I am being asked to retire. Am I ready?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Topic Author
GuyNearRetirement
Posts: 25
Joined: Fri Aug 30, 2019 1:35 pm

I am being asked to retire. Am I ready?

Post by GuyNearRetirement » Sun Sep 22, 2019 11:52 am

My company is laying people off with a generous severance package. I'm one of the "lucky" winners. I'm trying to decide if this means I should just retire. Here's where I'm at financially after the severance and taxes:

Average Monthly Expenses (based on 3 year look back plus anticipated health insurance): $9,800
Monthly expense figure does not include income taxes but does include property and sales taxes.

Emergency funds: $60,000 in Money Market

Debt: None. No mortgage. No car loans. Only debt is on credit cards which are paid off in full every month

Tax Filing Status: Married Filing Jointly

Tax Rate: 32% Federal last year, 0% State

State of Residence: Florida

Age: Me - 54, Spouse - 55

Desired Asset allocation: 60% stocks / 40% bonds (open to advice on this)

Current retirement assets

Taxable
$568,000 14% cash (Much of this will be from severance. Need to invest)
$293,000 7% VTSAX (Total Stock Market)

My 401k
$1,141,000 28% VTSAX (Total Stock Market)

My Roth IRA
$344,000 8% VTSAX (Total Stock Market)
$ 56,000 1% VTIAX (Total International)

My IRA
$ 50,000 1% VTSAX (Total Stock Market)
$173,000 4% VBTLX (Total Bond Market)
$170,000 4% VTIAX (Total International)

Spouse Roth IRA
$285,000 7% VTSAX (Total Stock Market)

Spouse Inherited IRA
$38,000 1% VTSAX (Total Stock Market)

Health Savings Account
$77,000 2% FSKAX (Total Stock Market)
$ 2,000 0% Cash

Pension Lump Sum
$937,000 23% (To be received in 1/2020 and rolled into an IRA)

Ignoring the emergency fund and treating the pension as a bond, I get the following allocation:
$2,228,000 54% US Equities
$ 226,000 5% Intl Equities
$1,110,000 27% Bonds
$ 568,000 14% Cash/Money Market

Breakdown by tax category:
$ 861,000 21% Taxable
$2,509,000 61% Pre-tax
$ 685,000 17% After-tax
$ 79,000 2% HSA

Grand Total: $4,134,000

My Projected SS: $2,731 at Age 67
Spouses Projected SS: $667 at Age 62, $1,366 (half of mine) at age 68

House Value: $450,000, but no intent to sell or move for the foreseeable future

If $9,800 in monthly seems unusually high or low for this portfolio, what would you recommend as a reasonably conservative withdrawal rate. Roughly $6,000/month of that is "non-discretionary" with the remaining $3,800 being discretionary. Of course, we could cut the non-discretionary if we truly had to.

Thanks in advance. I'd appreciate anything from a quick spitball analysis to something more detailed or pointers on the best way to do the detail analysis myself. I'd like to think that I'm not stupid, just a little ignorant about this retirement stuff.
Last edited by GuyNearRetirement on Sun Sep 22, 2019 12:56 pm, edited 1 time in total.

User avatar
bertilak
Posts: 6922
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: I am being asked to retire. Am I ready?

Post by bertilak » Sun Sep 22, 2019 11:56 am

Looks comfortable to me. A $5M nest egg (includes your lump sum incentive) with no debt lets you do just about whatever you want. Take the money and run!
Last edited by bertilak on Sun Sep 22, 2019 11:58 am, edited 2 times in total.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

User avatar
unclescrooge
Posts: 3979
Joined: Thu Jun 07, 2012 7:00 pm

Re: I am being asked to retire. Am I ready?

Post by unclescrooge » Sun Sep 22, 2019 11:57 am

On the surface 3% of $4 million is $120k so you're good to go! 👍

What does the non discretionary include? Mortgage and car payments?

User avatar
Kenkat
Posts: 5354
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: I am being asked to retire. Am I ready?

Post by Kenkat » Sun Sep 22, 2019 12:00 pm

You have enough to go ahead and retire if that’s what you want.

Ferdinand2014
Posts: 840
Joined: Mon Dec 17, 2018 6:49 pm

Re: I am being asked to retire. Am I ready?

Post by Ferdinand2014 » Sun Sep 22, 2019 12:06 pm

I am jealous. For someone who says they are ignorant about investing, you did about everything perfect.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

HomeStretch
Posts: 2940
Joined: Thu Dec 27, 2018 3:06 pm

Re: I am being asked to retire. Am I ready?

Post by HomeStretch » Sun Sep 22, 2019 12:10 pm

Your expenses are < 3% withdrawal rate now and < 2% when you claim SS income. Your portfolio should last for a long time perhaps in perpetuity.

Does $9,800 / month include income taxes, healthcare expenses (which may be a lot higher in retirement until Medicare-eligible) and lumpy expenses (i.e., new car, new roof, etc.)? If not, then I suggest you relook at your expenses. If you can keep your withdrawals at or under 3-3.5% until age 65-70 and at or under 4% thereafter, you are still good to go.

Spend some planning time “optimizing”. It may be better to wait until age 70 to claim SS to maximize your COLA SS benefit and give you time to do Roth conversions. Check your SS claiming strategy at opensocialsecurity.com. Analyze whether Roth conversions make sense. Consider if you can qualify for subsidies for ACA healthcare coverage. See if you can avoid Medicare additional premiums due to IRMAA. Etc.

Best of luck!
Last edited by HomeStretch on Sun Sep 22, 2019 12:59 pm, edited 1 time in total.

cherijoh
Posts: 6357
Joined: Tue Feb 20, 2007 4:49 pm
Location: Charlotte NC

Re: I am being asked to retire. Am I ready?

Post by cherijoh » Sun Sep 22, 2019 12:14 pm

GuyNearRetirement wrote:
Sun Sep 22, 2019 11:52 am
Average Monthly Expenses (based on 3 year look back plus anticipated health insurance): $9,800

Emergency funds: $60,000 in Money Market

Age: Me - 54, Spouse - 55

Desired Asset allocation: 60% stocks / 40% bonds (open to advice on this)

Current retirement assets

Taxable
$568,000 14% cash (Much of this will be from severance. Need to invest)
$293,000 7% VTSAX (Total Stock Market)

My 401k
$1,141,000 28% VTSAX (Total Stock Market)

My Roth IRA
$344,000 8% VTSAX (Total Stock Market)
$ 56,000 1% VTIAX (Total International)

My IRA
$ 50,000 1% VTSAX (Total Stock Market)
$173,000 4% VBTLX (Total Bond Market)
$170,000 4% VTIAX (Total International)

Spouse Roth IRA
$285,000 7% VTSAX (Total Stock Market)

Spouse Inherited IRA
$38,000 1% VTSAX (Total Stock Market)

Health Savings Account
$77,000 2% FSKAX (Total Stock Market)
$ 2,000 0% Cash

Pension Lump Sum
$937,000 23% (To be received in 1/2020 and rolled into an IRA)

Ignoring the emergency fund and treating the pension as a bond, I get the following allocation:
$2,228,000 54% US Equities
$ 226,000 5% Intl Equities
$1,110,000 27% Bonds
$ 568,000 14% Cash/Money Market

Breakdown by tax category:
$ 861,000 21% Taxable
$2,509,000 61% Pre-tax
$ 685,000 17% After-tax <-- After tax is something different; Roth is Roth; I suggest editing your post
$ 79,000 2% HSA

Grand Total: $4,134,000

My Projected SS: $2,731 at Age 67
Spouses Projected SS: $667 at Age 62, $1,366 (half of mine) at age 68

House Value: $450,000, but no intent to sell or move for the foreseeable future

If $9,800 in monthly seems unusually high or low for this portfolio, what would you recommend as a reasonably conservative withdrawal rate. Roughly $6,000/month of that is "non-discretionary" with the remaining $3,800 being discretionary. Of course, we could cut the non-discretionary if we truly had to.

Thanks in advance. I'd appreciate anything from a quick spitball analysis to something more detailed or pointers on the best way to do the detail analysis myself. I'd like to think that I'm not stupid, just a little ignorant about this retirement stuff.
You are in excellent shape IMO. I retired in 2018 at 59 with lower expenses but also with lower balances. There are a slew of retirement calculators. You can find a list in the Boglehead Wiki. I know FIRECalc and i-ORP are popular here along with an Excel spreadsheet put together by a Boglehead member whose name escapes me.

How is your severance being paid out - one lump sum, biweekly, other? When would this be effective? I would try and see if there was any way not to take the entire separation pay in 2019.
Last edited by cherijoh on Sun Sep 22, 2019 12:18 pm, edited 1 time in total.

cherijoh
Posts: 6357
Joined: Tue Feb 20, 2007 4:49 pm
Location: Charlotte NC

Re: I am being asked to retire. Am I ready?

Post by cherijoh » Sun Sep 22, 2019 12:16 pm

bertilak wrote:
Sun Sep 22, 2019 11:56 am
Looks comfortable to me. A $5M nest egg (includes your lump sum incentive) with no debt lets you do just about whatever you want. Take the money and run!
I think pension lump sum is already included in the $4.1M figure.

retiredjg
Posts: 38469
Joined: Thu Jan 10, 2008 12:56 pm

Re: I am being asked to retire. Am I ready?

Post by retiredjg » Sun Sep 22, 2019 12:34 pm

I think you are ready.

Since your retirement may be quite long, I don't think you can just go your merry way with little thought from year to year. I do think you'll need to keep an eye on things and there might be years that you'll need to cut back.

I think this because it seems that your $9,800 a month (about $118k a year) does not include taxes. Including taxes gets you closer to a 3.5% withdrawal rate.

We don't really know what withdrawal rate will work for a very long retirement. It probably should work based on the past, but there is no guarantee the future will look like the past.

mindboggling
Posts: 323
Joined: Sat Sep 06, 2014 6:35 pm
Location: Upstate NY

Re: I am being asked to retire. Am I ready?

Post by mindboggling » Sun Sep 22, 2019 12:41 pm

Take it. Take it right now. You can always find something else to do if you really want to.
In broken mathematics, We estimate our prize, --Emily Dickinson

stan1
Posts: 7724
Joined: Mon Oct 08, 2007 4:35 pm

Re: I am being asked to retire. Am I ready?

Post by stan1 » Sun Sep 22, 2019 12:46 pm

Yes of course you can retire. Should be no debate, but since this is Bogleheads someone will write that its safer if you had another $xM.

I'd look at your expenses more closely to make sure more of them won't go away. Are you including any expenses that you incur because of work? For example many paycheck deductions aren't paid if you don't have income (FICA). Do you still need life insurance? If you aren't commuting will your gas and car costs go down? Will your clothing costs go down? Costs of meals out at work? Will you do some things around the house that you currently hire someone else to do?

Also: although you might not want to work again perhaps you would actually like to become a consultant and maybe your current employer would even come on board as your first client if you have good relations with them and they actually do need the expertise and "brain trust" being laid off? It doesn't need to be full time. I wouldn't rule this out especially if you think you'd like to keep professional relationships and work in your area of expertise but on your terms (you pick the client and the job, and have the ability to say no if it's not to your liking). Being financially independent helps you be choosy.

User avatar
ram
Posts: 1331
Joined: Tue Jan 01, 2008 10:47 pm
Location: Midwest

Re: I am being asked to retire. Am I ready?

Post by ram » Sun Sep 22, 2019 12:47 pm

Yes. You are financially ready.
Look into the other aspects of readiness.

You have $ 4 M (not counting SS)
Take 3% of it out every year and adjust it each year for inflation and you should have more than enough till age 100.
3% = 120K/yr in year 1. Think about where you will spend the extra 2K.

You do not need your SS money immediately. Think when is the best time to take it. Read "Social Security made simple" by Mike Piper ( available on Amazon)

Agree with using "Firecalc" and "iorp" calculators.
Ram

Topic Author
GuyNearRetirement
Posts: 25
Joined: Fri Aug 30, 2019 1:35 pm

Re: I am being asked to retire. Am I ready?

Post by GuyNearRetirement » Sun Sep 22, 2019 12:57 pm

bertilak wrote:
Sun Sep 22, 2019 11:56 am
Looks comfortable to me. A $5M nest egg (includes your lump sum incentive) with no debt lets you do just about whatever you want. Take the money and run!
The $4.1 number includes the severance.

Topic Author
GuyNearRetirement
Posts: 25
Joined: Fri Aug 30, 2019 1:35 pm

Re: I am being asked to retire. Am I ready?

Post by GuyNearRetirement » Sun Sep 22, 2019 1:00 pm

unclescrooge wrote:
Sun Sep 22, 2019 11:57 am
On the surface 3% of $4 million is $120k so you're good to go! 👍

What does the non discretionary include? Mortgage and car payments?
No mortgage. Paid off the house a few years ago.

It includes property taxes ($1,000/month), electricity, water, gas, food, insurance, automobile costs (fuel, service, replacement), cell phones, and that sort of stuff. It doesn't include more discretionary stuff like hobbies, travel, club memberships, charitable contributions, and anything we'd quickly be willing to drop in lean times. Obviously, we could cut some of our "non-discretionary" expenses like reducing electrical use, driving less, switching to cheaper phone plans, etc.

inbox788
Posts: 6661
Joined: Thu Mar 15, 2012 5:24 pm

Re: I am being asked to retire. Am I ready?

Post by inbox788 » Sun Sep 22, 2019 1:04 pm

HomeStretch wrote:
Sun Sep 22, 2019 12:10 pm
Does $9,800 / month include income taxes, healthcare expenses (which may be a lot higher in retirement until Medicare-eligible) and lumpy expenses (i.e., new car, new roof, etc.)? If not, then I suggest you relook at your expenses.
OP, I'm expecting mortgage, taxes, and healthcare to be the biggest expenses in retirement. With no mortgage and taxes expected to be lower in retirement, how are you reaching $6000/month in non-discretionary expenses? How much are you budgeting for health insurance? When Medicare kicks in, you''ll likely only need Medigap, which should be substantially lower. What are the next 3 biggest budgeted non-discretionary items and amounts?
Pension Lump Sum
$937,000 23% (To be received in 1/2020 and rolled into an IRA)
Is there an annuity option? Deferred annuity? You could always buy one on your own now or later, but occasionally I've seen some generous plans that might be worth considering.
Joint Life & Period Certain Options
Income Starts Immediately Est. Monthly Income $3,719

Joint Life & Period Certain Options
Income Starts in 10 Years Est. Monthly Income $5,792
https://www.immediateannuities.com/

Bone up on Roth Conversions and RMDs. Who are your beneficiaries?

https://www.bogleheads.org/wiki/Roth_IRA_conversion
https://www.bogleheads.org/wiki/Require ... uitization

Topic Author
GuyNearRetirement
Posts: 25
Joined: Fri Aug 30, 2019 1:35 pm

Re: I am being asked to retire. Am I ready?

Post by GuyNearRetirement » Sun Sep 22, 2019 1:06 pm

Ferdinand2014 wrote:
Sun Sep 22, 2019 12:06 pm
I am jealous. For someone who says they are ignorant about investing, you did about everything perfect.
Thanks. I've followed Boglehead principles for a long time. I've just been focusing on accumulation. The whole retirement thing was something I expected to be years away until some major shifts at work started earlier this year. It quickly went from a possibility to a probability to an almost certainty. I had hoped to work another 4-5 years, but I don't really want to start all over again at a new company.

I guess that's a good lesson learned. Over-prepare for retirement because you may not be the one that decides when it starts.

Topic Author
GuyNearRetirement
Posts: 25
Joined: Fri Aug 30, 2019 1:35 pm

Re: I am being asked to retire. Am I ready?

Post by GuyNearRetirement » Sun Sep 22, 2019 1:09 pm

HomeStretch wrote:
Sun Sep 22, 2019 12:10 pm
Your expenses are < 3% withdrawal rate now and < 2% when you claim SS income. Your portfolio should last for a long time perhaps in perpetuity.

Does $9,800 / month include income taxes, healthcare expenses (which may be a lot higher in retirement until Medicare-eligible) and lumpy expenses (i.e., new car, new roof, etc.)? If not, then I suggest you relook at your expenses. If you can keep your withdrawals at or under 3-3.5% until age 65-70 and at or under 4% thereafter, you are still good to go.

Spend some planning time “optimizing”. It may be better to wait until age 70 to claim SS to maximize your COLA SS benefit and give you time to do Roth conversions. Check your SS claiming strategy at opensocialsecurity.com. Analyze whether Roth conversions make sense. Consider if you can qualify for subsidies for ACA healthcare coverage. See if you can avoid Medicare additional premiums due to IRMAA. Etc.

Best of luck!
I think I probably will wait until 70 to collect SS. I haven't put too much thought into it because it is pretty far off and I wouldn't be surprised if they change the rules between now and then.

My BIL mentioned doing conversions from my iRAs to Roths before hitting 70 to take advantage of low tax rates. He's supposed to send me some spreadsheets that will help me understand that better.

HomeStretch
Posts: 2940
Joined: Thu Dec 27, 2018 3:06 pm

Re: I am being asked to retire. Am I ready?

Post by HomeStretch » Sun Sep 22, 2019 1:15 pm

GuyNearRetirement wrote:
Sun Sep 22, 2019 1:09 pm
My BIL mentioned doing conversions from my iRAs to Roths before hitting 70 to take advantage of low tax rates. He's supposed to send me some spreadsheets that will help me understand that better.
That sounds helpful. There is also a wiki page about Roth conversions here: https://www.bogleheads.org/wiki/Roth_IRA_conversion. Plus there are a lot of past posts you can search on about the topic.

Lalamimi
Posts: 120
Joined: Mon Jun 24, 2019 4:22 pm

Re: I am being asked to retire. Am I ready?

Post by Lalamimi » Sun Sep 22, 2019 1:21 pm

Since you do not mention the wife working, nor does she have her own 401K, you will go on COBRA a year. Then you will have to self insure for 9 years. That needs to be factored in if not already. You can use the HSA money I believe to make those payments. I was laid off Mar 2018 at 64 but lucky the company paid our COBRA until we got on Medicare. We have found we spend a lot more on groceries with us both home. I agree, if you delay any of the package until January 2020, do so. You will want to travel, so toss in the cost for that in your budget. Have fun!
p.s. on converting, to Roth, wait until you are in the low tax bracket. We are at 8% this year with no employment income and not yet drawing SS.

btenny
Posts: 5144
Joined: Sun Oct 07, 2007 6:47 pm

Re: I am being asked to retire. Am I ready?

Post by btenny » Sun Sep 22, 2019 1:28 pm

You should retire now. You have saved a ton of money and are all set financially. Yes you will have to pay some attention to your spending and keep investing but you have plenty of money to last for your lifetime. SO let your company lay you off and give you that riff package. Talk to them and see if they can pay out that package over a few years rather than all at once so you do not pay giant taxes.

And as your BIL suggested study up on ROTH conversions. I bet you can do a bunch of conversions in the next few years to avoid big RMDs and big taxes and higher medicare costs due to high income in your 70s.

I also think you need to start thinking about what you want to do with your days and spare time in retirement. What kind of hobbies do you have? Are you a golfer, a world traveler or volunteer a bunch? The key is you will have lots of time to do stuff. Enjoy.

Good Luck.

User avatar
Christine_NM
Posts: 2699
Joined: Tue Feb 20, 2007 1:13 am
Location: New Mexico

Re: I am being asked to retire. Am I ready?

Post by Christine_NM » Sun Sep 22, 2019 1:37 pm

I looked at immediateannuities.com for an estimate with your profile. If you were to purchase an immediate annuity with your lump sum payment, $937k, then you could receive about $3800/month for both your lives. Inflationary costs would have to be covered from the portfolio. Inflation is more important to consider when retiring in 50's rather than 60's.

My quick check for "am I OK?" is to imagine stocks at half-value and see if I can still "make payroll" for the rest of retirement. That has kept me at less than half allocation to stocks and the rest in bonds and cash. The goal in retirement is to always have enough, not to grow the portfolio to maximum balance.

I do not count my pension as a bond. My employer annuitized my pension on retirement and I receive a monthly check -- same as if you were to buy an annuity with the pension lump sum.

You can do it financially. The bigger question is, what would you do with your time? Is work a big part of your identity? Would you look for other work? If you feel confident about the change in lifestyle then go ahead. I'm sensing doubt of some kind. Why would you have posted on BH if there were no lurking issues?
16% cash 48% stock 36% bond. Retired, w/d rate 2.85%

deikel
Posts: 885
Joined: Sat Jan 25, 2014 7:13 pm

Re: I am being asked to retire. Am I ready?

Post by deikel » Sun Sep 22, 2019 1:47 pm

retiredjg wrote:
Sun Sep 22, 2019 12:34 pm
I think you are ready.

Since your retirement may be quite long, I don't think you can just go your merry way with little thought from year to year. I do think you'll need to keep an eye on things and there might be years that you'll need to cut back.

I think this because it seems that your $9,800 a month (about $118k a year) does not include taxes. Including taxes gets you closer to a 3.5% withdrawal rate.

We don't really know what withdrawal rate will work for a very long retirement. It probably should work based on the past, but there is no guarantee the future will look like the past.

http://www.retailinvestor.org/pdf/Bengen1.pdf

We have a pretty good idea though, in the OPs case, the withdrawel is below 4% until SS and then with SS its way under - so Bengen would suggest it lasts for 50 years - statistically all the OP needs

...ready to go...
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.

deikel
Posts: 885
Joined: Sat Jan 25, 2014 7:13 pm

Re: I am being asked to retire. Am I ready?

Post by deikel » Sun Sep 22, 2019 1:52 pm

Back of the envelope, you are ready to go

and you have enough buffer to figure out the details as you go - after all, you are still young enough to do some other work, save money by applying your hours/work and/or shift down from expensive vacation times to cheaper off season ect - so many parameters that are in your favor.

It sucks being kicked out, but hey, you made it and it might be a blessing in disguise
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.

User avatar
Brianmcg321
Posts: 353
Joined: Mon Jul 15, 2019 8:23 am

Re: I am being asked to retire. Am I ready?

Post by Brianmcg321 » Sun Sep 22, 2019 2:38 pm

Take it and run.

:beer
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.

visualguy
Posts: 1602
Joined: Thu Jan 30, 2014 1:32 am

Re: I am being asked to retire. Am I ready?

Post by visualguy » Sun Sep 22, 2019 2:49 pm

GuyNearRetirement wrote:
Sun Sep 22, 2019 1:06 pm
The whole retirement thing was something I expected to be years away until some major shifts at work started earlier this year. It quickly went from a possibility to a probability to an almost certainty. I had hoped to work another 4-5 years, but I don't really want to start all over again at a new company.

I guess that's a good lesson learned. Over-prepare for retirement because you may not be the one that decides when it starts.
I don't know what field you're in, but if possible I would try to get those extra 4-5 years (or more) at a new company. You and/or your wife could live for another 40 years. That's a LONG time. 40 years ago was 1979 - think about it, and what it means both financially and in terms of spending your time.

Grt2bOutdoors
Posts: 21494
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: I am being asked to retire. Am I ready?

Post by Grt2bOutdoors » Sun Sep 22, 2019 2:51 pm

You’ve won the game. Enjoy your retirement!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

User avatar
whodidntante
Posts: 6695
Joined: Thu Jan 21, 2016 11:11 pm
Location: outside the echo chamber

Re: I am being asked to retire. Am I ready?

Post by whodidntante » Sun Sep 22, 2019 3:00 pm

No, sorry. Come back when you have some real money. :happy

Sand101
Posts: 17
Joined: Sat Jan 24, 2015 11:17 pm

Re: I am being asked to retire. Am I ready?

Post by Sand101 » Sun Sep 22, 2019 3:08 pm

Quick calculation - assuming your investments do nothing more than hold inflation at bay you can spend 120k per year until you're 100 and still have over 250k left. Just straight line spending with net 0 return - that's about as good as it gets. With your current allocation you'll almost assuredly have more issues spending it than making sure it doesn't run out.

StealthRabbit
Posts: 445
Joined: Sat Jun 13, 2009 1:25 am

Re: I am being asked to retire. Am I ready?

Post by StealthRabbit » Sun Sep 22, 2019 3:09 pm

$4m looks good for a dual earner age 55 exit, go for it (consider reducing expenses, but not required).

I did so at age 49 with much less than 1/2 your stash, and single earner + mortgage / no HC, no pension, ill spouse.

Worked out (still waiting out age 65...)

If you desire / need HC... you can be creative with MAGI and get an ACA subsidy (currently paying $3.31/ month for (2)) otherwise ~$2,200 / month.

Or use the other alternatives;
  • go overseas for HC as do 15m / yr (and many 'national HC Europeans' https://patientsbeyondborders.com/
    HC sharing networks (4+ in USA ~$500 / month / NOT insurance)
    Group plans
    Private pay
    Travel FT
    College / Continuing ed plans
    go without
Best wishes and congrats on a nice exit plan.

I have never been in want of something to do... (for an engaging retirement)
There are a million things and more if you start asking / helping others.

Mentoring / teaching adults / small businesses is a good 'hobby'

GuyInFL
Posts: 248
Joined: Thu Aug 04, 2016 7:17 pm

Re: I am being asked to retire. Am I ready?

Post by GuyInFL » Sun Sep 22, 2019 3:24 pm

GuyNearRetirement wrote:
Sun Sep 22, 2019 1:06 pm
I guess that's a good lesson learned. Over-prepare for retirement because you may not be the one that decides when it starts.
Excellent takeaway for the rest of us.

I think you are ready. Two items for consideration.
Consider delaying SS till 70.
Consider employer pension to the lump sum.

skeptical
Posts: 127
Joined: Fri Jul 18, 2014 12:24 pm

Re: I am being asked to retire. Am I ready?

Post by skeptical » Sun Sep 22, 2019 3:34 pm

You are in good shape, though you need to do some juggling with tax vs tax deferred/Roth

You do not need to pay fed taxes (if you do things right), and I don't think FL has state tax. You can convert a lot of IRA to Roth each year with little or no taxes, multiple tens of thousands.

Think of it this way: Set aside (mentally or physically) $650,000 to cover "SS" at $50K a year until 67, when you get the real SS.

That gives you a spend rate of $70K on $3.5M, which is 2% a year, less than the perpetual withdrawal rate, and you can live on basic dividends and interest. You can spend an extra $15K to $20K a year and still have a perpetual withdrawal rate.

You do not mention kids/heirs. You will leave a large estate with these numbers.

Trader Joe
Posts: 1269
Joined: Fri Apr 25, 2014 6:38 pm

Re: I am being asked to retire. Am I ready?

Post by Trader Joe » Sun Sep 22, 2019 3:56 pm

GuyNearRetirement wrote:
Sun Sep 22, 2019 11:52 am
My company is laying people off with a generous severance package. I'm one of the "lucky" winners. I'm trying to decide if this means I should just retire. Here's where I'm at financially after the severance and taxes:

Average Monthly Expenses (based on 3 year look back plus anticipated health insurance): $9,800
Monthly expense figure does not include income taxes but does include property and sales taxes.

Emergency funds: $60,000 in Money Market

Debt: None. No mortgage. No car loans. Only debt is on credit cards which are paid off in full every month

Tax Filing Status: Married Filing Jointly

Tax Rate: 32% Federal last year, 0% State

State of Residence: Florida

Age: Me - 54, Spouse - 55

Desired Asset allocation: 60% stocks / 40% bonds (open to advice on this)

Current retirement assets

Taxable
$568,000 14% cash (Much of this will be from severance. Need to invest)
$293,000 7% VTSAX (Total Stock Market)

My 401k
$1,141,000 28% VTSAX (Total Stock Market)

My Roth IRA
$344,000 8% VTSAX (Total Stock Market)
$ 56,000 1% VTIAX (Total International)

My IRA
$ 50,000 1% VTSAX (Total Stock Market)
$173,000 4% VBTLX (Total Bond Market)
$170,000 4% VTIAX (Total International)

Spouse Roth IRA
$285,000 7% VTSAX (Total Stock Market)

Spouse Inherited IRA
$38,000 1% VTSAX (Total Stock Market)

Health Savings Account
$77,000 2% FSKAX (Total Stock Market)
$ 2,000 0% Cash

Pension Lump Sum
$937,000 23% (To be received in 1/2020 and rolled into an IRA)

Ignoring the emergency fund and treating the pension as a bond, I get the following allocation:
$2,228,000 54% US Equities
$ 226,000 5% Intl Equities
$1,110,000 27% Bonds
$ 568,000 14% Cash/Money Market

Breakdown by tax category:
$ 861,000 21% Taxable
$2,509,000 61% Pre-tax
$ 685,000 17% After-tax
$ 79,000 2% HSA

Grand Total: $4,134,000

My Projected SS: $2,731 at Age 67
Spouses Projected SS: $667 at Age 62, $1,366 (half of mine) at age 68

House Value: $450,000, but no intent to sell or move for the foreseeable future

If $9,800 in monthly seems unusually high or low for this portfolio, what would you recommend as a reasonably conservative withdrawal rate. Roughly $6,000/month of that is "non-discretionary" with the remaining $3,800 being discretionary. Of course, we could cut the non-discretionary if we truly had to.

Thanks in advance. I'd appreciate anything from a quick spitball analysis to something more detailed or pointers on the best way to do the detail analysis myself. I'd like to think that I'm not stupid, just a little ignorant about this retirement stuff.
Yes, it is time for you to retire.

aristotelian
Posts: 6477
Joined: Wed Jan 11, 2017 8:05 pm

Re: I am being asked to retire. Am I ready?

Post by aristotelian » Sun Sep 22, 2019 4:01 pm

I would have retired 5-10 to ears ago. There is no financial reason for you to keep working.

User avatar
White Coat Investor
Posts: 14269
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth

Re: I am being asked to retire. Am I ready?

Post by White Coat Investor » Sun Sep 22, 2019 4:06 pm

GuyNearRetirement wrote:
Sun Sep 22, 2019 11:52 am
My company is laying people off with a generous severance package. I'm one of the "lucky" winners. I'm trying to decide if this means I should just retire. Here's where I'm at financially after the severance and taxes:

Average Monthly Expenses (based on 3 year look back plus anticipated health insurance): $9,800
Monthly expense figure does not include income taxes but does include property and sales taxes.

Emergency funds: $60,000 in Money Market

Debt: None. No mortgage. No car loans. Only debt is on credit cards which are paid off in full every month

Tax Filing Status: Married Filing Jointly

Tax Rate: 32% Federal last year, 0% State

State of Residence: Florida

Age: Me - 54, Spouse - 55

Desired Asset allocation: 60% stocks / 40% bonds (open to advice on this)

Current retirement assets

Taxable
$568,000 14% cash (Much of this will be from severance. Need to invest)
$293,000 7% VTSAX (Total Stock Market)

My 401k
$1,141,000 28% VTSAX (Total Stock Market)

My Roth IRA
$344,000 8% VTSAX (Total Stock Market)
$ 56,000 1% VTIAX (Total International)

My IRA
$ 50,000 1% VTSAX (Total Stock Market)
$173,000 4% VBTLX (Total Bond Market)
$170,000 4% VTIAX (Total International)

Spouse Roth IRA
$285,000 7% VTSAX (Total Stock Market)

Spouse Inherited IRA
$38,000 1% VTSAX (Total Stock Market)

Health Savings Account
$77,000 2% FSKAX (Total Stock Market)
$ 2,000 0% Cash

Pension Lump Sum
$937,000 23% (To be received in 1/2020 and rolled into an IRA)

Ignoring the emergency fund and treating the pension as a bond, I get the following allocation:
$2,228,000 54% US Equities
$ 226,000 5% Intl Equities
$1,110,000 27% Bonds
$ 568,000 14% Cash/Money Market

Breakdown by tax category:
$ 861,000 21% Taxable
$2,509,000 61% Pre-tax
$ 685,000 17% After-tax
$ 79,000 2% HSA

Grand Total: $4,134,000

My Projected SS: $2,731 at Age 67
Spouses Projected SS: $667 at Age 62, $1,366 (half of mine) at age 68

House Value: $450,000, but no intent to sell or move for the foreseeable future

If $9,800 in monthly seems unusually high or low for this portfolio, what would you recommend as a reasonably conservative withdrawal rate. Roughly $6,000/month of that is "non-discretionary" with the remaining $3,800 being discretionary. Of course, we could cut the non-discretionary if we truly had to.

Thanks in advance. I'd appreciate anything from a quick spitball analysis to something more detailed or pointers on the best way to do the detail analysis myself. I'd like to think that I'm not stupid, just a little ignorant about this retirement stuff.
$4M+? $120K+ taxes for expenses? Social Security coming in a decade? Yea, I think you're good. But you're not as crazy over the top good as a lot of people here asking this question. You'll want to remain flexible if there are poor returns the next 5 years.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

Bacchus01
Posts: 3182
Joined: Mon Dec 24, 2012 9:35 pm

Re: I am being asked to retire. Am I ready?

Post by Bacchus01 » Sun Sep 22, 2019 4:18 pm

You are ready.

Caligal
Posts: 61
Joined: Sun Oct 05, 2014 4:28 pm

Re: I am being asked to retire. Am I ready?

Post by Caligal » Sun Sep 22, 2019 4:33 pm

Another thing to consider - if you take the pension as a lump sum and roll into a traditional IRA - you will probably not be able to perform Roth conversions without paying quite a bit of tax due to the pro rata rule. Plus it looks like you already hold a traditional IRA as well which would add to this issue.

Other than that and a few details - you look good, and as others have stated - you can try out retirement and go back to work if you get bored or feel like you have too much time on your hands.

Topic Author
GuyNearRetirement
Posts: 25
Joined: Fri Aug 30, 2019 1:35 pm

Re: I am being asked to retire. Am I ready?

Post by GuyNearRetirement » Sun Sep 22, 2019 5:53 pm

inbox788 wrote:
Sun Sep 22, 2019 1:04 pm
HomeStretch wrote:
Sun Sep 22, 2019 12:10 pm
Does $9,800 / month include income taxes, healthcare expenses (which may be a lot higher in retirement until Medicare-eligible) and lumpy expenses (i.e., new car, new roof, etc.)? If not, then I suggest you relook at your expenses.
OP, I'm expecting mortgage, taxes, and healthcare to be the biggest expenses in retirement. With no mortgage and taxes expected to be lower in retirement, how are you reaching $6000/month in non-discretionary expenses? How much are you budgeting for health insurance? When Medicare kicks in, you''ll likely only need Medigap, which should be substantially lower. What are the next 3 biggest budgeted non-discretionary items and amounts?
Pension Lump Sum
$937,000 23% (To be received in 1/2020 and rolled into an IRA)
Is there an annuity option? Deferred annuity? You could always buy one on your own now or later, but occasionally I've seen some generous plans that might be worth considering.
Joint Life & Period Certain Options
Income Starts Immediately Est. Monthly Income $3,719

Joint Life & Period Certain Options
Income Starts in 10 Years Est. Monthly Income $5,792
https://www.immediateannuities.com/

Bone up on Roth Conversions and RMDs. Who are your beneficiaries?

https://www.bogleheads.org/wiki/Roth_IRA_conversion
https://www.bogleheads.org/wiki/Require ... uitization
There is an option for an annuity. For J&C 100%, it would pay $3,310. For J&C 50%, it would pay $3,516. For a single life, it would be $3,750. I've got two kids (daughter is 20, son is 18). I had planned on doing the annuity, but I was told that the annuity was surprisingly low compared with the lump sum.

Incidentally, I have separate accounts not listed above that cover their expected college costs and a buffer for those unexpected early adulthood expenses.

Topic Author
GuyNearRetirement
Posts: 25
Joined: Fri Aug 30, 2019 1:35 pm

Re: I am being asked to retire. Am I ready?

Post by GuyNearRetirement » Sun Sep 22, 2019 5:57 pm

Lalamimi wrote:
Sun Sep 22, 2019 1:21 pm
Since you do not mention the wife working, nor does she have her own 401K, you will go on COBRA a year. Then you will have to self insure for 9 years. That needs to be factored in if not already. You can use the HSA money I believe to make those payments. I was laid off Mar 2018 at 64 but lucky the company paid our COBRA until we got on Medicare. We have found we spend a lot more on groceries with us both home. I agree, if you delay any of the package until January 2020, do so. You will want to travel, so toss in the cost for that in your budget. Have fun!
p.s. on converting, to Roth, wait until you are in the low tax bracket. We are at 8% this year with no employment income and not yet drawing SS.
Health insurance is a concern. I can stay on the company plan for 2 years. After that, the plan is to go on an ACA plan. I've been told that, by keeping my taxable income low until 65, I can get a reasonable subsidy. I have $1,800/month planned for the insurance and medical expenses.

I don't expect our grocery bill to increase. My spouse loves to cook and already prepares a lunch for me each day. We rarely eat out today.

Travel costs will definitely increase (although we'll eventually lose the cost of the kids travel expenses) but I expect that to balance against other costs that go down.

Topic Author
GuyNearRetirement
Posts: 25
Joined: Fri Aug 30, 2019 1:35 pm

Re: I am being asked to retire. Am I ready?

Post by GuyNearRetirement » Sun Sep 22, 2019 5:59 pm

Caligal wrote:
Sun Sep 22, 2019 4:33 pm
Another thing to consider - if you take the pension as a lump sum and roll into a traditional IRA - you will probably not be able to perform Roth conversions without paying quite a bit of tax due to the pro rata rule. Plus it looks like you already hold a traditional IRA as well which would add to this issue.

Other than that and a few details - you look good, and as others have stated - you can try out retirement and go back to work if you get bored or feel like you have too much time on your hands.
The pro-rata rule has kept me from doing backdoor conversions. I've been told that I should live primarily off of my taxable account money for many years and take that time to convert IRA money to Roth IRA money at low tax rates. My BIL is going to send me a spreadsheet that helps me optimize that process. He said that tax rates will go up in a few years if the laws don't change. I don't really understand how taxes can go up without the law changing, but he usually knows what he's talking about.

Topic Author
GuyNearRetirement
Posts: 25
Joined: Fri Aug 30, 2019 1:35 pm

Re: I am being asked to retire. Am I ready?

Post by GuyNearRetirement » Sun Sep 22, 2019 6:03 pm

StealthRabbit wrote:
Sun Sep 22, 2019 3:09 pm
$4m looks good for a dual earner age 55 exit, go for it (consider reducing expenses, but not required).

I did so at age 49 with much less than 1/2 your stash, and single earner + mortgage / no HC, no pension, ill spouse.

Worked out (still waiting out age 65...)

If you desire / need HC... you can be creative with MAGI and get an ACA subsidy (currently paying $3.31/ month for (2)) otherwise ~$2,200 / month.

Or use the other alternatives;
  • go overseas for HC as do 15m / yr (and many 'national HC Europeans' https://patientsbeyondborders.com/
    HC sharing networks (4+ in USA ~$500 / month / NOT insurance)
    Group plans
    Private pay
    Travel FT
    College / Continuing ed plans
    go without
Best wishes and congrats on a nice exit plan.

I have never been in want of something to do... (for an engaging retirement)
There are a million things and more if you start asking / helping others.

Mentoring / teaching adults / small businesses is a good 'hobby'
I'm planning on doing the ACA subsidy thing. I hadn't considered overseas health care. Is that really a good option? I'm sure we could get health care cheap in places where I would be scared to trust a doctor, but can you get cheap health care in more developed countries?

How would traveling full time help with health insurance? Would that be something like buying trip insurance all the time?

Topic Author
GuyNearRetirement
Posts: 25
Joined: Fri Aug 30, 2019 1:35 pm

Re: I am being asked to retire. Am I ready?

Post by GuyNearRetirement » Sun Sep 22, 2019 6:07 pm

stan1 wrote:
Sun Sep 22, 2019 12:46 pm
Yes of course you can retire. Should be no debate, but since this is Bogleheads someone will write that its safer if you had another $xM.

I'd look at your expenses more closely to make sure more of them won't go away. Are you including any expenses that you incur because of work? For example many paycheck deductions aren't paid if you don't have income (FICA). Do you still need life insurance? If you aren't commuting will your gas and car costs go down? Will your clothing costs go down? Costs of meals out at work? Will you do some things around the house that you currently hire someone else to do?

Also: although you might not want to work again perhaps you would actually like to become a consultant and maybe your current employer would even come on board as your first client if you have good relations with them and they actually do need the expertise and "brain trust" being laid off? It doesn't need to be full time. I wouldn't rule this out especially if you think you'd like to keep professional relationships and work in your area of expertise but on your terms (you pick the client and the job, and have the ability to say no if it's not to your liking). Being financially independent helps you be choosy.
My guess is that I'll end up adding as many expenses as I lose. I don't have to dress up for work, so my clothing won't change much. My 5 mile commute isn't very expensive. Insurance costs should go down. We rarely eat out. Spouse does almost all non-major home maintenance and repair already.

I wouldn't be averse to consulting. My current company doesn't allow former employees to work on contract for 2 years after they leave, so they aren't an option. My spouse might object if I did enough to interrupt our travel plans (which include lots of long driving/camping trips around the US).

Topic Author
GuyNearRetirement
Posts: 25
Joined: Fri Aug 30, 2019 1:35 pm

Re: I am being asked to retire. Am I ready?

Post by GuyNearRetirement » Sun Sep 22, 2019 6:12 pm

visualguy wrote:
Sun Sep 22, 2019 2:49 pm
GuyNearRetirement wrote:
Sun Sep 22, 2019 1:06 pm
The whole retirement thing was something I expected to be years away until some major shifts at work started earlier this year. It quickly went from a possibility to a probability to an almost certainty. I had hoped to work another 4-5 years, but I don't really want to start all over again at a new company.

I guess that's a good lesson learned. Over-prepare for retirement because you may not be the one that decides when it starts.
I don't know what field you're in, but if possible I would try to get those extra 4-5 years (or more) at a new company. You and/or your wife could live for another 40 years. That's a LONG time. 40 years ago was 1979 - think about it, and what it means both financially and in terms of spending your time.
I've been going back and forth over this for a few weeks. That's part of why I posted this. On one hand, I'm nervous about retiring with the possibility of so many years ahead of us (Our parents are either died in their late 80s or are still alive in their early 90s). On the other hand, I know a lot of people that either died in their 50s/60s or ended up with fairly catastrophic medical conditions. I'd hate to work several more years and then not get the retirement I want. It seems like there are risks on both sides of the longevity coin and I'm trying to decide what the smart bet is. I've been encouraged by the responses here and am even more inclined than ever to take the money and either retire or go into semi-retirement.

HomeStretch
Posts: 2940
Joined: Thu Dec 27, 2018 3:06 pm

Re: I am being asked to retire. Am I ready?

Post by HomeStretch » Sun Sep 22, 2019 6:13 pm

GuyNearRetirement wrote:
Sun Sep 22, 2019 5:59 pm
My BIL is going to send me a spreadsheet that helps me optimize that process. He said that tax rates will go up in a few years if the laws don't change. I don't really understand how taxes can go up without the law changing, but he usually knows what he's talking about.
The individual tax rates under the Tax Cuts and Jobs Act of 2017 are scheduled to sunset on 12/31/2025, so absent any legislation rates revert back in 2026.

mkaytn17
Posts: 29
Joined: Fri Mar 15, 2019 2:18 pm

Re: I am being asked to retire. Am I ready?

Post by mkaytn17 » Sun Sep 22, 2019 6:15 pm

Caligal wrote:
Sun Sep 22, 2019 4:33 pm
Another thing to consider - if you take the pension as a lump sum and roll into a traditional IRA - you will probably not be able to perform Roth conversions without paying quite a bit of tax due to the pro rata rule. Plus it looks like you already hold a traditional IRA as well which would add to this issue.

Other than that and a few details - you look good, and as others have stated - you can try out retirement and go back to work if you get bored or feel like you have too much time on your hands.
Caligal, this is the first time I’ve heard the term pro rata rule. Please explain — thanks!

Katietsu
Posts: 2520
Joined: Sun Sep 22, 2013 1:48 am

Re: I am being asked to retire. Am I ready?

Post by Katietsu » Sun Sep 22, 2019 6:32 pm

Healthcare may influence more decisions than you currently realize. For instance, you may have to balance Roth conversions with ACA subsidies. You might want to do larger Roth conversions this year and next while you have company insurance and then reduce conversions until on Medicare.

And many people seem to only have access to ACA plans with a local network. Therefore, if you have an emergency while traveling, you could end up with balance billing and a huge expense. And since available plans and services are dependent on location, it is possible that you may need to change your residence to have access to reasonable healthcare in the future, much more so than whether or not to do a Roth conversion or what asset allocation to choose.

With more than a decade to go to Medicare, changes to healthcare in the next decade could substantially improve or worsen your situation. I would devote significant time to studying the healthcare aspect of early retirement. I consider it to be the most challenging part of ER once you have a few million dollars.
Last edited by Katietsu on Sun Sep 22, 2019 6:35 pm, edited 1 time in total.

ralph124cf
Posts: 2368
Joined: Tue Apr 01, 2014 11:41 am

Re: I am being asked to retire. Am I ready?

Post by ralph124cf » Sun Sep 22, 2019 6:34 pm

Caligal wrote:
Sun Sep 22, 2019 4:33 pm
Another thing to consider - if you take the pension as a lump sum and roll into a traditional IRA - you will probably not be able to perform Roth conversions without paying quite a bit of tax due to the pro rata rule. Plus it looks like you already hold a traditional IRA as well which would add to this issue.

Other than that and a few details - you look good, and as others have stated - you can try out retirement and go back to work if you get bored or feel like you have too much time on your hands.
The pro-rata rule would only come into play if there is already after tax money in an existing IRA.

This lump sum distribution is treated as a trustee to trustee transfer of retirement funds to the IRA. Yes, any conversion of pre-tax IRA funds to ROTH is taxed at normal income tax rates.

Ralph

User avatar
Duckie
Posts: 6896
Joined: Thu Mar 08, 2007 2:55 pm
Location: California Bay Area

Re: I am being asked to retire. Am I ready?

Post by Duckie » Sun Sep 22, 2019 6:49 pm

mkaytn17 wrote:Tthis is the first time I’ve heard the term pro rata rule. Please explain — thanks!
The pro-rata rule becomes an issue when using the Backdoor Roth method while holding non-Roth IRA assets.

User avatar
scubadiver
Posts: 1107
Joined: Sun May 04, 2008 9:48 pm

Re: I am being asked to retire. Am I ready?

Post by scubadiver » Sun Sep 22, 2019 6:59 pm

Change your screen name to "GuyInRetirement". :beer

KyleAAA
Posts: 7598
Joined: Wed Jul 01, 2009 5:35 pm
Contact:

Re: I am being asked to retire. Am I ready?

Post by KyleAAA » Sun Sep 22, 2019 7:05 pm

Extremely comfortable. You probably could have retired several years ago.

bhsince87
Posts: 2575
Joined: Thu Oct 03, 2013 1:08 pm

Re: I am being asked to retire. Am I ready?

Post by bhsince87 » Sun Sep 22, 2019 7:59 pm

You are in good shape. Take the money and run!

For point of reference, I retired Jan 1 2019 at age 53. DW was 51. We had about $3 million investable assets, no debt, $400k house. So not too far off from you. I got a $200k package for leaving then.

One major difference is we have no kids, so we have no legacy desires.

We planned on a 3% withdrawal rate, but so far we have not been comfortable with that!

You may be a bit low on your healthcare expense estimates. ACA costs with no subsidies for us would be about $28k per year, with a $4k deductible. If we keep income below about $65k, that drops to $6k with 4k deductible. So that is significant.

On the plus side for you, you have plenty of money in Roth and taxable. Roth withdrawals won't count against ACA premiums, so that's good for you. Also, return of capital from taxable doesn't count. So you should be in good shape, and might be one of those "We live on $100k a year and pay no income taxes!" cases.

Psychologically, well....... phew, it's been harder for me than I expected.

I have a hard time spending money now, but I'm getting better (we're up about $300k this year, so that helps).

I had to sign a 1 year non-compete, and as I get close to that expiring, I'm considering looking into consulting/contract work. I miss being part of "big projects".

And even though we theoretically "have enough", I still see that money hanging out there. And it's hard for me to resist the temptation to grab it.
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams

Post Reply