Newbie

[Lawrencewendall]

Been on here around a month and have learned so much in that time. Retired military (TRICARE For Life), pension (COLA adjusted), VA disability (COLA adjusted), DW getting SS disability (COLA adjusted) and currently a Fed maxed out in my pay scale (J Band) eligible to retire in 2021.

Here's my plan: I will be FIRE at 57 (almost 5 years from now, Dec 2021). Income from all sources will be around 64K. I know what my current expenses are (63k) by looking at my last 3 years of spending captured in a spreadsheet. My tax deferred investments will be around 700k in 2021. I plan on converting a portion of my tax deferred every year to a ROTH. The amount converted will be the difference between my expenses (63K) and the max ceiling to stay within the 15% tax bracket (currently 88k, 75k bracket plus 13k standard deduction for married filing jointly). I estimate i can convert about 400-500k to ROTH (paying 15% taxes on it) by the time RMD kicks in. The RMD will continue to fund my ROTH until the tax deferred is gone or I am.

Am I missing anything?

[2017ish]

The main question, given that you have health insurance covered, is whether the two of you might want to increase discretionary spending in 2021. Many don't. Some (including me and DW) do. Will your current expenses be the same, more, or less than retirement expenses?

Good plan for the Roth conversions. We too will be converting to the top of a particular tax bracket to avoid RMD tax torpedo (and, even worse, the impact on survivor after one of us dies).

[Bryan Barnfellow]

Financials look good, Lawrencewendall. Are you also planning what you will do with all your free time? I am coming up on my two year mark since retiring and it still is hard to establish a routine for retirement. Not sure I even want or need one; but it seems to pop up for me quite a bit as an unsettled topic. My wife retired from w*rk long ago to pursue her own writing, so her routine is largely unchanged. Best of luck to you and your spouse!

-BB

[N02L84ER]

The RMD will continue to fund my ROTH until the tax deferred is gone or I am.

The RMD can be spent, saved into a taxable account, or donated to charity. You cannot convert the RMD to a Roth. You can convert additional amounts from the tax deferred accounts after satisfying the RMD amount to a Roth.

[braumeister]

Quote:

Originally Posted by N02L84ER The RMD can be spent, saved into a taxable account, or donated to charity. You cannot convert the RMD to a Roth. You can convert additional amounts from the tax deferred accounts after satisfying the RMD amount to a Roth.

Yeah, this is the killer. Back then, we thought "tax deferred" meant the tax hit would come "much, much later." But it really just meant "somewhat later."

Still, a good "problem" to have.

[Lawrencewendall]

Quote:

Originally Posted by Bryan Barnfellow Financials look good, Lawrencewendall. Are you also planning what you will do with all your free time? -BB

I have too many hobbies (woodworking, crafts, computers, investing, hunting, fishing and I have 2 Harley's that need restoring). Should keep me busy for a month?

[DrRoy]

Quote:

Originally Posted by Lawrencewendall Here's my plan: I will be FIRE at 57 (almost 5 years from now, Dec 2021). Income from all sources will be around 64K. I know what my current expenses are (63k). Am I missing anything?

You may be missing inflation. In 5 years, at 2%/yr, your $63K of expenses becomes $70K, and at 3% it is $73K. If your income is $64K then you are short.

[exnavynuke]

Quote:

Originally Posted by DrRoy You may be missing inflation. In 5 years, at 2%/yr, your $63K of expenses becomes $70K, and at 3% it is $73K. If your income is $64K then you are short.

It looks like all his income is COLA'd.

[Lawrencewendall]

Quote:

Originally Posted by exnavynuke It looks like all his income is COLA'd.

Of course, as we've seen in the past, COLA doesn't nesessarily equal inflation (3 years no COLA with mil retirement or disability but there was inflation)

[DrRoy]

Quote:

It looks like all his income is COLA'd.

Yes, but he didn't account for inflation between now and the start of the income.

[Blue Collar Guy]

Quote:

Originally Posted by Lawrencewendall Been on here around a month and have learned so much in that time. Retired military (TRICARE For Life), pension (COLA adjusted), VA disability (COLA adjusted), DW getting SS disability (COLA adjusted) and currently a Fed maxed out in my pay scale (J Band) eligible to retire in 2021. Here's my plan: I will be FIRE at 57 (almost 5 years from now, Dec 2021). Income from all sources will be around 64K. I know what my current expenses are (63k) by looking at my last 3 years of spending captured in a spreadsheet. My tax deferred investments will be around 700k in 2021. I plan on converting a portion of my tax deferred every year to a ROTH. The amount converted will be the difference between my expenses (63K) and the max ceiling to stay within the 15% tax bracket (currently 88k, 75k bracket plus 13k standard deduction for married filing jointly). I estimate i can convert about 400-500k to ROTH (paying 15% taxes on it) by the time RMD kicks in. The RMD will continue to fund my ROTH until the tax deferred is gone or I am. Am I missing anything?

sir, how did u figure the value of ur funds 4 years from now?

[Lawrencewendall]

Quote:

Originally Posted by Blue Collar Guy sir, how did u figure the value of ur funds 4 years from now?

I use the calculator at tsp.gov (https://www.tsp.gov/PlanningTools/Ca...vingsGrow.html) using a 6% annual return and a 2% annual wage increase and maxing out my 401(k)s for the next 4 years. Gets me in the ballpark I think.

[Nords]

Welcome, Lawrence. As soon as I saw the word "Severn" my reflex reaction was "Brrrr..."

Quote:

Originally Posted by Lawrencewendall I plan on converting a portion of my tax deferred every year to a ROTH. The amount converted will be the difference between my expenses (63K) and the max ceiling to stay within the 15% tax bracket (currently 88k, 75k bracket plus 13k standard deduction for married filing jointly). I estimate i can convert about 400-500k to ROTH (paying 15% taxes on it) by the time RMD kicks in. The RMD will continue to fund my ROTH until the tax deferred is gone or I am. Am I missing anything?

When you start paying Medicare premiums at age 65 while doing Roth IRA conversions, keep an eye on your AGI for IRMAA. The income-tax brackets for married filing jointly give you plenty of room, but it can be a surprise if you exceed the AGI limit with a large Roth IRA conversion or capital gains.

https://www.kitces.com/blog/income-t...-marginal-tax/

https://www.kitces.com/blog/social-s...hold-harmless/

The question "But whaddya gonna DO all day?!?" takes care of itself. Six months after retirement, the vast majority of retirees look back on that question and wonder why the heck they ever worried about it.

[Lawrencewendall]

Quote:

Originally Posted by Nords Welcome, Lawrence. As soon as I saw the word "Severn" my reflex reaction was "Brrrr..." When you start paying Medicare premiums at age 65 while doing Roth IRA conversions, keep an eye on your AGI for IRMAA. The income-tax brackets for married filing jointly give you plenty of room, but it can be a surprise if you exceed the AGI limit with a large Roth IRA conversion or capital gains. https://www.kitces.com/blog/income-t...-marginal-tax/ https://www.kitces.com/blog/social-s...hold-harmless/ The question "But whaddya gonna DO all day?!?" takes care of itself. Six months after retirement, the vast majority of retirees look back on that question and wonder why the heck they ever worried about it.

TriCare For Life so I don't think I need to worry about medical. As bad as the press gives it, I could go into a VA home for LTC (I think), not the DW.

She is freaking out about the proposal of FIRE but refuses to get on here or even talk about it. Hasn't read a single books I recommended:

Your Money or Your Life
The Millionaire Next Door
Money, Master The Game
Rich Dad, Poor Dad

[2017ish]

DW read most of Jane Bryant Quinn's latest: "How to Make Your Money Last: The Indispensable Retirement Guide," which has been recommended quite a bit.

The first personal finance book that I got her to read--smart, high earning, has always been intimately involved in the finances of her groups, but just never wanted to expend time on the personal finance stuff that she delegated to me.

Maybe try that one?

[Lawrencewendall]

Ran the number again last night. If I save up my sick leave, it gives me 5 months of service (every 170 hours= 1 month), allowing me to retire at 56 with 10 years, one month of service. Income would pay current bills with a 5k buffer, leaving me with a 45k buffer before I bust the 15% bracket. That buffer could be used in an emergency but my plan is to convert it to a ROTH every year. The difference between retiring at 56 versus 57 is 1.4k A YEAR! Doesn't seem hardly worth sticking around for that. The difference between 57 and 58 is only 1.2K. Golden handcuffs? Any thoughts?

[evilanne]

Are you maxing out the catch up amount as well?
Have you considered just contributing to Roth now? If you are expecting a 6% rate of return for the next 5 years, the extra 10% now (25% tax rate) would decrease your need to convert as much after you retire or you may be able to convert it all. With the various income streams (taxable & non-taxable) of income I think you may have a problem converting very much within the 15% tax bracket.

[Lawrencewendall]

Quote:

Originally Posted by evilanne Are you maxing out the catch up amount as well? Have you considered just contributing to Roth now? If you are expecting a 6% rate of return for the next 5 years, the extra 10% now (25% tax rate) would decrease your need to convert as much after you retire or you may be able to convert it all. With the various income streams (taxable & non-taxable) of income I think you may have a problem converting very much within the 15% tax bracket.

I am maxing out the standard and catch-up as well as maxing out my ROTH. If I can keep spending to a reasonable amount, I figure I can convert 45k a year to ROTH for 14 years and still have some tax deferred left in there at 70..

[AginMS]

Is the other pension you mentioned in your first post FERS? If so, will you be taking that when you retire or postpone it until 62?

Taking it at at age 56 would reduce your FERS pension by 30% (5% per year). Have you factored that in already?

[Lawrencewendall]

It is FERS and my calculations include the 30% haircut at 56 or a 25% loss at 57. With only 10 years of service, even those high penalties are paltry amounts. On 15k, not much difference.