Author Topic: Pre-FIRE - considerations  (Read 1608 times)

doneby35

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Pre-FIRE - considerations
« on: August 29, 2021, 01:35:53 PM »
Hey all, this market's been very good to me lately and I'm $50,000 from reaching my FIRE number. What are some of the steps that you consider before pulling the trigger?

1) I'm currently 100% VTSAX (half is in brokerage and the other half in tax advantaged accounts i.e. 401k, IRA, HSA). Would it perhaps be a good idea to re-balance and add bonds to the mix? are bonds even worth it these days? and if so, would you only re-balance in the tax advantage accounts and leave the brokerage account alone in order to not incur capital gain taxes?
2) Would it be a good idea to increase cash holdings just in case a market downturn was around the corner with everything that's been happening lately? Currently holding 1 year worth of expenses in cash.
3) Would you typically quit your job end of year during ACA open enrollment period or does that not really matter? not sure if you have the ability to enroll at any time if you no longer have a job + an employer offered health insurance.

Thanks!

MDM

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Re: Pre-FIRE - considerations
« Reply #1 on: August 29, 2021, 01:46:02 PM »
1) ...if so, would you only re-balance in the tax advantage accounts and leave the brokerage account alone in order to not incur capital gain taxes?
1) Yes to that (if you decide to change asset allocation).
2) 1 year seems like enough but you won't know until after the fact.

See also Some Important Questions to Answer Before Asking - Can I Retire? and pre-FIRE checklist.

jeroly

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Re: Pre-FIRE - considerations
« Reply #2 on: August 29, 2021, 02:05:30 PM »
Hey all, this market's been very good to me lately and I'm $50,000 from reaching my FIRE number. What are some of the steps that you consider before pulling the trigger?

3) Would you typically quit your job end of year during ACA open enrollment period or does that not really matter? not sure if you have the ability to enroll at any time if you no longer have a job + an employer offered health insurance.

Thanks!
https://www.healthcare.gov/glossary/qualifying-life-event/

Whenever you lose coverage you can go on ACA coverage so no, that does not matter.


doneby35

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Re: Pre-FIRE - considerations
« Reply #3 on: August 29, 2021, 03:16:21 PM »
1) ...if so, would you only re-balance in the tax advantage accounts and leave the brokerage account alone in order to not incur capital gain taxes?
1) Yes to that (if you decide to change asset allocation).
2) 1 year seems like enough but you won't know until after the fact.

See also Some Important Questions to Answer Before Asking - Can I Retire? and pre-FIRE checklist.

Ah nice! thank you, haven't seen the pre-FIRE checklist before, definitely helps.

doneby35

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Re: Pre-FIRE - considerations
« Reply #4 on: August 29, 2021, 03:17:53 PM »
Hey all, this market's been very good to me lately and I'm $50,000 from reaching my FIRE number. What are some of the steps that you consider before pulling the trigger?

3) Would you typically quit your job end of year during ACA open enrollment period or does that not really matter? not sure if you have the ability to enroll at any time if you no longer have a job + an employer offered health insurance.

Thanks!
https://www.healthcare.gov/glossary/qualifying-life-event/

Whenever you lose coverage you can go on ACA coverage so no, that does not matter.

Thanks, that's what I thought, i just wasn't sure a voluntary quitting of a job is a qualifying life event.

ToeInTheWater

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Re: Pre-FIRE - considerations
« Reply #5 on: August 29, 2021, 04:32:42 PM »
Quote
Whenever you lose coverage you can go on ACA coverage so no, that does not matter.

while this is true, quitting mid year often means your annual income will be too high to qualify for ACA subsidies.  anecdotally, seems like most people in this instance go on COBRA since the cost is similar to non-sub ACA, and they've already met (or are part way to meeting) their deductible. 

doneby35

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Re: Pre-FIRE - considerations
« Reply #6 on: August 30, 2021, 04:03:02 PM »
Quote
Whenever you lose coverage you can go on ACA coverage so no, that does not matter.

while this is true, quitting mid year often means your annual income will be too high to qualify for ACA subsidies.  anecdotally, seems like most people in this instance go on COBRA since the cost is similar to non-sub ACA, and they've already met (or are part way to meeting) their deductible.

I do have a fairly high salary, so I assume it would be better to quit as early in a given year as possible.

Loren Ver

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Re: Pre-FIRE - considerations
« Reply #7 on: August 30, 2021, 07:15:38 PM »
Quote
Whenever you lose coverage you can go on ACA coverage so no, that does not matter.

while this is true, quitting mid year often means your annual income will be too high to qualify for ACA subsidies.  anecdotally, seems like most people in this instance go on COBRA since the cost is similar to non-sub ACA, and they've already met (or are part way to meeting) their deductible.

I do have a fairly high salary, so I assume it would be better to quit as early in a given year as possible.

When we went, we retired early in the year and dumped as much into our 401ks and HSA as possible before jumping (end of Q1, after bonus hit).  DHs paychecks were under $100 near the end.  HR actually called him to double check his contribution percent, just to make sure it wasn't in error.  I couldn't get mine as low, since my company wouldn't allow more than 40%.  So sad. 

But it kept our income low enough to get the ACA subsidies we wanted for the year.

As for your questions, my 2 cents:

1.  Bonds are rough right now.  We have found that using a money market (we use vanguards settlement fund) gives us about the same without locking us into a set time frame like bonds do. We like the liquidity, its our efund. There are also some high interest checking accounts out there, you can use those too. 

2. We have cash-like for our bare bones expenses for ~two years (settlement fund mentioned above, and some in other checking/savings).  We picked two years since most downturns last ~18 months.  Our barebones are very barebones, but they cover things like mortgage, student loan, out of pocket max for insurance, insurance premiums, and sundries of survival.  If the market goes down, we will have to take out some money, we know this because we will still have to reach our ACA minimum amounts or we get shunted over to medicaid (or have to pay back to subsidies).  But it will keep up from take out much in a down market, and lets us be picky as we have various investment (not all VSTAX like you have). 

3. See above first part. 

doneby35

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Re: Pre-FIRE - considerations
« Reply #8 on: August 31, 2021, 07:25:07 AM »
Quote
Whenever you lose coverage you can go on ACA coverage so no, that does not matter.

while this is true, quitting mid year often means your annual income will be too high to qualify for ACA subsidies.  anecdotally, seems like most people in this instance go on COBRA since the cost is similar to non-sub ACA, and they've already met (or are part way to meeting) their deductible.

I do have a fairly high salary, so I assume it would be better to quit as early in a given year as possible.

When we went, we retired early in the year and dumped as much into our 401ks and HSA as possible before jumping (end of Q1, after bonus hit).  DHs paychecks were under $100 near the end.  HR actually called him to double check his contribution percent, just to make sure it wasn't in error.  I couldn't get mine as low, since my company wouldn't allow more than 40%.  So sad. 

But it kept our income low enough to get the ACA subsidies we wanted for the year.

As for your questions, my 2 cents:

1.  Bonds are rough right now.  We have found that using a money market (we use vanguards settlement fund) gives us about the same without locking us into a set time frame like bonds do. We like the liquidity, its our efund. There are also some high interest checking accounts out there, you can use those too. 

2. We have cash-like for our bare bones expenses for ~two years (settlement fund mentioned above, and some in other checking/savings).  We picked two years since most downturns last ~18 months.  Our barebones are very barebones, but they cover things like mortgage, student loan, out of pocket max for insurance, insurance premiums, and sundries of survival.  If the market goes down, we will have to take out some money, we know this because we will still have to reach our ACA minimum amounts or we get shunted over to medicaid (or have to pay back to subsidies).  But it will keep up from take out much in a down market, and lets us be picky as we have various investment (not all VSTAX like you have). 

3. See above first part.

I do like the idea of having two years worth of expenses instead of one. My bonus hits end of Q1 too, so I might be able to push as much as possible into 401k before that and still stay within the ACA subsidy threshold. Thank you for your insight.

Greystache

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Re: Pre-FIRE - considerations
« Reply #9 on: August 31, 2021, 08:12:09 AM »
I know that I became much more averse to risk once I retired and my income from salary stopped.  Bond index funds and money market funds are just about sure to lose money in the short term due to interest rates and inflation. But, that loss is likely to be small.  Nobody knows what will happen with equity finds in the future, but there is a potential for a huge loss. If that huge loss happens early in retirement, it can be hard to recover. 

doneby35

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Re: Pre-FIRE - considerations
« Reply #10 on: August 31, 2021, 10:07:44 AM »
I know that I became much more averse to risk once I retired and my income from salary stopped.  Bond index funds and money market funds are just about sure to lose money in the short term due to interest rates and inflation. But, that loss is likely to be small.  Nobody knows what will happen with equity finds in the future, but there is a potential for a huge loss. If that huge loss happens early in retirement, it can be hard to recover.

That is definitely something that I've considered. I don't know if this accelerated ascent to the top when it comes to stocks is a good thing and might end up crashing hard, however my plan would be not to completely retire and depend on withdrawal from the portfolio, but along the lines of taking a little bit of a break, possibly 6 months or so, and then continue working in the same career field that I'm currently in which is in IT, but most probably switch to a level 1 helpdesk position that carries the least amount of responsibility. I know I enjoyed my time the most when I was doing that back when I first started my career journey.

Gone Fishing

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Re: Pre-FIRE - considerations
« Reply #11 on: September 01, 2021, 10:14:29 AM »
How old are you?  If you are under 50 or so and in good health, you may have another option.  I retired in my 30's and opted to stay 98%+ in stocks with my market crash plan being to cut fancy travel back a bit find a little part time work.  Between the two I could cut my withdrawl rate to 1-2% without too much trouble.  I haven't had to execute my strategy and staying fully invested has been worth hundreds of thousands in gains over a more conservative portfolio.  Once I get over 50 or so, I'll probably start to reduce my equity exposure a bit.

doneby35

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Re: Pre-FIRE - considerations
« Reply #12 on: September 01, 2021, 10:43:57 AM »
How old are you?  If you are under 50 or so and in good health, you may have another option.  I retired in my 30's and opted to stay 98%+ in stocks with my market crash plan being to cut fancy travel back a bit find a little part time work.  Between the two I could cut my withdrawl rate to 1-2% without too much trouble.  I haven't had to execute my strategy and staying fully invested has been worth hundreds of thousands in gains over a more conservative portfolio.  Once I get over 50 or so, I'll probably start to reduce my equity exposure a bit.

I'm 35. Not much of a travel fan so nothing to cut there. But yes part time work/work I enjoy is definitely part of the plan, because I don't want to start withdrawals from the portfolio just yet. It's a 2 person household, no kids, and our expenses would be close to 25k/year. Usually hits 30k/year if we decide to splurge on things. Not a huge amount of money to bring in.

FLBiker

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Re: Pre-FIRE - considerations
« Reply #13 on: September 01, 2021, 10:59:19 AM »
I'm in a very similar boat.  We've hit our FI number but I'm planning to work through next June because I want to confirm our expenses (we moved from the US to Canada last year, so things have shifted around a bit).

We're 90/10 stocks to bonds, but I'd be comfortable with 100% stocks.  The only change I'm making to our AA is a slight shift to Canada -- somewhere between 5 and 10% of our equity.  So we'd be something like 50% US, 5% Canada, 35% ROW and 10% bonds.  I also intend to have ~2 years worth of cash, partly for market fluctuations but also partly for currency fluctuations as the vast majority of our stash is in USD.  As we draw near, though, we're realizing that both DW and I probably want to keep working part-time (earning Canadian dollars), thus we'll probably slash that emergency fund.

 

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