Author Topic: Greetings!  (Read 122 times)

spreadsheet_geek

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Greetings!
« on: November 05, 2019, 06:12:43 AM »
Hey all,

1st time posting but have been reading the forum (as well as the blog) for months. Was wondering, if I were to post my info, would anyone be willing to offer up their thoughts on my situation? I'm looking to be done working by the end of 2027, and am not sure how best to allocate my savings going forward (and what to do with it at that time), but I didn't want to post up a bunch of info without asking, it felt presumptive!

gocurrycracker

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Re: Greetings!
« Reply #1 on: November 05, 2019, 09:41:30 AM »
Sure thing. That was generally the idea behind the Feedback section. Post away

spreadsheet_geek

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Re: Greetings!
« Reply #2 on: November 05, 2019, 10:45:41 AM »
Great, thanks! So I'm looking to retire end of 2027/beginning of 2028, and I'm trying to figure out how I will finance this. Here's my current stats (all #s approximate):

401k = $390K (90% index funds, 10% bond fund)
HSA = $11K (mostly index funds, $1500 C.O.H. required)
Cash accounts = $35k (checking, savings, cash-on-hand)
House (paid off) = $150k

Debt-free
Single, no kids

Current net worth = $625k (includes home, vehicles, coins/bullion, other assets)
Salary =  $75k/yr
Savings rate =  55-60%

Soc.Sec. if taken @ 62: $1600/mo
Soc.Sec. if taken @ 70: $2900/mo

Current base annual expenses = $22k
Would be very comfortable with $36k/yr

My current thoughts are to continue putting 20% of pay into 401k while working, continue maxing out HSA, but redirect my 'emergency fund' deposits from savings to a brokerage account (which I don't currently have). If I use an estimated ROR of 7%, my account balances when I turn 57 would be approx. $845k in 401k, $270k in a brokerage account, along with whatever the HSA ends up being (haven't calculated that out yet).

My other thought would be to drop 401k contributions to 6% in January 2020 (to get full company match), then put everything into the brokerage account. If I took this route, projections put me at a 401k balance of $725k and a brokerage balance of $365k.

The plan for the 1st scenario would be to live off the brokerage funds and begin withdrawals from the 401k (SEPP, 72T?) up to the top of my current tax bracket ($88K) with the intent of emptying the 401k before RMDs kick in. I'd obviously pay taxes on the withdrawls but would have no earned income during this time. The net 401k proceeds would be placed into the brokerage account as well. If I take this approach, I believe I can live off the brokerage account and delay claiming Soc. Sec until I'm 70.

Does this sound like a reasonable plan? Am I missing something big that I haven't thought of? Thanks for any input!
« Last Edit: November 05, 2019, 10:47:43 AM by spreadsheet_geek »

gocurrycracker

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Re: Greetings!
« Reply #3 on: November 06, 2019, 02:27:49 AM »
It isn't necessary to drive IRA value to zero by age 70.5. If you are already withdrawing $10, it doesn't matter if there is a required minimum of $5. Instead, target a maximum tax rate.

Here are 2 examples:
https://www.gocurrycracker.com/gcc-vs-rmd/
https://www.gocurrycracker.com/reader-financial-review-scared-death-early-retirement/


To decide whether to contribute to 401k or not, compare marginal tax rates. You are getting a 22% tax deduction at present.
Upon withdrawal, you would pay at a rate of 0% - 12%. In addition, if in the US your ACA subsidies would be reduced by 9.5%-15%.

If the contribution tax rate is greater than the withdrawal tax rate, contribute to 401k. If not, don't.

https://www.gocurrycracker.com/obamacare-optimization-early-retirement/
https://www.gocurrycracker.com/obamacare-optimization-vs-tax-minimization/


I'm not aware of a tax bracket that ends at $88k. For single filers, 12% bracket ends ~$50k. 22% bracket ends ~$95k.

Chart in this post: https://www.gocurrycracker.com/tax-reform-early-retiree/
single filers divide by 2
« Last Edit: November 07, 2019, 06:54:32 PM by gocurrycracker »

spreadsheet_geek

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Re: Greetings!
« Reply #4 on: November 07, 2019, 05:41:10 AM »
Maybe I'm misunderstanding the RMD calculations, but if I only need 36k per year (for example) and my 401k generates more than that, the balance will continue to climb. At some point I'd be required to withdraw large amounts that might put me into a higher bracket than I'm currently in, wouldn't it? Eventually when I took Soc.Sec. the amount I'd need to withdraw from my 401k would be even smaller, helping the balance to climb, and again increasing the eventual RMD. The RMDs are recalculated annually, aren't they, based on balance and life expectancy?

I'll read through your links again (as I'm sure I've read them before), but maybe I'm just missing something? Thanks for reposting them!

By the way, here is the chart I'm using for my calculations. It's the IRS chart used for calculating taxes on your paycheck (revised 2019). Maybe this set of brackets is the wrong one to use for conversion tax calculation?

...As I'm apparently not able to attach images to this post, the tax bracket to which I'm referring is located on page 47 of the pdf form at the link below, annual salary table. 88k is the cutoff for the 22% tax bracket.

https://www.irs.gov/pub/irs-prior/p15--2019.pdf
« Last Edit: November 07, 2019, 05:51:10 AM by spreadsheet_geek »

gocurrycracker

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Re: Greetings!
« Reply #5 on: November 07, 2019, 06:38:25 AM »
You want to use the tax rate schedule (p15 is for employers doing withholding)
See page 105 on this doc (still in draft form)
https://www.irs.gov/pub/irs-dft/i1040gi--dft.pdf

add the standard deduction ($12,200) to go from taxable income to total income
https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2019

22% bracket for single ends at 12,200 + 84,200 = 96,400. I said ~$95k because I didn't do the math I just blinked at it.

if I only need 36k per year (for example) and my 401k generates more than that, the balance will continue to climb. At some point I'd be required to withdraw large amounts that might put me into a higher bracket than I'm currently in, wouldn't it? Eventually when I took Soc.Sec. the amount I'd need to withdraw from my 401k would be even smaller, helping the balance to climb, and again increasing the eventual RMD. The RMDs are recalculated annually, aren't they, based on balance and life expectancy?

Yes, to all of that.

That doesn't mean you magically pay more if you don't get all the funds out before age 70.5.

Rephrasing what I said prior: don't arbitrarily pick age 70.5 as your IRA = $0 date. Pick a tax rate you want to stay under and then figure out the IRA values you need to hit at age 70.5 and beyond. Getting it all out by age 80-85 could be sufficient because RMDs start small and only get prohibitively large in 10-15 years.

See these 2 posts as a reference:
(there is an example in the comments somewhere about how to adjust the curves for SS income.)
(single filers divide by 2)
https://www.gocurrycracker.com/is-your-401k-too-big/
https://www.gocurrycracker.com/is-your-401k-too-big-part-2/

« Last Edit: November 07, 2019, 07:08:46 AM by gocurrycracker »

spreadsheet_geek

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Re: Greetings!
« Reply #6 on: November 07, 2019, 07:42:27 AM »
Ah, I see, thanks for linking the correct tables, I'll have to go update my spreadsheet to reflect these numbers. I wasn't actually aiming at emptying the 401k account by 70, just filling up to the (now) 84k bracket, but I didn't know to included the standard deduction, so maybe I can drop to the lower bracket if I include that. As it sits now with the new numbers (without the std. ded.), it looks like the 401k would be depleted by the time I'm 83.

I'll stop back one I've updated things, to see if I'm on the right track - thanks so much for the input!

gocurrycracker

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Re: Greetings!
« Reply #7 on: November 07, 2019, 07:32:04 PM »
based on your user id, you will probably get it all sorted now ;)

some things to consider:
- an alternative to 72t/SEPP is the Roth conversion. This will get you additional tax-free growth
- if you Roth convert to top of 22% tax bracket:
-- 100% of capital gains / qualified dividends will be taxed at 15%. If any of those gains/divs would have been taxed at 0%, you have created a 37% marginal tax rate, something you would never see with an RMD
-- you will have income >400% FPL and will get $0 in ACA health insurance subsidies. If income is <400% FPL, each $ of IRA withdrawal will have an additional "tax" of 9.5% to 15%.

Compare your current 22% marginal rate to these to help decide what to do with future 401k contributions beyond company match.

If you target an annual income of 399% FPL (~$48k for single) to get health insurance subsidies, you are looking at a marginal tax rate of ~22%+ with ACA (9.5%-15%) and IRS (12%.)