I'm impressed - almost every "Can I retire?" post contains gaping holes like not including any healthcare costs in their budget and also forgetting to make any attempt to estimate taxes. You have done a good job of thinking things through and laying it out.EricJ wrote: ↑Mon Jun 18, 2018 5:56 pm Short Version: $3.1M invested at age 50. Can I quit and go fishing now? Please?
Long Version of the question: I am about to pull the plug and retire, but would first like some outside views on whether it’s advisable. Online calculators indicate we'll be OK, but I’d appreciate any observations or advice you might have on my situation.
Background: Married couple, no kids, no need for leaving a legacy. The goal is to spend it all. Him (me): 50, working, making big bucks at big company, but not loving it; Her: 54, not working (and loving it). No traditional pensions for either of us. His Social Security, assuming stop work now and draw at 70: $3281/month. She would get about half of that; her own earning record is smaller.
Investable assets by account type:
Investment asset allocation
- Bank accounts: $25,000
- Post-Tax investments: $1,141,000, cost basis $739,000
- Cash-balance pension: $294,000 (see below)
- 401k and IRAs: $1,686,000
- Total: $3,146,000
In my view, the cash-balance pension is bond-like, so I consider my bond allocation to be about 28% (I’ve wandered a little off my goal of 30%). The cash-balance pension pays interest at the 30-year T-bill rate, or 4%, whichever is higher. Four percent probably seemed like a minimal guarantee when the plan was established, but these days it looks like a fairly high guaranteed rate, so I plan to leave these funds in place for the foreseeable future. I can roll it into an IRA at any point.
- US Stocks: 62.5%
- Non US Stocks: 9.3%
- Bonds: 17.6%
- Cash-balance Pension: 10.6%
Our house is paid off and valued at approx. $400,000. I do not include the house as a spendable asset. It could be a sort of a whoops fund.
Firecalc says, assuming zero SS: We can spend $100,000/year for 45 years with 100% success.
- I have a spending budget after income tax of $90,000/year or 2.9% of investable assets. This budget is slightly higher than my actual spending for the last several years, and it’s based on decades of careful tracking of spending.
- A big question mark is my income tax forecast. I have some ability to manipulate income with over $1M in post-tax accounts. If I aim for $64,000 of income through dividends, Roth conversions and capital gains, I think my federal taxes will be about $4500. State (NJ) is harder to estimate – I’ll estimate $2000 based on one online calculator. So my total annual withdrawal from assets is $96,500 including income tax, or 3.1% of portfolio.
- I have priced a silver health insurance plan through the state exchange at $16,300/year unsubsidized. If my income is under 400% FPL (likely), I would save at least $10,000/year through subsidies for as long as subsidies last. COBRA would be about $14,000/year. I am not counting on subsidies so I have budgeted $22,500/year for healthcare and dental including insurance and out-of-pocket costs. This is part of the $90K budget mentioned above.
- We have two decent cars with no loans. We might reduce to one car, but budgeted for two, replacing one car every 5 years.
i-ORP says, assuming zero SS: Our projected, maximum, annual disposable income is $97,000 in today's, after tax dollars. When I change to “Extended ORP” it increases to $162,000 before I even change anything. I don’t understand the difference, but even the smaller number of the basic ORP says I’m OK.
Financial Engines says: "By age 51, your current investments may be worth $3,060,000 or less. That amount could produce $151,000 or less per year of income in retirement if market performance is average. If market performance is poor, it may produce $134,000 per year or less."
- I don’t plan to buy long-term care insurance. Que sera sera.
- Healthcare costs are likely to inflate at an insane rate.
- I’ve modeled my retirement at age 51 in i-Orp and FE to use whole numbers, but hope to get out at age 50.5.
So if you've read this far, please take another minute and tell me what you think. Does it look like I'm in good shape for retirement at age 50 and a half? Any advice? Thanks in advance.
- We can sell the house if/when needed.
- Social Security may actually exist when I’m eligible (I’m currently modeling retirement without SS).
- We may be eligible for ACA subsidies.
- The budget includes $7K per year for travel, which is discretionary and probably won’t be used after we get really old.
- We can reduce to one car.
Here are some of my thoughts FWIW:
- I do think that it is unlikely that you will be able to count on ACA subsidies for very long.
- You have only modeled taxes initially while you are pulling mostly from after-tax accounts. But based on the amount of your annual withdrawals, I don't think that your after-tax accounts will last until you are 70.5. Once you start drawing down your pre-tax accounts, taxes will go way up. I think you need to do some more in-depth modeling and project spending out for many years. It may not be feasable to delay SS until age 70.
- Your asset allocation is pretty aggressive for someone who wants to retire after a 9-year bull run in the stock market. If we hit a really bad patch in the stock market, you will have no choice but to continue drawing down your account until you are eligible to start SS at 62. In addition, if you run through your taxable account before 59.5 you would have to set up a SEPP withdrawal plan for a minimum of 5 yrs or until you hit 59.5 whichever is longer.