Author Topic: Taking the dive is terrifying!  (Read 1414 times)

dvorak

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Taking the dive is terrifying!
« on: November 16, 2021, 11:22:46 PM »
Hi Everyone.
I want retire from teaching at a college. Itís been a great career but itís time for me to leave. Iím 50. I hope to leave in June 2023 at just shy of 52.
I am comfortably living off about 40K/yr now but hope to spend more like 50k-60k/yr in the first decade of retirement. I want to maximize spending (and do more charitable giving) while I still feel good (and do some things I have denied myself to this point) so plan to taper spending as I age. Iíd rather scrape by when I am older and I donít want to move any more. I am very physically active and spend a lot time exercising and doing outdoor activities. I will be paying more for an ACA plan than my excellent school insurance but Iím thinking I can get a decent plan for 600-800/mo. And I may sell my home in Oregon (invest most of the money) and use some of the money to buy a van for travelling the West (and staying with family and friends periodically) for a year or two before settling down somewhere in the west (CO, UT or NV) with lower state taxes and closer to family. Iíd likely live in a modest condo or small house that is not in a big city. I did a lot of international travel when I was younger and got that out of my system so local travel to outdoor destinations will be mostly what I do. I also have no kids and hope to spend most of my money by the time I die. The book ďDie with ZeroĒ speaks to me. 😊
Assets at 52 (including additions @6% growth):
ē   IRA/403b/IAP (rolled upon quitting in one IRA): 615K
(50% VTSAX, 25% VBTLX, 25% REIT & DIV Index funds)
ē   Inheritance IRA: 150K
(100% VTSAX)
ē   457: 61K
(100% Lg Cap Index)
ē   Roth: 32K
(100% VTSAX)
ē   Brokerage: 83K
(50% VTSAX, 50% VBTLX)
ē   HSA: 15K
(100% VTSAX)
ē   Home equity: 300K
Two Pensions (with COLA)
ē   #1: 1050/mo starting at 62years old
ē   #2: 1050/mo starting at 65
SS (using the ďMy PIAĒ calculator):
ē   1850/mo starting at 70
My plan upon quitting is to withdraw in the following way:
IRA: 30,000
Inheritance IRA: 10,000
457: 10,000
Roth: 7,000
Brokerage: 6,000
Total: 63,00-->After taxes: 54,094
IRA penalty: -3,000 (Ouch! I know! But the SEPP doesnít give me enough money (especially if I split it into two IRAs) and doesnít allow flexibility for extra withdrawals or Roth rolloversÖand I still should have plenty of money even with penaltiesÖ I think)

I will use the bonds when the market is low and stocks if it is high. And probably move a year (or two?) into cash soon.
Questions:
ē   Is the plan sound? My calculations show plenty of money but I keep doubting I havenít made a huge error somewhere.
ē   Are my allocations ok? Do I need more in bonds and cash?
ē   Is the withdrawal strategy reasonable?
ē   Can spend more money earlier? (I do want die with no money after all!)

Iím learning that saving is easy, itís taking the leap and figuring out how to spend it that is truly terrifying!
Thanks in advance for any thoughts!

gocurrycracker

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Re: Taking the dive is terrifying!
« Reply #1 on: November 18, 2021, 09:20:08 AM »
Your 2 pensions and SS provide a combined $50k/year, which is less than your target cost of living.

You also have $1.25KK, roughly. At 4% withdrawal rate that puts you at $50k/year.

To die with zero, technically you could spend 100% of your savings between retirement and when you start SS.
Just using age 65 for all annuities for simplicity, that is 13 years from the portfolio or about $100k/year to drive then to zero. You could get a very nice van.


Asset allocation - maybe you are at 60/40 stock/bond split just at a glance. If you think of your pensions as additional bond allocation, you are overweight bonds.


I would tweak the withdrawal plan. Nothing says you can't withdraw more from the inherited IRA and there is no penalty for doing so. So draw that down first instead of paying a penalty on withdrawals from your own IRA.

Same with the 457. With no early withdrawal penalty, drawn that down to zero next.
Combine with the brokerage account so you don't go into the 22% tax bracket (total ordinary income less than ~$53k.)
Or better yet, combine with brokerage account and house sale to keep yourself in the <10% tax bracket (ordinary income < $22.5k)

Assuming 50% of the money you withdraw from the brokerage account is a capital gain, you now have a $1k/year tax bill (instead of $4k), annual premiums for an ACA silver plan of $2000 (instead of ~$7k+) and a penalty of $0 (instead of $3k.)

This gets you to age 59.5 upon which you have zero restrictions.


Summary:
Withdraw $22.5k from Inherited IRA and then 457
Withdraw $27.5k from brokerage (assume half as return of capital / half as long-term capital gain)
Available after tax of $1k: $49k
Available after ACA premiums: $47k (equal to pension+SS)
« Last Edit: November 18, 2021, 09:54:17 PM by gocurrycracker »

dvorak

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Re: Taking the dive is terrifying!
« Reply #2 on: November 19, 2021, 08:35:28 AM »
This is incredibly helpful, Jeremey! Thanks so much. I am so impressed with how dialed in you are with every detail.

Of course, holding off on the IRA while I empty the Inheritance IRA and 457 make total sense. And trying to get the lowest tax bracket and especially the lowest MAGI for the ACA saves a lot of money too. I havenít thought enough about the ACA savings. And I am regretting my lack of brokerage and Roth funds to help offset the taxable funds I have saved.

So, Iíve been going over my spreadsheet with these new ideas and adjusting all the variables to see various outcomes of taxes, penalties, ACA costs, accumulating funds and depleting funds. And Iím fretting over keeping money from the house sale for a future down payment or using it to buy a van outright (or should I finance the van?) or dumping into the brokerage so I can use it to keep the MAGI down as long as possible. And then my eyes wander to the total value of the portfolio over time and I can see that only spending 49K a year will never get me to die with zeroÖor anywhere even close. Iíll be so busy saving several thousand dollars a year that Iíll end up with an oversized portfolio while  withhold from myself some the possibilities of reaping enjoyment from spending a bit more.

And so Iím back to the odd conundrum of being a lifelong frugal saver who canít seem to see that at some point I need to stop skiing up hill; that itís ok to turn around and glide down, to reap the rewards of that money I have earned to buy experiences, and even some material things, after years of hard work saving it all up. Will it raise my MAGI and make my insurance more costly? Yes. Will my taxes be higher? Yes. Will my portfolio decrease? Yes. But isnít that the point? Didnít I do all this to get this exact freedom?

And Iím further tormented over the reality that each year forward will get harder physically and cognitively and that many great experiences that I could enjoy now with my money, which I earned at great sacrifice, have a limited time to be accomplished. And perhaps I should do the hard work of de-accumulation and pay a few more taxes, shell out more for health insurance, and pay a few penalties here and there so I can realize some of those opportunities that are fast disappearing.

So, now Iím starting to say to myself, try this: spend 70 or 75K for a year for a year or two and see what parts you enjoy and hate. Evaluate the portfolio at that point and decide how to proceed. I think I can find the sweet spot that way and settle in.  And then I chuckle as I think, ok if I spend 75K a year, how can I minimize my taxes? How can get my MAGI down? Should I start rolling into Roths? Should I keep putting money into my HSA? What about capital gains and loss harvesting? So, I guess it doesnít matter what I free myself to spend, I will fret none the less. Ha! I guess we can never escape our true selves.

In the end, what I likely will do is splurge in some years, spend done down the portfolio for experiences, and then toggle back on others (likely in response to the market). And I will never actually get to zero, but I would like to see the portfolio get cut in half or less before entering the full pension and SS stage. That way I have a cushion for emergencies and some peace of mind but know I enjoyed my savings. I suspect at 70 and beyond Iíll have slowed considerably and not need nearly what I will in my 50s.

What I do know for sure after reading so much on this website and reading the forums is that Jeremy is a savant with all he knows, and a mensch with all he shares. Itís a pretty incredible resource.  Thank you, sir. Iím planning to apply soon for an individual consult to find a strategy for hitting that sweet spot.


gocurrycracker

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Re: Taking the dive is terrifying!
« Reply #3 on: November 25, 2021, 09:42:11 PM »
Happy to help :)

I think your take that spending more is just fine and that paying more in taxes / health insurance premiums is also fine is a very healthy and reasonable perspective