Hi, glad I found this board 56 and FIREing

[MRG]

Hi,
New to this board and have to say I’m grateful for finding it when I did.

We’re a married couple 56, and 55, no kids. Wife’s been unable to work since 1996 due to disability and collects SSD benefits of ~1,200 per month. I’ve been working the same job since 1984, and am just fried on the place. I may be a fool but I’m suffering through my last two weeks of employment. I say I may be a fool because I’m walking away from 120K job with good benefits. I plan on take SS at 62, projected at 1,750 a month. We currently reside in MO. and for now do not intend to move.

We’ve managed to save up 100K in cash, 220K in post-tax assets (mostly in high dividend paying equities), and 40K in Roth IRA (again high dividend equities). This leaves us with 1.25MM in traditional 401K and rollover IRA’s, this is allocated into 50% equities (either more high dividend stocks and some equity mutual funds) 10% bonds, and 40% short term. I plan to move most of the short term into more bonds and equity funds as the market figures out what it wants to do.

On the expense side we own our 450K home outright as well as everything else. We like where we live but, could downsize to ½ the house and not feel bad about it. Her vehicle has 6K miles on it, my truck 140K so we may have at least one vehicle expense in our near future. My wife is on Medicare due to her condition, and we have a supplemental policy for her. I’ll be picking up COBRA ($450 month) and will switch over to something else in 2014. I know my post COBRA expenes will be more, but think I have that covered.

I’ve run Firecalc (using mostly defaults) and for a 60K withdrawal it comes up with 100% for 40 years. I haven’t spent as much time in Firecalc as I have Fidelity’s R.I.P. it comes up with 95% projections for the same expenses for the same period. The 60k withdraws fits into the 4% rule, and it does agree with what we actually have spent over the last 18 months.

So why am I feeling so nervous about this move?

Thanks in advance for your help. - MRG

[David1961]

Welcome and it's normal to be nervous. My last 2 weeks at work I was a nervous wreck.

Here's my two cents:
I'd be concerned about what exactly your post-COBRA expenses will be.

I think the 50% in equities is about right for your age.

If 60 k are your total estimated expenses and your wife is receiving SSD benefits of 1,200 per month, you would only need to withdraw about $46 k.

[Jack_Pine]

Welcome and good luck. I am new here as well and love reading all this.

I like the Fidelity tool a lot. I also am at like 96% on it and am easily 100% in Fire Calc.

I am presuming the 60k draw will cover increase in health care, property taxes and such. Do you have Long term Care in your plan?

[heeyy_joe]

Welcome! You will be fine.

[Htown Harry]

Quote:

Originally Posted by heeyy_joe Welcome! You will be fine.

+1.

The details may need some attention, which is why you have worries?

I see nothing that sets off alarm bells, just some things not mentioned in your post that you may need to read about and work out with a cash flow spread sheet. Preferably over a glass of lemonade on the ER back porch. While taking long breaks as you watch the sun set. As your thoughts drift to thinking about how little you miss your former commute and j*b.

As David1961 says, getting confirmation on your projected Cobra cost is an early objective. No action needed, really - with only two weeks to go you'll know soon enough either way.

Next, take a look at income taxes and potential early withdrawal penalties for the next 3 years before you turn 59 - 1/2. The taxable-to-tax deferred ratio in your portfolio is heavily weighted toward tax-deferred. I'm personally a little wary of blindly following the "withdraw from taxable first" rule of thumb with a result of substantially depleting after-tax liquid resources at age 60. On the other hand, IRA 10% early withdrawal penalties should be avoided.

The portion of your IRA balance in DW's name is taxable, but can be withdrawn without penalty under a disability exception, correct? Another option to avoid penalty is the 72(t) rule a.k.a Substantially Equal Period Payments or SEPP. Do you plan to use either of these withdrawal methods in the next few years?

Next would be a steady side project to keep up with the ACA exchange developments and to refine your plan and expected cash flow changes when you transition from COBRA. You can work on this in between the long-overdue French horn lessons and planning for your next travel adventure.

Just some ideas based on reading between the lines...

[MRG]

Thank you for all the positive feedback. I do know the cost of COBRA and my medical expenses (for 2013). Obviouly this changes next year, I will certainly follow the advice about checking inot non-COBRA as soon as ACA has more information.

Since part of my non-taxed income will be left in my former employers qualified 401K, I think I can get around the need to use a 70T. From the IRS 575 publication:

"Additional exceptions for qualified retirement plans. The tax does not apply to distributions that are:

• From a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age 55 (age 50 for qualified public safety employees) (see Separation from service , later), "

My employer says I'll be eligible for the retired after 55 rule. If that is not correct the fallback is 70T (if needed).

[JoeWras]

Quote:

Originally Posted by MRG "Additional exceptions for qualified retirement plans. The tax does not apply to distributions that are: From a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age 55 (age 50 for qualified public safety employees) (see Separation from service , later), " My employer says I'll be eligible for the retired after 55 rule. If that is not correct the fallback is 70T (if needed).

This is key. I was going to mention it, and see you are ahead of me. If your employer says you are good, then you should be OK. Leave the IRA alone and draw from the 401k.

You can also consider creating "income" from converting some of your traditional IRA or roll-over IRA into Roth. But that money won't be accessible and you'll have to come up with the tax money.

In any case, as you drink your lemonade and do planning, you'll have many tools to consider to create your income stream and optimize taxes.

P.S. Pay attention to the ACA/Obamacare threads that pop up here. May be part of your toolset after COBRA.

[Katsmeow]

Quote:

Originally Posted by MRG "Additional exceptions for qualified retirement plans. The tax does not apply to distributions that are: From a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age 55 (age 50 for qualified public safety employees) (see Separation from service , later), " My employer says I'll be eligible for the retired after 55 rule. If that is not correct the fallback is 70T (if needed).

From a tax standpoint, yes, this says you won't have to the 10% penalty. Bear in mind that this is not the same thing as saying you can take whatever you want whenever you want from your 401k. You need to go read the summary description of your plan and look at withdrawals. For example, with my 401k, I can withdraw at 55 without penalty. However, at any age (even over 59 1/2) my choices with the 401k are to either withdraw all of it at once (which I won't do due to the taxes that would be due) or to withdraw it in equal payments over a term. What I can't do, for example, is withdraw $20,000 this year, $30,000 year, $15,000 the following year, and then $20,000 the next year. I could withdraw $20,000 a year until it is all gone. If I suddenly didn't want to, my only option would be to withdraw everything. So, it is important to check your plan as to exactly how you can take withdrawals

[MRG]

Thank you Katsmeow, I did not know about how distributions can work. At this time the benefits department says you can withdraw any amount at any time, just fill out the forms. Unfortunately the forms won't be available to me prior to my exit interview.

I've talked with a few folks that have gone ahead of me, to date nobody's mentioned having an issue. But you’re making me think that I need to push that point during the exit process, just so I fully understand what my options can be.


MRG

[Katsmeow]

What you can withdraw and how and when should be in the summary plan description. I believe it is legally required to distribute it once a year (at least my employer and DH's employer did so) and you have a right to request it. You should ask for it now and read it carefully. Of course, you should ask if there have been any subsequent changes to the plan.

[obgyn65]

Welcome to the forum.

[MRG]

Got the details on 401k withdrawls. I can choose periodic, or ad-hoc, withdraw 1K this month and 10K 3 months later.

That part is great, COBRA is exactly what I was told, so great on that front. Will start working on post COBRA in a couple months as ACA gets better defined in MO.

Only shock to date is DW and Medicare, her one specialist is not in Medicare till end of year(we knew that), never thought they wouldn't pay for his prescriptions, till then we'll be careful, if needed we could always change, DRs.