Help with walk away decision? UPDATED

[m139115]

Hey guys, thanks in advance for observations and insights on the following. I follow the forum daily but have yet to ask for advice. Enjoy the forum and recently followed a thread on guitars and purchased the Seagull S60 and am truly enjoying it! So moving on.

Emergency funds: Included with Cash
Debt: Mortgage $150,000 on $700,000 home with 3.25% 7 year ARM (just refinanced so 30 year amortization)
Tax Filing Status: Married filing jointly
Tax Rate: 33 to 36 % Federal and 7% State
State of Residence: South Carolina
Age: His 54 / her 52
Desired Asset Allocation approx 60 stocks/40 bond, excluding cash
Desired International Allocation 20 to 30%

Cash/Emergency Fund $300,000
(I know way too much) 1/3 in CDs 2/3 in checking yeilding nothing but all FDIC insured

Current Portfolio:
Joint Taxable Account $1,450,000 at Fidelity
FNMIX Fidelity New Markets Income (Margin) 2.8%
FSEVX Spartan Extended Market Index Fid Adv Class (Margin) 17%
FSICX Fidelity Strategic Income (Margin) 2.8%
FTABX Fidelity Tax-Free Bond (Margin) 5.5%
FTEXX Fidelity Municipal Money Market 0.9%
FUSVX Spartan 500 Index Fd Advangage Class (margin) 31.8%
HIINX Harbor International Investor Shares (Margin) 10.3%
1 large cap individual stock 6.6%
SIMBX Wells Fargo Inter Tax/Amt Free Inv (Margin) 22.3%

Tax Advantaged
His Roth IRA at Fidelity
FLPSX Fidelity Low Priced Stock $16,000

Her IRA at Fidelity
1 large cap individual stock (same as above previous employer) $9,000

His IRA $1,400,000
VGSLX Vanguard REIT Index Fund Admiral Shares 5%
VBTLX Vanguard Total Bond Market Index Fund Admiral Shares 36%
VTIAX Vanguard Total International Stock Index Fund Admiral Shares 19%
VTSAX Vanguard Total Stock Market Index Fund Admiral Shares 40%

His 401K $270,000 managed by Schwab
US total Bond fund 38.9%
S&P 500 Equity fund 32.6%
Large Cap (tracks Russell 1000) 6%
Int'l stock (tracks MSCI EAFE) 12.5%
Small Cap (tracks russell 2000) 10%
These funds are blackrock and all fees are funded by employer so zero

Deferred Comp
VWZLX $126,000 gross
Will receive the following year of when I quit

Additional Real Estate
House out of state $80,000 mortgage free currently on the market
Real Estate Investment in Texas $50,000 Hopefully will provide at least 5% return per annum

Estimated living expenses (including $1,000 per month health insurance estimate) is $8,500 per month. LTCI not considered.

Pensions Both his:
First is $5,000 per month at 65 or $3,000 per month at 55
Second is $1,500 per month at 65

Additional bonuses of $170,000 to $200,000 disbursed between March and June (if employed). Figure is after taxes and fully funding 401K for the year including make up amounts.

Also a company stock account worth approximately $40,000. (consider this an international investment). fully vested.

Questions:
Are there any glaring investment recommendations other than the excessive cash amount.
How would you handle bonuses and potentional real estate proceeds? Pay off current mortgage and invest remaining or invest all?
MY thought on taxes is to not wait until RMD's on tax advataged but actually consider rule 72t disbursements to manage taxes to lowest rates starting as early as next year. Thoughts?
Also my calculation is that I would be ahead by not taking pension until 65 only if I live past 83. I enjoy cigars and Harleys so I am inclined to take asap.
Bottom line, would the group be comfortable walking away in July when I turn 55?

Thank you in advance.

[DaveS]

I prefer BMW motorcycles. I paid of all debt before retiring. I think you have enough, but being debt free makes a difference. I don't know what all the alphabet soup is for your funds so I don't have any investment advice for you. Dave

[m139115]

DaveS, thanks for your remarks. Appreciate you taking a look. For you and any others who might take a look at my information, I have now included the names of the funds/stocks, instead of symbols only. Should have included that from the beginning....my oversight! Hope this clarifies! Thanks again for your input. Would appreciate any input or suggestions.

[FrugalInvestor]

Deleted

[TomatoTomahto]

In many ways, your situation isn't all that different from mine (more accurately, my wife, who is the the one still working). When I ask her if she'd be comfortable stepping away, she says that maybe we should give it a couple more years. It's obviously not just the money. So, how would you feel about stepping away in July. The money, while not infinite, is the least of your worries.

[kenschmidt]

You have somewhere in the neighborhood of $3.8 million of liquid assets if I added correctly. I did include the $200k or so of bonus. I'd stick around for that I think.

You have expenses projected in retirement of around $5500/mo if you take the $3k pension at 55, which, given the projections made, seems to make sense to take at 55 in my opinion. $5500/mo is $66k/yr.

Based on this, your withdrawal rate is around 1.7%, which seems very sustainable and allows you to increase your withdrawal amount to account for reasonable inflation and reasonable economic scenarios in the future - i.e., you are probably in pretty good shape barring any sort of economic Armageddon.

Your portfolio looks solid to me.

I'd have an engineer double check the numbers as I am more of a forest guy, but you seem like a great early retirement candidate to me!

Ah, and welcome to the forum!

[Watty]

MY thought on taxes is to not wait until RMD's on tax advataged but actually consider rule 72t disbursements to manage taxes to lowest rates starting as early as next year. Thoughts?

Is there some reason you could not just roll the same amount into a Roth and wouldn't that generate the same taxes?


Also look at the RMD actual numbers. They only start out at about 3% and don't get real high until you are in your 90's.

[btenny]

You need to take a very careful look at your projected expenses going forward including medical insurance separate from your employer. Do you have any idea what your medical insurance expenses will be if you retire? How about your wifes medical insurance costs if she retires? Have you figured in BIG inflation in medical insurance costs? Mine went from $150/month in 1999 to $850 in 12 years before I went on Medicare. What will yours do? Are you sure you can really get insurance if you pull the plug? Cigars and cycles will make the costs high! And it is a long time to self insure from 54 to 65 when you go on Medicare. What about kid expenses going forward? College? Elder parent expenses?

Do you have a good handle on what you want to do in retirement? Hobbies that take a lot of time or money? A second career? What are you going to do all day if you are retired and your wife is still working? This is as important as the money. Staying home watching TV all day is not fun if that is all you can afford. Try to figure this out. Can you afford your hobbies or do you want to drive a $1M motor home around the country? Own a $1M second home in Vail or Val d'Isere? Drive to Sturgess on a $100k bike?

How are your pensions set up if one of you passes early? Does the surviving spouse receive the full amount of pensions? Some reduced amount? Do you have some plan to cover the gap like term life insurance?

How much if any Social Security income will you get at say 65? Your wife?

I am not sure if doing a rule 72t IRA withdrawal when you are 55 is good or not. I suspect it might work for you if both you and your wife retire so you both will have low income. That way you can use the 72t monies for a IRA to Roth conversions for a few years before you start your pensions at say 60. I don't know if this is legal but you need to check with a CPA/tax guy and then do some detail financial forecasting to see if this will work out. I would also do some forecasting to use your taxable money for a few years to say 64ish to cover your expenses and then take your pensions. Then you can also do a IRA to Roth conversion from 59.5 to 64 with a good portion of your funds. Then when you hit 64 you can take your pensions and SS and live on that money and not spend much of your tax free money. This is a lot of "What If" evaluations so maybe you want to hire a Fee Only financial planner who can help you evaluate the alternatives and tax issues, your choice.

As far as your investments I am not sure. There are too many small amounts for me to see the allocations. Try to consolidate this data to a Morningstar like box chart with bonds and types of stocks etc...

Well I have ask a lot of questions and not answered many but you are on the right track. Keep going and educate yourself.

I know I retired early and had to do all these trade offs and studying in retirement. It worked out for me. I am sure it will work out for you as well. But I would try to do these evaluations now before your retire if possible. You are close.

Good Luck
Bill

[interplanetjanet]

I don't see paying off your mortgage or not making all that much difference to you. The debt is a small portion of your total portfolio and I can't see it creating any real problems for you; similarly while it's potentially an inflation hedge it's a small enough one to not make much of a difference.

Pay it off if you want to and if it will make you feel better. You don't need any more rationalization than that, in your position.

[Boglenaut]

If I were in your situation, I'd retire immediately unless I loved work just for the sake of work or couldn't stop spending.

[m139115]

In many ways, your situation isn't all that different from mine (more accurately, my wife, who is the the one still working). When I ask her if she'd be comfortable stepping away, she says that maybe we should give it a couple more years. It's obviously not just the money. So, how would you feel about stepping away in July. The money, while not infinite, is the least of your worries.

Thank you for the financial affirmation. As to what is next (if I go) that is unclear but would involve making less but owning my schedule along with several hobbies. Maybe even a new business. Currently sorting through those questions.

kenschmidt Thanks as well. The spending is a net number and pension is before tax so a little different but close.

Watty - I do not understand ROTH conversions versus RMD's. Will make an appt with a CPA and get a clear answer. Thank you for your review.
btenny - all great thought provking questions, which I was hoping to get from this forum. As to projections, I do get an annual financial planning review fron Vanguard and Fidelity. Based on their advice the $1,000 monthly health care seems like a good starting point. Spouse is out of the workforce. As to hobbies, I will enjoy what I have been able to save but will never go too crazy with spending. Was also fortunate enough to send children to college out of current income at the time.

interplanetjanet - will probably pay off mortgage to avoid the indecision of how and when to invest the lump sum! Thank you.

Boglenaut - Actually love the work and people, just hate the "clock" and what has become excessive travel. Thanks for weighing in.