Think I’m Close

[Spirit_Cheese]

TLDR – Mentally I am ready. FireCalc says 100% and I realy, really, really want to believe it

Been lurking for a while and collected a ton of info from everyone's posts. So thanks for that.

Here is my situation. Me: 56. DW: 59 DD1: 21 - senior in college. DD2: 19 – sophomore in college. Was laid off from the Megacorp j*b about a year and a half ago. Was already doing some part-time consulting for a software start-up, so it was an easy transition to go from consulting to full time. DW has not worked outside the home for about four years now. We pay for DW’s healthcare on the Exchange ($700/month) and have a family plan for eyes and dental (another $170/month). DDs' healthcare is through colleges and mine is through VA.

Because we just moved (downsized), I have only got three months’ data of what the new expenses are, but I have tracked detailed expenses for the last 3 ½ years. Our annual spend is projected to be about $80K. Historically it has been closer to $95K per year, but many of those costs have gone away because of various reasons. In my opinion, there is a lot of fat that could be cut from the current expenses (if required). For example, we probably do not need Amazon Prime, Netflix, HBO, Hulu, Spotify, and cable…seems like we could get rid of a couple of those and it would not be the end of the world.

The monthly details:

• House-related: $2650 (Mortgage/HOA)
• Health Premiums: $870
• Utilities: $355 (Gas, water & electric)
• Groceries/Restaurants/Miscellaneous: $2000
• Entertainment: $425 (all the aforementioned streaming services, plus cell phones & internet included here)
• Insurance: $300

Total: $6600 ($79,200 annually)

I use $105K as the expense number in the online calculators. I have run our numbers through FireCalc (100%), Personal Capital (97%) and Engaging Data (98%). I forecast out for 39 years (when I turn 95.) The expense numbers do not include projects (kitchen remodel, tuition, etc) – I track those in FireCalc on the “Portfolio Changes” tab and do something similar with the other two calculators. So really the extra $25K would be for travel, taxes, car-related expenses, health-related issues and whatever else life throws our way.

Current Assets (both DW and me combined):

• Retirement: $1.15 million (75% index & dividend funds, about 10% REIT and industry-specific funds and about 15% in bonds/targeted retirement date/small cap funds)
• Taxable: $315K (Stocks & stock ETF, Bond ETF and about $80K in cash/money market account-the emergency fund)
• Health Savings: $25K
• College 529: $103K
• Total assets: Just under $1.6 million (current asset allocation 90% stock/5% bond/5% cash) This does not include equity in house.

Current Liabilities: House is valued at about $525K and we have $266K remaining on a 15-year mortgage (2.75% fixed-14 years/10 months left). We use credit cards for the cash-back deal but are paid off every month. Both cars are paid for (2012 & 2015 – bought new). We have three more years of college to pay for with at least one year sitting in the 529 now.

Current Income: $70K salary (no benefits). I get $18K in disability (COLA adjusted) for the rest of my life. Portfolio generates about $25K in dividends (although I am curious about the second half of this year). We have always reinvested dividends. I used the social security calculator to determine the current best time to apply for benefits, so the numbers right now are $12K per year for DW (year 66) in 2027 and $41K for me in 2034 (year 70).

Three Concerns:
1. COVID – are we heading for another deep drop in the market? I figure we have savings for a year before we must start liquidating assets, but, just like everyone, I do not want to retire at the beginning of a down market.
2. College Tuition – I think I have projected high on tuition for the next three years, but one never knows until the bill appears.
3. Asset Allocation – I know it is out of whack for my age, but I’ve always been a buy-and-hold guy, so I struggle with selling perfectly good stocks to convert to bonds. I think I need to overcome that phobia though.

Three other pieces of info.

1. I am not crazy about my current j*b. I like some aspects of it, but if I am honest, I am not in the “start-up” mindset of being willing to work all hours and wear multiple hats. Also, there are some aspects of it that drive me insane and it seems like the insane aspects are getting so they are about 75% of the time. I have no equity in the company. Additionally, while I have not asked directly, I would be willing to go hourly part-time with this company if I could just do the stuff I like to do (and am good at) and my guess is they they would probably jump at that. So that could generate another $1000 a month minimum, but I do not include that figure in the FIRE calculations.

2. I had a j*b offer with a position I could do for a couple years easily, but because of COVID, there is a hiring freeze. This j*b would have a decent salary (would easily cover current expenses) and would have excellent benefits. I could see myself doing this for a couple years to pad the portfolio, but it might be several months before the freeze is lifted.

3. DW and I have two major hobbies that cost money – travel and restaurants – both of which are not really available to us right now. So if I were to quit now, we would be withdrawing less from the portfolio than normal for the foreseeable future. We both have plenty of other interests to occupy our time, so being bored in retirement is definitely not a concern.

So, my questions are, given my concerns, do you see anything major that I have missed? While I realize there are no guarantees in life, if you were in my position, would you be more willing to take the plunge if you knew there was a j*b available to you probably within six months if you needed it? Or should I just hang on to the current drive and put up with the daily frustrations?

 

[Dtail]

I put your numbers in Firecalc and get a maximum spending number of closer to 90k.
Did you include the 25k dividend number as an input, as this number should not be included?

 

[Spirit_Cheese]

I did put the $25K in dividends as an input. Guess I'm not as close as I thought

 

[Dtail]

I did put the $25K in dividends as an input. Guess I'm not as close as I thought

The 25k is not included as the concept of returns in Firecalc is that of a total return concept and thus the historical return % already have dividends included.
Still you appear to be at a decent number. Perhaps review your expenses a little more closely and where else there is room for decreases without sacrificing lifestyle.

 

[Spirit_Cheese]

Thanks, Dtail. I'll definitely do that.

 

[Golden sunsets]

Your proposed spend of $6,600/mo does not appear to include federal and state taxes and the bulk of your portfolio is in pretax, so you will have to pay taxes on those withdrawals. Nor does it include additional health premiums for you once retired, or a sinking fund for major expenses. I would not include the 529 plan assets or HSA in your investment total. With a 4% SWR of the $1,430,000 you have invested plus the disability income of $18,000 you are at $75,000 available for annual expenses. It does not seem to me that you are there yet. Your SS will not kick in in a meaningful way for 14 years if you wait until age 70. Plus, as you acknowledged, your 90% exposure to equities places you in a high risk tolerance category. Are you truly comfortable being in that category, when you are about to become almost totally reliant on that portfolio for income?

 

[cxr133]

Your proposed spend of $6,600/mo does not appear to include federal and state taxes and the bulk of your portfolio is in pretax, so you will have to pay taxes on those withdrawals. Nor does it include additional health premiums for you once retired, or a sinking fund for major expenses. I would not include the 529 plan assets or HSA in your investment total. With a 4% SWR of the $1,430,000 you have invested plus the disability income of $18,000 you are at $75,000 available for annual expenses. It does not seem to me that you are there yet. Your SS will not kick in in a meaningful way for 14 years if you wait until age 70. Plus, as you acknowledged, your 90% exposure to equities places you in a high risk tolerance category. Are you truly comfortable being in that category, when you are about to become almost totally reliant on that portfolio for income?

Where should i start researching how big of a hit a portfolio takes on federal, state and health premiums? and also tax rates on the pre-tax accounts right now all my investments are tied to 403B, 401K and a Pension which i assume all will be taxed heavily. do i estimate 30% HIT and how does this figure into something like Firecalc? Thanks

 

[Dtail]

Where should i start researching how big of a hit a portfolio takes on federal, state and health premiums? and also tax rates on the pre-tax accounts right now all my investments are tied to 403B, 401K and a Pension which i assume all will be taxed heavily. do i estimate 30% HIT and how does this figure into something like Firecalc? Thanks

In terms of using Firecalc, you would include the estimated taxes as part of your total expense input on the first page.

 

[Golden sunsets]

Where should i start researching how big of a hit a portfolio takes on federal, state and health premiums? and also tax rates on the pre-tax accounts right now all my investments are tied to 403B, 401K and a Pension which i assume all will be taxed heavily. do i estimate 30% HIT and how does this figure into something like Firecalc? Thanks

The portfolio doesn't take a hit; your expenses are greater. You could do a proforma tax return to get an idea. Just looking at the current tax brackets would give you some indication. Compare that to what you are currently paying. Add that new number to your core expenses. What are those projected expenses as a % of your investment portfolio(not including the 529 and HSA). Health premiums would be increased by the amount to add your premium to your wife's until you are both 65. Doubling your wife's premium would make sense as a rough estimate. But checking the exchanges shouldn't be hard.

Also does your SS estimate factor in retiring now or does it assume you work until FRA? Plus I believe your DW is entitled to half of your FRA rate, once you have claimed your SS.

 

[pb4uski]

Where should i start researching how big of a hit a portfolio takes on federal, state and health premiums? and also tax rates on the pre-tax accounts right now all my investments are tied to 403B, 401K and a Pension which i assume all will be taxed heavily. do i estimate 30% HIT and how does this figure into something like Firecalc? Thanks

Try this tax calculator: https://www.dinkytown.net/java/1040-tax-calculator.html

If you only had $80k of tax-deferred account withdrawals that were fully taxable your federal income tax would be $6,232 (7.8%).... plus add state income tax if applicable. But in any event a lot less than 30%

ETA: just noticed that you have $25k of dividends from taxable portfolio... if those are all qualified dividends and I change the income from $80k of taxable withdrawals to $25k of qualified dividends and $55k of taxable withdrawals then the tax is only $3,232 (4.0%)! Even better!

For health insurace premiums cost, start with healthsherpa.com

You may want to consider managing your income by drawing less from tax-deferred accounts and some from taxable accounts until you are both 65 to qualify for ACA subsidies. IIRC your AGI needs to ba ~$64k or less.... but it may be more while your kids are still dependents.

For SS, if your DW waits until her FRA to file, she should get the higher of her PIA based on her work record or 50% of your PIA. PIA is primary insurance amount... your benefit at your full retirement age (FRA). I'm guessing that she'll get $16.5k or so rather than $12k based n what you wrote. You may want to check out opensocialsecurity.com

Lots of homework to do!

 

[KarlH]

I'm having many of the same questions as I am hoping to retire this year before I turn 55. For me a big part of the decision is an inherited IRA that I am required to cash out over the next 10 years (the new tax law). This is currently at a balance of around 830K, and my current pre-tax salary is at 80K. Essentially, I will be able to give myself a bigger raise than I am expecting from my current job, and use this for the 55-65 years.

After the inherited IRA, I have around 1.3MM in taxable investments, 350K in traditional IRA/retirement accounts, plus around 380K split between 529 and UTMA accounts for our 2 children. I have been running FireCalc on all of the assets minus the college funds, and am seeing between 93-100% with spending between 85K-100K/year (with a 35 year term).

I have calculated our expenses based on the last several years, and we seem to be in good shape, although health insurance pricing can be volatile. I have run the numbers with COBRA at a bit over 2000/month and found a good private plan that allows us to keep our doctors at around 1100. We have an 17 years left on our mortgage at 1200/month with property taxes around 800 (170K balance). We currently have a 400 car payment, but it is interest free and we can pay off the balance with cash on hand if need be. A plus is that my DW plans to continue working for at least the next couple of years, and we may be able to get heath coverage through her job. Our kids are 16 and 19, both currently in school.

Our cars are both relatively new (2019) and electric. We installed a solar array last year that has offset fuel costs 100% while reducing our electric bill. As we have continued working the last year we are amazed at the amount this has been saving even with the car payment. Overall our biggest expense after the mortgage plus taxes has been our home and auto insurance which is between 500-600/month. I am working on quotes to reduce this expense. Overall, our lifestyle is relatively frugal and we don't have any expensive travel, clothing, or dining habits.

How do our numbers look?

 

[pb4uski]

Overall I think you look pretty good.

How did you input your mortgage or mortgage payments into FIRECalc? The best practice is to exclude mortgage payments from your spending but include it as fixed off-chart spending beginning in 2020 and then input a fixed pension equal to the same amount starting in the year that your mortgage payments end. Alternatively, you could exclude mortgage payments from your spending and reduce your portfolio by your mortgage balance.

If you include mortgage payments in your spending then FIRECalc increases them each year for inflation and they never end! To conservative.

 

[Golden sunsets]

I'm having many of the same questions as I am hoping to retire this year before I turn 55. For me a big part of the decision is an inherited IRA that I am required to cash out over the next 10 years (the new tax law). This is currently at a balance of around 830K, and my current pre-tax salary is at 80K. Essentially, I will be able to give myself a bigger raise than I am expecting from my current job, and use this for the 55-65 years.

After the inherited IRA, I have around 1.3MM in taxable investments, 350K in traditional IRA/retirement accounts, plus around 380K split between 529 and UTMA accounts for our 2 children. I have been running FireCalc on all of the assets minus the college funds, and am seeing between 93-100% with spending between 85K-100K/year (with a 35 year term).

I have calculated our expenses based on the last several years, and we seem to be in good shape, although health insurance pricing can be volatile. I have run the numbers with COBRA at a bit over 2000/month and found a good private plan that allows us to keep our doctors at around 1100. We have an 17 years left on our mortgage at 1200/month with property taxes around 800 (170K balance). We currently have a 400 car payment, but it is interest free and we can pay off the balance with cash on hand if need be. A plus is that my DW plans to continue working for at least the next couple of years, and we may be able to get heath coverage through her job. Our kids are 16 and 19, both currently in school.

Our cars are both relatively new (2019) and electric. We installed a solar array last year that has offset fuel costs 100% while reducing our electric bill. As we have continued working the last year we are amazed at the amount this has been saving even with the car payment. Overall our biggest expense after the mortgage plus taxes has been our home and auto insurance which is between 500-600/month. I am working on quotes to reduce this expense. Overall, our lifestyle is relatively frugal and we don't have any expensive travel, clothing, or dining habits.

How do our numbers look?

So you have $1,300,000 + $350,000 + $830,000=$2,480.000 x 4% = $99,200. So you look good. I wouldn't recommend the full 4% withdrawal rate, if you have no SS to factor in. But I am assuming that both you and your DW do have SS. Have you used Firecalc?

FYI - You might want to start your own thread, so that the OP doesn't feel his thread has been taken over.

 

[KarlH]

FYI - You might want to start your own thread, so that the OP doesn't feel his thread has been taken over.

My apologies to OP. I am new and still learning these things, likewise about FireCalc, which I have only used to run with inputs of expenses plus a single total asset number. So much to learn.

 

[Golden sunsets]

My apologies to OP. I am new and still learning these things, likewise about FireCalc, which I have only used to run with inputs of expenses plus a single total asset number. So much to learn.

No worries. Welcome to the forum. PB's advice is good advice to follow. He's a bit of a guru around these parts.

 

[Spirit_Cheese]

My apologies to OP. I am new and still learning these things, likewise about FireCalc, which I have only used to run with inputs of expenses plus a single total asset number. So much to learn.

OP, here. No apologies necessary! I got some excellent advice and it sounds like you did as well.