth, which in your case might be ~5%. But it's an individual choice, and I don't have a prescription for you. What will let you sleep at night during a market downturn, without sabotaging your upside too much?

[OldShooter]

Quote:

Originally Posted by Bayarea_engineer ... also there is a suggestion of keeping some cash. what % ?

No magic numbers. One important purpose of keeping cash is SORR protection; the cash that you will live on for a while during/after a market downturn. So, Magic 8-Ball, how long will the next downturn be? The numbers I see in posts here seem to range from 3-10 years of spending. IIRC from memory, not going back to study all the downturns, 5 years is probably reasonable.

From that view, you can also look at various AA strategies. For me the SORR insurance number is the lower bound and you can stay flat or go up from there to suit the overall aggressiveness of your portfolio.

[Bayarea_engineer]

Quote:

Originally Posted by Fielding It just looks like an enormous hassle to me. Others who have actually used it can contradict me and I'll gladly accept their wisdom. Like you I have a large enough taxable account to make it irrelevant, and that's been my intended approach for retirement. I personally would want 2-3 years worth, which in your case might be ~5%. But it's an individual choice, and I don't have a prescription for you. What will let you sleep at night during a market downturn, without sabotaging your upside too much?

i am pretty stable that way. the market could go 30% down tomorrow and it won't even bother me enough that i would check my portfolio. so cash is only from a purely financial number crunching perspective. I will go with 5% and atleast 15% in bonds which i'll rebalance to stocks when there is a crash.