Author Topic: Possibly fire ready, but need to be pinched to be sure  (Read 1699 times)

wistful

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Possibly fire ready, but need to be pinched to be sure
« on: February 07, 2024, 10:13:06 PM »
My first attempt at a post failed, so I'm typing again (with more brevity this time).  Wanted someone to pinch me and make sure I'm awake and am seeing things clearly.  My spouse is planning on fully retiring any month now and I will continue to do a part time self-employed job netting $20k/year for another 4 years:

Circumstances:

Age:  54
Spouse:  54

Kid # 1 - Is 24 and pretty self-sustaining.  Is learning new construction vocations currently and is living at home padding his savings account for the future.

Kid # 2 - Halfway through freshman year at local state university.  Plans on getting 4 year degree and possibly post graduate education in Chiropractic endeavors


Assets:

House  - $650K (no debt on it or any debt at all)
2013 Pilot  -  75,000 miles
2019 CR-V  -  77,000 miles

Cash/CD's - $30K
HSA          - $24K
VEBA (Health Arrangement Account)  - $40K


Retirement related:
Old 401k     $1,181,000
New 401k    $      1,200 
Old 403b      $586,000
Old 457        $116,000
IRA              $88,000
Roth IRA       $56,000
401kRoth       $10,000

Total            $2,038,200

Made plenty of F.I.R.E. planning mistakes in my time, like definitely not saving enough in taxable accounts.  Spouse and I are at or closer than 5 years from becoming 59.5 years old, so the Roth IRA conversion ladder doesn't seem to fit our situation well.  We have stayed in the lowest 2 federal tax brackets (formerly 3) for all of our 26 years of marriage except for 2 due to tax planning and saving strategies.  We feel we can still safely stay in those 2 brackets going forward.

Our estimated annual spend is pretty high by most mustachian efficient standards - $120,000.  However this 'spend' number includes around $18,000 or so in Fed and State income taxes, $10,300 annually we are still going to try to put in an HSA account, $8,500 a year contributing towards college savings for our youngest for 3 - 5 years depending on what the future holds and finally, around $24K/ year on family health coverage.  We will probably be just under or just over a fed MAGI of $95,000 for ACA subsidy calculation purposes.  I just don't see us getting much in the way of subsidies.  Mostly due to the fact that most of our future retirement income is fully taxable.

Planning on drawing my annual Soc Sec of $24K at age 64 for me and $28K at age 67 for my spouse.

Appreciate the guidance and I'm sure I'm leaving some things out, my first post wouldn't post and I didn't have time to perfectly recreate it.  Cheers!

Freedomin5

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Re: Possibly fire ready, but need to be pinched to be sure
« Reply #1 on: February 08, 2024, 12:07:35 AM »
Given that you have different phases in FIRE, I wonder if the bucket strategy might work in your situation.

For example, your first phase might be from 54-59, when you're still earning PT income and funding college expenses. Your next phase might be from 60-64, when you haven't started drawing SS yet and have no PT income, then from 64-67 when you only have one SS income, and finally from 67 onwards when you have two SS incomes.

Calculate your income and expenses for each phase and determine the amount your stash needs to support.

One article that is commonly cited to help you calculate your bucket amounts is: https://ournextlife.com/2016/02/17/how-we-calculated-our-numbers-for-each-phase-of-early-retirement/

One of our forum members, Goldielocks, also did a good job explaining the bucket approach along with sample numbers of how they calculated each bucket amount. Rather than copying their entire lengthy post here, I've included a link to the original post.

I definitely consider decreased spending as I age, risks strategy, and government income when I think of the 4% rule.  I also consider 4% as the rule if you want your money to only last 30 years, 40 years with income fluctuation...

I break down my FIRE like this:

...

jeroly

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Re: Possibly fire ready, but need to be pinched to be sure
« Reply #2 on: February 08, 2024, 05:23:34 AM »
Check out whether the Rule of 55, whereby you can withdraw funds from your last employer's 401(k) fund without penalty provided you're over 55, can be used with your current 401(k).  That could get you over the hump.  You need to look to see if your employer's fund allows you to do distributions other than the whole thing in a lump sum, and you also need to look to see if they allow you to roll over your old 401(k) into the new one - otherwise only the $$$ in the current one would be accessible under this rule.

If my back-of-the-napkin math is right you are at around a $60k spend after taxes, savings, healthcare, and college fund.  That should allow you to get to a pretty great ACA subsidy level to bring those healthcare costs down under FIRE.  It also should allow you to have a very relaxed WR of around 3-3.5%.

With that $20k/yr job you should be more than fine!

wistful

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Re: Possibly fire ready, but need to be pinched to be sure
« Reply #3 on: February 08, 2024, 05:49:01 AM »
Thank you for both of your responses.  I now see a few other items I forgot to mention in my recreation of original post.

Freshman year of college has now been fully paid off.

Have around $49,500 in 529/Coverdell/Set-asides to cover Soph and Jr years at college.

Still planning on putting away $8,400 or so per year for 3-5 years to fund Sr year and slightly offset post undergrad costs.


Good advice on the bucket strategy, that one might fit me like a glove.  Am reading your linked article now.  Like I said, my financial Achilles heel was having a woefully low amount saved in taxable accounts to begin the FIRE liftoff.

Thanks Jeroly for mentioning the Rule of 55.  We definitely will be using the 457 funds in the near future(immune to 10% penalty) and will be rolling over around $83,000 of spouse's IRA into her current (active) small 401k plan with the immediate plans of withdrawing that out first within 18 months of her leaving her job (which due to the rule of 55, will also help us avoid the 10% penalty).  Spouse has a large $1.18 Million former 401k that has no partial rollovers allowed out of it.  Her current 401k has really horrible expense ratios.  For example, the lowest rate in the plan is .56% for S&P 500 index fund.  Even the fixed income portfolio has a .86% expense rate.  Therefore, I will be rolling the minimum amount that I can into that 401k plan with the goal of withdrawing it out in actually about 8-10 months (half this year and half next year.

The ACA subsidy qualification will be the big game changer.  I could probably keep my income (MAGI) below the $95,000 for a year (possibly 2), but then it will be a bit harder.  However, I should absolutely utilize any ACA subsidy I can garner.  Even if it is short term.

Advice is much appreciated.

Freedomin5

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Re: Possibly fire ready, but need to be pinched to be sure
« Reply #4 on: February 08, 2024, 06:07:19 AM »
Another consideration is sequence of returns risk. There are multiple ways to mitigate SORR, such as a rising equity glide path, a large cash cushion, the yield shield, part-time work, etc. Not sure from your post whether you’ve factored SORR in.

the lorax

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Re: Possibly fire ready, but need to be pinched to be sure
« Reply #5 on: February 08, 2024, 12:26:50 PM »
what's the yield shield please @Freedomin5? I'm worried about SORR for our bucket approach to FI so interested to know more

Dicey

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Re: Possibly fire ready, but need to be pinched to be sure
« Reply #6 on: February 08, 2024, 12:37:14 PM »
I FIRE'd at 54 with similar NW, but in different buckets. My vote is for both of you to FIRE now. Don't hesitate, just do it. You'll find yourself in the "and Beyond" Club soon enough, working or not. Not working is vastly underrated and I am not exaggerating. Go.

One of my favorite quotes is, "Retiring too soon can be corrected, too late and there is no recovery."
« Last Edit: February 11, 2024, 09:58:40 PM by Dicey »

Freedomin5

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Re: Possibly fire ready, but need to be pinched to be sure
« Reply #7 on: February 08, 2024, 03:16:35 PM »
what's the yield shield please @Freedomin5? I'm worried about SORR for our bucket approach to FI so interested to know more

I first heard of the yield shield from Millennial Revolution: https://www.millennial-revolution.com/yield-shield/

We are also planning to FIRE soon. Our plan for SORR is to build up a 1-2 year cash cushion that we will put in a GIC ladder, have PT work, have rental income, and have dividend income.

wistful

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Re: Possibly fire ready, but need to be pinched to be sure
« Reply #8 on: February 08, 2024, 05:51:10 PM »
Thanks for the encouragement Dicey, I really think I am close enough for liftoff. I also think we'll be on our best behavior financially in the immediate near future, which should help the overall net worth.

Freedomin, sounds like you have a sound plan.  I look forward to reading about the 'yield shield'.  They say planning is half the fun which I agree with.  But I tell you what, actually pulling the trigger to make that final decision to FIRE is a little stressful, IMHO.  However, the Mustache community is an excellent source for insightful info and hard truths when you need it.  I look forward to catching up on lots of posts, I had stepped away for awhile.

wistful

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Re: Possibly fire ready, but need to be pinched to be sure
« Reply #9 on: February 08, 2024, 08:03:26 PM »
Ahhh Crap, I left one other large piece of the puzzle out of this repost.  Like I said, I had the OG post all ready and the system didn't allow it to post and it disappeared on the screen (possibly old age error at work here).

I do have a 51.5K annual pension that has a 3% GABA/COLA embedded in it that increases it every January.  Just thought I better mention this extra retirement source.  It is a joint spouse pension annuity.  It will continue to stay at the same amount (albeit including 3% annual raises) until both of us have passed away.

Sorry for leaving that piece of the puzzle off the initial post.

jeroly

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Re: Possibly fire ready, but need to be pinched to be sure
« Reply #10 on: February 09, 2024, 03:02:52 AM »
Ahhh Crap, I left one other large piece of the puzzle out of this repost.  Like I said, I had the OG post all ready and the system didn't allow it to post and it disappeared on the screen (possibly old age error at work here).

I do have a 51.5K annual pension that has a 3% GABA/COLA embedded in it that increases it every January.  Just thought I better mention this extra retirement source.  It is a joint spouse pension annuity.  It will continue to stay at the same amount (albeit including 3% annual raises) until both of us have passed away.

Sorry for leaving that piece of the puzzle off the initial post.
oh, that? hardly worth mentioning. [/s]

I do think it's worth mentioning, though, that the 'yield shield' concept - in which you just live off of dividends in order to protect against sequence of returns risk - has been critiqued (some including myself would say debunked) and many would say looking at total returns and diversification is better than finding dividend payers...

https://earlyretirementnow.com/2019/02/13/yield-illusion-swr-series-part-29/

Freedomin5

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Re: Possibly fire ready, but need to be pinched to be sure
« Reply #11 on: February 09, 2024, 03:10:34 AM »
No disagreement there. The yield shield as described in the Millennial Revolution article doesn’t just involve dividends. It actually talks about diversification amongst different asset classes.

Dicey

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Re: Possibly fire ready, but need to be pinched to be sure
« Reply #12 on: February 11, 2024, 10:01:00 PM »
Ahhh Crap, I left one other large piece of the puzzle out of this repost.  Like I said, I had the OG post all ready and the system didn't allow it to post and it disappeared on the screen (possibly old age error at work here).

I do have a 51.5K annual pension that has a 3% GABA/COLA embedded in it that increases it every January.  Just thought I better mention this extra retirement source.  It is a joint spouse pension annuity.  It will continue to stay at the same amount (albeit including 3% annual raises) until both of us have passed away.

Sorry for leaving that piece of the puzzle off the initial post.
GTFO. now.  [Smile]

BTW, I must ge doing it wrong, as I have no idea what a yield shield is.

 

Wow, a phone plan for fifteen bucks!