Topic Title : NEW Reader Case Study – Should H2oGal Retire in 1000 days?

[h2ogal]

Relevant Info:
H2oGal - Single, 51 Female, living with Long Term Domestic Partner, Mr. Busy, 52. 

3 children together – 2 are grown and independent.  3rd is 20 YO, living at home and working in Mr. Busy’s business.

Live in NY, very high tax area. 

Current Income:
H2oGal – Manager for Large Corporation –Pre-Tax Gross of $122,000 base salary, $30,000+/- annual bonus. 

Mr. Busy – Small business owner – 2 businesses – an industrial service business with 4 Employees, and a Food Service business with 11 Employees –Salary/dividends/rental payments around $50,000. 

Other, Future income Streams once Retired:
H2oGal will get Social Security and will also receive a small Pension starting at 65 of $7200/year.  Can work part time in Mr. Busy’s businesses, etc. if desired.  Distributions from retirement savings will provide the other half of retirement income.

Mr. Busy plans to eventually semi-retire, turn over operations to children, and consult for his businesses and receive dividends, rental income, and Social Security.

Current Expenses – Gory details in attached spreadsheet. 

Expenses divided into Fixed, Savings/Investment, and Discretionary. 

Fixed Household Expenses and Tax: about $62,000 per year

 Income tax is a guesstimate until we actually do the taxes this year. House mortgage was paid in Jan this year.  We have a small home equity loan recently used to buy vacant land adjacent to house (future building lots for kids if they like).  All Cars, and Cell phones, computers, are provided by businesses.  Most meals and alcohol provided by businesses. No cable TV.  The expenses reflect PERSONAL expenses, paid out of our take home salaries, and do not include items paid/provided by businesses. 

Planned Savings and Investments:$78,000
Investment expenses are what we have invested and plan to invest in 2014.  Business investment includes our personal funds taken out of salary which we put into the Food Service business this year, and is a discretionary investment based on what we felt we could afford. 

Discretionary Expenses: about 60,000 a year
Most of our discretionary expenses are labeled as such because we would be OK with cutting them way down if we had a goal we were funding.   We know we spend a lot for vacations, services, and such. 

Assets: 
Shared = House and 20 acres adjacent Land, $400,000

H20Gal = $478,000 in Various IRA, 401K, Savings, Bonds etc.

Mr. Busy = About $300,000 in Real Estate, $20,000 cash.  Rest of assets in Family Businesses.  Maybe $800,000?  Not sure.  No desire to liquidate – The idea is that the businesses will be handed over to kids/others to manage and will provide small income to Mr. Busy for life.

Liabilities:
Shared = 1 Home equity loan $36,000 balance.  4% interest rate.

H20Gal = No personal loans, student loans, or credit cards at all.

Mr. Busy = Often provides personal guarantee on business loans for equipment, etc.    But business pays these, and he has no personal loans that come out of take-home salary.  Business has been successful for over 20 years and never missed payments.

Questions: 
Am I crazy to think about retiring now and giving up my corporate income? 

Will I regret the loss of my fancy lifestyle? 

Should I keep working until I amass over $1 million (my original plan) or should I cut down discretionary spending now, max out savings and quit my Full-Time job and work part-time with Mr. Busy?

Do you think I could build my personal retirement nest egg to $700K in 1000 days? 

Do you think $700K is enough? 

[MDM]

h2ogal, welcome to the forums.

To your questions:

1) Am I crazy to think about retiring now and giving up my corporate income? 

2) Will I regret the loss of my fancy lifestyle? 

3) Should I keep working until I amass over $1 million (my original plan) or should I cut down discretionary spending now, max out savings and quit my Full-Time job and work part-time with Mr. Busy?

4) Do you think I could build my personal retirement nest egg to $700K in 1000 days? 

5) Do you think $700K is enough?

For #1 and #2, no you aren't crazy at all to consider it - but you yourself are the best judge of whether you will regret

For #3, why not "keep working and cut down spending and max out savings" until you get "enough"?

For #4, in short, "no". 
    A longer reply is "maybe, and here's why": to get to $700K from $478K you need $222K.  If you are lucky, the $478K will earn ~13.6%/yr for the next 3 years and you are done.  If you are unlucky, the $478K will lose 50% and you have no chance. 
Let's assume 0% investment return and see if the $222K ($74K/yr) can come from cash flow.  You can put $23K/yr into a 401k, so you need another $51K/yr.  Looking at $152K gross income, payroll taxes are ~$38K.  $152K - $23K - $38K = $91K.  So you could do it if you could reduce all other spending to $40K/yr.  Can you?

For #5, enough for what?  It is nowhere near enough to support your current spending. 

Speaking of taxes, the estimate of $28K for "income" tax is ~1/2 of what I calculate based on your OP.  But I may not understand the $50K business "income" - I assumed that $50K was taxed the same as the $122K and $30K you receive.  See here for the tool used.

Good luck!

[Thegoblinchief]

1000 days? Good luck.

Your discretionary expenses need to come down FAST unless you want to work forever. Pretty much every single category can be slashed. Many could be eliminated altogether. $700K gives you less than a quarter of what you're spending right now at a 4% SWR.

If you need specifics, I or others can help, but your discretionary spending is full of fat. Lots of easy pickings.

[h2ogal]

MDM - You are right about the taxes being understated...I totallly 'guesstimated' that.  When I saw your response I looked up my most recent payroll stub...I have had $40+K witheld in taxes so far this year, 25 Federal, 7 in ss, 7 in state, etc.  Ouch. 

[MDM]

MDM - You are right about the taxes being understated...I totallly 'guesstimated' that.  When I saw your response I looked up my most recent payroll stub...I have had $40+K witheld in taxes so far this year, 25 Federal, 7 in ss, 7 in state, etc.  Ouch.

In that case it appears with ~double the income tax the OP comes up cash flow negative.  See attached file.  If that file can handle your situation, you could refigure things and attach it to an updated post.