Need Help To Plan for Early Retirement

[Hawaiishrimp]

Situation:
Based on projection, in 5 years, our portfolio should reach 10millions conservatively (unless recession hits). We are very fortunate, a few position of our stocks have grown significantly over the last few years which pushed the size of portfolio beyond what we expected. In 5 years, we will be age 49 (me) and 43 (her). 2 kids. 5yrs old and 9 years old. No debt except our mortgage. House is worth $850k, we still owe $320k. Interest rate at 2.5%, therefore we see no point to pay it off earlier than necessary.

Goals:
Our goal is to retire early in 5 years. Spending more times with families and more travelings and sightseeings. We don't expect to spend more than 4% withdraw rate per year. In reality, we probably need about $100-$120k annually.
- 85% Stocks (Index Funds and Individual stocks)
- 10% Real estates (Paid off)
- 5% Bonds
- 3 months emergency funds
- 529plans on track

Questions:
1. Assuming we will need to $100-$120k annually or less, how should we setup a withdrawal strategy so that we don't take out more money than we really need? We hope to minimize taxes as much as possible. We live in California.
2. When in retirement, how much cash should be set aside for emergency? Any difference from pre-retirement?
3. What is the best way to setup Trust/Deed for our remaining years so that when it's time to 'sign-off', the funds will go to the kids to ensure they have enough to grow their families with, yet with some rules in place to ensure they don't waste it all.
4. Should we visit an Estate Planner? Any recommendation on how to approach this?

Frankly, we haven't done our homework when it comes to estate planning and probably should start. My worry, as always, is that estate planning is very costly. Hence, our questions posted above.

Lastly, thank you Bogleheads in advance for your advice and help. I love this site and it is the only one I trust. I learn so much from it; it is life-changing for sure. Thank you.

[Wiggums]

Will you have healthcare when you retire?

How much money is in taxable versus tax deferred accounts?

[Hawaiishrimp]

Will you have healthcare when you retire?

No healthcare when we retire. We will have to buy it on our own, I suppose.

How much money is in taxable versus tax deferred accounts?

35% in Taxable
65% in Tax deferred accounts

[JoeRetire]

1. Assuming we will need to $100-$120k annually or less, how should we setup a withdrawal strategy so that we don't take out more money than we really need? We hope to minimize taxes as much as possible.

Take out $10,000 the first month.
Every month after that, take out $10,000 minus whatever you have left over from the prior month.

3. What is the best way to setup Trust/Deed for our remaining years so that when it's time to 'sign-off', the funds will go to the kids to ensure they have enough to grow their families with, yet with some rules in place to ensure they don't waste it all.

The best way is to work with a good estate attorney.

[Watty]

Based on projection, in 5 years, our portfolio should reach 10millions conservatively (unless recession hits). ......
We don't expect to spend more than 4% withdraw rate per year. In reality, we probably need about $100-$120k annually.

Something does not add up. With $10million a 4% withdrawl rate would be $400K a year.

The

1. Assuming we will need to $100-$120k annually or less, how should we setup a withdrawal strategy so that we don't take out more money than we really need? We hope to minimize taxes as much as possible. We live in California.

You could invest the $10 million in pretty much anything and get 2% or more in dividends or interest which would be $200K a year without touching your principal.

Frankly, we haven't done our homework when it comes to estate planning and probably should start. My worry, as always, is that estate planning is very costly.

There is a quote "If you think education is expensive, try ignorance" which is similar to the situation you are in.

Bite the bullet and get some and good professional estate planning.

[Hawaiishrimp]

I don't intend to follow the 4% withdraw rate rule. We don't intend to spend that much. $100-12k is the # we think we need.
Yes, agree. We will need a good professional estate planning. Any recommendation will be appreciated.

[NancyABQ]

Situation:
Based on projection, in 5 years, our portfolio should reach 10millions conservatively (unless recession hits). We are very fortunate, a few position of our stocks have grown significantly over the last few years which pushed the size of portfolio beyond what we expected.

This worries me a bit. What percentage of your portfolio is in these "few positions of stocks"? You may need to diversify your portfolio (i.e. sell those positions until they are less than 5% of total portfolio) so that you won't be vulnerable if those stocks suddenly stop doing so well.

You haven't posted enough detail of your portfolio to say much more than that. But this strikes me as a possible significant risk to your plans, based on what little has been said.

If you can post more info on the detailed holdings, people can give better recommendations on that aspect, but basically at Bogleheads we will tell you it should be in index funds, not individual stocks.

[retired@50]

Situation:
Based on projection, in 5 years, our portfolio should reach 10millions conservatively (unless recession hits). We are very fortunate, a few position of our stocks have grown significantly over the last few years which pushed the size of portfolio beyond what we expected. In 5 years, we will be age 49 (me) and 43 (her). 2 kids. 5yrs old and 9 years old. No debt except our mortgage. House is worth $850k, we still owe $320k. Interest rate at 2.5%, therefore we see no point to pay it off earlier than necessary.

Goals:
Our goal is to retire early in 5 years. Spending more times with families and more travelings and sightseeings. We don't expect to spend more than 4% withdraw rate per year. In reality, we probably need about $100-$120k annually.
- 85% Stocks (Index Funds and Individual stocks)
- 10% Real estates (Paid off)
- 5% Bonds
- 3 months emergency funds
- 529plans on track

Questions:
1. Assuming we will need to $100-$120k annually or less, how should we setup a withdrawal strategy so that we don't take out more money than we really need? We hope to minimize taxes as much as possible. We live in California.
2. When in retirement, how much cash should be set aside for emergency? Any difference from pre-retirement?
3. What is the best way to setup Trust/Deed for our remaining years so that when it's time to 'sign-off', the funds will go to the kids to ensure they have enough to grow their families with, yet with some rules in place to ensure they don't waste it all.
4. Should we visit an Estate Planner? Any recommendation on how to approach this?

Frankly, we haven't done our homework when it comes to estate planning and probably should start. My worry, as always, is that estate planning is very costly. Hence, our questions posted above.

Lastly, thank you Bogleheads in advance for your advice and help. I love this site and it is the only one I trust. I learn so much from it; it is life-changing for sure. Thank you.

Living in retirement without access to health care at work will require you to purchase a health plan for your family. I'd suggest you take a peek at coveredca.com website. The state of California now *requires* health care. Pricing out a family plan for your family will add a bit to your annual spend rate, but if your prediction holds about the value of your portfolio, you should be okay.

Your stock allocation, 85%, seems high (aggressive) for someone 5 years from retirement, but I realize that you're still relatively young. To give yourself a less risky portfolio over the next few years you may want to mix in more bonds at some point.

Your emergency cash holdings don't necessarily need to change unless you're too concentrated into a few individual stocks. As other posters have mentioned, holding any more than 5% ($500,000 based on your future estimate) of your wealth in a single company is risky. If you do hold a risky portfolio, then a higher cash cushion can get you through a down market for a couple of years.

With regard to trusts and estate planning, a lawyer who is familiar with estate/elder issues should be able to help. Find an arrangement that doesn't involve you paying a percentage of your wealth. I would imagine a lawyer will work for an hourly rate. If it takes $10,000 to get your trust and estate set up, that would provide you some peace of mind. If you want to have any amount of control over the trust assets after you're gone you can read up on something known as a "spendthrift trust". This type of trust can document the parameters of how/when the money can be used.

Regards,

[Hawaiishrimp]

retired@50, thank you for the awesome advice, healthcare and estate planning info. I will totally look into it in details.

[lakpr]

10 million + 500k home equity in assets, 120k expenses (high end of your estimate). That is about a 1% withdrawal rate.

Why not quit your jobs and move to a tax friendly state? There are excellent schools, if that is what you are worried about, elsewhere in the US where taxes can be quite a bit lower. Heck, even NJ where I live and gets a bad rap for being tax happy, the state tax rate is only 6.675% for the 120k withdrawals you are talking about, than the 9.3% rate that California imposes. Our state schools consistently rank in the top 5 of the nation, and with your wealth you can pick the top rated school district (Millburn) in our state with barely a dent in your wealth.

[catlady]

I’m assuming the 120k number is before taxes and healthcare costs, correct? If so, your actual withdrawals could be closer to 150-160k.

[NightFall]

Are you sure you’ll hit that number in 5 years? Four years ago, you listed your portfolio in the high six figures and planned on retiring at 3 million. For such an early retirement, 3 million has a non-trivial chance of not being enough. For early retirement, it is good to be conservative. I would suggest thinking about how you will deal with healthcare until Medicare kicks in. Of course, if you have 10 million, maybe it doesn’t matter as much.

[retired@50]

10 million + 500k home equity in assets, 120k expenses (high end of your estimate). That is about a 1% withdrawal rate.

Why not quit your jobs and move to a tax friendly state? There are excellent schools, if that is what you are worried about, elsewhere in the US where taxes can be quite a bit lower. Heck, even NJ where I live and gets a bad rap for being tax happy, the state tax rate is only 6.675% for the 120k withdrawals you are talking about, than the 9.3% rate that California imposes. Our state schools consistently rank in the top 5 of the nation, and with your wealth you can pick the top rated school district (Millburn) in our state with barely a dent in your wealth.

lakpr,
I'm sure the governor of California wouldn't appreciate you poaching one of his high earning / high wealth taxpayers to New Jersey...

Regards,

[lakpr]

lakpr,
I'm sure the governor of California wouldn't appreciate you poaching one of his high earning / high wealth taxpayers to New Jersey...

Regards,

:
I hope it is balanced by an appreciation from my own state governor for convincing a high net worth tax payer to move in

[Hawaiishrimp]

10 million + 500k home equity in assets, 120k expenses (high end of your estimate). That is about a 1% withdrawal rate.

Why not quit your jobs and move to a tax friendly state? There are excellent schools, if that is what you are worried about, elsewhere in the US where taxes can be quite a bit lower. Heck, even NJ where I live and gets a bad rap for being tax happy, the state tax rate is only 6.675% for the 120k withdrawals you are talking about, than the 9.3% rate that California imposes. Our state schools consistently rank in the top 5 of the nation, and with your wealth you can pick the top rated school district (Millburn) in our state with barely a dent in your wealth.

@lakpr, don't think moving out of CA is in the plan due to families and relatives are very important to us and they all live within 30 mins distance. Thanks!!

[Hawaiishrimp]

Are you sure you’ll hit that number in 5 years? Four years ago, you listed your portfolio in the high six figures and planned on retiring at 3 million. For such an early retirement, 3 million has a non-trivial chance of not being enough. For early retirement, it is good to be conservative. I would suggest thinking about how you will deal with healthcare until Medicare kicks in. Of course, if you have 10 million, maybe it doesn’t matter as much.

@NightFall,
A lot has changed in the last 4-5 years. Company IPO'ed, stock options vested. 2 individual stocks grew (10-12x) in the last 5 years. Bought my dream car, finally. Counting all in total, assuming 4-7% return, if the market is good, it should reach 10. If the market go sideward or Great Depression 2.0, then God know..

[Hawaiishrimp]

I’m assuming the 120k number is before taxes and healthcare costs, correct? If so, your actual withdrawals could be closer to 150-160k.

@catlady, our thinking is: $10k per month should be enough to cover taxes and healthcare costs. Our assumption, after doing some research on costs:

- $1500 per month for healthcare coverage (family of 4)
- $2300 per month for taxes (CA & Federal)
- $6200 per month to spend

If that's too tight, we may adjust it accordingly.

[Dinosaur Dad]

For estate planning, one of the best books out there is "Beyond the Grave" by Jeffrey Condon. It was very helpful to use when we completed all of the legal documents last year. Worth your time to read as you think it through and find an attorney who is trustworthy.

[Hawaiishrimp]

For estate planning, one of the best books out there is "Beyond the Grave" by Jeffrey Condon. It was very helpful to use when we completed all of the legal documents last year. Worth your time to read as you think it through and find an attorney who is trustworthy.

@Dinosaur Dad

Thank you for the advice. I will certainly look into this book. Thanks again.