Retiring in your 40s

[imjustawarrior]

Yes, we both work full-time right now so there is a lot of take-out and ubereats . That will likely change after retirement as I do enjoy cooking.

I just started backdoor roth iras for each of us a couple years ago. There is only about 16k in each so I forgot to add to our NW. Do we have to have earned income to contribute to regular Roth ira each year after retirement?

Yes. On a W-2 it is box 1 minus box 11 shows how much you can contribute up to the max allowed per person. This is for IRA or Roth.

If you will have RSUs vest or sell NQSO in retirement, you can still have income for an IRA or Roth. Otherwise, you pretty much need a job.

 

[gauss]

1- Yes, that is an annual accrual towards a new car every 10 years. That number is probably on the low side, but we are not really car people.

2- I did a 1040 estimate calculator, and the result was 0 federal tax liability. We live in Florida so no state tax. I am not fully confident with this, but we have never filed a return with income from only dividends and capital gains. I did read several articles that indicated this was possible.

Thanks,

I actually ran your numbers in a couple of tax estimators that I use and was able to confirm $0 Fed Income tax due based on the info presented. Good job.

-gauss

 

[MarieIG]

Yes, we both work full-time right now so there is a lot of take-out and ubereats . That will likely change after retirement as I do enjoy cooking.

I just started backdoor roth iras for each of us a couple years ago. There is only about 16k in each so I forgot to add to our NW. Do we have to have earned income to contribute to regular Roth ira each year after retirement?

To contribute yes, but not to convert.

 

[audreyh1]

You probably want your taxable income (the ACA MAGI) to be high enough to qualify for ACA versus Medicaid, and if you don’t have enough dividends and cap gains income, Roth conversions can be strategically used to generate enough taxable income to qualify for subsidies. Overall you can still keep your taxes very low. Look at some of the Roth conversion threads. You have a couple of decades+ to accomplish this.

 

[hoosier83]

Thanks for all of the great responses. It is nice to have a community of people who are not only passionate but also knowledgeable about FIRE.

For those of you who have retired early, how do you adjust withdrawals/spending as the years go by? We have no children to pass an inheritance to so legacy is not a concern.

Do you stick with your original number? Or do you adjust up/down over time based on your total portfolio balance? For instance, if I choose to use 2.5% withdrawal rate, do I recalculate that amount at the beginning of every calendar year?

Also, does anyone adjust their spending upwards at certain age targets since the likelihood of running out of money before running out of time changes?

 

[audreyh1]

Thanks for all of the great responses. It is nice to have a community of people who are not only passionate but also knowledgeable about FIRE.

For those of you who have retired early, how do you adjust withdrawals/spending as the years go by? We have no children to pass an inheritance to so legacy is not a concern.

Do you stick with your original number? Or do you adjust up/down over time based on your total portfolio balance? For instance, if I choose to use 2.5% withdrawal rate, do I recalculate that amount at the beginning of every calendar year?

Also, does anyone adjust their spending upwards at certain age targets since the likelihood of running out of money before running out of time changes?

We have no children, but I have younger siblings that we consider our heirs. Since they aren’t that much younger we are trying to gift a lot while we are still alive. Plus we do charitable donations. This all counts as part of our spending.

I use the %remaining portfolio method for withdrawals. FIREcalc models this as one of the alternatives so you can look it up there under “spending”. This uses the Dec 31 value of our portfolio each year for our Jan withdrawal so it can go up or down each year but generally goes up keeping up with the growth in our portfolio. We started out with probably around 2.5% and then 3% for a long time, and adjusted to 3.5% this year because DH turned 70. We’ll probably stay with this % for a while.

 

[RetiredHappy]

Thanks for all of the great responses. It is nice to have a community of people who are not only passionate but also knowledgeable about FIRE.

For those of you who have retired early, how do you adjust withdrawals/spending as the years go by? We have no children to pass an inheritance to so legacy is not a concern.

Do you stick with your original number? Or do you adjust up/down over time based on your total portfolio balance? For instance, if I choose to use 2.5% withdrawal rate, do I recalculate that amount at the beginning of every calendar year?

Also, does anyone adjust their spending upwards at certain age targets since the likelihood of running out of money before running out of time changes?

We used a bucket strategy. We set aside about $1M to be spent in the first 7 years, before we have most of our income streams starting, but blew though the amount very quickly. We don't stick to a fixed percentage or $ withdrawal. It's sort of a ballpark, in that if we needed to make a large withdrawal and felt that we could afford it, we simply did it. For instance, between 2017 to 2021, we went on 3 international cruises a year, all in suite staterooms and flying business class, spending around $80K a year. COVID killed cruising and that saved us some money. We also decided to sell our home and buy another home in late 2020, incurring moving costs, a slightly more expensive home and threw in another $200K in renovation.

I started SS this year that is the last of our income streams and I finally looked at withdrawal rates because withdrawal rates were meaningless before. We are now withdrawing about 2.75% so we did not run down our portfolio too much with the "go-go" activities after we retired. We are planning 2 major trips over the next 2 years and my husband asked me if I have it in our budget, and I said as long as we are doing one a year we are fine. We also travel 3 months a year currently but those are budgeted for, and less expensive because we make use of timeshare and try to stick with drive-to locations.

 

[imjustawarrior]

Thanks for all of the great responses. It is nice to have a community of people who are not only passionate but also knowledgeable about FIRE.

For those of you who have retired early, how do you adjust withdrawals/spending as the years go by? We have no children to pass an inheritance to so legacy is not a concern.

Do you stick with your original number? Or do you adjust up/down over time based on your total portfolio balance? For instance, if I choose to use 2.5% withdrawal rate, do I recalculate that amount at the beginning of every calendar year?

Also, does anyone adjust their spending upwards at certain age targets since the likelihood of running out of money before running out of time changes?

I adjust our spending based on portfolio size and years remaining. Our spending is not flat month to month or year to year. For example, we bought 2 new cars in July.

I just keep an eye on the retirement calculators to make sure we are on track.

 

[livingalmostlarge]

looks good.

 

[FLSUnFIRE]

Thanks for all of the great responses. It is nice to have a community of people who are not only passionate but also knowledgeable about FIRE.

For those of you who have retired early, how do you adjust withdrawals/spending as the years go by? We have no children to pass an inheritance to so legacy is not a concern.

Do you stick with your original number? Or do you adjust up/down over time based on your total portfolio balance? For instance, if I choose to use 2.5% withdrawal rate, do I recalculate that amount at the beginning of every calendar year?

Also, does anyone adjust their spending upwards at certain age targets since the likelihood of running out of money before running out of time changes?

I withdraw enough to cover my anticipated expenses for the upcoming year in Nov/Dec with an eye towards tax optimization. The WDR is more of an upper limit that I have not come close to hitting yet. I've recently started thinking about time buckets after someone mentioned them at CampFI so I might increase my withdrawals (damn the taxes, full speed ahead!) so I don't forego fun now that age will make impossible in the future.... not that I lack for much but I might enjoy life a bit more if I just don't care as much what things cost! -As long as I'm "safe", it is probably the smart and healthy way to live my real and financial life.

 

[Cujet]

You have enough to live off safe investments (CD's) generating a $250K income, re-invest any excess, and to continue well into your 70's with an investment income in 2055, in the mid $300's, if everything goes well and inflation is near 2%.

If inflation exceeds 3.5% the income will fall short in your 70's "IF" your investments are only CD's. Yet, you'll have principal of $6M+ to draw from, worth $2.5M in 2025 dollars.

Bottom line, you can safely do this and live a great lifestyle. As long as you invest correctly and don't frivolous spend millions, such as airplane/yacht purchases.

I will add this caution. I've been experiencing unplanned, excessive expenses lately. I can afford it, but it can't continue forever. A quarter mil in 2024 alone, yikes.

 

[fognostic]

With a $6M portfolio and SS of $30K starting in 2048, FIRECalc suggests you can earn $190K/yr pre-tax for 57 years, until age 100. And your portfolio never drops below $2M in all that time - a very nice cushion for long term care in your final years. With a budget of $150K/year ($160K if we assume you reach your oop max for health care every year, which is rather unlikely for some time yet), I think you are more than able to retire. Stay disciplined on your budget and asset allocation strategy and you should be fine.

If you later change your mind and decide to go back to work, will it even be about the money at that point? Doesn't seem likely. So I wouldn't worry about finding something with your current salary again.

You might consider high deducible health insurance and funding an HSA to offset taxable income - you'll use it eventually. With your wealth to spending ratio, you don't need to finesse this, but you could.

As others have said there are better options than Vanguard Federal MM. It's going to be time to put some thought into that part of your asset allocation sooner rather than later.

If you want to stay very short on bonds, ETF's like GSY or TBUX might be worth a look. Those can be blended with a small core bond fund position like VPLS to mix the weighted duration you are after. For your equities, VXUS or SCHF are worth a look if you want to add some international exposure to your VTI holding. How much is the question. Vanguard has been predicting an international resurgence and recommending 40% of equities in international for years - hasn't happened yet and has lost folks a lot of money in hindsight. IDK, maybe start with 15% of your stock holdings in international? Just some ideas to get you started.

 

[SecretlyFI]

Is it possible that we could pay no federal taxes? I put our info in dinkytown.net which has an estimated 1040 tax calculator and that was the result. Since we live in Florida, there are no state income taxes to worry about.

Projected total $150k annual withdrawal:
1-Ordinary dividends- $70k ($45k qualified dividends included in ordinary dividends)
2-Stock sale- $80k (includes $40k long term capital gains)
3-Standard deduction- $31.5k

In the past, I have only sold equities for tax loss harvesting purposes and never realized gains. If I am selling a lot that is up 100%, does that basically mean 1/2 of the sale is taxed at capital gains rate and the other 1/2 is not taxed at all since its just my cost basis?

You probably want your taxable income (the ACA MAGI) to be high enough to qualify for ACA versus Medicaid, and if you don’t have enough dividends and cap gains income, Roth conversions can be strategically used to generate enough taxable income to qualify for subsidies. Overall you can still keep your taxes very low. Look at some of the Roth conversion threads. You have a couple of decades+ to accomplish this.

With the OP's numbers above, they should be well above the Medicaid threshold, right? Just checking because our numbers are similar and I hadn't considered us being at risk of being in Medicaid territory.

 

[PristineSound]

If expenses covers taxes, medical and lumpy things (travel, roof, car, HVAC, etc.) then you are good. We are planning a perpetual retirement (inter-generational) and our magic SWR is 3%.

Question, wouldn't there be inheritance tax? If so, how do you make it inter-generational retirement?