Specific Question(s): #1 - Why am I still working? Prior to reading the moustachian advice here I was thinking I needed to get to at least $1.8 to $2M in savings, not counting real estate. After reading this blog I wonder if I should just retire now.
Your savings will provide you with $42k/year (at a 4% withdrawal rate) and your rental property will provide an additional $15-20k. That's already higher than your expected retirement expenses, and we haven't even looked at Social Security yet! I see little reason you can't retire now. Nice work!
#2 – When in the year is best to retire from a tax standpoint? I was thinking about early in the year, either now or early next year. I will take a tax hit when I cash out my options and want to minimize my income in the year I do this. Note: I may need some time to help my wife grow a mustache.
I think early in the year is a good plan if you have a bunch of vested, unexercised stock options. If these options are considered "incentive stock options" by the IRS, you may want to look into the different tax treatment between "cashing them out" immediately versus exercising the options, holding on to the stock for a year or two, and then selling the shares. The calculations can be complicated and highly dependent on your personal situation, but in general there can be some tax benefit to holding for a while, especially if you don't expect your retirement to cause the stock to go down significantly. :-)
#3 – What is the impact on Social Security if I retire early? Right now I have more than 40 maxed out credits and should get about $30K/year at FRA. But if I retire early and drop my income significantly, will this amount go down? I hit FRA in about 10 years.
If you log on to the Social Security web site and put in your personal information, they'll give you an estimate of your benefits based on the assumption that you'll keep working and earning the same salary as last year, every year from now until the date you start collecting benefits. But that doesn't take early retirement into account! Take a look at
this brochure for the real story. How it works is they look at every individual year you worked, scale your wages from each year up to account for inflation, take the top 35 years, and plug that into a formula that converts your lifetime wages into a monthly benefit.
The good thing for an early retiree is that it's a highly progressive formula: the first $816 in average monthly inflation-adjusted wages over your lifetime gets replaced at a 90% rate during retirement, the next $4,101 gets replaced at a 32% rate, and anything above that gets replaced at a 15% rate. So if you retire early, your Social Security benefits will be less than if you keep working and earning the same salary between now and your FRA, but at this point you probably won't see a huge difference because you've already earned enough to max out that 90% space. You get diminishing returns after that. This is especially true if you have already earned wages in at least 35 calendar years: your wages this year will replace a year in your teens or twenties when making the calculation, so you basically just get credit for the difference in earnings between those two years.