Author Topic: Early retirement situation planned in 12 years (at 55/52)...kinda long  (Read 768 times)

EricLThomp

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My wife and I are planning to retire early...Jan 2031. I will be 55, she will be 52. I'm currently 43, she is 40.
The reason we want to retire early is we are both fed up of working 9-5 basically, and more importantly, we got the Airstream bug and want to buy a rig and travel full time. There are several couples we've talked to that do it comfortably currently for about $2k/month (in current dollars). We would be selling our house and not having a home base at all. Scary, right? :)

The main issue is ... we got a really late start on saving and investing.
*WE ARE NOW MAXING ALL THE FOLLOWING ACCOUNTS*
She has been saving in a 457b (she's been contributing $50/pay period) and 401k (she has 250% employer match fixed at 7%) for about 8 years and has about $30k in them total. I have only been in my 401k a year, and at about $5,800 with 3% employer match (maxed). We have also just started Roth IRAs, and an HSA (she's the only one with insurance, so it's capped at $3,500/year). We'll also have social security (hopefully it's still there by then). I assume we'll need to pull Roth contributions until we hit 59 1/2, then hit social security at 62, then the 401ks after that?

We make about $8k/month total, or something like $96k/year.
The good thing is we only spend $3,000/mo. (mortgage/auto/groceries/utilities/bills)

What is a good basic investment strategy considering we really need to get after it? How aggressive currently and how would you change it over the next 12 years as retirement approaches?
I figure we'll have $1,058,427 plus SS at the time of retirement (double-check my math). We hope to spend $30-35k a year in retirement (very frugal).

CHECKLIST (Short-Term)
1. Make sure we've cut spending as much as possible and maximized earnings/savings.
2. Make sure we are invested and diversified properly considering risk and retirement in Jan 2031.
3. Ensure management/hidden fees on investments are low as possible.
4. Develop a post-retirement spending plan for greatest efficiency.
5. Get estimates of potential/probable balances in each fund on Jan 2031.
6. Refinance house (Worth closing costs?) vs. paying extra $500/mo beginning in 18 months vs. investing that $500.
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Husband
MassMutual 401k - $6,500 (Vanguard Institutional Target Retirement 2030/2045 Fund) (50/50)
Vanguard Roth IRA - $960 (85s/15b) Vanguard Target Retirement 2040
M1 Roth IRA - $5,050  (VTI(65%)/BSV(15%)/VXUS(10%)/VNQ(5%)/VYM(5%))

Wife
Nationwide 457 - $13,300 (PRGFX(50%)/WFDDX(35%)/NWSIX(15%))
TCDRS 401k - $19,739.68 -- CAN'T CHANGE ANYTHING - (7% contribution, 250% match)
Vanguard Roth IRA - $960 (85s/15b) Vanguard Target Retirement 2040
M1 Roth IRA - $5,050 (VTI65%/BSV15%/VXUS10$/VNQ5%/VYM5%)
HSA w/Lively - $292 (not currently invested. $3/mo. when is good to invest?)

Emergency Fund
$30,000 @2% Money Market

Mortgage
$75k @ 5.88%. $1,102/mo - 14yrs left - REFI? (709 and 746 FICOs currently)
Set to be paid off 05/01/2032 (Want to pay off before retirement and sell it - need to pay extra?)
Loan a mount was $109,518...Value is $144k market.

Auto Loan
$14,703 @ 2.99% $574.84/mo. 36 month loan
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Which accounts to draw from and when?  Leave balances and jump to the next account when an age is reached, or deplete account fully before moving on?  Any advantages?

Husband - currently 43, will be 55:
1st - 401k - IRS Rule of 55, pull without penalty at retirement.
2nd - Roth IRA - contributions only tax-free, at 59.5, then pull earnings.
6th - Social Security - 67

Wife - currently 40, will be 52:
3rd - 401k - IRS Rule of 55, she'll have to wait 3 years after quitting work.
4th - 457b - No penalty for early withdrawal, must begin taking at 70.5
5th - Roth IRA - contributions only tax-free, at 59.5 pull earnings.
7th - Social Security - 67
« Last Edit: February 06, 2019, 01:34:26 PM by EricLThomp »

Catbert

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Re: Early retirement situation planned in 12 years (at 55/52)...kinda long
« Reply #1 on: February 06, 2019, 01:46:23 PM »
One thing confuses me - Are you currently maxing out all your retirement accounts or not?  You say that your are, yet your 401k only has $5800 after a year, not the 20K+ that I would expect.  Maybe that's what you did in the past and now in 2019 your will max out the accounts. Or do you mean you are just contributing up to the employer match?

When it comes time to withdraw I don't think it will be as simple as picking one account and withdrawing until it's empty.  In general you'll want to take out at least as much out of taxable accounts as you can at a 0% tax rate.  Depending on your overall situation (and tax laws in 13 years) you may want to take more than that up to the 10% or 12% rate.  You'll also want to be mindful of ACA subsidies, cliffs, and when Medicaid kicks in (or not) in your state.

Much of this can't really be determined this far out.

MDM

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Re: Early retirement situation planned in 12 years (at 55/52)...kinda long
« Reply #2 on: February 06, 2019, 02:07:47 PM »
What is a good basic investment strategy considering we really need to get after it? How aggressive currently and how would you change it over the next 12 years as retirement approaches?
For now, Investment Order is probably applicable.  How does that look to you?

mcneally

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Re: Early retirement situation planned in 12 years (at 55/52)...kinda long
« Reply #3 on: February 06, 2019, 02:18:30 PM »
Not sure how much this impacts your plan, but you can draw from a 401k at 55 penalty free only if you work until 55. If you retire at 54 you can't touch it til 59.5 without penalty.

Classical_Liberal

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Re: Early retirement situation planned in 12 years (at 55/52)...kinda long
« Reply #4 on: February 06, 2019, 11:44:26 PM »
Why wait?  If you really have this "bug" and dislike the 9-5.  Save up enough to purchase your rig and a years expenses and go!  After FTing it for a year you have a really good idea if it's something you want to do for the long term later in life.  Maybe a year will be enough to satisfy your desire?  Either way you can get back on track after a year and save for your retirement.

Monkey Uncle

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Re: Early retirement situation planned in 12 years (at 55/52)...kinda long
« Reply #5 on: February 07, 2019, 05:06:22 AM »
Like MDM said, right now it's mostly about getting the investment order right.  It's way too soon to be worrying about the details of your withdrawal strategy.

And don't get too fixated on pulling the plug at a specific age/date.  You've got a long way to go, and you can't control the investment returns you will earn along the way.  It's good to have a goal, but just know that you likely will not be retiring exactly when you think you will.  Given that you're essentially starting from zero and giving yourself 12 years, chances are it won't be substantially earlier than you project, but it could be substantially later if the markets don't cooperate. 

The one caveat I'll add to that statement is that you might be over-estimating how much you need to pull the plug.  If you truly think you can live comfortably on $30-$35k starting in your mid 50s, you probably won't need anywhere near $1 MM.  If you quit at that age, you likely will have a substantial SS benefit coming that will cover most of your basic living expenses once you reach traditional retirement age (assuming, of course, that SS isn't cut drastically before then).  But this also reinforces the statement that you can't get too fixated on your projected date.  Too much can change between now and then.

Probably the most important thing for you right now is making sure you've designed a lifestyle that you can sustain for the next 10 - 20 years.  Most people can't handle nothing but nose-to-the-grindstone working and penny pinching for that long.  Don't just fixate on how burned out you are on the 9-5 when you know you have to keep it up for more than a decade.

Unique User

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Re: Early retirement situation planned in 12 years (at 55/52)...kinda long
« Reply #6 on: February 07, 2019, 06:02:06 AM »
I'd agree with the others about not being concerned on the details of your withdrawal strategy.  From your balances it looks like you have been spending everything you earn up until now and that is a hard habit to break and sustain.  The best thing we did was max our accounts once we started corporate jobs (I'll be 50 this year and we didn't get corporate jobs until 9 years ago so a bit late).  This kept our paychecks artificially low and we also automated Roth IRA (or traditional IRA) contributions on pay day.  Less money in our accounts meant less money available to spend. 

You should run the numbers on traditional IRA vs Roth IRA.  If you are maxing your 401ks to the $19k each, your MAGI should be pretty darn low and a traditional IRA might not make sense.  But if you do a traditional IRA and max it you might qualify for a savers credit, so it's worth looking at. 

After you max tax advantaged accounts, I'd look hard at knocking out the auto debt and the interest on your mortgage looks high.  Can you increase your income?  DH and I were below your income when we first started 9 years ago, but we've both worked to increase our pay, that really knocked years off our plan and allowed for a little less austerity.  Can you do any side hustles?  With a $30k emergency fund, you can at least get some bank bonuses bouncing that around to different banks if you are organized enough. 

And like Monkey's Uncle said - make sure you can sustain.  The early years were a bit tough for us, automating really helped.  Now that we are so close, it's much easier.  I started a journal to keep myself accountable, it might be helpful for you to document your progress.  Amazing how admitting our faults and failures to internet strangers keeps us more accountable especially when we don't really share too much on finances IRL. 

I'm still a bit confused as to how you have a $8k a month income, spend only $3k a month, but have only $82k in liquid net worth and a $15k auto loan.  Are you really sure you only spend $3k a month?

EricLThomp

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Re: Early retirement situation planned in 12 years (at 55/52)...kinda long
« Reply #7 on: February 08, 2019, 12:12:59 PM »
One thing confuses me - Are you currently maxing out all your retirement accounts or not?  You say that your are, yet your 401k only has $5800 after a year, not the 20K+ that I would expect.  Maybe that's what you did in the past and now in 2019 your will max out the accounts. Or do you mean you are just contributing up to the employer match?

When it comes time to withdraw I don't think it will be as simple as picking one account and withdrawing until it's empty.  In general you'll want to take out at least as much out of taxable accounts as you can at a 0% tax rate.  Depending on your overall situation (and tax laws in 13 years) you may want to take more than that up to the 10% or 12% rate.  You'll also want to be mindful of ACA subsidies, cliffs, and when Medicaid kicks in (or not) in your state.

Much of this can't really be determined this far out.

Yes, the balances are what little we've put in up until Jan 2019.  Only the Roths were both maxed in 2018.  This year, we are maxing all of the accounts.

fuzzy math

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Re: Early retirement situation planned in 12 years (at 55/52)...kinda long
« Reply #8 on: February 08, 2019, 06:46:47 PM »
Follow the investment order listed, but before #5 Max 401k, insert #4.5 Max 457b. If this is a govt (local, state, fed) account then you can use it like a 401k with no early withdrawal fees. If it's a private employer (like my old catholic hospital was) then the govt rules don't apply and you might be forced to cash it out or worry about its solvency.

MDM

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Re: Early retirement situation planned in 12 years (at 55/52)...kinda long
« Reply #9 on: February 08, 2019, 07:19:55 PM »
Follow the investment order listed, but before #5 Max 401k, insert #4.5 Max 457b. If this is a govt (local, state, fed) account then you can use it like a 401k with no early withdrawal fees. If it's a private employer (like my old catholic hospital was) then the govt rules don't apply and you might be forced to cash it out or worry about its solvency.
+1

That's consistent with "thinking 'first your governmental 457 (if you have one), then your 401k/403b/SIMPLE/etc.' wherever '401k' appears."

fuzzy math

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Re: Early retirement situation planned in 12 years (at 55/52)...kinda long
« Reply #10 on: February 08, 2019, 07:40:17 PM »
Follow the investment order listed, but before #5 Max 401k, insert #4.5 Max 457b. If this is a govt (local, state, fed) account then you can use it like a 401k with no early withdrawal fees. If it's a private employer (like my old catholic hospital was) then the govt rules don't apply and you might be forced to cash it out or worry about its solvency.
+1

That's consistent with "thinking 'first your governmental 457 (if you have one), then your 401k/403b/SIMPLE/etc.' wherever '401k' appears."

Oops I somehow skimmed past that being very obviously listed.