Could I retire if I had to?

[gamer-stu]

gamer-stu, I think that in your situation, with lower expenses and an early retirement, I'd take as much advantage of tax savings now and later. Instead of investing after tax, invest as much as possible tax deferred and then do Roth rollovers in retirement. I'd focus on setting up a Roth conversion ladder as soon as you quit working, the concept can be found here: https://www.madfientist.com/how-to-access-retirement-funds-early/

It is especially valuable if you are a high income earner that does not have high expenses, save large tax $ while working and paying very little in tax $ in retirement.

Thank you NgineER, I had never considered a Roth roll-over as way to access the funds early. In my mind I had considered my Roth the last thing I would touch. Granted, I haven't been able to contribute to it the past two years due to my income exceeding the cutoff.

Since I have resolved to keep plugging away for a few more years, I will continue maxing out 401k and saving after tax as much as I can. If I target 49.5, that gives me 5 years to keep saving. My goal is to have enough after-tax to bridge the 10 year gap between 49.5 and 59.5 (I would eat the principal and earnings -- sort of a self funded annuity, while also contributing the max to Roth during this period, as income would be less). That would give the pre-tax items more years to grow, and I won't have to 72T or do anything else to access those funds.

 

[exnavynuke]

Thank you NgineER, I had never considered a Roth roll-over as way to access the funds early. In my mind I had considered my Roth the last thing I would touch. Granted, I haven't been able to contribute to it the past two years due to my income exceeding the cutoff.

Since I have resolved to keep plugging away for a few more years, I will continue maxing out 401k and saving after tax as much as I can. If I target 49.5, that gives me 5 years to keep saving. My goal is to have enough after-tax to bridge the 10 year gap between 49.5 and 59.5 (I would eat the principal and earnings -- sort of a self funded annuity, while also contributing the max to Roth during this period, as income would be less). That would give the pre-tax items more years to grow, and I won't have to 72T or do anything else to access those funds.

If you don't have a traditional IRA currently, you can still contribute to a Roth using the backdoor Roth method. If you do have a traditional IRA, then it's a bit more complicated if you can't roll that into your 401k.

 

[gamer-stu]

If you don't have a traditional IRA currently, you can still contribute to a Roth using the backdoor Roth method. If you do have a traditional IRA, then it's a bit more complicated if you can't roll that into your 401k.

I have a 401k (current employer) and a Roll-over IRA (from prior employer), in addition to the Roth. I also have another small 401k that I have never rolled, though I should do that. DW also has a modest STRS with about 7 years in it. We're considering rolling that over too.

 

[Offgrid Organic Farmer]

The OP could retire now.

I think that a better idea would be for the OP to start his own business now.

 

[PandaBear]

Having just put 3 kids through college (youngest is a senior this fall), I’m guessing your 100K isn’t enough for 2 kids, even at state schools, unless you’re getting a great rate of return. looking at Ohio State, Kent State and Wright State you’ll need 20k per year for tuition, room and board. And that’s just the bare level basics.

 

[laurence]

Have you looked into part time work? Something that will bring in $10-20k a year? That'll fix your firecalc numbers quick. I've been part time for two years now (24 hours a week, 4 six hour days - minimum to keep 401k and health benefits) and it's been great for me and my family. I'm still maxing the 401k contributions but my wife is highly compensated so we can live on her income and just use mine for lowering her retirement age. But if you just don't have to draw on the retirement accounts that's a huge plus. You said 300k in after taxes? Drawing 15k a year from that plus part time and your wife's income will last you over 20 years (with growth) and your retirement account will have grown nicely by then.

 

[gamer-stu]

Have you looked into part time work? Something that will bring in $10-20k a year? That'll fix your firecalc numbers quick. I've been part time for two years now (24 hours a week, 4 six hour days - minimum to keep 401k and health benefits) and it's been great for me and my family. I'm still maxing the 401k contributions but my wife is highly compensated so we can live on her income and just use mine for lowering her retirement age. But if you just don't have to draw on the retirement accounts that's a huge plus. You said 300k in after taxes? Drawing 15k a year from that plus part time and your wife's income will last you over 20 years (with growth) and your retirement account will have grown nicely by then.

Thanks for the input Laurence. I have considered part-time work, but assumed that most part-time jobs don't offer benefits. Am I wrong about that?

 

[gauss]

I was able to go down to 60% time at my Megacorp and retain my current job all while retaining benefits.

 

[Aerides]

Depends on the company. With the ACA, the law only obligates them to cover for 30+ hours per week, so some MC's that provided part time coverage before the ACA may have changed in the past couple of years.

DH went PT (20 hours) in 2015, but his employer told him as of 2017 he'd need 30 hours for bene's. Was nbd for us as we fully RE'd in 2016.

 

[Aerides]

Depends on the company. With the ACA, the law only obligates them to cover for 30+ hours per week, so some MC's that provided part time coverage before the ACA may have changed in the past couple of years.

DH went PT (20 hours) in 2015, but his employer told him as of 2017 he'd need 30 hours for bene's. Was nbd for us as we fully RE'd in 2016.

 

[laurence]

Thanks for the input Laurence. I have considered part-time work, but assumed that most part-time jobs don't offer benefits. Am I wrong about that?

Larger companies like mine offer it at some cut off - mine is 24 hours a week or more and you get benefits - with vacation accrual pro-rated but otherwise full. Not a universal thing at all but it's out there in mega-corp. There is a concept floating out there called the "Silver Tsunami" with a huge flood of employees retiring out in the next ten years as the last of the baby boomers retire (or pass on to their great reward). The thinking is there is a huge amount of expertise leaving the labor pool, so employers are looking to increase their flexibility. I'm an unusual case for part time (usually it's someone with smaller children or a near retiree) but it makes sense to retain domain knowledge.

 

[ncbill]

Having just put 3 kids through college (youngest is a senior this fall), I’m guessing your 100K isn’t enough for 2 kids, even at state schools, unless you’re getting a great rate of return. looking at Ohio State, Kent State and Wright State you’ll need 20k per year for tuition, room and board. And that’s just the bare level basics.

Joining the Ohio National Guard would pay for 100% tuition & fees.

Unlike some other states they don't have to have a year in the Guard first.

And could then join ROTC via the Simultaneous Membership Program (SMP) & get paid the ROTC monthly stipend in addition to their drill pay (plus they're non-deployable while in the SMP)

 

[gamer-stu]

gamer-stu, I think that in your situation, with lower expenses and an early retirement, I'd take as much advantage of tax savings now and later. Instead of investing after tax, invest as much as possible tax deferred and then do Roth rollovers in retirement. I'd focus on setting up a Roth conversion ladder as soon as you quit working, the concept can be found here: https://www.madfientist.com/how-to-access-retirement-funds-early/

It is especially valuable if you are a high income earner that does not have high expenses, save large tax $ while working and paying very little in tax $ in retirement.

An update and subsequent question. If I am on the wrong end of the stick and get cut, I would have severance and stocks vesting that, after tax, would add about $100,000 to my net worth. I'm beginning to think it is possible to FIRE. I'll still probably seek out work, but this has turned in to a really interesting puzzle for me, so I want to keep noodling at it.

Anyway, still planning this out to see how realistic and do-able it is. I would need to either 72T or Roth conversion ladder some of the pretax for two reasons: 1) I need to get to 59.5 without depleting post tax. AND, 2) I need to have at least $52,000 in income in order to have my children qualify for ACA instead of CHIP. I'm learning an awful lot about the ACA cliffs! If I rely on just dipping in to post tax, even if I had enough, I would not be able to get my income above the $52,000 threshold because I would be consuming mostly principal. I could pick-up part time work to get extra earned income, but I want to make sure this would work without that.

My thought is to convert enough IRA to Roth each year (while paying Fed tax in a really low bracket) to realize enough income to get above the threshold. I would then take some of that out after it's been in for 5 years.

The question is this: after five years, and until I reach 59.5, I would be both converting from IRA to Roth AND withdrawing principal from Roth at the same time. I.e. (made up numbers) converting $30,000 to Roth and withdrawing $30,000 in principal that has been there for over 5 years. Is that allowed?

 

[gamer-stu]

The question is this: after five years, and until I reach 59.5, I would be both converting from IRA to Roth AND withdrawing principal from Roth at the same time. I.e. (made up numbers) converting $30,000 to Roth and withdrawing $30,000 in principal that has been there for over 5 years. Is that allowed?

Nevermind, found the answer here. It is doable and apparently is kind of the whole point of a Roth conversion ladder.

https://rootofgood.com/roth-ira-conversion-ladder-early-retirement/

 

[NgineER]

Nevermind, found the answer here. It is doable and apparently is kind of the whole point of a Roth conversion ladder.



https://rootofgood.com/roth-ira-conversion-ladder-early-retirement/

Yes-that is the point of the Roth conversion ladder.

 

[pb4uski]

I would just be wary that if enough people start doing it that it will be considered a "loophole" and changes will be made to close the loophole. We've seen that recently with file-and-suspend, Roth recharacterizations, etc.

 

[FUEGO]

Oh neat, you guys found my Roth IRA Conversion Ladder article at Root of Good

I would just be wary that if enough people start doing it that it will be considered a "loophole" and changes will be made to close the loophole. We've seen that recently with file-and-suspend, Roth recharacterizations, etc.

Except the Roth IRA conversions bring in revenue sooner by taxing the assets in tax deferred accounts now.

I don't want to take a head first dive into the shallow end of the politics pool (my dear mods ), but it would be a strange sight to see the government pass a law that led to lower revenue from wealthy people just to clean up a tax "loophole". It would "cost" actual money in government accounting parlance when analyzing the 10 year impact of new tax laws.

 

[gamer-stu]

+1 That is my conclusion also. He is past the 2nd bend point in the SS PIA formula.

In my own analysis, I decided not to continue working even though I had only 22 years of full time service (ie 10 years of 0 or near 0 in the 35 year average). This was because being past the 2nd bend point, I was no longer on the sweet spot of the SS curve for lifetime earnings.

Note that OP can increase his SS payout from the above age 67 figure by about 24% by delaying SS draw three more years until age 70.

-gauss

Yes, thanks Gauss, I ran the numbers for drawing SS at 70 and it makes far more sense to do that. Plugging that in to Firecalc, along with my wife's projected SS, and the additional gains from severance, puts me at around 96%. It looks like the danger area for me is when I am around 63-70, where the bad scenarios can dip me below 0.

 

[joeea]

I don't want to take a head first dive into the shallow end of the politics pool (my dear mods ), but it would be a strange sight to see the government pass a law that led to lower revenue from wealthy people just to clean up a tax "loophole". It would "cost" actual money in government accounting parlance when analyzing the 10 year impact of new tax laws.

I don't think I understand?

Recent history shows that today's Congress is perfectly willing to lower revenue from wealthy people.

Perhaps that was a strange sight, but seeing it happen again would be somewhat less strange, no?

 

[MichaelB]

This is an excellent discussion. Let's not ruin it by bringing in politics ...

 

[aida2003]

I agree, MichaelB, this was a very civil thread. I enjoyed reading it so far. Hopefully the OP will update us on his progress towards his ER or what he decided to do instead like changing his career, part-time or something in between.

 

[Vagabond2020]

I agree, MichaelB, this was a very civil thread. I enjoyed reading it so far. Hopefully the OP will update us on his progress towards his ER or what he decided to do instead like changing his career, part-time or something in between.

I hope you went for it, OP.

Listening to some of the advice in this thread is nauseating.

If you show a current FIRECALC success rate of 80%, then delaying retirement just 2 or 3 years will bring that up to 95%+, and as you already explained, you were counting $0 from SS. Then there is the potential severance package you speak of.

Best of luck, I look forward to following along.

 

[PoorOldCountryBoy]

The kids are going to get really expensive really quick. You might want to wait a few years, especially if the markets drop in a year or two. That said you are well on your way!

 

[Milton]

There are a lot of variables, but being conservative I side with those who suggest "not ready yet".

The above would not apply if you and your family are 100% okay with significantly curtailing your expenses and lifestyle as may become necessary. However, you've already said that there isn't much fat to trim, and I agree with you: $48K/pa doesn't sound rich for a family of four.

Your kids (will) start driving, your car insurance will go up even if you don't buy them cars.

Depending on where you live and your insurer's underwriting practices, it is often possible to keep your premiums down by expressly listing your teenage children, or other people residing within your household, as "excluded drivers" on your policy. Check with your insurance broker for specific guidance.

 

[Milton]

I was able to go down to 60% time at my Megacorp and retain my current job all while retaining benefits.

That's a good deal, unfortunately unavailable to most employees. Your Megacorp must have thought highly of you!