Time to play Can I Retire?

[rodi]

I'm confused about the Inherited IRA. If the decedent is not your spouse, the 10 year rule applies.

That's what I thought - but the OP is correct that the age differential being <10 years is a factor.

From Fidelity:
https://www.fidelity.com/learning-center/personal-finance/retirement/non-spouse-IRA

If the original IRA owner died on or after January 1, 2020

The SECURE Act requires beneficiaries to withdraw all assets from an inherited IRA or 401(k) plan by December 31 of the 10th year following the IRA owner's death. Exceptions to the 10-year rule include payments made to an eligible designated beneficiary (a surviving spouse, a minor child of the account owner, a disabled or chronically ill beneficiary, and a beneficiary who is not more than 10 years younger than the original IRA owner or 401(k) participant). These beneficiaries can "stretch" payments over their life expectancy. Discuss the potential tax implications and distribution options of this accelerated withdrawal schedule with your tax advisor.

 

[Finance Dave]

My numbers were in the ballpark of yours, and we FIREd 2 years ago. I think you’re fine, but a few points....most of which were already made by others...

1) Really focus in on ACA income limits and subsidies...it can easily cost you $10-12k per year

2) Related to item 1, maybe a good strategy would be to go part time now....with a plan to fully FIRE in 1-3 years depending on how things go

3) I’d dial down the equity exposure

4) Determine your SS income and model that into your thinking

5) Given your high NW, consider some tax-free income strategies

6] Consider in the medium term a somewhat non-traditional withdrawal strategy of taking from tax-deferred accounts up to a low tax bracket, then from Roth accounts to round out your living expenses

7) Study taxation issues you’ll get into at 72, as well as some other things like IRMAA, donut hole, etc

Good luck and congrats on being close. Full disclosure, I call myself FIREd since 2019 at age 57, but I do work just enough now as a self employed handyman to be able to deduct many expenses such as LTC and health care, as well as the fact that I enjoy helping my small customer base.

 

[CRLLS]

Are you saying what we have is low relative to my income? If so, I can explain that. I changed jobs in late 2017 and essentially doubled my income. Our current portfolio was largely built while I was making about 120K, not 250K. I've only been at that income since November 2017.


Our total spending for 2020, thanks to COVID, was about 67K. Pre-COVID in 2019, it was about 81K.

It is. However your explanation is well understood. Thank you for clarifying your situation. I was afraid that you were underestimating your expenses wildly. Not unheard of......

Carry on.

 

[monte1022]

Assuming your inheritance amount is correct, and assuming the market doesn't crash between now and 2022, then it looks like you'll be good to go, for about a $100K annual WR, event without projected gains. I agree with others, as to the gains, you can't count on them, you'll have to 'wait and see'. It does seem like you'll be close to the edge (without much buffer for emergencies, car replacements, added hobbies, etc.). Good luck!

When you say that he will be good for about 100k WR, what total asset balance are you using? I am only asking because these numbers seem similar to my own and I respect your opinion.

 

[Finance Dave]

When you say that he will be good for about 100k WR, what total asset balance are you using? I am only asking because these numbers seem similar to my own and I respect your opinion.

Monte, our WR is about $90k, so not far off what you are looking for. Asset balance of about $2.5M, but keep in mind that we are 59/62 and our SS combined will be about $42k starting when we are 67/70 respectively. Right now we have rental income of about $30k, and the approximate market value of those properties is included in the $2.5M.

If anything, I think we are a bit conservative on our WR. But we are also fairly conservative in our AA at about 25% equities, 15% bonds, 20% real estate, and the rest in fixed income such as CD ladders/annuities. I had an advisor years ago tell me we could be more aggressive in our AA...so I asked him "how much extra would we need to save to get to where we can keep our AA and never run out of money", and we saved to that level before FIRE. I sleep really well at night now. If we have a market downturn like we had in March 2020...I don't sleep well if I look at our investments and find that we lost $200k of our savings. Of course the tradeoff is that we've missed out on much of the runup since then....although we did "buy in" to the top of our AA range after the March downturn...so we have done ok.

Hope that helps.

 

[monte1022]

Monte, our WR is about $90k, so not far off what you are looking for. Asset balance of about $2.5M, but keep in mind that we are 59/62 and our SS combined will be about $42k starting when we are 67/70 respectively. Right now we have rental income of about $30k, and the approximate market value of those properties is included in the $2.5M.

If anything, I think we are a bit conservative on our WR. But we are also fairly conservative in our AA at about 25% equities, 15% bonds, 20% real estate, and the rest in fixed income such as CD ladders/annuities. I had an advisor years ago tell me we could be more aggressive in our AA...so I asked him "how much extra would we need to save to get to where we can keep our AA and never run out of money", and we saved to that level before FIRE. I sleep really well at night now. If we have a market downturn like we had in March 2020...I don't sleep well if I look at our investments and find that we lost $200k of our savings. Of course the tradeoff is that we've missed out on much of the runup since then....although we did "buy in" to the top of our AA range after the March downturn...so we have done ok.

Hope that helps.

Thank you!

 

[Montclairbobbyb]

I say the actual answer is simply "Yes, AS LONG AS you're committed to making retirement work"... period. This means knowing your expenses and adjusting lifestyle/spending as necessary, willingness to supplement income (IF necessary) by working, hustling, whatever it takes, and always keep asking "Am I remaining on-track?" For my wife and me it's not a slam-dunk, but confidence remains high, and we remain vigilant... after all, retirement IS worth the effort!! GOOD LUCK, GO FOR IT!!!

 

[Retired Expat]

Right off the bat it seems doable. BUT like they always say, you can’t rely on your prior experiences to predict the future. What does retirement mean to you? Moving to the beach, getting a boat and when not boating being on the golf course? Lots of travel, home improvement projects? Gourmet dining, cosmetic surgery to look great, or any of the millions dreams you might have had and well “if not now, when?” Kicks in... so really plan your retirement and see what it will cost you, and then know it might not actually look anything like what you planned. Mine surely doesn’t!

I actually saved a ton in retirement when I moved to a LCOL area, overseas actually, So don’t base your spending on what it was at work, where the coffee was free and you brown bagged it every day and think what lunch at the “club” will cost every day instead!

 

[disneysteve]

I say the actual answer is simply "Yes, AS LONG AS you're committed to making retirement work"... period. This means knowing your expenses and adjusting lifestyle/spending as necessary, willingness to supplement income (IF necessary) by working, hustling, whatever it takes, and always keep asking "Am I remaining on-track?" For my wife and me it's not a slam-dunk, but confidence remains high, and we remain vigilant... after all, retirement IS worth the effort!! GOOD LUCK, GO FOR IT!!!

I appreciate this. Yes, no matter what, unless we hit the Powerball (which we don't play), retirement is going to need ongoing monitoring and tweaking.


Even when I "fully retire" I may stay on at work as a per diem provider. That would allow me to pick up a shift or two a month which would both give me something to do and give me an easy way to earn a couple thousand dollars should we need it.


Thanks again to everyone who has weighed in. I'm learning a lot at this site and steadily fine-tuning the plan. I can't wait to see where we are two years from now.

 

[VungTau]

How comfortable would you be if your portfolio shrunk by $400,000-500,000 instead of growing by that much? That growth projection is pretty optimistic considering the current high valuations of the market.

+1

 

[Koolau]

Sorry, I haven't chimed in yet. Seems your numbers are "there." As others have mentioned, your roughly 70% equities could lead to a bumpy ride from time to time. I always suggest that folks have back-ups (to their back-ups - belt, suspenders, elastic waist band). Be ready to cut spending, say, $20K in a given year. Skip travel and eating out for a year or two. Heh, heh, in my case, my first back up would be to sell at least one of the two cars and 'cough, choke' take THE BUS.

In desperation, you might even need to move to a LCOL area. EVEN if all the numbers work, I still suggest this to almost everyone - back up your back ups AND most importantly, be certain DW is on board with whatever backups you plan. Other than that, with the usual YMMV caveat, I'd say go for it.

 

[disneysteve]

Sorry, I haven't chimed in yet. Seems your numbers are "there." As others have mentioned, your roughly 70% equities could lead to a bumpy ride from time to time.

I'm working on dialing it back to 60% currently. I may go lower than that over the next couple of years. I haven't decided yet.

 

[pb4uski]

I would seriously consider PT... I worked PT for many years before I retired. Similar to you anything 50% PT and higher included health insurance as if I was full time... most everything else was proportional. Just taking a quick look at healthsherpa it looks like health insurance is ~$1,300/month and up depending on what coverage you choose. We were both healthy so we chose bronze plans and took the risk of the high deductible. It worked out very well. The purpose of health insurance at this point is to avoid having to pay for an expensive medical event (so it is as much wealth insurance as health insurance) and to gain access to negotiated rates for medical services.

Since you have a lot in taxable account funds, you may well be able to manage your income and gain some nice ACA subsidies and reduce your health insurance costs substantially.... looks like as much as ~$1,000/month.

 

[disneysteve]

I would seriously consider PT... I worked PT for many years before I retired. Similar to you anything 50% PT and higher included health insurance as if I was full time.

Since you have a lot in taxable account funds, you may well be able to manage your income and gain some nice ACA subsidies and reduce your health insurance costs substantially.... looks like as much as ~$1,000/month.

I agree on both points. Right now, I think working a couple more years FT and then likely going PT may be the plan. We could likely stay under the ACA cap based on how I think everything will play out right now.

 

[BubbaChris]

Steve,

First sorry for your loss. Is the Estate in a Trust and are you the trustee? If so, here are some quick thoughts:
ASAP get a Federal Tax ID for the Estate, get bank and investment accounts moved/adjusted so earnings will be reported for the Estate.
See if it is legit to set revised Cost Basis determined for the assets you'll be selling, that would limit the taxable gains on those sales.
Pay yourself a fee in addition to the expense reimbursements, that can offset some of the income for the Estate. You'll need to report it on your taxes as Misc Income, so that may not be a good thing.
I just completed year 1 of managing a Trust, so these are my initial lessons.

I'm two years older than you and our overall numbers are similar to what you'll end up with in 2022. Nine years ago we moved to a low cost of living area compared to where we'd been. Just this week I calculated that I've saved $52K in that time just in property tax and HOA fees. Will something like that be an option for you? If you continue to work PT, can you work on lowering expenses (or at least confidence on your spend rate).

We'd been dialing back our living expenses for some time, so our floor is more like $45K with $65K being super comfortable for us. And a year ago we were able to get ACA coverage with Premium Tax Credits making it insanely affordable. And Covid shut downs gave us a test-run for a really low income year. Part of what settled my mind was seeing a big delta between my expense budget and what i-ORP says I could spend. Have you played with that tool?

My current assessments say we're go to go, so DW is now fully retire and I'm PT as long as the job stays fun. You will have more After-tax and ROTH dollars available to flex your spending than we will, and that flexibility mean you don't have to get everything precise before pulling the plug.

This forum is about 7 stepping stones away from an RV forum thread I read a year ago where someone asked if anyone regretting retiring early. I read well over 100 posts and the absolute consensus is that ER is a great thing. I had assumed we needed to wait until Medicare age, but ACA Premium Tax Credits was the key game changer for us.

I hope you're able to get things lined up so you can retire and feel like it was a great decision for you!

Best regards,
Chris

 

[disneysteve]

Steve,
Is the Estate in a Trust and are you the trustee?

No trust involved. Just normal assets: checking account, savings account, retirement accounts, house, cars, etc.

Pay yourself a fee in addition to the expense reimbursements, that can offset some of the income for the Estate. You'll need to report it on your taxes as Misc Income, so that may not be a good thing.

Does this only apply to a trust? What about just being executor of the estate? Would taking a fee for that also help me?

Nine years ago we moved to a low cost of living area compared to where we'd been. Just this week I calculated that I've saved $52K in that time just in property tax and HOA fees. Will something like that be an option for you?

That's not something we're interested in doing. We will either stay where we are, move to central Florida (not LCOLA) or buy a place down there are snowbird.

We'd been dialing back our living expenses for some time, so our floor is more like $45K with $65K being super comfortable for us. And a year ago we were able to get ACA coverage with Premium Tax Credits making it insanely affordable. And Covid shut downs gave us a test-run for a really low income year.

COVID has been surprisingly helpful in ways I couldn't have predicted. Our spending is down nearly $2,000/month and we're both quite content with how we've been living. I don't expect that to last, though. We do both want to resume traveling and doing other things once that's an option again, so I expect our spending to ramp back up closer to pre-COVID level within the next year.


Thanks for the input. I really appreciate it.

 

[BubbaChris]

Does this only apply to a trust? What about just being executor of the estate? Would taking a fee for that also help me?

Are you the only beneficiary? And is there a will instead of a Trust?

Our will (which is inside our trust) specifies a dollar amount to pay our executor. It is also sometimes done as a percentage of the Estate. Without fees specified in a will, reasonable executor fees may defined by the State. I recall seeing IRS guidelines too.

If there is more than one beneficiary and if there's no Trust and you're having to go through Probate in the state where the person died and the assets are, that's way over my level of experience. I'd say the money you spend to hire local, experienced legal assistance will be money well spent in that situation.

Again, I'm sorry you're having to go through this. Even though I was planning for my mom's passing (and I was lucky she died very shortly before the Covid lock-downs), it is still a heavy burden to go through the process.

Best regards,
Chris

 

[disneysteve]

Are you the only beneficiary? And is there a will instead of a Trust?

There is a will. I am the sole beneficiary and executor. I'm hoping that makes for a relatively simple process.

 

[retire to nature]

There is a will. I am the sole beneficiary and executor. I'm hoping that makes for a relatively simple process.

I was the same way as sole beneficiary and executor but without will. Mine was in MO and started 3/2/20 to 12/21/20. it was in covid time so court was closed for some time, but since it was simple case, it took shorter than I thought.

 

[disneysteve]

I was the same way as sole beneficiary and executor but without will. Mine was in MO and started 3/2/20 to 12/21/20. it was in covid time so court was closed for some time, but since it was simple case, it took shorter than I thought.

Thanks. I was figuring it would take 9-12 months to settle everything. He's in Florida which has pretty much reopened everything I think. Hopefully that helps avoid too many COVID delays.