Will I Be Able To Retire Before 60?

[HI Bill]

Welcome! Sounds like you're doing well so far. If you use the "Rule of 72", and assume that you're going to earn 10% annually [a big unknown,] for the next 14 years, you could potentially triple your assets if fully invested in stocks. And that's without adding $ along the way. You'd have north of $2.4M, which at a SWR of 4%, would give you an 'income' of $96K, before SS, which inflation-adjusted would be pretty close to your desired $75K in today's $.

Have you looked at your SS benefits? For most people, taking SS should be done between FRA (Full Retirement Age) and age 70, with age 70 being preferable if you expect to live more than 12 years past that age (the approximate breakeven point), and don't have a spouse who would take your benefits upon your passing. If you're unmarried or don't expect to live past age 82, I'd personally take them early, especially if you won't be relying on them for income. YMMV.

 

[F.I.R.E User]

Welcome! Sounds like you're doing well so far. If you use the "Rule of 72", and assume that you're going to earn 10% annually [a big unknown,] for the next 14 years, you could potentially triple your assets if fully invested in stocks. And that's without adding $ along the way. You'd have north of $2.4M, which at a SWR of 4%, would give you an 'income' of $96K, before SS, which inflation-adjusted would be pretty close to your desired $75K in today's $.

Have you looked at your SS benefits? For most people, taking SS should be done between FRA (Full Retirement Age) and age 70, with age 70 being preferable if you expect to live more than 12 years past that age (the approximate breakeven point), and don't have a spouse who would take your benefits upon your passing. If you're unmarried or don't expect to live past age 82, I'd personally take them early, especially if you won't be relying on them for income. YMMV.

I am also contributing at least $40k year (includes 401k match) so what will I end up with at 10% ROI in 14 years?

SS right now shows about $32k at age 70. When should I tap into it? Why does it matter when we die? If I take it at 70 and die at 71 then what? I am not going to regret my decision because I will be dead and everyone else around me will know I am dead.

 

[N02L84ER]

You do not need to start with the taxable account for withdrawals, however, if you retire early, before penalty free access to retirement accounts, the taxable account can be the best place to start. The most frequent recommendation for adding bonds/fixed income is 10 years before retirement and that is when we added bonds.

 

[F.I.R.E User]

You do not need to start with the taxable account for withdrawals, however, if you retire early, before penalty free access to retirement accounts, the taxable account can be the best place to start.

That is true but after 55 I can use 72t.

 

[N02L84ER]

Nothing wrong with using 72t.

 

[HI Bill]

I am also contributing at least $40k year (includes 401k match) so what will I end up with at 10% ROI in 14 years?

SS right now shows about $32k at age 70. When should I tap into it? Why does it matter when we die? If I take it at 70 and die at 71 then what? I am not going to regret my decision because I will be dead and everyone else around me will know I am dead.

I calculated compounded 10% earnings for 14 years, starting with $825,600, and adding $40K annually, and came up with an ending value of $4,254,214 (not inflation-adjusted). The actual value might be higher, as you're most likely making monthly contributions to your IRA.

If you're likely to die early, you're better off taking SS early, as you'll maximize how much you receive from SS over your lifetime, which means you'd be able to spend more and/or retire earlier. If you take SS at 70 and die at 70, you may not regret the decision, but you won't have gained any/much benefit from the SS system, nor your contributions to the system! On the other hand, if you start SS at 70 and live past 82, you'll receive greater $ than in the early taking scenario.

 

[F.I.R.E User]

Nothing wrong with using 72t.

I calculated compounded 10% earnings for 14 years, starting with $825,600, and came up with an ending value of $4,254,214 (not inflation-adjusted).

If you're likely to die early, you're better off taking SS early, as you'll maximize how much you get from SS, which means you'd be able to spend more and/or retire earlier. If you take SS at 70 and die at 70, you may not regret the decision, but you won't have gained any/much benefit from the SS system, nor your contributions to the system!

I use the compounding calculator and get the same result. Not sure when I will die. I know there are calculators for that too.

 

[HI Bill]

That is true but after 55 I can use 72t.

At age 55, you may be able to use the "rule of 55" to take early distributions from a 401(k), penalty-free. You can start a 72t distribution plan earlier than 55.

 

[F.I.R.E User]

At age 55, you may be able to use the "rule of 55" to take early distributions from a 401(k), penalty-free. You can start a 72t distribution plan earlier than 55.

How much should I be in cash in retirement?

 

[HI Bill]

Many folks here like to keep 2-3 years in cash in case there's a significant downturn in the markets, so they don't have to sell stocks at a loss when they need income. Some keep more, some keep none. Some consider their bonds the same as cash, but those can lose value.

 

[F.I.R.E User]

Many folks here like to keep 2-3 years in cash in case there's a significant downturn in the markets, so they don't have to sell stocks at a loss when they need income. Some keep more, some keep none. Some consider their bonds the same as cash, but those can lose value.

2008-09 and 2020 happened so in a 30+ year retirement it may happen again then too.

 

[Sunset]

I can only sell from retirement account if I use the Rule of 55 otherwise penalty.

I don’t care about drops now. Started in 2007 and saw 2008-09 and 2020.

Family sends money to help out with mother’s cost and it also benefits me and I am taking care of her.

Where I was suggesting you sell some stock within 5 years of retirement (when the market is high) can be done within the retirement account so no taxes paid.
Then you have for example $250K in bonds/treasuries/CD's and the rest still in stocks in retirement accounts.

If a few years later the market drops 45% right before or after your retirement, you just use the dividends you get from stocks plus some of the bond money from the retirement accounts as income.

 

[Sunset]

Sunset is saying to rebalance your asset allocation by selling stock funds and buying bond/fixed income funds in your 401K/IRA - basically doing an exchange of funds which has no penalty. He is not saying to sell from the 401K/IRA and buy in a taxable account.

Thanks........ I had replied to OP before I saw your response how everything would remain within the retirement accounts.

 

[F.I.R.E User]

Where I was suggesting you sell some stock within 5 years of retirement (when the market is high) can be done within the retirement account so no taxes paid.
Then you have for example $250K in bonds/treasuries/CD's and the rest still in stocks in retirement accounts.

If a few years later the market drops 45% right before or after your retirement, you just use the dividends you get from stocks plus some of the bond money from the retirement accounts as income.

If 401k has $1M so I would sell the shares and buy Bonds/Treasuries/CD’s for $250k? This makes it a 75/25 account?

 

[Koolau]

Any particular reason you have avoided owning a home? While renting has its advantages (and this may not be a great time to buy) owning a home does present several advantages over renting. I guess that's the main "tweak" I would suggest for your plan - consider buying a residence rather than rent. Otherwise, I'd say you're probably golden to retire by 60 (or way earlier with a bit of luck.)

By the way, good on you for looking after your mom.

 

[F.I.R.E User]

Any particular reason you have avoided owning a home? While renting has its advantages (and this may not be a great time to buy) owning a home does present several advantages over renting. I guess that's the main "tweak" I would suggest for your plan - consider buying a residence rather than rent. Otherwise, I'd say you're probably golden to retire by 60 (or way earlier with a bit of luck.)

By the way, good on you for looking after your mom.

I don’t want the responsibility of maintaining the home, the cost associated with it, repairs, proprty taxes, etc. financially it made/makes sense to rent right since my rent has never been over $613 with family subsidy? Also, my buying power would be low into index funds. I won’t be able to house hack due to my mother living there.

 

[pacergal]

Have you run Firecalc?
Do you know your budget well and do you track all expenses?
Are you managing your Moms finances also and what are the plans as she continues to age, or needs greater care?

It looks like you are well on your way.
Perhaps reading some books may help answer some of your questions. Bogleheads forum has a great list.

 

[F.I.R.E User]

Have you run Firecalc?
Do you know your budget well and do you track all expenses?
Are you managing your Moms finances also and what are the plans as she continues to age, or needs greater care?

It looks like you are well on your way.
Perhaps reading some books may help answer some of your questions. Bogleheads forum has a great list.

Many times I’ve ran the FireCalc. It’s confusing because I don’t know which method to select like Monte Carlo.

Budget and expenses will be higher in retirement. It’s low now because of family subsidy.

Last resort is to put mom in an assisted facility. She has no assets so we will need to get her on a Medicaid plan that covers her expenses.

 

[Ronstar]

........
@Ronstar I want to spend more in retirement than I am now/past/future.

I am not conservative at all so what is the point of 20% Bonds now? Aren’t I giving up the max gains?

Many say have a 2 year cash reserve in retirement and be all stocks. When market tanks use the cash reserve.

Ok to spend more in retirement than now - just account for the increase in your projections.

What is the point of 20% bonds now? You raise a good point. My taxable Vanguard account is 100% stock. Lost 19% in 2022. It recovered by August of 2023. I also had a 70/30? IRA that lost 11% in 2022. It took all of 2023 to recover.

So a 2 year cash reserve with 100% IRA in stocks would have been better than say a 70/30 AA through the 2022 mess.

But the thought of a balanced portfolio vs a 100% stock portfolio is that the balanced portfolio is better in weathering the big storms. I don't have my Vanguard taxable 100% stock account data handy, but I think it took longer than 2 years to recover from the 2008 mess. I suspect that retirees with 100% stock in the 2008 mess would have needed more than a 2 year cash reserve to weather that storm.

You and others like you in the growth phase may want to get to F.I. as soon as possible. But once you get close to retirement, it becomes more important to protect your portfolio than it does to increase it.

 

[Dtail]

Many times I’ve ran the FireCalc. It’s confusing because I don’t know which method to select like Monte Carlo.

Budget and expenses will be higher in retirement. It’s low now because of family subsidy.

Last resort is to put mom in an assisted facility. She has no assets so we will need to get her on a Medicaid plan that covers her expenses.

I would stick with the "Total Market" option in Firecalc.
I know you have access to the Fidelity calculator. That methodology is automatically a Monte Carlo simulation.
So, this way you are using both types of methodologies in conjunction with each other.

 

[eyenitnoy]

Will I Be Able To Retire Before Age 60?

Traditional 401k: **$556,101.10 ->** SP 500 Index PL CE F, ER (Unknown) 85% AND Small Cap Index, ER (Unknown), 15%
6% Company Match $1 to $1. I took the allocation advice from Bogleheads forums and this is what was recommended to mimic VTSAX.

Contributing $23k with True Up option available.

I have one planning suggestion. I have highlighted the $556,101 in your traditional 401(k). When you calculate your net worth, I suggest you using a weighted number for the traditional 401(k). Pick a tax rate, say 20%, and cut the 401(k) dollar amount by that percentage when you plug it into your net worth calculation.

Why? It will lower your net worth and reduce the false sense of security that a high net worth number gives. Most of your net worth is here and the 401(k) money is taxable. So when you take it or roll it into your Roth IRA, you will not be getting the full value of the money but the after tax value. Right now, that cuts your net worth by $100,000 and in the future, as this compounds, the tax amount will only go up.

You can do the same from a capital gains standpoint with your taxable accounts. But these amounts are lower and the tax more modest so it isn't as critical.

Bottom line: You want accurate numbers to guide your future decision making process.

Overall, I think you are doing well. Two additional suggestions:

1. You might want to up the emergency fund. $3,000 these days isn't really enough. Especially with interest rates being so high, parking money in an interest bearing account for emergencies is a good idea. I'd target an amount equal to 3-6 months of whatever your current monthly expenses are.

2. I'd also review your insurance situation, with regards to liability insurance and disability insurance, to make sure you are adequately covered for these serious situations. As you are a renter, be sure to get renter's insurance and add an umbrella liability policy on top of that as we live in litigious times. (Most people use home owner's insurance as the basis for their umbrella but you can do the same with renter's insurance.) And check your employer's disability insurance provided, if any, and add to it accordingly. People generally are on top of health insurance, but often don't think about disability insurance.

Good Luck.

edit: P.S. I love that your rent. $613 a month on rent is less than many people pay in property taxes. You are avoiding interest costs, upkeep, taxes and insurance. While owning is in some cases a good idea, renting is often dismissed out of hand. Bravo!

 

[Sunset]

If 401k has $1M so I would sell the shares and buy Bonds/Treasuries/CD’s for $250k? This makes it a 75/25 account?

Probably has to be done in an IRA as I don't think 401K's allow buying Bonds/Treasuries/CD (and buying a fund is not the same if for not reason than they charge you a fee to hold it).

While working you can contribute to a 401K to get the match, but after that, you can contribute to a separate IRA or Roth to have more flexibility in investing.
An example to be clear, could contribute $10,000 per year to 401K OR

contribute $4,000 per year to 401K as company matches up to that amount, and also contribute $4,000 to IRA and contribute $2,000 to Roth.