Author Topic: Windfall and attempts at early retirement  (Read 961 times)

ameyer410

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Windfall and attempts at early retirement
« on: March 04, 2024, 12:01:55 PM »
Hi all! I'm in a bit of an exciting yet overwhelming situation and would love some input...

About Us

I am married to my husband, filing jointly. Zero dependents YET, but baby on the way soon. Iím 37, hubs is 47.

I am just finishing the sale of my online business and have recently had another windfall that is leaving me with a total of about 600K to invest (that is after setting aside capital gains tax). I want to invest this but also pull from this over the next few years for cashflow, so thatís where this gets tricky.

I am planning on (hopefully) being pregnant in April after doing an embryo transfer, and I intend to cash out on some of my success and not work for years and ďpartially early retireĒ with this money. While I will likely end up doing some consulting part-time, I donít know what that looks like and donít want to depend on it since itís not a thing yet.


Life situation:

We enjoy our life, but weíre frugal where we want to be and have been on the FIRE track as best as we can/want for 5 years. We currently spend around 65-75K cash a year. Outside the basics, we spend most of our money on food. Neither of us are shoppers and donít like stuff or toys, and since we donít own a house, nothing goes into that.

The husband wants to work until he is dead, lol, while I would prefer to never work if I had to. I donít think I can pull that off, and I have a pretty niche skillset in the digital marketing world and am confident in my ability to consult and start future projects. Iím thinking once the kid goes to school (5 or 6?), Iíll probably be ready to do or build something again.


Salaries:

My husband works at a non-profit and makes 72K a year. I do not intend to have any income on my end for as long as I can get away with it.

Expenses:

Around 2.5K for rent + utilities (we just moved into a new place so this is fixed for the next 18 months minimum)
500/my health insurance + prescriptions
500/for other insurance, cell, gas, gym membership, misc. subscriptions
636 monthly into husbandís separate IRA
1000/food, I enjoy eating out when I want and cooking/baking with nicer quality ingredients
500/misc (safety buffer)

Total - $5636


Expected Expenses:

Upcoming mostly includes pregnancy and baby costs (and I have to undergo a c-section). My out of pocket max for my health insurance is 7500 and that will likely be hit the next year or two.

Iím budgeting ~10K this year and ~15K next year for this kind of stuff.

I intend to get almost everything secondhand/hand-me-down baby wise and Iím not a shopper, not even close. Iíve already gotten a lot of stuff free and feel pretty covered as is from family members and friends locally.

We might move in 2 years or so, and that would be to a lower COL area where we would buy a house. The house cost may be anywhere from 180K-350K depending on if we get a smaller condo or a nice 3-bedroom house. My husband would keep his job and go remote if this happened.

Investments:

My Solo 401K - 100K
His retirement accounts - 150K
Cash/emergency fund - 100K
HSA - 5K (havenít been eligible for years)

Money waiting to invest - 600K

No debt.

Like I said, I really want to see how long I can go without working while I'm preg and the kid is young. We cannot live off of my husband's salary at the level we want, but it helps to pay most of the basic bills. Based on my calculations and with the assumption that itís a bull market, it looks like I could safely withdraw that 600K around 4K/month and have that potentially last a few decades...although that seems a bit farfetched.

I know it wonít be this easy with inflation, market downturns, etc., but Iím just trying to get a general picture of where to put my money and what to plan on at least the next 3-5 years. Once the kid is in school, Iíll probably do consulting, and I may start building other websites soon in my spare time (although itís not a ďjobĒ, and itís never a guarantee these will do anything).

Specific Questions:

1. Where am I putting the 600K and how is it allocated? My other investments (retirement and HSA) are in 95% S&P 500 Index Fund and 5% Bonds. It seems like I should do that, but idk if thatís risky and dumb.

2. Should I withdraw the anticipated cash I need once a year? Every few months? When things are up? For example, right now Iím thinking I should keep about 36K of the 600K in a high-yield savings to last me the rest of the year or so. But then whatís the cadence after thisÖ

3. Do I invest it all at once? I hate for it to just sit somewhere else trying to DCAÖbut I donít know enough about the ďdangersĒ of investing it all at once. Itís a big move!

4. The other glaring concern some of you have probably noticed is if I have no income, there isn't anything going into my personal retirement account, which stresses me out. But if I can take the 600K in the taxable account and eventually just have that work for me long-term, I suppose that could solve some of the problem.

I so much appreciate any input!
« Last Edit: March 04, 2024, 12:07:19 PM by ameyer410 »

Laura33

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Re: Windfall and attempts at early retirement
« Reply #1 on: March 04, 2024, 01:45:20 PM »
So, first, are you actually sure you cannot live on your husband's salary alone once the baby comes?  Single-income, head of household, $72K, with a dependent is going to give you a pretty significant cut on your income taxes compared to what you're paying now as DINKs.  Pop over to the IRS website and run some tax calculations to start -- I spent 30 seconds on an internet calculator, and it said total tax owed of about $5K, dropping down to under $3K once you add a kid (I obviously don't know your state/local tax situation; obv., NYC would be more than Houston).  So if you're sticking to that $65K annual spend, you guys may already be good, depending on how much he puts into his 401(k).

Second, what you actually need to do is track your expenses, religiously, over the next year or so while you're planning for this major life change.  There are many, many categories that you have grouped together/omitted, and those can add up.  Track what you are actually spending so you know where you are and what you need.

Third: expect things to change pretty dramatically when that little one comes along.  Right now, you enjoy spending $1K on nice restaurants and fancy ingredients to cook at home; two years from now, that might be $75 at Chuck-E-Cheese.  ;-)  The nice thing is that if you do quit your full-time job, you will have time at home that can allow you to optimize your spending even more (obviously not with a newborn, when you should be taking every possible moment to sleep, but by the time the baby is 6 months or so, you'll probably have some energy back and be wanting to dive into something useful).  With your husband's income and your big pile o' cash, you have plenty of room to relax a bit and figure things out.

For the $600K, I'd estimate how much you want available as an emergency fund, for the baby expenses, and then to cover any delta for the next say two years after the baby is born.  Put that in savings or CDs -- you can't afford to lose the value of that.  Then invest the rest, following whatever your normal investment plan is.

Also:  nonononono, you cannot take $4K out per month!  Never make plans based on an assumption that the market is going to continue to be a bull market for the foreseeable future!  You're trying right now to protect your downside risk:  can you quit your day job and avoid having to go back unless/until you want to?  So you need to be focusing on the worst-case scenario -- the things that could derail that plan. 

Normal rule of thumb is that you can withdraw 4%/yr without running out of money.  Obviously, the lower you keep that %, the higher the chance that your money can last forever.  So, no, you currently don't have enough to fully retire forever -- but luckily, your DH doesn't want to!  And his salary will cover, at a minimum, the vast majority of your routine expenses!!  That will then allow the rest of that giant chunk of money to continue to grow.  So depending on your real expenses and your DH's employment, you may never need to work another minute or invest another dollar! 

Look at it this way:  you could put that $600K in cash and cover all your family expenses for 8-10 years, even if your husband is fired tomorrow.  That buys you a metric shit-ton of flexibility to manage your future however it works best for you.  So congratulations for putting in the work to build a business and earn yourself such a great payday that now allows you to do whatever the hell you want. 

Freedomin5

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Re: Windfall and attempts at early retirement
« Reply #2 on: March 04, 2024, 02:16:28 PM »
Agree with Laura33.

Youíre thinking about your money as a resource to spend. Rather, you should be thinking about your money as little green workers that help you make more money. That means, rather than selling off your little green workers so you can have more stuff/experiences, you should be thinking about how to keep your little green workers around forever.  Especially if your goal is early retirement as stated in the title of your post.

By your hand wavy calculations, you spend $67,632 a year. Your husband makes $72k. Technically you shouldnít have to pull anything from your accounts, or if you do, it should be minimal, just to cover the difference between your husbandís income and your expenses. Donít base your calculations on the max you can withdraw - and then spend to the max - thatís how you get poor and donít save any money. Calculate based on the amount you can withdraw for your money last forever. A SWR of 3.5-4% is reasonable. So up to 21k to 24k a year, but obviously preferably less if your husband makes enough to cover most expenses.

Just dump it all into VTSAX and call it a day. Do a lump sum contribution, not DCA. Lump sum tends to do better than DCA.
« Last Edit: March 04, 2024, 02:18:15 PM by Freedomin5 »

blueberrybushes

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Re: Windfall and attempts at early retirement
« Reply #3 on: March 04, 2024, 04:26:01 PM »
Agree with both responses with some additional thoughts...

Regarding "nothing going into your personal retirement account," your husband's income can fund a Roth in your name.  This is what DW and I do.  She makes $12K/year in a PT gig and funds her ROTH to the max and I fund my ROTH with what is left over (even though I have no income). 

Another thing to consider - you might want to consider funding your/hubs retirement accounts with after-tax dollars instead of pre-tax (if you are not already doing that).  Your tax liability looks low, so funding with after-tax now means no ROTH conversions and RMDs in the future.  It will be alot simpler in 30+ years.

You might also start a 529 for the little gal/guy.  Stick in an index fund (VTSAX or any S&P 500) and don't look at it again for 18 years. $10000 today might be as much as $61,000 in 20 years (10% average return).

Finally, although you said you never want to work again, you might investigate your social security status is.  If you have worked (self-employed and otherwise) enough to qualify, it is all good.  But, if you have not, you may want to bite the bullet and work until you do qualify.  Yes, I know future SS is a hot topic, so hedge your bets.  It is nice to get $60K tax free each year.

These are all off-target for the questions you asked - my answers to those are:

1)  Same asset allocation as with your HSA for now.  If this seems too risky, scale back to 80-20 or 60-40
2)  Don't withdraw until you have to.  Money out of the market makes nothing - lost opportunity.
3)  Invest it all at once as Freedom said
4)  Already answered the personal retirement question

Good luck

ameyer410

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Re: Windfall and attempts at early retirement
« Reply #4 on: March 04, 2024, 06:47:50 PM »
This was such a big help. I'm definitely hoping to not withdraw 4K a month either, lol. Thank you all!!