OMY syndrome, but 2024 looks like the year

[LateToFIRE]

Hi folks, I'm new here, so have no idea what I'm doing really, but very much appreciate the wealth of info I've recently discovered on this board.

My situation is complicated, but clearly in the realm of first world problems. I'm a 60-ish workaholic in a high-paying workaholic profession where lay-offs have been occurring regularly. So, even though I can still run circles around the young-uns, my advancing age means I've got a real big target on my back and it's become real clear that my time has run out, and a parting of ways is a 99.9% probability in the coming year.

Don't worry, we'll be ok. DW has been begging me to retire for years now and our assets are north of $10mm and net worth solidly in the upper seven figures. Now, I know that sounds like nothing to worry about, but I do worry. For starters, I live in (and plan to retire in) a very high cost of living area, so our annual budget is going to sound ridiculous to a lot of folks: ~$300,000. I guess you'd call that a FATFIRE kinda figure.

I'm probably over-estimating, and there's a lot of fluff in that number, but that's my don't change a thing in our present lifestyle number. I've been reading that expenditures tend to decline in retirement - which is what I would expect in our case - we don't have some big expensive bucket list to embark on - happy to say we've been there and done a lot of that during our work lives.

My plan is also complicated by the fact that a large chunk of NW is held in high-value real estate, which we would liquidate shortly after retirement, and that real estate carries a hefty mortgage on it too. The capital gain tax will be painful, but I don't want to be a landlord in retirement. So, figuring out how to mitigate that tax is a big priority.

One thing I am really starting to realize about retirement is that taxes will be a much bigger issue than I had realized. The capital gains tax on the r.e., ok I've been expecting that one. But, now its dawning on me that a nice chuck of assets is in pre-tax 401K, IRA, and Deferred Comp accounts - and that collectively these withdrawals are likely to push me into a much higher tax bracket than I had previously assumed. Ouch!

Like I said, first world problems, but still. As I model out our retirement future, some of the questions I'm grappling with are assumptions around portfolio returns, how to account for sequence of returns risk, how to think about inflation, appropriate WD rates, that sort of thing. I'm sure much has been written on these topics.

Looking forward to engaging in discussion.

Thanks,

LateToFIRE

 

[RxMan]

First of all welcome to the forums and congratulations on your success at accumulating such a large nest egg. You’re clearly financially savvy.

As to your question. Even an $8 million nest egg can support a 4% withdrawal rate which would provide you with an annual income of $320000. You have to be comfortable with that withdrawal rate and that doesn’t account for any other potential sources of income such as SS, pensions, or rental income.

I highly recommend you take advantage of the FIRECalc on this website and enter your information. It will give you a much more detailed indication of your financial success probability given your individual circumstances and assumptions.

The other thing to consider is legacy concerns. Do you have children or relatives who you want to leave money to after you die? Are there charities you want to leave money to after you’re gone? How is your health and longevity in your family?

I would use one of the many online retirement calculators such as FIRECalc and see what results you get. And if it is a guaranteed that your employment status is changing soon I’d hire a fee only financial advisor to do a retirement feasibility analysis to get the opinion of a professional.

By my spot check you probably have enough money saved to handle your annual withdrawal needs. But you need to take a deeper dive and factor in things like taxes on the sale of your real estate to get a clearer picture of where you stand. Good luck to you! I hope this helps.

 

[Exchme]

Welcome to the forum!

You are correct that at your level of wealth taxes are going to be a big issue. Typically with a large pre-tax balance, delaying Social Security and using the low tax years prior to RMDs are things that can be done to level out your tax rate. That will compete with your deferred compensation of course for the space in the lower brackets. You may be in the "unlucky" position that you will be in high brackets forever, regardless of what you do.

The FireCalc calculator is simple, easy and often eye-opening as you see the variance that can occur. It does not attempt to calculate your taxes, so whatever withdrawal amount you tell it has to include your estimate of those.

There are other low cost tools that are more thorough and flexible at handling different kinds of cash flows, projecting taxes, modeling the effect of Roth Conversions, etc. I use Pralana Gold (paid Excel spreadsheet) extensively.

Your situation may be complex enough that you could consider hiring a tax planner or estate planner. At a minimum, you could get ideas of the key issues to plan around. If you want to do the planning yourself, this forum and bogleheads.org are great resources with knowledgeable people that have been through it before.

 

[LateToFIRE]

Thanks

First of all welcome to the forums and congratulations on your success at accumulating such a large nest egg. You’re clearly financially savvy.

As to your question. Even an $8 million nest egg can support a 4% withdrawal rate which would provide you with an annual income of $320000. You have to be comfortable with that withdrawal rate and that doesn’t account for any other potential sources of income such as SS, pensions, or rental income.

I highly recommend you take advantage of the FIRECalc on this website and enter your information. It will give you a much more detailed indication of your financial success probability given your individual circumstances and assumptions.

The other thing to consider is legacy concerns. Do you have children or relatives who you want to leave money to after you die? Are there charities you want to leave money to after you’re gone? How is your health and longevity in your family?

I would use one of the many online retirement calculators such as FIRECalc and see what results you get. And if it is a guaranteed that your employment status is changing soon I’d hire a fee only financial advisor to do a retirement feasibility analysis to get the opinion of a professional.

By my spot check you probably have enough money saved to handle your annual withdrawal needs. But you need to take a deeper dive and factor in things like taxes on the sale of your real estate to get a clearer picture of where you stand. Good luck to you! I hope this helps.

Thanks RxMan! You're right, that NW should support my budget. My biggest concern is figuring out how to limit the impact of taxes - for which I'm probably going to need some professional help for sure.

Also, from my research, I think I could tolerate a higher than 4% WD for a couple of reasons:

1) To your question, no I don't have any dependents or legacy concerns - only to make sure my wife is ok if she outlives me. The people I want to help, I plan to help well before I die. I do recognize that late-stage eldercare can become outrageously expensive (and want to shelter some assets from those issues). I'd like to leave behind some cash to family and charities, but that is not a primary concern. If I have to spend my last dollar as we breath our last breathes, that is an acceptable outcome.

2) In terms of health and longevity, both wife and I have some issues and family history that suggest we are unlikely to make it more than another 20-25 years, so that is our planning horizon.

3) At higher NW levels, one of my theories is that given there should be a great deal of flexibility in budget and lifestyle, more aggressive WD rates could be tolerated earlier in the retirement cycle. In other words, if I only had a small nest egg and most of my expenses were fixed, there would be little room for adjustment and so a high level of confidence would be required given risk of shortfall. At a high NW level, if things are not working out as planned, there is more fluff to cut from budget, could downsize home, cut travel, eat more pizza, etc. In fact, I think we'll actually want to do that in 10-15 years - our priorities will be simpler living, we'll probably want to move from a house that requires an army to upkeep to a condo, etc.

4) You're right about other sources of income - between SS and a small pension, we'll have about $70-$90K of retirement income (depending on start dates). And also, I may do some consulting or develop other business income streams (did I mention I'm a workaholic) but ONLY from stuff I enjoy doing.

One thing I didn't include in that budget is the mortgage payment on our retirement home (that sounds weird "retirement home" but you know what I mean, right). It's a 3% loan, so thinking will keep it for the tax ded and also leave those funds invested where I'm sure can yield more than 3%.

Also, you mentioned using FIREcalc and others - been doing that, very useful. And fee-only planner, that's a thought, though admittedly I'm a skeptic when it comes to the planning industry.

Thanks again for your thoughts.

 

[Unpaintedhuffhines]

My question is: why are you waiting? Seriously. You’ve won the game, your wife is begging you to retire, you have ample funds and your longevity is perhaps not super ideal. I was in a similar situation (but only half of your assets), moderately expensive place to live, and I left the working world at 61 about 9 months ago. Hard to pull the ripcord, but it was the best decision I ever made.

Now I do what I want, my blood pressure dropped from 138/100 to 120/80, I am still involved in things (advisor for a couple of startups), my investments have grown $1M since retirement, and most importantly, my wife is happy.

What helped me was the adage I learned here: stop trading time you’ll never get back for money you’ll never need.

Congratulations and welcome to the forum. Huge amount of good advice here.

 

[LateToFIRE]

Welcome to the forum!

You are correct that at your level of wealth taxes are going to be a big issue. Typically with a large pre-tax balance, delaying Social Security and using the low tax years prior to RMDs are things that can be done to level out your tax rate. That will compete with your deferred compensation of course for the space in the lower brackets. You may be in the "unlucky" position that you will be in high brackets forever, regardless of what you do.

The FireCalc calculator is simple, easy and often eye-opening as you see the variance that can occur. It does not attempt to calculate your taxes, so whatever withdrawal amount you tell it has to include your estimate of those.

There are other low cost tools that are more thorough and flexible at handling different kinds of cash flows, projecting taxes, modeling the effect of Roth Conversions, etc. I use Pralana Gold (paid Excel spreadsheet) extensively.

Your situation may be complex enough that you could consider hiring a tax planner or estate planner. At a minimum, you could get ideas of the key issues to plan around. If you want to do the planning yourself, this forum and bogleheads.org are great resources with knowledgeable people that have been through it before.

Thanks Exchme, lots of relevant thoughts to consider.

"You may be in the "unlucky" position that you will be in high brackets forever, regardless of what you do."

I'm afraid you are probably correct... just wealthy enough to have a tax problem, but nowhere near wealthy enough to afford a team of lawyers and accountants to structure around those issues, and unfortunately most of my income has been on a W-2, so lord knows I've already paid out half my earnings to Dear Uncle Sam over the years - feels criminal to have to pay more when I'm not even working. But these are problems a lotta folks would love to have so know I am fortunate.

I will check out Pralana Gold - I am definitely a bit of an Excel junkie.

 

[pacergal]

Welcome to the forum and congratulations on your hard work and savings.

A one time meeting with a certified Financial Advisor may be a good investment, to look at your overall plan. (one time fee only, not AUM!)

 

[LateToFIRE]

My question is: why are you waiting? Seriously. You’ve won the game, your wife is begging you to retire, you have ample funds and your longevity is perhaps not super ideal. I was in a similar situation (but only half of your assets), moderately expensive place to live, and I left the working world at 61 about 9 months ago. Hard to pull the ripcord, but it was the best decision I ever made.

Now I do what I want, my blood pressure dropped from 138/100 to 120/80, I am still involved in things (advisor for a couple of startups), my investments have grown $1M since retirement, and most importantly, my wife is happy.

What helped me was the adage I learned here: stop trading time you’ll never get back for money you’ll never need.

Congratulations and welcome to the forum. Huge amount of good advice here.

Thanks for setting a great example for me! Sounds like our situations have some real similarities.

Will try to answer some of your questions:

Why waiting? Well, since I expect I'll be shown the door soon enough, makes sense to wait it out a bit for an incentive if you know what I mean.

But maybe you're more asking, why the OMY syndrome? Why didn't I pull the trigger 5, 10 years ago? Gosh, so many issues. For one thing, I'm at an income level where one more (good) year could add significantly to our nest egg. Maybe even more relevant, at my asset level, one more year of growth, absent drawdown, can also add quite meaningfully to NW.

And then add in the pandemic, which just kind of threw a wrench into everything - I didn't want to abandon ship just when my colleagues and business associates needed me the most, plus my own financial future was looking more uncertain than ever - who knew how long a recovery might take.

And for sure, some experiences (and losses) related to the pandemic have brought home the fact that life is getting shorter with each passing day - mortality is more full frontal in my thoughts. So, I suppose I'm one of those workaholic people you read about being shocked by the pandemic into putting life and family above work.

The other thing is that I enjoy my work. I really do. I don't want to get into what it is for privacy reasons, but I am truly excited by my work. It's thrilling and high stakes and its problem-solving and analytical, but also has a huge people component to it, and I enjoy managing and developing people. I'm at the peak of my professional abilities and stature, I'm very good at what I do, I take great pride in that, and it's really tough to walk away from even though rationally I know that I am not my work. Separating from that identity is very hard.

What I don't like is the horrible god-awful, soul-crushing, work-life balance - I don't want to be on call 24/7, I don't want every holiday and vacation to be disrupted, and I hate the sharp elbows and cynicism and the super-political BS aspects of big business.

Another reason I've waited is that I've simply had no idea what I'd do next. I haven't developed much by way of hobbies or outside interests, nor do I have much of a social life outside of work-related.

My life has been extremely focused on "winning the game" for better or worse. There hasn't been much energy to think about what comes next. Most people work hard so they can retire - I just liked working and probably in the first year or so, I'm going to have to really work at resisting being lured back into another circus gig. Not to worry though, DW will be standing by the door with a skillet in hand ready to knock some sense into me should I be overly tempted.

So, all the above are not great excuses, just noting these are the challenges I've needed to overcome to get excited about retirement. And, of course, retirement doesn't have to be complete non-work. Much thinking to do.

I'll also add, in the name of being completely forthright, that in the circles I typically inhabit, work-wise, neighbors, boards, social, etc., my NW is no big deal. That's hardly intentional, I'm not trying to keep up with the Jone's or anything like that - it just is what it is based on vocation, housing and geography. So, it takes some real mind-bending effort for me to be able to step outside that zone and recognize I have been living in this unreal bubble of expectations where I'm often the poorest schlub in the room. What can I say - I know that's really warped.

Thx

 

[LateToFIRE]

Welcome to the forum and congratulations on your hard work and savings.

A one time meeting with a certified Financial Advisor may be a good investment, to look at your overall plan. (one time fee only, not AUM!)

Thanks - consistent recommendations on the one-time fee only advisor. I have not yet tried that, so will definitely consider.

 

[oiseux]

Welcome! Yes, you should be getting a one-time FA or if you are working with someone, they should have been working on one already.

I've been stuck in one more year and pushed my original Jan 23 date. We are very familiar with the types of issues you are facing -- deferred comp, taxable sources, real estate, SS, RMD from sizable tax deferred etc (only a bit younger, so we have a few more years for tax optimization).

What can be helpful is to work with your tax advisor or FA to lay out an estimate of the coming years (before SS kicks in and RMD, later) by each income stream and restructure/plan around future optimizations. Or you can do it yourself. Some would argue that it is suboptimal to plan around taxes, and it can be, but you can definitely avoid some gross mistakes. If you do that, watch out for:
* most likely you will want to exit after the start of a new year, to get that best tax rate on the first year. Besides the various equity and vacation payouts, you can also look to max out your deferrals possible in the new year.
* if you have rental property (especially more than one), be on the watch for depreciation recapture but also be away of any loss carryovers
* work to understand if and when 401K conversions make sense --- you may have a narrow window to execute after that initial year

 

[marko]

The other thing is that I enjoy my work. I really do. I don't want to get into what it is for privacy reasons, but I am truly excited by my work. It's thrilling and high stakes and its problem-solving and analytical, but also has a huge people component to it, and I enjoy managing and developing people. I'm at the peak of my professional abilities and stature, I'm very good at what I do, I take great pride in that, and it's really tough to walk away from even though rationally I know that I am not my work. Separating from that identity is very hard.

Yeah, that was 100% me 18 years ago. Getting thrown off the roof after the acquisition was the best thing to ever happen to me. (That, and a seven figure severance)

There's a whole other/better world out there.

 

[brett]

I retired at 58/59. Best thing I ever did.

One of my colleagues at that time told me that despite having the resources, he decided to work one more year. Then he was going to take his children and his grandchildren on a Disney cruise.

OMY turned into 3 more years for him. I am not quite sure why. He retired at 63. He dropped dead 7 months later. He never did make that family cruise.

My advice to anyone thinking about this and who has the resources is not to consider how much you might gain by continuing to work but how many good, healthy years to you think you might have left?

And you many of those good, healthy retirement years would you be willing to give up?

 

[PlayinwithFIRE]

I'm curious what categories of spending result in a 300K budget ?

 

[LateToFIRE]

Spending breakdown

I'm curious what categories of spending result in a 300K budget ?

Good question. Broadly speaking, housing-related would be about $85K (prop taxes/insur, utilities, housekeeping, grounds/landscaping, pool, mortgage, etc.). Vehicles we pay for in cash and keep +10 yrs, but add-on $10K for insur/maintenance. I budget $25K for health insur and other medical (for a couple). And then $32K for at-home food & beverage. So we're up to $152K. Another $100K is somewhat discretionary spending (everything from eating out, travel, entertainment, spa treatments, etc.) and ~$50K for taxes. I did say there was a fair amount of fluff in the budget, but this reflects about what we spend today without paying too much attention to belt tightening. When there is no income, I know with 100% certainty DW will start cracking the whip on expenses.

 

[LateToFIRE]

Brett, Yup have heard too many stories like this!

 

[LateToFIRE]

...seven figure severance

Now we're speaking my language! But, yeah, I hear yah, at some point no amount of money is worth it.

 

[LateToFIRE]

... Some would argue that it is suboptimal to plan around taxes, and it can be, but you can definitely avoid some gross mistakes. If you do that, watch out for:
* most likely you will want to exit after the start of a new year, to get that best tax rate on the first year. Besides the various equity and vacation payouts, you can also look to max out your deferrals possible in the new year.
* if you have rental property (especially more than one), be on the watch for depreciation recapture but also be away of any loss carryovers
* work to understand if and when 401K conversions make sense --- you may have a narrow window to execute after that initial year

Thanks - And yes, I do have all those tax-related issues you mentioned, plus some very lumpy (and taxable) liquidity events coming up. Appreciate the reminders!

 

[marko]

Now we're speaking my language! But, yeah, I hear yah, at some point no amount of money is worth it.

Instead, try to focus on the last part of my post: "There's a whole other/better world out there". An entire parallel reality that you're missing out on. Time to catch that train.

 

[brett]

Brett, Yup have heard too many stories like this!

It was a little different for us. My stock option boat came in, a very timely golden handshake, was the impetus to early retirement and a better (for us) lifestyle. We focused on health and experiences vs things.

Selling the mausoleum, as MIL called it, was our first step to gaining independence from things that would have otherwise tied us down was the fist step in our retirement plan.

The X factor as I call it was luck. I think that I had horse shoes up my a** when it came to job/income/life opportunities, spouse, and to excellent health in spite of a less than healthy pre retirement lifestyle.

 

[LateToFIRE]

Instead, try to focus on the last part of my post: "There's a whole other/better world out there". An entire parallel reality that you're missing out on. Time to catch that train.

LMAO, Thank you for the Yes, indeed, I did take notice!

+ What can I say - I'm slow. Hence the "Late" part of my handle.

 

[LateToFIRE]

It was a little different for us. My stock option boat came in, a very timely golden handshake, was the impetus to early retirement and a better (for us) lifestyle. We focused on health and experiences vs things.

Selling the mausoleum, as MIL called it, was our first step to gaining independence from things that would have otherwise tied us down was the fist step in our retirement plan.

Stock options are a beautiful thing. Fortunately mine are mostly vested so not holding me back. It is certainly one of the things that has juiced my asset growth over the years. The other is real estate. And yup selling our largest r.e. holding will be a huge sigh of relief!

 

[38Chevy454]

With your assets, you can get free advisor review and discussion from Fidelity and I think Vanguard or Schwab. Provided at no cost because they want to have you as a customer of their brokerage. Fidelity Private Client starts at $1M in investments. As another way to have an outside review of your situation.

Also one of my favorite sayings: you can't add more years to your life, but you can add more years to your retirement. We all have an expiration date. Make sure you maximize the benefits of your hard work over the years.

 

[Alex The Great]

Good question. Broadly speaking, housing-related would be about $85K (prop taxes/insur, utilities, housekeeping, grounds/landscaping, pool, mortgage, etc.). Vehicles we pay for in cash and keep +10 yrs, but add-on $10K for insur/maintenance. I budget $25K for health insur and other medical (for a couple). And then $32K for at-home food & beverage. So we're up to $152K. Another $100K is somewhat discretionary spending (everything from eating out, travel, entertainment, spa treatments, etc.) and ~$50K for taxes. I did say there was a fair amount of fluff in the budget, but this reflects about what we spend today without paying too much attention to belt tightening. When there is no income, I know with 100% certainty DW will start cracking the whip on expenses.

Actually I had the same question. I was wondering why expenses are so much even in high cost of living area. On my opinion they are overestimated. I also live in similar area and it cost me around $40K last year. Which included even some travel. But I'm single still working and have no mortgage. I guess my house is smaller than yours and all housekeeping I do myself. Still I believe there is something wrong with the budget.

 

[LateToFIRE]

Actually I had the same question. I was wondering why expenses are so much even in high cost of living area. On my opinion they are overestimated. I also live in similar area and it cost me around $40K last year. Which included even some travel. But I'm single still working and have no mortgage. I guess my house is smaller than yours and all housekeeping I do myself. Still I believe there is something wrong with the budget.

I hope you're right - I'm gonna sharpen my pencils on the budget question.

Conversely, I see people post numbers like yours and scratch my head like how is that even remotely possible, thinking you must be leaving something out of the picture like free room & board or you're living an expat existence in a country with a weak currency or you're not counting the stuff mom & dad pay for ;-)

All kidding aside, interested in what your budget looks like (not that I'd be in a position to come anywhere close to it, so really just plain nosy curiosity). For sure, you'll find that once you start owning property (or try multiple properties), your expenditures will skyrocket.

There's a reason DIY is so popular with homeowners - hiring others to do lawn, landscaping, pool, housekeeping, etc. costs a small fortune. Some people enjoy doing that stuff themselves, but if you don't, be prepared to lay out some real cash. For me, its made sense to pay others and focus on what I do best, make $. I have a big property and don't envy the guys out there riding mowers and trimming hedges and skimming pools on hot summer days.

I'm also guessing you don't pay much in taxes - yet - whereas I'm at the 50% marginal tax bracket (combined city/state/fed), more if you throw in all kinds of other taxes. Also, I could be overestimating on that for retirement, but I don't think so, as the chickens will be coming home to roost on my tax-deferred investments. It's likely I'll still be in a fairly high tax bracket even in retirement as I draw on those investments.

My estimates are very back of the envelope, as we do not budget or record details like we used to when we were just starting out. So, I am probably double-counting some things. That said, I do have a pretty good big picture sense of what $ are coming and going, and if I'm overestimating, it's not by a huge amount. And my estimate assumes we continue on our same approach to spending, which will no doubt change a bit when we see our bank account disappearing very rapidly.

I'd say we are presently fairly intentional about only spending on what we value, but no where close to what you would call frugal. Doesn't "feel" like an extravagant lifestyle, but that is the hazard of lifestyle creep.

 

[LateToFIRE]

With your assets, you can get free advisor review and discussion from Fidelity and I think Vanguard or Schwab. Provided at no cost because they want to have you as a customer of their brokerage. Fidelity Private Client starts at $1M in investments. As another way to have an outside review of your situation.

Thanks, appreciate the thought but I've spoken to some of the folks at those outfits and extremely not impressed - most of them still wet behind the ears as the saying goes. I get solicitations all the time from so-called advisors, and found them woefully unprepared for complex thinking.

I know, I know, I have a real bad attitude about this. There are for sure, real professionals out there - I will bite the bullet at some point.