Want to do Retire, but can't get Math to Work

[ivanl3]

You should consider waiting until 70 to begin collecting SS.
Compare:
- numbers starting early (at 65)
- numbers starting at FRA
- numbers starting at 70

Thanks. Will look into it.

 

[Major Tom]

Don't know what HI, OFC or COL mean, sry....

HI = Health Insurance
OFC = Of Course
COL = Cost Of Living

 

[ivinsfan]

I keep getting that question. Yes, we live a fairly affluent lifestyle. Goal is not to have to change that.

Remember the $190K does not include tax expense. That is actual cash spent after taxes are paid.

Don't know what HI, OFC or COL mean, sry....

No one said you shouldn't have that lifestyle..but you can either work longer or cut some spending...either option can work.

 

[bmcgonig]

No one said you shouldn't have that lifestyle..but you can either work longer or cut some spending...either option can work.

If I was a cancer survivor I would make it work by cutting spending however I could. Retire ASAP and enjoy life as best you can. If that means lowering your COL then do it .

Firecalc will allow you to lower your spending at a certain age using the feature that allows you to add income at that age. Just add 5k at 65 and 5k at 70.

 

[ivanl3]

No one said you shouldn't have that lifestyle..but you can either work longer or cut some spending...either option can work.

Or maybe I have enough to do neither.

That's what I am trying to determine.

 

[Meadbh]

Or maybe I have enough to do neither.

That's what I am trying to determine.

I don't think so.

 

[ivanl3]

If I was a cancer survivor I would make it work by cutting spending however I could. Retire ASAP and enjoy life as best you can. If that means lowering your COL then do it [emoji258].

Firecalc will allow you to lower your spending at a certain age using the feature that allows you to add income at that age. Just add 5k at 65 and 5k at 70.

Easy to say, but adjusting lifestyle at age 49 is not that easy.

Thanks for the advice and FIRE tip as well.

Any idea how to get FIRE to handle the tax situation?

 

[slv1]

I keep getting that question. Yes, we live a fairly affluent lifestyle. Goal is not to have to change that.

Remember the $190K does not include tax expense. That is actual cash spent after taxes are paid.

Don't know what HI, OFC or COL mean, sry....

190 K after taxes is most likely about 220 or perhaps more before taxes. You said you had about 3.25 mil plus some other income coming in. The part time jobs actually put you at a higher tax bracket because some of the money you will be making is going to be taxed at regular income and the rest perhaps at capital gains.

220000/3250000 = Thats over 6% initial wr. I think you already know that's not sustainable. Not even for 20 years. Since you don't want to change your lifestyle, you will need to save more money or wait longer till you retire or both.

Even if you lowered your expenses by a nominal 10-15 K you mentioned that would still put you at around 200K. Take SS into account and that would lower your expenses a little more but still in the 180 or so level.

Even at 160000/3250000 is still 4.9% WR. I don't know of a single study out there that suggests this is sustainable for 20 to 35 years.

 

[ivanl3]

190 K after taxes is most likely about 220 or perhaps more before taxes. You said you had about 3.25 mil plus some other income coming in. The part time jobs actually put you at a higher tax bracket because some of the money you will be making is going to be taxed at regular income and the rest perhaps at capital gains.

220000/3250000 = Thats over 6% initial wr. I think you already know that's not sustainable. Not even for 20 years. Since you don't want to change your lifestyle, you will need to save more money or wait longer till you retire or both.

Thanks. That is what I feared.

Did you look at the composition of the $3.25M? Meaning the different tax liabilities for each. They are posted above. Not sure if that information makes things better or worse for us.

What about life expectancy? If I made it to 80, it would be a surprise.

But simply dividing 220k by 3.2M isn't fair though. It ignores the other sources of income that will help reach the 220 number. 2 pensions eventually, 2 SS payments eventually , and 2 jobs temporarily.

 

[Meadbh]

What about life expectancy? If I made it to 80, it would be a surprise.

What about DW's life expectancy? It would be kinda mean to leave her in the lurch.....

 

[ivanl3]

What about DW's life expectancy? It would be kinda mean to leave her in the lurch.....

She is 8 years older than me. We agreed that our plan should cover her until she is 90.

 

[Cobra9777]

If you are good with spreadsheets, the tax analysis can be done. But it's not something you can knock out in a few hours. I worked on this off and on for many months leading up to ER, and still make refinements from time to time. Here's a basic layout of my retirement spreadsheet by tab:

1. Spending... projected annual spend by category through age 100, including federal tax from tab #4
2. Portfolio... current balances by investment fund and account (taxable, tax-deferred, tax-free)
3. Withdrawal Strategy... year by year plan for where the spending money comes from and in what order (pensions plus taxable now, SS later, then RMDs, then Roth if needed). This is by-far the hardest tab with lots of if-then-else formulas.
4. Taxes... year by year plan for taxable income and tax liability using results from the withdrawal strategy tab. The only trick here is to index for inflation (brackets, exemptions, and standard deduction). Also need to test calculations using TurboTax or something similar.

The resulting tax expense becomes part of the spending projection in the first tab, so some care must be taken to avoid circular references, but it can be done with a little creativity.

And of course, this is just a deterministic plan with static assumptions for rate of return and inflation. So it is imperative to run the results through tools like FIRECalc, ********, or Fidelity RIP to stress-test the numbers against real-world volatility.

I suppose a possible shortcut would be to do one year of pro-forma taxes in TurboTax, as if you were retired. Then add that to the $190K and plug it all into FIRECalc. As an early retiree, with various income sources coming online at various times and with various tax consequences, I prefer to calculate the specific taxes associated with each stage.

 

[slv1]

Thanks. That is what I feared.

Did you look at the composition of the $3.25M? Meaning the different tax liabilities for each. They are posted above. Not sure if that information makes things better or worse for us.

What about life expectancy? If I made it to 80, it would be a surprise.

But simply dividing 220k by 3.2M isn't fair though. It ignores the sources of income that will helps reach the 220 number. 2 pensions, 2 SS payments, and 2 jobs.

I found it after I posted this. So now I looked at it in detail. It looks like most of your money is in some kind of annuity (some variable and some fixed), then there is the 401K and some true cash on hand.

The cash: I would put some in a vanguard money market account or t bill and just sit on it for emergencies. Not all abut at least half.

You taxes will get complicated because of the annuities.

With the annuities you can choose how much to take out but that will go into the principle. So for example the variable one that give you 5%. If you need 6.5% you will have to dip into the principle. The 5% will be taxed as regular income because it's the interest they are giving you (I'm almost sure about that).

Either way, lest say you only paid federal taxes on 1/2 of your money. The half coming from annuities and the rest is income or 401K (which will be taxed as regular income). At 200+K per year you will have to pay a large portion of that in taxes. That makes it difficult to sustain that kind of spending even for the next 20 years.

The pension will be taxed as regular income. The SS may or may not be taxed depending on where you live.

So lets say 220 - pension = around 170K before taxes. Still at over 5% withdraw rate.

To get exact numbers you need to pay a good tax lawyer or CPA a few hundred dollars to sit down and do the REAL math. But I bet it will be in the ball park.

It is not my place to tell anyone how or how much they should spend in life.

 

[Fedup]

If I was a cancer survivor I would make it work by cutting spending however I could. Retire ASAP and enjoy life as best you can. If that means lowering your COL then do it .

Firecalc will allow you to lower your spending at a certain age using the feature that allows you to add income at that age. Just add 5k at 65 and 5k at 70.

Me too. Who knows how long I have. But I also would ignore FIRECALC. Keep up your life insurance payment if you have it for your wife.

 

[Blue Collar Guy]

would you be so kind as to give me ballpark figures in what you spend this 190 on? I squeak by on a bit less.

 

[ivanl3]

would you be so kind as to give me ballpark figures in what you spend this 190 on? I squeak by on a bit less.

Not on here. Not really relevant to the thread. Our lifestyle choices are what they are. Don't want to go down that rabbit hole. I am keenly aware that there is another side to this equation should my wife and I want to explore it (which we currently don't).

 

[ivanl3]

If you are good with spreadsheets, the tax analysis can be done. But it's not something you can knock out in a few hours. I worked on this off and on for many months leading up to ER, and still make refinements from time to time. Here's a basic layout of my retirement spreadsheet by tab:

1. Spending... projected annual spend by category through age 100, including federal tax from tab #4
2. Portfolio... current balances by investment fund and account (taxable, tax-deferred, tax-free)
3. Withdrawal Strategy... year by year plan for where the spending money comes from and in what order (pensions plus taxable now, SS later, then RMDs, then Roth if needed). This is by-far the hardest tab with lots of if-then-else formulas.
4. Taxes... year by year plan for taxable income and tax liability using results from the withdrawal strategy tab. The only trick here is to index for inflation (brackets, exemptions, and standard deduction). Also need to test calculations using TurboTax or something similar.

The resulting tax expense becomes part of the spending projection in the first tab, so some care must be taken to avoid circular references, but it can be done with a little creativity.

And of course, this is just a deterministic plan with static assumptions for rate of return and inflation. So it is imperative to run the results through tools like FIRECalc, ********, or Fidelity RIP to stress-test the numbers against real-world volatility.

I suppose a possible shortcut would be to do one year of pro-forma taxes in TurboTax, as if you were retired. Then add that to the $190K and plug it all into FIRECalc. As an early retiree, with various income sources coming online at various times and with various tax consequences, I prefer to calculate the specific taxes associated with each stage.

Excellent post. This is exactly the kind of thing I believe needs to be done, but is a little above my paygrade and I have been unable to find a pro willing to take on the task from soup-to-nuts. I even spoke to one place that charged $9K for their financial planning services, but still would not do anything to this level of detail.

They all just want to use generic tools that don't allow for the level of customization needed in my situation. Rock meets hard-place.

 

[daylatedollarshort]

Not on here. Not really relevant to the thread. Our lifestyle choices are what they are. Don't want to go down that rabbit trail. I am keenly aware that there is another side to this equation should my wife and I want to explore it (which we currently don't).

You could look for ways to keep the lifestyle but with lower expense levels. Lots of $100 a month changes in expenses add up to huge savings over potentially decades of retirement. Shaving $10K a year off annual expenses over 30 years means needing $300K less in retirement funding, while working for a year @ $100K provides $100K in retirement funding, less taxes.

I second the detailed spreadsheet idea. I have one I made myself with all our various income streams, expenses and tax projections going out 50 years, including RMDs.

 

[ivanl3]

You could look for ways to keep the lifestyle while lowering expenses. Lots of $100 a month changes in expenses add up to huge savings over potentially decades of retirement.

OMG. I can't make this question go away.

I don't know how to make it any clearer. With all due respect to everyone, at this point, we are not evaluating anything on the cost side of the equation.


That is an exercise for another day.

 

[Meadbh]

OMG. I can't make this question go away.

I don't know how to make it any clearer. With all due respect to everyone, at this point, we are not evaluating anything on the cost side of the equation.


That is an exercise for another day.

Then, with all due respect, there is little point in continuing this conversation.

 

[Blue Collar Guy]

Then, with all due respect, there is little point in continuing this conversation.

+1

 

[Blue Collar Guy]

Not on here. Not really relevant to the thread. Our lifestyle choices are what they are. Don't want to go down that rabbit trail. I am keenly aware that there is another side to this equation should my wife and I want to explore it (which we currently don't).

It was very nice to have this conversation with you. I look forward to your other posts. Im especially impressed with your level of patience, and polite answers.

 

[iloveyoga]

I feel like I need to be more thrifty , but my expenses have not decreased after retiring. So far all is working out well, but we spend more than I thought we would.

 

[ivanl3]

Then, with all due respect, there is little point in continuing this conversation.

Agreed -- as it relates to expenses.

There is a point (actually a need) for on-going discussion (if not here, elsewhere) on how close I am to being able to satisfy my stated ER income needs (without further discussion) with my savings, etc..

 

[daylatedollarshort]

The Fidelity Retirement Planner has enough fields to handle almost anything I can do in my custom spreadsheet.