Another Can I Retire Question

[Kook]

Hello!


I am sure that you guys get tired of all the “can I do it” threads…….but I would sure appreciate it if some of you folks can put some objective eyes on our situation. I think we are ready but once I pull the plug, I will likely never be able to make the same income again.

My job is directly affected by the pandemic and although it is secure (for now), the virus has made my industry take a hard look at how they operate and I will likely be losing several million dollars in contracts after July 1st, which will negatively affect my income. Plus, I am just tired, and there is an awful lot I would like to do while I am still semi-young.

So, it’s the age old time vs money…..money vs time thing. I don’t think I will lay on my death bed wishing that I had worked one more year. Of course, if I end up living in a cardboard box eating restaurant trash, I might wish I had worked another year.

Him: 57 YO
Her: 55 YO

Total invested assets: 3.2 M (2.55M taxable, 650K tax deferred)

Current asset allocation 53/ 46/1

Average spending last 5 years is 78,600/year (this includes taxes but does not include health care). We would probably spend a tad more on travel in retirement, but we already take 2-3 vacations a year and buy whatever we want/need.

Expect SS for both of us. Not sure when to take it. Mine will be a higher amount.

We own our home outright, no debt. My DW has talked about buying a little vacation home, which I am against….but I also want to keep her happy. After all, a happy wife is a happy life. If this happens, we would likely rent it out when we are not there.

I appreciate the wisdom of this board in particular. You all seem a bit more realistic and down to earth than the “other” forum that I lurk around - where if you are spending more than 1% per year.....you are doomed to failure.

Thank you!

 

[Vacation4us]

Your 2.55 will get you 76500/ year at a 3% withdrawal rate. Pretty close to what you need without health insurance.

3% of your total assets will gross 96k a year.

Seems like the big question will be health insurance.

 

[MBAustin]

If you haven't found them already, we have a helpful list of things to think about as you're making your ER decision:

Some Important Questions to Answer

Have you run your numbers through FIREcalc and/or any other retirement calculators?

 

[Whisper66]

Yes, you have plenty to retire on. Just spend a few moments and explore the question with https://www.firecalc.com/ . You will find you could spend ~$115,000+ per year and still be fine.
Alternatively, consider Bengen's studies on acceptable withdrawal rates. People can argue about the exact numbers but even $115k yearly spend is only 3.6% of your assets which is fine. (see recent discussions here... https://www.early-retirement.org/forums/f28/bengen-says-4-5-is-the-new-4-a-107530.html )
Relax and enjoy the security that your assets are providing you.

 

[Kook]

Thanks to those who have already responded!


@vacation4us - I agree that health insurance is the wild card. Luckily, both of us have been very healthy so far ***knock on wood***

@MBAustin and Whisper66 - thank you both for the links. I will check them both out. I have run my numbers through Firecalc with different scenarios and it says I am 100%. Other retirement calculators have not been quite so kind.



Thanks again!

 

[Whisper66]

....... I have run my numbers through Firecalc with different scenarios and it say I am 100%. Other retirement calculators have no been quite so kind.....

Maybe you could let us know what other calculators have "not been so kind" and what kind of results they are giving you? You might find folks here with experience with those calculators.

I mainly use the Firecalc default analysis (not the Monte Carlo analysis) due to it's multi-year historical basis. While the future may be different than the past, I personally doubt it will be all that much different than the many years covered by Firecalc.

My retirement numbers were run on several calculators. The calculators that provided dramatically worse results than Firecalc were either (1) IMO using very conservative assumptions on too many input values OR (2) used Monte Carlo analysis which I find too conservative unless you pay close attention to the range each input value is given. In both cases, it's seemed obvious to me that if one assumes the worst of everything, then one should work many, many, many more years before retiring.

 

[Kook]

Thanks, Whisper66. The other calculators that I used were Fidelity and T. Rowe (where I have accounts). I also used Personal Capital, which gave me the worse results. However, I just re-ran my numbers in Fidelity and TRP and they say I am good to go. Perhaps I entered something incorrectly the first go-round or didn't enter all accounts.



You are absolutely correct when you say, "if one assumes the worse of everything, then one should work many, many, many more years before retiring". That statement resonates with me. I think that is my problem.....that this time may be different, even though I know its (probably) not. I seem to have the dreaded OMY syndrome......just in case.



Its hard to pull the trigger.....but I think I will.

 

[ivinsfan]

How much is that 2.5 throwing off in income? You have job income and that much in taxable and get by with 76K including taxes?

Any "cash" in that taxable can be spent without worry about going over the ACA cliff. Which would keep HI lower.

 

[Kook]

Ivinsfan - Our 5 year average spending is 76K, but we did have one year at 90K... every other year was in the low 70's. We had a smidge under 45K in dividend income last year. We do pay quarterly taxes but they are not terrible. I think it was about 11K total last year. Hoping that will go down when I quit working. I am also in a state with no state income tax and a low cost of living.



I currently have taxes taken out my paychecks so the quarterly taxes we pay is primarily on the dividend income as well as a tiny amount for DW's ultra part time side gig.



Our tax deferred consists of 100% fixed income and our taxable is mainly index funds which does also include FI, just because of our limited TE space.


I am thinking we might do cobra for the rest of 2021 and then see if we can keep our overall income under the ACA cliff moving forward.



Thanks.

 

[ivinsfan]

Ivinsfan - Our 5 year average spending is 76K, but we did have one year at 90K... every other year was in the low 70's. We had a smidge under 45K in dividend income last year. We do pay quarterly taxes but they are not terrible. I think it was about 11K total last year. Hoping that will go down when I quit working. I am also in a state with no state income tax and a low cost of living.



I currently have taxes taken out my paychecks so the quarterly taxes we pay is primarily on the dividend income as well as a tiny amount for DW's ultra part time side gig.



Our tax deferred consists of 100% fixed income and our taxable is mainly index funds which does also include FI, just because of our limited TE space.


I am thinking we might do cobra for the rest of 2021 and then see if we can keep our overall income under the ACA cliff moving forward.



Thanks.

Your tax deferred is 100% fixed? Why? What the actual budget number you spend not including taxes? That's the big question.

 

[Kook]

"Your tax deferred is 100% fixed? Why? What the actual budget number you spend not including taxes? That's the big question."


When I first started getting semi-serious about investing about 10 years ago and started loosely following the Bogleheads way of thinking, everything I read said to put fixed income into tax deferred accounts as to not pay taxes on dividends. I have been re-thinking this lately, especially with the crazy-low yields on bond funds but I haven't changed anything.



I also always learned to include taxes in your spending estimates, but with that (and the above) said, I am far, far, far from being an expert in investing......or retirement! (obviously)



Not counting taxes, our past expenses are in the mid to high 60's. (I removed our mortgage costs after we paid it off a couple of years ago)



Thanks again.

 

[ducky911]

I retired early and health care was a BIG deal. I have been on Medicare for 5 years so not sure what the cost of it has changed. My guess you will be around 30k with a mid deductible. OUCH...healthy or not

 

[ivinsfan]

"Your tax deferred is 100% fixed? Why? What the actual budget number you spend not including taxes? That's the big question."


When I first started getting semi-serious about investing about 10 years ago and started loosely following the Bogleheads way of thinking, everything I read said to put fixed income into tax deferred accounts as to not pay taxes on dividends. I have been re-thinking this lately, especially with the crazy-low yields on bond funds but I haven't changed anything.



I also always learned to include taxes in your spending estimates, but with that (and the above) said, I am far, far, far from being an expert in investing......or retirement! (obviously)



Not counting taxes, our past expenses are in the mid to high 60's. (I removed our mortgage costs after we paid it off a couple of years ago)



Thanks again.

You need to take a good look at getting some after tax cash to keep you under the cliff. Plan ahead a little bit on this, put all your new savings in cash now. This might be the difference in being comfortable with ER or having doubts because of HC costs. If you can hang until the end of this year to do this, it would be worth it.

Or consider a little belt tightening on the budget end.

Do a little reading up on ACA..

if you go the ACA route it's not really optimal to take SS before Medicare..

 

[socca]

... We own our home outright, no debt. My DW has talked about buying a little vacation home, which I am against….but I also want to keep her happy. After all, a happy wife is a happy life. If this happens, we would likely rent it out when we are not there. ...

Happy wife, happy life. Unhappy wife, hide the knife.
There has been plenty of chatter on this forum over the years regarding the pros/cons of having second (or more!) properties, and the pros/cons of becoming a landlord. After watching relatives go down this path, my personal position is H*LL NO! to ever acquiring a second property. However, YMMV .

 

[Dtail]

If you are using retirement calculators, then what amounts are you using for healthcare expenses?

 

[Kook]

"After watching relatives go down this path, my personal position is H*LL NO! to ever acquiring a second property. However, YMMV ."

Ha! I am not big on the idea either and I don't want the headache or the extra expense. I would rather go somewhere different every trip, even if it is for long term stays.

@ Dtail - I have used 100K and 110K and they both give me 100%

 

[Kook]

"My guess you will be around 30k with a mid deductible. OUCH...healthy or not"



UGH! I sure don't like to hear this!

 

[Kook]

Thank you, Ivinsfan. I will read up on ACA!

 

[EastWest Gal]

You can qualify for a substantial subsidy through the ACA if you keep your total income under the cliff, which is about $68K this year.

Taxable portfolio income can be tricky, with cap gains distributions and dividends, plus cap gains from assets sold for living expenses. We have that issue-more in taxable than tax deferred.

We’re doing an every other year plan re:ACA subsidies. This year we’ll pay $315/mo for HI. 2020 unsubidized would have been $2000/mo. But we were on COBRA most of 2020, which was $1330/mo. In 2022, we’ll sell some equities enough for expenses for 2022-23.

By doing it this way we average out our costs to about $1200/mi for HI premiums.

 

[TNBigfoot]

Couple of comments; 1) you may be healthy now however do not underestimate the impact of healthcare and insurance premiums up to Medicare. 2). Is your plan leaning heavily on Social Security? I’ve planned on a 20% “haircut” upcoming due to the expected shortfall. 3). What inflation rate are you assuming. Even a .25% change can have a big impact. 4) spend a bit of time understanding and accounting for long term care. What is your comfort level that a reasonable LTC event will not crash your plan.

These were all questions I went through in my planning process.

 

[pjigar]

Since you have a lot of money in taxable account, you can easily manage AGI in order to maximize ACA subsidies. You may have to move some investments in taxable accounts so they don't through so much dividend or interest every year but I think it is doable. I think you are ready if you can ride the ACA bus until you are medicare age. Good luck.

PS: 3% at current number gives you some room for some adjustments.

 

[Aerides]

@vacation4us - I agree that health insurance is the wild card. Luckily, both of us have been very healthy so far ***knock on wood***

It doesn't have to be a wildcard - you can look at potential costs on the ACA site or on healthsherpa. Of course, plans change and things go up, but to get a baseline you can poke around. A high deductible plan that affords continued HSA contributions might cost more out of pocket, but allow some tax/subsidy wiggle room. When planning to ER, we put in a swag estimate of $10k per year, knowing that some years could go to $20k and made sure we'd be fine with that. Better to come in under budget than the alternative.

And price is not determined by your health, neither is health a predictor of your out of pocket expenses. In fact most people who are very active might be more at risk of things like blowing out knees or rotator cuffs and what not.

 

[Bryan Barnfellow]

Happy wife, happy life. Unhappy wife, hide the knife.
There has been plenty of chatter on this forum over the years regarding the pros/cons of having second (or more!) properties, and the pros/cons of becoming a landlord. After watching relatives go down this path, my personal position is H*LL NO! to ever acquiring a second property. However, YMMV .

+1 on this. We've spent much of life reducing the cost of our living infrastructure. Adding a new property just wouldn't work well for us. One alternative approach is to rent a house or flat in a place you like for a month or two. I have found that helps to let the air out of the vacation home balloon. Also, make a list of all the additional costs that a second home will add to your budget. It can be quite sobering. But of course everyone's mileage may, and will, vary.

BTW, does KOOK, mean that you prepare the meals in your family?

-BB

 

[Kook]

EastWest Gal - thank you. That is an interesting strategy and I like it! It's too late to try to keep our income below the ceiling for this year, but I think I can manage it next year. It will be close. I am learning about roth conversions as well. If I convert taxable to roth, does that reduce my AGI?

TNBigfoot - No, my plan isn't relying (too) heavily on SS. I only inputted 20K per year in the calculators, which should be a good sum less than what I am currently due to receive. However, I am 57 now, so who knows where it will be when I actually take it. I assumed 3% inflation.

pjigar - thanks. I am doing some research an ACA and I am hopeful we can stay under the cliff. Also, as mentioned to EastWest Gal - I am investigating Roths. I haven't been able to contribute in the past but maybe next year if it helps my AGI.

Aerides - thank you. I will go on to Health Sherpa tonight! Interesting point about seemingly healthy people being more of a risk. One reason I want to go ahead and pull the plug while I am still able is so that I can be more active. Mountain biking, running, skiing, hiking, etc is a big part of that. I hadn't thought of it that way before

Bryan Barnfellow - that is exactly what I proposed to my wife, is that we do long term rentals. The ONLY problem with that is that we have pets and a lot of places don't accept pets. We would like to take them with us, especially if its long term. We have talked verbally about the added expenses of a second home but a spreadsheet is definitely in order. Regarding my username - HA! Although I definitely do all the cooking....that is not it. It is more a combination of the fact that it reflects my personality and that I like palindromes. Curious about your username - - do you hang out in a barn? (sorry, couldn't resist! )


Thank you all for your responses, I have some thinking and research to do!

 

[Bryan Barnfellow]

Bryan Barnfellow - that is exactly what I proposed to my wife, is that we do long term rentals. The ONLY problem with that is that we have pets and a lot of places don't accept pets. We would like to take them with us, especially if its long term. We have talked verbally about the added expenses of a second home but a spreadsheet is definitely in order. Regarding my username - HA! Although I definitely do all the cooking....that is not it. It is more a combination of the fact that it reflects my personality and that I like palindromes. Curious about your username - - do you hang out in a barn? (sorry, couldn't resist! )

I understand the pet situation. It's one of the things that prevents us from getting a dog. We travel a lot (or, at least used to). There are international pet sitting exchanges, where you list your home, dates, and pet sitting requirements and the site matches you up with people who want to have a free accommodation in return for feeding, walking, etc. your pet(s).

Regarding my forum name: I am an honorary Fellow of the Order of the Barn. I cannot reveal more than that!