Author Topic: Reader Case Study - How would you withdraw the funds?  (Read 1299 times)

Oil Patch Adams

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Reader Case Study - How would you withdraw the funds?
« on: September 18, 2017, 06:58:08 AM »
Life Situation: Married filing joint (upper 30's), 2 young kids

Gross Salary/Wages: Let's assume $0; planning side hussle

Current expenses: $48k / year (including mortgage (3.85% 29.5 years) and no debt)

Portfolio
$450k - IRA rolled over from 401k (target 2040)
$400k - index brokerage (60/40 VTSAX / VTIAX)
$7.5k - stocks from former ESPP
$7.5k - Roth IRA
$135k - spouse IRA (most rolled over from 401k target 2045)
$25k - HSA
$75k - Cash (e-fund and severance in saving/checking)
Total - $1.1M

I've known for awhile I was due for a layoff (it's a good thing), now I'm curious how the readers here would access the funds shown above for long term withdrawal in case side hussle is minimal..  Severance/cash will carry me through next year.  SS may happen in a couple decades, but would just be a bonus.

Not to lead any ideas, but I was going to plan the back door roth ladder conversion to be available 2023.  I live in a state with income tax and property tax.

Thanks for reading, any and all thoughts / recommendations are greatly appreciated.

OPA



« Last Edit: September 18, 2017, 09:02:29 AM by Oil Patch Adams »

Basenji

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Re: Reader Case Study - How would you withdraw the funds?
« Reply #1 on: September 18, 2017, 08:07:25 AM »
Have you seen the "How to Do a Case Study" post at top of this section?
As people ask questions, post updates in the original post so we're all on the same page.
Are you saying you are FIRE and want a long-term withdrawal plan? Or are you asking how to withdraw to bridge the time between a layoff and a new side hustle?
Details missing that others will need to even start commenting:
Your ages
Rate on your mortgage, how much left, etc.
More details on your investments, what kinds of funds, fees, etc.
Why the $75k in cash? Where is it parked/interest? What do you need it for?

zolotiyeruki

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Re: Reader Case Study - How would you withdraw the funds?
« Reply #2 on: September 18, 2017, 08:51:07 AM »
Congratulations, you've won!  Your situation looks a lot like what I expect mine to be when I FIRE.  My (rough) plan is to:
1) set up a SEPP from the IRAs to extract the maximum each year. (for you, with $585k, that's $20-25k/year)
2) make up the rest of my spending from traditional investments and Roth contributions.

With your spending level, I'm assuming you wouldn't be taxed on the withdrawals from your brokerage accounts.

Oil Patch Adams

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Re: Reader Case Study - How would you withdraw the funds?
« Reply #3 on: September 18, 2017, 09:12:17 AM »
Yes, I read...and added some details.  Most everything is low expense ratio.  Cash is to pay bills until I'm comfortable with withdrawal strategy.  Might find low income nice benefit position for healthcare...and supplement kids education when the time comes.

Thanks Zolo, I'll read about SEPP.  I don't have much Roth contributions to pull, so would this be similar to my back door ladder plan?

lhamo

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Re: Reader Case Study - How would you withdraw the funds?
« Reply #4 on: September 18, 2017, 09:32:12 AM »
I would be very cautious using the SEPP approach in your 40s and younger, especially if you are planning side income.   Once you start taking SEPPs, you MUST continue them until age 59.5.  If your side income ends up being high some years, you might take a big tax hit.

Roth ladder will give you more flexibility on all fronts, and that is the approach I would take.   In years when you have a higher income, you can roll over less to the Roth to keep the tax hit minimized.   If you decide to take a year or two off work, you can maximize your roll over amount and still pay no or very little tax.
Wherever you go, there you are

boarder42

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Re: Reader Case Study - How would you withdraw the funds?
« Reply #5 on: September 18, 2017, 09:37:49 AM »
https://i-orp.com/gamma/index.html

this is a fun tool to play with that will help you minimize your tax exposure.  input your data and it will tell you how best to withdraw. 
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Oil Patch Adams

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Re: Reader Case Study - How would you withdraw the funds?
« Reply #6 on: September 18, 2017, 10:09:20 AM »
thanks for the link B42.  I'll have to spend some time playing around with that.  Planner throws about quite an annual disposable income...if I don't touch a thing for 30 years, haha!  The bold statements don't seem to work with an early retiree.

Quote
Assume constant retirement spending, adjusted each year to account for inflation.
Begin Social Security Benefits at age 67, probably your Full Retirement Age.
Retire at age 67, when your Social Security Income begins.
Allocate 60% of savings to stock and 40% to fixed income at the beginning of retirement. Gradually reduce stock allocation to zero at the end.
Sell your house and/or business, if any, at age 80.
Set your planning horizon to age 92, the Joint Life and Last Survivor Expectancy for a 65 year old married couple, according to the IRS.
No savings are left at the end of the plan.
Excludes IRA to Roth IRA conversions.

boarder42

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Re: Reader Case Study - How would you withdraw the funds?
« Reply #7 on: September 18, 2017, 10:18:33 AM »
https://i-orp.com/gamma/extended.html

use the extended verstion it will let you set all that up and it works for an early retiree.  and you can have it do the roth ladder as well.
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Oil Patch Adams

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Re: Reader Case Study - How would you withdraw the funds?
« Reply #8 on: September 18, 2017, 10:20:44 AM »
Roth ladder will give you more flexibility on all fronts, and that is the approach I would take.   In years when you have a higher income, you can roll over less to the Roth to keep the tax hit minimized.   If you decide to take a year or two off work, you can maximize your roll over amount and still pay no or very little tax.
Couple issues I have here is the 5 year lag...would I start to roll 44k over each year until I have a higher income side gig?  Second, should I only aim to convert 4% or some SWR? and sell and draw the same from after tax brokerage?




boarder42

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Re: Reader Case Study - How would you withdraw the funds?
« Reply #9 on: September 18, 2017, 10:23:33 AM »
use I-orp and it will give you a good estimate.  it looks like you have 400k in taxable monies so you wouldnt need to roll over your full expected spending in 5 years you would want to minimize you tax exposure so the less you convert the lower your taxes.  play with that tool and it will give you a plan of what you should convert each year
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MDM

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Re: Reader Case Study - How would you withdraw the funds?
« Reply #10 on: September 18, 2017, 08:56:10 PM »
I-orp is somewhat like Quicken: it's relatively easy to find faults, but it's probably better than all (at least most) alternatives.

Pay attention to how it treats your $400K brokerage: the split between basis and gains may affect your taxes on withdrawal, and i-orp may or may not account for that appropriately.  E.g., look at the first year (or few years) of i-orp's suggestions, then compare i-orp's tax calculation to a reasonably rigorous one.  If they match, all is well.  If there is a significant difference, caveat planner.

Laura Ingalls

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Re: Reader Case Study - How would you withdraw the funds?
« Reply #11 on: September 29, 2017, 07:23:19 AM »
Just a couple of random comments from someone who has about the same sized stache, family size, but ten years older. 

Health care is the $64k question. 
How big is your mortgage?  Does it make sense to continue to carry mortgage debt? 

You may pay more state taxes than federal as capital gains are taxed as regular income in many places.

Bone up on the EITC rules.  Frugal Professor here has lots of good information.  You might want to think about buying Berkshire:).

We so far have not done SEPP or converted much tIRA to Roth as we have attempted to keep income low for health care reasons.  We have lived off earned income, taxable, and have minimized income for ACA purposes.




Acastus

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Re: Reader Case Study - How would you withdraw the funds?
« Reply #12 on: September 29, 2017, 12:25:52 PM »
At a very simple level, and because you only give a simple picture of finances, you are not quite ready to FIRE if you assume zero work income. A 4% draw is 44k/year, and your expenses are higher. If you are in your 30's, 4% draw could be risky because you will be drawing for 50 years, not the 30 assumed. You should provide more detail on assets and expenses, as shown in the pinned how to.  You will probably need to reduce expenses, think about future long term expenses - college for kids, higher health premiums at 50+, future car - , and find a new income source, though it could be small.

If you are looking at a sabbatical, then you have plenty of "screw you" money to pay bills until you figure out something new. Between cash and taxable funds,  you have 10 years of expenses. Just don't burn them all for nothing.

Oil Patch Adams

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Re: Reader Case Study - How would you withdraw the funds?
« Reply #13 on: October 01, 2017, 08:08:02 AM »
Thanks for the comments, that site B42 showed me has me crunching more & more numbers.  Great resource.

Yes, Iím pretty simple.  Correct, not FI.  Yes, looking for a side hussle.  Yes, need to educate myself more on tax and how to stretch the best portions of my stache.

Biggest mind f*ck is planning further than the next paycheck.  To me, FI would be easier if I have income each month to cover monthly expenses.  But I donít want to slumlord again.  My dividends donít even cover my quarterly expenses, have to rely on market growth to keep my stache from getting drained.

While my expenses are low, they arenít low enough for my comfort level.  Really excited to start working for myself (side hussle) vs trying to get back into corporate America.