Poke holes in my plan (Please)

[MN_1021]

Hi all,

Will be 48 this year and thinking of retiring at 52 when we will be kid free. Our annual expenses are about $80K and we would have about $2.3M saved by age 52. We will also get a lump sum of about $500K from sale of an asset. For insurance purposes, our goal will be to convert pre-tax 401K's into Roth IRA's so that this "income" will help us qualify for ACA subsidies. Our state participates in ACA. After we reach 59 1/2 we will then have the normal 401K withdrawals that will also help qualify for ACA.

Any challenges or issues with our plan?

 

[Out of Steam]

One I've brought up here before is that kids can cost money longer than you think.

We just bought a new car and gifted the old one (with about $1K in fresh maintenance work) to our daughter, who is in her mid-20s. She had an urgent need for the car, and we thought it better for us to go into this difficult car market than her.

She also lived with us for about a year during the early stages of the pandemic, mostly finishing a graduate program remotely.

 

[pb4uski]

Hi all,

Will be 48 this year and thinking of retiring at 52 when we will be kid free. Our annual expenses are about $80K and we would have about $2.3M saved by age 52. We will also get a lump sum of about $500K from sale of an asset. For insurance purposes, our goal will be to convert pre-tax 401K's into Roth IRA's so that this "income" will help us qualify for ACA subsidies. Our state participates in ACA. After we reach 59 1/2 we will then have the normal 401K withdrawals that will also help qualify for ACA.

Any challenges or issues with our plan?

Where is the $80k for spending between ER at 52 and penalty-free tax-deferred withdrawals at 59-1/2 going to come from? IOW, do you have money available in either taxable accounts or Roth contributions that could be used during this time period?

Some will be from the sale of the asset... but I think you get the idea.

If the $2.3m is all tax-deferred then you will have issues accessing money without paying the 10% penalty.

 

[Dash man]

It’s hard to offer advice with such limited information. How much in taxable accounts vs tax def? How much of the $500k asset will remain after taxes? What are your expenses? Any debt?

Have you calculated your social security with zeros for age 53 and up?

Any pensions?

 

[pacergal]

Kid free meaning they are done with college? Any plan in your budget for further assistance/gifting for kids--help with house down payment, weddings, etc.?

Have you reviewed and answered the questions in the ER FAQs "Some Important Questions to Answer Before Asking - Can I Retire?"

 

[Out of Steam]

Where is the $80k for spending between ER at 52 and penalty-free tax-deferred withdrawals at 59-1/2 going to come from?

Also, even assuming the use of 72(t) withdrawals, 4% is likely too high a draw rate starting at 52--and a possible 40 year retirement.

 

[MN_1021]

Also, even assuming the use of 72(t) withdrawals, 4% is likely too high a draw rate starting at 52--and a possible 40 year retirement.

Apart from 500K cash that we will have available when I turn 52, we also have deferred comp as well with as some Roth IRA (contribution portion), that can help fill the gap between 52 & 59 1/2. It's counted in that $2.3M wad.

No pension and not counting on SS- that will be gravy (if the Fed's don't renege on it)

 

[ncbill]

Again, do you plan never to help your kids financially after they graduate?

I've got a couple with stable enough jobs that they'll be looking for their own place over the next year or two.

But given the insane run-up in housing prices I figure I'll have to advance them a hefty downpayment, at a minimum.

 

[MN_1021]

Again, do you plan never to help your kids financially after they graduate?

I've got a couple with stable enough jobs that they'll be looking for their own place over the next year or two.

But given the insane run-up in housing prices I figure I'll have to advance them a hefty down payment, at a minimum.

Good points and thanks for watching my back, guys!

I "think" we will help our 2 kids but we also will have some decent inheritance in next decade or so coming in (aging parents on both sides) which we can easily use to help our kids that are currently teenagers. Neither of us have a magic wand of what are going to inherit but our parents on both side have a few million stashed and are in late 70's.

 

[ivinsfan]

This 500K you keep referring to, is it after tax? Is it solid? If you are in MN you our state is lovely about collecting lots of taxes.

 

[Sunset]

Good points and thanks for watching my back, guys!

I "think" we will help our 2 kids but we also will have some decent inheritance in next decade or so coming in (aging parents on both sides) which we can easily use to help our kids that are currently teenagers. Neither of us have a magic wand of what are going to inherit but our parents on both side have a few million stashed and are in late 70's.

I wouldn't count too heavily on the inheritance for these possible reasons:

• It won't show up until the couple is dead, could be 20 yrs.
• Nursing home expenses of some years are very expensive.
• They may give it away in a Will to some Charity
• One may get remarried and the spouse gets it all and then Will's it away to "his/her family"
• Other siblings/relatives dramatically cut the amount for each.

 

[Sunset]

OP - Do you track exactly all your costs/expenses and for how many years have you been tracking them ?

What about lumpy costs: new car, new roof, new furnance, new A/C , which mean that of your 80K expense, about $4K is for lumpy expenses (saved if not used each year). Leaving $76K for spending day to day.

 

[SnowballCamper]

Rough math: $2,300,000 / $80,000 = 28.75 years. Adding this to 52 yields 81. So if your investment strategy keeps up with inflation for thirty years, you'll be good until you're 81 years old. Just another way to think about it. What does Firecalc say?

 

[arcyallen]

Hi all,

Will be 48 this year and thinking of retiring at 52 when we will be kid free. Our annual expenses are about $80K and we would have about $2.3M saved by age 52. We will also get a lump sum of about $500K from sale of an asset. For insurance purposes, our goal will be to convert pre-tax 401K's into Roth IRA's so that this "income" will help us qualify for ACA subsidies. Our state participates in ACA. After we reach 59 1/2 we will then have the normal 401K withdrawals that will also help qualify for ACA.

Any challenges or issues with our plan?

I think you're likely pretty close. As others have said earlier, make sure you have a plan to access the money at age 52 via Roth contribution withdrawals, 72t, or pulling from the $500k you're getting lump sum. Also, if you haven't already start tracking nearly every penny of spending to make sure you're really spending $80k. Mint.com is an excellent tool for that. If the numbers turn out exactly as you're saying, I think you'd be solid...but those unknowns or things you haven't thought of yet can be a bear! And remember, if you do the math and it's close, every year you wait adds a huge amount of cushion.

 

[PandaBear]

Good points and thanks for watching my back, guys!



I "think" we will help our 2 kids but we also will have some decent inheritance in next decade or so coming in (aging parents on both sides) which we can easily use to help our kids that are currently teenagers. Neither of us have a magic wand of what are going to inherit but our parents on both side have a few million stashed and are in late 70's.

I will also chime in that inheritances can be “iffy” even under the best of circumstances, meaning no one being swindled, etc.

My MIL lived about 5 years in assisted living, with significant “assisting” (meaning extra $$$) at the end.

Currently my mom is still alive but now living in a retirement apartment (cash payment each month). If you had asked me three years ago if I thought that would EVER happen, I would have said absolutely not. Additionally, she helps both my siblings quite a bit and again, if you had asked me if either of them would be given this level of financial support, I would have said no.

Just something to think about.

 

[MN_1021]

Rough math: $2,300,000 / $80,000 = 28.75 years. Adding this to 52 yields 81. So if your investment strategy keeps up with inflation for thirty years, you'll be good until you're 81 years old. Just another way to think about it. What does Firecalc say?

FireCal says 100%. Please remember I am not using any SS. That will be gravy for us. I intend to take SS at age 62 while wife will take it at age 70. Women live for EVER on her side.

 

[street]

I think you should be fine. One question those 80K a year expenses can they be reduced?

What do you think your monthly SS will be for both of you?

 

[Car-Guy]

The main things that stick out to me is your age at retirement and inflation with only 2.3m. Inflation is bad enough for all us retirees but I think I'd be a lot more concerned about its effects at 52 rather than let's say ~70. A lot can happen in 40+ years of retirement... e.g. A couple of market crashes and/or a few years of double digit inflation are real possibilities. YMMV

 

[MN_1021]

I think you should be fine. One question those 80K a year expenses can they be reduced?

What do you think your monthly SS will be for both of you?

About $1800 for me at 62 and $2700 for DW at 70. By the way, I am not counting that in my calculations at this point.

 

[street]

^ thanks. It looks like you should be fine but if you could or can lower your monthly expenses would be something to look at.

 

[pb4uski]

Rough math: $2,300,000 / $80,000 = 28.75 years. Adding this to 52 yields 81. So if your investment strategy keeps up with inflation for thirty years, you'll be good until you're 81 years old. Just another way to think about it. What does Firecalc say?

Rough math is crap. All you need to know is that $80/$2,300 = 3.47% WR or $80/($2,300+$500) is 2.85% WR.

FIRECalc is 100% with $2.8m and 96.3% with $2.3m... and that doesn't include SS, possible inheritances, etc.

At the same time, the OP needs to do some validation of their expenses, including lumpy expenses, but I think they will be fine.

 

[MN_1021]

Rough math is crap. All you need to know is that $80/$2,300 = 3.47% WR or $80/($2,300+$500) is 2.85% WR.

FIRECalc is 100% with $2.8m and 96.3% with $2.3m... and that doesn't include SS, possible inheritances, etc.

At the same time, the OP needs to do some validation of their expenses, including lumpy expenses, but I think they will be fine.

You nailed it, pb4uski! Quite frankly with 500K NET in hand after selling our second home, we can easily live on it from 52 to 59 1/2. We wouldn't touch our 401K/457B/Roth's etc. No need. We are fairly frugal and know our expenses well.

The $2.3M wad would grow up to $3.4M at age 60, plus SS and inheritance. Again, not really counting on either for now plus what inheritance we'd like to leave behind.

 

[Sunset]

About $1800 for me at 62 and $2700 for DW at 70. By the way, I am not counting that in my calculations at this point.

The smarter way is for the higher income person (largest SS at 62) to wait until age 70 to claim it.
That way the survivor will get the larger SS after the other one dies, regardless of who dies first.

 

[pb4uski]

^^^^ +1. Or better yet, run your situation through opensocislsecurity.com and be sure to check the advanced options box.

 

[pb4uski]

Also, even assuming the use of 72(t) withdrawals, 4% is likely too high a draw rate starting at 52--and a possible 40 year retirement.

But the withdrawal rate is not 4%, it is much lower... less than 3%.