Can I retire in 2024?

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Hat
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Can I retire in 2024?

Post by Hat »

Thanks to all the contributions to my previous review.
Since my last post, I made the following changes based on feedback:
  • built up a new cash position in brokerage (thanks to KlangFool, invest4, others)
  • increased projected yearly spend from $50k to $70k to account for medical and other lumpy expenses (thanks to KlangFool, others)
  • updated projected SS benefit based on zero income after this year (thanks to galawdog)
  • increased stock allocation slightly (thanks to chassis, others)
Emergency funds: FZCXX money market fund in taxable portfolio

Debt: None

Tax Filing Status: Single
Tax Rate: 24% Federal, 0% State (TX)

Age: 50

Desired asset allocation: 55% stocks / 45% bonds
Desired intl allocation: 0% of stocks
Current portfolio: $2.4M

Taxable at Fidelity
$780k FSKAX (Fidelity Total Market Index Fund) (0.015%)
$170k FZCXX (Fidelity Government MM Premium) (0.32%)

401k at Fidelity
$780k Short Duration Bond Fund (0.05%)

Roth at Fidelity
$643k FZROX (Fidelity Zero Total Market Index Fund) (0%)

HSA
$41k FDRXX (Fidelity Government Cash Reserves) (0.38%)

New Annual Contributions
$30.5k + $5k match 401k
$8k Roth (backdoor + conversion, not performed this year in case of retirement to avoid pro-rate rule when rolling over 401k to IRA)
$4.15k HSA
$30k post-tax 401k rolled to Roth IRA
$25k taxable

Pension
None

Social Security
$19200/yr (used sa.tools with current earnings report and $0 income after this year to get PIA, then reduced by 50%)
I understand that the projected benefit cut is 23%, but prefer to be conservative here.

Retiree Medical
ACA (no company-provided medical)

Gross Income
$195k

Federal Tax
$43k

State Tax
$0 (Texas)

Current Spending
$50k

Other
Umbrella insurance: $2M (I'm paranoid and it's cheap.)
Housing: renting with no immediate plans to buy (note in TX property tax on homes is a significant percentage of yearly apartment rent)
I have no dependents, but would have heirs to the remainder of my portfolio.
I prefer to limit the discussion to the financial aspects of retirement. I may link a new post for the non-financial aspects.

401k Fund Choices
See my previous review.

Proposed asset allocation at Fidelity upon retirement:
55% FSKAX (Fidelity US Total Market Index) (0.015%)
20% FUAMX (Fidelity Intermediate Treasury Bond Index Fund) (0.03%)
20% FIPDX (Fidelity Inflation-Protected Bond Index) (0.05%)
5% FZCXX (Fidelity Government MM Premium) (0.32%)

Questions
1. Can I retire in 2024 with the above portfolio and annual expenses of $70k?
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mhc
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Location: NoCo

Re: Can I retire in 2024?

Post by mhc »

Yes. Enjoy your retirement.

You would be withdrawing about 3%. That should last forever.

That is a lot of cash to be holding, especially in a taxable account.
52% TSM, 23% TISM, 24.5% TBM, 0.5% cash
spacemanspif
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Re: Can I retire in 2024?

Post by spacemanspif »

I think you are good. I would be a touch more comfortable if your housing costs were fixed and more predictable for the long haul, but from my seat, you should be fine. Enjoy owning your time!
Josh5000
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Re: Can I retire in 2024?

Post by Josh5000 »

You are more than good to retire. Your Texas residency has only one potential financial shortcoming of high real estate property tax but houses are dirt cheap down there so it is a wash.

As you have no debt and I didn't see mortgage and car payment, you are set. I bet you can retire on just the SS alone as long as you continue to have no mortgage and medical expenses such as insurance, Medicare, and out of pocket expenses are covered by another stream of income. I see that you'll have no pension so you'll have to tap into your 401k and other investment vehicles if you want the same comfort as your $195k salary had afforded you in big TEX.

By the way, is that $195k for household income? I don't see any listing of spousal income but assume $195k is about right for someone in your industry. Heck, I am in a much lower tier industry and already pulls that much but you got me whipped on the no state income tax perk.
kenai
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Re: Can I retire in 2024?

Post by kenai »

Yes, I think you're good to retire. Enjoy!
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Metsfan91
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Re: Can I retire in 2024?

Post by Metsfan91 »

Hat wrote: Mon Apr 01, 2024 3:33 pm
Questions
1. Can I retire in 2024 with the above portfolio and annual expenses of $70k?
Yes, you can! Congratulations!!!
"Know what you own, and know why you own it." — Peter Lynch
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Topic Author
Hat
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Re: Can I retire in 2024?

Post by Hat »

Josh5000 wrote: Mon Apr 01, 2024 7:27 pm By the way, is that $195k for household income?
It's just me - no partner.
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Raspberry-503
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Re: Can I retire in 2024?

Post by Raspberry-503 »

You have 10 years in cash! Maybe a little less depending on inflation, the. Oney market fund will not keep with.it.
On the other hand you have enough in growth assets that if that much cash let's you sleep at night, then hang on to it.
I'd look at blowing some of that dough on extra fun instead...
HomeStretch
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Re: Can I retire in 2024?

Post by HomeStretch »

Yes, imo you are able to retire in 2024. Will you actually retire then?

You will have less control over your housing costs as a renter so your personal rate of inflation in retirement could be higher than expected depending on rent prices.

Consider doing a backdoor Roth and delaying the rollover of your 401k to an IRA. Is the rollover so you can begin Roth conversions?

What age are you projecting to claim SS benefits?
Chadnudj
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Re: Can I retire in 2024?

Post by Chadnudj »

Yes, you can.

I'd feel more comfortable with that, though, if your asset allocation was slightly more aggressive. You have a lot allocated to near-cash assets ($170k in a taxable money market, $780k in 401k a short duration bond fund, $41k in an HSA in government cash reserves -- with $70k in annual spending, your taxable/401k of $950k in near-cash equivalents equals 13.5 years of spending).

That's fine, and probably won't impact you at all given the low withdrawal rate you're looking at, but I think you have the ability to take on slightly more risk in your situation, and in your situation I'd look to do so in your 401k for tax efficiency purposes, converting some of that $780k into a stock total market index type investment. Bringing down your total in near cash assets to a lower amount (5 years of spending? 7 years?) could allow for greater growth (and thus more safety for you long term, which you need with potentially 50 years of retirement to cover) without much of a portfolio risk given how many years of cash/cash-equivalents you'd still have elsewhere in your portfolio.
prd1982
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Re: Can I retire in 2024?

Post by prd1982 »

Are you sure about the 50k per year? Does this include income tax? Given that you are renting, the 50k just sounds way low to me.
wellboy99
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Re: Can I retire in 2024?

Post by wellboy99 »

How do you accumulate the 634k Roth amount? Considering one can only contribute 4-8k a year, it would need 100 years.

Roth at Fidelity
$643k FZROX
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Topic Author
Hat
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Re: Can I retire in 2024?

Post by Hat »

HomeStretch wrote: Tue Apr 02, 2024 6:35 am Yes, imo you are able to retire in 2024. Will you actually retire then?
I'm considering it, but am also experiencing "one more year" syndrome.
HomeStretch wrote: Tue Apr 02, 2024 6:35 am Consider doing a backdoor Roth and delaying the rollover of your 401k to an IRA. Is the rollover so you can begin Roth conversions?
Yes.
HomeStretch wrote: Tue Apr 02, 2024 6:35 am What age are you projecting to claim SS benefits?
Calculators show claiming at 67 (FRA) to be optimal, so that's my plan.
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Hat
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Re: Can I retire in 2024?

Post by Hat »

prd1982 wrote: Tue Apr 02, 2024 8:45 am Are you sure about the 50k per year? Does this include income tax? Given that you are renting, the 50k just sounds way low to me.
The $50k excludes federal income tax of $43k. Rent is $19k per year.
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Hat
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Re: Can I retire in 2024?

Post by Hat »

wellboy99 wrote: Tue Apr 02, 2024 8:46 am How do you accumulate the 634k Roth amount? Considering one can only contribute 4-8k a year, it would need 100 years.

Roth at Fidelity
$643k FZROX
My 401k plan allows post-tax contributions, which I then rollover to my Roth IRA. In 2023, I contributed about $30k. See contribution limits.
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Hat
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Re: Can I retire in 2024?

Post by Hat »

Chadnudj wrote: Tue Apr 02, 2024 7:10 am Yes, you can.
I'd feel more comfortable with that, though, if your asset allocation was slightly more aggressive.
The online calculators also show a more aggressive allocation to be optimal. I'm unsure that I could sleep well at night with a more aggressive allocation, especially when the market is falling and I have no work income. Ideally, I'd be less anxious and go with 70/30.
sailaway
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Re: Can I retire in 2024?

Post by sailaway »

Hat wrote: Tue Apr 02, 2024 9:18 am
wellboy99 wrote: Tue Apr 02, 2024 8:46 am How do you accumulate the 634k Roth amount? Considering one can only contribute 4-8k a year, it would need 100 years.

Roth at Fidelity
$643k FZROX
My 401k plan allows post-tax contributions, which I then rollover to my Roth IRA. In 2023, I contributed about $30k. See contribution limits.
The power of the MBR is amazing. DH just turned 40 and his Roth IRA is not far behind this value. I don't like to refer to everything as a hack, but given the necessary confluence of circumstances needed to use the MBR, it feels like a hack.
Chadnudj
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Re: Can I retire in 2024?

Post by Chadnudj »

Hat wrote: Tue Apr 02, 2024 9:29 am
Chadnudj wrote: Tue Apr 02, 2024 7:10 am Yes, you can.
I'd feel more comfortable with that, though, if your asset allocation was slightly more aggressive.
The online calculators also show a more aggressive allocation to be optimal. I'm unsure that I could sleep well at night with a more aggressive allocation, especially when the market is falling and I have no work income. Ideally, I'd be less anxious and go with 70/30.
Then you have your answer. You have to be able to sleep at night with your AA.

And, to be clear, I was not suggesting an all-stocks AA. 70-30 is more than reasonable in your situation. At present, you're closer to 60/40 by my math ($950k in cash-equivalents/bonds out of a $2.4M portfolio).

I'd focus on making the traditional 401k (which gets tax free growth/no capital gains, but will be taxed as income on withdrawal) a little more stock-heavy. Right now it's 100% bonds -- could you sleep at night with making it 20% stock ($156k)/80% bonds ($624k)? Or even stop reinvesting the bond interest payments and have them instead be invested into a stock index (thereby dollar cost averaging into the stock index)?

I'd also shift a bit more of the money-market in taxable towards your Fidelity Total Market Index Fund. You have $170k there, which represents over 3 years of your current $50k in expenses in cash (or nearly 2.5 years of your planned $70k in expenses in retirement) -- maybe shift $30k plus all future interest/dividends towards the stock index fund ? That would leave $140k in money markets, which is still 2 years of future expenses/nearly 3 years of current expenses in cash equivalents.

You're in such great shape already that these small tweaks don't introduce much (if any) long-term downside risk, but would offer a much greater reward, either in the ability to live it up a bit more, be more charitable, or for your heirs (including, likely, the chance to bequest to them while you're still alive to see them enjoy it).
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Hat
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Re: Can I retire in 2024?

Post by Hat »

Chadnudj wrote: Wed Apr 03, 2024 8:39 am
Hat wrote: Tue Apr 02, 2024 9:29 am
Chadnudj wrote: Tue Apr 02, 2024 7:10 am Yes, you can.
I'd feel more comfortable with that, though, if your asset allocation was slightly more aggressive.
The online calculators also show a more aggressive allocation to be optimal. I'm unsure that I could sleep well at night with a more aggressive allocation, especially when the market is falling and I have no work income. Ideally, I'd be less anxious and go with 70/30.
Then you have your answer. You have to be able to sleep at night with your AA.

And, to be clear, I was not suggesting an all-stocks AA. 70-30 is more than reasonable in your situation. At present, you're closer to 60/40 by my math ($950k in cash-equivalents/bonds out of a $2.4M portfolio).

I'd focus on making the traditional 401k (which gets tax free growth/no capital gains, but will be taxed as income on withdrawal) a little more stock-heavy. Right now it's 100% bonds -- could you sleep at night with making it 20% stock ($156k)/80% bonds ($624k)? Or even stop reinvesting the bond interest payments and have them instead be invested into a stock index (thereby dollar cost averaging into the stock index)?

I'd also shift a bit more of the money-market in taxable towards your Fidelity Total Market Index Fund. You have $170k there, which represents over 3 years of your current $50k in expenses in cash (or nearly 2.5 years of your planned $70k in expenses in retirement) -- maybe shift $30k plus all future interest/dividends towards the stock index fund ? That would leave $140k in money markets, which is still 2 years of future expenses/nearly 3 years of current expenses in cash equivalents.

You're in such great shape already that these small tweaks don't introduce much (if any) long-term downside risk, but would offer a much greater reward, either in the ability to live it up a bit more, be more charitable, or for your heirs (including, likely, the chance to bequest to them while you're still alive to see them enjoy it).
Thank you for the feedback.

Yes, I will consider investing the 401k bond interest payments into total stock after seeing how much sleep I'm getting in retirement.

For the taxable money market, my plan is to reassess this amount once I determine the yearly shortfall between desired spend and the ideal AGI for an ACA subsidy (also taking into account capital gains and Roth conversions).
Bobby206
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Re: Can I retire in 2024?

Post by Bobby206 »

Keep those expenses low and enjoy!
lakpr
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Re: Can I retire in 2024?

Post by lakpr »

Raspberry-503 wrote: Mon Apr 01, 2024 10:47 pm You have 10 years in cash! Maybe a little less depending on inflation, the. Oney market fund will not keep with.it.
On the other hand you have enough in growth assets that if that much cash let's you sleep at night, then hang on to it.
I'd look at blowing some of that dough on extra fun instead...
On this particular point (and this is not exactly relevant to OP, who I agree with others that he can retire tomorrow!), I wanted to say that a 60% stocks with 40% in fixed income has historically given almost exactly the same returns as a 70% stocks and 30% cash.

The point being: yes the cash may not be able to keep up with inflation, but a slightly more allocation to equities will provide that inflation protection. You don't need no stinking bond funds! And the best thing about this is that, instead of putting 100% of the principal at risk by opting for a bond fund, with a 70:30 portfolio a third of it is ultra-safe, and we take the risk only on equities side.

Portfolio Visualizer Link

Within this, I used the Vanguard Balanced Index fund as benchmark, so that I can get 4 plots in a single graph. The first one is 70% stocks + 30% cash, to be compared against the benchmark. The second one is 70% stocks + 30% bonds against 80% stock + 20% cash.

The conclusion I draw from this: Increase the equities allocation by 10%, it is enough to combat the inflation. Or at least, it was, for the past 30 years. You don't need to invest gobs of money into a bond fund, either intermediate bond fund or long term bond fund. Equities (you take the risk here) + cash (you take zero risk here). Note that this holds true in both ZIRP as well as when rates are comparable to today (1990's vs now, for example).
HomeStretch
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Re: Can I retire in 2024?

Post by HomeStretch »

Hat wrote: Wed Apr 03, 2024 9:52 am … For the taxable money market, my plan is to reassess this amount once I determine the yearly shortfall between desired spend and the ideal AGI for an ACA subsidy (also taking into account capital gains and Roth conversions).
This is a good evaluation to do as you will be using ACA coverage for ~15 years and the ACA subsidy cliff is scheduled to return in 2026+. If your net spending gap will far exceed the cliff $ (400% of the federal poverty level for your ACA family size), it will be a balancing act to generate enough cash for spending/taxes without exceeding the ACA income cliff for 13 years until the start of Medicare.

Spouse and I went into early retirement with ~3 years of cash & equivalents. We opted for COBRA for the 1st 18 months which gave us time to do some large Roth conversions. After that, we chose ACA subsidies and modest Roth conversions (with taxes paid from Taxable) as that was the best plan for us. The early Roth conversions may come in handy if we need cash without generating taxable income once the ACA cliff returns. It was also helpful as I became accustomed to decumulating to not have to overthink where to get the cash I needed to fund our monthly net spending gap (I just spent down from the 3 year cash stash).
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Wiggums
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Re: Can I retire in 2024?

Post by Wiggums »

Hat wrote: Tue Apr 02, 2024 9:29 am
Chadnudj wrote: Tue Apr 02, 2024 7:10 am Yes, you can.
I'd feel more comfortable with that, though, if your asset allocation was slightly more aggressive.
The online calculators also show a more aggressive allocation to be optimal. I'm unsure that I could sleep well at night with a more aggressive allocation, especially when the market is falling and I have no work income. Ideally, I'd be less anxious and go with 70/30.
We retired at 56. Our AA is 65/35. Three fund portfolio and treasuries. Nothing wrong with your asset allocation. If you start lower initially, you can let it drift higher overtime and save yourself on potential taxes incurred when you rebalance.
"I started with nothing and I still have most of it left."
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