Can we FIRE?

[outtaheresoon]

Another poster here looking for input from the MMM community to help determine if/when we can FIRE.  All information/suggestions MUCH appreciated.  Below are our stats:

Him – 50 yo. Her - 60 yo.
Kids grown, out of the house/independent.

Annual spending $50k.

Assets:
His 401k’s- $620k ($600k in former employer Fidelity 401k, $10k in current employers Fidelity 401k, $10k in Fidelity IRA).

Her 401k’s- $510k. ($500k in current company Vanguard 401k, $10k in former employers 401k).

Both maxing out 401k contributions ($24k each/yr.).

Cash - $126k ($100k in MM account earning basically 0 interest, $26k in checking account).

House value - $380k

2 cars both paid for (I don’t include the value of them in our net worth)

Liabilities:

Mortgage balance $130k

No CC, car, school loans etc.

Net Worth - $1,376,000

Based on the 4% annual withdrawal rule we should be able to cover our $50k/yr. spend. 

Assumptions/questions:

We plan to sell our current residence and move to a lower COL area – but our rent/mortgage/monthly spending amount would stay about the same.  We plan on renting for at least 1 year (to make sure the location is a good fit).

·        Would it be a good idea to rent our current residence (should be able to make ~$700 a month above the monthly mortgage) instead of selling it and banking the ~$250k equity?  If we sell it we wouldn’t have to pay tax on the gain, but I believe if we rent then sell we would have to pay tax on the gain.

·        What is the best way to fund our $50k annual spend?  Use cash or withdraw from 401k accounts?

·        How do we withdraw the $50k each year without paying penalties from our 401k’s?

·        We have been building up our savings to use that cash along with the cash from the sale of our residence to cover our annual spend.  If we can build up our cash (including the cash from the sale of the house) to $400k that would be 8 years of not having to touch the 401k’s $400k/$50k/yr = 8 and hopefully those 401k balances will continue to increase.

Healthcare

·        What is the best way to estimate how much we will have to pay per year?

Social Security

·        We prefer not to take social security until we each hit 70 so we get the highest payout.

What are we missing/not taking into account, I feel there are a hundred things we haven’t taken into account?

[SugarMountain]

Another poster here looking for input from the MMM community to help determine if/when we can FIRE.  All information/suggestions MUCH appreciated.  Below are our stats:

Him – 50 yo. Her - 60 yo.
Kids grown, out of the house/independent.

Annual spending $50k.

Assets:
His 401k’s- $620k ($600k in former employer Fidelity 401k, $10k in current employers Fidelity 401k, $10k in Fidelity IRA).

Her 401k’s- $510k. ($500k in current company Vanguard 401k, $10k in former employers 401k).

Both maxing out 401k contributions ($24k each/yr.).

Cash - $126k ($100k in MM account earning basically 0 interest, $26k in checking account).

House value - $380k

2 cars both paid for (I don’t include the value of them in our net worth)

Liabilities:

Mortgage balance $130k

No CC, car, school loans etc.

Net Worth - $1,376,000

Based on the 4% annual withdrawal rule we should be able to cover our $50k/yr. spend. 

Assumptions/questions:

We plan to sell our current residence and move to a lower COL area – but our rent/mortgage/monthly spending amount would stay about the same.  We plan on renting for at least 1 year (to make sure the location is a good fit).

·        Would it be a good idea to rent our current residence (should be able to make ~$700 a month above the monthly mortgage) instead of selling it and banking the ~$250k equity?  If we sell it we wouldn’t have to pay tax on the gain, but I believe if we rent then sell we would have to pay tax on the gain.

·        What is the best way to fund our $50k annual spend?  Use cash or withdraw from 401k accounts?

·        How do we withdraw the $50k each year without paying penalties from our 401k’s?

·        We have been building up our savings to use that cash along with the cash from the sale of our residence to cover our annual spend.  If we can build up our cash (including the cash from the sale of the house) to $400k that would be 8 years of not having to touch the 401k’s $400k/$50k/yr = 8 and hopefully those 401k balances will continue to increase.

Healthcare

·        What is the best way to estimate how much we will have to pay per year?

Social Security

·        We prefer not to take social security until we each hit 70 so we get the highest payout.

What are we missing/not taking into account, I feel there are a hundred things we haven’t taken into account?

Since the Mrs. is over 59 1/2 she would be able to withdraw from her 401k without penalty.  That's probably how you would need to finance then next 10 years of retirement if you retired today.  You would likely deplete much of it, but hopefully the other one continues to grow.

What healthcare costs would be is the big question these days.  The Mrs. is close to Medicare age, but you'd have to bridge for at least 5 years for her and 15 for him.  I played around with our state's Obamacare exchange to see what it would cost my wife and I.  Basically, about $15k this year. (I think it was about $10k in premiums and a $5k deductible, so if we were healthy, it would be less, but I tend to do these things at worst case.)  Given the current political winds, who knows in the next few years what happens and how someone in their mid 50s to mid 60s will get coverage and how much it will cost. 

I struggle with how to count home equity.  There are numerous threads about it.  Selling and moving to a lower COL area can help free up the equity, but while I would count the $250k in equity as part of my net worth, I would not count it as part of my invested stache.

You don't say how much the two of you earn, so it's tough to say "when".  In a lot of models, you're probably close.  One thing I don't see you accounting for are taxes.  To get to $50k in take home pay, you will likely be paying some income taxes and need $55-60k per year.  Withdrawing from your 401k is taxable income, since it's never been taxed. 

So, if you don't count home equity that leaves you with $1,126,000 in your stache.  At 4% with a $60k annual spend you need more like $1,500,00.  And if your spending does not currently include much for healthcare coverage, i.e. work pays most/all of it, you need to sort that out.

You also should play with some of the social security calculators and see how much you can expect from that.  I definitely undercount it because at 49, I'm pretty sure they will raise the eligibility age and lower the payout by the time I get there.  But, at 60, the Mrs. will likely get pretty close to what the social security administration says today.

Play some with http://firecalc.com/ where you can go to the other tabs and add in assumptions about other income from social security, pensions, and whatnot.

As for hanging onto your house as a rental if you move somewhere, you probably need to look at opportunity cost of that money and whether the house is the best investment.

[money beard]

By the numbers you are really close.  You need to do more research on health care costs.  I do wonder though, what you are spending $50K a year on, and whether or not you need that much to live in retirement.  There may be expenses you have now that you won't have in retirement, or that will be drastically reduced.  For example, can you go down to one car to save on insurance and gas?  Do you have expenses in your budget that you won't see after retired, like gas to drive to work, clothing costs that will be reduced when you don't buy business attire, food costs that will go down as you have more time to cook for yourself, etc.?  I ask because you are right on the cusp if using a 4% withdrawal rate for $50K, but if you were looking at $40K a year in expenses, you would be in a very comfortable spot.

If I were you, I would get the health insurance question answered and then look at some lifestyle adjustments you could do.  Then you can go into FIRE drawing on a 4% return, on your $50K expense number, knowing that if you get a bad sequence of returns in your first few years retired, you can adjust your spending down a little bit to ease the pain and hopefully let your portfolio catch back up later.

[soccerluvof4]

like others have eluded to , I think you need to do a little more work and look at what your going to get from SS and check your costs on HC.  Also as others have said 50k is Lofty for 2 people as there are quite a few around here that are Fire'd on alot left but that is your choice as mine is higher than that as well. Having said that based on what you have provided I would agree your a bit short for my comfort level and would want to be closer to 1.5M with a 50k withdrawl. Again though HC and SS factors could change that.

[Cwadda]

Try "practice" retiring for 3 months. Only spend the money you would spend in retirement and see how you feel about that budget. $50k/year is fairly high - think you could bring that down to $40k?

[canadian bacon]

Couple of things: 
Your 401K is large.  congratulations AND you are going to have to face a minimum withdraw at some point.   You can put this off but unfortunately your 401K growth may push you into a new bracket if you wait too long.   You may read about FIRE people paying no tax, this is not you.    Applying 7% growth, your 401Ks will be increasing $110K per year in value within 5 years if you don't begin pulling some out.   This is a good problem but you may get into a higher tax bracket if you wait too long.   If you want to maintain your current 401K level, you will have to convert $80K a year (assuming 7% growth).   Using taxcaster this means you may have an $8000 fed tax bill every year.  And this is without whittling down your 401K.  SO I would assume $10K for taxes if I was you.   

Health care... ?

Budgeting:  I like RootofGoods budget posts: http://rootofgood.com/budgeting-in-retirement-2016-edition/ and the following one for home repairs:   http://rootofgood.com/budget-home-repairs-billion-dollar-project/

[spokey doke]

Exciting times for you...and you may need to make a choice with incomplete information, but I would work on where you plan to live as a pretty big piece of the puzzle, as a LCOL area will affect your health care costs, how much extra cash you have from your house, taxes, and the rest of your annual expenses (food, entertainment, etc.).

+1 on playing with cfiresim...get an account, and dial in those numbers and keep refining.

[coppertop]

Here's the thing that I keep wondering about.  It's been awhile since I read MMM's blog, but as I recall didn't he 'retire' with $400,000 or $500,000?  Yet I see people coming here and saying "I have 1.3 million dollars; can I retire?" and instead of people saying "Of course!  MMM did it on way less!" people say, "Maybe. But you probably need more."  Paraphrased, of course.  What's the deal?  I thought the idea was that one lives frugally, saves the maximum one can, and then if one wishes to be independent of paid work, the living is easy.  And that the articles saying a million dollars or more is necessary to retire are bunk. 

[damnedbee]

What's the deal?  I thought the idea was that one lives frugally, saves the maximum one can, and then if one wishes to be independent of paid work, the living is easy.  And that the articles saying a million dollars or more is necessary to retire are bunk.

It depends on spending/expenses, which varies for everyone's situation. MMM's annual spending was around 25K. For others, 50K might be as frugal as they are willing or able to get.

[outtaheresoon]

Thanks for all the great info and suggestions.   My project this weekend is to do some forensic accounting to see where we spent our money!

[Polish_Hammer]

Here's the thing that I keep wondering about.  It's been awhile since I read MMM's blog, but as I recall didn't he 'retire' with $400,000 or $500,000?  Yet I see people coming here and saying "I have 1.3 million dollars; can I retire?" and instead of people saying "Of course!  MMM did it on way less!" people say, "Maybe. But you probably need more."  Paraphrased, of course.  What's the deal?  I thought the idea was that one lives frugally, saves the maximum one can, and then if one wishes to be independent of paid work, the living is easy.  And that the articles saying a million dollars or more is necessary to retire are bunk.

dead on.  When you have over a million why are people asking "can I retire" ?  Ask yourself do I want to because you obviously can:)

[bacchi]

Here's the thing that I keep wondering about.  It's been awhile since I read MMM's blog, but as I recall didn't he 'retire' with $400,000 or $500,000?  Yet I see people coming here and saying "I have 1.3 million dollars; can I retire?" and instead of people saying "Of course!  MMM did it on way less!" people say, "Maybe. But you probably need more."  Paraphrased, of course.  What's the deal?  I thought the idea was that one lives frugally, saves the maximum one can, and then if one wishes to be independent of paid work, the living is easy.  And that the articles saying a million dollars or more is necessary to retire are bunk.

...with a paid off house in a low property tax state. His wife also worked for several more years after he retired.

[2Birds1Stone]

You certainly can.

So many parachutes if you need them.......cutting back just a tiny bit on spending, social security, discounts for senior citizens (srs), part time work if needed, etc etc.