Author Topic: Transitioning to retirement and withdrawal strategies  (Read 2035 times)

SouDesuNyan

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Transitioning to retirement and withdrawal strategies
« on: April 18, 2016, 10:50:11 PM »
Hi, everyone. This is my first post, but I've been lurking around here to read the blog and the forum casually. I would like some advice on how to best transition into retirement. Here's a little background about me.

I'm single 33/m, living in Durham, North Carolina. I make $105k/yr. I have $200k in non-retirement, $75k in Roth, $200k in Traditional, and $25k in 401k, totaling to almost exactly $500k. I have a negligible $5k in checking.

I spend $1500/mo, where my biggest expense is by far housing at $850/mo for a 1 bedroom apartment. I bought with cash a used, cheap, (Mustachian :) sub-compact car. I'm guessing that if I quit my job, I'd need about $200 more per month for health insurance.

I am planning on maxing out 401k every year, plus putting $3k in Roth and $3k in Traditional. I front loaded the retirement contribution, which takes 4 months of saving. The last 8 months, I put all the savings in non-retirement, which is about $4000-$5000 per month, or $32k - $40k per year. Everything, except 401k, is stashed in Vanguard ETFs at 10% bonds, 10% international, 5% REIT, and the rest in VTI.

I'm planning on retiring in the next 5-10 years. My aim is to retire when I turn 40, in 7 years, but this is flexible since I "don't dislike" my job.

Since my spending is $1500 + $200 health insurance, that's $20400/year. The dividend income I'm seeing in my non-retirement is about $5000/yr. Assuming 15% tax, ($1700 * 12)/(1 - 0.15) = $24000/year of gross income is needed. This means that I have a upper bound of $200k * $24000 / $5000 = $960k of non-retirement saving needed if I ONLY spend my dividends, which is around $5000/$200k = 2.5%.

I have read in MMM blog about the 4% rule, so I can potentially take 1.5% from the principal, or simply $24k * 25 = $600k of non-retirement saving. With inflation, it'll be a little more possibly.

What are some strategies that I can use to transition into retirement? I was thinking that I'll need to reduce the risk of my allocation from 10% bonds to about 30% bonds. I should probably have 1 year of living expense in cash, or is this too low/high? I was also thinking about moving the Roth principal over to non-retirement at the moment that I retire, to speed it up by about 1 year. When withdrawing from the non-retirement account, is it better if I not reinvest the dividends (2.5%) and then take the rest (1.5%) from principal? What are some strategies on withdrawing from the principal?

I was also thinking about buying a one-bedroom condo a year or so before retirement. This should help reduce my spending variance. I'm also thinking about living near a bus line and bike-friendly area so that I can go car-free. My current transportation expense is $2000/year, but it'll reduce to about $500/year if I go car-free. I just need easy access to the supermarket and a park.

Currently, I'm a programmer. I actually enjoy programming, so I'll do more of that, just not 40 hours a week. It's terrible for my health, so I was thinking about reducing my "screen time" to about 1 hour a day. I'll also have all the time to cook/eat (2 hours/day), exercise (1 hour/day), walking around parks (1 hour/day), meditation/yoga, art, reading, gardening, etc. With some luck, I might be able to make money from hobbies, say $5k/year, and reduce the retirement stash by $5k * 25 = $125k.

I still question whether retirement is a good option for me. I've always wanted to teach, so I would consider teaching Math or CS part-time in a community college, or go for a PhD so that I can be a lecturer (also part-time) in a university. There are 3 highly ranked universities in the Raleigh-Durham area, so I might take advantage of that.

I have also considered moving to a cheaper country, like Thailand or Ecuador, at least initially, to let the stash grow faster before moving back to the US. But I haven't done any research other than youtube videos and travel blogs.

Maybe I'm overloading this thread with too many ideas, but I want to paint a big picture of all my current ideas and potential projects. Thanks in advance for sharing your strategies and/or improving my current strategies!

MDM

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Re: Transitioning to retirement and withdrawal strategies
« Reply #1 on: April 19, 2016, 12:00:57 AM »
I'm single 33/m, ... I make $105k/yr.

I am planning on maxing out 401k every year, plus putting $3k in Roth and $3k in Traditional.
I hope you haven't been deducting your tIRA contributions when filing federal taxes, given the numbers above.

No tIRA deduction is allowed for single filers if your MAGI is above $71K, so...?

SouDesuNyan

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Re: Transitioning to retirement and withdrawal strategies
« Reply #2 on: April 19, 2016, 06:29:18 AM »
I hope you haven't been deducting your tIRA contributions when filing federal taxes, given the numbers above.

No tIRA deduction is allowed for single filers if your MAGI is above $71K, so...?

That's good to know. I haven't started on contributing to the IRAs yet, just the 401k. I normally just input everything into tax software, and it didn't say anything about me shouldn't contribute to tIRA. I've only started contributing to tIRA in the last two years, ever since I was penalized for maxing the Roth when I moved job and got a big signing bonus. They apparently have this rule where I wasn't supposed to contribute if I exceed a certain amount of income. I just didn't want to worry about getting penalized again. Perhaps I'll just not contribute to non-401k retirement accounts anymore, just to be safe.

MDM

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Re: Transitioning to retirement and withdrawal strategies
« Reply #3 on: April 19, 2016, 11:08:33 AM »
Perhaps I'll just not contribute to non-401k retirement accounts anymore, just to be safe.
That seems extreme.  See http://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits.