Hello from the sucker state! Looking for some kind comments; am I in the ballpark?

[SenecaInExile]

Hello fair forum folk! I’ve been a lurker here for little bit and seeing the posts really got me thinking/dreaming that I myself, may actually be close to FIRE.

Having lived an ascetic life so far, just basically only focusing on work has kind of turned me into I guess what is called a ‘good investor’. i.e. contributed the max to my retirement accounts and never really looked at balances or news or anything over the last 30 years so pure buy & hold. It’s only been the recent forced closing and a lot of upheaval at the office (moving pretty much all jobs overseas; shutting locations, etc.) has really brought my mind to even start thinking about starting my second life. Perhaps see the sun; pick up a good book or ten; try my hand at gardening and cooking.

I am hoping to entreat the fine denizens here for some opinions on my current financial standing or what, if anything, I may do to perhaps improve things if I am coming up short.


Age: 50
Status: single
current Federal effective tax: 16%
current State tax: 5% (0% when pulling from retirement accounts)

House: ~300K (paid off)

Savings/Emergency Fund: ~$120K ( 3 years expenses; not included in assets; )

SS=$18K/year (assuming starting at 70 and with a 20% haircut)

IRA/pre-tax: ~1.8MM
TrowePrice Mid-Cap Growth Fund RPMGX: 35%
TrowePrice New Horizons Fund PRNHX: 35%
TrowePrice US Bond Enhanced Index PBDIX: 30%


I have been blessed with relatively good health and have been thinking of ‘self insuring’ until 65 for medicare/medigap. Since I haven’t really needed anything for the last 50 years that I haven’t paid out of pocket already figured 15 more shouldn’t be too much of a gamble?

As for long term care was thinking about self-funding that and tried to model that in firecalc (50K/year for the last 5 years of plan adjusted for inflation). Don’t know if that is right or not, plan was for 95 (have many people in my family live to 92-103). Granted, they did a LOT more physical labor than I have so perhaps I won’t be anywhere near as lucky and die early.

I live rather meekly, and have historically lived on ~36K after income tax but including property taxes, so with the calculations (with 10% penalty) that seems to be around 48K pre-tax. Was planning on keeping it that way for the next 10 years to minimize penalties, and then when 59.5 increase the withdrawal by another 28K/year inflation adjusted that I can use to try and pull funds to minimize RMD’s in the future as well as help pay for other items (new roof; siding; car; etc).

It all sounds good to me, however I don’t really have a good feel of what a 95% success rate actually means, if trying for 100% that would mean several more years of working. Is that needed? What % do people target?

Firecalc run

Also tried modeling this on portfolio vistualizer, though I’m concerned here since this is only going back to 2000 for the tickers, and even though we had two major breaks in there and two more short 20% drops; I think it may be too much recency bias.

portfolio visualizer

So looking for any comments; criticisms; concerns; is early retirement even possible? Should I engage a RIA; CFP; or CPA/PFS? (perhaps I'm not understanding what they provide but on the face of it, it they don't seem to offer much for the $$, or am I wrong?)


Thanks for looking.

 

[Vacation4us]

I think self insuring for healthcare is a really really bad idea.

I also think paying a 10% penalty is also a bad idea. You need to pursue other options for accessing your money.

Welcome to the forum and I am sure you will get lots of advice from a lot of really good people here.

 

[SALTedOut]

First congrats on the great job at savings a sizable nest egg.

I agree that self funding health care is a bad idea. One bout of "c" or another serious illness could wipe out several hundred thousand or even more in a few months. Depending on your timing and income level you may qualify for substantial subsidies on the ACA which would reduce your cost to next to nothing. You could also look into cheaper insurance options such as Christian Healthcare but I'd personally never do that. I hear both good and bad about those plans.

Also agree that paying the 10% penalty is not great. It almost doubles your tax on that income. This is one of the problems of only saving money in a 401K/IRA.

I'd consider working a while longer to save money outside of the 401K. This could include moving the current 401K to an IRA and then doing some ROTH conversions each year to get money into an accessible account after 5 years.

 

[davebarnes]

If you have assets, you should never self insure for medical coverage.

That is not exactly true. Jeff Bezos can self insure.

Poor people with zero assets can self insure as they just do the BK when they get the bills.

 

[38Chevy454]

Welcome to the forum. X3 on you should have health insurance to cover a major health issue vs self-insuring. Self-insuring for long term care is a valid consideration, but not for your std health until medicare kicks in.
You should look into 72t withdrawals to access your pre-tax 401k money prior to 59.5. This avoids the penalty, but you need to follow the rules.

 

[latexman]

Which state? There must be 20 states with cities named Seneca.

 

[target2019]

Seneca in exile may be a reference to the philosopher.

 

[Out-to-Lunch]

You seem like you may be a good candidate for using Substantially Equal Periodic Payments to avoid the 10% penalty: https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-substantially-equal-periodic-payments

 

[Winemaker]

Illinois is regarded as the sucker state.

 

[Morgan22]

You don't need to pay the 10% penalty on your pretax funds. You can do a 72t. When you retire roll over your funds to an IRA. You can split into two or more IRA's, us one for the 72t and the other as future funds you can pull from if needed.

You could lose everything if you do not have health insurance and have one major event. Take a look at your state exchange. If you keep your income under certain amounts you will get assistance paying your premiums. For a single person the cliff (where you pay full price) is about $51k this year. (400% of Federal Poverty Line "FPL").

If you do alot of reading here and on bogleheads and some googling you can learn to do all this. Then, IMHO, you'll be ready to retire with no worries at all.

 

[Dtail]

Welcome to our wonderful forum.
I reviewed your Firecalc run and made 2 minor adjustments - one to collecting SS in 2040 not 2042 and % of equities to 70% instead of 75%.
Still had 95% success rate.
Many folks using Firecalc as a pre retirement gauge typically shoot for around a 95% success rate. A somewhat smaller % shoot for 100% success rate.
You appear to be fine from that aspect.

I would think more creatively about paying for medical. Unfortunately you don't after any after tax/Roth funds of note in order to potentially manage your income in using the ACA health insurance system.

 

[MissMolly]

You can be in "relatively good health" until you're not. One day you're fine. The next day you are diagnosed with a serious illness or disease. It happens. Don't go uninsured. And I can't believe you think you can get away with this for 15 years and think you will remain healthy all that time. Really bad idea. Look into ACA. If your income is low enough then it could be at very little cost to you.

 

[USGrant1962]

I prefer 100% in FIRECalc, but not 200% like some do.

First, as a single person your paid off house is your LTC fund, if you even need it, so don't add that to FIRECalc again.

I built a FIRECalc model based on your posting (without an LTC bump and including your emergency funds) and get 99% over 45 years (and 100% over 40 years). That included your $28K bump as spending. BUT, it sounds like you plan to withdraw from your tax advantaged accounts, perhaps spend some of it on one-offs, but move the rest to taxable. Is that correct?

If so, you are well over 100%. A withdrawal from one account that is deposited in another account is NOT spending. And with 72t you can smooth that some more. 72t is your friend.

Also, there is no reason to exclude your emergency funds from your portfolio - unless you just enjoy working longer!

Regarding health insurance, you appear to be right around the cliff for ACA subsidies and should go that route. You will have to manage your AGI carefully at your spending level, though, which could put a crimp in your RMD early-withdrawal plans until you hit Medicare. But in round numbers you could draw say $45K from your IRA under 72t, and $5-7K from your taxable accounts to keep your AGI under $50K.

In FIRECalc I suggest:

• Use portfolio value of $1.92M
• Bump spending for ACA premiums maybe another $3K after subsidies (there are premiums for Medicare too).
• Cut your 59.5 "spending" increase to maybe $14K to cover car, roof, etc, and taxes on the increased withdrawals.

Maybe once you study up on 72t build a new model with those cash flows (it will be even better I think).

Looking at it 30,000 feet: assume your house=LTC, neglect SS, and take just your portfolio of $1.9M. At a 3.8% withdrawal (100% for 30 years in all historical U.S. experience including the Great Depression and Stagflation) you can spend $72K/y plus SS. Back off to an extremely conservative 3% and you are still looking at $57K/yr plus SS reinforcements.

IMO, you are good to go now if you want, including buying health insurance.

 

[SenecaInExile]

Hi! thanks for the comments! I didn't expect a deluge!

@many
I kind of expected the thought of 'self insuring' for general healthcare would raise some comments. Was looking for see if there were any reasoned arguments or studies that could be pointed to for relative risks. My outlook so far on that having paid (from my calculations) about $90-100K over the last 35 years into health insurance and having used a grand total of $0 of any benefit thereof. If I had instead put that into the market would have accrued much more to be able to afford any major issue. I have had a couple close fiends die of cancer so have some idea on the toll that it would take. That being said, (in my opinion only) I would be hard pressed to continue such treatments; more of a quality of life than a length of life debate. In the past, I've had fractures, cuts, and other 'minor' items which I just took care of myself. So the thought process was mainly to see about handling the range of issues between 'small' like above; and 'extreme'. It's something that I know is a contrarian point of view so am welcoming your comments here to perhaps level out or modify my perspective.


@many:
As for paying the 10% penalty. I have done some basic calculations comparing the differences and found that my own calculations seem to align with what was written by the madfientist here. The differences between paying the penalty, sepp/72t, and roth (assuming tax brackets) are small. I've looked into sepp/72t and it is /very/ unforgiving for what appears to be a very little delta of just paying the penalty and doing what I want. Roth conversions I have also looked at but currently (while working) would be more expensive than just paying the penalties due to my current income. Does anyone here have any direct experience?


@latexman,target2019,Winemaker. yes, the handle is related to the roman stoic philosopher and statesman. As for the state; Winemaker has it correct that it's Illinois (older reference).


@Dtail- Thanks for that catch. I must have been thinking about RMD age. As for bonds/equity mix, that is something that I have been thinking about. With the potential longer horizon and looking at the study at EarlyRetirementNow here. I was trying to keep close to a 3% WR, but have enough in bonds to last 7-10 years. That looks like a range between 20 and 30% I was leaning it more towards the lower figure (20%) only really due to the current bond returns being really bad and likely to stay that way for several years (at least that's my current belief).


@USGrant1962: Yes the $28K bump was to handle any needed 'lumpy' costs that are expected such as HVAC; Roof; Car; major appliances; etc. And the rest would go into an after-tax S&P500 index fund. The point there is that the after-tax account would step up in basis at my death so would be more valuable for heirs than the pre-tax. I didn't think of the house as a source of funds for LTC, but I guess that can make some sense. It really I guess comes down to the disposition of the house if I want to bequeath it to someone or do something like a reverse mortgage. But that's an interesting thought!


Thanks for all the comments thus far. It's a major change of thought from accumulating for the last 3 decades+ and then turning around and seeing the steep downward drop-off of decumulation ahead. It is kind of dizzying coming to grips with everything.

 

[samm]

Illinois was the Sucker State, now its "The Land of Lincoln"

Illinois is regarded as the sucker state.

Illinois was called "the Sucker State" before it became known as "The Land of Lincoln"

 

[MissMolly]

Just because in the past you have had no major health issues in no way has any bearing on the future. I drove a car for 40 years never having an accident. When I was in my mid-late 50's I had a accident. Not only did I have an accident, I totaled the car. And it was a rental. I have driven dozens of rental cars over the years as well as my own cars. No accidents. Until the day I had one. My 40 years of driving accident free had no bearing on that day.

My sister-in-law was healthy. No surgeries. No accidents. No illnesses. Only in the hospital twice to have babies. Until she was 50. Diagnosed with pancreatic cancer. Only survived 18 months. Tons and TONS of expenses in those 18 months.

My husband has never had surgery for anything (except cataracts). He fell off a ladder 8 weeks ago. Having surgery on Tuesday for badly torn rotator cuff.

My brother never had surgery for anything. Very healthy, very active. Was 45 years old and on vacation with his family in Florida. Caught a bad wave when body surfing. Broke his neck.

Past performance does not predict the future.

 

[OldShooter]

You don't need Portfolo Visualizer to read the frequent Morningstar research that says that high fee funds like those two equity funds are very likely to be poor performers. For example:

https://www.morningstar.com/articles/752485/fund-fees-predict-future-success-or-failure.html

Ditch the Rowe Pric equities. Buy an inexpensive or free total US market fund and season to taste with an inexpensive international fund. 30% seems to be a popular recipe around here. Vanguard: " Global equity investing:The benefits of diversification and sizing your allocation" https://www.vanguard.com/pdf/ISGGEB.pdfhttps://en.wikipedia.org/wiki/Dunning–Kruger_effect

Re the Rowe Price bond fund, there are bond fund mavens around here who will probably offer some advice on that.
​

 

[HI Bill]

Yeah, I’m my mid 40s I was thinking of self-insuring. Until at age 47, I started on Eye injections that now retail for $4K each. Throw in a couple of MRIs and a CT scan...and my annual cost for age 47 would have been $55K, without insurance. Not including blood tests.

 

[Scratchy]

Hello fair forum folk!
I have been blessed with relatively good health and have been thinking of ‘self insuring’ until 65 for medicare/medigap. Since I haven’t really needed anything for the last 50 years that I haven’t paid out of pocket already figured 15 more shouldn’t be too much of a gamble?

I literally did not read beyond the above paragraph so my apologies if what I say has been covered, or perhaps you were not being serious. This is stated with the best of intentions: the above is a stunningly dreadful idea. You would be putting your life and all your assets in grave jeopardy. The fact you've been in good health counts for nothing. Future health is about as predictable as the stock market, except the trend is down, not up.

 

[jim584672]

Keep your income under 4X poverty and get a subsidized ACA plan, self-insure is crazy talk.

 

[Markola]

For avoiding the 10% penalty, can you transfer the $ from your IRA to your 401K so that you can benefit from the Rule of 55? If so, you could quit your job at the start of the calendar year in which you turn 55 and access your money penalty-free. You can’t do that with an IRA. Check out your 401k’s rules though. Another benefit is the legal liability protections are often stronger for 401ks than IRAs.

+1 on all the admonitions to be insured. Mr. Money Mustache has been flirting with this idea. MMM also has dual Canadian membership, so maybe that’s his real insurance policy.

 

[pjigar]

I think self insuring for healthcare is a really really bad idea.

I HIGHLY second that. Did you know that 66.5 percent of all bankruptcies were tied to medical issues?

Also switch your investments to lower cost broad-market funds with core holdings (50%) in large cap fund.

The tricky part for ER is bridging the gap between now and when you can access the retirement account funds penalty-free.

 

[pjigar]

Another benefit is the legal liability protections are often stronger for 401ks than IRAs.

Not true anymore after 2005.

 

[Bryan Barnfellow]

Hi! thanks for the comments! I didn't expect a deluge!

@many
I kind of expected the thought of 'self insuring' for general healthcare would raise some comments. Was looking for see if there were any reasoned arguments or studies that could be pointed to for relative risks. My outlook so far on that having paid (from my calculations) about $90-100K over the last 35 years into health insurance and having used a grand total of $0 of any benefit thereof. <<some text snippped here>> In the past, I've had fractures, cuts, and other 'minor' items which I just took care of myself. So the thought process was mainly to see about handling the range of issues between 'small' like above; and 'extreme'. It's something that I know is a contrarian point of view so am welcoming your comments here to perhaps level out or modify my perspective.

Took care of your own fractures! You are a stoic. But about the benefit of the health insurance. Generally, you don't WANT to use it; but you buy it to lay off the risk of the cost of ill health to another entitity. So, you actually received the benefit of laying off that risk. The risk was real. It just turned out to have zero probability (so far) for you. You paid for insurance against the risk of losing some or all of your assets in case of serious/costly illness.

If you buy home owners insurance and your house never burns down or never gets sucked up into a tornado, are you dissatisfied with your 'bet'?

All this is just to say, BUY HEALTH INSURANCE. RUN, DON'T WALK TO DO SO!!

 

[jim584672]

When I go to the doctor you see the rack rate and the negotiated rate because you have health insurance. It might be $250 full price, but the plan pays $80. This is one big reason to have it. They will rake you over the coals with everything full price without health insurance.