Author Topic: DH ready to pull the trigger: any comments on our numbers?  (Read 3021 times)

OzzieandHarriet

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DH ready to pull the trigger: any comments on our numbers?
« on: September 12, 2018, 07:21:13 PM »
Here we are ... DH wants to leave his job next month. He's been thinking about it for a while now; the past year he's been weighing whether to do it this fall or wait till next year, so it's not unexpected. I believe we are ready for this financially, but I would love some thoughts on our numbers and what to do from here on out WRT investments and withdrawals and so on.

DH is 59; I will be 61 next month. He'll be 59-1/2 in January.

DH's salary this year would have been about $150,000 (for the full year), and he has been putting the max into his 401k and Roth IRA. His take-home pay this year if he does leave next month will be about $70k.

I'm basically retired (left my last full-time job 5 years ago), though I usually earn a little bit with some part-time SE work - somewhere around $10k per year or less.

We will be eligible to buy subsidized health insurance through DH's employer when he retires. This year the premium would have been $1400 per month for both of us (this is pretty much gold-plated coverage), but they don't know what it will be next year. It is almost certainly going to be more.

This is what we have; overall AA in retirement accounts is 60 stocks/40 bonds. Everything except for the “other IRAs” and the savings account are at Vanguard.

401k           1,045,000
tIRAs       821,000
Roth IRAs       257,000
Other IRAs           10,000
VMMXX           3,600
VBIAX       123,000
VTSMX            4,200
Savings account     15,000

TOTAL: 2,278,800

Other assets: house worth between $450k and $500k. No mortgage.
Two Honda Fits.
Some stuff (only things of any value are probably my musical instruments)

Estimate of basic expenses (not including income tax or health care or any extra stuff): $60,000 (this number is shifty because for the past couple of years we have spent quite a bit over that doing way overdue upkeep on our house, including a new roof, replacing old light fixtures and flooring, painting, a little redecorating; also had two older cats that got sick and we spent a good sum on their care and ultimate demises). Total taxes last year (on AGI of $140k) were about $26k (fed + state).

My questions:

We are thinking that this month we'll move the VBIAX and VTSMX money into the Vanguard money market account so we have cash available. We were putting $1,000/month into the VBIAX account but stopped when DH started getting serious about leaving his job in the near future. It doesn't make sense to me to continue to invest in those two accounts when we're going to be spending this money fairly soon. Does this seem right? This would give us almost two years' living expenses easily available.

We were then thinking we'll start withdrawing from the retirement accounts next year. My understanding is that we should draw out of the 401k/tIRAs both for expenses and to move some into our Roths.

How much we will have to withdraw depends on a couple of things. DH MAY continue working part time at his current place, in which case they will continue to pay for our health insurance. He also may get another job. Or he may do volunteer work.
I will most likely continue with my part-time, self-employed jobs. 

But assuming the above is what we will have and no more (other than SS at some point), any thoughts on what to do from here?

TIA
 

lhamo

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Re: DH ready to pull the trigger: any comments on our numbers?
« Reply #1 on: September 12, 2018, 07:45:56 PM »
60k from an investment base of nearly 2.28 million is a SWR of around 2.6%.  You have more than enough to retire.

I have a very large Inner Bag Lady who likes to hang around, so we have a very large cash stash.  2-3 years worth of expenses may not be financially optimal, but it does allow you to ride out most recessions. 

If you have heirs or causes you would like to leave assets to, you might want to consider some more sophisticated tax planning, including developing a Roth conversion strategy that will minimize your taxes both before and after RMDs kick in.  I used the spreadsheet found here to figure out how to spread the amounts converted over our available time period (20 years, as I am only just turning 50) in a way that keeps us mostly in the 10% tax bracket. 

https://www.bogleheads.org/forum/viewtopic.php?t=97352

Thanks to MDM for recommending that site!

If you have plans to set up a donor advised fund you can also use that for a large deduction in one or two years, and make large Roth conversions at the same time to maximize use of the deduction.  You can also be strategic in using capital gains and dividends from taxable investments to refill your savings buckets, rather than drawing down the retirement accounts early on, since the former are taxed at a lower rate.



Another Reader

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Re: DH ready to pull the trigger: any comments on our numbers?
« Reply #2 on: September 12, 2018, 08:02:44 PM »
Try the same numbers and proposal over at early-retirement.org.  More people with similar nest eggs and closer to you in age.

OzzieandHarriet

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Re: DH ready to pull the trigger: any comments on our numbers?
« Reply #3 on: September 12, 2018, 08:58:16 PM »
60k from an investment base of nearly 2.28 million is a SWR of around 2.6%.  You have more than enough to retire.

I have a very large Inner Bag Lady who likes to hang around, so we have a very large cash stash.  2-3 years worth of expenses may not be financially optimal, but it does allow you to ride out most recessions. 

If you have heirs or causes you would like to leave assets to, you might want to consider some more sophisticated tax planning, including developing a Roth conversion strategy that will minimize your taxes both before and after RMDs kick in.  I used the spreadsheet found here to figure out how to spread the amounts converted over our available time period (20 years, as I am only just turning 50) in a way that keeps us mostly in the 10% tax bracket. 

https://www.bogleheads.org/forum/viewtopic.php?t=97352

Thanks to MDM for recommending that site!

If you have plans to set up a donor advised fund you can also use that for a large deduction in one or two years, and make large Roth conversions at the same time to maximize use of the deduction.  You can also be strategic in using capital gains and dividends from taxable investments to refill your savings buckets, rather than drawing down the retirement accounts early on, since the former are taxed at a lower rate.

Thanks -- should have included that we have no kids or other people we need to leave money to.

That $60k is sort of the base, before health insurance (which could be more than $20k), taxes, and anything else (extra expenses). I think we'll probably be looking at at least 4% withdrawal.

lhamo

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Re: DH ready to pull the trigger: any comments on our numbers?
« Reply #4 on: September 12, 2018, 09:48:18 PM »
You only have to cover health insurance for you for four more years, and for your DH for 5.5.  So if you set aside 100k for that you are still at under a 3% SWR.  If you do proper tax planning your taxes should be minimal.

MDM

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Re: DH ready to pull the trigger: any comments on our numbers?
« Reply #5 on: September 12, 2018, 10:52:14 PM »
We will be eligible to buy subsidized health insurance through DH's employer when he retires. This year the premium would have been $1400 per month for both of us (this is pretty much gold-plated coverage), but they don't know what it will be next year. It is almost certainly going to be more.
Does the employer have a retiree HDHP?  Megacorp's retiree HDHP is a better deal than the gold-plated plan at any amount of medical expense, if one takes advantage of the HSA eligibility.

Much Fishing to Do

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Re: DH ready to pull the trigger: any comments on our numbers?
« Reply #6 on: September 13, 2018, 06:41:26 AM »
Definitely look your basis before moving all that VBIAX to the money market this year.  It sound like your income is going to decrease a good amount in the very near future so this is exactly the wrong year to be realizing any large gains, at least wait till January.  If you need some of that to get thru the end of the year just take what you need, but I'd use the savings acct first, if you do have an emergency you need those funds for then of course your hand may be forced to make a move but we're getting so close to the end of the year I wouldnt voluntarily realize gains I dont have to this year.

Everything else looks great to me, especially with Medicare & SS on the way for you soon.  Do you know about how much you can collect from SS?  That alone may cover a large portion of your necessities allowing you to keep living the same lifestyle above the $60k you like and still getting SWR really low

OzzieandHarriet

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Re: DH ready to pull the trigger: any comments on our numbers?
« Reply #7 on: September 13, 2018, 12:07:26 PM »
Definitely look your basis before moving all that VBIAX to the money market this year.  It sound like your income is going to decrease a good amount in the very near future so this is exactly the wrong year to be realizing any large gains, at least wait till January.  If you need some of that to get thru the end of the year just take what you need, but I'd use the savings acct first, if you do have an emergency you need those funds for then of course your hand may be forced to make a move but we're getting so close to the end of the year I wouldnt voluntarily realize gains I dont have to this year.

Everything else looks great to me, especially with Medicare & SS on the way for you soon.  Do you know about how much you can collect from SS?  That alone may cover a large portion of your necessities allowing you to keep living the same lifestyle above the $60k you like and still getting SWR really low

I just realized that we actually had capital gains income last year of about $26k (included in that AGI of $140k) because we pulled money out of the VBIAX account to pay off our mortgage. So without that, our AGI would have been about $124k. If we liquidate those accounts, the hit will be less than it was last year because the amount is less and our other income will be less. But you're right, if we don't need it we should probably delay it. Only concern is that if there is a big market drop we'll lose some of that money. (All our investment accounts are losing value right now -- kind of nerve-wracking.)

SS will depend on when we take it. At 66, mine will be about $18k and his about $34k.

OzzieandHarriet

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Re: DH ready to pull the trigger: any comments on our numbers?
« Reply #8 on: September 13, 2018, 12:08:17 PM »
We will be eligible to buy subsidized health insurance through DH's employer when he retires. This year the premium would have been $1400 per month for both of us (this is pretty much gold-plated coverage), but they don't know what it will be next year. It is almost certainly going to be more.
Does the employer have a retiree HDHP?  Megacorp's retiree HDHP is a better deal than the gold-plated plan at any amount of medical expense, if one takes advantage of the HSA eligibility.

I don't believe they do. And we never set up an HSA.

MDM

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Re: DH ready to pull the trigger: any comments on our numbers?
« Reply #9 on: September 13, 2018, 02:06:56 PM »
We will be eligible to buy subsidized health insurance through DH's employer when he retires. This year the premium would have been $1400 per month for both of us (this is pretty much gold-plated coverage), but they don't know what it will be next year. It is almost certainly going to be more.
Does the employer have a retiree HDHP?  Megacorp's retiree HDHP is a better deal than the gold-plated plan at any amount of medical expense, if one takes advantage of the HSA eligibility.

I don't believe they do. And we never set up an HSA.
The HDHP is a prerequisite for an HSA.  It doesn't matter if you have never had an HSA in previous years, but you would need to be covered by an HDHP to open an HSA.

BicycleB

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Re: DH ready to pull the trigger: any comments on our numbers?
« Reply #10 on: September 13, 2018, 02:17:12 PM »
You will have lots of income. After following all of the good advice about optimizing your tax situation, you will still have plenty of take home unless you spend wildly. If your spending is 60k plus medical, you should end up fine.

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Re: DH ready to pull the trigger: any comments on our numbers?
« Reply #11 on: September 13, 2018, 04:17:23 PM »
Definitely look your basis before moving all that VBIAX to the money market this year.  It sound like your income is going to decrease a good amount in the very near future so this is exactly the wrong year to be realizing any large gains, at least wait till January.  If you need some of that to get thru the end of the year just take what you need, but I'd use the savings acct first, if you do have an emergency you need those funds for then of course your hand may be forced to make a move but we're getting so close to the end of the year I wouldnt voluntarily realize gains I dont have to this year.

Everything else looks great to me, especially with Medicare & SS on the way for you soon.  Do you know about how much you can collect from SS?  That alone may cover a large portion of your necessities allowing you to keep living the same lifestyle above the $60k you like and still getting SWR really low

I just realized that we actually had capital gains income last year of about $26k (included in that AGI of $140k) because we pulled money out of the VBIAX account to pay off our mortgage. So without that, our AGI would have been about $124k. If we liquidate those accounts, the hit will be less than it was last year because the amount is less and our other income will be less. But you're right, if we don't need it we should probably delay it. Only concern is that if there is a big market drop we'll lose some of that money. (All our investment accounts are losing value right now -- kind of nerve-wracking.)

SS will depend on when we take it. At 66, mine will be about $18k and his about $34k.

That SS is awesome, you're really in great shape.

I do have to ask though, why would your investments be losing enough money to be concerning you right now?  Everything is generally at a high unless you're in something alternative or not very diversified.  I guess in the end it doesn't really matter what you're in, the fact that its making you nervous is something to think about before you FIRE, its only gonna get worse.

dandarc

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Re: DH ready to pull the trigger: any comments on our numbers?
« Reply #12 on: September 13, 2018, 05:03:24 PM »
You're rich - he should quit tomorrow. You're close to where you can draw SS and you have a "pick your taxable income" asset structure for at least a few years so the only reason to pay $20K for the insurance is if you want to - you can get good ACA insurance for much less than that net of subsidies.

Congratulations! You've won! Enjoy retirement!

Only way to screw this up is to increase spending in a huge way - if you don't start making a series of very stupid decisions you'll just keep getting richer as the retirement years pass by.
« Last Edit: September 13, 2018, 05:06:15 PM by dandarc »

GoCubsGo

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Re: DH ready to pull the trigger: any comments on our numbers?
« Reply #13 on: September 15, 2018, 10:19:20 AM »
I may be in the minority here, but with that amount of SS in the pipeline, I would spend considerably more the next few years if there are things you would like to do (travel, hobbies, etc). 

You've done so well to this point you might as well enjoy the hell out of your retirement will you are young and healthy.  I doubt you will be spending  as much in your 80's.

ItsALongStory

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Re: DH ready to pull the trigger: any comments on our numbers?
« Reply #14 on: September 16, 2018, 05:55:42 PM »
I may be in the minority here, but with that amount of SS in the pipeline, I would spend considerably more the next few years if there are things you would like to do (travel, hobbies, etc). 

You've done so well to this point you might as well enjoy the hell out of your retirement will you are young and healthy.  I doubt you will be spending  as much in your 80's.

Very much agree with this, your SWR will not even be anywhere close to 4% once SS kicks in.

Cassie

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Re: DH ready to pull the trigger: any comments on our numbers?
« Reply #15 on: September 16, 2018, 06:13:32 PM »
We are similar ages and have been spending a ton of money traveling. We lost 3 friends between the ages of 59& 67. Enjoy while you can.

Dicey

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Re: DH ready to pull the trigger: any comments on our numbers?
« Reply #16 on: September 16, 2018, 06:44:31 PM »
I may be in the minority here, but with that amount of SS in the pipeline, I would spend considerably more the next few years if there are things you would like to do (travel, hobbies, etc). 

You've done so well to this point you might as well enjoy the hell out of your retirement will you are young and healthy.  I doubt you will be spending  as much in your 80's.
If you're in the minority, @GoCubsGo, I'm right there with you.

A friend of mine went crazy in her first year of retirement. Spent well over 4% (almost double that, in fact). Once the itches were scratched, she came home and lived more modestly for a couple of years and her nest egg recovered fully. I thought she was crazy, but shes happy now she did what she wanted to do while she could fully enjoy it.

OP - What about his job makes the full time intolerable but the possibility of part-time acceptable?

OzzieandHarriet

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Re: DH ready to pull the trigger: any comments on our numbers?
« Reply #17 on: September 17, 2018, 11:40:40 AM »
I may be in the minority here, but with that amount of SS in the pipeline, I would spend considerably more the next few years if there are things you would like to do (travel, hobbies, etc). 

You've done so well to this point you might as well enjoy the hell out of your retirement will you are young and healthy.  I doubt you will be spending  as much in your 80's.
If you're in the minority, @GoCubsGo, I'm right there with you.

A friend of mine went crazy in her first year of retirement. Spent well over 4% (almost double that, in fact). Once the itches were scratched, she came home and lived more modestly for a couple of years and her nest egg recovered fully. I thought she was crazy, but shes happy now she did what she wanted to do while she could fully enjoy it.

OP - What about his job makes the full time intolerable but the possibility of part-time acceptable?

I think the part time is so he can offer to finish up or help with any projects on which he's needed but have more time to himself - it would be a way to decompress more gradually.

MustacheAnxiety

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Re: DH ready to pull the trigger: any comments on our numbers?
« Reply #18 on: September 19, 2018, 08:20:22 AM »
Financially, you are ready to retire.  You are so ready that you should be comfortable without a detailed plan.  Here is a back of the envelop plan.

60K (base spending) + 11K (extras) + 20K (healthcare) + 9100 (10% taxes) = 100,100

According to Cfiresim (assuming 60/40 investment split and the 34k in 7 years and 18K in 5 years SS) you can spend 100.1K  every year for 40 years and have 1.8M left over in the worst case scenario in case OP or DH needs long term care.

You may still want to make some more detailed plans just for sanity/efficiency.  But I don't think DH needs to wait to put his notice in.  Take a look at the posted retirement checklists for ideas like:
 - contributing to a donor advised fund this year if you make regular charitable contributions to maximize your tax benefits.
 - researching the best value health insurance plan based on your MAGI.  The 1400 per year plan is likely your best bet to get to the end of the year.  But if you can keep your MAGI to 64K between now and 65, an ACA plan is likely a better deal, if you are both generally healthy you could opt for a Bronze plan for nearly free, depending on your area.  That said if you mess up your tax planning, the subsidy disappears completely at 65K MAGI.  If you use an ACA plan for a few years can you go back to the retirement plan if something happens to the ACA?
 - figuring out how you want to spend your time in retirement
 - estimating how much that lifestyle will cost (as mentioned above you have considerable room to spend extra)



OzzieandHarriet

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Re: DH ready to pull the trigger: any comments on our numbers?
« Reply #19 on: September 19, 2018, 08:50:35 AM »
Financially, you are ready to retire.  You are so ready that you should be comfortable without a detailed plan.  Here is a back of the envelop plan.

60K (base spending) + 11K (extras) + 20K (healthcare) + 9100 (10% taxes) = 100,100

According to Cfiresim (assuming 60/40 investment split and the 34k in 7 years and 18K in 5 years SS) you can spend 100.1K  every year for 40 years and have 1.8M left over in the worst case scenario in case OP or DH needs long term care.

You may still want to make some more detailed plans just for sanity/efficiency.  But I don't think DH needs to wait to put his notice in.  Take a look at the posted retirement checklists for ideas like:
 - contributing to a donor advised fund this year if you make regular charitable contributions to maximize your tax benefits.
 - researching the best value health insurance plan based on your MAGI.  The 1400 per year plan is likely your best bet to get to the end of the year.  But if you can keep your MAGI to 64K between now and 65, an ACA plan is likely a better deal, if you are both generally healthy you could opt for a Bronze plan for nearly free, depending on your area.  That said if you mess up your tax planning, the subsidy disappears completely at 65K MAGI.  If you use an ACA plan for a few years can you go back to the retirement plan if something happens to the ACA?
 - figuring out how you want to spend your time in retirement
 - estimating how much that lifestyle will cost (as mentioned above you have considerable room to spend extra)

Thank you for your comment! Your back of envelope plan is similar to mine.

DH has given his notice. This whole thing is stressful for him because he's been working there for 35 years, but he thinks it's the right thing to do.

RE health insurance: I believe he has to sign up for it immediately on retiring if he wants to keep the plan we have. The ACA situation worries me. We are pretty healthy but do have some chronic conditions and are also showing normal wear and tear, so I don't think the cheapest plan would be good, leaving aside whether the ACA will still be here in the future -- and it seems like we can afford to keep what we have, for now. We don't know what the premiums will be next year. But his employer is one of the biggest in our state, so I imagine they have huge bargaining power.

OzzieandHarriet

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Re: DH ready to pull the trigger: any comments on our numbers?
« Reply #20 on: October 02, 2018, 01:21:54 PM »
We are counting down now ... in three weeks he is out and the paychecks stop, so I'm trying to come up with a simple strategy for getting living expenses into the checking account. What I'd like to do is put a chunk into either the money market or the online savings account (both are paying 1% right now) and do automatic transfers from there into checking every month in about the same amount as his current pay. I already have almost everything set up to pay automatically from that account (CCs, insurance, utilities, etc.; I rarely write checks).

(I say "I" because I'm the one who takes care of paying bills and getting taxes done ... not sure how things evolved this way, because it's sure not because I'm a financial whiz.)

I did find out one thing about the health insurance: I looked at the handout he got earlier this year, and it turned out he was looking at the wrong number. It actually will be about half of what he thought! Even if it goes up 10 or 20 percent next year it will be a lot less expensive than I was figuring.

Dicey

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Re: DH ready to pull the trigger: any comments on our numbers?
« Reply #21 on: October 02, 2018, 07:02:32 PM »
Great news on the health insurance!

I like the sound of your plan, but will you need exactly what his check was to be comfortable? Seems like their might be work-related expenses that go away, plus you'll have more time and energy to seek lower cost solutions in your everyday life. Perhaps you could make a sort of game of it. Let's take X amount and see how many months we can make it last. You have enough, you do not have to do this, but it might be a pleasant challenge while you adjust. You might want to fool around with Mrs. Frugalwoods' Thirty Day Challenge, which can be started any time. Again, not a must, but the timing might be fortuitous.

Cassie

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Re: DH ready to pull the trigger: any comments on our numbers?
« Reply #22 on: October 02, 2018, 07:21:47 PM »
In our 6 years of retirement we spent less in some areas but much more in traveling, eating out, entertainment, etc.  From what I read this slows down at 70.  Making hay while the sun shines:))

OzzieandHarriet

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Re: DH ready to pull the trigger: any comments on our numbers?
« Reply #23 on: October 02, 2018, 07:29:20 PM »
Great news on the health insurance!

I like the sound of your plan, but will you need exactly what his check was to be comfortable? Seems like their might be work-related expenses that go away, plus you'll have more time and energy to seek lower cost solutions in your everyday life. Perhaps you could make a sort of game of it. Let's take X amount and see how many months we can make it last. You have enough, you do not have to do this, but it might be a pleasant challenge while you adjust. You might want to fool around with Mrs. Frugalwoods' Thirty Day Challenge, which can be started any time. Again, not a must, but the timing might be fortuitous.

Probably not exactly, but close - because we'll be paying taxes and health insurance out of that where we weren't before. If we end up taking out a little extra, that's okay. We may be spending more, actually, because he'll have time to do things he likes and to do more things with me.