New Member: Retirement Question - Can I pull the trigger?

[damonhowatt]

Hello, this is my first post on Early Retirement.Org. I’m like many others in that I’ve read this website for quite a while and have decided to finally post and see what others who have gone before me (and definitely know more!) can teach me. I see so many different methods from different forum members here that I’m overwhelmed.

My goal is to retire in two years; can I do this in my current financial state? I live pretty frugally but I’m not as strict as MMM for example. I drive a 15 year old car and keep discretionary purchases to a minimum.

Please give me some honest feedback. If I’m falling down, show me where!




From a portfolio perspective, my account is as follows:



Taxable Account: $200,000 current value

· 95% Large Cap US Stocks; 5% Cash

· No additional inputs to this account at the current time.



401k (current employer): $493,000 current value

· 75% Large Cap US Stocks; 20% Cash

· 5% Vanguard Institutional Index Fund

· Input of $24,000 on annual basis



Roth IRA: $92,000 current value

· 90% Large Cap US Stocks; 10% Cash

· No additional inputs to this account at the current time.



IRA: $335,000 current value

· 90% Large Cap US Stocks; 10% Cash

· No additional inputs to this account at the current time.

· Hoping to use this account via a Roth ladder or the SEPP.



Cash: $15,000



SS Estimated Payments (from SSA website):

· At age 62: $1545

· “ 67: $2230

· “ 70: $2769

· I would like to delay taking SS for as long as possible but will activate it if I need to at 62 (hopefully not).



Real Estate:

· Principal Residence

Monthly mortgage payment of $975;

Remaining balance of $123K

Home equity LOC balance of $19K

(Conservative)Estimated equity of $275K

Seattle rental market is extremely hot at the moment: conservative monthly rent estimate of $1700 – 1800 possible if I rent the house out.



Personal Perspective: Age: 55; wish to retire at 57.

Single, no children.

Employed by local food company. Expect retirement expenses are $40,000 - $45,000; taking into account healthcare ($10k/year),



Basic Questions:

· What do forum participants think of purchasing high quality/high yield dividend stocks for monthly income (i.e. range of 3.0 – 4.0% yield)?

· One thought: rent out house and travel for extended time period (ex. 1 – 2 years).

· Sell house and invest subsequent equity ($275,000) into large cap stocks/dividend stocks?

· Purchase Beanie Baby futures in the hope that they come back into vogue? LOL: Okay, this last one is just to lighten things up a bit, provide some levity!

Thank you in advance,
Damon

 

[pb4uski]

It seems like you may be close. Have you run your numbers through Firecalc?

I prefer total return investing to income yield investing, but either is fine if done prudently.

 

[Katiek]

I didn't run your numbers through firecalc, although you've done an excellent job saving and watching expenses. One question that jumped out at me was you seem to be heavily concentrated in US large cap stocks. If the US market had a significant dip, what would that do to your plans?

 

[MichaelB]

Here are some questions to guide you http://www.early-retirement.org/for...-answer-before-asking-can-i-retire-69999.html

 

[lawman3966]

Your situation is interestingly similar to mine. (I posted something related to RMDs about a week ago you might want to check out).

I think that your proposed withdrawal level (45K/year) is extremely reasonable in view of your assets and future SS income. I don't see why you couldn't retire now.

You could likely benefit from research into doing Roth conversions since you have about $830K in tax deferred assets, and these will incur RMDs after you turn 70. I am still learning about this myself, and will therefore not provide detailed advice, other than saying that it's worth investigating how to minimize the tax bite that will arise from your tax deferred assets (401K and IRA).

You indicate that health care will cost you $10K a year. I would have thought that the ACA would enable you to obtain coverage for less than that.

 

[Independent]

1) Some people here are pure "total return", others like the dividend strategy. Dividends are historically more stable than prices, so I find that kind of comforting. In your case, "high quality" needs some analysis. Does the higher dividend yield reflect a low price, which might be driven by a belief that the company has poor long-term prospects?

2) Travel is often very expensive. Unless you have some unique ideas, you won't be living on your $40,000. Doesn't mean it's impossible, just be sure to be realistic.

3) $275,000 at a 4% SWR is $11,000 per year. Using that for rent doesn't get you much in Seattle. Some people try to move to a lower COL area when they retire. My limited experience with friends from Seattle is that they want to stay right where they are.

Yes, try FireCalc. Be sure to put in your actual asset allocation. You're very exposed to an early stock drop.

Note that FireCalc assumes you are doing your own tax analysis. It's not clear if your $40-45K includes taxes. And, it's not clear if it includes the mortgage. You can simplify your analysis by assuming you'll use $123,000 of you taxable investments to eliminate the mortgage (but not the RE taxes and insurance that are probably included in your mortgage payment).

Also, work your way through the "Some Important Questions ..." list. And, think about a long term care strategy.

 

[damonhowatt]

To Lawman 366: Thank you for the reply. I realize now at age 55 I have a very large proportion of my assets in tax deferred accounts. I just kept my head down ploughing money in. I will definitely look at your posting because I need to do the roth ladder conversion or a SEPP plan or another method. I overestimated on the health care costs; I think that I can get for cheaper. Not sure yet; I'm still very much a student of this stuff.....

To Independent: You've raised some good points for me to think about.
1) I am interested only in high quality stocks (for dividends) for some of my assets. Example: Con Edison, AT&T, others. I would keep a certain percentage in stocks with good growth prospects.
2) I agree with you on the travel costs. I'm thinking of some initial time in some lower cost locations: Mexico, Thailand.
3) Living costs in Seattle are high, no equivocation on that point. I like the house I'm in but it's too big for me; perhaps a downsizing to a small rambler/bungalow. Even small houses are costly in this area.
I am running Firecalc when I return home from work tonight; I'll tell my scenario tomorrow on this issue.
I will definitely include both the mortgage and the taxes in my Firecalc tonight.

MichaelB: I haven't read throught the questions you referenced but will tonight. Thank you for the reference.

pbruski: Thank you for your post. I'll look at the Firecalc tonight.

 

[damonhowatt]

KatieK: I plan on transitioning from this current high percentage of large cap US stocks to more small cap/bonds/some international funds. I realize my asset allocation is pretty aggressive.

 

[lawman3966]

To Lawman 366: Thank you for the reply. I realize now at age 55 I have a very large proportion of my assets in tax deferred accounts. I just kept my head down ploughing money in. I will definitely look at your posting because I need to do the roth ladder conversion or a SEPP plan or another method. I overestimated on the health care costs; I think that I can get for cheaper. Not sure yet; I'm still very much a student of this stuff.....

Regarding health care costs, the ACA presents an unusual situation in that your health care costs depend on your investment and withdrawal decisions. For example, the more you withdraw from a tax-def account in any year (and the more your convert from tax-def to Roth), the lower your ACA subsidies will be. Thus, the dependency of ACA subsidies on taxable income adds yet another layer of complexity (and opportunity) to the equation. People on this forum suggested that I set up an Excel spreadsheet to consider various withdrawal/ Roth conversion/ stock/bond combination scenarios to consider the bottom line effect of conduting Roth conversions while getting coverage under the ACA. I suspect that you too would benefit from use of such a spreadsheet.
Congratulations on having been an efficient saver.

 

[Moemg]

Please send me your beanie babies ! I think you are on to something !

Welcome !

 

[Sunset]

OP - kinda late now, but you have way too much cash in your 401K plan... might as well invest all of it, because if the market tanks 20-40% I'll bet you decide to keep working until it improves.

Also, you will need a lot a cash from 57 to full retirement age, so you will need to consider tapping your 401K if allowed without penalty, or do the periodic payments from IRA (but separate it into a couple of IRA's) so you avoid the 10% penalty.

 

[clifp]

You can retire now if you want to.
You should put your numbers through FIRECalc and probably some other calculator if you are nervous.

You have 1.1 million in liquid assets. (Congrats) Most of your money is equities. Yes you should put them into something other than Large Cap US stocks, but hey they aren't going to go to zero anytime soon baring a nuclear war. Your expenses are 40-45K that is 4% withdrawal rate.
You are over 55 so you should be able to tap into your 401K giving you plenty of spending money to bridge to 59.5. Once SS kicks in your withdrawal rate drops to about 2.5%. In ten years you are eligible for medicare reducing your medical expense. Plus in what about 15 years your house will be paid off dropping your expense even further. That's assuming you retire today. Waiting for two years, you are golden.

 

[knucklehead 61]

what about income taxes?
are they included in the 40-45k you need?
my two biggest unknowns for my own spreadsheets are what my income taxes will be once i stop w@rking & what will health care insurance cost.

 

[Birdie Num Nums]

SS Estimated Payments (from SSA website):

· At age 62: $1545

· “ 67: $2230

· “ 70: $2769

· I would like to delay taking SS for as long as possible but will activate it if I need to at 62 (hopefully not).

Are those numbers based on what the SSA estimates ("Your Estimated Benefits" from the annual Your Social Security Statement that used to be mailed out each year) or on actual numbers that you ran thru its Retirement Estimator? Others here can correct me if I'm wrong, but the results of the two are not necessarily always the same. The former assumes "At your current earnings rate and that you continue working until" 62, 67 or 70. If you stop working and retire at 57, obviously that's not working until 62, 67 or 70.

A few years ago the former said that if I retired at 70 (kept working until then, and at my then-current earnings rate) my monthly benefit was estimated to be some $3k/month. If I ran my numbers in the online Retirement Estimator correctly (just the other day), however, having retired at 55, the monthly benefit was estimated to be about $2K/month at age 70. Quite a difference!

 

[clifp]

That's a good point Birdie, SSA estimates are based on you continue to work until the specified age unless you use the more advanced calculator. But at age 57 he probably already has 35 years worth of paying into the system. I doubt the extra 5 years of working would add much more than 100-200/month.

 

[Koolau]

Many here would suggest alternate asset allocations. I have no suggestions as I'm way conservative compared to most. Converting to Roth IRAs would be my only suggestion - within the bounds of your expected retirement tax rate. But strictly from the total value of your current AA (and applying the so-called 4% rule) it would seem you are in good shape - especially since you will have SS waiting in the wings. I suppose my question would be: How firm is that $40 to $45K cash burn? Many here live on a lot less, but others easily spend twice that and do not feel particularly un-frugal. I count myself in the latter category of spending and it's primarily because I live in a high cost area (especially housing - but everything else as well.) One thing that will help assure your success is to be flexible. If you retire and don't have quite enough, you may need to cut back on retirement expectations (travel, eating out, car replacement timing, etc. etc.) Back-ups to your back-ups is one of my mottos. Others call it belt and suspenders. Good luck and, oh yes, YMMV.