You know When it is Time

[Purslane]

Thank you for reading my lengthy post and for any advice you have. It took me a long time to decide to share my numbers. Looking back on what I have written below I feel good about my plan but getting some unbiased opinions would help me move forward with more confidence.

Personal background: I am a single 56 year old female with 2 grown children (1.5 launched). I have no grandchildren and am unlikely to have any in the future. I have little in the way of extended family, only a few trusted friends and no significant other. I won’t need a complicated estate plan.

I have had a decent income working in the medical field since the early 2000’s, but I was late to the FI, self-service party. Factors included being a busy single parent, having a mountain of medical school debt, being used by not one-- not two-- but three ‘financial advisors’ and a crushing fear of working my way out of poverty only to end up in the poor house by throwing money away in the stock market. I finally realized two things: I did not need to pay people to lose my money-I could do it all by myself, and no one who was paid to care about my financial security cared more than me. I have been trying to quiet my anxiety with knowledge ever since.

Goals: I want to live better in my retirement than I have in my work life. I want to fund my freedom and peace. I want to share with the people I love in life and leave a little behind when I am gone.

Financial background: I transitioned from private practice to government service almost a decade ago and I am eligible to take an MRA+10 early retirement in 16 months. If I exercise this option, my annuity will be reduced by roughly 20%, for an expected take home of $31,000, with no yearly COLAs until age 62. However, I will be able to continue my government health care benefits at my current cost with no interruptions. I do not want to extend my service time or postpone my annuity to reduce the penalty.

For complicated reasons my government job is in the high COL west coast area, but my ‘real home’ is across the country, in a lower COL area. I have been footing the bill for houses in both locations for the last 4 years.

The numbers:

Cash: $150k

CD/MM/Tbills: $1.5M, roughly 4% interest combined right now.

Some might consider this semi-liquid position too large but without this security blanket I simply would not feel comfortable investing at all.

Investments:

Taxable 401k: $1.8M, 95% low-cost TM/500/TD index funds, 5% other low-cost index funds

Roth 401k: 0

Taxable brokerage: $1.8M, 72% low-cost TM/500/TD index funds, 28% individual stocks with 2 positions making up 25% of the value (one I want to keep and one I would trim if not for the high tax liability in my bracket. I hope to settle this issue when I retire to my lower COL area)

Other Assets:

Low COL House: paid off, equity $500k

High COL House: mortgaged at 2.875%, owe $520k, equity $150k, will harvest at retirement.

No other debt


Current situation: 2024

Net take home $200k + 401k $50K + $50k DIV/INT– expenses $135K = $165k/yr next 1.4 years

Retirement options (minimum, average and high): mid 2026

• Annuity $31K + + $50k DIV/INT - expenses $80K – taxes $X = +$1K/year - taxes $X
• Annuity $31K + + $50k DIV/INT - expenses $100K – taxes $X = - $19K/year - taxes $X
• Ideally would like to spend around $150k. I can't take it with me.

Here are my questions. They are not unique.

• Can I retire? Firecalc and Rich Broke or Dead say yes even using conservative inputs, i.e. inflation at 3.5%, living to 100 etc. Like many on the forum, I keep looking for the flaws in my calculations. Once I get off the merry-go-round permanently, I cannot get back on. To that end, I am weighing the pros and cons of some light, part-time work after retiring.
• If I do not work part time after retirement, does it make sense to consider partial Roth conversions for the years between retirement and the onset of social security, assuming I begin taking benefits between age 65-68? Opensocialsecurity.com indicates age 68 is optimal. Conversions have not made sense to me in the past because of my high tax burden. I have tried a few calculators, but none really seemed to consider all the angles. The best thing I could find was something from Schwab.
• What should I be thinking about and planning for right now, in these last months before I stand at the edge of the cliff and promise myself it will be ok if I jump?

 

[Ronstar]

1. I would trust your Firecalc results.

2. I wouldn't do Roth conversions while working at your current income level. And it may not make sense even after you retire at your $31k annuity + $50k DIV/INT.

3. You mention wanting to live a better life in retirement. Then I would not consider any retirement option that plans for less expenses than you have now. Living it up will certainly cost as much as your current HCOL area expenses.

4. You've planned this out well, but maybe there is some way to further planning, advance paperwork etc to get the early retirement annuity and retirement healthcare in line so that there are no snags when you retire.

5. I would do some serious planning as to what you are retiring to. What are you going to do all day when you retire?

 

[levindb]

++++ #5 by Ronstar You have shared a lot of numbers, but not much other than freedom and peace. Numbers will not give you peace as there seems to be some anxiety within you that needs to be tamed.

I would also try to figure out why you had 3 FA's fail you...what they had in common, why you were drawn to them? That may help you understand yourself better, and understand your vulnerabilities.

Sorry if this is not what you were looking for, as you have plenty of $$ to live the rest of your life, but you also need to ENJOY those years ahead of you. Focus on what makes you smile, what hobbies or interests grab your attention...

 

[pjigar]

Financially you are ready. Managing taxes would be tricky. Good luck.

 

[harllee]

You have plenty of assets to retire with no worries. What you should focus on are the intangibles--where will you live in retirement, what fun things will you do, will you travel, how will you make more friends. One thing to think about is long term care issues. If you need help as you age, what will be your options. Will your children be able to help you? I live in a Continuing Care Retirement Community (moved in at age 72) and it has been wonderful for me. Once you decide where to live in retirement you might want to look into CCRCs in the area and get on some waitlists. In my area the wait lists are 10 plus years. Good luck and have some fun! And post more here on this Forum so we can get to know you.

 

[Kings over Queens]

• What should I be thinking about and planning for right now, in these last months before I stand at the edge of the cliff and promise myself it will be ok if I jump?

I have nothing really to add in advice for planning except to say, yes, you will be ok when you jump.

If I knew you better I'd say "beesh, please" lol

You've done an amazing job and built a tremendous financial footing. Money isn't your problem, but managing it and the fear of it I think is something you need to defeat. That will come with education. Knowledge is power.

Look at it this way, imagine you decided to plan a trip around the world. Daunting task, right, full of excitement but also some worry and a lot of unknown, but man, it's a trip around the world. I think planning retirement is like that.

 

[SecretlyFI]

You're in an excellent financial position and will be fine. I'll add to the suggestions above to spend some time over the remaining 16 months penciling out a withdrawal strategy for yourself. Maybe several versions, for times when the market is up vs down would make sense. Many of us mentally struggle with shifting from accumulating to drawing down and with your history and understandable cautiousness, you may run into this. If you get a plan down on paper, including tax impacts, it might ease the mental aspects by allowing you to feel in control of executing the plan when the time comes.

Great job recovering and then thriving after the various setbacks. It's incredible what you've accumulated in spite of the FA's, being a single parent and with medical school debt on top of it. The government health care is a huge advantage for your situation as well.

 

[Exchme]

Your overall stock/bond (cash) position is fine, but it's a lot more tax efficient to put that big slug of cash into tax deferred, not taxable. Doing that matches the taxability of the investment (ordinary income) with the eventual taxability of the tax deferred account. It also slows down the growth of the tax deferred account, reducing the eventual taxes on that. Do you have a stable value fund type of option in the 401K?

Yes, of course you can retire on your schedule, you are in great financial condition.

Yes, you will benefit greatly from Roth Conversions. The best calculator I've found for them is Pralana at pralaretirementcalculator.com. I think the 1st year is $119 and annual renewals are $89. Unlike virtually anything else, it does a correct Roth Conversion analysis when you hold different asset allocations in different accounts. It has an auto-optimizer for conversions, though in the automatic mode it checks only ordinary tax brackets. After you run the optimizer, you may be able to improve the automated results slightly by, say, enforcing an IRMAA tier limit.

Pralana includes the typical deterministic projection and Monte Carlo and historical analysis. Its federal tax treatment is excellent and state taxes are pretty good, though it only handles state taxes in one state at time (it allows for your current residence plus two relocations to new states).

On your SS claim date, I would look on the graph on Opensocialsecurity.com and see how big the difference is between age 68, 69 and 70. It may be more valuable to defer some more (assuming continuing good health) and leave more space for Roth Conversions.

 

[Purslane]

++++ #5 by Ronstar You have shared a lot of numbers, but not much other than freedom and peace. Numbers will not give you peace as there seems to be some anxiety within you that needs to be tamed.

I would also try to figure out why you had 3 FA's fail you...what they had in common, why you were drawn to them? That may help you understand yourself better, and understand your vulnerabilities.

Sorry if this is not what you were looking for, as you have plenty of $$ to live the rest of your life, but you also need to ENJOY those years ahead of you. Focus on what makes you smile, what hobbies or interests grab your attention...

I am looking for all of it...the good, the bad and the ugly, so thank you for the reply. I am very aware that money by itself won't make me happy. I also know that not having money will make me miserable. The closer I get to my retirement date, the more anxiety (and exhilaration) I have. Because I did not know much about money in my early working years my philosophy was that my best investment was to go to work. The idea that my best investment might be NOT going to work is relatively new- and unproven.
To address the question regarding three failed FA I will say this. I was first approached during residency, again when I got my first job and finally by a member of my church. I was easily overwhelmed by the jargon and the tactics, and the knowledge that I should be do something. The money I lost was substantial but lessons were priceless.
I am acutely conscious of the brevity and fragility of life. In my profession as a physician I have been up close and personal with euphoria and tragedy since 1995. I know better than to allow the inertia of contentment to override the good sense to claim the rest of my life while I still have an active mind and a (relatively) healthy body.
Since the lever turned in my brain, I have spent an inordinate amount of time preparing and implementing my plan for financial freedom. It is time now to give as much consideration to what comes next. The fear of not knowing what might make me happy will not stop me from trying to go find it.
I stumbled on this forum accidentally, at exactly the right time, and it has been a great gift to me. Thank you for listening.

 

[Rianne]

OP, you have $1.5/4% bonds. That's $65K/year in interest if they're 5 year bonds. Plus your taxable portfolio, home equity, no debt. You're in a sweet spot! Your children are not a financial obligation. Could you downsize homes and be happy? I learned taxes are better controlled in retirement. You can figure out your income in multiple ways and pay very little tax. You could Roth convert the $65K (or more) every year until SS.

This is a puzzle that you could figure out without an FA. Maybe consult a tax pro once or twice. I volunteer as a tax preparer for AARP. They provide for free, the software. I can figure out my tax obligation, change things around, see how it affects taxable income. I can decide to take a little from multiple piles. It's a simple as plugging in numbers, seeing how it affects tax, refigure and preplan the future. Looks like our tax system will stay in place for years to come.

The short answer is this is a no brainer. Firecalc does not take taxes into account in their modeling. Your foundation is solid. You may find you don't need the income you thought you did in some years.

 

[Purslane]

Financially you are ready. Managing taxes would be tricky. Good luck.

100% agree. Taxes are a big black box. I need to get a better handle on this so I can manipulate to my advantage within the confines of undulating tax law.

 

[Purslane]

OP, you have $1.5/4% bonds. That's $65K/year in interest if they're 5 year bonds. Plus your taxable portfolio, home equity, no debt. You're in a sweet spot! Your children are not a financial obligation. Could you downsize homes and be happy? I learned taxes are better controlled in retirement. You can figure out your income in multiple ways and pay very little tax. You could Roth convert the $65K (or more) every year until SS.

This is a puzzle that you could figure out without an FA. Maybe consult a tax pro once or twice. I volunteer as a tax preparer for AARP. They provide for free, the software. I can figure out my tax obligation, change things around, see how it affects taxable income. I can decide to take a little from multiple piles. It's a simple as plugging in numbers, seeing how it affects tax, refigure and preplan the future. Looks like our tax system will stay in place for years to come.

The short answer is this is a no brainer. Firecalc does not take taxes into account in their modeling. Your foundation is solid. You may find you don't need the income you thought you did in some years.

My 1.5M position is a mix of MM/CD/Tbills. The amounts in each category vary according to maturities and what is on offer at buying time. Consequently the earning also vary but in aggregate can be considered to be around 4%, conservatively.
I don't plan to rebalance any taxable retirement accounts (ever), since those dollars are all in TM/500/TDF. I am very Ron Popeil about this, Set It And Forget It. In the event I ever do have Roth dollars, I will adopt the same investing attitude.
To live I plan to strategically utilize income from my annuity, DIV/INT, cash position and as a last resort from cashing in some of my brokerage account if needed.

I am blessed also that my children are mostly financially independent. For the next few years I am helping one daughter get on her feet after a set back but it is not a freebie. There are some tangible benefits for me in the arrangement.

In retirement I will sell my California house and harvest about $150k. Capital gains should not be a factor. After moving back to my 'real home', my plan is to ready that one for sale and buy something else that will be more age-in-place friendly that also has a yard I can play with. I dearly miss my gardens. In this case capital gains may be a factor but in all likelihood it would not be high enough to stop me from completing a transaction. My age-in-place house will be a downsize square-foot wise but cost-wise I expect it will be a wash given the substantial rise in real estate costs.

The FA bridge has been burned but I (now) understand the value of a great CPA. Thank you for sharing the AARP resource. I was not aware of this benefit. I have been reading some of Kitces.com. It is useful information but often a lot to digest.
You zeroed in on my two biggest concerns, optimization of taxes and retirement accounts.

 

[Purslane]

Financially you are ready. Managing taxes would be tricky. Good luck.

Thank you. I agree taxes are going to be something that needs to be approached systematically and with a long term view.

 

[Purslane]

I have nothing really to add in advice for planning except to say, yes, you will be ok when you jump.

If I knew you better I'd say "beesh, please" lol

You've done an amazing job and built a tremendous financial footing. Money isn't your problem, but managing it and the fear of it I think is something you need to defeat. That will come with education. Knowledge is power.

Look at it this way, imagine you decided to plan a trip around the world. Daunting task, right, full of excitement but also some worry and a lot of unknown, but man, it's a trip around the world. I think planning retirement is like that.

I am fairly certain we were BFFs in a different life. I have really missed you btw.

 

[Kings over Queens]

 

[grasshopper]

Welcome to the forum, I would add that you look at White Coat Investor, Dr.Jim Dahle. He spends his free time adventuring around the world. If you can’t find him, he is probably hiding in the mountains or desert of his home state of Utah

 

[Purslane]

You're in an excellent financial position and will be fine. I'll add to the suggestions above to spend some time over the remaining 16 months penciling out a withdrawal strategy for yourself. Maybe several versions, for times when the market is up vs down would make sense. Many of us mentally struggle with shifting from accumulating to drawing down and with your history and understandable cautiousness, you may run into this. If you get a plan down on paper, including tax impacts, it might ease the mental aspects by allowing you to feel in control of executing the plan when the time comes.

Great job recovering and then thriving after the various setbacks. It's incredible what you've accumulated in spite of the FA's, being a single parent and with medical school debt on top of it. The government health care is a huge advantage for your situation as well.

In a stroke of great luck I put the finishing touches on my retirement plan in December 2023 and have been rewarded for my bravery throughout this whole year. I have always had a stay-the-course attitude, but over the years as more of my dollars were absorbed into the stock market, there were times I questioned that philosophy. I keep a larger security blanket in the way of liquid assets so that I can keep sane in down times. If my circle-the-wagon's, frugal nature were fully triggered you would see me squeeze a dollar bill until Washington's eyes popped out.
As you say, getting a plan down on paper is the first step. For me control equals comfort. I have scenario tested my plan to the best of my ability but inevitably there will be things I could not have foreseen. Those things are forgivable. What is not forgivable is missing something that should have been obvious. This is where I am now---appealing to this group of like-minded individuals for their once over.

Thank you also for appreciating the struggle. I actually became a single parent in the middle of medical school which added considerably to my debt. At the time there was no question that I would continue my studies. When you are half way across the English Channel, you just keep on swimming.

 

[Koolau]

I finally realized two things: I did not need to pay people to lose my money-I could do it all by myself, and no one who was paid to care about my financial security cared more than me. I have been trying to quiet my anxiety with knowledge ever since.

Words to live by!

Your description of how/when you "acquired" these leeches (er, I mean financial advisors) makes me think they were pure sales people with no more expertise than you had at the time.

I went through the same thing and lost tons of money that way. I arrived at the same decision that I am my own best advocate. If I really need help, I'll find it here or pay an hourly CPA or CFP. Otherwise, I'll do it myself.

Glad to have you on the Forum. Looking forward to your contributions.

 

[Purslane]

Thank you for your comments. As I mentioned before I am very happy I found this Forum. I can share what is really on my mind in a safe, non-judgmental place with people who get it.

 

[HI Bill]

As others have said, financially, you're golden, especially with low-cost health care, and a lot of tax-free assets. You could easily spend 3-4% of your ~$5M in assets annually, plus your $31K (less taxes). Sounds like you have a great plan. And 16 months to prepare to sell your home! Best wishes! As they say here, come on in, the water's fine! It's even better with your level of financial security!

 

[ArmchairMillionaire]

In retirement I will sell my California house and harvest about $150k. Capital gains should not be a factor. After moving back to my 'real home', my plan is to ready that one for sale and buy something else that will be more age-in-place friendly that also has a yard I can play with. I dearly miss my gardens. In this case capital gains may be a factor but in all likelihood it would not be high enough to stop me from completing a transaction. My age-in-place house will be a downsize square-foot wise but cost-wise I expect it will be a wash given the substantial rise in real estate costs.

Welcome to our little group of helpful friends!
Not sure if this applies to you, but I would consider looking into the "2 out of the last 5 years" provision of the capital gains rule. If you can wait the 2 years before moving into your age-in-place home, (maybe spend the time readying the existing home for sale and fixing up the age-in-place home and the garden to your liking) you might be able to avoid the capital gains tax. Of course, you'd be paying the utilities and taxes on the new home for those two years, but if you found a place you liked for a decent price, and it needed some finishing touches, this might be a worthwhile option for you.

Personally, that's what I would do, but I like fixing up houses.

Again, Welcome! And best of luck.

 

[pjigar]

Your overall stock/bond (cash) position is fine, but it's a lot more tax efficient to put that big slug of cash into tax deferred, not taxable. Doing that matches the taxability of the investment (ordinary income) with the eventual taxability of the tax deferred account. It also slows down the growth of the tax deferred account, reducing the eventual taxes on that. Do you have a stable value fund type of option in the 401K?

Thank you putting this in the words! I was thinking about the same. How can OP keep her "sense of safety" without incurring undue tax penalty?

OP,

What Exchme is referring to is that your positions of CD/MM/Tbills which sits in brokerage/after-tax account currently should be held in 401K/IRA accounts. And the stocks/index funds which are held in 401k/IRA accounts. Basically swap the accounts. This would have multiple advantages:
1. You still get to keep your sense of safety (AA) by holding a large portion of CD/MM/Tbills
2. You are not paying marginal/higher tax rate on the returns from CD/MM/Tbills
3. Your 401K/IRA will grow at a slower pace because CD/MM/Tbills returns less on average which will reduce your eventual RMDs.

To execute above strategy, you may have to wait until you stopped working because the CD/MM/Tbills you hold in your brokerage/bank may not be available in your 401k today. First you transfer your 401K to a rollover IRA. Then you can swap CD/MM/Tbills and rollover IRA positions. You can take a year or two to complete this move.

This may sound confusing but money is fungible so they should be parked where they are most efficient.

Once you swap your positions in the proper accounts, every year you do the following to fund your annual expenses and keep your AA the same:
1. Calculate how much interest you earned or would earn annually in your rollover IRA. We call this number 2x.
2. Sell 2x amount of stocks/index fund in brokerage to fund your living expenses for a year. A significant portion of this sale would be principle (and hence tax free) and the gains will be taxed at 0/15%/20% depending on your bracket (still a lot less than your otherwise marginal tax bracket).
3. To balance your AA: Sell 1x amount of CD/MM/Tbills in your 401k/IRA account. Buy 1x amount and same (as #2) kind of stock/mutual funds back in the 401k/IRA account.

You can do any variations of above if you want to change AA over time. I would personally do equity glide path.

 

[Diogenes]

I transitioned from private practice to government service almost a decade ago and I am eligible to take an MRA+10 early retirement in 16 months. If I exercise this option, my annuity will be reduced by roughly 20%, for an expected take home of $31,000, with no yearly COLAs until age 62.

OP, you have roughly $5M in investible assets and roughly $150K in expenses... call it $120K after pension. That's under 3% annual withdrawal rate, which is within accepted guidelines for what's "safe" for perpetually sustaining a portfolio. We can quibble on numbers, priorities and percentage-odds of success, but the gist, is that financially you're in good shape.

The deeper question isn't finances, but psychology. Do you feel ready to retire? Not "have you saved enough", but... "have you done enough"? Is it time to hang-up the stethoscope? Firecalc won't tell you that! Fortunately, you have the forcing-function of a defined benefit pension, that commences at some point. This offer neat and definitive demarcation for when a "proper" retirement can begin... not because the money is tremendous (it's not), but because, like graduating from med school, it's an event laden with meaning, passing from one stage of life to the next.

 

[Purslane]

As others have said, financially, you're golden, especially with low-cost health care, and a lot of tax-free assets. You could easily spend 3-4% of your ~$5M in assets annually, plus your $31K (less taxes). Sounds like you have a great plan. And 16 months to prepare to sell your home! Best wishes! As they say here, come on in, the water's fine! It's even better with your level of financial security!

Thank you. I will be trying to fine tune things over the next months as I move from concept to reality.

 

[Exchme]

Thank you putting this in the words! I was thinking about the same. How can OP keep her "sense of safety" without incurring undue tax penalty?

OP,

What Exchme is referring to is that your positions of CD/MM/Tbills which sits in brokerage/after-tax account currently should be held in 401K/IRA accounts. And the stocks/index funds which are held in 401k/IRA accounts. Basically swap the accounts. This would have multiple advantages:
1. You still get to keep your sense of safety (AA) by holding a large portion of CD/MM/Tbills
2. You are not paying marginal/higher tax rate on the returns from CD/MM/Tbills
3. Your 401K/IRA will grow at a slower pace because CD/MM/Tbills returns less on average which will reduce your eventual RMDs.

To execute above strategy, you may have to wait until you stopped working because the CD/MM/Tbills you hold in your brokerage/bank may not be available in your 401k today. First you transfer your 401K to a rollover IRA. Then you can swap CD/MM/Tbills and rollover IRA positions. You can take a year or two to complete this move.

This may sound confusing but money is fungible so they should be parked where they are most efficient.

Once you swap your positions in the proper accounts, every year you do the following to fund your annual expenses and keep your AA the same:
1. Calculate how much interest you earned or would earn annually in your rollover IRA. We call this number 2x.
2. Sell 2x amount of stocks/index fund in brokerage to fund your living expenses for a year. A significant portion of this sale would be principle (and hence tax free) and the gains will be taxed at 0/15%/20% depending on your bracket (still a lot less than your otherwise marginal tax bracket).
3. To balance your AA: Sell 1x amount of CD/MM/Tbills in your 401k/IRA account. Buy 1x amount and same (as #2) kind of stock/mutual funds back in the 401k/IRA account.

You can do any variations of above if you want to change AA over time. I would personally do equity glide path.

You did much better at explaining than I did! It's a confusing concept at first, so it's great you took the time to lay it out much more clearly.