Early Retirement Question

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jorodrig
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Early Retirement Question

Post by jorodrig » Sat Jan 13, 2018 5:00 pm

I am 47 and have retirement assets of $1.18M and a taxable portfolio of $131K. I am considering early retirement and was wondering if anyone has used the SEEP program to pull money from their IRA without penalties. I probably need about $60K per year for expenses. I am also planning to start a business. I do know that the SEEP allows you to start with a set amount of withdrawals and change it later (but only once) if needed. If my business is successful, I would be able to lower the amount that I pull from the IRA.

Would you consider retirement under those financial conditions? Has anyone used SEEP? Are there any other ways to pull the IRA money without penalties. I do know about reasons like education and buying a home, but do not know of any other options to withdraw early.

Thanks.

el George

aristotelian
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Re: Early Retirement Question

Post by aristotelian » Sat Jan 13, 2018 5:27 pm

Roth conversion ladder would be a more flexible alternative than SEPP. However, you need to have 5 years of expenses already in Roth or taxable. Do you have any Roth IRA funds or is it all Traditional?

jorodrig
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Re: Early Retirement Question

Post by jorodrig » Sat Jan 13, 2018 5:32 pm

Only have $105K in Roth.

el George

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FiveK
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Re: Early Retirement Question

Post by FiveK » Sat Jan 13, 2018 5:47 pm

jorodrig wrote:
Sat Jan 13, 2018 5:00 pm
I am 47 and have retirement assets of $1.18M and a taxable portfolio of $131K.
...
I probably need about $60K per year for expenses. I am also planning to start a business.
...
1) Would you consider retirement under those financial conditions?
...
2) Are there any other ways to pull the IRA money without penalties?
1) Consider, yes. But with a very sharp pencil. The quick 4% rule of thumb suggests you need $1.5M for a $60K/yr total expense (including taxes). Having some SS income at some point may mean you need less invested. Anticipating a remaining lifespan >30 years may mean you need more invested.

2) Yes, as aristotelian suggested. E.g., How to withdraw funds from your IRA and 401k without penalty before age 59.5.

jorodrig
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Re: Early Retirement Question

Post by jorodrig » Sat Jan 13, 2018 11:33 pm

My wife and I will have SS of around $68K. We won't need to pull that much from our IRAs (maybe $10K-15K starting at age 67).

el George

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FiveK
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Re: Early Retirement Question

Post by FiveK » Sun Jan 14, 2018 12:07 am

jorodrig wrote:
Sat Jan 13, 2018 11:33 pm
We won't need to pull that much from our IRAs (maybe $10K-15K starting at age 67).
As the saying goes, it seems this "assumes facts not in evidence".

In other words, if you retire now what will you live on for the next 20 years, such that your IRAs may remain untouched until then?

The SS benefit number, assuming it refers to benefits you would both receive if starting at age 70, is plausible.

jorodrig
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Re: Early Retirement Question

Post by jorodrig » Sun Jan 14, 2018 3:07 am

That is our estimated SS if we start pulling benefits at age 67 ($68K). My wife's current income is around $38K.

The plan is to pull $60K per year from IRAs(SEEP)/Roth/Taxable account from now until age 59 1/2. After that my wife retires and we live off IRA until age 67, when we pull SS plus some IRA money.

I do not have 5 years of savings to do the Roth conversion ladder, but I am close. I currently have $236K between taxable and Roth, so that almost covers 4 years of savings at $60K each.

Call_Me_Op
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Re: Early Retirement Question

Post by Call_Me_Op » Sun Jan 14, 2018 8:32 am

jorodrig wrote:
Sun Jan 14, 2018 3:07 am
That is our estimated SS if we start pulling benefits at age 67 ($68K). My wife's current income is around $38K.
Doesn't that estimate assume that you continue working until full retirement age?
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

heyyou
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Re: Early Retirement Question

Post by heyyou » Sun Jan 14, 2018 1:00 pm

by Call_Me_Op » Sun Jan 14, 2018 8:32 am
jorodrig wrote: ↑
Sun Jan 14, 2018 3:07 am
That is our estimated SS if we start pulling benefits at age 67 ($68K). My wife's current income is around $38K.
Doesn't that estimate assume that you continue working until full retirement age?
Call Me Op is being tactful by posing the answer as a question. The SS estimate assumes that you will keep working at last year's wages until you reach those ages in their recent estimates. There are SS calculators on the 'net, besides the gov't one.

An even more serious question is "Are you assuming that the value of your stock portfolio will stay near today's size?"
Michael H. McClung (use the middle initial to avoid some other Michael McClung when searching) wrote the book Living Off Your Money, which uses current equity valuations (CAPE 10 for US stocks) to adjust the initial portfolio withdrawal rate to compensate for the equity valuation level on retirement day. I don't recall if the bond rate is considered in the same way. Perhaps someone else will help with that. My point is stock crashes are inevitable, but the recoveries have not always been as quick as the most recent ones, which can be a problem when continuously spending from any stock assets. McClung bypasses that problem by spending only from bonds at the start.

His book is good for very early retirees because he does show longer retirements.

If I was in your situation, I would consider moving to a lower cost expat area in the smaller cities of Mexico or Panama (the US dollar is the Panamanian currency, no mint except for a $1.00 coin named a Balboa). Both countries have comfortable weather higher in the mountains, if their beach climates do not suit you, and expat communities where living well is on SS sized incomes. ETA: US dollars in Mexico are now worth double what they once were.

jorodrig
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Re: Early Retirement Question

Post by jorodrig » Sun Jan 14, 2018 6:38 pm

I will probably have to recalculate the SS but even if it is half that the IRA withdrawal potential will more than compensate for a loss from the current $68K estimate.

If we ignore the "early" and consider just a new retiree with 1.32M. $60K withdrawal is only 4.58% withdrawal rate, which is very close to the general recommendation on 4%. Seems doable. Then once the SS kicks on at 67 yrs of age, then IRA withdrawal rate will be lower. This is assuming the IRA funds grow to at least cover the inflation rate. All I need is for my wife (or both together) earn the $38K she is currently earning until the SS kicks on. If neither of us wants to work after 59 1/2, then we have to pull $98K from the IRA for 6 years (7.5%) until SS kicks in.

I don't see a lot of issues with this plan, but maybe I am missing something else?

I can't move out of the country. I got kids that will start college in 2018. One will go 2018-2022 and the other one 2022-2026. I will pay college with 529 scholarships and probably $40K - $80K from my IRA (529 funds were not included in the original question).

mptfan
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Re: Early Retirement Question

Post by mptfan » Sun Jan 14, 2018 6:40 pm

jorodrig wrote:
Sat Jan 13, 2018 5:00 pm
I am considering early retirement and was wondering if anyone has used the SEEP program to pull money from their IRA without penalties.
I think you mean SEPP.

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FiveK
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Re: Early Retirement Question

Post by FiveK » Sun Jan 14, 2018 6:50 pm

jorodrig wrote:
Sun Jan 14, 2018 6:38 pm
All I need is for my wife (or both together) earn the $38K she is currently earning until the SS kicks on.

I don't see a lot of issues with this plan, but maybe I am missing something else?
That is much more plausible than the OP, in which it appears you are single and would have no other income. ;)

So you are probably good to go, but if you want more detailed responses, consider supplying all the information suggested in
Asking Portfolio Questions and How To: Write a "Case Study" Topic.

PaulF
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Re: Early Retirement Question

Post by PaulF » Mon Jan 15, 2018 12:22 am

jorodrig wrote:
Sat Jan 13, 2018 11:33 pm
My wife and I will have SS of around $68K. We won't need to pull that much from our IRAs (maybe $10K-15K starting at age 67).

el George
I just don't see how that SS figure is possible. At 47, you couldn't possibly have 35 working years in. If you have been maxing out the SS contribution (currently ~$127k) every year since you were 20, and stopped working now, I think you would be looking at about $32k for yourself at full retirement age. If your wife is currently making $38k, well, she is nowhere near maxing out her SS contribution.

I think you are doing very, very well. But I don't trust that SS figure, and I think you are cutting it a bit fine without that.

CurlyDave
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Re: Early Retirement Question

Post by CurlyDave » Mon Jan 15, 2018 12:52 am

A lot of things are possible, but I would be a lot more comfortable with $2m than $1m.

There is an awful lot that can go wrong, and everything needs to go right for you to have a comfortable life with the resources you have.

jorodrig
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Re: Early Retirement Question

Post by jorodrig » Tue Jan 16, 2018 1:38 am

The SS estimates are probably accurate. Those are at 67 years old (full SS retirement age for the two of us). I have worked for 24 years and making 6 figures for 18 years. My wife used to make 6 figures until last year, then moved to non-profit with a significant pay cut (better career purpose and quality of life). That huge pay cut was a tough pill to swallow, but when momma is happy everyone else is happy!

We have expenses of around $100K. We probably keep around $33K of her salary, so I need around $60K more to cover expenses. One kid going to college in August, and 529 will cover expenses there. I am hoping to save at least $7K in home expenses with one less member in the household. Not sure, but maybe I can save more.

Of course, the other option is to make some money through a part-time job or my own business. The more I make the less I need to take from retirement/savings. Those are options I am considering.

I would love to have those $2M, but I am not there yet. I need to take a look at those Roth conversions you suggested to cover me until 59 1/2 (well, 58 1/2, as my wife is one year older). But I feel a 4.57% withdrawal rate (to produce $60K/yr) is reasonable. Of course, if the market tanks for 10 years, may need to re-evaluate at some point in the very near future.

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