Recently retired at 62, some details on our plan

[ctrl_c]

Hi All,

I've been lurking for a while and thought it was time to give a back to this community.

Since many folks seem to have questions about financial readiness for the big leap, I thought I would share my own story.

The Decision
------------------
Quit mega corp on March 31 after a horrendous 6 months. Had been there for 15 years through a lot of ups and downs. I'll spare you the details of rotating management, loss of staff and arrogant coworkers. Suffice it to say there was no joy left in answering to a corporate behemoth with no flexibility. 40 years of this stuff is enough for anyone

My age is 62. DW is also 62 and already retired from teaching with a tiny pension.
We have 2 children, both married and on their own, and 2 grandchildren.

We live in a HCOL state in the Northeast. No plans to move because family is close by including grand kids.

We have no plans, or need, to work again but I'm open if I find something interesting that doesn't involve a publicly traded company (mega corp).

Expenses
------------------
We've paid down all debt including mortgage and moved to a town with (relatively) low property taxes and a smaller home.

We've tracked our spending month to month in great detail for the last 3 years and have fixed expenses of about $50K -$60K per year (includes groceries, utilities, auto maintenance, health care premiums, auto and home insurance, entertainment, dining, etc but no travel or home repairs).

Both of us are in good health. We currently have health and dental insurance through DW's former employer. Children and grand kids also in good health and thriving.

Since our expenses are controllable we'd like to spend another $20K-$30K beyond expenses to fund some traveling and hobbies. Still figuring that out amongst the backdrop of the Geo-political and economic turmoil.

Sources of income:
-------------------------
We will subsist on savings (taxable accounts and IRA/401K) and DW's tiny pension until Social Security.


Assets:

tax deferred: $1.7M with AA of 70/30 Stocks/FixedIncome
taxable: $1.5M with AA of 75/25 Stocks/FixedIncome

We're planning to take Soc Sec in roughly 4 years at FRA (age 66+). DW will file at the same time and receive a benefit equal to half of mine. These plans will change depending on the economy, markets and health.

Strategy
------------
We're following a bucket strategy more or less so about 3 years of income is held in the fixed income accounts as cash in various money market accounts (e.g. Capital One) and CDs.

Gratitude
-------------
I feel very fortunate to be in this position. I hope these details help others with their decisions. We probably could have done it earlier based on the numbers, but Covid left me with some uncertainty. Although, what could be more uncertain than rising inflation and a ground war in Europe. We'll see what happens.

A big THANK YOU to all who contribute here. We wouldn't have made the leap without you. I continue to follow all of these discussions and value everyone's contributions.
Will hopefully update on how things are going in a year or so.

Peace,

ctrl_c

 

[MBAustin]

Welcome, ctrl_c! Glad that we here were a small part of making it possible for you to leave your mega corp nightmare (been there, done that). Sounds like you did a great job planning. Enjoy figuring out how to spend those discretionary $$$ (see the Blow That Dough threads for lots of ideas!).

 

[Dtail]

Sounds like you are in very good shape financially. I don't even need to run Firecalc with your info, as it has to be 100% success with room to spare.

 

[Out-to-Lunch]

Welcome aboard!

 

[Exchme]

Congrats, sounds like you are in great shape, especially after figuring that SS will go a long way towards covering your spending. A few standard items to think about:

Have you looked at opensocialsecurity.com to try to optimize your SS strategy? If both spouses worked, often the best choice is for the larger earning spouse to wait until 70 to claim. Since SS is inflation adjusted and the larger benefit continues until the longest surviving spouse passes, maximizing SS, especially the larger benefit, is a unique form of longevity insurance.

Roth Conversions - you have a fairly large IRA balance and this is your last year to do Roth Conversions before IRMAA enters your life, so doing a significant Roth conversion this year (top of 22%?, NIIT threshold?, top of 24%?) may be the best strategy. Then in the years leading up to SS (and possibly beyond), keep making smaller conversions with the target of keep your marginal tax bracket constant from year to year.

Healthcare until Medicare? - if you need ACA, you will want to manage your MAGI to get some premium credits. Since premium credits are probably out for this year (guessing you made too much already), Roth Conversions get priority this year.

 

[ctrl_c]

Thanks for the kind notes and suggestions. As a matter of fact, claiming SS and Roth conversions are at the front of my mind recently. Optimizing both seems like an interesting puzzle.



So far I've looked at I-Orp to think about Roth conversions and whatever info is on the Fidelity (where my 401K is) site. I also love bogleheads.org tools and calculators page. Have skimmed through opensocialsecurity.com as suggested too.

I've found a lot of the thinking in these forums incredibly useful so perhaps I'll share further plans for both as a discussion topic when I've got a better handle on them.



It seems like I've got plenty of time to delve into these topics now

 

[cyber888]

With 3.2 Mil and around 90K expenses with travel, you should be good

 

[ImThinkin2019]

Thanks for the kind notes and suggestions. As a matter of fact, claiming SS and Roth conversions are at the front of my mind recently. Optimizing both seems like an interesting puzzle.



So far I've looked at I-Orp to think about Roth conversions and whatever info is on the Fidelity (where my 401K is) site. I also love bogleheads.org tools and calculators page. Have skimmed through opensocialsecurity.com as suggested too.

I've found a lot of the thinking in these forums incredibly useful so perhaps I'll share further plans for both as a discussion topic when I've got a better handle on them.



It seems like I've got plenty of time to delve into these topics now

Congratulations on your savings and your exit from MegaCorp. I had an unceremonious exit from minicorp after a new young whippersnapper became my boss. He comes from a big company and has hired about 5 people to replace me.

Anyway, regarding Roth conversions, we have almost all our money in qualified plans. So the tax torpedo looms. We are doing conversions every year.

Having tried many different tools, we bought Pralana Gold for about $100. It's the only tool we found that lets us do the scenario testing and model differing conversions every year. Just wanted to let you know about this since you might be in need of something like it.

 

[Exchme]

Congratulations on your savings and your exit from MegaCorp. I had an unceremonious exit from minicorp after a new young whippersnapper became my boss. He comes from a big company and has hired about 5 people to replace me.

Anyway, regarding Roth conversions, we have almost all our money in qualified plans. So the tax torpedo looms. We are doing conversions every year.

Having tried many different tools, we bought Pralana Gold for about $100. It's the only tool we found that lets us do the scenario testing and model differing conversions every year. Just wanted to let you know about this since you might be in need of something like it.

I'll second the motion about Pralana Gold. Went through I-orp, the tools at Bogleheads, etc. and decided I was foolish to be basing decisions that could be worth tens of thousands of $ (or more!) on the free tools with the approximations and workarounds you have to make to use them. I saw a positive review of Pralana and decided to go with that; glad I did, its flexibility and power is way above the free tools.

 

[pb4uski]

...tax deferred: $1.7M with AA of 70/30 Stocks/FixedIncome
taxable: $1.5M with AA of 75/25 Stocks/FixedIncome ...

You might want to reconsider the placement of your investments for tax efficiency. Ideally, you want your fixed income allocation to be in tax-deferred since it will grow slower and therefore you'll have less of a tax torpedo come RMD time. And you want taxable accounts to be in stocks since qualified dividends and LTCG get preferential tax treatment (0% rate and 15% rate).

Your overall AA is ~72/28... so unless the tax implications get in the way I would sell all fixed income in taxable account and replace with stocks.

So your tax-deferred would hold your entire fixed income allocation with the remainder being stocks.

See https://www.bogleheads.org/wiki/Tax-efficient_fund_placement

You'll likely not be paying federal income taxes in the first full year that you are retired and will have the opportunity to do significant Roth conversions at a pretty low tax cost.

Just as an example, since your wife's pension is described as tiny I'll ignore it. Let's say that you have $30k of qualified dividends from your taxable portfolio and $20k of LTCG from sales to fund your spending. You would owe no federal income tax.

But then if you add $59,250 of Roth conversions you would only owe $3,591... 6% of the $59,250 converted and probably much lower than what you would pay if you leave it in tax-deferred until RMD time. Obviously, you will have state income taxes as well. In fact, your state income tax bill will likely exceed you federal income tax bill.

The point is that between now and when SS starts is prime time to do Roth conversions at a relatively low tax cost.

 

[Koolau]

Congratulations and welcome to the Forum. I agree with others that you should be golden with your expenses vs assets (barring any black swans) so YMMV.

 

[Katiek]

Congratulations and welcome! I look forward to hearing more about this next stage of your life!

 

[pacergal]

Congratulations and welcome to the forum.