I'm FIRE'd! Intro plus questions!

[fimk]

After facing a 1/3 reduction in my own salary and cutting my global staff by 1/3 without change in workload, I’ve decided to restructure my corporate department, save a few other people’s jobs, and in the process eliminate my own high-stress 60+ hour a week job to become FIRE’d.

June 30th, will be my last day of work and since my director position is being eliminated I will officially join the ranks of the ‘unemployed’. However, besides some key integrity points in how I feel about what is happening at my workplace, the current job-elimination versus waiting to quit/retire has the personal benefit of severance, unemployment benefits, and COBRA (with 65% from Obama plan for 9 months) . Since I'm keeping a couple of other people off the employment line with this direction, I'm telling myself taking what some might consider the 'handout' of unemployment and the 65% is ok, especially after 32 years with this company.

Based on FIRECALC at my age 52, assuming 40 years additional life, my husband and I show a 100% probability of being able to make our finances work assuming a $66.700 annual withdrawal and 44% in stocks. Living in smalltown Midwest and with Firecalc allowing for inflation we think this is a reasonable rate for our planned lifestyle.

We are part of a very transparent online RV community where most are open about finances in order to help each other benchmark their own positions and we plan to be largely the same so others can learn from us as well.

We are fully debt free owning a $250K home, a 2007 diesel pusher motor home and 3 automobiles (son will takeover 3rd vehicle next year after completing grad school).

My husband has had Crohn’s disease since age 24 and was put on SSRI about 5 years ago when no longer able to work in his remodling profession more than a few hours at time. Since he is already 5 years older than me, waiting for me to reach 66, 14 more years, makes it a risk that he will have the kind of health then for us to enjoy extended time Rving which is our true passion.

We feel we have set a firm foundation for our sons, 23 and 26, to now have financial apron-strings cut. With their ability to pull scholarships and some help from us they made it through to the BS degrees debt-free (They both have gone on to grad school - but that’s on their own dime). Son #1 is now established as a smalltown lawyer and son#2 should be able to sit for CPA next year at this time.

For the next 6 years I will be receiving $30K per year from my Excess Supplemental Payout. This is taxable just like a 401K withdrawal but not subject to the 59 ½ age restriction. My husband’s disability is $10K per year. This leaves us with $27K per year for the next 6 years that needs to come from money outside my 401K.

Currently our investments are broken down as follows

401K $450,000
Excess Supplemental $180,000 (will get next 6 years in $30K increments annually)
Pension $130,000 (will start payout at age 65)
CD’s $550,000
Fidelity IRA’s $ 27,000

My current Social Security worksheet shows $28,880 annual SS at age 66 ½.

So now the challenge. We aren’t financial wizards but we aren’t impressed with research we’ve done on going to financial planners versus investing on our own.

So here’s what I’m thinking….

I keep $250K generally accessible in CD’s/short-term treasury to cover us between now and 59 ½.

This leaves $750K to invest that we shouldn’t need to touch for 7 years. To do my Firecalc 44% in stocks that means $575K of this should be in stocks and $175K in bonds/fixed income/cash so the fund selections will have to account for that.

Here are the options I am considering for that $750K:

1. Leave the $450K in my current company sponsored JP Morgan managed 401K using the ‘Live More/work less” asset allocation strategies for diversification

2. Rollover 401K to Fidelity and/or Vanguard using the ‘Live More/Work Less” asset allocation strategies for diversification

3. Get tax-deferral and immediate 8% credit enhancement by putting $250K of current CD’s in Pacific Value Edge with portfolio optimization model with moderate risk allocation.

I’ve been lurking on this forum off and on for years and really impressed by depth of knowledge out here. I have LOTS of questions but here are a few I’d most appreciate input on from those of you on this board that seem to live this stuff:

1. Where do I seem to be most off-base on points above?
2. Can I do a ‘partial’ 401K rollover? For example, split the $450K between JPMorgan, Fidelity and Vanguard?
3. I know that normally annuities aren’t considered a smart move for retirement investment but it seems that in this case, when I can't take the money out for 7 years anyway, and since they offer the 8% credit enhancement, it might fit my specific situation. Thoughts?
4. What key additional considerations/info am I missing here in order to make better decisions?

Thanks in advance for any insights you can provide!

 

[REWahoo]

Welcome to the forum fimk.

I'll defer to others on asset allocation strategies but I definitely think a rollover of your entire 401k to Fidelity or Vanguard is the right move.

 

[Rich_by_the_Bay]

Welcome to the ER forum, and congratulations.

Nice pension - if you like FIRECALC I suggest you use the flexiblel spending feature (only appears if you regi$ter for the program). It will let you figure in year by year any anticipated changes in income stream, including reductions of withdrawals as SS kicks in, etc.

Now let's get to the important stuff: what kind of RV do you have? I own a 35' Itasca SunCruiser (recent purchase after a few years of Class B and TT's); REW (above) has a Newmar and Audrey is our resident full-timer. There are probably a dozen or so active users here who RV. While most related posting is on the RV forums, it is kind of fun to trade occasional posts here too once in a while.

Anyway, enjoy your ER.

 

[fimk]

Thanks, Rich.

We have a 2007 Cross Country Sportscoach 382 DS.

Love to 'commune' with fellow RVers! That's our favorite part of the lifestyle...the people!

 

[fimk]

Btw, the 'pension' is total value I have in the pension, not annual pension!!

 

[FinanceDude]

I keep $250K generally accessible in CD’s/short-term treasury to cover us between now and 59 ½.

Sounds like a good idea, liquidity is important.

1. Leave the $450K in my current company sponsored JP Morgan managed 401K using the ‘Live More/work less” asset allocation strategies for diversification

Bad idea to leave 401K there. You have no control and limited choices. better to rollover to a self-directed IRA.........

2. Rollover 401K to Fidelity and/or Vanguard using the ‘Live More/Work Less” asset allocation strategies for diversification

A decent idea. Do you feel comfortable making financial decisions yourself? If not, take time to educate yourself......

3. Get tax-deferral and immediate 8% credit enhancement by putting $250K of current CD’s in Pacific Value Edge with portfolio optimization model with moderate risk allocation.

Keep in mind that when you take money out of a non-qualified annuity, the gains come out first, at ordinary income rates. Most folks on here are not fans of VAs due to the high internal costs. Also, my biggest issue with Pacific Life is the fact that their contracts only have the opportunity to "step up" only once a year, meaning you only have a 4% chance of getting a stepup. Plus, many are starting to question whether the insurers can make good on their promises of guaranteed income regardless of market return. If taxes are a concern, look at a muni bond fund or laddered munis...........

Also, most bonus products carry an 8 or 9 year surrender schedule........

Best of luck, and welcome........

 

[FinanceDude]

Thanks, Rich.

We have a 2007 Cross Country Sportscoach 382 DS.

Love to 'commune' with fellow RVers! That's our favorite part of the lifestyle...the people!

That's a mean machine, a sweet ride........

 

[dex]

I keep $250K generally accessible in CD’s/short-term treasury to cover us between now and 59 ½.

Suggest - Treasuries - 50K 4%
Vanguard Interm-Term Treasury (VFITX)

Vanguard High Yield Corp. Bonds = 200K
VWEHX: Summary for VANGUARD HIGH YIELD CORPORATE F - Yahoo! Finance 9%

2K Treasuries Interest
18K Vang. Interest
7K Withdraw from Treasuries
27K Total expense needed

As time goes on you will need to take more out of treasuries but after the 6 years you will have more principle remaining.

 

[jdw_fire]

Based on FIRECALC at my age 52, assuming 40 years additional life, my husband and I show a 100% probability of being able to make our finances work assuming a $66.700 annual withdrawal and 44% in stocks. Living in smalltown Midwest and with Firecalc allowing for inflation we think this is a reasonable rate for our planned lifestyle.

...

For the next 6 years I will be receiving $30K per year from my Excess Supplemental Payout. This is taxable just like a 401K withdrawal but not subject to the 59 ½ age restriction. My husband’s disability is $10K per year. This leaves us with $27K per year for the next 6 years that needs to come from money outside my 401K.

Currently our investments are broken down as follows

401K $450,000
Excess Supplemental $180,000 (will get next 6 years in $30K increments annually)
Pension $130,000 (will start payout at age 65)
CD’s $550,000
Fidelity IRA’s $ 27,000

My current Social Security worksheet shows $28,880 annual SS at age 66 ½.

when i run the numbers given above thru FIRECalc i get a 54.5% success rate. maybe i am missing something but i would recommend you rerun FIRECalc

 

[Bikerdude]

Suggest - Treasuries - 50K 4%
Vanguard Interm-Term Treasury (VFITX)

Vanguard High Yield Corp. Bonds = 200K
VWEHX: Summary for VANGUARD HIGH YIELD CORPORATE F - Yahoo! Finance 9%

2K Treasuries Interest
18K Vang. Interest
7K Withdraw from Treasuries
27K Total expense needed

As time goes on you will need to take more out of treasuries but after the 6 years you will have more principle remaining.

I would think this allocation would carry too much risk (although it could do well). I prefer your CD/ST treasury ladder for a period of 6.5 years. I would lean to a majority in CD's or short term accounts. Ally Bank (was GMAC) offers 2.25% for a savings account. You could also put some (15 to 25%) in a ST corporate bond fund (Vanguard) to add a little yield.

 

[fimk]

when i run the numbers given above thru FIRECalc i get a 54.5% success rate. maybe i am missing something but i would recommend you rerun FIRECalc

Hi JDW...thanks for cross checking me...and you've got me worried now!!!

Here's the numbers I've plugged in...

'Start here' tab....

Spending $67,700
Portfolio $1,337,000
Years 40

'Other income' tab:

MY SS: $28,800 in 2023
DH SS: $10,000 in 2009

Comes out with 100% probability

Am I missing something else I should be including?

 

[dex]

I would think this allocation would carry too much risk (although it could do well).

Why do you think that?

 

[ziggy29]

MY SS: $28,800 in 2023

You're 52 and you are projecting $2400 a month for your SS without any more earned income for the next 14 years? Maybe you ran the numbers correctly, but that sounds like an awfully optimistic assumption, at least in today's dollars.

 

[REWahoo]

You're 52 and you are projecting $2400 a month for your SS without any more earned income for the next 14 years? Maybe you ran the numbers correctly, but that sounds like an awfully optimistic assumption, at least in today's dollars.

Good point. FIRECalc increases SS benefits by whatever inflation rate you set on the "Spending Models" tab. For that reason you need to plug into FIRECalc your expected SS income directly from SS.gov's calculator without adjusting for future increases.

 

[Bikerdude]

Why do you think that?

80% invested in junk bonds comes to mind. But you already knew that.

 

[tuixiu]

I think you should look really closely on a side-by-side comparison on what the fees are and how closely the fund choices allow you to emulate that WLLM portfolio with your 401k versus a large discount brokerage firm like Vanguard.

I guess an advantage of the 401k is withdraw at 55 versus 59 1/2 so you can avoid the 72t headache but I thought that only works if you bail that year, not sure.

 

[Bikerdude]

Good point. FIRECalc increases SS benefits by whatever inflation rate you set on the "Spending Models" tab. For that reason you need to plug into FIRECalc your expected SS income directly from SS.gov's calculator without adjusting for future increases.

I ran her numbers using the SS estimate. It works...but just barely, however I would be comfortable down to a 95% success rate. Still 2028 is down the road a bit and anything can happen.

 

[dex]

80% invested in junk bonds comes to mind. But you already knew that.

Check out the Vanguard fund - not all High Yield Corp. funds are the same.

 

[fimk]

I think you should look really closely on a side-by-side comparison on what the fees are and how closely the fund choices allow you to emulate that WLLM portfolio with your 401k versus a large discount brokerage firm like Vanguard.

I guess an advantage of the 401k is withdraw at 55 versus 59 1/2 so you can avoid the 72t headache but I thought that only works if you bail that year, not sure.

Tiu:

My understanding of the 72(t) exception is that it only works if I retire no earlier than 55. Therefore, since I am retiring at 52 I will not be able to withdraw before 59 1/2 so that point as I understand it will not impact the decision on whether to move my 401K. I do need to do that comparison of feels, however, before making final decision.

 

[jdw_fire]

Hi JDW...thanks for cross checking me...and you've got me worried now!!!

Here's the numbers I've plugged in...

'Start here' tab....

Spending $67,700
Portfolio $1,337,000
Years 40

'Other income' tab:

MY SS: $28,800 in 2023
DH SS: $10,000 in 2009

Comes out with 100% probability

Am I missing something else I should be including?

what i did differently from your inputs was 1) not count the $180k as part of your portfolio but rather put it in as 6 years of $30k/yr income (2009-2014) and 2) started your SS in 2024. i reran it this morning (including your correct SS starting year) and i must have made an input error yesterday as now i get 100%. in fact i get that your starting WD for 100% is $68,674. i am so sorry to have worried you needlessly, good luck with your retirement

 

[ziggy29]

My understanding of the 72(t) exception is that it only works if I retire no earlier than 55. Therefore, since I am retiring at 52 I will not be able to withdraw before 59 1/2 so that point as I understand it will not impact the decision on whether to move my 401K. I do need to do that comparison of feels, however, before making final decision.

Rule 72(t) can be invoked from an IRA (NOT a 401K) at any age. You do have to continue with the SEPP distributions for at least five years or until age 59.5, whichever is later.

When you separate employment under age 55, you can immediately roll your 401K into a traditional IRA and use 72(t).

You may be thinking of the rule that allows penalty-free withdrawal from 401K plans at age 55-59 if you have terminated service in that year. That exception is not available for IRAs, but 72(t) is.

Much more about Rule 72(t) here:

Welcome to 72t on the Net

 

[jdw_fire]

Tiu:

My understanding of the 72(t) exception is that it only works if I retire no earlier than 55. Therefore, since I am retiring at 52 I will not be able to withdraw before 59 1/2 so that point as I understand it will not impact the decision on whether to move my 401K. I do need to do that comparison of feels, however, before making final decision.

my understanding of the 72(t) exception is that if done properly it can be taken at any age. but the earlier you take it the riskier it is to your portfolio health if there is a major downturn in your portfolio value as once you start the WDs you arent allowed to change the WD amount (unlesss they changed that rule)

 

[fimk]

what i did differently from your inputs was 1) not count the $180k as part of your portfolio but rather put it in as 6 years of $30k/yr income (2009-2014) and 2) started your SS in 2024. i reran it this morning (including your correct SS starting year) and i must have made an input error yesterday as now i get 100%. in fact i get that your starting WD for 100% is $68,674. i am so sorry to have worried you needlessly, good luck with your retirement

Hey JDW, no worry now, only thanks for confirming my numbers and finding me an extra $1K spending a year--maybe I can keep my expensive hair stylist, manicures...pedicures...!! No really I've left myself plenty of budget contingency but really good to have someone else looking at the numbers and coming to similar conclusion...thanks again!!

 

[Bikerdude]

Check out the Vanguard fund - not all High Yield Corp. funds are the same.

I agree the Vanguard HY fund is one of the better HY funds and in fact I own it to "juice" cash flow. I just didn't agree with your recommendation given to the OP of who's investment knowledge and risk tolerance I do not know. With more knowledge of the OP I could see adding a bit of HY to boost yield, just not 80%. I just wanted to counter your recommendation (which at the time was the only one) with something else to add balance. "Different strokes for different folks".

 

[fimk]

Rule 72(t) can be invoked from an IRA (NOT a 401K) at any age. You do have to continue with the SEPP distributions for at least five years or until age 59.5, whichever is later.

When you separate employment under age 55, you can immediately roll your 401K into a traditional IRA and use 72(t).

Thanks, Ziggy.

While I don't have any intention of using 401K money before 59.5, it sounds like if I want to have this as contingency we are better to be in an IRA with Vanguard or Fidelity than staying with 401K.