seeking advice on planning my Retirement?

[life-kingsize]

Dear Bogleheads,
Seeking your wisdom and perspectives,
Here is my current portfolio and I'm planning to retire in Aug.2027
Profile:
Status: Married filing jointly Age: Him-55 Her-50
Tax rate:32% Fed, state:11.3%
Taxable income:~450k maximizing 401k contribution, ROTH for both and HSA
My questions are,
1.What are some of the critical actions I need to take from now to my retirement?
2.How do I optimize my taxes into retirement? currently doing backdoor ROTH and started after tax ROTH conversion this year
3.Currently I'm deferring 20% of my base wages, should I defer more or less next 4years?
4.Any pointers to keeping medical expenses reasonable until medicare kicks in?
5. How do I model cashflow in retirement years? any good tools you suggest?
6.I would like to contribute charitable causes in the field of education(around $10K each year). pls suggest good process to flow this funds

Networth breakdown
i. Tax-Deferred Investments: $604,000 401k+Deferred compensation (50%+50%) -all in S&P 500
ii. Tax-Free Roth Investments: $76,000 VTSAX
iii. Taxable investments: $2,796,000 (VTSAX),(AAPL+META),(company stock), -33% each
iv. Real estate equity(Market price-mortgage) $450,000 Primary home
v. Total Liquid Investments: $3,926,000

a. Income required today: $105,000 (around $40K is college tuition and living till 2026)
b. Income required at retirement (4 years): $100,000

[invest4]

You will receive more comprehensive advice if you utilize the following template:

https://www.bogleheads.org/wiki/Asking_ ... _questions

You have some items, but not all and in detail. Positively, at a glance you are looking good for retirement.

[life-kingsize]

Thanks. I will fill in missing details.

[FiveK]

Prioritizing investments has the generic suggestions applicable to most. How do those look to you?

Assuming your deferred compensation is a Non-Qualified Deferred Compensation (NQDC) plan, the amount of money to contribute depends primarily on two things:
1) Your confidence that the company will remain solvent enough to pay you. If that is high enough, go to #2. If not, stop.
2) The marginal tax rate you'll save by contributing now vs. the rate you'll pay when receiving the payouts. You can start by assuming this is a Traditional versus Roth situation. If that appears favorable for contribution, then it would be even more favorable for the actual "traditional vs. taxable" situation you have.

So far so good, or does the above raise even more questions?

[Watty]

I'm planning to retire in Aug.2027
....
Him-55 Her-50
...
v. Total Liquid Investments: $3,926,000
......
b. Income required at retirement (4 years): $100,000

$4 million could be put into 5% CDs and generate $200K a year.

Spending $100k a year would be a 2.5% withdrawal rate.

You did not say but I would also assume that you might be getting something like $50K a year in Social Security when you eventually get two Social Security checks.

That is overly simplistic but you might consider retiring well before 2027 since you could retire today if you wanted to.

When I was going through my 50s I had one year when I went to three funerals of people who were more or less my age. I was not real close to any of them but when you see coworkers and neighbors dying that does get you thinking. I also saw a number of people develop life altering health issues when they were in their 50s too. Seeing that helped me decide to retire as soon as I reasonably could in my late 50s. About five years before I actually retired I was doing OK financially so I put my career into low gear so that I could do things like travel more and not be overly stressed out about work.

You can find more elaborate life expectancy calculators but this one says that for a 54 year old male and a 50 year old female there is only a 95% chance that they would both be alive in 4 years. That is a 5%, or 1 in 20, chance that one of you might die before your planned retirement date. I would assume that there is about an equal chance that one of you could have major health problems by then.

It is just anecdotal but from what I have seen the 50s are rough on people, especially men.

https://www.kitces.com/joint-life-expec ... alculator/

It gets complicated but culturally here in the US people tend to ignore their mortality risks.

[mhc]

Why are you doing Roth conversions at your current tax rate? Your tax rate will be lower in retirement. That is the time to do Roth conversions.

Does your $100k/yr include taxes and medical/dental insurance and expenses?

If you do not get any employer medical retirement benefits, then take a look at your state exchange for ACA insurance. You should educate yourself on Premium Tax Credits. Keep in mind that rates increase as you age.

[Hacksawdave]

With what information is provided, I have a few observations.

• Your tax deferred accounts represent 17.38% of the portfolio. Why the rush to perform Roth converts at a combined tax rate of 47.1% (don’t forget the NIIT tax)?
• You have over half (53.63%) of your portfolio in three individual stocks.
• Unless you are definitely selling the house, I excluded the $450K equation from the portfolio.

Let’s start with cashflow. I use Excel spreadsheets for everything, so I don’t use any special software. I would put together a detailed budget based on what is in the $100K budget guess. Include the healthcare and tax estimates. ACA or COBRA? I found out COBRA was actually cheaper for me and took the full 18 months before going to the ACA.

Deferred comp plans have various rules that differ from company to company. Understand the rules before pulling the plug to make sure there is not a specified window of time to perform mandatory withdrawals of the plan.

Determine what the remaining working spouse salary is and add the dividends from the taxable account that I estimate for this year will come to $16,156 (don’t know if company stock has a dividend). How much are we short by on the new retirement budget? Depending on the new combined tax bracket, I would start paring down the three individual holdings and stop reinvesting dividends.

If more info is provided, I might have more suggestions. Municipal fund income might be a consideration depending on what the new expected combined tax bracket looks like.

[life-kingsize]

Prioritizing investments has the generic suggestions applicable to most. How do those look to you?

Assuming your deferred compensation is a Non-Qualified Deferred Compensation (NQDC) plan, the amount of money to contribute depends primarily on two things:
1) Your confidence that the company will remain solvent enough to pay you. If that is high enough, go to #2. If not, stop.
2) The marginal tax rate you'll save by contributing now vs. the rate you'll pay when receiving the payouts. You can start by assuming this is a Traditional versus Roth situation. If that appears favorable for contribution, then it would be even more favorable for the actual "traditional vs. taxable" situation you have.

So far so good, or does the above raise even more questions?

Good pointers. thanks

[life-kingsize]

I'm planning to retire in Aug.2027
....
Him-55 Her-50
...
v. Total Liquid Investments: $3,926,000
......
b. Income required at retirement (4 years): $100,000

$4 million could be put into 5% CDs and generate $200K a year.

Spending $100k a year would be a 2.5% withdrawal rate.

You did not say but I would also assume that you might be getting something like $50K a year in Social Security when you eventually get two Social Security checks.

That is overly simplistic but you might consider retiring well before 2027 since you could retire today if you wanted to.

When I was going through my 50s I had one year when I went to three funerals of people who were more or less my age. I was not real close to any of them but when you see coworkers and neighbors dying that does get you thinking. I also saw a number of people develop life altering health issues when they were in their 50s too. Seeing that helped me decide to retire as soon as I reasonably could in my late 50s. About five years before I actually retired I was doing OK financially so I put my career into low gear so that I could do things like travel more and not be overly stressed out about work.

You can find more elaborate life expectancy calculators but this one says that for a 54 year old male and a 50 year old female there is only a 95% chance that they would both be alive in 4 years. That is a 5%, or 1 in 20, chance that one of you might die before your planned retirement date. I would assume that there is about an equal chance that one of you could have major health problems by then.

It is just anecdotal but from what I have seen the 50s are rough on people, especially men.

https://www.kitces.com/joint-life-expec ... alculator/

It gets complicated but culturally here in the US people tend to ignore their mortality risks.

Thanks for your input. I need to work till 2027 Q2 to gather 40 SS credits. So that is one of the reason to stay on. It is scary data on life expectancy!

[life-kingsize]

Why are you doing Roth conversions at your current tax rate? Your tax rate will be lower in retirement. That is the time to do Roth conversions.

Does your $100k/yr include taxes and medical/dental insurance and expenses?

If you do not get any employer medical retirement benefits, then take a look at your state exchange for ACA insurance. You should educate yourself on Premium Tax Credits. Keep in mind that rates increase as you age.

Thanks. Agree on you and others comment regarding ROTH conversion at current tax rate. I will revisit this decision. I'm starting to read about premium tax credits/ACA. Found Go curry cracker blog/forum had good analysis on this topic. He had his yearly tax returns shared on his site

[life-kingsize]

With what information is provided, I have a few observations.

• Your tax deferred accounts represent 17.38% of the portfolio. Why the rush to perform Roth converts at a combined tax rate of 47.1% (don’t forget the NIIT tax)?
• You have over half (53.63%) of your portfolio in three individual stocks.
• Unless you are definitely selling the house, I excluded the $450K equation from the portfolio.

Let’s start with cashflow. I use Excel spreadsheets for everything, so I don’t use any special software. I would put together a detailed budget based on what is in the $100K budget guess. Include the healthcare and tax estimates. ACA or COBRA? I found out COBRA was actually cheaper for me and took the full 18 months before going to the ACA.

Deferred comp plans have various rules that differ from company to company. Understand the rules before pulling the plug to make sure there is not a specified window of time to perform mandatory withdrawals of the plan.

Determine what the remaining working spouse salary is and add the dividends from the taxable account that I estimate for this year will come to $16,156 (don’t know if company stock has a dividend). How much are we short by on the new retirement budget? Depending on the new combined tax bracket, I would start paring down the three individual holdings and stop reinvesting dividends.

If more info is provided, I might have more suggestions. Municipal fund income might be a consideration depending on what the new expected combined tax bracket looks like.

Thanks and appreciate your detailed recommendations. My spouse is not working. So it is just my income for taxes.
I need to build a cashflow worksheet as you suggested. Any templates/sites to get started?
I'm actively working on reducing my individual stock exposure.
ACA/COBRA is another analysis to work on. Thanks again

[desiderium]

Since you have enough to retire now but plan to continue working, you might consider what you want to do when you retire.
You could "practice" by cutting back your work commitment, taking an extra-long vacation or a short sabbatical.
Will your spouse be retired then?
What family, e.g. elderly relatives will you need to support with time or potentially money.
Will you keep your current home?
If you are staying put, then, depending on interest rate, you might weigh the option of paying off the mortgage between now and retirement.

In your case, the finance part is pretty straightforward, but the other questions may take you some time to consider

Good luck!

[ZMonet]

Thanks for your input. I need to work till 2027 Q2 to gather 40 SS credits. So that is one of the reason to stay on. It is scary data on life expectancy!

If that is the only reason you are working, you might want to put in some zeros in for some of those SS quarters. You might find it doesn't make that much of a difference. Once you get past certain bend points, additional income doesn't do much to increase your payment.

[life-kingsize]

Thanks for your input. I need to work till 2027 Q2 to gather 40 SS credits. So that is one of the reason to stay on. It is scary data on life expectancy!

If that is the only reason you are working, you might want to put in some zeros in for some of those SS quarters. You might find it doesn't make that much of a difference. Once you get past certain bend points, additional income doesn't do much to increase your payment.

Fair point. I will do the scenario without SS as well

[FiveK]

Thanks. Agree on you and others comment regarding ROTH conversion at current tax rate. I will revisit this decision. I'm starting to read about premium tax credits/ACA. Found Go curry cracker blog/forum had good analysis on this topic. He had his yearly tax returns shared on his site

Unless Gocurrycracker has changed, the analysis there of traditional vs. Roth suffers from the first of two Common misconceptions: comparing a marginal rate now to an effective rate later.

This makes traditional contributions look better than they really are. That error would also tend to reduce the attractiveness of Roth conversions - perhaps best to consider Whether, when, and how much to convert to help your choice.

[FiveK]

I need to build a cashflow worksheet as you suggested. Any templates/sites to get started?

The personal finance toolbox spreadsheet is well worth considering. It might be used mostly for tax calculations (see comment under the quote below), but can also check your cash flow numbers: enter your filing status, income, deductions, and best guesses for spending, and check cell Calculations!D144 to see how closely that matches your annual taxable investments.

ACA/COBRA is another analysis to work on.

If using ACA, Roth Conversion and Capital Gains On ACA Health Insurance is a useful reference.

[life-kingsize]

I need to build a cashflow worksheet as you suggested. Any templates/sites to get started?

The personal finance toolbox spreadsheet is well worth considering. It might be used mostly for tax calculations (see comment under the quote below), but can also check your cash flow numbers: enter your filing status, income, deductions, and best guesses for spending, and check cell Calculations!D144 to see how closely that matches your annual taxable investments.

ACA/COBRA is another analysis to work on.

If using ACA, Roth Conversion and Capital Gains On ACA Health Insurance is a useful reference.

very useful. thanks

[Hacksawdave]

Thanks and appreciate your detailed recommendations. My spouse is not working. So it is just my income for taxes.
I need to build a cashflow worksheet as you suggested. Any templates/sites to get started?
I'm actively working on reducing my individual stock exposure.
ACA/COBRA is another analysis to work on. Thanks again

I see FiveK provided a link to some templates. I found that I needed to design my own as I wanted to see other sheets within the book to make life a little simpler. My cashflow Excel book contains sheets for budget, budget pie chart, income produced by account and taxation type, Fed tax estimate, CA state tax estimate, 12 month rolling income draw source, cash “burn glide” chart, and tax payments made. This way I don’t have to bounce around between multiple books.

You will have a bit of a challenge as you are the sole income provider and will go from high labor income for the family to no labor income with a portfolio that is currently 100% stocks. If you were retired today, your budget would have to be met by selling equities, save the estimated $16,156 of annual dividends I calculated that are paid out on a quarterly basis. A Sequence of Returns Risk (SORR) could play havoc on your portfolio should you need to sell equities in a down market for living expenses early in retirement. I had this happen to a couple of colleagues and it hit them hard.

I would drop the idea of doing Roth conversions while still in a high tax bracket and consider building some income producing assets and spare cash so you can do your desired Roth conversions after retirement. You are high up in the 32% bracket range, so just a little additional ordinary income will bump you up into the 35% bracket. I would use Vanguard CA tax-exempt funds like the MMF VCTXX or the intermediate fund VCADX for the time being until you retire and exit the high bracket.

This should give you a few items to work on for the time being.

[Watty]

I need to work till 2027 Q2 to gather 40 SS credits. So that is one of the reason to stay on.

If you do not have the SS credits because you were working outside the US then be sure to look at what similar programs there were in the countries that you were working it. I know little about that but there might be some sort of tax treaty which comes into play which figuring out SS and their version of SS.

You would need to look up the exact numbers but you only need something like $1,500 a quarter to get a credit. Even doing something walking your neighbors dog could get you that and get some exercise too.

If your spouse has worked under Social Security then you would likely also qualify for a spousal benefit which could be larger even if you had no SS credits so qualifying for SS based on your own earnings may not be worth very much.

Also keep in mind that you or your spouse would need the 40 SS credits to qualify for premium free Medicare part A. At least as I numberstand it if you do not qualify for that you only need to pay a few hundred dollars a month to buy into Medicare so that might a big problem.

[life-kingsize]

Thanks and appreciate your detailed recommendations. My spouse is not working. So it is just my income for taxes.
I need to build a cashflow worksheet as you suggested. Any templates/sites to get started?
I'm actively working on reducing my individual stock exposure.
ACA/COBRA is another analysis to work on. Thanks again

I see FiveK provided a link to some templates. I found that I needed to design my own as I wanted to see other sheets within the book to make life a little simpler. My cashflow Excel book contains sheets for budget, budget pie chart, income produced by account and taxation type, Fed tax estimate, CA state tax estimate, 12 month rolling income draw source, cash “burn glide” chart, and tax payments made. This way I don’t have to bounce around between multiple books.

You will have a bit of a challenge as you are the sole income provider and will go from high labor income for the family to no labor income with a portfolio that is currently 100% stocks. If you were retired today, your budget would have to be met by selling equities, save the estimated $16,156 of annual dividends I calculated that are paid out on a quarterly basis. A Sequence of Returns Risk (SORR) could play havoc on your portfolio should you need to sell equities in a down market for living expenses early in retirement. I had this happen to a couple of colleagues and it hit them hard.

I would drop the idea of doing Roth conversions while still in a high tax bracket and consider building some income producing assets and spare cash so you can do your desired Roth conversions after retirement. You are high up in the 32% bracket range, so just a little additional ordinary income will bump you up into the 35% bracket. I would use Vanguard CA tax-exempt funds like the MMF VCTXX or the intermediate fund VCADX for the time being until you retire and exit the high bracket.

This should give you a few items to work on for the time being.

I'm glad I posted on this forum. I have lot of stuff to research into and work on. Thanks for these valuable input.

[life-kingsize]

I need to work till 2027 Q2 to gather 40 SS credits. So that is one of the reason to stay on.

If you do not have the SS credits because you were working outside the US then be sure to look at what similar programs there were in the countries that you were working it. I know little about that but there might be some sort of tax treaty which comes into play which figuring out SS and their version of SS.

You would need to look up the exact numbers but you only need something like $1,500 a quarter to get a credit. Even doing something walking your neighbors dog could get you that and get some exercise too.

If your spouse has worked under Social Security then you would likely also qualify for a spousal benefit which could be larger even if you had no SS credits so qualifying for SS based on your own earnings may not be worth very much.

Also keep in mind that you or your spouse would need the 40 SS credits to qualify for premium free Medicare part A. At least as I numberstand it if you do not qualify for that you only need to pay a few hundred dollars a month to buy into Medicare so that might a big problem.

I'm not sure if gathering 40ss credits is a must or nice to have in my situation. I worked in HK for 8 years and pulled out my HK retirement contribution when I moved here. Thanks for your input