# Hypothetical larger nest egg question

#### cardude

##### Full time employment: Posting here.
If you had a hypothetical nest egg of 5.5M, but expenses of of 10K per month, would you quit?

1. No pension.
2. Most investments in hypo portfolio are in already taxed, "non-retirement plan" investments with . Cash 10%; stocks/bonds 90%
3. Hypothetical age = 43
4. Spouse and 2 kids 8 and 11

I'd hypothetically cut my expenses a hypothetical 10-20% and hypothetically run like hell out of the office.

You should be fine with those numbers...long retirement period and the two kids college plans are the wild cards.

Well, simple math would show that \$120,000 equals a little more than 2% withdrawap rate against the \$5.5 million, so the answer is yes as long as the expenses don't get too far out of whack in the future........

Do you have college expenses figured into that \$10,000 a month?

\$5.5mm nest egg * 0.04% = \$220k / year.

\$10k / month * 12 months /year = \$120k / year

Assumed tax burden of 20%: \$120k / .8 = \$150k / year

\$150k << \$220k

YES. I'd quit, and adjust the portfolio to a 60/40 mix of equity/debt.

Do you have college expenses figured into that \$10,000 a month?

Yes, separate fund set up for kid's college.

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If you had a hypothetical nest egg of 5.5M, but expenses of of 10K per month, would you quit?

If I was mentally ready to call it quits I would !

Assumed tax burden of 20%: \$120k / .8 = \$150k / year

I did not assume such a high tax rate. Was using LTCG rate of 15%, but not taxing the etire amount as most of it has already been taxed. The way I figure it, I will only get hit for the actual gain when I sell, which could be about 2/3 of the total sold amount depending on what I sell, so I was only hitting the sales for 10% total tax.

For instance, if I sell 150K of stocks in a year that I have a cost basis of 50K in, I get taxed on 15% of that 100K which is 10% of the total sale amount. Of course, that 15% capital gains rate may not hold in the future.

Any guesses on what the LTCG rate could rise to in the future?

I did not assume such a high tax rate. Was using LTCG rate of 15%, but not taxing the etire amount as most of it has already been taxed. The way I figure it, I will only get hit by the actual gain when I sell, which could be about 2/3 of the amount depending on what I sell, so I was only hitting the sales for 10-13% total tax.

For instance, if I sell 150K of stocks in a year that I have a cost basis of 50K in, I get taxed on 15% of that 100K which is 10% of the total sale amount. Of course, that 15% capital gains rate may not hold in the future.

Any guesses on what the LTCG rate could rise to in the future?

FWIW, I went to two work-related meetings in the last month, one was a well-known economist, and one was a well-known estate planning CPA. BOTH unanimously agreed that taxes are heading UP, no matter who gets in the WHite House, because we as a country have big bills to pay..........

AMT will continue to be a problem, the limits on income for SS will go up, etc. Probably the exemption from estate taxes will stay around \$3 million or so, but a lot is up to Congress, which is NOT GOOD........

Yeah, that one worries me. Don't have it-- hypothetically self imployed. I'm not sure my investment return will keep up with health insurance costs over 40 years. Yikes!

I'll be big-time voting for some kind of government-subsidized health care plan when I hyothetically quit!

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I did not assume such a high tax rate.
Yeah, I dart-threw a high number. Gives you even more leeway.

Yeah, that one worries me. Don't have it-- self imployed. I'm not sure my investment return will keep up with health insurance costs over 40 years. Yikes!

It should worry you and many others. Even a very wealthy person can't self-insure their way out of that one. Medical inflation is closer to 11% than to the usual 3-5% for other services -- you'd need millions per person to cover a long lifetime of health care.

It should worry you and many others. Even a very wealthy person can't self-insure their way out of that one. Medical inflation is closer to 11% than to the usual 3-5% for other services -- you'd need millions per person to cover a long lifetime of health care.

My expenses are abnormally high at this point, so I could shed 3K per month with a house downsize, school changes, less "other catagory" purchases (crap), but I'd still rather not pay all that towards health care.

Where could one move to if our nation can't control health care costs? Our family is young and healthy now, but not forever..........

1. Canada? (can you take advantage of their subsidized health care if not a citizen?)
2. Costa Rica (have visited the costal areas but not sure I could live there full time)?
3. New Zealand?
4. Australia?
5. England?

A couple of things about health care costs:

1) It's absurd to assume that health care costs will continue to grow 4% faster than GDP forever. Trees don't grow to the sky. Eventually, it would hit some natural limit and would be drastically restructured. Probably sooner rather than later.

2) Much of the costs of health care are associated with unconstrained use of the system. High-deductible policies change this behavior and are very affordable -- around \$400/mo for your hypothetical family of 4.

43 is young enough that your plan-B can be rejoining the rat race sometime in the next 10 years if it looks like your plan-A isn't working out. So, retire now. Try it for 10 years, and see how it goes.

Enough cash for several years if we enter a recession (widely predicted). If your 90% stocks/bonds are balanced to your comfort level you should be good to go based on everything most of us believe with respect to safe withdrawal rates. If not, you will have a lot of company.

Re-allocate to 60/40 stocks/tax-free munis. Make sure you have enough dividend payers in your stock allocation to achieve an overall 1.9% divvie yield on the stock portion of the portfolio, and you won't have to do much selling. Your SWR to get to 150k annual incl 15% tax on the divvies will be 2.73%...relatively safe for your age.

Make sure your munis are AMT exempt (and around 4% yield...where it was for many California Munis when I looked about 2 weeks ago).

Your total tax tax will be about 10%, assuming 5% state income tax on the divvies (may depend on the fed/state AMT treatment of divvies) and that you have made sure your munis are fed, state, and AMT tax free. This gives you about 135k after tax, meaning 120k for your usual annual expenses, plus 15k for medical.

Assuming a moderate 8.2% average total return on the stocks (incl divvies) and 4% yield on the munis, and a 3.5% inflation rate, you would have a nest egg of some 27mil to leave to the kids, if you live to 100 (some 4.4 mil in todays \$\$\$).

If your Hypo is really 5.5mil, and you are ready mentally, pull the plug! You have nothing to fear except fear itself!

This is what my spreadsheets tell me, but I'm not a financial planner. If I were you, I would run the numbers in FIREcalc, and in your own spreadsheets to see what it would do. Still worried? See a real financial planner...one that bills by the hour...not by the assets involved.

Good Luck!

Rambler

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