Time to leave e-Corp?

[kokopelli75]

Cheers all, long-time reader. Think I'm comfortable with my plan, but would like additional opinions.

Life Situation:
I'm 46 years old, been working for e-Corps for over 25 years. Recent developments made it clear I'm not valued and, adding my career burn-out, I'm deciding to bug out at the end of 2/22. I'd like to focus on my side hustle(s) and enjoy life, but want to make sure I don't end up broke before dying. My calculations set my age of death at 110, so I have some room for error, and something left over for my kid.

Family of 3, have a kid in 7th grade, and a wife that works part-time so she can be around for our daughter and her elderly parents.

Gross Salary/Wages/Other Income:
My current full time job salary is around $180k + benefits and 401k match up to 5%.
If I quit, the combined part-time and side hustle income puts me at $50k/yr. I'll also lose health care, vision, and dental.
Dividends/Interest amount to about $6k/yr

Assets
Retirement accounts: $1.5M
Taxable accounts: $600k
Allocation: around 85/15
HSA: $40k
529: $80k (still contributing $300/mo)
Cash: $150k

Liabilities:
Mortgage $135k remaining on $325k (not taking into account current value, because we're not moving any time soon).

Expenses:
Here's the bad part... expenses amount to $95k-100k/yr. We're not lavish spenders, but there have been some big medical and house-related expenses lately, we live in the Chicago area, and we do want to enjoy life so travel is about $10k/yr of that. I'm working on getting that down using points. Still, this is the basis for my calculations.

So...
I think, given our expenses and the fact that I'll have to add ACA for $1700/mo + deductibles, that I'll have to withdraw up to $50k/yr from my savings/investments unless I boost the side-hustle income (which is my goal anyway). The various calculators I've used say that if I withdraw no more than $7k/mo, I should be fine for the long haul. That's way more than I'd need to cover what I can't earn.

That all said... and I'm sure you'll have questions... Am I crazy for wanting to ditch the job at this point, or should I feel good about doing so?

Thanks!

[jiimmy]

It would be good to educate yourself on the ACA’s premium tax credit.

Back of the napkin math here, with a 50k AGI (~230% of federal poverty level for a family of three) you can expect to pay about 8% of your AGI in ACA premiums, $4k/yr, $333/mo.

Nothing specific to say on the spending — other than a thought experiment:

Say you use that cash to pay off the mortgage. Then you’d have 2.1m. At a very conservative 3% WD, that would net you $63,000 per year, or roughly the median household income in the incredibly rich empire of the USA. Better yet, you don’t have a mortgage to pay! Could you and your family design a happy life on 63k per year? I bet you could!

[kokopelli75]

Thanks for the response.. I did look into the ACA credits, and calculated based on $120k income, to cover current expenses and some extra. That only have me a premium tax credit of around $300. That's what got me to just under $1700/mo for BCBS Silver coverage, pretty much matching the coverage I have now through work. Considering the medical issues I've dealt with in the last few years, I don't want any less coverage.

I've also considered paying off the mortgage, but that wouldn't give me a lot of cash for emergencies. Granted, I can always sell from the taxable accounts if needed. Would love to hear what others think about this.

[jiimmy]

Seems to me like you’re the type that assumes the absolute worst case scenario. Even then, as you noted, the outlook appears quite safe, especially since you’ll still have $50k of earned income coming in and enormous fat to cut from the budget if necessary.

Most likely you could’ve left e-corp years ago.

[zolotiyeruki]

You have $2.37 million dollars saved up.  You're looking at $100k/ expenses, half of which would be paid for by your wife's work and your side gig.  That leaves $50k/year of spending to cover.  That's a 2.1% withdrawal rate.

If you stuck that cash in TIPS and earned 0% returns after inflation, you would have enough to last you well into your 90's.  Any sort of return will make your daughter a millionaire when you die.  Stick it in 100% equities earning 7%/year, and you'll have tens of millions.  Your expenses will decrease when your daughter leaves the house.  Oh, and don't forget that you can take social security in 20 years.  And so can your wife.

Congrats, you've won the game.  You're free to go now.  In fact, you crossed the finish line probably several years ago.

[MrThatsDifferent]

You’re mostly fine. I’d work on those expenses and not gloss over them. If your expenses are so high with one time expenses, do a proper retirement budget with those expenses removed on an annual basis. Become more purposeful with your money and spending and you’ll be more than fine. What’s your secret to living to 110?

[getmoneyeatpizza]

If you have total invested assets of 2.1 million you're good. (If the taxable is part of that 1.5 then this isn't so crystal clear)

As others have said you're good to go now. Try to use your extra time to lower spending.

I'd also pay off that mortgage with your cash. Your AGI should be more like 30k not 50k. Fill out the case study tax spreadsheet an use that number for your ACA calcs.

Congrats.

[Dee18]

Retire now.  Really.  You have enough.  This is a "do as I say not as I did" message.  I worked several years longer than I needed to. Then Covid hit just as I was retiring, precluding the international travel I was planning to do upon retirement.  I was overly cautious.  I realize it is easy for me to say now, after this market run up.  But you are not going to live to 110; 78 or 79 is still the average age of death in the U.S.  Social security will pay you some money.  No need for one more year.  You probably would benefit from doing a case study to get ideas about spending, but with your assets you don't need to if you don't want to.

[jfer_rose]

Thanks for the response.. I did look into the ACA credits, and calculated based on $120k income, to cover current expenses and some extra.

Do remember that when you are living off investments, your expenses are not the same as your income. When you sell your investments, some of the money you get comes from your principal which is not taxed.

[kokopelli75]

Thanks everyone for the replies, really feels good to get all the affirmation that I made some good decisions so far.

Yes, I'm trying to be conservative, and taking worst case scenarios. Not taking into account SS and any inheritance because those aren't guaranteed. Then again, nothing is in life (except for, as we know...). No way I'm living to 110.  Hell, I can get crushed by a cement truck today.

Mid-Feb my bonus pays out. After that I'm out! 😁

[kokopelli75]

I have one more thought/question...

I plan on continuing to work through the end of Feb so I don't miss out on my annual bonus. I'm wondering if I should max out my 401k contributions with these last several paychecks to come close to the $20,500 for 2022. That would at least lower my tax liability for the year, and I can fill in any remaining with contributions to my Solo 401k from my self-employment income.

The alternative would be directing most of that income to my taxable account so it's not locked up until I'm 59.5.

Thanks..

[zolotiyeruki]

I'm wondering if I should max out my 401k contributions with these last several paychecks to come close to the $20,500 for 2022. That would at least lower my tax liability for the year, and I can fill in any remaining with contributions to my Solo 401k from my self-employment income.

You'd have to run the numbers.  The most probable scenario is that you're looking to avoid paying 22% taxes now, in favor of 12% later.

So here's an example for how the numbers might work out for 2022:
Side hustle + part time income: $50k (all taxable)
Cover $50k more spending from taxable account: $25k taxable (long-term capital gains)
Corporate job income: $30k
Interest/dividends: $6k

Total income: $111k

Standard deduction: $24k

Taxable income: $87k
Top of the 12% bracket: $83,350
With these numbers, you'd want to invest $3.650 in a tax-deferred account, and put the rest in Roth (first choice) or taxable accounts (second choice).

For most people who expect to spend less than you in retirement, opting for a Roth isn't necessarily better than a taxable account--with the 0% LTCG tax rate going all the way up to $83k, most people will pay zero taxes on withdrawal either way, and a Roth locks up some of your funds until age 59.5.  Since 1) this $20.5k won't be needed for your living expenses for a long, long time, and 2) you might hit the 22% tax bracket in retirement, it makes sense to plow your excess investable funds into a Roth account.

[kokopelli75]

For most people who expect to spend less than you in retirement, opting for a Roth isn't necessarily better than a taxable account--with the 0% LTCG tax rate going all the way up to $83k, most people will pay zero taxes on withdrawal either way, and a Roth locks up some of your funds until age 59.5.  Since 1) this $20.5k won't be needed for your living expenses for a long, long time, and 2) you might hit the 22% tax bracket in retirement, it makes sense to plow your excess investable funds into a Roth account.

Clearly I haven't wrapped my head around the different way of spending/saving/investing post-FI yet. Much more reading to do...

I have a Roth but had to stop contributing to it because I was over the income limit. It's an option to consider, but if I try to stay under the 22% tax bracket in the coming years, sounds like it doesn't really matter if I put that money into the Roth or taxable account? At least I wouldn't have to worry about any of the Roth rules.

Thanks!