Am I worrying about nothing? Retirement could come sooner than planned!

[NorthernFire]

Can we afford to retire? I am 61 and had planned to retire in 2-5 years. Changes at work may mean that could change to very soon. I would prefer not to go out and find another job if I don’t have to. If I had to, I would take a low stress job at much less $. I am getting older and have to say I am just plain tired in every way.  I am unmarried but live happily with my significant other in a long-term relationship. She is 59 and stopped working a year ago due to health issues and likely will not go back to work. 
When we were both working our household income was around $180K.
Not including health insurance our spending is approximately $65K which means we would need to gross around $78K give or take or use some cash. I won’t give a detailed breakdown of spending, but we have cut what we are comfortable with cutting and $65K is a minimum spending level and still have some fun. Even more would of course be great as travel in early retirement is something we both look forward to.
Assets: $2.4M not counting the house as follows-
401K $1.5M
Investments $600K
Cash: $200K
Investment property $100K (generates around $6.5K per year)
Debt:
Mortgage $90K at 3.5%. (value of house $650ish) Paying off Mtg would save about 11K per year.
Plan on taking SS at 67 combined it should be around $60K combined.
So, should I just pull the plug? Risks? Ideas? Health insurance strategies? Pay off mortgage?

[deborah]

You could retire tomorrow and use your cash and rent from the investment property to cover four years of expenditure. I'm not from the USA, but I assume that cash and the rent will stop you from needing to pay tax, since your actual income would be very low. You don't say how much income your investments generate each year, but that should add another couple of years worth of income, so you'd be fine! Without changing a thing.

[Sandi_k]

Can we afford to retire? I am 61 and had planned to retire in 2-5 years. Changes at work may mean that could change to very soon. I would prefer not to go out and find another job if I don’t have to. If I had to, I would take a low stress job at much less $. I am getting older and have to say I am just plain tired in every way.  I am unmarried but live happily with my significant other in a long-term relationship. She is 59 and stopped working a year ago due to health issues and likely will not go back to work. 
When we were both working our household income was around $180K.
Not including health insurance our spending is approximately $65K which means we would need to gross around $78K give or take or use some cash. I won’t give a detailed breakdown of spending, but we have cut what we are comfortable with cutting and $65K is a minimum spending level and still have some fun. Even more would of course be great as travel in early retirement is something we both look forward to.

So assume $80k, as it's easier for math.

Assets: $2.4M not counting the house as follows-
401K $1.5M
Investments $600K
Cash: $200K
Investment property $100K (generates around $6.5K per year)
Debt:
Mortgage $90K at 3.5%. (value of house $650ish) Paying off Mtg would save about 11K per year.
Plan on taking SS at 67 combined it should be around $60K combined.

Scenario 1:
So, $2.4M x 3.5% = $84k annually.
Plus $6500 in rental income.

You're at $90k in income. Looks good thus far.

Scenario 2:
If you pay off the mortgage, it's $2.3M x 3.5% = $80,500 income
Plus $6500 in rental income.

That's $87k in income, and saving about $11k per year in outflow, so equivalent of $98k per year.

Yes, I'd pay off the mortgage.

So, should I just pull the plug? Risks? Ideas? Health insurance strategies? Pay off mortgage?

If you don't have health insurance ideas, take a look at healthcare.gov - you can estimate costs based on your income. If you had Roth accounts, you could use those to drive your taxable income down, but you do not specify any Roth holdings.

The other idea is to perhaps pull investments out, based on tax brackets, and alternate high withdrawal years vs. low-withdrawal years to minimize the tax hit and allow you to be on the ACA market plan with subsidies.

Year One: Pull out $120k, use $80k in Year One, and pay taxes. Doing that in 2022 would be good, as the income cap for the ACA plans is removed due to Covid. Go on the marketplace for health coverage in 2022 and 2023, using that withdrawal.

Year Two: Pull out $40k, and add it to leftover $40k from Year one. With $40k in income and $40k from leftover savings, you're good.

Year Three (2024):Pull out $140k, and plan for $20k in healthcare costs, plus $80k in living costs.

Year Four (2025): live off the $40k excess from 2024, and another $40k withdrawal. Use the ACA subsidy.

This gets you to age 65, and Social Security. And four years of ACA healthcare costs, at a reasonable cost, with one year unsubsidized.

I would absolutely retire, with these numbers. Congratulations!

[pbkmaine]

Big changes at work could mean severance packages. If there’s a chance for that, it may make sense to wait.

[NorthernFire]

First, thanks for the responses and ideas. Some interesting insights here as I knew there would be. To answer a few questions:
We do have 63K In a Roth and I mistakenly lumped that in with the 600K of investments.
There will be no opportunity for severance packages or negotiations prior to leaving.
I would be eligible for COBRA and that may make sense for this year at least as my income is already high enough this year that I don't think I would get any subsidies.
I hadn't thought of alternating high and low income years. Great idea! I'll also check out healthcare.gov as recommended and get some idea of the costs we will be looking at.

[zolotiyeruki]

Yes, you have enough to retire on, all on your own.  You also have Social Security coming up in a year or whenever, which, given your income, should offset a rather large chunk your expenses.  And Medicare should kick in in a few years, alleviating to some extent your concerns about health insurance.

You're well beyond belt-and-suspenders.  Go ahead, retire and enjoy the rest of your life!

[terran]

@Sandi_k did some great math, but one little quibble is that they shouldn't be counting the rental as both an asset that adds to the safe withdrawal rate and as rental income. At the end of the day that only reduces the numbers presented by $3500, so it shouldn't change the conclusion that you're good to retire.

Given how close you are to medicare age you might be able to get away with living mostly off of cash and taxable investments with higher cost basis  to keep your income low for ACA subsidy purposes. I'd bet you can keep within 4x the federal poverty level to get at least some subsidy pretty easily, and might find you can keep your income much lower for a larger subsidy. You'll want to make some estimates about what that will do to the 401(k) balance as you approach Required Minimum Distribution age (72) and see if it still makes sense to maximize ACA subsidies rather than make larger Roth conversions. You should probably at least convert up to the standard deduction. Sandi's suggestion of alternating high/low income years could make sense in this case too if you want a middle ground between large Roth conversions with small ACA subsidies and the reverse.

Here's a good social security calculator that can suggest when you should each file: https://opensocialsecurity.com/ -- if you're open to getting married there might also be strategies where one of you files early would make sense since they could then get 1/2 of the higher earners benefit when the second person files and whoever lives longest would get the higher benefit after the other dies.

[Sandi_k]

@Sandi_k did some great math, but one little quibble is that they shouldn't be counting the rental as both an asset that adds to the safe withdrawal rate and as rental income. At the end of the day that only reduces the numbers presented by $3500, so it shouldn't change the conclusion that you're good to retire.

The OP explicitly said Assets were $2.4M not including the house. So that's the figure I used.

[terran]

@Sandi_k did some great math, but one little quibble is that they shouldn't be counting the rental as both an asset that adds to the safe withdrawal rate and as rental income. At the end of the day that only reduces the numbers presented by $3500, so it shouldn't change the conclusion that you're good to retire.

The OP explicitly said Assets were $2.4M not including the house. So that's the figure I used.

Not including the house they live in, but including the rental: $1.5M 401K + $600K Investments + $200K Cash + $100K Investment property = $2.4M total. Easy mistake to make.

[Rdy2Fire]

I am not even sure why the OP is questioning. I'd say wait to see about that severance package possibility, maybe even ask for a buy out and be done with the job then only work if you want to do something. You have plenty to retire and can even take SS in a year if you wanted to

[jeroly]

Assets: $2.4M not counting the house as follows-
401K $1.5M
Investments $600K
Cash: $200K
Investment property $100K (generates around $6.5K per year)
Debt:
Mortgage $90K at 3.5%. (value of house $650ish) Paying off Mtg would save about 11K per year.
Plan on taking SS at 67 combined it should be around $60K combined.

Scenario 1:
So, $2.4M x 3.5% = $84k annually.
Plus $6500 in rental income.

You're at $90k in income. Looks good thus far.

Scenario 2:
If you pay off the mortgage, it's $2.3M x 3.5% = $80,500 income
Plus $6500 in rental income.

That's $87k in income, and saving about $11k per year in outflow, so equivalent of $98k per year.

Yes, I'd pay off the mortgage.

We're not exactly comparing apples to apples here. 

In Scenario 2, you are not really 'saving about $11k per year in outflow' as much of those mortgage payments are going to principal repayment, which have the net effect of boosting your home equity and net worth - you're reducing your liabilities by, in this case,

$11k - ($90k x 3.5%) = $11,000 - 3,150 = $7,850/yr.

So if you take that away it's essentially the same.

[Sandi_k]

Assets: $2.4M not counting the house as follows-
401K $1.5M
Investments $600K
Cash: $200K
Investment property $100K (generates around $6.5K per year)
Debt:
Mortgage $90K at 3.5%. (value of house $650ish) Paying off Mtg would save about 11K per year.
Plan on taking SS at 67 combined it should be around $60K combined.

Scenario 1:
So, $2.4M x 3.5% = $84k annually.
Plus $6500 in rental income.

You're at $90k in income. Looks good thus far.

Scenario 2:
If you pay off the mortgage, it's $2.3M x 3.5% = $80,500 income
Plus $6500 in rental income.

That's $87k in income, and saving about $11k per year in outflow, so equivalent of $98k per year.

Yes, I'd pay off the mortgage.

We're not exactly comparing apples to apples here. 

In Scenario 2, you are not really 'saving about $11k per year in outflow' as much of those mortgage payments are going to principal repayment, which have the net effect of boosting your home equity and net worth - you're reducing your liabilities by, in this case,

$11k - ($90k x 3.5%) = $11,000 - 3,150 = $7,850/yr.

So if you take that away it's essentially the same.

It's still $11k of cashflow annually.

[jeroly]

…but you are not ‘saving’ that cash flow, you are just not flowing it from cash to home equity.

[Sandi_k]

…but you are not ‘saving’ that cash flow, you are just not flowing it from cash to home equity.

Agreed - but it's still cashflow. ;)