Too Close for Comfort?

[DJ5280]

Hello Everyone,

I've been reading the blog for a few years now but this is my first post.  I'm interested to get some additional perspective on how close we are to FIRE.

Life Situation: I'm 47 and my wife is 49.  We have 2 kids in college (both with about 2.5 years to go).

Gross Salary/Wages: Total combined income of about 225K (180K for me + 45K for my wife).

Current expenses:
   - Housing = Paid off house worth about $475K
   - Cars = All are paid for (typically buy used and don't drive a lot - lots of walks to the grocery store)
   - Food = $1,000 per month
   - Utilities = $225 per month (covers gas/electric, water, trash, HOA fees)
   - Internet = $100 per month
   - Cell Phones = $150 per month (still paying for the kids)
   - Health / Beauty = $300 per month (haircut, nails, vitamins, high end cosmetics).  My wife says it costs $ to look as good as she does :)
   - Shopping = $200 per month (clothing items here and there + home decor)
   - Entertainment = $200 per month (Hulu Live, Netflix, Alcohol, etc.)
   - Gas / Car Maintenance = $200 per month (estimate)
   - Other Misc = $100 per month

   - Property Tax = $2,700 per year
   - Home Insurance = $1,200 per year
   - Car Insurance = $1,000 per year
   - Gifts = $1,000 per year (estimate)

   - Healthcare = Maybe $10,000 per year based on estimates using the exchange
   - Travel and Home improvement projects = Maybe $10,000 per year but can scale as needed

Assets:
   - Traditional Retirement Funds (401K, IRA) = $700K
   - Roth Retirement Funds (401K, IRA) = $60K
   - Non-Retirement = 410K
   - College Fund = 102K (covers in state tuition for estimated remaining years)

Question:
   - Cutting it close to FIRE this year?  Post FIRE plans a bit up in the air.  Both of us will likely want to do some type of part-time work to keep busy.

Thanks in advance for your feedback.

[RWD]

I totaled your annual expenses at $56.8k which by the 4% rule works out to needing $1.42 million invested to sustain. Ignoring the college fund (already spoken for, I assume) you are currently at $1.17 million. Just a quarter million short. With a good stock market you could hit that by the end of the year. And/or you can easily cut down your spending by $10k/year and be ready to retire immediately. Your food budget looks like a good place to start as it is triple what we are paying.

[Mrs. Healthywealth]

Total expenses, including healthcare and travel: $55,600
Total assets: 1.17 million
If you do a 3.5-3.75% rule = $40,950 to $43,875.  Short by about $12-15k. 4% rule is around $46,000, short by $9k.

You will want to factor in taxes; I tack on 20% to account for taxes and another 20% to create a "peaceful sleep" buffer. If you know for sure you will work part-time, then I say go for it. Especially if the PT work will cover the taxes and give you more flexibility. Even just one of you working PT might do the trick, not sure what salaries look like in your neck of the woods.  The expenses might need to go down, or something like a pension or SS will need to kick in to cover the shortage unless you plan to do PT for however long it takes.

Any plans to sell the house and live somewhere for less? Have you run the scenario through any calculators? I like Big ERN's spreadsheet the most, and have also used Firecalc, cfiresim and personal capital's retirement calc...theres probably a million more new ones too

[RWD]

You will want to factor in taxes; I tack on 20% to account for taxes and another 20% to create a "peaceful sleep" buffer.

Effective tax rate on ~$60k in income is about 6% Federal MFJ (and you don't have to pay FICA taxes). State will vary, obviously, but 20% is a huge unnecessary buffer at these spending levels. Also, the healthy chunk that is already in a taxable account will probably be taxed at or near 0% so that lowers the total effective rate even further.

[Mrs. Healthywealth]

You will want to factor in taxes; I tack on 20% to account for taxes and another 20% to create a "peaceful sleep" buffer.

Effective tax rate on ~$60k in income is about 6% Federal MFJ (and you don't have to pay FICA taxes). State will vary, obviously, but 20% is a huge unnecessary buffer at these spending levels. Also, the healthy chunk that is already in a taxable account will probably be taxed at or near 0% so that lowers the total effective rate even further.

Hmmm, how did you get that? Truly curious b/c it would be awesome if it was that low:

https://www.bankrate.com/finance/taxes/how-are-401k-withdrawals-taxed.aspx#:~:text=Once%20you%20start%20withdrawing%20from,at%20a%20lower%20tax%20bracket.

https://thecollegeinvestor.com/23577/capital-gains-tax-brackets/#:~:text=Long-term%20capital%20gains%20are%20taxed%20at%20only%20three,from%20January%201%2C%202021%20to%20December%2031%2C%202021.

[DJ5280]

Any plans to sell the house and live somewhere for less? Have you run the scenario through any calculators?

   - Thanks for your feedback.  No plans to sell the house.  We have lived here for a long time and like the area.

[MoseyingAlong]

You will want to factor in taxes; I tack on 20% to account for taxes and another 20% to create a "peaceful sleep" buffer.

Effective tax rate on ~$60k in income is about 6% Federal MFJ (and you don't have to pay FICA taxes). State will vary, obviously, but 20% is a huge unnecessary buffer at these spending levels. Also, the healthy chunk that is already in a taxable account will probably be taxed at or near 0% so that lowers the total effective rate even further.

Hmmm, how did you get that? Truly curious b/c it would be awesome if it was that low:

https://www.bankrate.com/finance/taxes/how-are-401k-withdrawals-taxed.aspx#:~:text=Once%20you%20start%20withdrawing%20from,at%20a%20lower%20tax%20bracket.

https://thecollegeinvestor.com/23577/capital-gains-tax-brackets/#:~:text=Long-term%20capital%20gains%20are%20taxed%20at%20only%20three,from%20January%201%2C%202021%20to%20December%2031%2C%202021.

  $60,000   Income
- $24,800   Standard Deduction
= $35,200 Taxable Income
results in $3,829  Federal Income Tax or 6.4% of $60,000

[Mrs. Healthywealth]

You will want to factor in taxes; I tack on 20% to account for taxes and another 20% to create a "peaceful sleep" buffer.

Effective tax rate on ~$60k in income is about 6% Federal MFJ (and you don't have to pay FICA taxes). State will vary, obviously, but 20% is a huge unnecessary buffer at these spending levels. Also, the healthy chunk that is already in a taxable account will probably be taxed at or near 0% so that lowers the total effective rate even further.

Hmmm, how did you get that? Truly curious b/c it would be awesome if it was that low:

https://www.bankrate.com/finance/taxes/how-are-401k-withdrawals-taxed.aspx#:~:text=Once%20you%20start%20withdrawing%20from,at%20a%20lower%20tax%20bracket.

https://thecollegeinvestor.com/23577/capital-gains-tax-brackets/#:~:text=Long-term%20capital%20gains%20are%20taxed%20at%20only%20three,from%20January%201%2C%202021%20to%20December%2031%2C%202021.

  $60,000   Income
- $24,800   Standard Deduction
= $35,200 Taxable Income
results in $3,829  Federal Income Tax or 6.4% of $60,000

Awesome!!! I just reached out to a friend to help break it down for me too. Holy shit I’m excited!!!

[RWD]

You will want to factor in taxes; I tack on 20% to account for taxes and another 20% to create a "peaceful sleep" buffer.

Effective tax rate on ~$60k in income is about 6% Federal MFJ (and you don't have to pay FICA taxes). State will vary, obviously, but 20% is a huge unnecessary buffer at these spending levels. Also, the healthy chunk that is already in a taxable account will probably be taxed at or near 0% so that lowers the total effective rate even further.

Hmmm, how did you get that? Truly curious b/c it would be awesome if it was that low:

  $60,000   Income
- $24,800   Standard Deduction
= $35,200 Taxable Income
results in $3,829  Federal Income Tax or 6.4% of $60,000

Awesome!!! I just reached out to a friend to help break it down for me too. Holy shit I’m excited!!!

Thanks @MoseyingAlong for showing the math. That is how I calculated it as well.

If you set things up well (e.g. Roth conversion ladder) you may not have to pay taxes at all.

[Retireatee1]

I entered all of your info into a Retireator simulation minus the college data (attached).  The results looks pretty good.  I didn't even enable a reverse mortgage.  The savings goal came out at $1.2 million.

EDIT: You can see the federal tax breakdown provided.  The state is set to Florida to remove state tax (you can change this if desired).  I assume Social Security at 67 (again you can change this).

[jeroly]

You may not need a 20% margin for taxes, but I’d definitely look at boosting that healthcare costs reserve to at least $15k when you factor in deductibles, medications, and copays.

I’d also plan for about $20k in travel costs, but that’s just me... I spend about $15k/yr in non-COVID times, not counting my SO who doesn’t travel much. However your food costs will come down if your travel budget covers your on the road dining, so drop that by say $250/mo.

So that gets me to an extra $12k/yr, or around $68k.  At a 4% withdrawal rate you’d need $1.7mm.
You have $1.17mm, so you’re shy by $530k,

You can cut your cellphone bill down to about $60/mo ($1,080/yr savings), but that probably should be offset by a sinking fund to amortize the cost to replace your car. You could probably save some on food, but it’s not a big issue impeding your retirement.  The big issue is in my opinion your being optimistic on your expenses overall.  I don’t think retiring now is a great move, especially for the higher income earner.  If you’re dead set on retiring soon, I’d start by doing a dry run of an affordable expense level of 4% x $1.13mm or $45k/yr.

If you are right and only need $56k/yr you need $1.4mm or another $270k.  With maxed out retirement savings and a 7% return you get there in about two years.

If you work for four more years and fully fund your 401(k)’s and the market averages 7% (assuming you’re not 100% in equities), that gets you to what I think your ‘real’ expense target is, so if you can boost your savings or the market outperforms you could do it in perhaps three.

Of course things become easier if you plan to downsize your housing costs. You’re spending the equivalent of $23k/yr plus home improvement /maintenance costs (figure $2k?) on your property. If you switched to a $1,000/mo apartment you’d reduce your expenses to 43k (your guesstimate) / $55k (mine), requiring $1.075 / $1.375mm, which you either already have or will in two years.