Case Study - Pull the pin now, or OMY?

[SaucyAussie]

Life Situation: I turn 55 in November 2025, so Rule of 55 kicks in this January, which I have confirmed my plan allows.  I am in a domestic partnership, we combine household finances but keep investments and savings separate.  My partner will be funding her own retirement with a pension. We jointly own our home, mortgage free.  I have two high school seniors who will start college next fall. 

Gross Salary/Wages: $200K, work from home.

Current expenses:
My portion of maintaining the joint household monthly is $1,500. 
My individual personal expenses are around $1,000/mth. 
Medical: $500/mth?
Travel/Discretionary: $2,000/mth
TOTAL: $5,000/mth
There is a lot of flexibility built in here, I could easily reduce to 3,000/mth, or even 2,000 in pinch.

Assets:
401k $1.1M (80/20) - need to be able to fund my retirement from this
Roth IRA $70K - intended legacy funds.
HSA $30K - will be used for Cobra until ACA kicks in
Home Equity $300K - my half of $600K home, no mortgage. 
TOTAL: $1.5M

My Plan:
Keep working at least until Jan 2025 for rule of 55.  Probably work another 3-6 months into 2025 to fill up the lower tax brackets and save enough cash that I don't have to touch 401k until 2026.  Use Cobra until the end of 2025. In 2026, switch over to ACA and start drawing from 401k around $40-60K per year.  I intend to defer SS until age 70, at which time I expect around $5000/mth.

Concerns:
While this feels like "enough", I am feeling the dreaded pull of OMY so I am looking for some outside perspectives.
1. College:  Year 1 is covered by 529 account and I have committed to cover 50% of years 2-4, which could total around $60K.  I am hoping for help from FAFSA but I am not counting on it.  I do not have separate funds set aside for this so I will need to cash flow. (In-state rates for NC state colleges are around $20K per year for tuition and board.)
2. While I hate my job, it is a pretty sweet situation and I can save close to $100K for each additional year I work.
3. My partner is a school teacher and needs to work another 4 years until their full pension kicks in. So it's not like I can travel full time on Day 1.

Any thoughts appreciated!

[reeshau]

Congratulations on reaching this level of conundrum!  Victory is near, and you are wrestling with your feelings, rather than facing an externality that thwarts you.

To start with the stupid question: does your 401k allow the rule of 55?  It is not universal,  but a feature of your plan that the IRS allows.  There are, of course, other ways to access money before 59 1/2, but that would be the easiest.

Also, is there a way to downshift or alter your job, to minimize the parts you hate, but mostly keep the good parts?  Is there something else you want to do in retirement, other than travel?  If not, then maybe you can mentally account for this extra work time not as OMY, but rather as saving up fun money to supercharge your travel when your partner retires.

[ixtap]

Have you confirmed that your 401k plan supports the rule of 55 by allowing partial withdrawals?

Do you have any idea what you want to do in retirement? I say this not philosophically, but because of the difference between doing things that cost more and doing things that might bring some income.

[MaybeBabyMustache]

Do you know for sure the cost of college & not just an estimate? As a parent of a high school senior an college freshman, I will add that the expenses for both of those years are high! Much higher than anticipated.

[SnipTheDog]

The break even point for taking SSI at 70 vs 67 is at 99 years of age using my numbers.  I'm pretty sure I won't live that long.  Your numbers will vary.

[SaucyAussie]

Congratulations on reaching this level of conundrum!  Victory is near, and you are wrestling with your feelings, rather than facing an externality that thwarts you.

To start with the stupid question: does your 401k allow the rule of 55?  It is not universal,  but a feature of your plan that the IRS allows.  There are, of course, other ways to access money before 59 1/2, but that would be the easiest.

Also, is there a way to downshift or alter your job, to minimize the parts you hate, but mostly keep the good parts?  Is there something else you want to do in retirement, other than travel?  If not, then maybe you can mentally account for this extra work time not as OMY, but rather as saving up fun money to supercharge your travel when your partner retires.

Thanks!  Updated my original post to confirm that my plan allows rule of 55.

Lots of deep thought going on right now as to what my retirement looks like, especially in the years before my partner can retire.  Downshifting is high on the list and I do believe I have the leverage to go part time, or potentially pick up some short term contracts. 

[lhamo]

Your home equity counts as an asset but it doesn't really factor into your FIRE cashflow, so with a 4% SWR on 1.2 mill you are looking at only 48k/year available from your stash.  To avoid serious SORR you'd probably want/need to really scale back on your expenses, plus you have the college costs to account for.  You probably aren't going to see any help from FAFSA on that front until they are at least two years in, since you have had high income for the last two years (2025-26 academic year will use 2023 taxes to determine SAI -- though I guess you can try challenging initial offers based on your reduced income).

For me it feels a bit tight.  If you are really miserable at work and want to give it a try I would probably do whatever I could to minimize costs in the first 1-5 years of FIRE and see what your stash is looking like.  Make keeping day to day costs low and finding free or no-cost ways to have fun your new job. 

[ChpBstrd]

1) Spending Rate: You note you're spending $5k per month now ($60k per year) but you could cut that down to $3k per month ($36k per year). Against the $1.13M value of your 401k+HSA, this could mean a withdraw rate anywhere between 5.3% all the way down to 3.2%. The former is highly risky while the latter is highly safe. If you want to retire in 2025, you'll need to set a budget with an acceptably risky WR and commit to it. So I would say do at least OMY if you want to spend $60k per year, and that assumes you hit $1.5M due to savings plus significant portfolio appreciation next year. I'd be wary of promising yourself to spend much, much less from now on, because why haven't you been doing so already? Prove you can do it before committing to a path.

2) College Expenses: Sounds like you expect to contribute about $20k per year in years 3, 4, and 5 of your retirement, and this cannot be paid out of the $70k you've set aside in a Roth for intended legacy funds. Years 3-5 are an incredibly risky time in early retirement to experience a five-figure liability. That's the peak SORR timeframe! I suggest you formally allocate these funds and put them into relatively safe bonds in a separate account now - maybe the kids' 529 accounts? Then calculate your WR without including them. This factor alone suggests OMY may be called for.

3) Social Security: A lot of people "intend" to start SS at age 70, but are unable to do so because they run out of money earlier than expected. In your case, we can assume you'll spend $60k per year in year 0, and that this spending will increase with inflation for each of those 15 years. At 3% inflation, the sum of your withdraws over 15 years will be $1.15M. It is historically probable that earnings from your portfolio will prevent depletion. However, I think a SORR event could occur that would cause your 5.3% WR to fail even in this short amount of time. Additionally, in the year you turn 70, you'd be spending over $93k per year, after 15 years of 3% annual inflation. This would mean the $60k per year received from Social Security would need significant supplementation to cover your expenses. Where would that money come from if your portfolio experienced a bad run? I think you'd need to have at least $600k remaining on your 70th birthday to cover these costs for the rest of your life. Of course, the fatal assumption here is that you'll be spending at the same rate 15 or 30 years from now as you do today. Research suggests most retirees cut waaaay back compared to the spending they did during their peak earning years. But some of these retirees may have been forced to cut back due to financial worries. The worry in my analysis is entirely an issue with your 5.3% WR, and I think things would be fine if this was below 4%. If you find yourself at age 62 trying to decide whether to take SS early in order to preserve more of your portfolio after a major downturn, then that's not where you'd ever want to be. Avoid that scenario with a lower WR!

TL;DR: You could safely retire in 2025 IF you could cut expenses and commit to living on a lot less - like 40k instead of 60k. However I'd like to see you accomplish this for a while (6 mos? 1 year?) instead of just saying it's easily doable and potentially busting your budget year after year.

[SaucyAussie]

TL;DR: You could safely retire in 2025 IF you could cut expenses and commit to living on a lot less - like 40k instead of 60k. However I'd like to see you accomplish this for a while (6 mos? 1 year?) instead of just saying it's easily doable and potentially busting your budget year after year.

I like this plan.  As my partner will be contributing 50% also, that still gives us 80k for a mortgage free household in a LCOL area, which really should be doable.

So it's just a matter of coming up with a strategy to take care of those pesky college costs.  Looking more and more like a downshift next year rather than a full retirement.

[Mustache ride]

I think some posters mentioning withdrawal rates might be forgetting your short timeline. You only need to bridge 15 years before claiming max SS which will cover your expenses. You can cover that with 0% growth.

[SaucyAussie]

I think some posters mentioning withdrawal rates might be forgetting your short timeline. You only need to bridge 15 years before claiming max SS which will cover your expenses. You can cover that with 0% growth.

Yes, but I do appreciate their conservative perspective, it does confirm my situation is not a slam dunk. 

But I think I didn't do a great job of communication how flexible my spending is - my partner's income is fixed and a good chunk of my spending is discretionary so it would be very easy to reduce my withdrawals to 40k, or even 20K in an emergency.  For this reason I am less concerned about SORR and leaning more towards a Bogleheads style variable percentage withdrawal, rather than the standard 4%.

My biggest fear is that I'll keep working only to realize later I could have retired much earlier.

[Green_Tea]

I'm just wondering, is it realistic that you could cut down your expenses to 20k/year when:

My portion of maintaining the joint household monthly is $1,500.
Medical: $500/mth?

[SaucyAussie]

I'm just wondering, is it realistic that you could cut down your expenses to 20k/year when:

My portion of maintaining the joint household monthly is $1,500.
Medical: $500/mth?

lol, you missed "in an emergency".  So options could be cut back expenses, part time job, dip into Roth, partner carries me for a period or a combination of those things.

ok 20K may have been a bit hyperbolic but just trying to convey the flexibility of my situation, which I am clearly still failing at.

[reeshau]

My biggest fear is that I'll keep working only to realize later I could have retired much earlier.

If this is true, then act on it!  Call it a sabbatical, if you must to make it respectable.  Try it for a year or two, and if it isn't working, then go back to work.  How difficult would it be for you to get back in your line of work?  Or, something else?

My favorite line:  My worst case (having to go back to work) is most people's everyday situation.

What's to fear about that? It's a powerful place to be.