Author Topic: Case Study: 1.25m in investments, 0 debt, should we FIRE  (Read 5238 times)

Pex

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Case Study: 1.25m in investments, 0 debt, should we FIRE
« on: January 27, 2014, 03:01:44 PM »
Hi all;

I posted a few months back about our financial situation/ FIRE in more hypothetical terms.  Now, we are faced with the reality and we need a plan.

Current financial situation:

401k: $700,000 (tax deferred)
Vanguard investments: $550,000 (not tax deferred)

Home: Worth $160k - owned
Cars: 2 Hyundai's worth 20k each- owned
Credit card / other debt: $0

Annual Expenses:
We spend about $50k a year.  That isn't a guess - this is all home taxes, food, home maintenance, ACA medical, cell phone if we were to retire.

Ages:
Me: 47
Wife: 45

My income: $100k / yr
Wife's Income: $100k, soon to go to $0k (She is stepping away in March).

My primary concern is that $700k of our income is tied up in the 401K.  I don't see the $550k lasting until we are 65.
Advice?

Thanks in advance,
Pex

Tyler

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Re: Case Study: 1.25m in investments, 0 debt, should we FIRE
« Reply #1 on: January 27, 2014, 03:58:19 PM »
Great work building a solid financial foundation!

Regarding the 401k, Google "72(t)".

You're right at a 4% WR.  That's a good place to be.  I'll assume for the moment your investments are pretty "standard" so normal Trinity study calculations apply.  If I was in your situation, I'd look to trim my expenses another 10-20% for added safety margin, retire, and comfortably call it a day.


seattlecyclone

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Re: Case Study: 1.25m in investments, 0 debt, should we FIRE
« Reply #2 on: January 27, 2014, 04:02:22 PM »
You sound like you could benefit from a Roth pipeline. This is discussed in more detail elsewhere, but the basic idea is that you should roll over part of your 401(k) into a Roth IRA each year. You can withdraw the principal without penalty after it has been in the account for five years. In the meantime you'll live off of your taxable accounts. Even if your investments don't grow at all, you have enough in the Vanguard account to last 11 years. That's plenty of time to fill up your pipeline.

seattlecyclone

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Re: Case Study: 1.25m in investments, 0 debt, should we FIRE
« Reply #3 on: January 27, 2014, 04:07:51 PM »
One more thing: you only need to be 59 1/2 to make penalty-free withdrawals from your 401(k), not 65. Even if you don't make any rollovers, your taxable investment account only needs to last 12 1/2 years, not 18.

However I would suggest that you do make some small Roth rollovers every year anyway, because all regular income below your standard deduction and personal exemption amounts ($20,300 for a married couple in 2014) is untaxed. Don't waste that benefit by having an income lower than that! Roll over up to that limit and let that money grow tax-free until you need it.
« Last Edit: January 27, 2014, 04:09:22 PM by seattlecyclone »

Thegoblinchief

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Re: Case Study: 1.25m in investments, 0 debt, should we FIRE
« Reply #4 on: January 28, 2014, 06:36:55 AM »
You've hit the magic number but your spending level doesn't leave room for extra things like travel, etc.

Either give yourself a couple more years working with zero change, or spend this year optimizing your budget. Get spending below $40K and you'll have a VERY comfortable retirement.

oldtoyota

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Re: Case Study: 1.25m in investments, 0 debt, should we FIRE
« Reply #5 on: January 28, 2014, 06:51:24 AM »
People here covered the main points I would have mentioned--72(t), pipeline, reduce expenses.

I'll just add that since your wife is leaving the workforce in March, you'll have the opportunity to "practice" living on what you would live on in retirement. If it doesn't seem to work, you'll be able to optimize your spending or whatever other choice you think is best.




foobar

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Re: Case Study: 1.25m in investments, 0 debt, should we FIRE
« Reply #6 on: January 28, 2014, 10:17:06 AM »
It depends on how you feel about working (likely for a significantly lower $/hr) in your "retirement" as you are right at the edge (depending a bit on your assumptions about SS that you and your wife will get). Having to work 10k/hrs over the next 10 years at 10/hr might not be as appealing as working another 2k@50/hr over the next year.

 Personally I would say you and your wife should work 2 more years, save another 150k (+ another 150k in investment growth) and have a big margin of error in retirement. But I also like my job (yeah I would rather work 30 hours versus 40) and am choosing to work. Your situation may be different.






Hi all;

I posted a few months back about our financial situation/ FIRE in more hypothetical terms.  Now, we are faced with the reality and we need a plan.

Current financial situation:

401k: $700,000 (tax deferred)
Vanguard investments: $550,000 (not tax deferred)

Home: Worth $160k - owned
Cars: 2 Hyundai's worth 20k each- owned
Credit card / other debt: $0

Annual Expenses:
We spend about $50k a year.  That isn't a guess - this is all home taxes, food, home maintenance, ACA medical, cell phone if we were to retire.

Ages:
Me: 47
Wife: 45

My income: $100k / yr
Wife's Income: $100k, soon to go to $0k (She is stepping away in March).

My primary concern is that $700k of our income is tied up in the 401K.  I don't see the $550k lasting until we are 65.
Advice?

Thanks in advance,
Pex

ShortInSeattle

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Re: Case Study: 1.25m in investments, 0 debt, should we FIRE
« Reply #7 on: January 28, 2014, 10:24:16 PM »
Does your budget include medical out of pocket costs, not just premiums? Dental? Vision? What about lumpy expenses like car replacements and a new roof?

Do you expect some social security later to add an extra measure of safety?

Just a few more questions to round out your analysis. :)


Pex

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Re: Case Study: 1.25m in investments, 0 debt, should we FIRE
« Reply #8 on: January 29, 2014, 04:13:04 PM »
Thanks all- Your advice is excellent.

72(t) and Roth Pipeline:  Excellent - thank you very much.   We will definitely do the 20k pipeline when the time comes...and possible the 72(t).

Medical out-of-pocket, dental expenses, glasses, new roof, new cars: Yes, and that brings it to 50k.  I've had a few minor surgeries - it adds up even with good insurance.  We just had the roof replaced a couple months ago, so we're solid there.  By the time we need a new car 10 years will have passed (I am hoping).

Travel:  We've done embarrassingly little of this.  Yes, we have plans, but most of them start very close by.  We live in a beautiful country.  We will budget for this as well.

Working for 10/hr in retirement:  We're both in IT.  We can do better than $10 :), but we can't seem to get less than 50 hrs a week.  We'll see how my wife feels in a few years.

Have the wife retire and spend a year on my income working on expenses:  This is now the plan.  Part of her retirement "job" will be to reduce our expenses further- we're already fairly aggressive in this regard, but there is always room for improvement.  We are discussing selling one of the cars.

Again, my thanks to all of you.  I'll post again in a few months seeking more advice I am sure - probably advice on cutting expenses.

Regards,
  Pex

the fixer

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Re: Case Study: 1.25m in investments, 0 debt, should we FIRE
« Reply #9 on: January 29, 2014, 04:29:33 PM »
Working for 10/hr in retirement:  We're both in IT.  We can do better than $10 :), but we can't seem to get less than 50 hrs a week.  We'll see how my wife feels in a few years.
Try consulting, or worst case sort-term full-time contract work. It all depends on what your specialty is.

I've known people with an extremely tailored specialty, like setting up Exchange environments. They come in, do the design, implement it, and maybe a bit of tweaking/optimization. Take a look through the jobs listings on sites like oDesk and Guru as a start.

Self employment with a laid-back mentality can be a great way to ease into retirement for a year or two while accumulating some buffer income, but still allowing a lot of time/hours flexibility.

foobar

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Re: Case Study: 1.25m in investments, 0 debt, should we FIRE
« Reply #10 on: January 29, 2014, 06:42:16 PM »
You can get more today but if you went looking for work 10 years after being out of the field, you might find it is a different story.  This isn't a critique of your skill set. It is more a comment of how once you get off the employment wheel some people find it very hard to get back on in a lot of fields. And heaven forbid you happen to need to start looking for a job in a big recession.





Working for 10/hr in retirement:  We're both in IT.  We can do better than $10 :), but we can't seem to get less than 50 hrs a week.  We'll see how my wife feels in a few years.


Dr. Doom

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Re: Case Study: 1.25m in investments, 0 debt, should we FIRE
« Reply #11 on: January 29, 2014, 08:53:10 PM »


Working for 10/hr in retirement:  We're both in IT.  We can do better than $10 :), but we can't seem to get less than 50 hrs a week.  We'll see how my wife feels in a few years.

This made me laugh a crazy sort of maniacal laugh.  Me and DW are in the same boat.  The pay isn't the problem -- it's the hours by far, and it's very difficult to limit them without coming across as an a-hole or worse -- the much maligned NON TEAM PLAYER.    The consulting suggestion is worth exploring to work around this.  I knew a guy once who would work 12 months as a consultant, take 6 off, repeat.  Not my style personally but he seemed happy enough.

You've already been offered some great advice so I won't echo it.  Good luck with everything.