52 Yr old, $3.1 million, all over the place!

[AmIReady]

Hi everyone! So glad to have found you and I've read the forums now for the last couple of months. I'm ready to FIRE and believe I have the means, but I'm just up in the air on how to structure things. The more I read and learn, the more confused I become. My salary puts me in the highest tax bracket but I could continue it for years; I just don't have the heart. I mean, why did I save all this money if not to enjoy it? I'm ready to retire now, but am stuck on figuring out if my AA is ok or can be "fixed".

Some background, I'm 52, female, no dependents, a CPA working in industry (not for a CPA firm) and I've had a good 30 year solid career with the same company. Since I was 22 and eligible I've maxed out my 401k, and have in addition continued every year to put after-tax funds in my 401k when my pre-tax funding maxed out. I understand complex financial matters, spreadsheets, and formulas, given my profession, but that doesn't necessarily translate into understanding retirement funding. Outside of my 401k I've also saved a lot. I pay attention to fund fees and choose low cost funds. The details:

House worth $275k, Morgage of $208k
2 cars, paid cash
Figure on needing $75k/yr to see the world
SSI at 62 is $24k yr
No retiree health care if I leave before 55, but not willing to wait it out

Total = $3.1 million; 60% stock, 20% bonds, 12% cash, 8% CDs

401k = $1.4 million; $900k pretax contributions, $500k after tax contributions.
35% lg cap stock index funds (3)
35% med/small cap index funds (2)
15% targeted retirement 2020 fund
15% International Index

Cash Balance Pension = $470k that I can take/roll over when I leave the company; company computes earnings annually, usually around 3-4%. I consider this as a "bond fund" in my spreadsheets

Fidelity/Vanguard after tax accts: $625k
30% 4 different Van/Fid stock index funds: Spartan, Leveraged, 4in1, LgCap
25% five individual stocks or single-industry funds (WHAT?) highly appreciated
28% tax exempt bond funds
17% Vanguard 500

$6.5k in a Roth IRA that I contributed to this year via backdoor

Cash/CDs = $650k in 4 banks
50% in CDs earning 1.5-2%
50% in bank accounts (I know, this is embarrassing)

I'm all over the place. I've Firecalc'd, FIDO'd, three or four other calculators, and created a very large detailed withdrawal plan spreadsheet, and everything says I'm good to go, which I believe. But I feel so out of control on exactly WHERE my money should be and whether I'm in the right places. I feel like overall, my % is good, but in detail I need to simplify. But I feel a bit handcuffed to my after-tax investments (other than cash/cds) because to re-balance has current tax consequences and I'm in a very high tax bracket.

My early living expenses I plan via rolling the after tax 401k and the cash pension into separate IRAs and doing 72Ts, plus pulling out of after-tax earnings. SSI at 62 seems to give the most advantageous result but not necessarily required. Taxes in early retirement are fairly high.

Help?

 

[Turboslacker]

Holy cow do you have a nice problem to solve.

With this healthy a nest egg you could have FIREd much earlier or spend a lot more in retirement. You will certainly be able to travel a lot! Nicely done.

Maybe don't try to restrict yourself to the lowest tax bracket while in ER. The next tier up won't be too bad for ya really.

 

[LOL!]

I think you should really pose your question (it was 'Help?', wasn't it?) over at Bogleheads Investing Advice and Info and please read this first:
Bogleheads • View topic - Asking Portfolio Questions

Also, I don't know why you would pay any income taxes in your early-retired years because return of capital is tax-free and you have a 7-figure amount available in taxable accounts. That is, you would not 72T. Use www.i-orp.com and TurboTax to do some tax planning. OK, I feel stupid giving a CPA tax advice, but then again your statement was too weird about paying high taxes in early retirement.

 

[MichaelB]

I'm all over the place. I've Firecalc'd, FIDO'd, three or four other calculators, and created a very large detailed withdrawal plan spreadsheet, and everything says I'm good to go, which I believe. But I feel so out of control on exactly WHERE my money should be and whether I'm in the right places. I feel like overall, my % is good, but in detail I need to simplify. But I feel a bit handcuffed to my after-tax investments (other than cash/cds) because to re-balance has current tax consequences and I'm in a very high tax bracket.

My early living expenses I plan via rolling the after tax 401k and the cash pension into separate IRAs and doing 72Ts, plus pulling out of after-tax earnings. SSI at 62 seems to give the most advantageous result but not necessarily required. Taxes in early retirement are fairly high.

Help?

Welcome aboard, AmIReady. I think you are (ready, that is) and I'm guessing after you've had some time off and can refocus your priorities, you will too.

+1@LOL Your tax rate may be high right now, but once your earned income goes away it falls to 0 and you decide how much it will be - at least until RMDs begin. For the next 10 years you have an opportunity to rebalance your portfolio and maybe even convert some from tax deferred to after tax. Your retirement assets are not "all over the place" and my guess is with a little free time you can build a plan to simplify them and generate an income stream to support your retirement dreams.

 

[panacea]

Congrats AmIReady! You look to be in really great shape. I think it just feels messy as you consider a transition from saving to spending.

+1 with the others; not sure I have much to add for strategic planning. You have a great opportunity to live off of taxable accounts and do Roth conversions while managing your tax bracket for several years.

Are you planning on taking Social Security at 62? Might want to consider waiting until later to increase that lifetime benefit since you have a full bucket of investment assets. Also, I don't think you mentioned whether you were married, divorced, widowed or single. If you were ever married, you may be able to collect a spousal social security benefit for a while delaying your own benefit, letting it grow.

 

[clifp]

AmIReady, you are way way too hard on yourself. First of all you accumulated a very nice chunk of money. You have an arguably optimal asset allocation, with a great mix of tax deferred and taxable accounts. You have, I bet, a realistic handle on your needs, and plenty of assets to generate 75K even without SS.

Yes you have a 15+ individual investments, but given the amount of money you have that is hardly a crime. With some work you could probably consolidate it further, but in the financial crimes department it is like going 32 in 25 MPH zone.

You'll have plenty of time to optimize further once you retire.

I love dispensing investing advice, but honestly you don't even leave us enough to nit pick. Ok you have too much cash in your banks account (says the guy with $150K in one of his IRAs...)

Are you sure you don't have something fun like a variable annuity, sold to you by an Amerprise adviser, in IRA.

 

[jerome len]

I suspect you could have twice as much net worth and you would still worry how to invest it. .......but you are all set.
Now, you have enough investable cash to give Vanguard a call and ask for a financial review. As long as you have over one million, I think, they have you fill out a questionaire outlining your goals, do a plan and spend time on the phone going over their results.

I too have a comfortable net worth....but I worry while most others would just congratulate me or envy me. I, too, am in the highest tax bracket and I love muni bonds.
Right now many are short/limited term Vanguard funds since interest rates have to go up eventually and then I will move them to longer term. And, if you don't want to add more taxes, wait until you retire and then adjust after your tax rate goes down a bit.

Overall, enjoy yourself.......you really sound too smart to make costly bad decisions. you can be conservative.......you have way more net worth than you need to spend what you would like to spend........good luck and relax!!!

 

[Huston55]

Just some random thoughts:

• Simplify by consolidating at either Fido or VG
• Develop a WD plan (where $ come from & in what order/amounts)
• Be careful with 401k rollovers, since it will affect any Roth conversions you do (check your plan's rules)
• Calc best time to collect SS (it may not be 62)
• Reduce cash %
• Oh yeah...enjoy yourself

 

[jclarksnakes]

You are golden! Your AA actually looks very good to me. Except maybe for too much cash. As has already been posted you could retire today. After that you could spend a bit of time figuring how to simplify things and also decide where to take out money for spending to keep taxes low and do some ROTH conversions over the next 10-15 years.

 

[RetireAge50]

I think you are good to go. You might look at the cash balance pension annuity option. Like you I always planned to just roll this over into a IRA. But now that I am close I checked the annuity payout and it is very favorable. Must have some employer dollars in there making payout much higher than market value.

Anyway, congratulations and have fun in retirement!

 

[BrianB]

You ask about "structuring", which I take to be different than asset allocation or fund picking.
This web page:
The Process of Managing Retirement Income
has some good graphics and info on laddering investments to create income.
In general people on this site don't recommend using advisers that cost money, but if you consolidate at Fido (for example) your asset level will allow you to get some no cost advice from their salaried (not commission) account execs.

 

[MBAustin]

Congratulations! You look ready to me!

I would second the comments to consolidate at Fidelity or Vanguard (I use VG and do find their Flagship advisor helpful). Use the advice there and from Bogleheads to work on your AA and also develop an income withdrawal plan.

But with your cash position, you don't need to do anything in order to pull the plug. Just set up a monthly transfer from one of your savings accounts to your primary checking account at the amount you expect to spend and start living from it.

You don't mention your spending habits but you sound modest in that regard, so the risk is very low as long as you don't start a spending spree.

After decompression (there are plenty of threads on that here), you'll have plenty of time to fix your AA and consolidate things further.

I had some similar concerns and realized that we had plenty of cash to live on for at least 3 years, so I have taken my sweet time to consolidate and simplify (still not done, but not stressed about it).

Welcome!

 

[lindal00l00]

AmIReady,
You'll have plenty of time to optimize further once you retire.

AmIReady:

I am aboout 3 months into retirement and can relate to your situation. I have found that it has taken me a couple of months to decompress and that some of the income needs I anticipated are not going to materialize. I also had a lot of paperwork to complete, pay for unused vacation etc.

What has become clearer is is that the planning I did before retirement served me well, but I can definitely tweak it now that the blinders are off. I also think I over-planned as a coverup for some of my fears about finally leaving. My advice would be to pat yourself on the back for doing so well; exit with your current set up, and tweak it as the fog lifts. And stay tuned in to this forum!

 

[Spanky]

Total = $3.1 million; 60% stock, 20% bonds, 12% cash, 8% CDs

too much Cash. all you need is about two-years of spending. 4.84% should suffice.

You should change your id to "iAmReady"

 

[Walt34]

No suggestions, but welcome to the forum!

 

[AmIReady]

Thank you!

Thank you all so much for your comments and help! The best help you gave me is to make me understand that I don't have to have everything in all the right places to make the leap. I seem to think (thought) that I shouldn't pull the trigger until everything was set up just right, but of course, with your guidance, it makes more sense to spend the next year or two or ten getting things where I finally want them. And using my lower tax bracket years to do so. Thank you for that! I'm not a penny-pincher by any means, and I like to spend money on what I want and luckily my "wants" aren't all that big, but the thought of withdrawing my savings/after tax investments to LIVE ON without every tiny thing in place, well it paralyzes me! You've helped me loosen up; I can do this.

I think it IS the transition that was stumping me; how do I go from saving for 30 years to actually taking money out of the sacred savings accounts? More mental than financial, me thinks.

On the high tax bracket question/comments, when I retire my after-tax investments will be earning more than my spending needs, for a while, so I was seeing withdrawals of $100k in order to have $75k to spend, to pay the taxes on investment earnings. I tried to temper the decline in my AT investment accounts somewhat by doing the 72T's, but that was just to deplete the IRA buckets more ratably and not a tax strategy. And because taking $100k/yr out of my "savings" was freaking me out. I'll play with numbers and rethink the 72T's, thank you.

As to the annuity from the cash balance pension, the balance is 100% company contributions based on a % of salary added each year and a t-bill+ interest calc. I never really considered the annuity option just because I never read anything good about annuities, but I'll model in an annuity option just to check. Thanks for that thought; I need to keep the blinders off.

I'm divorced and my ex had significantly less earnings so I'm sure my SSI is the better one. There is no real need in my withdrawal plan to take SSI earlier, and honestly it all came back to my FEAR OF DEPLETING MY SAVINGS ACCOUNTS. That's hard to do! I modeled to live to 90 and still had minimal assets left at a 3% ROI, but jeeze that mental block is hard to overcome.

My grandmother is 94, and her mother died at 102. My grandmother still saves cottage cheese containers and writes dates on her eggs so that she uses them in order. I think they ruined me.

You don't know how much your comments and suggestions have helped me rethink my withdrawals, and real fears vs. reality. I also appreciate very much the link on building a withdrawal ladder.

thanks!!

IAmReady (almost )

 

[LOL!]

Try this thought experiment to show you how your taxes will be lower than 25%:

If you retire in 2014 and then in year 2015, you withdraw $75,000 from your cash in your taxable bank account and spend that $75,000. How much income tax will you need to pay on that $75,000?

 

[Hermit]

Don't forget that a 4% withdrawal covers a worst cast investment environment for 30 years. I think it is about a 3.5% withdrawal rate forever. In either case, chances are great that you won't hit one of those worst cases and you will likely die very rich. (Of course you are allowed to do mid-course corrections in either good or bad environments.)

If you hang around this forum, you likely will also pick up some of those frugal habits that don't change your lifestyle but lower your living costs.

 

[maloney50]

Nice job, enjoy your retirement and let us know how it is going. I'm the same age and have about the same amount in assets and I'm still working on the decision.

One thing I did that you might want to consider is paying down or off the mortgage. I paid off mine an the reason I did it is I looked at what I could earn on a CD, cash or a bond fund and I compared this to the rate I was paying on the mortgage. At that time the mortgage was a much higher interest rate so I paid it off. Plus I live in NJ and get hit with the AMT. However this is trivial compared the main point is you did it, congratulations.
Also, one other point, I had two cars and I was always having trouble with the car I didn't drive for a period of time. The battery would die, problems would arise. My mechanic told me keeping a car sitting is the worst thing for a car. I got rid of my Passat and have been driving a 95 bmw for about 10 years that I paid 10K for. Sure enough he was right, the BMW is running great since I use it every day. Enjoy!

 

[haha]

Great job of earning and saving money.

One thing- you are writing SSI, but I think you mean social security old age and survivors benefits, or SS. SSI is social security disability payments.

Supplemental Security Income

 

[AmIReady]

Try this thought experiment to show you how your taxes will be lower than 25%:

If you retire in 2014 and then in year 2015, you withdraw $75,000 from your cash in your taxable bank account and spend that $75,000. How much income tax will you need to pay on that $75,000?

I can't thank you enough for sticking with this point; I think I had a big miscalculation in my spreadsheet. My prior thought: while I did take out 75k from my basis with no tax, the after tax investments earn at the same time, and I owe tax on that. So $1.2 in Vanguard/Fidelity/Banks are earning , say 5%, or $60k, and I was calculating a tax due on that earnings.

BUT, from your trying to get this through my head, the issue is that while the AT funds are growing, yes, unless they generate a dividend or capital gain then I don't have a tax on the "growth", just the dividend/capital gains, or ordinary interest. Plus any gain on a sale I might make to withdraw cash. Which should be apparent to me since I do my own taxes. This year my total TAXABLE cap gains/dividends for Vanguard & Fidelity funds of $600k+ was around $9k, not the $30k I get from simply applying a 5% ROI to $600K. THAT's what I'm doing wrong, am I right?

Then, to pile on, you made me look at my spreadsheet again and I mistakenly put the annual return on my after-tax IRA in my "taxable earnings" bucket after I rolled it over, thus doubling the problem!

So since I know I'll have some taxable dividends/gains from my AT funds, I should look at the tax efficiency of the overall funds and use THAT (or some proxy) to estimate my taxable AT earnings, not my ROI.

OK, now I really need to rework this spreadsheet. Let me know if I'm following what you're saying correctly, I really do appreciate it! I honestly don't intend to be this complicated at some point in my life, but apparently I haven't reached it yet. Once I understand what you're teaching me, I'm going to relax. Thank you!

 

[LOL!]

You are following what I am getting at. Basically, your income tax will be pretty close to 0%. You will even be able to convert some 401(k)/IRA to Roth IRA and pay no taxes or maybe just a little taxes on the conversion.

 

[scrinch]

AmIReady, you've got it. With your cash holdings, you will be able to live largely off of the tax-free cash for quite a few years and then pick and choose when you want to realize gains, losses, and IRA rollovers in order to manage your cash flow and tax situation. You may want to realize some capital gains in taxable accounts over the first several years of retirement when you can keep the tax rate on those gains at or close to zero. You will probably want to do regular IRA rollovers (to Roth) for 10 years or so, so that IRA MRD's don't hit you too hard when you reach 70-1/2.

 

[38Chevy454]

Welcome, and you are very good shape to stop working now. I concur that you have too much in cash. I would pay off your house, then live off the after-tax cash funds to get you to 59.5 before you touch any of the pre-tax. Your total assets $3.2M means that you can have a lot more spending each year than your projected $75K, even with very safe withdrawal rates on the total amount.

Some good planning by converting to Roth will save taxes later as many have suggested.

Quit work and start enjoying retirement.

 

[AmIReady]

You all are great....thank you!