Go Curry Cracker Forum

Go Curry Cracker => Early Retirement => Topic started by: almost_there on March 16, 2021, 07:06:38 AM

Title: Looking for guidance
Post by: almost_there on March 16, 2021, 07:06:38 AM
This is my first post in this forum.
I'd like to call it a day and am wondering how to go about it.

I'm 60. Single. No kids.

Tax-deferred: $470,000 (roughly 65% stocks, 25% bonds, 10% others; all low-cost index funds). Cash: $131,000. Nothing else.

No debt, renter (don’t plan to buy a house), I lease cars when needed (don’t plan to buy, looking to locate where car not needed).

Able and willing to relocate outside the US, to live on USD3k a month in the right circumstances, and eager to stop "woking" altogether tomorrow. Could keep some consulting/coaching activities going and/or launch a few online offerings in the near future.

Looking for guidance on generating income before SocSec (that'll be approx. USD2,200 per month at age 70) and RMDs kick in.

I know GCC is a fan of the 4% rule and I don't meet it. Trouble?
Title: Re: Looking for guidance
Post by: gocurrycracker on March 16, 2021, 07:23:13 PM
Another way to look at this maybe...

At age 70 you get $2.2k/mo ($26.4k/yr) from SS. If you want to spend $36k/year (3k/mo), you need another $9.6k/year ($800/mo) which (using 4% rule) can be supported by a portfolio worth $240k

You have $600k USD.

If over the next 10 years you spend $360k ($3k/mo - $36k/yr) you still have $240k remaining, even with zero return on investment. Mission accomplished?

The risk is if there is a big market crash before you start SS and you don't have the $240k when you hit age 70.
See cFIREsim as one way to model this: https://www.cfiresim.com/3f092d60-d0b1-4c1a-974c-c3631fca0c50

For RMDs, they now start at age 72 (after SECURE Act) and they really aren't a big deal until after age 85. If the portfolio is small they don't matter at all.

You can live pretty well on $36k/year in a ton of places in the US and get Medicare.
There are lots of great places outside the US as well (no Medicare.) Any particular places you are looking?

As for income generating advice - the cFIREsim results already assume standard income from dividends/interest. Trying to generate more investment income from the same funds generally means taking on more risk. That leaves you with job income or business income
Title: Re: Looking for guidance
Post by: almost_there on March 18, 2021, 06:45:22 AM
Thanks for the quick reply.

I love how you found a way for round numbers to work out.

Some thoughts:
- SocSec is adjusted at 1.6% p.a. while inflation is often above that, so loss of value over time
- In a 30-year window intuition is that taking SocSec early will give greater accrual power to untouched tax-deferred and thereby provide greater value at the tail end
- A frail $240k suggests keeping current cash as cash?
- Not a whole lot of room for Roth conversions unless first few years are financed via cash
- Must remain open to job/business income... nonchalantly :)

You ask about places for living
criteria: good inexpensive healthcare, safe, Sun and water, and a nonstop flight to the East coast of the US
First tier: beach towns in the US (FL, SC, NC); Spain and Portugal; Canada, with some snowbird movement; Costa Rica?
Second tier (not sure if they meet all criteria): Belize, Panama

Anyone with suggestions and good experiences?
Title: Re: Looking for guidance
Post by: gocurrycracker on March 18, 2021, 07:27:37 PM
A few other thoughts:

If you are outside the US you would have a completely different experience with inflation. The difference between SS cola and US inflation is probably small by comparison.

The ROI for delaying SS can be substantial if you live beyond age 90+/-

Roth conversions aren't that awesome - don't let the tax tail wag the dog. If you can do them, great. If not, I wouldn't make life changes to force it.

That said, I'd still keep a few years worth of spending in cash (which would allow Roth conversions.)
Then, if the market goes up can delay SS. If it goes down, can take SS early(er) or flip some burgers.

If more work is a strong likelihood, in many cases just working one more year has the best financial roi

Also consider Mexico - it's wonderful - great food, friendly people, same timezones as US, easy flights

Title: Re: Looking for guidance
Post by: almost_there on March 23, 2021, 07:54:35 AM
You're right about inflation outside the U.S. Point well taken.

The challenge with delaying SS is... you don't know when you'll die. Actuarial assumptions are age 92, I believe. I like your thinking though: delay on a good market, take it early on a down market. In other words, treat as a fixed income element of my portfolio.

re. Roth conversions: when I run my numbers on i-orp (a cfiresim companion) it recommends some pretty aggressive early conversions. Pay a bunch of taxes early and little to none later. Thoughts?

Agreed on Mexico. Not sure about health coverage: fly back home for serious conditions? BTW, I loved your place in San Miguel de Allende. I hear it's become overcrowded with expats... and I'm trying to steer clear of that.

Thanks again.
Title: Re: Looking for guidance
Post by: gocurrycracker on March 24, 2021, 02:44:48 AM
Yup - don't know when your going to die. I suppose that would take all the fun out of it...

If you like the look of San Miguel de Allende but prefer fewer expats, try Guanajuato (college town), Querétaro (bigger city, has a Costco), or Dolores Hidalgo (small number of expats, nice Mexico feel.) SMA has always had a large expat population which does help expand the number and variety of restaurants, and if you prefer to see zero Canadians or Americans you can do that too just by locating yourself 10 minutes outside the city center.

For Roth conversions - yes, they can save you money. The question is how much. They have the biggest advantage when there is a substantial marginal rate delta, say you avoid paying tax at 35% by paying 12% today. Those big deltas mostly occur for people with lots of $ in their IRA.

See this financial review where I calculated the tax savings for doing a lot of Roth conversion, which could save up to $1.5 million in taxes for the Bobs. That seems like a lot.

But when you look at the NPV of those tax savings it amounts to something around $60k. Maybe that is also a big number, but it is only a few percent of their total portfolio value.

AND... you only pay big taxes later if you have large RMDs. And you only have large RMDs if your portfolio is large. Which happens only if you have a sustained period of strong growth post retirement.... or in other words, you are already at the stage in life where you know you have more money than you can spend.

So yes, do Roth conversions. But maybe don't make them more important than living where you want, when you want, how you want. Get the cake first, and then if you like sprinkle some Roth conversion frosting on top.