Now I'm Asking The Big Question!

[RoadRunner7]

I’ve posted a few questions before, but now I’m ready to ask the Big One!

Can we retire when we are ready? (Here’s the story)

Me: 62, Wife: 60

We have been tracking our yearly expenses on a spreadsheet over the past 5 years. In 2018 we were at about $60k in expenses which has been pretty much constant over the past 2 years, it was a little bit lower in the early years.

We are debt free and own our house outright.

*I have looked at health insurance costs (COBRA and other plans including ACA) and if we are not able to get into the ACA (est. cost $7k a year) we could be spending about $15k a year for the next three years until I reach 65 and another two years at a reduced rate for my wife to reach 65.

Here is the Summary of our savings and projected budget:

We have $1.67M saved.
Expenses $60k a year
Healthcare $15k a year (*first 3 years, see above for explanation, will be reduced after we are both on Medicare)
Extra Fun Money and Charities $10k a year
Total $85k a year

Plan is to build a S.S. CD bridge for 5 years at 50k per year at 250k, keep $100k in a high interest savings account or Vanguard MM for times when we need extra or if investments are down.

Invest the rest at a 50/50 AA and use the VPW withdrawal method that the Bogleheads created.

We are pretty frugal with our money. We have no Heirs.

I ran FireCalc at these projected figures:
85k spending per year

1.3M Portfolio (not including the CD’s and $100k in Cash)
S.S. 45,000 starting in 2024.
50/50 AA
Everything else was left as is, in the calculations.

FireCalc said: For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 1 cycles failed, for a success rate of 99.2%.

Any input and or ideas would be greatly appreciated
Thanks again(I'm still learning, hope I covered what info I needed to give)

 

[24601NoMore]

Good detail..are you including taxes payable in your expense projections? Didn't see that listed..

 

[walkinwood]

Good thinking on your plan. Budgeting a decent amount above your historical expenses is a very good idea.

If you haven't already done so, analyze what happens when one of you passes away. You need to do this at various times - like today, right after ER, right after each of you gets SS etc. Besides the loss of SS, tax consequences are important. Also, consequences may be different depending on who passes first.


Also look at strategies to maximize SS. I am far away from SS, so haven't paid close attention to this, but say one of you gets a much larger SS payment than the other. It makes sense for the higher earner to delay SS as much as possible, so that if he/she passes first, the survivor gets the higher SS payment. There may be other considerations too.

 

[RoadRunner7]

Good thinking on your plan. Budgeting a decent amount above your historical expenses is a very good idea.

If you haven't already done so, analyze what happens when one of you passes away. You need to do this at various times - like today, right after ER, right after each of you gets SS etc. Besides the loss of SS, tax consequences are important. Also, consequences may be different depending on who passes first.


Also look at strategies to maximize SS. I am far away from SS, so haven't paid close attention to this, but say one of you gets a much larger SS payment than the other. It makes sense for the higher earner to delay SS as much as possible, so that if he/she passes first, the survivor gets the higher SS payment. There may be other considerations too.

Thanks walkinwiood! Yes I'm aware of the SS Strategies and plan on having our plan in place when we get closer in 5-6 years. Also taxes are always an issues, so very true!

Good detail..are you including taxes payable in your expense projections? Didn't see that listed..

Thanks 24601NoMore! You are so correct for pointing taxes out (one of the reasons I posted my question, so I can get a clearer picture). Since we most likely would not be earning any income except for (hopefully)increases in our taxable account dividends etc, I felt taxes would be on the light side and project into the extra 10k I budgeted along with the 100k extra. After SS kicks in, the taxes would go up, but the Medical expenses would go down so was thinking that would help create the offset.

 

[Mdlerth]

You probably already are FI. RE is an entirely separate decision

Almost 30% (15k med + 10k fun/charity) of your estimated 85k spending is either temporary or discretionary, and you still have a 99.2% success rate. That sounds like a pretty good cushion.

I'm going to assume that your 60k baseline budget includes dealing with lumpy expenses such as replacing a roof/HVAC/car. Those durable goods last about 20 years, so in the next 30 you'll encounter them each at least once.

Having said that, just in case the good Lord calls one of you home early, make sure the survivor is provided for.

Likewise, think through plans for dealing with extended illness. I happen to believe that long term care insurance is a poor investment, but there are sincere proponents who believe otherwise. At least give the issue some thought.

Other than the above, you're good to go!

Edited to add: I see Walkinwood covered the early demise bit already. That's what happens when I get interrupted while I'm typing!

 

[Lakewood90712]

I always thought " The big question is" .." Honey, now that we are retired, can I let my Mistress move into the spare room?.......

Seriously , your planning and budget detai / strategy is in the top 1 % of pre retirees IMO. The main wild card is inflation in the future, and nothing anyone can do to predict that. I think you are good to go financially.

 

[joeea]

Can we retire when we are ready?

When do you expect to be ready?

Me: 62, Wife: 60

We are debt free and own our house outright.

We have $1.67M saved.
Expenses $85k a year

S.S. 45,000 starting in 2024.

Looks like you are in great shape.

Check out https://opensocialsecurity.com for help optimizing your Social Security benefit plan.

 

[Scratchy]

We have $1.67M saved.

Plan is to build a S.S. CD bridge for 5 years at 50k per year at 250k

Since we most likely would not be earning any income except for (hopefully)increases in our taxable account dividends etc, I felt taxes would be on the light side...

Given what you say above, take a deep dive into the question of whether you may benefit from doing Roth conversions from tax deferred holdings before your RMD's begin, at least up till the top of the 12 % bracket. This is particularly the case if you have a fair amount of funds in tax deferred accounts. If this is the case, you may want to reconsider building a CD bridge as you would be looking to minimize your dividend/interest income. Also, it would be another reason to delay taking SS so you could maximize space for Roth conversions.

 

[MBAustin]

As others have stated, your numbers look pretty solid. One thing to consider about when to pull the plug is any "lumpy" income you might have upon retiring (unused leave, deferred compensation, stock options that have to be cashed in, etc.). If that's likely, then leaving earlier in a calendar year minimizes issues such as taxes, ACA subsidies, etc. I would have saved a non-trivial amount of taxes if I'd not retired in October, but my BS bucket was so full at that point it was worth it to me. YMMV. Congratulations on FI - now you can decide when to ER!

 

[OldShooter]

... keep $100k in a high interest savings account or Vanguard MM for times when we need extra or if investments are down. ...

As others have said, you're looking pretty good. I would question keeping such a large amount in totally liquid form at very low interest. I don't think you need instant liquidity for just-in-case money. At least put it in something like 1 year t-bills, rolling them over as they mature. In the unlikely event you need to draw some money, just sell whatever number of bills you need. The market is very liquid and there won't be the kind of hassle and penalty involved like you'd have if you're in CDs. Schwab, Fido, and others will buy t-bills on the auction for you at low or no fee.

 

[FreeBear]

*I have looked at health insurance costs (COBRA and other plans including ACA) and if we are not able to get into the ACA (est. cost $7k a year) we could be spending about $15k a year for the next three years until I reach 65 and another two years at a reduced rate for my wife to reach 65.

Can you live on taxable (after tax) savings until you are both on Medicare?? If so, your MAGI income may be low enough to get at least a partial subsidy under ACA. There are many threads here regarding various strategies. Still, I think $15K/yr is not unreasonable given the high deductibles of ACA plans (or very high premiums if lower deductible).



You mentioned "if we are not able to get into the ACA". Your COBRA, while it lasts, may provide better coverage, especially PPO network, but I doubt you can be declined for ACA. A huge feature of ACA is that you can NOT be declined for preexisting conditions.

 

[HI Bill]

Have you included future car replacements, future housing repairs, and other emergency spending in your budget? It looks like you don't have any budget for travel, a 'toys/electronics budget', etc. If you keep your spending at your budget, you'll very most likely be fine. Best wishes!

 

[rk911]

debt free?