Author Topic: case study:wanting to fire in 2017 if possib with a bit more MMM community help  (Read 3247 times)

jom2025

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Hello MMM community

I want to start by thanking everyone who have replied to my previous posts(questions).
This is such a great forum and all the help is appreciated.

From reading replies to my prior posts i understand we should not need a financial advisor. We should save the fees. Its just not CLICKING without the use of a financial advisor how to proceed. Even though i have read other suggested links also.

In my case study i was wondering if i could receive suggestions on how my wife and i, from the start take our assets
and convert them over to produce a income stream immediately upon ER. As we have everything tied up in pensions and 401k's.
I am aware of the age 55 rule as was suggested to me. Also the 72T method.
Im just not sure i fully understand how the process starts.

Should we utilize the lump sum cash option on our pensions ? (to invest a large amount for a better return) although my understanding if we take a lump sum it must be put into a IRA or we would be heavily taxed and also we would not be able to touch it until 59 1/2  thus (this would eliminate our cash flow)

 Or should we utilize the monthly annuity on our pensions to create our revenue stream?

 These are just some of our questions.

And seems like so many more.   I have spoken to Vanguard and another financial firm both left me with the impression we are to young to retire.

Most important question are we even close to reality with our assets to pull this off?
-----------------------------------------------------------------------------------------------------
This is a big deal and we just want to cover ourselves the best we can if we do pull the trigger.

Ages             wife 50                                                    Me 54

401k                    200,000                                           150000
pension  lump sum250,000                                           350000    or        monthly pension annuity   wife 900    me 1400.00
                           
                            450,000                                           500,000

--------------------------------------------------------------------------------------------------------------------------------------------------
social security at 62 1100.00                                         1500.00


(without breaking down)
expenses have been calculated to a 2410.00 a month
this includes 600.00 mortgage payment with 5 years left to pay


Should i consider to withdraw from my 401k (10% penalty free )in 2017 utilizing the Age 55 rule to carry us forward until social security kicks in at age 62?
This would be approx. 20,000 for eight years if needed as a cushion. It would eat up my 401k but hopefully our other investments would grow in the meantime.

we appreciate any help

Thank you

WyomingGuy

  • 5 O'Clock Shadow
  • *
  • Posts: 18
First off, congratulations. I am jealous.

Technically, applying the 4% rule, you are there.

However, looking deeper, you may be cutting it too close.

There are several other considerations. Based on your 401K savings alone, for example, you are not. If you both took your respective monthly pensions, you can't cover your expenses without dipping into your 401K accounts.

The amounts in your respective 401K savings may suggest you were higher spenders in the past. You didn't reveal your and your wife's respective incomes (at least not in this post and I didn't read nor endeavor to find your prior posts). If your joint incomes were, say, $120,000, your net worth scores poorly under the Millionaire Next Door methodology, which I like -- for better or worse -- as a 10,000-foot benchmark. Using that methodology, i am not counting your pensions because I interpret pensions at future income streams, not savings. But I may be overly conservative. The MND methodology suggests you are way behind and perhaps big spenders in the past.

I'm also confused about the pensions. I always assumed that the only folks with pensions left were state employees, and those folks don't technically have 401Ks. Yet you say you have 401Ks.

It also looks like both you and your wife work. If you both are healthy, you both could live another 40 years. Under that approach, deferring claiming SS could be advantageous. I would take a closer look at the SS options. And I would make sure your assessments of your expenses are valid based upon your 401K amounts.

Personally, I would also never retire with a mortgage or any other debt. But again, I'm exceedingly risk adverse.

WyomingGuy

  • 5 O'Clock Shadow
  • *
  • Posts: 18
Final thought:

It would be helpful to know how much equity you have in your house. And are you going to retire in place?

Metric Mouse

  • Walrus Stache
  • *******
  • Posts: 5299
  • FU @ 22. F.I.R.E before 23
I'm also confused about the pensions. I always assumed that the only folks with pensions left were state employees, and those folks don't technically have 401Ks. Yet you say you have 401Ks.

What in the world made you think this? This is exceedingly incorrect.

OP - you are there. You can easily retire on the amount you have with a little bit of planning. 950K is a hell of a lot of money - you and your wife are set for life. Congrats!

You have a lot of questions - a financial advisor may be in your future. Hire one for a one-time meeting, paying a flat fee. They'll be able to advise you of the tax ramifications and distribution options. I wouldn't phrase it as a question; Tell them "We are retiring next year. How do I get at my money?"

jom2025

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Final thought:

It would be helpful to know how much equity you have in your house. And are you going to retire in place?


we have approximately 60,000 equity in the house
and yes we plan on staying put
nice and low overhead and reasonable

jom2025

  • 5 O'Clock Shadow
  • *
  • Posts: 17
I'm also confused about the pensions. I always assumed that the only folks with pensions left were state employees, and those folks don't technically have 401Ks. Yet you say you have 401Ks.

What in the world made you think this? This is exceedingly incorrect.

OP - you are there. You can easily retire on the amount you have with a little bit of planning. 950K is a hell of a lot of money - you and your wife are set for life. Congrats!

You have a lot of questions - a financial advisor may be in your future. Hire one for a one-time meeting, paying a flat fee. They'll be able to advise you of the tax ramifications and distribution options. I wouldn't phrase it as a question; Tell them "We are retiring next year. How do I get at my money?"
I plan on talking to an advisor . Any suggestions ? Or what price i should expect to pay?


WyomingGuy

  • 5 O'Clock Shadow
  • *
  • Posts: 18
I'm also confused about the pensions. I always assumed that the only folks with pensions left were state employees, and those folks don't technically have 401Ks. Yet you say you have 401Ks.

What in the world made you think this? This is exceedingly incorrect.

Here is my source: http://www.epi.org/blog/private-sector-pension-coverage-decline/. There are countless others.

I'm 52 and don't know any body in the private sector that has a pension. Private sector pensions are and have been in a long-term decline for decades. I'm certain there are exceptions, however. And if I were a government employee that had a pension (in the State of Illinois, for example, which is underwater) I wouldn't count on it.

Classical_Liberal

  • Handlebar Stache
  • *****
  • Posts: 1132
  • Age: 43
The amounts in your respective 401K savings may suggest you were higher spenders in the past. You didn't reveal your and your wife's respective incomes (at least not in this post and I didn't read nor endeavor to find your prior posts). If your joint incomes were, say, $120,000, your net worth scores poorly under the Millionaire Next Door methodology, which I like -- for better or worse -- as a 10,000-foot benchmark. Using that methodology, i am not counting your pensions because I interpret pensions at future income streams, not savings. But I may be overly conservative. The MND methodology suggests you are way behind and perhaps big spenders in the past.

The problem with this methodology is that it uses current income and age as the only determinantes for the type of accumulator class.  I dislike this method because incomes can change quickly and drastically, as can spending. It works fine for a mustachian who started relatively young, but one that started at 40 or 50 can still have a relatively long track record of reduced spending and higher income but look like a UAW by MND standards. This can lead to false underwriting of an individual's circumstances and is not helpful to later starters on this forum.

Of course, my opinion is tainted because it makes me look like a UAW, despite being on track to be FI by mid 40's.

WyomingGuy

  • 5 O'Clock Shadow
  • *
  • Posts: 18
OP hasn't revealed his & her incomes. And certainly not over time. At least not in this post.

I would assume -- and again, we all know the problems with assumptions, so I fully stand ready to be corrected -- that workers with pensions tend to also have had gradual, increasing incomes over time -- i.e., state-employees or the remaining few private sector employees that are unionized (e.g., UPS, a railroad, etc.). And such employees are apt to be well suited for MND methodology. But again, without more facts, we don't know.

It could be OP is an entrepreneur, for example, with a wildly varying income history. In my experience, such folks don't have pensions and 401Ks, however. They are sitting on equity and stock options.

But again, what do I know. I just don't want to entice a family to pull the plug prematurely. More prudent analysis is always helpful.

jom2025

  • 5 O'Clock Shadow
  • *
  • Posts: 17
OP hasn't revealed his & her incomes. And certainly not over time. At least not in this post.

I would assume -- and again, we all know the problems with assumptions, so I fully stand ready to be corrected -- that workers with pensions tend to also have had gradual, increasing incomes over time -- i.e., state-employees or the remaining few private sector employees that are unionized (e.g., UPS, a railroad, etc.). And such employees are apt to be well suited for MND methodology. But again, without more facts, we don't know.

It could be OP is an entrepreneur, for example, with a wildly varying income history. In my experience, such folks don't have pensions and 401Ks, however. They are sitting on equity and stock options.

But again, what do I know. I just don't want to entice a family to pull the plug prematurely. More prudent analysis is always helpful.

Hi WyomingGuy

Thanks for the reply. Yes we are in the private sector , and yes unionized employees . Raised our children who are now on their own thats why the earlier expenses were higher. We surely have lowered our expenses at this point. And are just looking for help with the possibility of ER.

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 4815
  • Age: 34
  • Location: Seattle, WA
I think retiring next year should be very possible for you, assuming your expense number is correct. You're expecting your social security at age 62 to be enough to meet your full expenses, especially since your mortgage will be gone by then. So the question is: can you make it until then? I think the answer is a definite yes. Even with no investment growth at all, $950,000 can last you more than 30 years with your expected expense levels.

Here's one possible plan to make it work:
  • Take the lump sum option from each pension. Put it into a traditional IRA for each of you.
  • Roll your wife's 401(k) into an IRA. Combined with her pension, this should be $450k.
  • Start 72(t) distributions from her IRA. This calculator indicates that the annual payments could be around $17,000 per year. She would be required to keep taking these distributions until she turns 59.
  • Withdraw from your 401(k) any extra money you need beyond the 72(t) distributions. This will need to last until you turn 59 if you want to avoid early withdrawal taxes. Consider a higher bond allocation in your 401(k) than in your other accounts to minimize volatility here.
  • Once your 401(k) is used up, switch to your IRA (funded with your pension lump sum) to fill out your budget.
  • Unless the markets do amazingly poorly, you should still have lots of money left over by the time you reach age 62. Consider delaying the start of social security as long as possible, especially if you're in good health.


pirate_wench

  • 5 O'Clock Shadow
  • *
  • Posts: 59


"I'm also confused about the pensions. I always assumed that the only folks with pensions left were state employees, and those folks don't technically have 401Ks. Yet you say you have 401Ks."


I have a pension plan and 401(k) plus another self directed retirement account "IRAP" that my employers contribute to, whatever that is.... and I'm private sector. Not many pensions left true, but that doesnt mean it doesn't exist., And it doesn't mean you can't also have a 401(k)

bugbaby

  • Bristles
  • ***
  • Posts: 387
OP, remember the 4% rule is the average over time. Given variation in the market, you don't want to find yourself selling stock in a major downturn.  Also, life may bring major unexpected expenses. That's why I'd feel safer with about 1 year living expenses in a cash emergency fund. Also consider an HSA depending on your health & prescription coverage.

Do you plan on any activities that could cost extra such as travel or hobbies? Are those included in the budget?