Oddball Inheritor hoping to retire in 2021

[Fielding]

Last year was terrific for my household financially, and I believe all the lights on my early retirement dashboard are now solidly green. I would like feedback on my plan.

I should first say that I'm an inheritor. I know the statistics on us as group, and I know I'm not alone. But I'm enough of an odd duck that I've been reading heavily in the FIRE community for several years, and I can't remember anyone posting anything close to some of the issues that come up for me. I'm surely not unique though, so maybe this will reach the ears of someone with relevant experience.

I'm a 53 year old male, my wife is 55. Wife has been a homemaker for the past 13 years, but does have some employment history and does qualify for social security. No kids.

Most posts of this kind start with assets, but I'm going to start with spending and conventional income as it is a lot easier to describe for us.

Spending
-----------

I have excellent Quicken data for all of my adult working life. I've worked up detailed data for the past 7 years, and total spending in that time has been between $120k-$130k per year, save for two exceptional years when we bought a new vehicle for cash, and another year when we bought my mother-in-law a house for cash.

I also track what I think of as "baseline" expenses, which excludes two major hobbies (one for each spouse) and vacation spending from the total spending amount. We spend typically $30-$40k per year on these discretionary expenses, and they are readily cut back. During this Covid year for example, we spent a lot less on vacations, but more on our hobbies as a result. Baseline spending is $70-$90k per year, and represents to me a comfortable fallback position in spending that we could readily resort to when a major market pullback happens.

Employment Income (W-2)
------------------------------

I work in IT for a small company that is perpetually strapped. It resembles a non-profit more than a technology company. I'm paid about $110k. I like the people I work with, but there is no room for advancement or career/salary growth that I care about - I am at the top of my tiny hierarchy. At 53 I figure I will have a very difficult time finding another job paying similar should I get laid off before I quit, so I've been furiously stocking the lifeboat.

No stock options or RSUs. No profit sharing. The 401k has garbage funds with no matching. Worst of all, no mega-backdoor.

Social Security
----------------

Open Social Security suggests my wife file for benefits at 62 for $11,109 /yr, and myself at 70 for $29,343/yr. Sounds reasonable to me.

Assets
-------

I will try to list these in a most-certain to least-certain order, and will attempt to characterize the uncertainty for each of them. This uncertainty has vexed me much of my working life, since if I knew I could depend on all of these things completely I would have retired years ago. Instead I have tried to build a retirement plan that can succeed with a great deal of failure at the more uncertain end of things.

* $4.1 million in Vanguard taxable brokerage account. Unsurprisingly this is the backbone of my plan.

* $175k in tax-deferred retirement accounts (401k, SEP-IRA, Solo 401k, various IRAs). Mostly VTBLX or other similar bond funds.

* Rough asset allocation across taxable and tax deferred accounts:
VTSAX (Vanguard total stock market): 70%
VTIAX (Vanguard total international): 10%
VWIUX (muni bonds) + VTBLX (total bond) + small holdings in non-Vanguard bond funds: 10%
Money Market/Cash: 10% (about 3 years of spending worth)

* Paid-for primary residence. $500k Zillow value. We don't include this in net worth, and aren't planning on moving, but it's worth mentioning.

* Paid-for mother-in-law residence. $400k Zillow value. We don't include this in net worth either, since its value is earmarked for elder care for my mother-in-law should she need it.

* $1.1 million in timberland. This is not a REIT, this is actual real property that we pay a forester to manage. This land has been in the family for 100+ years, and I own it jointly with my younger brother in an irrevocable family trust. I have majority control over the trust, so technically I can dispose of it as I want, but the reality is my brother likes the asset and wants to hold on to it for at least the next decade. (This is not a hardship for me, I like the asset too, at least for that time frame.) During that decade it will likely have irregular timber harvests my share of which will be worth $170k in 2020 dollars. Because of timber growth the timberland will be worth a good deal more than $1.1 million in 2020 dollars after 10 years, even with the harvest value removed, but $1.1 million is easier to think about than speculating about growth rates, timber prices and mill location in 10 years. Estimates above about timber values are believed to be conservative and have proved reliable over the years.

* $500k - $5 million in mineral rights. Our taxable account has been built in large part over the past 15 years using oil & gas bonus and royalty money from these inherited mineral rights. The insane range on the value here represents our frank ignorance of the future, the crazy swings in the price of oil ("$0" to $50+ dollars per barrel in 2020), and the impossibility of knowing what will be leased and produced in the future. We regularly receive unsolicited offers to sell these mineral rights, and a current high-water mark for these offers would be about $1.2 million to me before tax. The $5 million figure represents an extremely optimistic take on the value of all mineral rights, including ones that don't currently have any interest or activity.

Neither my brother nor I want to sell the rights, but they absolutely have real value. Ownership is via the same trust as the timberland, so while again I have full control, I am bound by my brothers wishes. Fortunately our investment objectives here are the same, and we have consistently acted in harmony and agreement for all our shared assets. Our strong mutual preference is to hold out for leases rather than sell the rights themselves.

There is current production on some of the units that have been putting out steady oil & gas royalty income. My wild-ass prediction for immediate future income would be as follows:

2021: $146k
2022: $125k
2023: $108k
2024: $93k

And so on, following a familar-to-us production decline curve down until the current wells are capped. Counting on these specific numbers would be downright stupid, but the leases will definitely produce something. I would be absolutely floored if I did not get at least $10k-30k / year in additional income from these for the next 2-5 years. I have stopped short of actually baking any income assumption from royalty income into my plan, but it is difficult to ignore it entirely, although that would be the wisest course of action.

* A life insurance policy on my parents which will net $600k in 2020 dollars when both parents die (a "second-to-die" policy). This assumes the policies are kept paid. Currently my father uses the yearly tax-free gift amount to keep this policy paid up. I vacillate about whether to include this in planning, and mostly try not to.

* Potential additional inheritance when my parents die. The best conventional wisdom is to completely ignore this, naturally. Like many inheritors, I find this very difficult, especially since my dad's portfolio is headed full-speed for the estate tax limit of $22 million. He's a turbo-charged, modest-living Boglehead with mostly index funds, and he shares in the same stream of mineral income as my brother and I, but at a larger scale. Last year he took in $1.2 million in new mineral income, on top of a good government pension and Social Security income. He has literally never had to draw down on his equity portfolio, and is still in accumulation mode. I recently had to explain to him that there was a 0% long-term-capital gains bracket for the first $80k. Since he's done his own complex taxes his entire life and is still a super sharp DIY investor, the point is just that his portfolio is friction free, with no withdrawal at all, compounding happily, targeting legacy. Once a year he calls us to his house and goes over his will and trust documents like a somewhat morbid but strangely cheerful fire drill. He clearly wants to do a great job for us and so far absolutely has.

When I succumb to the temptation to pencil this in, I plan for an additional $2 million in 2020 dollars when he is 95, which is probably absurdly conservative. (This has made some nightmare Monte-Carlo simulations that I torture myself with work out.) And of course I probably shouldn't be doing even that, admittedly.

Health Insurance
-------------------

I've seen more than a few potential early retirees say health care was the only thing stopping them. My father visited me a year ago to talk to me about retirement. He retired in his early 50s and has been very encouraging, watching me struggle with One More Year with wry understanding. When I mentioned that that the mineral income would make it difficult to control my MAGI in the first years of retirement, and would likely disqualify us from ACA subsidies, he instantly offered to pay for my medical expenses, since medical expense payments don't contribute to the lifetime estate tax limit. I have made it clear to him that this could be as high as $30k/year by the time we were approaching medicare, and he's completely OK with it. He's been paying about $5k of our medical expenses per year since without complaint or problem.

While I have no reason whatsoever to doubt my father on this, I do need to have a backup plan for health insurance before medicare. When I consider this family subsidy possibly going away, I figure I would reduce our discretionary expenses by $10k-$20k, and if mineral income had dried up, also attempt to control MAGI to qualify for ACA subsidies. I think this is reasonable enough, but please challenge me if you think this idea is deficient. I think it would be a tragedy to keep working ONLY for healthcare, and conservative to the point of stupidity to refuse my father's offer. But if I'm being willfully blind to something important here, I need to know.

So what's the plan?
----------------------

Because of all the uncertainty and the restrictions on assets, it has been hard to think about a long-term plan at times. To give just one concrete example, the timberland is an asset 100% in my control and ownership. Yet I can't count on specific income in a particular year as I would be able to do if we owned an apartment complex. I try to treat it as a giant bond with an asymmetrical payoff in my asset allocation, but I can't re-balance it - I can't readily sell it without damaging my relationship with my brother. It's not a terrible problem to have, but it isn't typical either. Perhaps those in family businesses can relate.

All this made me hold out until our current total spend looked to be covered with just the taxable portfolio alone. I think I'm finally there. Everything else that may arrive above that will just make us more secure and comfortable.

Although I complain above about the lack of predictable income, I actually think it has been a blessing that all of my inherited wealth has been so irregular. It has forced my brother and I to treat every royalty or bonus check, every timber sale, as yet another unreliable windfall, one which might never be repeated. I have tried hard to keep my family's basic lifestyle limited to something affordable on just my W-2 income, and while I haven't 100% succeeded, I'm close enough that I don't feel exposed. I've tried to keep spending above baseline limited to things like vacations that did not increase our recurring day-to-day costs. I am certain I would have behaved differently if more of my wealth came from W-2 income, it would have been quite different psychologically.

If I'm FI, why would I keep working?
-----------------------------------------

I'm in what I think is fairly unusual place. Bluntly: People with my W-2 income typically don't get this wealthy except via windfall. The majority of peers in wealth I see on FIRE forums are making $300k+ / year, and have RSUs or other golden handcuffs, or can work to 55 and hope for a buyout offer, retiree health care, or pension. I have absolutely none of that.

With my W-2 income contributing such a relatively small amount when compared with potential investment return and immediate mineral income, it's difficult for me to make a compelling case for continuing to work, at least for someone else on things I don't particularly care about. It might take me another 8 years of working full time to make what my portfolio alone would do passively at 6% in 3 years. That just seems like a waste.

Have other people reached similar points in their progress towards retirement? How did you think about these issues?

[sengsational]

You have so many possible levers to pull, and obvious analytical skills, I would not worry about a situation arising where you'd be challenged, financially. So while it may be possible everything goes into the ditch, you, your brother and the rest of us would be right there with you, so maybe more harmony available than one might imagine. If there is a rough spot, as unlikely as that may be, you could borrow against your part of the sibling held assets. I can't think of many members here with your "problems", but I think Off Grid Organic Farmer (sp) has royalty stuff.

[pb4uski]

Quite honestly, you had me at $4.1m in taxable account assets and spending of $120-130k a year.

$130k/$4.1m is 3.17%... plus you have SS. All the rest is nice but superfluous.

[tulak]

+1 to being FI with the 4.1mil. The rest is icing on the cake. Congrats!

[Vacation4us]

Retire. Enjoy your life. Based on your post I believe you can handle whatever comes your way reasonably and responsibly.

[Sunset]

OP - Retire now. As others have said you have enough++ .
Take your dad up on the paying of healthcare, since you will inherit anyways, it's not like he is going to miss it or deprive himself.

The only thing I questioned was your wife taking SS early vs at full retirement age, I always thought this would reduce her SS survivor benefit.

[Bigdawg]

Quote:

Originally Posted by tulak +1 to being FI with the 4.1mil. The rest is icing on the cake. Congrats!

+1 on this ^

You are FI. All else is just managing your situation. Which seems like a job in itself. Guessing by your tone that you don't mind supervising the mineral/timber rights, etc... I thought you mentioned no kids. What are your legacy thought? Nieces and nephews? Charities? Interesting first world problems to manage. Good luck. You can RE today.

[Sojourner]

Quote:

Originally Posted by Fielding I'm a 53 year old male, my wife is 55. Wife has been a homemaker for the past 13 years, but does have some employment history and does qualify for social security. No kids. ... * $4.1 million in Vanguard taxable brokerage account. Unsurprisingly this is the backbone of my plan. * $175k in tax-deferred retirement accounts (401k, SEP-IRA, Solo 401k, various IRAs). Mostly VTBLX or other similar bond funds. * Rough asset allocation across taxable and tax deferred accounts: VTSAX (Vanguard total stock market): 70% VTIAX (Vanguard total international): 10% VWIUX (muni bonds) + VTBLX (total bond) + small holdings in non-Vanguard bond funds: 10% Money Market/Cash: 10% (about 3 years of spending worth) * Paid-for primary residence. $500k Zillow value. We don't include this in net worth, and aren't planning on moving, but it's worth mentioning.

Looking only at the numbers above, you and I are in roughly similar shape in many ways. No kids, early 50s, IT career/background, mid-six figures home ownership, etc. I've been FI for about 10 years and almost entirely ER'd for about four years now. I agree with others that you could (and probably should) retire right now based only on the numbers quoted above.

Quote:

Originally Posted by Fielding I do need to have a backup plan for health insurance before medicare. When I consider this family subsidy possibly going away, I figure I would reduce our discretionary expenses by $10k-$20k, and if mineral income had dried up, also attempt to control MAGI to qualify for ACA subsidies. I think this is reasonable enough, but please challenge me if you think this idea is deficient. I think it would be a tragedy to keep working ONLY for healthcare, and conservative to the point of stupidity to refuse my father's offer. But if I'm being willfully blind to something important here, I need to know.

Health insurance (or, more pejoratively, medical catastrophe insurance) is my #1 area of ongoing financial aggravation and concern. I certainly underestimated how much I'd be spending on medical insurance premiums when I originally began to seriously consider early retirement back in 2011. This year, I'll be paying nearly $7,000 in premiums for a bronze-level ACA plan, which I expect will represent nearly 10% of my total taxable income for the year and will certainly exceed 10% of my total spending.

That being said, when plugging all my numbers into FIRECalc and other early retirement calculators/simulators, I consistently get a 100% historical chance of success. I am certain the same could be said for you, again, using only the more "reliable" components of your financial picture. There is a substantial, meaningful difference between high medical insurance costs being a mere aggravation (albeit, a big one) and being enough of a burden to derail one's FIRE plans.

Looking at the entirety of your situation, with all the additional, highly lucrative sources of passive income and the very sizable likely inheritance, it seems to me that a lot of very bad, very low probability things would have to happen for you to ever have to worry about the success of your FIRE plans due to having to fully cover your health care costs. If someone such as you did have to worry about that, then I'd bet that 90% of the people on this board wouldn't be able to feel confident about their FIRE financials.

[MrsHaloFIRE]

Compelling read. THanks for sharing. Retire yesterday. Youve got cushion and know-how.

[Bryan Barnfellow]

Why are we even discussing this? :-) Hop to it, man! See you on the other side (here) soon, I hope.

-BB

[Walt34]

Agree with the others, "stick a fork in it, you're done".

[SecondCor521]

What everyone else said - you can retire on the taxable account and SS alone. I don't think you're missing anything.

If you're reasonably healthy, I would probably would consider buying a bronze plan, maybe one with an HSA attached. You could self insure via having your Dad pay for your medical stuff and that would be reasonable. But I would probably buy the health insurance just to feel more independent and self-reliant. If you were certain you weren't going to qualify for ACA subsidies in a particular year, you could look at an off-exchange policy that was more like a catastrophic policy.

As far as inheriting goes, I'd say a couple of things: It's very difficult to predict on an individual level how long anyone is going to live. If you asked me 10 years ago, I'd say my Dad was already on borrowed time and my Mom would easily live into her 90's. Now, 10 years later, my Mom has already passed away five years ago, and my Dad is happy and mostly healthy at 85. Any sort of thoughts about inheritance can sometimes create a bit of an unhealthy attitude of entitlement. It's hard to do, but I think you can get to a mental place where you don't feel entitled but at the same time can take practical steps to do good estate planning.

Depending on the value of your parent's estate now, and the direction that the estate tax exemption takes (as you are probably aware, there is a policy proposal to reduce the exclusion amount to $3.5M per person and increase the estate tax rate to 45%), it may be wise for you and your parents to discuss annual gifting, accelerated gifting, and other maneuvers. Starting early and being flexible and creative can probably help head off issues as they start to creep into your awareness more easily than trying to address issues later. Consulting with an estate tax planning attorney in your area who is well respected and familiar with legacy planning may be worth the hourly fee.

The only thing that we've done that you might consider is with the life insurance. Once you get to a certain point, continuing to pay the policy premiums is more or less like investing in bonds. If everyone is OK with it and it fits with everyone's willingness and capacity to take risk, you may choose to evaluate stopping paying the annual premium. If the policy is paid up or close to it, then the policy will continue to remain in force, although the face value will grow more slowly. You can then take the annual premium and invest it somewhere else. Of course check with your life insurance agent to fully understand your options, although your agent obviously won't be particularly interested in pointing out that you may be better off stopping premiums. And obviously you want to make sure your Dad and brother are on the same page.

The only other thought I have is that you have a lot of income streams that are individually variable in terms of timing and amounts, but overall feel like they should be included. I might try to set some plan up where the variable income streams all logically go into a pile, from which you (and/or your brother) draw a certain amount every year that is a conservative estimate of what you expect over time. I like to think of it as a bathtub analogy - think of the income as water that all gets poured into the tub in whatever random amounts and timing, and the open tub drain pulls at a constant rate. As long as the water in the tub is above some basic amount, then you can keep the water draining.

Finally, I'm not sure I understand your blunt point at the end about you don't have what others have. Others don't have what you have. I'd encourage you to try to get over it if it bothers you a lot. You have enough in assets and income and intelligence to retire today if you want to. There is plenty of variation on this board about how people get to FIRE, and I'm pretty sure nobody really cares how anyone else did it except for the fact that it might be necessary for people to give other suggestions, and people who are similar to you might have more insight than someone whose situation is relatively different.

HTH, good luck.

[Dash man]

Stick the fork in it. You're done.

[38Chevy454]

My thoughts are same as the rest of the replies: you can retire now. Your long post is great reading, but I think you are stuck in a little analysis paralysis. You seem to have the smarts to deal with the variable aspects of your trust income, so just roll with it and deal with items that come up as needed. You have sufficient funds in your after tax brokerage account already, so all the rest is just blow the dough and increase the nestegg money.

[CoolChange]

Your numbers tell me that you are working because you enjoy something about that work. Some things that I personally miss that you might as well.
1) Working with smart people that you like.
2) Working on hard problems with those people.
3) Something between sense of purpose and just a socially (spouse-ally?) acceptable reason to get out of the house.
4) Respect for my knowledge, ability, authority, whatever. (Yes, I realize how shallow this sounds; but, I do miss it.)

Financially, you are obviously ready to go. I would suggest thinking long and hard about how to replace the things you currently enjoy about your work before pulling the plug. That could be as simple as continuing to do some kind of occasional project and/or advisory work for your current employer.

[Fielding]

SecondCor521, thank you kindly for the detailed response.

Quote:

Originally Posted by SecondCor521 If you're reasonably healthy, I would probably would consider buying a bronze plan, maybe one with an HSA attached. You could self insure via having your Dad pay for your medical stuff and that would be reasonable. But I would probably buy the health insurance just to feel more independent and self-reliant. If you were certain you weren't going to qualify for ACA subsidies in a particular year, you could look at an off-exchange policy that was more like a catastrophic policy.

Oh, I do intend to have health insurance, I was just planning to accept my dad's offer to pay for it. If I can get ACA subsidies I certainly will, but that won't be for at least a year or two.

Quote:

Originally Posted by SecondCor521 As far as inheriting goes, I'd say a couple of things: It's very difficult to predict on an individual level how long anyone is going to live..... Any sort of thoughts about inheritance can sometimes create a bit of an unhealthy attitude of entitlement. It's hard to do, but I think you can get to a mental place where you don't feel entitled but at the same time can take practical steps to do good estate planning.

You're of course totally right about this. You don't want to look at your parents and see dollar signs on their foreheads. My dad was himself a middle-class worker turned inheritor, and it did not go smoothly for him. He is trying to give us a better experience, and I think our family has relatively healthy attitudes about it. My brother and I are incredibly fortunate and know it, and want our parents around as long as they can be.

Quote:

Originally Posted by SecondCor521 Depending on the value of your parent's estate now, and the direction that the estate tax exemption takes (as you are probably aware, there is a policy proposal to reduce the exclusion amount to $3.5M per person and increase the estate tax rate to 45%), it may be wise for you and your parents to discuss annual gifting, accelerated gifting, and other maneuvers. Starting early and being flexible and creative can probably help head off issues as they start to creep into your awareness more easily than trying to address issues later. Consulting with an estate tax planning attorney in your area who is well respected and familiar with legacy planning may be worth the hourly fee.

My dad has been flexible and creative and has excellent estate help. Example: when he started to see how valuable the mineral rights were, he deeded the *non-producing* minerals to us, before there was lease interest, establishing a low basis for estate purposes. By the time they were leased and their value proved out, they were on our side of the wall and out of his estate.

There has been a lot of giving on this side of the grass already, using all the trendy estate planning vehicles (QPRT, GRAT, etc.). Until he actually hits an estate tax limit though I think he's still hoping for the step-up basis at death, which would be considerable since he's been holding some equities since the 1980's. He's betting estate law changes won't be retroactive, and that he'll have time to throw some things overboard before the laws change. This is a gamble, but my dad does understand that gamble, and again he has excellent estate help.

Quote:

Originally Posted by SecondCor521 The only thing that we've done that you might consider is with the life insurance. Once you get to a certain point, continuing to pay the policy premiums is more or less like investing in bonds. If everyone is OK with it and it fits with everyone's willingness and capacity to take risk, you may choose to evaluate stopping paying the annual premium. If the policy is paid up or close to it, then the policy will continue to remain in force, although the face value will grow more slowly. You can then take the annual premium and invest it somewhere else. Of course check with your life insurance agent to fully understand your options, although your agent obviously won't be particularly interested in pointing out that you may be better off stopping premiums. And obviously you want to make sure your Dad and brother are on the same page.

He's been trying to make adjustments in the policy for these sorts of reasons in the past year. It's really become a complicated hobby project for him, if you can believe it, so I offer opinions when asked but the various outcomes he is interested in are so similar I'm indifferent to which particular one it is.

Quote:

Originally Posted by SecondCor521 Finally, I'm not sure I understand your blunt point at the end about you don't have what others have. Others don't have what you have. I'd encourage you to try to get over it if it bothers you a lot. You have enough in assets and income and intelligence to retire today if you want to. There is plenty of variation on this board about how people get to FIRE, and I'm pretty sure nobody really cares how anyone else did it except for the fact that it might be necessary for people to give other suggestions, and people who are similar to you might have more insight than someone whose situation is relatively different.

I was not trying to brag, seems I failed.

What I was trying to convey is, usually for a FIRE candidate W-2 income has a strong correlation with their nest egg and, by extension, the value of One More Year to the security/success of their withdrawal rate. Since they are pretty well disconnected for me, I find myself looking for the 4% rule of W-2-income-to-net-worth. At what point does it no longer make sense to work? Is it when W-2 income gets to 3% of net worth? 2%?

Of course, the decision to retire is about much more than numbers, but it would be nice if there was a pre-baked, throughly-discussed rule of thumb in this area.

Maybe I can get Karsten Jeske interested in the problem.

[travelover]

Well, yeah, but what would you do all day?

[Fielding]

Quote:

Originally Posted by Sojourner Looking at the entirety of your situation, with all the additional, highly lucrative sources of passive income and the very sizable likely inheritance, it seems to me that a lot of very bad, very low probability things would have to happen for you to ever have to worry about the success of your FIRE plans due to having to fully cover your health care costs. If someone such as you did have to worry about that, then I'd bet that 90% of the people on this board wouldn't be able to feel confident about their FIRE financials.

This has been my thinking for quite a while. But I still needed to hear it from someone else. Thank you.

[Dtail]

A different comment from me as to your observation.
Actually, I would say that most folks who FIRE let's say in their 50's is not due to earning 300k+ in yearly income, but arrived at this stage due to consistent investing and LBYM.

[Fielding]

Quote:

Originally Posted by Dtail A different comment from me as to your observation. Actually, I would say that most folks who FIRE let's say in their 50's is not due to earning 300k+ in yearly income, but arrived at this stage due to consistent investing and LBYM.

Clearly I screwed up this part of my post since several people have come away without understanding me, and maybe I am coming off like a jerk. My response to SecondCor521 has a restatement, maybe it will help.