Portfolio Analysis: Can We Retire Early?

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Topic Author
jeffreys
Posts: 105
Joined: Wed Jan 24, 2018 7:46 pm

Portfolio Analysis: Can We Retire Early?

Post by jeffreys »

We are both feeling burnt out from working and have a goal to retire early. Here are our numbers and related information.

Him:
Age 53

401k Equities: $631,000
401k Bond: $100,000
401 Equities Roth: $135,000
Roth IRA: $34,000
Taxable ETF: $58,000
Total of individual stocks: $562,000
HSA:$14,000
Annuity cash surrender value: $58,000

Her:
Age 49.5

401k Equities: $115,000
401k Equities Roth: $34,000
Traditional IRA: $413,000
Roth IRA: $128,000
Annuity cash surrender value: $38,000

---

Emergency Cash: $61,000
Mortgage Balance: $72,000
House value according to Zillow: $345,000
Expenses for the last 12 months are about $65,000 though due to COVID that is down from regular spending. Probably safer to consider it to be a bit north of $70,000
No other debt, credit cards paid in full each month

401k and IRA contributions are maxed out every year.

Social Security Strategy -- Due to the age difference and him being the higher wage earner, start his SS at 70. For her, sometime earlier depending on if we're doing Roth conversions or otherwise don't want to fill out the lower tax brackets with SS.

Our lifestyle -- Generally frugal. Prior to COVID most of our discretionary spending went towards eating out and vacations. COVID put an end to that and we've seen our saving grow due to that.

Retirement goal is when he turns 55 in 2 years. Our big concern is healthcare as we won't have any lifetime options from either employer. Assuming the ACA stays intact we'd likely use that and hopefully find a way to get subsidies but hopefully be able to afford the full premium if we couldn't keep our income down.

Our plan now for LTC is to self-fund. We both have longevity in our families. His folks were in LTC when they passed and her folks are in their late 70s still living independently.

No children.

Thanks for your thoughts on our goals.
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David Jay
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Location: Michigan

Re: Portfolio Analysis: Can We Retire Early?

Post by David Jay »

Round numbers: 2.3 million portfolio, 70K expenses for 15 years, then less than half (after SS).

Using a quick check @3% withdrawal (very conservative in your mid-50s with SS backstop), you are pretty much there: 2300K * .03 = 69K

For a more detailed plan I would run the math on this this in three phases: 4% for surviving spouse after reduced SS, 4% from age 70 (subtract SS to get projected expenditures) and then 15 years @ 70,000 per year. Private Message me with an email address if you want a copy of the "Retirement Phases" Powerpoint of the presentation I gave on Virtual Bogleheads last year.
Last edited by David Jay on Sun Oct 25, 2020 12:55 pm, edited 1 time in total.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
theorist
Posts: 770
Joined: Sat Sep 28, 2019 11:39 am

Re: Portfolio Analysis: Can We Retire Early?

Post by theorist »

jeffreys wrote: Sun Oct 25, 2020 12:41 pm We are both feeling burnt out from working and have a goal to retire early. Here are our numbers and related information.

Him:
Age 53

401k Equities: $631,000
401k Bond: $100,000
401 Equities Roth: $135,000
Roth IRA: $34,000
Taxable ETF: $58,000
Total of individual stocks: $562,000
HSA:$14,000
Annuity cash surrender value: $58,000

Her:
Age 49.5

401k Equities: $115,000
401k Equities Roth: $34,000
Traditional IRA: $413,000
Roth IRA: $128,000
Annuity cash surrender value: $38,000

---

Emergency Cash: $61,000
Mortgage Balance: $72,000
House value according to Zillow: $345,000
Expenses for the last 12 months are about $65,000 though due to COVID that is down from regular spending. Probably safer to consider it to be a bit north of $70,000
No other debt, credit cards paid in full each month

401k and IRA contributions are maxed out every year.

Social Security Strategy -- Due to the age difference and him being the higher wage earner, start his SS at 70. For her, sometime earlier depending on if we're doing Roth conversions or otherwise don't want to fill out the lower tax brackets with SS.

Our lifestyle -- Generally frugal. Prior to COVID most of our discretionary spending went towards eating out and vacations. COVID put an end to that and we've seen our saving grow due to that.

Retirement goal is when he turns 55 in 2 years. Our big concern is healthcare as we won't have any lifetime options from either employer. Assuming the ACA stays intact we'd likely use that and hopefully find a way to get subsidies but hopefully be able to afford the full premium if we couldn't keep our income down.

Our plan now for LTC is to self-fund. We both have longevity in our families. His folks were in LTC when they passed and her folks are in their late 70s still living independently.

No children.

Thanks for your thoughts on our goals.
Without an in depth analysis, the back of the envelope calculation looks promising! You have $2.3 million or so in investments. At a 3% withdrawal rate you could be pulling about 70K per year from those today — which basically would cover your desired expenses. With 2 more years to add to your holdings, you’ll hopefully be in even better shape at proposed retirement. If not, adding a year or two of work might help. 3% is not on the ambitious side for withdrawal rate historically, though we might be entering a difficult period due to low yields and high stock valuations etc.

I’d worry about the significant holdings in individual stocks personally, but perhaps they’re well diversified. In any case that is something to consider.
Topic Author
jeffreys
Posts: 105
Joined: Wed Jan 24, 2018 7:46 pm

Re: Portfolio Analysis: Can We Retire Early?

Post by jeffreys »

theorist wrote: Sun Oct 25, 2020 12:55 pm I’d worry about the significant holdings in individual stocks personally, but perhaps they’re well diversified. In any case that is something to consider.
We've been working on that. That number represents 3 different stocks with one stock being the majority. We've done so well with that one that we're getting nervous. We've been selling off enough of it each year to not push us out of Roth eligibility and investing in the ETF.
mike_in_ny
Posts: 42
Joined: Sat Dec 23, 2017 9:48 am

Re: Portfolio Analysis: Can We Retire Early?

Post by mike_in_ny »

I agree with the other feedback, that you look reasonably good, but I would recommend sharpening your pencil on what
your spending will be, including your health insurance.
stan1
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Joined: Mon Oct 08, 2007 4:35 pm

Re: Portfolio Analysis: Can We Retire Early?

Post by stan1 »

What does retirement mean to you? To some traditionalists it means not working but there are plenty of other people nowadays who view retirement as a continuum where some amount of work is continued with part time consulting, owning a small business, a job with less stress, or something that is more enjoyable. I've had several people who did a traditional retirement in their 60s come back to me within the last few months and tell me COVID is impacting them psychologically (loneliness) and they want to come back to work to feel like they are making a contribution and to keep themselves busy. I think you are OK to retire, but since US healthcare is highly politicized there will be an element of unknown to it.
Topic Author
jeffreys
Posts: 105
Joined: Wed Jan 24, 2018 7:46 pm

Re: Portfolio Analysis: Can We Retire Early?

Post by jeffreys »

stan1 wrote: Sun Oct 25, 2020 1:15 pm What does retirement mean to you? To some traditionalists it means not working but there are plenty of other people nowadays who view retirement as a continuum where some amount of work is continued with part time consulting, owning a small business, a job with less stress, or something that is more enjoyable. I've had several people who did a traditional retirement in their 60s come back to me within the last few months and tell me COVID is impacting them psychologically (loneliness) and they want to come back to work to feel like they are making a contribution and to keep themselves busy. I think you are OK to retire, but since US healthcare is highly politicized there will be an element of unknown to it.
Thanks for bringing this up.

I thought about including the non-financial side of retirement in my original post but decided to keep it clean and maybe circle back with a new post, but here are some of my thoughts now.

We both have careers where we could retire from our traditional employers and work for ourselves. But, we both just feel really burnt out and myself in particular, very tied to my job where vacation benefits aren't that great. I just so want the freedom to do whatever I want whenever I want and not be tied to a desk M-F.

However, I'm not completely sure how we would fill our time either. He is in a better position having putter-around-the-house hobbies and is happy filling his downtime with TV. She has a little more difficult time filling her free time. Right now volunteering isn't appealing to either of us either since we don't want to do anything that remotely resembles work -- at least at first.

Ideally, in two years life will be a little more normal and we can resume traveling though that can't fill 365 days a year either! So, yes, we have some things to figure out beyond the almighty dollar.
Last edited by jeffreys on Sun Oct 25, 2020 7:26 pm, edited 1 time in total.
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Garco
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Location: U.S.A.

Re: Portfolio Analysis: Can We Retire Early?

Post by Garco »

I think the OP should do some more thinking and planning about healthcare. For me being vested in my employer's healthcare plan has meant a lot (saved us a lot). If you have known frailties or chronic conditions, that's all the more reason to make sure you will have minimal out-of-pocket outlays for specialized care of any kind. Also, long-term care is very expensive (and that's not including medical care). For these reasons (among others) we delayed retirement; even so, the real costs of LTC have become extraordinarily high and you should cost that out carefully.
Topic Author
jeffreys
Posts: 105
Joined: Wed Jan 24, 2018 7:46 pm

Re: Portfolio Analysis: Can We Retire Early?

Post by jeffreys »

Thanks for the review it was eye-opening especially in regards to health care as the $70k in yearly expenses does not include that.

What would be a safe number to budget each year for a couple in good health using the ACA (assuming it is still around post-election) assuming no subsidies?

Next, have others done Roth conversions while staying under the ACA subsidy limit without completely living like a monk? I'm wondering if we can pull that off with our taxable bucket.

And finally, any comments on our buckets of money in regards to taxable, tax-deferred and Roth? Would it be wise to make any adjustments prior to retirement?
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HMSVictory
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Re: Portfolio Analysis: Can We Retire Early?

Post by HMSVictory »

Yes you have the money to retire early with a conservative 3% SWR.

I would pay off the mortgage today. Your net worth is in excess of 2.5M having a mortgage for 70k is silly. Be debt free.

I would also diversify out of your single stock holdings immediately (like this week). You have around 25% of your investable assets in single stocks - with the vast majority in one single stock. Yes you can afford to take this risk but it is totally unnecessary for achieving your goals. Use the opportunity that the stock has done well to sell it all and diversify into VTSMX or something along those lines. Pay the 15% capital gains taxes.
Stay the course!
fortunefavored
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Re: Portfolio Analysis: Can We Retire Early?

Post by fortunefavored »

jeffreys wrote: Sun Nov 01, 2020 5:18 pm Thanks for the review it was eye-opening especially in regards to health care as the $70k in yearly expenses does not include that.

What would be a safe number to budget each year for a couple in good health using the ACA (assuming it is still around post-election) assuming no subsidies?

Next, have others done Roth conversions while staying under the ACA subsidy limit without completely living like a monk? I'm wondering if we can pull that off with our taxable bucket.

And finally, any comments on our buckets of money in regards to taxable, tax-deferred and Roth? Would it be wise to make any adjustments prior to retirement?
I'm close to pulling the plug on megacorp work so I have been scrutinizing the health options - you will really really need to run some plans from healthcare.gov or your state exchange and compare.

You will be shocked by 1) how terrible the coverage is - limited doctors, no major research hospitals, etc. and 2) how much you will have to spend out of pocket. Many areas have no plans that offer ANY out of area coverage other than emergency stabilization. So if you travel, you will also need to account for that.

Healthcare costs have been increasing on an average of 6% per year for the past decade. Plus there's an age adjustment every year - so run both today and age 64 scenarios.

For no subsidies, I am budgeting $25K/year (for 2 people) rising to $35K/year. But frankly that may be low. It is also a double whammy because you'll need to withdraw enough money for your $70K plus your healthcare, which then bumps you into higher tax rates too, so you need to withdraw EVEN MORE to cover taxes.
tashnewbie
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Re: Portfolio Analysis: Can We Retire Early?

Post by tashnewbie »

The immediate poster above mentioned it, but I was wondering if your $70k anticipated spend (sans healthcare) includes taxes.
Wanderingwheelz
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Re: Portfolio Analysis: Can We Retire Early?

Post by Wanderingwheelz »

With almost $2.5MM, you should be just fine, especially if you find a way to generate a little bit of income over the next decade or so. Even $10,000 a year will go a long way towards the health insurance/care expense you’ll be facing. There are 2.5 million stress-free and even fun ways for a retired couple to generate $5,000 each in income until Medicare and SS kicks in. I already know how I’ll do it.
Topic Author
jeffreys
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Joined: Wed Jan 24, 2018 7:46 pm

Re: Portfolio Analysis: Can We Retire Early?

Post by jeffreys »

HMSVictory wrote: Sun Nov 01, 2020 5:54 pm Yes you have the money to retire early with a conservative 3% SWR.

I would pay off the mortgage today. Your net worth is in excess of 2.5M having a mortgage for 70k is silly. Be debt free.
Thanks for confirming this. We have plans to pay it off during the first half of 2021 with CDs that are maturing at that time. I'm anxious to get rid of it.
I would also diversify out of your single stock holdings immediately (like this week). You have around 25% of your investable assets in single stocks - with the vast majority in one single stock. Yes you can afford to take this risk but it is totally unnecessary for achieving your goals. Use the opportunity that the stock has done well to sell it all and diversify into VTSMX or something along those lines. Pay the 15% capital gains taxes.
This is a rough one because of the capital gains. A couple of years ago we cashed out enough to buy those small annuities for each of us mentioned in my OP. Given their poor performance we now regret it and maybe someday we'll be happy we have them. When we did this we had no idea of the tax consequences and we were pushed out of Roth eligibility. We were able to recharacterize our contributions to non-deductible contributions. We did a backdoor Roth for him with no problems because all of his existing IRA is Roth anyway. We didn't do anything for her contribution due to her being subject to the pro-rata rule. Fast forward to 2019 and we did a $10,000 backdoor conversion for her to "test the waters" and the computation wasn't bad and we're tracking it carefully in a spreadsheet.

Just before the pandemic caused the market to drop at the end of February and beginning of March sold enough of the stock for the capital gain to (hopefully) NOT push us out of Roth eligibility and invested in the ETF. We'll see how we did when we do our 2020 taxes. We'll be doing that again for 2021 to continue our efforts to diversify.
Topic Author
jeffreys
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Joined: Wed Jan 24, 2018 7:46 pm

Re: Portfolio Analysis: Can We Retire Early?

Post by jeffreys »

tashnewbie wrote: Sun Nov 01, 2020 6:03 pm The immediate poster above mentioned it, but I was wondering if your $70k anticipated spend (sans healthcare) includes taxes.
With the feedback I've gotten so far, I'm not happy with that $70k spend figure I've provided. It does include $11k in estimate tax payments for Roth conversions and capital gains and I would consider those "lumpy" expenses.

2019 was a big spend year for us with three vacations, one of which was a Hawaiian Island cruise which by itself was about a $10k vacation. We were also eating out virtually every dinner and many lunches.

Compare that to the last 12 months and our spending picture is much different. We had to make 2 estimated tax payments in January and July of this year for a total of $11,000. Removing that figure from our last 12 months as well as reduced restaurant and vacation spending of spending we're closer to $53,000. But, I don't want to live like this forever either. I want to get back to vacations and bring back some of the eating out even though the pandemic has taught us how to cook at home.

I do have all these numbers tracked in Quicken, it's just getting hard to know what is "normal" anymore! :|
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