Freedom In Sight....Pitfalls?

[DifferentStateOfMind]

Hello all! My wife and I are set to retire in 2021 - we will both be 50. The plan is to sell the house (which is paid for) and buy a place in the woods....preferably where I can't see/hear the neighbors! We have lived in the city forever and I need some clean air and freedom.
We will not need a lot of money at 50 but you know how the 50-59.5 time frame works. I plan on working part time to make sure we can make it and have some wiggle room. We spoke with our financial advisor yesterday and he said that we were "all systems go" for our plan financially and that if we needed we could do a 72T at age 50. Any pitfalls I need to know about this if we did this? And any other pitfalls I need to keep in mind about retiring at 50 and living in the woods?!?!?!?

We will have one kid out of college at that time and one with 3 years left, but college expenses are fully funded, so no worries there.

 

[braumeister]

Keep in mind that when living in the woods, nuts and berries are seasonal items, so a good squirrel-proof storage box will come in handy.

More seriously, without more information it's hard to answer your question.

Do you know your expenses, current and projected?
Have you run FIRECalc to get an idea about possible outcomes?

 

[Senator]

If you plan on working, why not just put in a few more years at your higher paid job, and then not work at all when you really do retire?

As you get older, being at the edge of civilization doesn't always seem as great.

 

[DifferentStateOfMind]

FIRECalc gave me 100% chance of success and I have projected expenses as well. I don't know of anyone that has done a 72T, so I was just curious of others' experience with this. I really don't think I would NEED to do it, but I sure saw a look of relief on my wife's face when she heard of this option.

 

[DifferentStateOfMind]

If you plan on working, why not just put in a few more years at your higher paid job, and then not work at all when you really do retire?

As you get older, being at the edge of civilization doesn't always seem as great.

Not going to stay at my current job due to "burnout from corporate America". I'm looking to do part-time work on my terms.....no more than 20 hours a week. We don't need much extra, just for "wiggle room".
My wife said the same thing about "living on the edge of civilization". I told her at 50 we are still young enough to enjoy it and when we no longer enjoy it (or need to) we can move back to the city.....on our terms.

 

[MooreBonds]

We spoke with our financial advisor yesterday and he said that we were "all systems go" for our plan financially and that if we needed we could do a 72T at age 50. Any pitfalls I need to know about this if we did this?

A 72T doesn't let you withdraw however much you need to live on - it is a set % of your balance that you must take out each year for a minimum of 5 years or until you turn 59 1/2 (whichever is longer), based on your age when you start. Do a rough draft to see what that amount would be, and realize that you cannot vary from that withdrawal amount at all from your 401k/T-IRA.

Of course, if you had a ROTH, you can withdraw contributions before 59 1/2 without penalty. Also, if your income were low enough and put you in, say, the 10% tax bracket, even if you had to pull out more than your 72T and paid 10% penalty, if your tax bracket is low enough, your total IRS hit could still be respectably low even with the penalty.

 

[MBAustin]

Welcome, Different!

Sounds like you have worked on your plan for some time and are now close enough to see it become reality - very exciting.

Do you have a specific forest in mind or is that something you'll be working on over the next few years? If you plan to w*rk part-time, then you'll either need to be close enough to a city to find it, or have good internet, which today is still not guaranteed in the woods many places.

If you haven't found them already, there are two excellent resources on the boards:

http://www.early-retirement.org/forums/f47/some-important-questions-to-answer-before-asking-can-i-retire-69999.html

and

Early Retirement FAQs - Early Retirement & Financial Independence Community

You might also want to post your 72T questions in the Fire and Money forum where many of our financial whiz kids hang out.

 

[Markola]

The blogger www.millionaireeducator.com did a 72T and you can ask him about it. I am 50 and mentioned it to my tax guy, who has done some 72Ts for clients, and who said being locked in that many years is very risky should there be a long bear market. He said a couple of years of 72T is probably OK. At that point though, I'd figure out how to get to 59.5 some other way.


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[hnzw_rui]

Since you still have 5 years until retirement, you've got a bit of time to make some adjustments.

Why not squirrel away as much as possible into Roth IRA (if eligible) and taxable accounts now?

If you're still in a high tax bracket now, do some partial Roth conversions after you retire at age 50. After 5 years, you can withdraw the conversion principal penalty free even if you're not yet 59.5. Just note that each conversion has its own 5-year clock.

Ideally, you'll have the following:

Age 50-55
Taxable
Roth IRA contributions ($77K if you contribute the $11K max from 2015-2021)

Age 56-59
Roth conversion principal

If the above is still not enough, then 72t.

 

[Sunset]

I have not done a 72T, but I looked into it a lot. Here is a tip:

Separate out the money you want to withdraw for the 5 years into a separate IRA.
Put all this money into safe things like cds or even bonds as it needs to be there to withdraw, and you have to withdraw it.

This way while you are each year taking out $xxxx from the 72T IRA, when something unexpected pops up, you can take out the extra money from the OTHER IRA.

 

[Sunset]

The blogger www.millionaireeducator.com did a 72T and you can ask him about it. I am 50 and mentioned it to my tax guy, who has done some 72Ts for clients, and who said being locked in that many years is very risky should there be a long bear market. He said a couple of years of 72T is probably OK. At that point though, I'd figure out how to get to 59.5 some other way.

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Seriously, any tax guy that said "a couple of years of 72T is probably OK" does not know how they work.

 

[Markola]

Seriously, any tax guy that said "a couple of years of 72T is probably OK" does not know how they work.

You're right because the rules say the SEPPs have to last 5 years or until 59.5, whichever is longer.


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[DifferentStateOfMind]

Thank you all for your great input. Many things to consider. Again, I don't think we are going to NEED to do a 72T, but I'm glad to get different viewpoints on the subject.

 

[SHM]

[

And any other pitfalls I need to keep in mind about retiring at 50 and living in the woods?!?!?!?

I mean are we talking like deep woods cabin living, or like one acre cleared with a few trees? I would be concerned about being far away from medial service. Your commute will most likely be longer. A truck and a plow might be a good thing to consider if you live somewhere with snow. You might be busier in your retirement then you are now. Cutting the grass, cleaning up fallen trees, starting fires assuming your cabin in the woods doesn't have central heating. It isn't fun waking up at 5am and feeing the wood fire.

 

[flyingaway]

If you plan on working, why not just put in a few more years at your higher paid job, and then not work at all when you really do retire?

As you get older, being at the edge of civilization doesn't always seem as great.

I like this idea of short period full-time work with high pay than long period part-time work with low pay, unless the job is killing you.

 

[FreeBear]

Have you guys spent much time "living in the woods", such as owning, extensively renting, or otherwise experiencing this lifestyle on a regular basis? If so, this could be just what you need. Otherwise, how can you be sure? Seems like a huge lifestyle change, especially together with ER.

For years I fantasized about owning a 30-40 foot boat as a sort of portable condo. Of course, I never spent any time on a boat this size, just ogled them dockside. Well, we just spend a several hours on a friend's boat and decided it just wasn't the life we were looking for, even on a temporary basis. Actually, I'm relieved to be over this fantasy, since I can't afford such big toys anyway.

 

[Del Q]

I can't add any comments to your financial situation, but I can certainly relate to your career and housing situation.

I understand what it feels like to know when you're done in your career at age 50. Going just a few more years isn't possible, it's like having your head dunked under water and all you can think about is breathing, not seeing how long you can hold your breath. I'm going to get a job working part time around 20-30 hours a week for grocery & beer money. DW is going to get a job for the same reasons, plus to be around people.

I just turned 50 (DW is 54) and am selling my business in January 2016. This will fund our living expense til we both claim SS in 12 years and start drawing from SEP & Roth. We're selling our primary residence in 2016 and moving to a second residence we purchased a few years ago. It is in the middle of the woods and we could canoe to Canada from our property. We're on 20 acres of woods surrounded by State & Federal woods on a two mile private dead end road. Just a couple neighbors, one is an old Hippie and lives off the grid, the other is a retired executive from Chicago. We're all happy as can be out there.

We have electricity and running hot water. Heat the place with a wood stove and electric off peak units. We'll have a couple track phones, but no television or internet. We've got a great library in the nearest town just a few miles away with Wi-Fi and great book & movie selection. I may consider satellite radio, since I love to read and listen.

Good Luck !

 

[W2R]

Welcome to the Early Retirement Forum!

My wife said the same thing about "living on the edge of civilization". I told her [...]

Remember,

Frankly, if I was your wife, I'd be seething and ready to spit bullets. Despite your response and possibly not wanting to continue the argument at the moment, I would NOT be one bit happy. That may not be the case for her, but I'm just pointing out that it might be.

If you insist on trying out the "living in the woods" fantasy, maybe you should:

(1) RENT for a year, first, to see if living in the woods really meets your expectations, and

(2) choose a rental house that is perhaps in a forested location, but more or less in the mid to outer suburbs near shopping and civilization.

Just a friendly suggestion. Oh, and also, as someone who just moved this summer at age 67, I should also mention that moving can be very hard on you when you're over 65, even if it is a breeze in your early 50's. So, if you are going to move back to civilization ever it might be best to plan that earlier instead of later.

 

[Cobra9777]

Why not squirrel away as much as possible into Roth IRA (if eligible) and taxable accounts now?

+1

You still have 5-6 years to go. Focus on building up the non-tax-deferred accounts. That's the best way to fund your expenses prior to 59.5 and/or SS, due to flexibility and tax efficiency. I had always thought I'd need to do a 72T to retire early at 52. And my tax rate was too high for Roths. But in the last 7-8 years of working, we built up the taxable brokerage account very fast. Plus we never stopped maxing out two 401Ks, but reducing contributions was also an option. Our earnings were still high, but expenses were flat and even coming down some with kids moving out. Plus, once you can smell freedom, it's easy to double-down on your LBYM lifestyle and create even more savings. In our early 40s, the taxable account was just 6 months emergency fund. We ended up about 50/50 taxable/tax-deferred and won't touch the tax-deferred funds until RMDs at 70.5. We're also in a very low tax bracket between now and then, so we can do Roth conversions and reduce the amount of RMDs taxed at 25% or higher.

 

[FreeBear]

I understand what it feels like to know when you're done in your career at age 50. Going just a few more years isn't possible, it's like having your head dunked under water and all you can think about is breathing, not seeing how long you can hold your breath.

+1

Nothing like career waterboarding!

Yep Del Q, I felt the same way. Got back from a long overseas business trip, did the expense reports over the weekend, turned in my resignation letter that Monday. I couldn't last another week; another year would have been an eternity!