I learned 2 things this week that may lead to shortening my time to FIRE, and I have a question for those who have thought about this.
Thing 1:Good article by Brandon at MadFientist comparing different withdrawl strategies:
http://www.madfientist.com/how-to-access-retirement-funds-early/I have most of my assets in tax-deferred 401k and tIRA and I'd like to retire as soon as possible. I was thinking I'd do a Roth IRA conversion ladder, but that requires me having 5 years living expenses in prior Roth contributions ($0 currently) or taxable accounts (~1x expenses currently).
Saving in Roth or taxable now (to support having 5x in Roth contributions and taxable) means forgoing tax deductions now (I can max my 401k and tIRAs for DW and I, but savings dollars tend to run out after that). So I'd be saving fewer $ with Roth and/or taxable and getting to my 25x expenses slower. Now I'm thinking just go 401k and tIRA and then SEPP via 72t and take a penalty when needed.
Thing 2:I have 13 years remaining on 15 year mortgage. In choosing between paying down mortgage to reduce retirement expenses and saving enough to afford the mortgage payment as part of FIRE budget, I had always assumed I would pay down that mortgage first, then FIRE. Now I'm not so sure.
Running the numbers looks like this (timeframes based on 7% steady returns which won't happen, but is a useful comparison):
Option 1: I could FIRE in late 2022 with no mortgage and a stash to cover non-mortgage expenses at 4% WR OR
Option 2: I could FIRE in early 2021 with a mortgage and a stash to cover all expenses (including mortgage) at 4% WR
Keeping the mortgage I can FIRE maybe 18 months
sooner and have an extra $1k/mo to use however I wish after 2030 when mortgage is paid. Bonus. So I'm strongly considering Option 2 now.
The question I have is this:How can I mitigate sequence of return risk if I take the fastest path to FI (using 401k/tIRA and keeping mortgage)?
Maxing tax deferred savings, then retiring while still paying a mortgage (in order to FIRE sooner) means I have to take larger distributions from my larger stash, and using a 72t is the most tax efficient way to get this money out. I won't turn 59.5 until 2037. So a 72t would lock in my withdrawls for 16 consecutive years. Larger withdrawls for 16 required consecutive years could really hurt in a prolonged downturn or stagnated period. I can set the 72t distributions to be "bare bones" expenses and take a 10% penalty for optional expenses, but "bare bones" is much larger and much less flexible if it includes a mortgage.
Seems like the mortgage and 72t are working against each other. I wish I could suspend mortgage payments until age 59.5 (when sequence of returns is known), then pick them back up until it is paid. I have no intention of moving, so eliminating the mortgage via a change in housing is not for me.