Author Topic: Should I FIRE or Continue  (Read 1068 times)

SamChav

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Should I FIRE or Continue
« on: March 04, 2021, 08:24:47 AM »
I am a huge fan of GCC, been following his blogs for several yrs. Thank you for helping us out of this rat race!

I am 50, my spouse 47, both on full time jobs. kids: 18 & 12. State: VA

Retirement Accounts -  1500k (100% stocks, index funds. Our contribution + ER match = 60k/yr)
Brokerage Account - 300k (VTI, SPY)
My 457, deferred comp - 330K (on separation can begin distribution or can delay it to any future date,
                                          can spread it: 5, 10 or 15 yrs. Historic rate of return: 7%)
529 - 100k (NV 529, SP500 index fund. Need 100k more to support kids thru college over next 10 years)
Home Equity: 300k
Cash: 75K
Total: 2600k

Loans:
 Mortage bal: 320K @ 2% (just refinanced to 30 years)
 Auto Loan: 20K @ 1.5% (5 years left)
 No other debt.

Spouse, brings 100k annually, likes her job, can continue for at least 3 more years. But I would like to call it ASAP:)
Need:
  72 - 84k per year
  100k kids college expense; over 10 years)

Currently on my Health Insurance, can switch to spouse's, it's decent coverage with HSA ( I don't have HSA).

Questions:
1. Unable to decide if I should quit my high paying and very stable job or continue 4 more years, then use age 55 rule? I am not a huge fan of my job, should I quit and do a freelance IT job, Part time/Full Time for a few months in a year?
2. If we both quit within the next 3 years, what is the best way to pull 72 to 84k + 100k for kids college over next 10 years?

Thanks so much for the help.
« Last Edit: March 04, 2021, 09:19:43 AM by SamChav »

gocurrycracker

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Re: Should I FIRE or Continue
« Reply #1 on: March 04, 2021, 06:51:02 PM »
"Should" is a tough question to answer

Could is a little easier...

Do you have sufficient assets with 4% rule?
Maybe...

remove home equity because you don't want a scenario where you are forced to sell, add $100k to "debt" as a way to think of college assistance for kids, and you have a liquid net worth of ~$1.8 million. 4% of that is ~$70k/year, a bit less than your 72k to 84k/year target.

Social security will close that gap in 15 years +/-

Spousal income could cover for next <3 years...

But probably you want a little more...



Between 457 and deferred comp and cash you have ~6 years of expenses (be sure to include taxes and health insurance (if spouse quits working) in your budget)

Add that to a few years of work and you are at age 59.5


SamChav

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Re: Should I FIRE or Continue
« Reply #2 on: March 04, 2021, 08:48:48 PM »
Thank you very much. It makes sense.
I appreciate your time into this!

SamChav

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Re: Should I FIRE or Continue
« Reply #3 on: March 05, 2021, 07:38:14 AM »
Here is the blueprint. Any thoughts, comments are appreciated!

- flexible to go back to work, full or part time if things don't go well. Market Crash etc.

First 3 years
   Income
       - 100k/yr (SP Job)
       -  45/yr   ( 457 distrib. over 10 yrs @ 7% RR, St. Bal=330k)
    ---------------------
   Total: 145

   ~Deductions
       -  ~7k   (FICA)
       - 23k (Fed & State taxes)
       - 10K (Hlth Ins + HSA, 7k)
     ----------------------------
     Total: 40k

    Net Income: 104 k /yr      
 
    Marginal Tax Rate: 22%

  Next 6 years

     Income
        - 45k/yr   ( 457 distrib. over 10 yrs @ 7% RR, Starting Bal=330k)
        - 20k /yr  (Taxable account, expected to be tax free)
        - 20k /yr   (Freelance work)
        - 35k /yr  (IRA St. Bal= ~1700k, 15k collg tution, no penalty | 20k w/  penalty )
     -------------------
     Total: 120k

     Deductions
         - <1k (FICA)
         -  <11k (Fed, State taxes, 10% EW penalty)
         -  ~ 12k (ACA prem. + HSA contrib. (7k) )
     ---------------------------
      Total: 24k

    Marginal tax : 12%

    Net Income : 96k

 59.5 and beyond
     - Kids out of college
     - Scale down. Expenses relatively much lower
     - Pay off Mtg & other loans if possible
     - Re-retire and revise withdrawal rate.

     Income
        -  80k (~ IRA St. Bal = 2000k  @ 4% SWR)
        -  Explore Roth conversions etc.
        -  Begin social security @ 62 (low life expectancy in the family)

gocurrycracker

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Re: Should I FIRE or Continue
« Reply #4 on: March 07, 2021, 06:53:26 AM »
Have you experimented with cfiresim?
https://cfiresim.com/

You can enter all of your data into it and get a confidence number / success rate. What is that number?

SamChav

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Re: Should I FIRE or Continue
« Reply #5 on: March 07, 2021, 07:08:12 PM »
I put in the numbers in cFiresim. It's reassuring! Hope I did it right :). Thanks for the suggestion. Used firecalc in the past but not this one before.

In simulations, I used variable spending option, couldn't figure out of any other way to accommodate variable withdrawal amounts, first 3, then 6 years and thereafter.

Please let me know if there are better ways/inputs running these simulations

Sim 1
  Variable Spending Inputs:
       Portfolio value: 1800k, Spending Ceiling : 145k, Floor: 100k, Inflation Type: CPI Historical, Z-value: 0.5

   Other inputs:
       Social Security @ 62 yrs w/ 50% spousal benefit, part time 20k income for 6 years

        Success Rate: 100%
 

Sim 2
  Variable Spending Inputs:
       Portfolio value: 1800k, Spending Ceiling : 145k, Floor: 120k, Inflation Type: CPI Historical, Z-value: 0.5

   Other inputs:
       Social Security @ 62 yrs w/ 50% spousal benefit, part time 20k income for 6 years

        Success Rate: 94.96%

Thank you again Jeremy, appreciate it!

gocurrycracker

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Re: Should I FIRE or Continue
« Reply #6 on: March 08, 2021, 12:48:19 AM »
The variable spend option changes your spending based on market conditions. If the portfolio goes down, you spend less... whether that's what you really wanted or not. This of course makes the success rate higher.

To model the plan as you described it, better is to use the inflation adjusted spending plan and then add Adjustments

So you could do something like a planned 80k inflation adjusted spending plan, and then an adjustment for the first 3 years, an adjustment for next 6 years, etc...

SamChav

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Re: Should I FIRE or Continue
« Reply #7 on: March 08, 2021, 09:24:48 AM »
I made changes accordingly and re-ran it. Success rate is still 100% even after removing part time job for 6 years. That was interesting!  Stocks - 75%, Bond - 20% , Cash - 5% using all historical data available.

Btw, that's agood way to factor in variability in the withdrawals, 3, 6 yrs... Thank you.

 
Questions
1. Based on the results, does it make sense to spend up a little more?

2. Besides roth conversions, any other ways to tax optimize estate for kids?

Thanks
« Last Edit: March 10, 2021, 12:12:40 PM by SamChav »

gocurrycracker

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Re: Should I FIRE or Continue
« Reply #8 on: March 08, 2021, 04:44:12 PM »
A couple tweaks:

The 457 is already included in your net worth, so don't add it as income with an Adjustment
Spouse income for first n years is after-tax, so change to ~70k
Assume everything else checks out (health insurance costs, taxes, etc... already included in the 84k annual spend)

This changes things a bit, now with ~96% success rate. All failures in the 1960s cohort, described here:
https://www.gocurrycracker.com/the-worst-retirement-ever/


(the original 4% rule also had a 96% success rate...)

You can increase spending and rerun the simulation and see how that impacts things ($94k spending drops success rate to 86%, etc...)


For inheritance, see: https://www.gocurrycracker.com/the-secure-act-compression-of-the-stretch-ira/
Options limited - spend more, bequeath less, Roth conversions
« Last Edit: March 08, 2021, 05:05:32 PM by gocurrycracker »

SamChav

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Re: Should I FIRE or Continue
« Reply #9 on: March 10, 2021, 12:11:51 PM »
Thank you very much for your help!