Trying to achieve financial independence

[raj75]

I need a second opinion on my FI journey.
I’m 52 years old, late start to investing.
Wife 46yrs will work probably part-time for next 2-3 years.


Current allocations:
Taxable: 1.42 mil in total stock index fund
My Roth IRA: 28k total stock index
Wife roth: 7k total stock index
My 401k: 916k in S&P 500 fund
Wife 401k 221k in S&P 500 fund


-Salary 300k
Wife part time 70k

-Vehicles Tesla 2024, Toyota SUV 2018, Toyota sedan 2014 all paid off--In process of buying new subcompact SUV for myself, will sell toyota sedan 2014

-Saving 7,000 monthly to taxable
both are maximizing 401k and roth

-Debt: mortgage 240k balance paying around 2300 per month--house value 730k Mortgage interest 3.25%.

-Expenses 10500/month--
Monthly expenses

mortgage 2300
phone 150
car insurance 450 (high due to teen driver)
home insurance 250
umbrella 60
medical, dental, vision 500
life insurance 200
disability 200
electricity 250 (Tesla charging)
wife life insurance 75
water 250
medical expenses additional 2500 which will be there for next 4 years
gas 300
tennis club 250
grocery 1000
cleaning 250
travel, restaurant, entertainment, parking 2000
---------------------------------------
unable to curtail healthcare and entertainment expenses

Total invested asset 2.6 mil

I am somewhat apprehensive due to downturn in business at work.
I think I will be out of danger when reach 3 mil invested assets

 

[Surewhitey]

Well done so far... Unfortunately with your wife working & your dividends in the taxable, ACA cliff ($106.6k) for 3 is getting close but may work for you.

3 mil and a paid for home is our goal with a similar COL minus your medical and home mortgage.

It probably is fine, but I personally would go a bit more. Is the minor going on to university and those costs?

 

[raj75]

Thanks for response-1 kid 529 160k-in college 2nd year-will be enough

 

[Fermion]

Considering your assets your Roth's are very low. Was there never a way to do backdoor Mega Roths in your past?

 

[raj75]

unfortunately in plan conversion for mega backdoor roth is not allowed in our company retirement plan

 

[raj75]

I might switch to roth 401k once my wife stops working.

 

[Love This Community]

Welcome aboard. You're on the right track for your FI journey. Your $7,000 monthly towards taxable will help you along the journey.

 

[Koolau]

Have you run FIRECalc yet?

FIRECalc: A different kind of retirement calculator

www.firecalc.com

It's pretty much our go-to calculator to estimate one's readiness for Early Retirement.

Only question I have is: Is your wife completely on board with Early Retirement? IOW does she understand the good, the bad and the (well, never mind the ugly) of Early Retirement and then, does she buy into it? REALLY important to be on the same page.

 

[pb4uski]

You're probably close. Since you didn't say how many more years on your mortgage I reduced your $2.6m stash by your $240k mortgage and ran FIRECalc for 43 years until you are 95 and solved for safe spending at the default 75/25 AA and the result was $85k. Your current spending x mortgage is $98k so you're probably good once you factor in social security.

I encourage you to work your way through FIRECalc, paying special attention to the Not Retired? tab and the last option on the Investigate tab to calculate spending at 95% success and ask yourself if you can live on that.

Do not include the principal and interest part of your mortgage payment in your expenses. Include that as off-chart spending on the Other Income/Spending tab starting in 2026 with a corresponding pension of the same amount in the year after the mortgage is paid off... in both cases NOT inflation adjusted. If you include your mortgage P&I in expenses FIRECalc will increase it for inflation each year and it will never end and it will skew the result.

 

[raj75]

Sure. ok.
-My SS benefit if I continue to work would be 5025 at 70yrs. as per SS website.
Wife SS 1980 at 67 years. If I take early retirement, it will be lower. My wife is mostly worried about ACA premium expense.

 

[VanWinkle]

Sure. ok.
-My SS benefit if I continue to work would be 5025 at 70yrs. as per SS website.
Wife SS 1980 at 67 years. If I take early retirement, it will be lower. My wife is mostly worried about ACA premium expense.

A taxable account with the ability to withdraw non taxable income (your original contributions) will help with ACA subsidies. Stashing some cash for the years of ACA subsidies is a good way to control healthcare expenses.

 

[Sunset]

I would look at paying off your mortgage, as the amount of the mortgage is small so you probably don't itemize taxes, meaning the interest paid is not being deducted.
The reason to pay it off is: You need to earn ~4% interest to pay the mortgage interest after taxes at a marginal 22% rate. So paying it off is equivalent to getting a guaranteed return on the $240K at 4% and it reduces your need for income in retirement.

Seems like you just started Roth contributions, but seeing the small (relative to income of $375K) 401K values, I'm thinking you may have a better effect by contributing to separate IRAs (not Roths) to get the tax deduction as the RMD on the 401K's will only be ~$41K which is generally not a problem.

You have not included in your expenses all the lumpy expenses, example buying those nice vehicles. There are a lot of other lumpy ones like roof, furnace, A/C, etc.
It would probably help you to actually track your expenses or at least include a section of lumpy ones so you know how much per year all those roughly add up to so they are not an unplanned expense.
Example: Each vehicle, kept for 10 yrs minus resale ~= $4K/yr should be budgeted (or set aside) for replacement.
House roof good for approx 20 yrs, replacement is $15K so budget cost is ~= $750/yr.

 

[Surewhitey]

Sure. ok.
-My SS benefit if I continue to work would be 5025 at 70yrs. as per SS website.
Wife SS 1980 at 67 years. If I take early retirement, it will be lower. My wife is mostly worried about ACA premium expense.

Same challenges here. I think she's seeing the light on the ACA now. She's starting to say, "let's consider if I retire next year..."

We've got a similar stash in after tax accounts to remedy our needs. Just need to consider more Roth rollovers vs ACA. I think it's the ACA that will win.

 

[pb4uski]

A taxable account with the ability to withdraw non taxable income (your original contributions) will help with ACA subsidies. Stashing some cash for the years of ACA subsidies is a good way to control healthcare expenses.

Agree... but over half of the OP's wealth is taxable so I think he's good there.

 

[engineernerd]

Sure. ok.
-My SS benefit if I continue to work would be 5025 at 70yrs. as per SS website.
Wife SS 1980 at 67 years. If I take early retirement, it will be lower. My wife is mostly worried about ACA premium expense.

Also recommend running the "Investigate changing my allocation" option in FIRECalc (in the Investigate tab). You seem to be 100% in stocks, which FIRECalc results show is almost never the best choice. BTW, the most tax-efficient place for fixed-income investments is your tax-deferred accounts (the 401k's).

And to prepare for the possibility of a forced retirement or period of unemployment soon, I recommend learning all about the ACA. Visit healthcare.gov or your state's ACA health plan Exchange website and find out what plans are available to you at what cost (pre-subsidy). Find out what subsidies/tax credits are available at what income levels (income being MAGI, Modified Adjusted Gross Income, which is generally the same as AGI if you own no muni bonds).

Here are two helpful links, courtesy of The Finance Buff:

2025 2026 2027 Federal Poverty Levels (FPL) for ACA Health Insurance

Compare your income with the Federal Poverty Level (FPL) to calculate the premium subsidy tax credit for health insuance under the Affordable Care Act.

thefinancebuff.com

2025 2026 ACA Health Insurance Premium Tax Credit Percentages

If you get health insurance from ACA, the government sets the percentages of income you are expected to contribute toward a benchmark policy.

thefinancebuff.com

 

[TheWizard]

A taxable account with the ability to withdraw non taxable income (your original contributions) will help with ACA subsidies. Stashing some cash for the years of ACA subsidies is a good way to control healthcare expenses.

You can't normally do that if your taxable account holds equity funds or even bond funds.
But if you have sufficient $$$ in a savings account or MM fund, then you could be all set...

 

[HarveyS]

I think you need a plan for what happens if you get let go from work. You mentioned a downturn. IME it's the 50+ year olds that get caught in downturns. I'd suggest a very hard look at your budget, your spending, and what the job market for someone with your skills looks like.
Don't forget that you need to generate pre-tax funds to pay your lifestyle after you stop working. Said differently, you need an "income tax" line item in your budget. Federal and state (if needed).
I don't think $3M is enough given your lifestyle and the 10+ years you will need to buy health insurance. Double check your numbers. If expenses are $10,500 a month you should have more than $7,000/mo to save in taxable.

 

[engineernerd]

You can't normally do that if your taxable account holds equity funds or even bond funds.
But if you have sufficient $$$ in a savings account or MM fund, then you could be all set...

You can sell stocks/stock funds, though. Since OP hasn't been in the market that long, the proceeds are likely to consist mostly of basis (money put in), with only limited capital gains.

 

[TheWizard]

You can sell stocks/stock funds, though. Since OP hasn't been in the market that long, the proceeds are likely to consist mostly of basis (money put in), with only limited capital gains.

Quite true.
It all depends...

 

[dobig]

Sure. ok.
-My SS benefit if I continue to work would be 5025 at 70yrs. as per SS website.
Wife SS 1980 at 67 years. If I take early retirement, it will be lower. My wife is mostly worried about ACA premium expense.

You can structure your income from taxable to work within those ACA income limits and still meet your monthly income needs. If you use income funds that pay distributions as ROC (return of capital) you pay no taxes until the distributions are equal to your initial investment. Typically 7 - 11 years later. As example SPYI pays 12% in monthly dividends. It would take a little over 8 years before you have to pay any taxes and at that point you pay long term capital gain rates. The tax hit would only come if you ever sell the fund as your cost basis would be 0. As an added bonus the income in those 8 years would count as zero towards your MAGI to help stay within ACA income limits.

Some of the better income funds that have high rates of ROC (90%+) would be SPYI, GPIX, GPIQ, QDVO, QQQI, FYEE. DIVO is a good dividend etf that uses some leverage and pays around a 6% dividend of which normally 70% +/- are classified as ROC. There are some CEFs as well as other income instruments that also have a high percentage of distributions classifid as ROC.

 

[OK EE]

I need a second opinion on my FI journey.
I’m 52 years old, late start to investing.
Wife 46yrs will work probably part-time for next 2-3 years.

I am somewhat apprehensive due to downturn in business at work.
I think I will be out of danger when reach 3 mil invested assets

First, you are in a much better place than 95% of Americans, so congratulations. Second, you have a very nice pile in a brokerage account that you can use to bridge IRS fee free to 59.5 so there's no issues there. Your budget is 125K/yr and at a 3.5% SWR I would rather see 3.6M invested than 3M. I think 3M is doable but it will be tight and your budget is mostly core expenses so trimming a significant amount might be hard. Some things that stick out:

• You are 100% equities. That seems risky if you plan on exiting the workforce soon. I would target something closer to 70/30. Do that in your 401K by choosing the appropriate target date fund that gets your overall AA to 70/30. Leave your Roth and brokerage as is. Two reasons for that, you don't need to worry about taxes when trading in your pretax account and you want your lighter tax load accounts growing faster (Roth+brokerage) and your eventual RMD accounts growing slower.
• Pick a retirement date target as if you're not going to get laid off. 55? That gives you 3 more years of growth and some time to transition to a more appropriate AA.
• You need to account for taxes in your budget. The fact that you'll be living off brokerage for a while is a good thing since that's taxed at LTCG rates and you likely have a fair amount of basis in there due to starting later that won't be taxed. Still depending on how your state treats LTCG you may end up having enough of a tax bill you need to account for it.
• Health insurance past retirement. I know it's tempting to count on ACA subsidies to make your budget work, but we don't know the future of those subsidies. Without getting political, all we really know is that they will be changing at some point.
• Roth 401K sounds enticing but it rarely is the right tax choice. At 300K income you are in a higher tax bracket than you will be in during retirement so giving up tax savings on the 23000 of non catchup contributions isn't worth the tax free gains in the future. Your catch up will need to go to Roth 401K as of this year.

I'm probably missing a couple things but that is what sticks out to me. Welcome!

 

[Phroig]

If you're concerned about being laid off, you should build a cash cushion. You could invest some of it, or perhaps supplement it, with municipal bond funds, which also make sense given your current tax rate.

 

[raj75]

My pay will be less in case of business downturn. Likelihood of being laid off is low. My aim is to save up to 3.5 M invested asset for early retirement. I have few questions.
1. What is the forum consensus on using SPYI in brokerage to qualify for subsidy?
2. I came across this video today by Erin talks money. She talks about using deferred annuity for early retirement.

3. What about staying in Costa Rica, Panama, Ecuador till medicare kick in at 65 years during early retirement?

 

[Koolau]

3. What about staying in Costa Rica, Panama, Ecuador till medicare kick in at 65 years during early retirement?

I thought about being an expat quite some time before FIRE. I finally decided that it wasn't for me. I like the "comfort" of my surroundings (language, gummint - good or not, proximity to friends/family, customs, etc.). Unless you expat because you want to expat (the adventure of it) I'd think long and hard about it. We do have some expats here who may chime in with more favorable views of expat life. I have nothing against it for anyone else, but my research said it was not for me. I "expated" to Hawaii. That was enough "adventure" for me but YMMV.

Good luck and keep us posted.

 

[RetiredHappy]

I have quite a bit of money in fixed income deferred annuities. Note that it will increase your taxes instead of lowering it once payout phase starts.

It was suitable in our situation because I retired at 53 and wanted to create a psuedo pension, i.e. income stream for our retirement. I took all of my IRA and bought a 10-year term that would start when I turned 60, and another 15-year term that would start when I am 70. We have enough investments to cover our expenses if I live beyond 85.