I think I need to go back to w*rk

[aaronc879]

So, $1,125k in financial assets ($1m 401k and $125k of cash), $27k of pension starting in 2024, $24k of SS starting at 62 in 2030. Assuming a 45 year time horizon (100-55) and a 50/50 AA, FIRECalc indicates safe spending of $69,395 annually in 2023 dollars. Do you need more than $69k to live on during retirement?

At a minimum open a brokerage account with Schwab or Fidelity, move the $125k of cash to it and put it in a MMF that yields almost 4.5%.

He says he has family history of early death so planning to live to 100 is kind of crazy. I would go with 85 max. Worst case he runs out of 401K money but still has SS and pension and a paid off house.

 

[Spock]

Upping your 401k deduction? Your mind is still in savings mode, not spending mode. This is the reason you are stressing. You need need to ease into spending mode. Consider cutting your 401k deduction in half, to put more money into your savings account.

.....

For tax management and for maxing the annual contribution, I and several others here maxed out the 401K deductions starting in January of every year in anticipation of layoffs. By sometime March the annual contribution was hit. It was a PITA to admin but the math made sense since I had other after tax $ available and with the Rule of 55 could access the 401K if I had to. Maxing out provided other choices.

 

[Spock]

Didn't know you could delay unemployment. Vacation pay is definitely taxable.

Good news... AZ upped the weekly unemployment cap to $320.

 

[Spock]

You need to file for unemployment. Not doing that is leaving money on the table. You won't get it if you don't apply. Vacation pay is *NOT* severance, that is your earned time off and is not a factor in the unemployment. ...

In some places, you are still considered employed until the vacation money is burned up at wage rate. Especially so if the vacation pay is not distributed in a lump sum. In NC, AZ, and MN I was still considered employed by the previous employer until the deferred vacation days were burnt.

 

[Al18]

For tax management and for maxing the annual contribution, I and several others here maxed out the 401K deductions starting in January of every year in anticipation of layoffs. By sometime March the annual contribution was hit. It was a PITA to admin but the math made sense since I had other after tax $ available and with the Rule of 55 could access the 401K if I had to. Maxing out provided other choices.

Respectfully, I disagree. You are solving for maximum money in a 401k. Withdrawals from a 401k have 20% Federal Tax withholding - required by law. I would rather have more money in my savings account, which has no Federal Tax withholding.

 

[Spock]

Respectfully, I disagree. You are solving for maximum money in a 401k. Withdrawals from a 401k have 20% Federal Tax withholding - required by law. I would rather have more money in my savings account, which has no Federal Tax withholding.

I'm solving for max money in pocket. Since the OP is leaving the company the 401k can be rolled to an IRA and withdrawn without mandatory withholding. Either way, even with the withholding from the 401K withdrawal you still get the excess withholding back as a refund when filing the taxes. You don't pay extra tax just because the income is from a 401K withdrawal.

 

[aaronc879]

I'm solving for max money in pocket. Since the OP is leaving the company the 401k can be rolled to an IRA and withdrawn without mandatory withholding. Either way, even with the withholding from the 401K withdrawal you still get the excess withholding back as a refund when filing the taxes. You don't pay extra tax just because the income is from a 401K withdrawal.

I'm not certain about this but I believe that in order to make withdrawals from a 401K between age 55-59.5 you have to keep it in the 401K. If you move it to a IRA and then make withdrawals before 59.5 then you pay the 10% federal penalty plus any penalty your state may impose. My state imposes a penalty of 33% of the federal penalty so 3.3%.

 

[Spock]

I'm not certain about this but I believe that in order to make withdrawals from a 401K between age 55-59.5 you have to keep it in the 401K. If you move it to a IRA and then make withdrawals before 59.5 then you pay the 10% federal penalty plus any penalty your state may impose. My state imposes a penalty of 33% of the federal penalty so 3.3%.

Yes. I wasn't diving into the details of timing just pointing out there are ways to avoid mandatory withholding.

 

[pb4uski]

He says he has family history of early death so planning to live to 100 is kind of crazy. I would go with 85 max. Worst case he runs out of 401K money but still has SS and pension and a paid off house.

The safe spending level at 95% success isn't all that sensitive to the time horizon:

35 years to age 90.... $70,790
30 years to age 85.... $72,323
25 years to age 80.... $74,883

 

[MarieIG]

The safe spending level at 95% success isn't all that sensitive to the time horizon:

35 years to age 90.... $70,790
30 years to age 85.... $72,323
25 years to age 80.... $74,883

Both my father and uncle were convinced that they were going to die young because their father did. DF outlived DGF in excess of 30 years; and DU outlived DGF almost 40 years. Both spent additional funds in the latter years to have help which enabled them to remain in their homes.

 

[mystang52]

OP: great financial advice has already been given. If I can humbly give you some specific practical advice, starting today:

1) Make a list of all fixed expenses you currently have.
2) List your best estimates of your discretionary monthly spending for food, gas, entertainment. Don't worry about being super-precise.
3) Voila, you now have a starting point for a budget. You can now estimate what your monthly cash needs are, after pension income.
4) It's then fairly easy to plan for hiw you will access whatever cash you need until SS kicks in.
5) Make notes of the great financial advice previously given, to refer to as the dust settles and you're living your new life.

 

[badatmath]

Everyone, thank you. I am obviously having trouble wrapping my mind around this whole thing. Once upon a time I wanted to leave at 55 which is why it is not worse situation than it is. However I had pretty well abandoned that plan and this came as a shock. A few weeks ago it seemed do-able but the end of the pay checks is making me question things.

 

[UnrealizedPotential]

Everyone, thank you. I am obviously having trouble wrapping my mind around this whole thing. Once upon a time I wanted to leave at 55 which is why it is not worse situation than it is. However I had pretty well abandoned that plan and this came as a shock. A few weeks ago it seemed do-able but the end of the pay checks is making me question things.

Yes, it was kind of scary not having a paycheck at first. After the first month when I saw that it would work, that lessoned my anxiety greatly of not having a paycheck and relying on my investments for income.

 

[r3saving]

If I were in your shoes, I'd go see a "fee only" financial advisor. You can see them only once to determine whether retiring now is feasible or you can have an ongoing relationship (annually or however often you want). They can run multiple "what if" scenarios for you and help you get your planning in order. Mine had good ideas that I hadn't though of or known about. It's worth the one time fee to get peace of mind. They'll definitely ask for your specific financial information and I'd imagine going through the process will help you see how much money you really need annually. If you decide to go that route, I'd also suggest to choose an advisor that has been vetted through NAPFA, Garrett Planning Network or other such reputable organizations.

https://www.napfa.org/financial-planning/what-is-fee-only-advising

https://www.garrettplanningnetwork.com

Good luck...

 

[Gumby]

Badatmath: Thanks for being so open about your concerns. It will be very helpful to those who may be following in your footsteps. My only advice to you is to do the best you can to reconstitute your spending records, categorize your spending and analyze what will change once you are no longer in the daily grind. If you go to a fee only financial advisor, it will be more helpful (and probably cheaper) if you have all this spread-sheeted rather than just handing the advisor a shoebox of old receipts. Then they can concentrate on the analysis. (The same way you would deal with your tax preparer.)

For those who may be facing this situation in the future, this is a concrete example of why you should track your spending in some detail while you are still working, because to know whether you have enough to retire, you first must determine how much you need. While your spending won't be identical after retirement, you will have a good basis to build a model for your post retirement spending if you already know in detail what you spend now. If you have sufficient spending detail, you can make choices and see what it will take to fat FIRE, skinny FIRE or end up somewhere in the middle.

Knowledge is power and control, and feeling that you are in control goes a long way toward calming the nerves.

 

[TheWizard]

Before I retired a decade ago, I targeted a retirement income stream hitting my checking account each month roughly the same as my net pay when working, with adjustments for certain insurance coverages.

This was considerably more than my "expenses" when working but has allowed increased discretionary spending in retirement.

Such an approach may not be feasible for people involuntarily terminated...

 

[badatmath]

Yeah, that whole "involuntarily" thing. . .

In my head I'd have told you I wanted more or less current net pay, to allow discretionary spending. . . but I can't get there now.

 

[RetiredHappy]

How much is the current net pay? That will help us understand the deficit.

 

[ER Eddie]

Yeah, sounds like you need to continue to work for a while. Maybe just a few years. You don't want to go into retirement against your will and prematurely.

 

[W2R]

Yeah, sounds like you need to continue to work for a while. Maybe just a few years. You don't want to go into retirement against your will and prematurely.

badatmath, you have my sincere sympathies! If you decide that you DO need to work a few more years than you had hoped, maybe it will comfort you to know you are not the only one. In my case I had to work two years longer than planned, because I needed to be eligible to keep my employee/retiree health insurance.

Turned out I hadn't sufficiently explored how much such insurance would cost independently, and at that time (2007-2009) policies unrelated to employment were rapidly spiraling upwards in cost. Or so it seemed to me. When I found out how much I would have to pay, it was like a sucker punch to the gut. I didn't want to deal with it so I kept working. But the two years passed, and everything has been fine since then.

 

[Gumby]

Heck, I worked 5 years longer than I originally planned due to the ravages of the Great Recession. We do what we must.

 

[badatmath]

I have spent like 30 minutes trying to type an answer that makes sense out of the muddle of crap in my head but it isn't working real well.

I clearly do not think in great detail about such things as long as long as 401k and roth are maxed, bills are paid, etc. If I spend $250 on groceries or $900 I figure it is mine to spend. No CC debts or anything. can't really wrap my head around the idea if I need a new tire I can't buy food next week or something. . . . When I was young enough that was a possibility I was tough enough to not worry about it or walk everywhere or whatever needed done. Life has knocked that confidence right out of me.

Not really looking to buy a Ferrari. I am basically cheap by nature.

 

[Bigdawg]

Life has knocked that confidence right out of me.

OP, here to tell you it will be OK. Many of us (I'm betting all) have had knocks on the head, kicks in the groin and slaps to the face. Not to say that information makes your situation any easier to swallow. No one likes to be unexpectedly terminated. Even if we were planning to leave on our own. You will be alright. Also, you don't have to be some financial guru and or spend hours upon hours coming up with a detailed plan (today). Start with the small knowns. Rough guess on expenses. Start with the big 3: Housing, transpo and food. Those 3 things make up 75% of the average persons budget. Then look at your income/$ sources. Then, slowly dig just a bit deeper on each of those items. Such as how old is your transpo and when will you need to replace it. Back to the kicks in the head topic, tell us a few of your accomplishments. I'm betting you have done some awesome things in your life. Brag to us a bit. We are all curious about some cool stuff you have done. Much of this journey/transition is mental. We are all cheering for you.

 

[Surewhitey]

After reading everything, I'd break up a couple of things & focus on each differently.

1. You now have time to really understand your needs while spending & it will be different from your working experience. Expenses will likely be less (my experience), so good news there. Take a look at the big 3 categories of spending & see what you can lower. I found that my gas, dry cleaning, office attire and restaurants were substantial and went to almost $0 from $5-600/mo.

2. Look at any expenses you can now do personally instead of hiring it out, e.g. Lawn & cleaning home costs many $100+/week. I call it paid exercise now. Lawn equipment is inexpensive compared to paying. You can get a ROI after a few months of DIY. We went back to a home cleaner as we had gotten too efficient everywhere else...

3. Unemployment will give you some time to dial in everything & take a breath to not stress it as much. By the end of it, you will know exactly what you need to do (maybe you will be fine, my gut thinks so). Another option is to start a small business (what I did) to coast into full time RE... Lots of benefits for this. SEP 401k, monetize your hobbies, mileage and home office write offs to name a few.

 

[38Chevy454]

I clearly do not think in great detail about such things as long as long as 401k and roth are maxed, bills are paid, etc. If I spend $250 on groceries or $900 I figure it is mine to spend. No CC debts or anything. can't really wrap my head around the idea if I need a new tire I can't buy food next week or something. . . . When I was young enough that was a possibility I was tough enough to not worry about it or walk everywhere or whatever needed done. Life has knocked that confidence right out of me.

Not really looking to buy a Ferrari. I am basically cheap by nature.

Don't confuse budget with spending controls. A budget is a tool to help you understand where the spending occurs. Sure if you have limited income and a "tight" budget, it is where you might make tradeoffs where spending occurs. But if you have the extra savings to cover any occasional large expense (car repair, A/C repair, etc) then you are fine. The budget just helps you understand what income you have and where the outgo of that money. don't overthink it, it's not a controlling tool that mandates where you spend. It helps you understand how much income you need.

I keep a very loose budget in terms of details and specifics. Mainly just keep tabs on total monthly expenditures. I know basic amounts for fixed expenses, which are fairly stable and consistent. But the discretionary side varies each month. You do not have to detail budget if that makes you uncomfortable, however you do need to know your total expenses so that you can structure your income sources to cover your needs.