Author Topic: Am I FIRE ready?  (Read 1039 times)

moonella

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Am I FIRE ready?
« on: February 01, 2018, 02:12:40 PM »
Hi everyone. I have enjoyed reading many of the posts and appreciate how supportive all the members are.

Life Situation: I just turned 50 in January and my husband is already retired. We have no children and live in the income tax free state of New Hampshire. While NH is great to build wealth, once retired, we would probably move to a tax friendly state with much lower property taxes and a warmer climate. We also seriously entertain the possibility of spending at least a year in Europe (probably Spain) or even longer, where we would be able to enjoy the culture and the weather with a reduced cost of living.
My husband has become ill 7 years ago and thus forced to retire much earlier – he receives his Social Security currently. Juggling taking care of him and having a stressful job placed tremendous stress on me and during those years, leaving no time or energy to enjoy nature, life, culture, everything that life is all about. While I have always been a high earner, I no longer take pleasure in my job and find myself totally unmotivated at times. The only thing that keeps me going is the goal of attaining FI and early retirement.
Before my husband’s illness, we were globe trotters – we used to travel extensively, and when I retire, I would love for us to be able to live for a year or longer in Europe and be able to explore the culture, architecture, and everything that this old continent has to offer. We may even apply for a long-term visa in Spain and make Spain our base from which we can travel everywhere in Europe. My parents in law are in Sweden and we would be able to see them more often if we settle in Spain.

Gross Salary/Wages: My salary is ~$115,000. My net pay is ~$5850/month after taxes and 401k deductions (I contribute the maximum $24,500). My husband’s SS is $1400/mo.

Individual amounts of each Pre-tax deductions: I max out my 401k at $24,500/year (it was $18,000 last year and the years before).

Rental Income, Actual Expenses, and Depreciation: N/A

Taxes: Not itemizing deductions.

Current expenses:


Mortgage: $680


Property taxes: $500
Car, home, life insurance: $260
Entertainment: $50
Food: $500
Gas: $140
Car Maint.: $50
Utilities: $200
Personal care, clothes: 100
Internet, Netflix, Amazon, Phone: 130
Miscellaneous: 100
Dental Insurance:130
Medical Costs: $200

Total current expenses: $3,040


When I retire, our expenses will go up, as we’ll have to buy our health insurance and we’ll also have to budget for extensive travel. Therefore, for retirement, the following changes will have to be taken into consideration:
Add: medical insurance $2,000 for both me and my husband (I am budgeting high???)
Add: Travel: $800 – again high
Reduce property taxes by $200 – assuming we’ll move from NH where property taxes are atrociously high
Eliminate mortgage of $680 – as we’ll sell the home and if we buy something, we won’t take a mortgage but rather use our funds and the proceeds from the sale of our current home to pay for the house
Reduce car, home, life ins from $260 to $170, as we’ll get rid of one of the cars, and the life insurance policies will terminate
Eliminate medical costs as those will be covered under the $2,000 medical insurance category
Total Expenses in Retirement: $55,200 – that assumes we’ll use the proceeds from the sale of our home (around $150K) and use $100K of our funds to buy another home. Subtracting from $55,200, husband’s SS of $17K/year, leaves us with $38,200 of expenditures that will have to be financed by our savings.

Assets:
CD: $85,000
Mutual Funds (taxable accounts): $145,000
401K: $24,000
IRA: $711,500
Roth IRA: $74,500

Total Liquid Assets: $1,040,000
The market value of our home is approx.$265K
Liabilities: Mortgage balance: $108,000

Specific Question(s):

Based on the 4% model, if I decided to retire now, I would need $955,000 ($38,200X25), plus another approx. $100K that would go towards purchasing a new home to be paid in full ($157K from proceeds of sale + $100K from savings), for a total of $1,055,000. Am I conservative enough? Am I forgetting something? Is the 4% safe, or should I continue to save so that I secure a 3% withdrawal (38,200/3%= $1,273,333) plus $100K = $1,373,333. Based on my savings rate, I should be able to hit that number in a little bit over 2 years. I would feel better knowing that our withdrawal rate was only 3% and thus we have room to make adjustments, if necessary. I have not included any Social Security payments for me, as I don’t know what the future holds with SS.


Am I too conservative? Am I ready to retire based on the model above?

If we move to Spain and our expenses are reduced to $3500/mo, and we only have to fund $2100/mo from investments, are we going to be in a better place financially?
Is there something I’m forgetting?


Thank you so much for all you feedback and recommendations

SugarMountain

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Re: Am I FIRE ready?
« Reply #1 on: February 01, 2018, 03:43:55 PM »
How old is your husband?  The big issue I see you possibly having is the bulk of your assets are in tax deferred accounts and you'll take an extra 10% hit if you withdraw before you're 59 1/2. (Or does SS Disability have an impact there?)

I'm also 50 and I do include social security.  It's not going to go away, it's the most popular program in the country.  What may happen for those of us in Gen X is cost of living increases will be significantly slower and they will raise the retirement age a bit on us.  So, one thing you might want to do is play with the simulators (https://firecalc.com for example) and on the "other income" tab you can put in social security.  Log onto the social security website and play with their calculators to get a rough estimate of what you'll get if you quit now, but start collecting at say 62.  In the firecalc put that amount in, but tell it you're going to start collecting in 2038, not 2030, i.e. assume you start at 70 but the amount is what the calculator tells you that you would get at 62.  Gives a nice buffer for any changes to the program in the next 12-20 years.

But, a couple of things that it looks like you may be missing:
- Taxes.  To spend $55k you may need to pay some amount of Federal income tax (although probably not that much).
- Car replacement costs.  If you're spending $140 on gas, you're probably driving around 1,000 miles a month.  Either your car maintenance costs are going to go up or you're going to need to replace the car(s) at some point.
- Medical insurance costs seem high, because at $55k/year income (and actually lower than that since a chunk of your income will be spending principle) you are probably eligible for subsidies. 
- Look at dropping life insurance.  The two of you are close to being able to retire on your stache, maybe even there. If the unfortunate happened the survivor should be able to.

If you kept your house as a rental and moved to Spain, would you be able to make that cash flow positive even with the mortgage (and a rental management fee since I can't imagine much worse than dealing with tenants from across an ocean)?

$6k property taxes on a $265k house?  Yeah, your property taxes are high, at least compared to Colorado, but we've got a 5% state income tax.

BrightFIRE

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Re: Am I FIRE ready?
« Reply #2 on: February 01, 2018, 06:28:01 PM »
How old is your husband?  The big issue I see you possibly having is the bulk of your assets are in tax deferred accounts and you'll take an extra 10% hit if you withdraw before you're 59 1/2.

This is incorrect. See the great MadFientist summary https://www.madfientist.com/how-to-access-retirement-funds-early/, but the gist is that you rollover the 401k to the Traditional IRA tax-free, then from Traditional to the Roth, only paying taxes on the amount rolled from the Traditional IRA to the Roth. All contributions to the Roth are already tax-free. It's called a Roth pipeline or Roth conversion ladder.

I think you're already there, but you need more data for your different options. How much will COLA actually be in "Spain", which is a whole country, with different COLAs in different areas. Check out https://www.theearthawaits.com/ for info on COLAs in different cities around the world. If you move to Spain, you might sell your house and just invest the proceeds instead of buying a new place.


SugarMountain

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Re: Am I FIRE ready?
« Reply #3 on: February 01, 2018, 07:01:38 PM »
How old is your husband?  The big issue I see you possibly having is the bulk of your assets are in tax deferred accounts and you'll take an extra 10% hit if you withdraw before you're 59 1/2.

This is incorrect. See the great MadFientist summary https://www.madfientist.com/how-to-access-retirement-funds-early/, but the gist is that you rollover the 401k to the Traditional IRA tax-free, then from Traditional to the Roth, only paying taxes on the amount rolled from the Traditional IRA to the Roth. All contributions to the Roth are already tax-free. It's called a Roth pipeline or Roth conversion ladder.


MadFIentist says, "Step #3 – Wait five years. While you’re waiting, you can do additional conversions so that you have money to access in years 6, 7, etc."

OP doesn't have enough to live off for 5 years in just taxable and Roth accounts.

doggyfizzle

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Re: Am I FIRE ready?
« Reply #4 on: February 01, 2018, 07:29:04 PM »
Have you looked into rule 72t? If you’re 50, you’d only have a couple years of SEPPs to worry about until you reach 59.5 and could start regular withdrawals from tax-deferred accounts without having to wait 5 years for the Roth pipeline to start.

moonella

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Re: Am I FIRE ready?
« Reply #5 on: February 02, 2018, 07:41:10 AM »
My husband is also 50 yrs old. The fact the the bulk of assets are in tax deferred does not constitute an issue, as the plan is to start transitioning the regular IRA accounts into Roth IRA's every year, to the extent that we remain with a $0 taxable income after subtracting the standard deduction. Any capital gains or dividends will not be taxable as we'll be in the 152% (effectively 0%) tax bracket.