Retiring in 2 months at 49

[FedRetired50]

Welcome. I like your "2 buckets" line of thought, since that's how I've been thinking, too. How to make it through my 50s, then what happens after 59 1/2.

Speaking of 59 1/2, someone here briefly mentioned 72t, also known as SEPP (substantially equal periodic payments). That's going to be part of my living expense income starting soon so I've done a lot of research on that. It is something to keep in mind if you find you need the additional income. Based on your $1.4 mil balance and your age, you could withdraw $83,696/yr. as of today without the 10% early-withdrawal penalty. I can give you more info if you want it.

I'll also offer advice on not delaying Social Security (former SS employee here, not representing any viewpoint of SSA). The lifetime payouts are based on actuarial tables on expected longevity, so ignoring things like future value of money, the payout is the same. Contrary to the magic 8% year-over-year increase you often read about. If you wait to 67 but get hit by a bus at 65, you get nothing. If you wait to 70 and get hit by a bus at 72, you get less than you could have. Also by waiting, you push your break-even point much farther out, making a bet that you will beat that mark, but you may not (refer to bus @ 72). If you do need the money but wait, you are then burning inheritable assets instead of using SS and preserving your other assets for kids, etc. So, I always advise to take it at 62 and invest it if you don't need it. If you suddenly do need it, you have a new nest egg to tap. If you don't, it will sit there and grow.

 

[Done]

Regarding capital gains/losses, nearly all my company stock is underwater so will show as losses to offset dividend gains. This plus rental depreciation and expenses should put us at quite a low overall income level.

Capital losses will only offset capital gains, then up to $3k of ordinary income per year. Unused capital losses carry forward. Dividends — even qualified dividends taxed at a favorable rate — are considered income, so they don’t get offset by capital losses (except as income up to $3k).

You may want to double-check your MAGI in retirement by running scenarios in tax software or estimators. MAGI will determine your ACA premium subsidies.

 

[surprising]

Capital losses will only offset capital gains, then up to $3k of ordinary income per year. Unused capital losses carry forward. Dividends — even qualified dividends taxed at a favorable rate — are considered income, so they don’t get offset by capital losses (except as income up to $3k).

You may want to double-check your MAGI in retirement by running scenarios in tax software or estimators. MAGI will determine your ACA premium subsidies.

Thank you for the clarification. I guess I will be accumulating losses. I already have quite a bit of capital loss carryover from 2022. Does it make sense to sell stock with gains to offset this first? The other issue is I will probably be in 0% capital gains bracket as well, so perhaps just keep pushing out the carryover until I need it?

 

[pacergal]

Welcome to the forum.

 

[HI Bill]

I'll also offer advice on not delaying Social Security (former SS employee here, not representing any viewpoint of SSA). The lifetime payouts are based on actuarial tables on expected longevity, so ignoring things like future value of money, the payout is the same. Contrary to the magic 8% year-over-year increase you often read about. If you wait to 67 but get hit by a bus at 65, you get nothing. If you wait to 70 and get hit by a bus at 72, you get less than you could have. Also by waiting, you push your break-even point much farther out, making a bet that you will beat that mark, but you may not (refer to bus @ 72). If you do need the money but wait, you are then burning inheritable assets instead of using SS and preserving your other assets for kids, etc. So, I always advise to take it at 62 and invest it if you don't need it. If you suddenly do need it, you have a new nest egg to tap. If you don't, it will sit there and grow.

I think this is great advice for most folks, but it doesn't account for those whose spouses will be taking spousal benefits based on the PIA amount. If you start taking before FRA, the spouse's benefit will be permanently reduced, as will the death benefit. Therefore (since my spouse will be taking spousal benefits based on my record), I plan to wait to my FRA of 67 unless our investments tank and we really need the $ earlier. If I was single, I'd go with taking benefits at age 62.

 

[FedRetired50]

I think this is great advice for most folks, but it doesn't account for those whose spouses will be taking spousal benefits based on the PIA amount.

That's a fair point.

 

[rmcelwee]

Been planning this since I was 45 and think I'm ready.
Well that's it. Will it work!? Any feedback would be greatly appreciated!

I'm getting here late but wanted to throw my $0.02 in. We planned for ER for probably 25+ years. We were very frugal and at times saved more than 85% of our income. We knew for a fact that we could live on $30-$35K. Our expenses last year? Over $200K... Spending that much over budget and watching your stock market investments drop at the same time takes a lot of intestinal fortitude. Having money is only one part of the equation. You have to be mentally prepared to spend after years of saving.

 

[MarieIG]

Dear Surprising,

Welcome to the ER forum.

I would prepare for your property taxes on an ongoing basis - not wait until they are due. They are not "optional" and unlike vacations, you don't have the ability to wait until next year if you are faced with unexpected expenses. Be prepared for lumpy expenses; and be prepared for the value of your assets to wax and wane.

Two good items to review as part of your preparation are:

Some Important Questions to Answer Before Asking - Can I Retire?

FIRECalc

 

[Eladio]

My biggest shock when I sold my one long term rental house years ago was the taxes due on the depreciation recapture. Ouch. I had not planned very well for that one.

 

[surprising]

OP here with an update. I decided to stay at my current job but drop to part time. Plan is to stick it out for the remainder of 2023 and then reassess. With all the economic issues right now (banks imploding, sky-high interest rates, debt ceiling drama, upcoming recession, Ukraine war..) I just don't feel like it's a good time to give up salary and rely on investments.

With my current work arrangement, part-time salary plus rents will be enough without needing to dip into investments yet, and we plan to start dipping our toes into retirement-like living soon (RVing across the country).

 

[livingalmostlarge]

how did the tax planning work out with all the rentals? Did you figure if you were under the ACA cliff limit?

 

[surprising]

There is no more ACA cliff until 2025, and according to ACA web site with ~$80K of income, most of the plans suitable for us are mostly subsidized. I hope that the cliff suspension gets extended or made into law so that we don't have to worry about it. BUT, without any additional investment sales, I'm pretty sure we can stay under poverty level * 4 = ~100K for a family of 3, or ~80K for family of 2.

 

[rmorris50]

Seems like you pretty much know your numbers inside and out, and they you are ready to retire. A couple things for us all to keep in mind.

1. With that much wealth you should see financial ruin coming a long time before it hits, giving you a very long time to adapt.

2. What’s your absolute worse case scenario? Living off social security and pension? This is most people’s reality.

 

[surprising]

OP here with another update. I've been working part time since June. Salary is reduced a lot, but I have a lot of free time now. Bought a travel trailer and tow vehicle and spent a bunch of money equipping them, so June and July budgets were out the window. August, however, was spent traveling a bunch, and came in under budget.

I am currently managing my budget and spending with spreadsheets and Mint. While I don't mind the work, it does take up a bit of time since I have to consolidate activity across multiple investment accounts. I also have to manually transfer funds from my investment account to my checking account as needed to cover any remaining needs to balance the books. Then I need to figure out what to do with any remaining dividends that were unused. Leave as cash or reinvest? And what happens if my needs exceed the amount of dividends I receive monthly? Do I sell stock or do I dip into emergency fund temporarily?

As a software developer, I've been thinking a lot of this could be automated into a comprehensive Retirement App. Since everyone's retirement strategy is different, this app could provide a set of fixed strategies, but could also provide a means to define entirely new strategies. The app can maintain complete history and performance of the strategy over time, and can also plug into firecalc or i-orp or whatever to continuously monitor the future, to ensure the plan stays on track. Does an app like this already exist? If not, would people be interested in seeing something like this?

 

[WhenIsItTime]

OP here with another update. I've been working part time since June. Salary is reduced a lot, but I have a lot of free time now. Bought a travel trailer and tow vehicle and spent a bunch of money equipping them, so June and July budgets were out the window. August, however, was spent traveling a bunch, and came in under budget.

I am currently managing my budget and spending with spreadsheets and Mint. While I don't mind the work, it does take up a bit of time since I have to consolidate activity across multiple investment accounts. I also have to manually transfer funds from my investment account to my checking account as needed to cover any remaining needs to balance the books. Then I need to figure out what to do with any remaining dividends that were unused. Leave as cash or reinvest? And what happens if my needs exceed the amount of dividends I receive monthly? Do I sell stock or do I dip into emergency fund temporarily?

As a software developer, I've been thinking a lot of this could be automated into a comprehensive Retirement App. Since everyone's retirement strategy is different, this app could provide a set of fixed strategies, but could also provide a means to define entirely new strategies. The app can maintain complete history and performance of the strategy over time, and can also plug into firecalc or i-orp or whatever to continuously monitor the future, to ensure the plan stays on track. Does an app like this already exist? If not, would people be interested in seeing something like this?

I'd like an app to trigger transactions about the same or less than I trust autonomous driving for cars. I feel it takes me very little time to free up cash for the operating budget and I have no recurring income. While I consider myself frugal, I don't sweat 10's of $1,000's uninvested to make the process easier with cushion so things never get tight.

Maybe those more reliant on a CFP or the like would prefer to computerize and reduce fees.

 

[matjung]

Regarding your dividend income. Do you manage some stocks yourself?
Or all via funds?
Some stocks are paying monthly dividends.

I think there are already plenty of apps around where the app developer where happy to move your money from A to B. The app required access to your bank account. Your bank decides which apps they let in. You need to have a lot of trust and faith into third party developers and your bank.

I would only sell a stock, because of the strategy. Not when you are running out of money. I would use the emergency or fixed income funds for that.

 

[Cayman]

Congrats! You're in good shape, assuming you also have plenty of room to reduce annual spend if needed. Be sure liability ins. is adequate and includes any added exposure you may have w/ rentals, tenants and their guests... you might consider adding an additional $1 or $2M above what you think you need in liability insurance.

 

[rmcelwee]

As a software developer, I've been thinking a lot of this could be automated into a comprehensive Retirement App.

I don't know if this is common but in our first year of retirement we spent $225K. This year, our second, will end up being around will be $35K. I would expect year 3 to be $550K and year 4 to be $800K. Then back to $35K. I don't see how an app will help with that.

 

[Alex The Great]

I am using the bucket approach, where there are 2 buckets - first 10 years of retirement, and after 10 years. The first bucket is conservative with dividends and bond funds to cover basic expenses, whereas the second bucket is 401k and is more aggressive with 70/30 stock/bond allocation.

I have a similar approach with two buckets. But I would not consider dividend/bond funds a conservative investment. Dividend can be cut all the time and bonds also can be volatile (depend on the type). I do have a CD ladder in the first bucket but it is for 7 not 10 years. But I'm older than you and estimated expenses are less. Treasuries or TIPs can be considered for the first bucket too, especially at your age.
I also have some dividend stock and bond fund but mostly in retirement account to make it tax efficient and I consider it a longer term investment.

 

[surprising]

I'd like an app to trigger transactions about the same or less than I trust autonomous driving for cars. I feel it takes me very little time to free up cash for the operating budget and I have no recurring income. While I consider myself frugal, I don't sweat 10's of $1,000's uninvested to make the process easier with cushion so things never get tight.

Maybe those more reliant on a CFP or the like would prefer to computerize and reduce fees.

Perhaps the app can be put in read-only mode, where it can advise on what to buy/sell based on the strategy, but you are responsible for the actual trading.

 

[surprising]

Regarding your dividend income. Do you manage some stocks yourself?
Or all via funds?
Some stocks are paying monthly dividends.

I think there are already plenty of apps around where the app developer where happy to move your money from A to B. The app required access to your bank account. Your bank decides which apps they let in. You need to have a lot of trust and faith into third party developers and your bank.

I would only sell a stock, because of the strategy. Not when you are running out of money. I would use the emergency or fixed income funds for that.

I manage everything myself. I have several funds and dividend paying stocks that provide around $3K/month. When I was working full-time, I just DRIPped the dividends. Now that I am part time, I've turned off DRIP and manage the withdrawals as needed.

 

[surprising]

I have a similar approach with two buckets. But I would not consider dividend/bond funds a conservative investment. Dividend can be cut all the time and bonds also can be volatile (depend on the type). I do have a CD ladder in the first bucket but it is for 7 not 10 years. But I'm older than you and estimated expenses are less. Treasuries or TIPs can be considered for the first bucket too, especially at your age.
I also have some dividend stock and bond fund but mostly in retirement account to make it tax efficient and I consider it a longer term investment.

It is very true about bond fund volatility. One of my CEF bond funds in 401k just reduced it's dividend 41% and the stock price dropped 25% as well. I was not paying enough attention to 401k since I won't touch it for years, otherwise I would have recognized that fund was in trouble a long time ago and sold it..

 

[RetiredAt49]

Does an app like this already exist? If not, would people be interested in seeing something like this?

There are dozens of retirement apps/websites (e.g. NewRetirement) … not sure exactly what you’re looking for…

 

[surprising]

There are dozens of retirement apps/websites (e.g. NewRetirement) … not sure exactly what you’re looking for…

Trying out NewRetirement now, it looks promising. What I've noticed with the sites I've looked at in the past is that they assume traditional retirement in the 60s with full access to retirement accounts immediately. With early retirement, there are basically two separate retirements: pre-401k and post-401k, so being able to handle that seamlessly is a requirement.

 

[RetiredAt49]

Trying out NewRetirement now, it looks promising. What I've noticed with the sites I've looked at in the past is that they assume traditional retirement in the 60s with full access to retirement accounts immediately. With early retirement, there are basically two separate retirements: pre-401k and post-401k, so being able to handle that seamlessly is a requirement.

Yep, I retired at 49 years old (a couple years ago) with taxable accounts, retirement accounts, and real estate. My AA = 100% equities (excluding rental properties). Modeling how/when to sell our rental properties versus stocks is difficult but I kinda view our rentals like fixed assets/bonds although they are not as liquid.