With $600k cash and $20k expenses, I can retire now?

[FIREin2018]

Single, no kids,age 47

$500k 401k/Roth
$100k in bank account
Mortgage paid off
Expenses $20/yr


I'm having a brain fart.
With 4% rate of withdrawal: $20k/4% = $500k

I can retire now with a $100k cushion?

[MDM]

Probably, if expenses are truly $20K/yr.  Healthcare is the first thing that comes to mind; federal and state taxes are the second.

[MrUpwardlyMobile]

Probably, if expenses are truly $20K/yr.  Healthcare is the first thing that comes to mind; federal and state taxes are the second.

20k seems like an awfully round number.  Might help if you laid out your monthly and annual expenses to make sure if you’re missing anything. 

Separately, if those numbers are right, you might want to enhance that cushion a bit more just in case we are at the top of the market so that you suddenly don’t find yourself with much less stash than you expected really early on.

[Papa bear]

Title says 600k in cash. 4% rule works only if invested in a portfolio of stocks and bonds.


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[Nate79]

4% was really only safe for 30 years. For longer periods a more conservative number should be targeted.

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[mxt0133]

Will you be getting social security? If you are and your expenses are truly 20K a year with a paid of house.  Then enjoy your retirement.

[Monkey Uncle]

Cfiresim gives a 98% historical success rate for $20k in spending from a $600k portfolio for 50 years, if you re-allocate to a 75% stock/25% bond portfolio.  If you're in the US, I presume you will have something coming from Social Security in 20 years, which would provide an additional safety factor.

As has already been pointed out, the key question is whether you are confident that you can live on $20k/yr (inflation adjusted) indefinitely.

[Seadog]

4% was really only safe for 30 years. For longer periods a more conservative number should be targeted.

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Why do people continue, both here and in the media in response to ER articles continue to make this point? While you are technically correct, If you run the numbers, you find that for 95% confidence, the "4% rule" becomes the "3.65%" rule. So you need to be able to operate with ~9% less if you want equal likelihood of success which is hardly game changing or insurmountable. Frankly, any WR of 3.5-4.5% is basically within the noise spectrum of 4%. More than the percent going out, the key is flexibility. IMO, even 5% for 60 years with the ability to reduce to 2.5% if returns dictate >> than a robotic 4%

[Rosy]

Cfiresim gives a 98% historical success rate for $20k in spending from a $600k portfolio for 50 years, if you re-allocate to a 75% stock/25% bond portfolio.  If you're in the US, I presume you will have something coming from Social Security in 20 years, which would provide an additional safety factor.

As has already been pointed out, the key question is whether you are confident that you can live on $20k/yr (inflation adjusted) indefinitely.

That is the first time I have seen a 75/25 split recommendation for retirement - I thought 60/40 was the must-have split even as early as five years before retirement? What information am I missing?

So, the OP would have to acquire another $100K to get to $600K and - then or now - switch to 75% stock/25% bond portfolio? Add in SS (if in the US) in 20 years, say $15K to $20K per annum which will take care of the inflation factor, plus a fair amount of extra expenses or extra savings, since he probably wouldn't be able to continue on an even $20K forever.
Keep the 100K cash cushion and voila.

$20K is relatively low, but I assume OP has tested living on $20K for over a year and is confident that he's happy to continue to live the same way? Even at worst case scenario, the SS pays out a min of $500 a month which would take care of inflation, right?

In my estimation, this looks more like FI and you can consider quitting, if your job situation or mental/physical health warrants or if you are simply ready to do new and exciting things, even start a new career or just want to coast doing nothing, travel or work part-time or seasonal or not at all. FI gives you options baby - options!

[Kay-Ell]

Yes. You have enough invested to cover you expenses indefinitely with the 4% rule, plus enoug extra cash lying around to cover 5 years worth of expenses in market down turns. Or the next 10, nice used cars, or the next 20 moderately luxurious vacations, or in reality probably a combination of both. To put it another way, if you invested 60k of your 100k cash (leaving you with 2 years of expenses in cash), your ongoing expenses would come in under 3.75%. The questions I’d ask are whether you think your true expenses will come in (and you’ll be happy) under 20k per year for the rest of your life (or until SS). And second, whether you think you’re likely to make some money over the course of the rest of your life. If the answer to either one of those is yes, then there’s no reason to hesitate. You have contingencies built in and it is not hard to find a job that makes 20k a year should you ever want to or need to pad your numbers further.

[Much Fishing to Do]

If its truly $20k/yr expenses (including taxes) then I'd say it looks great to me.  I can't imagine you'd have much in taxes to factor in at that income, though maybe some state?  Having 5 years expenses in cash seems high to me but sure is a nice buffer given you already have the 4% with the $500k.  SS will then become another good backup that'll help counter the problem the 4% rule wasn't made for a 60 year retirement.  Heck depending on your income/savings rate and what you've put in to SS the SS and Medicare alone may start covering most of your needs in a couple decades.

It'll never be guaranteed to work, but you've got plenty of years to find some more income in the off chance you need it to supplement, and with expenses that low it wouldn't have to be a lot of work or high paying work either.

[Monkey Uncle]

Cfiresim gives a 98% historical success rate for $20k in spending from a $600k portfolio for 50 years, if you re-allocate to a 75% stock/25% bond portfolio.  If you're in the US, I presume you will have something coming from Social Security in 20 years, which would provide an additional safety factor.

As has already been pointed out, the key question is whether you are confident that you can live on $20k/yr (inflation adjusted) indefinitely.

That is the first time I have seen a 75/25 split recommendation for retirement - I thought 60/40 was the must-have split even as early as five years before retirement? What information am I missing?

So, the OP would have to acquire another $100K to get to $600K and - then or now - switch to 75% stock/25% bond portfolio? Add in SS (if in the US) in 20 years, say $15K to $20K per annum which will take care of the inflation factor, plus a fair amount of extra expenses or extra savings, since he probably wouldn't be able to continue on an even $20K forever.
Keep the 100K cash cushion and voila.

$20K is relatively low, but I assume OP has tested living on $20K for over a year and is confident that he's happy to continue to live the same way? Even at worst case scenario, the SS pays out a min of $500 a month which would take care of inflation, right?

In my estimation, this looks more like FI and you can consider quitting, if your job situation or mental/physical health warrants or if you are simply ready to do new and exciting things, even start a new career or just want to coast doing nothing, travel or work part-time or seasonal or not at all. FI gives you options baby - options!

It's been a while since I've run a bunch of scenarios, but IIRC, there isn't a huge difference in SWR among 60/40, 70/30, 75/25, and 80/20 allocations.  The longer the time horizon, the greater the advantage of a heavier stock allocation.  Personally I think 60/40 is too bond-heavy for someone who is looking at a 40-50 year retirement.  But I just used 75/25 because that is the cFiresim default portfolio.

And there is no need for the OP to bank another 100k so he/she can keep a 100k cash cushion.  Although that would certainly provide an extra safety factor, it isn't necessary for reaching the modeled 98% success rate.

As for SS, the OP can get an estimate of future benefits from the SS administration's on-line calculator.  If you know when you are going to stop working and how much you're going to make until then, the calculator is quite accurate.  However, it does not account for the possibility of future benefit cuts due to SS's well-known long term funding problems.  The SS estimate can be plugged into cFiresim to see what effect it has on historical success and SWR.

And cFiresim accounts for historical inflation, so there's no need to try to guess at future inflation and account for it in the input numbers.

[MDM]

That is the first time I have seen a 75/25 split recommendation for retirement - I thought 60/40 was the must-have split even as early as five years before retirement? What information am I missing?

That the original studies by Bengen and the Trinity professors (http://www.retailinvestor.org/pdf/Bengen1.pdf and http://www.aaii.com/files/pdf/6794_retirement-savings-choosing-a-withdrawal-rate-that-is-sustainable.pdf) showed the highest success rates at ~75/25.

But it's also a relatively flat optimum (at least using historical data).  See Trinity study update - Bogleheads for more.

[Rosy]

Cfiresim gives a 98% historical success rate for $20k in spending from a $600k portfolio for 50 years, if you re-allocate to a 75% stock/25% bond portfolio.  If you're in the US, I presume you will have something coming from Social Security in 20 years, which would provide an additional safety factor.

As has already been pointed out, the key question is whether you are confident that you can live on $20k/yr (inflation adjusted) indefinitely.

That is the first time I have seen a 75/25 split recommendation for retirement - I thought 60/40 was the must-have split even as early as five years before retirement? What information am I missing?

So, the OP would have to acquire another $100K to get to $600K and - then or now - switch to 75% stock/25% bond portfolio? Add in SS (if in the US) in 20 years, say $15K to $20K per annum which will take care of the inflation factor, plus a fair amount of extra expenses or extra savings, since he probably wouldn't be able to continue on an even $20K forever.
Keep the 100K cash cushion and voila.

$20K is relatively low, but I assume OP has tested living on $20K for over a year and is confident that he's happy to continue to live the same way? Even at worst case scenario, the SS pays out a min of $500 a month which would take care of inflation, right?

In my estimation, this looks more like FI and you can consider quitting, if your job situation or mental/physical health warrants or if you are simply ready to do new and exciting things, even start a new career or just want to coast doing nothing, travel or work part-time or seasonal or not at all. FI gives you options baby - options!

It's been a while since I've run a bunch of scenarios, but IIRC, there isn't a huge difference in SWR among 60/40, 70/30, 75/25, and 80/20 allocations.  The longer the time horizon, the greater the advantage of a heavier stock allocation.  Personally I think 60/40 is too bond-heavy for someone who is looking at a 40-50 year retirement.  But I just used 75/25 because that is the cFiresim default portfolio.

And there is no need for the OP to bank another 100k so he/she can keep a 100k cash cushion.  Although that would certainly provide an extra safety factor, it isn't necessary for reaching the modeled 98% success rate.

As for SS, the OP can get an estimate of future benefits from the SS administration's on-line calculator.  If you know when you are going to stop working and how much you're going to make until then, the calculator is quite accurate.  However, it does not account for the possibility of future benefit cuts due to SS's well-known long term funding problems.  The SS estimate can be plugged into cFiresim to see what effect it has on historical success and SWR.

And cFiresim accounts for historical inflation, so there's no need to try to guess at future inflation and account for it in the input numbers.

Thank you:) for the helpful reply - I'll look into this, so we can make better choices.

[Rosy]

That is the first time I have seen a 75/25 split recommendation for retirement - I thought 60/40 was the must-have split even as early as five years before retirement? What information am I missing?

That the original studies by Bengen and the Trinity professors (http://www.retailinvestor.org/pdf/Bengen1.pdf and http://www.aaii.com/files/pdf/6794_retirement-savings-choosing-a-withdrawal-rate-that-is-sustainable.pdf) showed the highest success rates at ~75/25.

But it's also a relatively flat optimum (at least using historical data).  See Trinity study update - Bogleheads for more.

Thanks MDM, that's exactly what I was looking for. We were about to make some adjustments anyway, this will increase our confidence level.

[Adam Zapple]

Not sure where you live OP but I'm thinking you are not figuring in any type of medical expenses?

[SugarMountain]

Two thoughts.  First, as others have mentioned you need to look at medical.  The good news is that you will almost certainly be eligible for ACA subsidies, which helps at least until the ACA does get repealed. (Heck at < $20k year you might be eligible for medicaid.)

Taxes were also mentioned, however you will likely owe very little in federal taxes, since you'll get at least a $12k standard deduction.  And depending on how your $600k is structured you may have already paid taxes on it.

But some additional things to think about:
- major home maintenance costs.  Maybe you haven't had to spend money on the house in the last year or two when you've been tracking expenses, but at some point in the next 10-20 years you may very well need to drop $10k+ on a roof, or $3k on a furnace, or $500-1000 on appliances, etc.  You should consider what expenses you're likely to have and amortize them over time.
- similar story with cars.  maybe you paid cash for a honda accord 5 years ago so you have very little expense since then, but down the road you may, and you may need to replace the car. (If you're really only spending $20k, though, maybe you don't have a car at all.)

[DreamFIRE]

The OP's post asking about AA is located in the investing section:

https://forum.mrmoneymustache.com/investor-alley/what-allocation-if-i-fire-age-47/

[cap396]

I'd also suggest that you make sure you have enough in your taxable account to last until whatever year you plan to begin withdrawing from your 401K/Roth without being hit with the early withdrawal penalty.

[DreamFIRE]

4% was really only safe for 30 years. For longer periods a more conservative number should be targeted.

That's true, and even that is probably too high with today's valuations:

https://forum.mrmoneymustache.com/investor-alley/cape-and-safe-withdrawal-rates/

[jim555]

What percentage of the 20K is bare bones expenses?  Do you really want to live on just a bare bones existence?  What about travel or extra ordinary expenses?  My existence number is 16K, but I could spend way more than that if I wanted to.  I would hate to be boxed in to having no options with a 20K number.

[DreamFIRE]

To answer some of the questions asked...

OP listed his expenses as $19K/yr, $20K/yr, and $24k/yr in previous posts but mentioned worst case of $42K/yr.

He states he is planning for an ACA silver plan with maximum subsidies.

https://forum.mrmoneymustache.com/welcome-to-the-forum/health-insurance-if-i-fire/msg1822025/#msg1822025

A possible side gig is poker player.

[Bateaux]

I'd get to minimum 750k.  I'd still only spend 20k, most likely you'll handle anything that comes with that 250k pad.  I've had my accounts drop 100k from January to today.  I'm not retired yet so no big deal.  If I only had 600k and retired that would put me in a panic.  Even with 750k when the market drops 33% you only have 500k to live on.  Any emergency that comes could wipe you out.   

[alex753]

OP-

What are your plans for accessing your 401K penalty free?  SEPP?

[Adam Zapple]

Do ACA subsidies cover all medical expenses or are there out of pocket costs on top of what is subsidized?

[FIREin2018]

OP-

What are your plans for accessing your 401K penalty free?  SEPP?

IRA to roth conversions. ( $450k from previous employers have all been rolled over to an IRA.)
since the only income if i retire early is bank interest and maybe w2-g from big poker/casino promos, i can convert thousands tax free each year.

$100k cash + Roth contributions  that i can already withdraw tax free + roth conversions should last me till 59 1/2.

[SugarMountain]

Do ACA subsidies cover all medical expenses or are there out of pocket costs on top of what is subsidized?

There are out of pocket expenses.  I believe the ACA subsidy is simply a tax credit based on what your income is and the price of the 2nd cheapest silver plan available to you.  I don't think it ever fully covers the cost of a silver plan. But, I think depending on the subsidy amount you could by a cheaper Bronze plan and use the additional funds to cover out of pocket expenses.

[FIREin2018]

Do ACA subsidies cover all medical expenses or are there out of pocket costs on top of what is subsidized?

There are out of pocket expenses.  I believe the ACA subsidy is simply a tax credit based on what your income is and the price of the 2nd cheapest silver plan available to you.  I don't think it ever fully covers the cost of a silver plan.
But, I think depending on the subsidy amount you could by a cheaper Bronze plan and use the additional funds to cover out of pocket expenses.

i was on Obamacare 3yrs ago.
the subsidy is only for silver plans, not for bronze.
also, you get lower deductibles for being on the subsidy.

some of the silver plans even include dental altho i read they suck and it's not worth it because of how hard it is to get an appt with a participating dentist.

[FIREin2018]

Probably, if expenses are truly $20K/yr.  Healthcare is the first thing that comes to mind; federal and state taxes are the second.

yeah, healthcare costs is whats worrying me because of the dicking around Trump/Republicans are doing with Obamacare.

fed/state taxes should be $0 if i retire early

[Eric]

Do ACA subsidies cover all medical expenses or are there out of pocket costs on top of what is subsidized?

There are out of pocket expenses.  I believe the ACA subsidy is simply a tax credit based on what your income is and the price of the 2nd cheapest silver plan available to you.  I don't think it ever fully covers the cost of a silver plan.
But, I think depending on the subsidy amount you could by a cheaper Bronze plan and use the additional funds to cover out of pocket expenses.

i was on Obamacare 3yrs ago.
the subsidy is only for silver plans, not for bronze.
also, you get lower deductibles for being on the subsidy.

some of the silver plans even include dental altho i read they suck and it's not worth it because of how hard it is to get an appt with a participating dentist.

You can get a subsidy for any level of plan as long as you meet the income requirements.  I believe you're thinking of the cost-sharing provision, which is only available on the Silver plans.

https://www.healthcare.gov/glossary/cost-sharing-reduction/

[MDM]

fed/state taxes should be $0 if i retire early

Depends on your income source.  Zero is definitely correct if withdrawing Roth contributions, or qualified dividends and long term capital gains from taxable.  To get $20K spendable from a traditional 401k or IRA would require a withdrawal of $20,889 and paying federal tax of $889.  State tax would make it worse. 

[FIREin2018]

fed/state taxes should be $0 if i retire early

Depends on your income source.  Zero is definitely correct if withdrawing Roth contributions, or qualified dividends and long term capital gains from taxable.  To get $20K spendable from a traditional 401k or IRA would require a withdrawal of $20,889 and paying federal tax of $889.  State tax would make it worse.

whoops.. my train of thought was on the years before i turn 59 1/2 when i'm doing IRA to roth conversations.

you're right about taxes when i start withdrawing from 401k/IRA after age 59 1/2.
thx

[MDM]

whoops.. my train of thought was on the years before i turn 59 1/2 when i'm doing IRA to roth conversations.

you're right about taxes when i start withdrawing from 401k/IRA after age 59 1/2.
thx

Note that a tIRA to Roth conversion is subject to ordinary tax exactly the same as a tIRA withdrawal.  The conversion does allow one to avoid the 10% penalty for early withdrawals.

[FIREin2018]

whoops.. my train of thought was on the years before i turn 59 1/2 when i'm doing IRA to roth conversations.

you're right about taxes when i start withdrawing from 401k/IRA after age 59 1/2.
thx

Note that a tIRA to Roth conversion is subject to ordinary tax exactly the same as a tIRA withdrawal.  The conversion does allow one to avoid the 10% penalty for early withdrawals.

if i retire early, i'll be living off the $ in the bank and Roth contributions/convertions.
as i said above, my income will then be only bank interest and maybe w2-g from big poker/casino promos.

with the new tax laws, i get $12k/yr in standard deduction.
so the tax free amount i can convert = $12k - bank interest - w2g

[DreamFIRE]

You will need MAGI income to qualify for that ACA Silver plan.   If you are living in a Medicaid expanded stated, you need MAGI of something like $17K to qualify for ACA.  Below that, you qualify for Medicaid instead.  If you're converting to a Roth IRA at the $17K level to generate sufficient MAGI, you will have to pay taxes even though you're living off your existing cash/Roth.

[FIREin2018]

You will need MAGI income to qualify for that ACA Silver plan.

no i dont.
i just need to estimate to making $17k next year on the aca application.
there's no penalty if im wrong in my estimate and make less.
ie: there's no claw back on the cost-sharing benefit nor am i forced into Medicaid

[jim555]

You will need MAGI income to qualify for that ACA Silver plan.

no i dont.
i just need to estimate to making $17k next year on the aca application.
there's no penalty if im wrong in my estimate and make less.
ie: there's no claw back on the cost-sharing benefit nor am i forced into Medicaid

True, as long as they accept your estimate.  You just need to convince them.

[Eric]

You will need MAGI income to qualify for that ACA Silver plan.

no i dont.
i just need to estimate to making $17k next year on the aca application.
there's no penalty if im wrong in my estimate and make less.
ie: there's no claw back on the cost-sharing benefit nor am i forced into Medicaid

True, as long as they accept your estimate.  You just need to convince them.

What happens in year 2 then?

[FIREin2018]

You will need MAGI income to qualify for that ACA Silver plan.

no i dont.
i just need to estimate to making $17k next year on the aca application.
there's no penalty if im wrong in my estimate and make less.
ie: there's no claw back on the cost-sharing benefit nor am i forced into Medicaid

True, as long as they accept your estimate.  You just need to convince them.

What happens in year 2 then?

just keep estimating $17k?

[DreamFIRE]

You will need MAGI income to qualify for that ACA Silver plan.

no i dont.
i just need to estimate to making $17k next year on the aca application.
there's no penalty if im wrong in my estimate and make less.
ie: there's no claw back on the cost-sharing benefit nor am i forced into Medicaid

True, as long as they accept your estimate.  You just need to convince them.

What happens in year 2 then?

just keep estimating $17k

So your plan is to commit fraud from age 47 to 65 (assuming ACA is actually still around) by intentionally entering an estimate which you know is fraudulent with the purpose of defrauding a government program which you are not truly eligible for, year after year.  Good luck with that.

[jim555]

Repeating false estimates might flag you.  I wouldn't do it.