Author Topic: How screwed are we for early retirement?  (Read 8271 times)

politenessman

  • 5 O'Clock Shadow
  • *
  • Posts: 64
  • Location: Longmont CO
    • My Journal
Re: How screwed are we for early retirement?
« Reply #50 on: May 11, 2018, 01:25:40 PM »
A most excellent set of questions.
My next steps are:

Roll my old IRA into my 401k - I have started that process
Once the car is paid off (September) start putting 4-5k into some sort of savings
I don't have funds picked out yet but I am starting to do research (based in great part on what I read in this forum)
I'm ok with some risk in my savings, as I have a relatively low risk 401k.

Quote
analysis paralysis
Sometimes you just have to make a decision on an incomplete data set and go with it. I'm ok with that.

freya

  • Stubble
  • **
  • Posts: 165
Re: How screwed are we for early retirement?
« Reply #51 on: May 12, 2018, 08:29:15 AM »
Just to be clear and then leave the Roth issue alone...backdoor Roth contributions are technically conversions, so they can't be withdrawn for 5 years.  The reason for going hog wild on the Roth IRA deal is that I perceived that the OP is already running a tight ship as far as expenses go, and that, the best route to increasing savings is to reduce taxes and protect the investments that will soon be appearing.

How about this for next steps:

1) Look into whether you could benefit from opening an HSA, by researching costs & premiums for your current health plan vs and high deductible plan.  Generally, the HSA is the better deal if you're high income.

2) Open a high-yield online savings account - here's a list to start researching:  https://www.nerdwallet.com/blog/banking/best-high-yield-online-savings-accounts/.

Move the $10K in savings there, and you'll throw new savings there as well.  Grow this account to 1 year expenses for your emergency fund, then you can start thinking about investments.

MDM

  • Walrus Stache
  • *******
  • Posts: 8431
Re: How screwed are we for early retirement?
« Reply #52 on: May 12, 2018, 09:56:19 AM »
Just to be clear and then leave the Roth issue alone...backdoor Roth contributions are technically conversions, so they can't be withdrawn for 5 years.
If it were a conversion of pre-tax money from traditional to Roth (for which tax was paid at the time of conversion), the 5 tax year period applies.

Conversions of post-tax money from traditional to Roth (for which tax was not paid at the time of conversion, e.g., a backdoor Roth) may be withdrawn without tax or penalty at any time - after direct contributions and any taxable conversion money has been withdrawn.

See http://retirementlc.com/wp-content/uploads/2017/07/2017-07-06-Roth-IRA-Distribution-Ordering-Rules.pdf and http://fairmark.com/forum/read.php?2,54159,85510#msg-85510.

For IRS-speak, see Recapture amount subject to the additional tax on early distributions:
Quote
Generally, an early distribution is
allocated to your Roth IRA contributions
first, then to your conversions and
rollovers on a first-in, first-out basis. For
each conversion or rollover, you must
first allocate the early distribution to the
portion that was subject to tax in the
year of the conversion or rollover, and
then to the portion that wasnít subject to
tax. The recapture amount is the sum of
the early distribution amounts that you
allocate to these taxable portions of
your conversions or rollovers.

pbkmaine

  • Walrus Stache
  • *******
  • Posts: 7534
  • Age: 62
  • Location: The Villages, Florida
Re: How screwed are we for early retirement?
« Reply #53 on: May 13, 2018, 02:27:28 AM »
For the backdoor Roth, find a CPA who is familiar with this strategy and pay for an hour of their time to discuss it. As you have probably gathered from the posts above, itís complicated and you need to do it right.

RelaxedGal

  • Bristles
  • ***
  • Posts: 294
  • Age: 40
  • Location: 495 corridor, Massachusetts, USA
Re: How screwed are we for early retirement?
« Reply #54 on: May 16, 2018, 08:47:23 AM »
As Check2400 said, you're in good shape and everything else is just nit picking.

Which, of course, I'm going to do because everyone has opinions on the internet.
  • You said you each have $24,000 going to retirement, but didn't break out the additional employer match.  Woo!  You're actually doing better than posted.
  • Much ado has been made of back door Roth, but do you have a Roth 401K option through your employers?  It would be the less-effort option and still get you tax diversification in retirement and reduce those dreaded required minimum distributions.
  • https://www.ssa.gov/planners/retire/AnypiaApplet.html, for estimating benefits when retiring early.  You'll need to log in (or pull out a paper Social Security statement) and put in actual numbers.

Congratulations on the move, downsizing, full time telecommute, improved eating, improved exercise, and general awesomeness!

politenessman

  • 5 O'Clock Shadow
  • *
  • Posts: 64
  • Location: Longmont CO
    • My Journal
Re: How screwed are we for early retirement?
« Reply #55 on: May 16, 2018, 09:35:15 AM »
  • You said you each have $24,000 going to retirement, but didn't break out the additional employer match.  Woo!  You're actually doing better than posted.

We are both maxing out our 401k contributions and at our age, that is about 24k apiece.
I get a small match, I think 50% to 3% or similar. I think DW gets 100% to 6% or something along those lines. I know her match is so much better than mine.

We did gather the social security info and its about the same for both of us:

 Age   Monthly Allowance
 70   $ 3095
 67   $ 2397
 62   $ 1562

In addition, and I forgot to mention this in the initial post, I was born in the UK and didn't move to the US until I was almost 40. This means I am eligible for a UK government pension. In addition I have a small private pension too. I'm not sure yet when or how much these will be. I suspect as follows:

Gov Pension      $ 200/wk
Private pension $500/yr

I think this should kick in at 65 but I need to confirm. There may also be complexity around the fact that I am out of the UK.

That $200/wk might be very useful!

nereo

  • Walrus Stache
  • *******
  • Posts: 8230
  • Location: la belle province
    • Here's how you can support science today:
Re: How screwed are we for early retirement?
« Reply #56 on: May 16, 2018, 10:57:32 AM »

We did gather the social security info and its about the same for both of us:

 Age   Monthly Allowance
 70   $ 3095
 67   $ 2397
 62   $ 1562

In addition, and I forgot to mention this in the initial post, I was born in the UK and didn't move to the US until I was almost 40. This means I am eligible for a UK government pension. In addition I have a small private pension too. I'm not sure yet when or how much these will be. I suspect as follows:

Gov Pension      $ 200/wk [$867/mo]

Well this makes things decidedly more rosy for you and your DW.

If we go with the *earliest* you can take SS, at age 62 you will have $3,124/month, which will get bumped up to $3,991 when you turn 65.  IIRC this represents ~68% of your admittedly high spending target.

If you wait until each of you turns 67 you will have >100% of your spending covered by SS and your pension.

This means you need only to have enough saved to bridge the gap between now (age 52 for you / 55 for dear wife) and age 67.  That's 15 years.
To quit today at a $5k/mo spend rate you would need $1MM (93% success rate), or $775,000 if you drop your expenses to $4,000.  So you aren't there yet.

But the brilliant silver lining here is that every year you get closer to SS and your pension you need less and less.  In 5 years you will need just $550,000 to keep that very high $5k/mo spending rate.  In 7 years you'll need just $425,000 (all for >90% success rates).

Then there's the option to 'scale down'.  You have enough assets now that you could glide into retirement just fine, provided you made at least enough to cover expenses for the next few years.  That means either one of you could quit, or you could both go part time (if possible).  With market gains you could go part-time today (earning min. combined $60k/year), continue this for 3-5 years and then pull the plug entirely.

Of course with all this you will want to consider what happens if one of you dies earlier than expected, but you don't have a retirement problem, you have a 'bridging the gap between traditioanl retirement and today' problem.  It's a good one to have.



reeshau

  • Stubble
  • **
  • Posts: 171
  • Location: Dublin, Ireland
Re: How screwed are we for early retirement?
« Reply #57 on: May 16, 2018, 01:08:05 PM »
In addition, and I forgot to mention this in the initial post, I was born in the UK and didn't move to the US until I was almost 40. This means I am eligible for a UK government pension. In addition I have a small private pension too. I'm not sure yet when or how much these will be.

Be careful with your social security calculations.  The UK is a treaty country for social security benefits.  This can be helpful in cases with work histories not long enough to qualify for social pensions, but in some cases, it's not necessarily good news.  At the risk of realizing this bad news, you can schedule an appointment at a social security office, and bring information about your UK work history.  They can then do a custom calculation on your benefit net of the impacts of the treaty.

To quote from https://www.ssa.gov/international/Agreement_Pamphlets/uk.html :

"A U.K. pension may affect your U.K. benefit
If you qualify for Social Security benefits from both the United States and the United Kingdom and did not need the agreement to qualify for either benefit, the amount of your U.S. benefit may be reduced. This is a result of a provision in the U.S. law that can affect the way your benefit is figured if you also receive a pension based on work that was not covered by U.S. Social Security. For more information, visit our website, www.socialsecurity.gov , and get a copy of our publication, Windfall Elimination Provision (Publication No. 05-10045). If you are outside the United States, you may write to us at the address shown in "For more information" section."

(please don't skewer me on the above paragraph.  Yes, it says a UK pension may affect your UK benefit, then goes on to talk about how a UK pension may affect your US benefit.  That's why I quoted it--it's a government brochure.)
« Last Edit: May 16, 2018, 01:11:01 PM by reeshau »

politenessman

  • 5 O'Clock Shadow
  • *
  • Posts: 64
  • Location: Longmont CO
    • My Journal
Re: How screwed are we for early retirement?
« Reply #58 on: May 16, 2018, 01:19:25 PM »
I've only skim read that but it looks like it is geared towards people who are, for instance, UK citizens working in the US and paying taxes here, and vice versa (I have some friends who do this).

That is not my situation. I've been working in the US since 2000 on a green card and became a citizen in 2008.
Prior to that I worked only in the UK and paid UK taxes etc.

I suspect my UK pension will not be full value due to me only working 14 of 44 years expected (However I was earning at a high rate, so I have paid in a considerable amount). According to US social security, I am eligible for the full amounts as described above.

nereo

  • Walrus Stache
  • *******
  • Posts: 8230
  • Location: la belle province
    • Here's how you can support science today:
Re: How screwed are we for early retirement?
« Reply #59 on: May 16, 2018, 01:27:38 PM »


That is not my situation. I've been working in the US since 2000 on a green card and became a citizen in 2008.
Prior to that I worked only in the UK and paid UK taxes etc.

Just wanted to add - the SS benefits that are listed on the SS website are projections of what you will get - they assume to some degree that you continue working at roughly the same wages until retirement age.  There are methods for estimating exactly what you would get if you stopped earlier but if you have a 20 year working history much of your benifit is already 'baked in'. 


*SS requires a 40 'credit' work history to qualify, which any full-time earner can with 10 years employment.  Your maximum benefit is calculated on your best 35 years.  If you don't work at all you get zeros for those blank years.  Its one small reason why working part-time can provide another benefit (in addition to allowing you to not touch your nest-egg while having a much reduced schedule).

reeshau

  • Stubble
  • **
  • Posts: 171
  • Location: Dublin, Ireland
Re: How screwed are we for early retirement?
« Reply #60 on: May 17, 2018, 06:58:42 AM »
I've only skim read that but it looks like it is geared towards people who are, for instance, UK citizens working in the US and paying taxes here, and vice versa (I have some friends who do this).

That is not my situation. I've been working in the US since 2000 on a green card and became a citizen in 2008.
Prior to that I worked only in the UK and paid UK taxes etc.

I suspect my UK pension will not be full value due to me only working 14 of 44 years expected (However I was earning at a high rate, so I have paid in a considerable amount). According to US social security, I am eligible for the full amounts as described above.

Any of the above situations can / are impacted.  The reason I am aware of this is that I, a US citizen, am about to start a 5 year stint in Ireland. (Ireland also a treaty country, but these are all negotiated one-to-one, so while there are typical clauses, the specifics can differ)  As nereo points out, this will put "zeros" in my US social security benefit calculations.  However, my Irish years, accumulating some credits with them, but not enough for a benefit, will end up adding to my (reduced) social security--in essence, Ireland will fund some of my US payout.  But, if I end up staying 10 years, long enough for some Irish benefit, then my SS may be *further* reduced because of that Irish support, given directly to me.

There is a web page on the social security site that describes how this is calculated.  It's not an easy calculation, but worth understanding if you are counting on this money at some phase of your life.

politenessman

  • 5 O'Clock Shadow
  • *
  • Posts: 64
  • Location: Longmont CO
    • My Journal
Re: How screwed are we for early retirement?
« Reply #61 on: July 23, 2018, 07:50:50 PM »
I thought I would update you lovely people, just because I have been making progress:

The savings and investments
The roll over of my Chase IRA (created with old and dusty 401k monies from ages past) is almost complete; once Fidelity get the money in the right account. I did speak with the retirement advisers at Fidelity and they gave me the run down on the mechanics of the Roth IRA and how to fund it so I am clear on that and have opened both an IRA and Roth IRA account to get that moving.

I did some research and while I see the appeal of Vanguard, I have all my accounts with Fidelity as my 401k is there. However I did take note of the advise with regards the types of funds to invest in, the mix and so on. I have changed my mutual fund selection for the 401k, to S&P 500 mutual funds, with a small amount a growth fund that I am fond of.
(For my 401k there is no total market fund available, the S&P500 is as close as I can get, and it is low cost - FUSVX @ 0.035%)

I have also started to fund the tIRA with a view to rolling that money into the Roth by the end of the year. So far I have about $750 in there.
In addition I have opened an individual investment account for all the money that can not go into the IRA. I have about $450 in there - I'm using it like a change jar.
(Because the value is low, I am using ETFs - iTOT which trades for free on Fidelity)

The emergency funds were split - $5k in chase at 0% interest, and the remaining 5K moved to Amex Savings @ 1.7%.

The spending
As I suspected, we are not spending $1000/mth on groceries now that we are not eating out. It looks like we have reduced our monthly spend from $4k down to about $3,300, but I want to get a couple more months under our belts before we call that definitive.
There are still some things we can do with regards the spending that we will likely do as the year rolls on.

In addition, we will be looking into an HSA at the end of the year when DW gets her benefits elections.

I am making good progress on getting the small car loan paid off - currently I am paying it down at about 2500/mth and apparently I get a ~$2000 refund from trading in one Subaru for another so that will help (when it finally gets here). The $2500/mth is less than I intended but the wife has traveled more than anticipated recently, plus some of the funding activity above has taken some of the funds. I am however still on target to have this paid off before the end of the year.

And that is my current focus; car loan gone by the end of the year and Roth IRA fully funded. It is an achievable target.
Next year the plan is to increase the emergency fund up to ~25k, fully fund both our Roth IRAs (DW has one now too), keep fully funding the 401ks, and what ever savings we have left over goes into the individual investment account. At least initially the plan is to invest in index funds - either total market or at the very least, S&P500.

So that is where we are now. I took what you guys told me, I did some reading, and a lot of math, put a plan together and have started to execute on it, so thank you all for helping me get this far.

As for when we retire; we aren't sure about that yet. Its not so much the money as it is when we want to stop what we are doing now. Our best guess at this time maybe in 6-8 years. I like what I do and if it continues to be fun, then I will continue to do it!

reeshau

  • Stubble
  • **
  • Posts: 171
  • Location: Dublin, Ireland
Re: How screwed are we for early retirement?
« Reply #62 on: July 24, 2018, 01:41:22 AM »
So that is where we are now. I took what you guys told me, I did some reading, and a lot of math, put a plan together and have started to execute on it, so thank you all for helping me get this far.

Of all the discussion points, options, etc. this is the real purpose, to me.  Congratulations on finding a direction, purpose, and peace, and good luck in the execution.

UnleashHell

  • Walrus Stache
  • *******
  • Posts: 5132
  • Age: 51
  • Location: Florida
  • Chapter IV - A New ... er.. something
Re: How screwed are we for early retirement?
« Reply #63 on: July 24, 2018, 05:16:44 AM »
Re the pensions.

US: it does assume that you'll carry on working until you retire to get that amount. However the amount you get per year for each extra year working is tiny due to how the inflection points in the calculations work. Inflation will have a bigger effect on your financial picture than extra years into your SS payments.

UK Pension: will be reduced as you didn't work the full amount of years. From memory 15 years in the UK will get you about 60% to 70% of the full UK pension (which isn't awesome in the first place).

It will need to be declared in the US and will reduce your SS amount by up to 50% of the value of the UK pension.
so if you get $100 from the UK then it'll reduce the SS by $50.


However it then depends on how long you've worked here (again this is from memory of when I looked it up)
for every year you work in the US from year 20 to year 30 then the amount of the reduced is decreased by 5% so 20 years will get you a 50% reduction in the offset. 21 years changes the offset to 45% etc until you reach 30 years when the offset is 0.


Of course all this can change as soon as either the UK or the US changes the tax rules they apply to pensions and SS.

Given the amounts involved at that stage then its probably better to work an extra few months and grow the stash which will offset the amounts involved completely.

I checked it out because my work history is very similar - UK until 2000 then over here working.

John Galt incarnate!

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: How screwed are we for early retirement?
« Reply #64 on: July 26, 2018, 12:01:04 PM »

Your grocery costs are insane for 2 people, even considering the dogs.


I concur.


politenessman

  • 5 O'Clock Shadow
  • *
  • Posts: 64
  • Location: Longmont CO
    • My Journal
Re: How screwed are we for early retirement?
« Reply #65 on: July 26, 2018, 12:07:55 PM »

Your grocery costs are insane for 2 people, even considering the dogs.


I concur.

You may have missed this bit in a more recent post
Quote
As I suspected, we are not spending $1000/mth on groceries now that we are not eating out.
We seem to be running at about 400/mth including eating out, and feeding the dog

John Galt incarnate!

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: How screwed are we for early retirement?
« Reply #66 on: July 26, 2018, 12:16:55 PM »


You may have missed this bit in a more recent post
Quote
As I suspected, we are not spending $1000/mth on groceries now that we are not eating out.
We seem to be running at about 400/mth including eating out, and feeding the dog

Ah!

That's MUCH better (yes I did miss it).