33 Trying to gauge how much longer to work

[Koolau]

I have a timeshare loving SIL who can literally work the word "timeshare" into any conversation, anywhere.. You run a close second..

We all have our particular "thing" I suppose. One of the nice things about this site is we are all free to listen, ignore, reject, embrace, or debate - all within the bounds of forum rules, of course.

 

[Sojourner]

I am 33 years old living in Charlotte, NC. I have been with my wife since college and we are expecting our first (likely only) child in February. Financial independence has long been a goal of mine, particularly seeing the large role financial constraints played in my family growing up.

Our current approximate stats are:
Checking/Savings accounts $93k
401ks/IRAs $750k
Roth IRAs $100k
After-tax brokerage $210k
I-bonds $20k (just started this year as CPI-U remains elevated)
Home equity $230k


We make around $300k together and probably spend close to $100k.

Well, in case OP is still following this thread (two whole days since the first and only post, no follow ups or thank yous, which I find odd), here is my two cents.

I personally would not have considered retiring in my early 30s with only $300k in after-tax (nonretirement) funds to pull from. Even if all my NW were in after-tax brokerage accounts and I had roughly $1.2MM to work with, I wouldn't have done it. And that was as a single guy with no kids and fairly low expenses, not a married guy with a kid on the way spending $100k/year!

I remember thinking about ER when my net worth first spiked over $1MM in my early 30s. Yet I continued to work and save/invest aggressively for the next 13-14 years. This set me up to be very comfortably FIREd in my mid 40s, which felt like the right time in life to ease back off the accelerator and change things up. And it felt really good not to have to worry about things like how to pay for health insurance. IMHO, retiring extremely early when you're only barely able to make the numbers work is likely to be a recipe for many years of financial anxiety and lifestyle "shrinkage".

 

[ivinsfan]

We all have our particular "thing" I suppose. One of the nice things about this site is we are all free to listen, ignore, reject, embrace, or debate - all within the bounds of forum rules, of course.

Timeshares do make a nice break from the SS and payoff the house threads.. I don't think we've actually had a nice spicy timeshare thread for awhile

 

[Koolau]

Timeshares do make a nice break from the SS and payoff the house threads.. I don't think we've actually had a nice spicy timeshare thread for awhile

Hey, let's talk about insurance! Oh, wait, there are a couple of threads on LTCi already. Never mind!

 

[RetiredHappy]

Timeshares do make a nice break from the SS and payoff the house threads.. I don't think we've actually had a nice spicy timeshare thread for awhile

Maybe I should go off and start a timeshare thread, but I am too lazy. For all those who are interested in staying in a 4-star resorts with huge rooms and full kitchen, head over to Tugbbs.com. Maintenance fees are very low compared to what you pay retail at hotels with much smaller rooms. The key takeaway is do NOT buy from developers as they will charge you a ton of money and there is no payback.

 

[Koolau]

Maybe I should go off and start a timeshare thread, but I am too lazy. For all those who are interested in staying in a 4-star resorts with huge rooms and full kitchen, head over to Tugbbs.com. Maintenance fees are very low compared to what you pay retail at hotels with much smaller rooms. The key takeaway is do NOT buy from developers as they will charge you a ton of money and there is no payback.

Have to agree that the rooms and experience are typically better than hotels. Stayed in a couple w/friend. The trick would be to get the buy-in price down (you mentioned $1 - sounds about right!) and THEN be able to get what you want when you want it. I'm guessing you have figured this out. I'd still be leery but my mind (and sinuses) are open.

 

[brokrken]

And of course, you have over 25 years before you can tap into your 401k bracket, so you need 25 years of expenses covered in the rest.

This quote is the key to your answer, which of course is no, not yet, but you are in a great position to get there.

 

[ShieldWolf13]

This quote is the key to your answer, which of course is no, not yet, but you are in a great position to get there.

This doesn't really seem true though. I could use a Roth conversion ladder to move funds from the 401k/traditional to the Roth and withdraw the contributions after 5 years.

 

[Koolau]

This doesn't really seem true though. I could use a Roth conversion ladder to move funds from the 401k/traditional to the Roth and withdraw the contributions after 5 years.

I'm gonna let one of our experts get back on this one. Doesn't sound like that would be acceptable. In essence, it sounds like you are attempting to "thwart" the government's rule agains taking funds from your 401(k) before age 59 1/2 - without penalty. I don't think you can get around that - but I've been wrong before. I'd check it with a tax person at least. But if you are right, it's a new idea to me - not that I need it at my age.

 

[brokrken]

This doesn't really seem true though. I could use a Roth conversion ladder to move funds from the 401k/traditional to the Roth and withdraw the contributions after 5 years.

Maybe, but then you're taxing that money super early and missing out on years of tax deferred growth. As others have mentioned, I just don't think your numbers justify a possible 60 year retirement. You are, though, as I said, in excellent shape. I'd focus on beefing up your after tax accounts for the next 10 years or so. That, along with some market growth should really set you up.

 

[ShieldWolf13]

Well, in case OP is still following this thread (two whole days since the first and only post, no follow ups or thank yous, which I find odd), here is my two cents.

Busy weekend. I submitted that post right before leaving my house for the day.

I do appreciate all the feedback

 

[Koolau]

Maybe, but then you're taxing that money super early and missing out on years of tax deferred growth. As others have mentioned, I just don't think your numbers justify a possible 60 year retirement. You are, though, as I said, in excellent shape. I'd focus on beefing up your after tax accounts for the next 10 years or so. That, along with some market growth should really set you up.

Honestly, I wouldn't worry about the tax free growth as that's also available within a Roth - if you can make that switch as suggested. I've mentioned many times that I had (and to a lesser extent) have too much money in tax-deferred status. Way past 59 1/2 but it's a tax cluster flop in the making as RMDs will increase. SO, now when one is young, it's time to balance the tax-deferred, Roth, taxable accounts. Don't do what I did. Don't put TOO much in tax-deferred. It's a time bomb waiting to explode. YMMV of course since it's your money.

 

[ShieldWolf13]

Suggestions (not advice):
2) I think the suggestion for you to continue while DW does the primary child care is probably valid. Read up on the "downsides" of both parents w*rking. I think it might have been Scott Burns and/or Laurence Kotlikoff who had a whole treatise on the cost of both members of a couple w*rking. IIRC it could actually cost money in the long run (the treatise talked about eventual effects upon taking Social Security).

I tried looking up the bolded but couldn't find anything. Would appreciate any link if you can remember more.

Conceptually, I have seen this mentioned over the years as well.

 

[Koolau]

I tried looking up the bolded but couldn't find anything. Would appreciate any link if you can remember more.

Conceptually, I have seen this mentioned over the years as well.

Ya know, now that I think of it, THAT may have been in their book: The Coming Generational Storm. My copy is back home, so I can't look it up now. Sorry for the miss on my part.

 

[ShieldWolf13]

Ya know, now that I think of it, THAT may have been in their book: The Coming Generational Storm. My copy is back home, so I can't look it up now. Sorry for the miss on my part.

Interesting. I know Elizabeth Warren had a book around the same time as that called "The Two-Income Trap". I never read it, but watched a talk on it at some point

 

[brokrken]

Honestly, I wouldn't worry about the tax free growth as that's also available within a Roth - if you can make that switch as suggested. I've mentioned many times that I had (and to a lesser extent) have too much money in tax-deferred status. Way past 59 1/2 but it's a tax cluster flop in the making as RMDs will increase. SO, now when one is young, it's time to balance the tax-deferred, Roth, taxable accounts. Don't do what I did. Don't put TOO much in tax-deferred. It's a time bomb waiting to explode. YMMV of course since it's your money.

Good point, and agree with not putting too much in tax deferred. That's why I recommended he beef up the after tax accounts before he pulled the cord. Also, if he is only converting to Roth just to then spend it, the tax deferred growth doesn't happen

 

[NgineER]

This doesn't really seem true though. I could use a Roth conversion ladder to move funds from the 401k/traditional to the Roth and withdraw the contributions after 5 years.

Hey ShieldWolf - you are at an enviable position WRT your peers. Keep minimizing taxes while making the big bucks. Convert to Roth IRA while you take out less income and optimize taxes that way. You probably need to double your Roth IRA/taxable in order to get through the five year Roth roll over ladder. Are taxes included in your $100k expenses?

Although you are in an enviable position at this point, I think you'd still need to beef up your accounts to ensure that you'd get through another 60 years.

Keep going the way you have and you'll be there in no time. Just avoid life style creep.

 

[Koolau]

Interesting. I know Elizabeth Warren had a book around the same time as that called "The Two-Income Trap". I never read it, but watched a talk on it at some point

If I'm right on the source (or even if I'm not) the basic concept was the idea of the second earner falling into the various "systemic" traps.

Here's some of what I recall (don't quote me, 'cause I'm old and it's been a long time since I read the treatise on the subject.) I don't have numbers so let's stick to the principles.

Primary Earner earns more than secondary earner (by definition )

1) Every dollar secondary earner makes is taxed at THE highest level the couple pay (forget fungibility of dollars for a moment.)
2) By virtue of both w*rking, stuff that a secondary earner could have done (child care, house work, menus/cooking, etc.) may need to be at least partially farmed out. (DW cooked for 6 months after we got married. She then got a j*b and we ate out from then on.) We DID share household j*bs, so... don't go there.
3) Biggie here: Secondary pays full SS (up to the limits) BUT may not make enough over life time to come out BETTER OFF by taking SS on own record. ALL paid in by secondary under that circumstance was "lost." Secondary would have gotten 1/2 of primary without w*rking.
4) Secondary earner (perhaps) requires more clothes/dry cleaning, whatever. Requires (perhaps) secondary transportation - cars are incredibly expensive - especially per mile if only driven a few miles to work.

Pretty sure there were other issues.

I am NOT against two earners in the family. DW and I did that most of our w*rking years. I realize that some folks need the w*rk experience for fulfillment, etc. BUT I can see that DW's income was ravaged by the things I gleaned from my reading of (I think) Burns and Kotlikoff. SWAG: We'd have been better off if she had not w*rked. At best, she took a huge cut in realized pay. As always, YMMV.

 

[ShieldWolf13]

Another angle I've gotten some commentary on is the $100k spending estimate. That is a pretty rough average number calculated by taking gross income minus contributions to savings and taxes over a few years.


Spending has certainly decreased during COVID and we save a lot of money by not going into the office. All those lunches, dinners, drinks, and coffees out together with together and with friends really added up...particularly for me.

 

[Koolau]

Another angle I've gotten some commentary on is the $100k spending estimate. That is a pretty rough average number calculated by taking gross income minus contributions to savings and taxes over a few years.


Spending has certainly decreased during COVID and we save a lot of money by not going into the office. All those lunches, dinners, drinks, and coffees out together with together and with friends really added up...particularly for me.

Good point. I brown bagged it for a while back when I was trying to become financially independent (because, at the time, I hated my j*b but was wearing the proverbial golden handcuffs.) I saved a small fortune. But it was a bit of a pain. Once I reached financial independence I kind of let that slip. Heh, heh, it was about that time I began liking my new assignment - the one I had all but created for myself. Again, YMMV.

 

[ShieldWolf13]

I would of course also look at your portfolio. We all have different risk tolerances and I don't know how much fixed income you have in your 401(k)/Roth etc. but it look like your portfolio might be more on the conservative side for a person so young.

There is an elevated level of cash due to selling a townhome we used to live in earlier this year. There isn't really any fixed income inside of those portfolios but there are some dividend focused stocks and ETFs in there.


We are working to get cash lower through time, but also preferring a margin of safety for upcoming events.

 

[pb4uski]

This doesn't really seem true though. I could use a Roth conversion ladder to move funds from the 401k/traditional to the Roth and withdraw the contributions after 5 years.

Yes, you can withdraw contributions and conversions more than 5 years old at any time.

 

[pb4uski]

Maybe, but then you're taxing that money super early and missing out on years of tax deferred growth. As others have mentioned, I just don't think your numbers justify a possible 60 year retirement. You are, though, as I said, in excellent shape. I'd focus on beefing up your after tax accounts for the next 10 years or so. That, along with some market growth should really set you up.

No, the "tax-deferred growth" thing for a tIRA is a red-herring... its really the tax rate arbitrage that makes the difference.... if tax rates are the same then tax-deferred growth doesn't make a difference.

Example. Joe has $10k in a tIRA and $2k in a taxable account and a 30 year time horzizon and an estimated 6% pa return assumption.

If he converts the tIRA to a Roth then then next day he has $10k in a Roth and after 30 years his Roth will be worth $57,435 that can be spent.

If he doesn't convert because he believes the urban legend of "tax-deferred growth" then his $10k tIRA grows to $57,435 and he owes $11,487 in tax at 20%. Meanwhile, his taxable account has only grown to $8,163... so after he withdraws the tIRA, pays the tax he only has $54,111 available to spend.

Why are these different? Because the taxable account really only yields 4.8% for the 30 years because the income is taxed each year. 2000*(1+(6%*(1-0%)))^30 - 2000*(1+(6%*(1-20%)))^30 = $3,324

But let's say that the taxable account didn't have to pay taxes... perhaps it is in muni bonds, or the income is 0% qualified dividends and LTCG... then the taxable account grows to $11,487 and Joe is no better off.

Where Joe becomes better off is if he converts today at a tax rate/bracket that is lower than what he expects to pay when he withdraws the money.

 

[brokrken]

No, the "tax-deferred growth" thing for a tIRA is a red-herring... its really the tax rate arbitrage that makes the difference.... if tax rates are the same then tax-deferred growth doesn't make a difference.

Example. Joe has $10k in a tIRA and $2k in a taxable account and a 30 year time horzizon and an estimated 6% pa return assumption.

If he converts the tIRA to a Roth then then next day he has $10k in a Roth and after 30 years his Roth will be worth $57,435 that can be spent.

If he doesn't convert because he believes the urban legend of "tax-deferred growth" then his $10k tIRA grows to $57,435 and he owes $11,487 in tax at 20%. Meanwhile, his taxable account has only grown to $8,163... so after he withdraws the tIRA, pays the tax he only has $54,111 available to spend.

Why are these different? Because the taxable account really only yields 4.8% for the 30 years because the income is taxed each year. 2000*(1+(6%*(1-0%)))^30 - 2000*(1+(6%*(1-20%)))^30 = $3,324

But let's say that the taxable account didn't have to pay taxes... perhaps it is in muni bonds, or the income is 0% qualified dividends and LTCG... then the taxable account grows to $11,487 and Joe is no better off.

Where Joe becomes better off is if he converts today at a tax rate/bracket that is lower than what he expects to pay when he withdraws the money.

Great example, makes sense and thanks for posting. The question then becomes if OP is talking about pulling the money out 5 years after converting does the math still work?

 

[Katiek]

I echo the comments about your doing great and putting your family on a very solid foundation. Even if you're not ready to retire right now, you can feel secure if anything unexpected happens at work, or you decide this job isn't right for you or the hours are too long. You have the freedom to take another job that you'd like more or that may be more flexible.


But as others have pointed out, you have a lot of future ahead of you, and I would want more cushion to deal with all the things that could happen in the next 60 years, including health care costs, child expenses etc.