The axe has fallen - advice requested on unintended / forced "retirement"

[jldavid47]

Talk to a fee-only financial planner (a CPA is overkill). You are in a situation where if you make the wrong decision in 2026 the effects could reverberate for the next 30 years. Don't assume that cashing out your traditional 401K and paying off your mortgage is the best move. A good financial planner can work through the scenarios including how to withdraw from your retirement plans in a tax efficient way to give you the cash flow you need before Social Security kicks in. Don't throw out the possibility of doing some part-time w*rk to support your cash flow needs if the planner thinks that would be useful. It just sounds like you could use the advice of a professional. Good luck.

 

[Simmons1]

I went through this once in my late 30's and was in no way prepared to retire early. Our saving grace was we had no mortgage.

If it was me I would go back to work as fast as possible. If you find a job that pays enough to cover a lot of your expenses you can bank the years worth of severance as cash and have a great cushion should you decide to retire at the end of you severance.

 

[Philip12]

Reading through, I think some of the suggestions are safe, but some suggested options would probably void the Rule of 55 exception to the 10% early withdrawal tax penalty. I think the 401k plan documents should be read very carefully. In my case, for example, rolling over to an IRA anytime between now and January of 2030 would void the 10% penalty exception, because I am 55 not 59 1/2. Also, in my plan, Roth 401k withdrawals before age 59 1/2 would likely result in a tax on a portion of the withdrawals, thus defeating the entire point of "tax free" Roth money. That is because withdrawals prior to 59 1/2 are not "qualifying distributions". Contributions may not be taxed, but earnings would be, and you might not be able to selectively only take out the contribution portion.

Maybe get a planner, but it seems to me that traditional 401k is your only source of "good withdrawals" from age 55 to 59 1/2, so you would NOT want to liquidate it to pay off the mortgage and eliminate that as an income source for the years from now until 2030. By "good withdrawals" I mean withdrawals with no 10% early withdrawal penalty and not Roth funds that are unqualified to be treated as tax-free.

 

[Running_Man]

The talk is that the OP has 28X times expenses but I believe that is only considering if there is no mortgage. I know that the 401K with 3X will pay off mortgage so this means that with mortgage expense a 55 year old has 22X expenses or a 4.54 percent withdrawal, once you get past the end of the year.

**Calculations** Imagine annual expenses ex mortgage is 100K -- 300K to pay off mortgage 300K mortgage at 5.5% means a mortgage P&I payment of 21K per year on a 2.8 million dollar portfolio (28 X 100K of expenses) Additionally 21K of mortgage will need withdrawal to pay mean an additional 22% Fed tax 9% CAl tax??on the 21k withdrawal to pay mortgage or another 6K leading to 27K of expense. $2,800,000 portfolio divided by $127,000 expenses equals 22 times expenses. Also probably knocking him out of silver Obamacare subsidy which furthers the expense spiral.

Fear is a 20-30 percent bear market will drop value of home further, also make paying off the mortgage unfeasible and drop portfolio to 16-18X expenses at age 56-58 and now you are at a 6% withdrawal rate at age 57 and which has I believe a 40% failure rate over 30 years at age 57.

Whereas if he pays off the mortgage he ends up with a real 25X times expenses and severely curtailed risk. Timing of next January might be better and the funds could be moved to Treasury Money Market to protect and save on taxes until that time.

It is also possible market could go up 20 percent which would probably help, certainly lower withdrawal rate.

If you view the 3X portfolio and the mortgage as one set of retirement scenarios to control, and remainder of the expenses as a 25X portfolio, the 27K expense to pay the mortgage is 9 percent withdrawal rate of the 3X portfolio, again looking only at mortgage. A 20 percent decline in 2027 and easily in year two you are at over 12.4 percent withdrawals and the mortgage portfolio is at 218,400.

Just looking at minimizing tax implications does not always translate to a better outcome based on risk. With mortgage paid off there is much less withdrawals needed, lower income and much better future tax treatments and possible subsidies.

 

[OrigamiRN]

Sorry this happened to you.
There’s some great advice here from really smart people.

 

[Mike999]

As someone on ACA 10ish years , I’d make sure you understand the cost at various income levels and the cliff and perhaps the income level that will put you on medicaid, that might be more probable than you think. You will likely be dealing with ACA for 10 or 11 years so you’ll need to understand it. As someone suggested, I would do cobra for the 6 months to close out the 2nd year, then go on ACA. Subsidized ACA will be cheaper that cobra but its tricky for partial year unless you would have full year income below the cliff. Mortgage free is good, but paying a lot of taxes is bad, try to find the balance. If you can liquidate the 401k over time while staying under the ACA cliff and paying minimal taxes, maybe you can get mortgage free in 5 or so years and save a bunch in taxes. Having a detailed plan for the next 12 years (until you and spouse are on Medicare) is probably something to focus on. If creating that 12 years plan is not something you can do, then professional help may be needed. Problem is finding someone to help you that is not trying to help themself. Good luck, once you get the details figured out, you can relax and enjoy your early retirement!

 

[Sunrise_Ray]

1. You are better than 90% of the people who retire out there.
2. You have 28x which is higher than the common 25x number you will read.
3. Get yourself now on the AI bandwagon to ask a lot of questions and NOT just read read and read.
4. Prepare your best shot of Expense Report now that you are going to be home and expenses would change from July 1st to Dec 31st.
5. Look at what you can shed that would reduce the OpEx Expense, and minimize the CapEx expense.
6. Buy Home Warranty if you are worried. There are tons of positives and negatives, but that will ease your mind.
7. Get into a better game plan for your investments. Taking a HIT on your investments WOULD NOT BODE well at all.
8. Ensure that you are well covered with health care, but even more importantly, now HEALTH is much more critical than WEALTH.
9. Reduce your expenses in discretionary items till 12/31/2026 until you get all angles well under control. You will have PLENTY of time to spend and experience.
10. If there are expensive things planned, see if you can cancel and save on those for now. Postpone those to 2027.
11. Relax. Breathe. Plan. Plan and Plan. Ask ChatGPT to take this entire thread and create a plan, with pros, cons, ideas, assumptions, and then challenge it again to create a practical Action Plan. These threads are great to pull out and then put through GPT / Gemini / Meta.
12. Finally, do NOT go for any %AUM based models, but invest in Retirement SW that is discussed at plenty over here in this forum and invest in the one you like most. Do NOT jump into any since I am testing/trying out many including a NEW one call Fat Boy.

Good luck. Come back and share more in a new thread in a few months (please).

SRay

 

[indiajust]

Slightest of tweaks to advice on avoiding paying down the mortgage. I wholeheartedly agree with deferring selling the 401k, but that implies a need to de-risk the 401k portfolio. Choosing to balance asset/debt mix requires a change in asset allocation, at least for the chunk that offsets the debt. Should the stock market take an absolutely normal 20-30% decline, your ability to avoid selling at the bottom and survive the volatility is critical. As long as you make sure you can survive a dip, your savings and situation is generous. Balance, not growth, is now a goal.

You have plenty of breathing room with the glorious severance package. Do the one time fee evaluation and put together a plan. During my 4th layoff in 01, the housing and stock markets went down together. I lost 20% of my 401k during the rollover transition to IRA, approx 3.5 weeks. I had little optionality at the time. But even with only 3 years or so in the brokerage and less than 100k, I did fine (later investing at the bottom to ride up with the market).

My temptation would be to derisk and simplify the 401k allocation and defer a rollover to IRA (or sell and pay mortgage) until after the plan is forged and accepted, say before september. You may find that a partial payoff is the sweet spot for you emotionally.

The benefit of having generous savings is you bought time to make a wise decision. Don't waste the opportunity you already purchased.

 

[pb4uski]

Looks like the OP is MIA... last like on this thread was about two weeks ago... hope that I am wrong.

 

[Koolau]

Looks like the OP is MIA... last like on this thread was about two weeks ago... hope that I am wrong.

Yes. Appears to be gone. Unfortunate. I was "invested."

 

[kilgore]

The OP was understandably terrified. That's the first priority. Hopefully it was addressed elsewhere.

 

[OrigamiRN]

As someone on ACA 10ish years , I’d make sure you understand the cost at various income levels and the cliff and perhaps the income level that will put you on medicaid, that might be more probable than you think. You will likely be dealing with ACA for 10 or 11 years so you’ll need to understand it. As someone suggested, I would do cobra for the 6 months to close out the 2nd year, then go on ACA. Subsidized ACA will be cheaper that cobra but its tricky for partial year unless you would have full year income below the cliff. Mortgage free is good, but paying a lot of taxes is bad, try to find the balance. If you can liquidate the 401k over time while staying under the ACA cliff and paying minimal taxes, maybe you can get mortgage free in 5 or so years and save a bunch in taxes. Having a detailed plan for the next 12 years (until you and spouse are on Medicare) is probably something to focus on. If creating that 12 years plan is not something you can do, then professional help may be needed. Problem is finding someone to help you that is not trying to help themself. Good luck, once you get the details figured out, you can relax and enjoy your early retirement!

Medicaid is asset based, so the OP will not be eligible for medicaid. ACA is income based, and he can certainly take advantage of that with some planning

 

[Route246]

1. You are better than 90% of the people who retire out there.
2. You have 28x which is higher than the common 25x number you will read.
3. Get yourself now on the AI bandwagon to ask a lot of questions and NOT just read read and read.
4. Prepare your best shot of Expense Report now that you are going to be home and expenses would change from July 1st to Dec 31st.
5. Look at what you can shed that would reduce the OpEx Expense, and minimize the CapEx expense.
6. Buy Home Warranty if you are worried. There are tons of positives and negatives, but that will ease your mind.
7. Get into a better game plan for your investments. Taking a HIT on your investments WOULD NOT BODE well at all.
8. Ensure that you are well covered with health care, but even more importantly, now HEALTH is much more critical than WEALTH.
9. Reduce your expenses in discretionary items till 12/31/2026 until you get all angles well under control. You will have PLENTY of time to spend and experience.
10. If there are expensive things planned, see if you can cancel and save on those for now. Postpone those to 2027.
11. Relax. Breathe. Plan. Plan and Plan. Ask ChatGPT to take this entire thread and create a plan, with pros, cons, ideas, assumptions, and then challenge it again to create a practical Action Plan. These threads are great to pull out and then put through GPT / Gemini / Meta.
12. Finally, do NOT go for any %AUM based models, but invest in Retirement SW that is discussed at plenty over here in this forum and invest in the one you like most. Do NOT jump into any since I am testing/trying out many including a NEW one call Fat Boy.

Good luck. Come back and share more in a new thread in a few months (please).

SRay

Splendid advice! I also would enjoy hearing back in a few months.

 

[NomDeER]

Medicaid is asset based, so the OP will not be eligible for medicaid. ACA is income based, and he can certainly take advantage of that with some planning

I'm pretty sure that, if you are not a senior and are not disabled, Medicaid is generally income based rather than asset based. If your income is too low, you generally do not qualify for an ACA subsidy; you are expected to be on Medicaid. This has been a real problem in states that refused to take the federal funding and expand Medicaid.