I think I can retire. Help me with the confidence and a plan.

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CaliforniaKings
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I think I can retire. Help me with the confidence and a plan.

Post by CaliforniaKings » Sat Mar 09, 2019 1:58 pm

I'm new here...Have patience. please. :)

My goal:
I'd like to stop working soon - ideally this summer, or perhaps next year if it makes sense to push it out a little. I would like to take a chunk (1 year?) of time off, and then maybe start tutoring kids in technology or find some other endeavor about which I can feel some passion again.

Backstory:
Why? I'm over-stressed and just tired of the grind at my job. I've been very fortunate to have been at the right place in the tech world at the right time and I'd like to take a step back to spend time with my teenage kids and with my terminally ill mother while I still can. I also have had a couple of health scares in the past year (day in the emergency room with chest pain - it was nothing, sky high blood pressure that broke through my meds, and anxiety keeping me from sleeping led to start taking an antidepressant)...I don't want to keep adding new drugs. I'm 49 and have just recently dropped enough weight to not be on the doorstep of diabetes. I'd like to continue working on my health.

Financially, I think we're doing very well. My main question is "How do I make this transition?". Here's the picture (I'm cribbing the format from other posts, I hope I get it right):

Personal:
Age: 49
Two kids: 16 year old likely headed to an out of state college. I plan on reserving $60k times four years for his education with draws beginning in 2021. 13 year old in a small private school ($1k/month)...I plan on reserving the same amount ($240k total) for her education; she'll need that in perhaps as soon as six years.
Wife is 60 and no longer works but has a long history of working. We'll likely wait until age 67 to trigger her social security.
Mom is (as mentioned) terminally ill. We don't know how long she'll be with us, but it's not decades but likely more than a couple of years. If her needs go as anticipated, when she passes, my portion of the estate will likely total around $400-600k. That could obviously be radically lower or slightly higher; I do not count this in my planning.

Debt: ($300k)
  • We owe $250k on a house worth $2.1M in a very high cost area (the SF Bay Area), 10 years left on a 15 year fixed mortgage at 2.875%.
  • We owe on one car loan ($50k @3%, payments of $800/month) and one lease ($600/month, 14 months remaining).
Assets and investments: ($4.25M including excluding home equity)
  • Large home equity (approaching $2M) that is sacrosanct...Only as an absolute last resort would we borrow more against the house. Maybe we would consider moving...but likely only after the kids have moved out and landed somewhere else (7 years from now?).
  • My retirement accounts: total of just around $1.1M mostly in traditional 401k accounts scattered at various employers and a rollover IRA from another 401k.
  • Wife's retirements accounts: total 900k in traditional 401k plans.
  • Stock in my current employer (roughly 50/50 split in unexercised options and vested RSU grants): $600k
  • Stock in previous employer: $1.5M - long term holding, with a near zero cost basis.
  • Other brokerage accounts: 150k
(All the retirement accounts are fully invested in index funds - 80+% in S&P indices.)

Notable Fixed Expenses:
  • Tuition for daughter: $1000/month (annualized, likely three more years of that)
  • Property tax: $1200/month
  • Car and home insurance: $800/month (clean driving records, but newly licensed son kicks us way up)
Current anticipated spend is roughly $165k/year - that includes:
  • $40k reserve for health insurance costs
  • $14k in property taxes
  • $12k in tuition for kid #2
  • $10k auto insurance
  • $10k/year "expected unexpected" fund
  • Does NOT include the mortgage payment (because I'm not sure if we'll pay it off or not).
We can certainly adjust that budget down if/when it's needed, but if it's too much for our current financial position, I could reconsider working a few more years. I've started interviewing financial planners, but I can't shake the feeling that every one of them has his hand in my pocket for very little useful gain. Maybe that will change...but I'd wager that I'll doing this myself.

The basic question, then, is, can I fund this desired retirement with $4.25M in assets (plus home equity for emergency use)? Using the magic 4% rule, I'm there! Except I have doubts. College tuition? OK, let's back out 50% of that cash (the rest can ride another 5-6 years with my portfolio)...4.25M becomes 4M...That's just under my desired spend. Or, is 3% a more realistic draw? Or, can I tolerate more risk (especially given I am sitting on some home equity) and something more like 5% would be sustainable?

If not, let's discuss how far off I am.

If so, let's talk about a portfolio. Option #1: 100% long on S&P 500 index funds...Yield around 1.8% ($76k/year), withdraw remaining amount of principal each year. Option 2: Move a large chunk ($250k?) to a near-liquid holding, then park the rest in index funds? Option 3: I don't know. Some percentage of bonds (Meh...never been a fan, actually...my risk tolerance has always been high, but maybe it's time to rethink?).

Caligal
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Re: I think I can retire. Help me with the confidence and a plan.

Post by Caligal » Sat Mar 09, 2019 4:21 pm

bump to get attention

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alec
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Re: I think I can retire. Help me with the confidence and a plan.

Post by alec » Sat Mar 09, 2019 5:30 pm

If it were me, I would totally stop working at the super stressful job ASAP. You don't necessarily need to stop working for money forever, but I think you can afford to stop working for your health and to spend more time with mother/family.

That 1.5M in one company's (former employer) stock stood out to me. I realize that you might be emotionally attached to that, but if/when you stop working, you can sell portions of this tax-smartly to either live off and/or reinvest in more diversified taxable investments (like your much loved S&P 500 index).

Being almost 100% equities would scare the bejesus out of me. It doesn't appear to scare you at all, but you may want to run this by your wife. :D Nothing worse than being 100% stocks, not working, having another 2000-2002 or 2008-2010, and surprising your spouse with "Hey, our nest egg was just cut in half by 35%". I'm sure your retirement accounts probably have some low cost bond funds to choose from. I'd recommend moving all the retirement accounts to 1-2 places to make your life simpler.

Downsizing after your kids are, hopefully, out of the nest after college is a good idea. That could give you some more cushion.
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Tyler Aspect
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Re: I think I can retire. Help me with the confidence and a plan.

Post by Tyler Aspect » Sat Mar 09, 2019 5:32 pm

Welcome to Bogleheads.

Perhaps you could consider changing to a less stressful job position. In the over-all scheme it does not matter if your take home pay becomes 20% less, if the new job is less stressful then it should be worth it.

I think if you need to withdraw on the edge of 4%, then it might make sense to work for a few more years through the next recession. If you stop working, then there is no more money coming in.

You should adjust your asset allocation to 60% stock / 40% bond. On the year of your retirement further adjust your asset allocation down to 50% stock / 50% bond.

You have a single company stock that is about half of your net worth. That is way too big of a slice. Probably should sell all of it. Make sure to pay capital gains tax using 1040 estimated tax payments to avoid penalties. Use the proceeds to pay off debt. The remaining amount can be used to buy a mix of S&P 500 index funds, and 2 year US treasury notes.
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btenny
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Re: I think I can retire. Help me with the confidence and a plan.

Post by btenny » Sat Mar 09, 2019 5:52 pm

Welcome to Bogleheads. You are taking good steps in the right direction. For a first post you have done great.

First I think you need to retire or take a leave of absence right now. You need to take care of your health and spend some time with your Mom. At worst case you can go back to work in a year or two or go to work in a play job. The key is to cut your stress level.

I think you have enough money to stay retired by drawing 3-4% of your investments per year. But your expenses are pretty high. So think about how you can reduce some things in retirement.

How smart and motivated are your kids? Will they get in state or out of state scholarships? Can expect to get your oldest off your payroll soon? Plus you did not say but will your wife be able to start SS at 62-66? You really need to do some more expense analysis and real health care cost checking. Or will you wife go back to working and set up the family for low cost medical?

Plus you did not say but you will also cut your expenses when you start SS. So you only need 4% withdrawals for a few years.

As far as your asset mix you are too committed to single stocks. You have over $2.1M in two stocks. You have done great and been lucky. But now it is time to sell out and diversify. If you are not willing to sell out those stocks you will have to keep working. You have to exercise those options now and then sell the stocks. You have to do the same thing for your other stock with a low basis you have held for a long time. You need to make a two year plan to sell this stuff and pay the taxes. If needed go see a good tax CPA and work out a plan. When you retire you taxes will go down and you can sell stocks. Maybe sell some this now to fund you the rest of this year and then sell some more next year.

And yes I think you need to get down to 60% or so stocks and buy about 30% or more in safe bonds to reduce the portfolio risk. If the market crashes soon after your retire you will be destroyed so buy some bonds and reduce your sequence withdrawal risk.

I will try to look at this more later but for now this is my quick opinion.

Good Luck.

nd

miket29
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Re: I think I can retire. Help me with the confidence and a plan.

Post by miket29 » Sat Mar 09, 2019 6:03 pm

CaliforniaKings wrote:
Sat Mar 09, 2019 1:58 pm
  • Stock in my current employer (roughly 50/50 split in unexercised options and vested RSU grants): $600k
  • Stock in previous employer: $1.5M - long term holding, with a near zero cost basis.
This is the part that concerns me. You have more than 2 million in 2 stocks. Sure, maybe they keep going up or hold their value, but maybe they crater with a bad quarter or the CEO gets caught having an affair or whatever.

I don't know how to sell these to minimize taxes, might be worth an hour of a CFAs time if nobody here has good ideas. Paying taxes isn't fun, since you're in CA it would be a big hit. Or you hold and cross your fingers that any future dip before you sell plus the eventual taxes is more than the taxes now.
I've started interviewing financial planners, but I can't shake the feeling that every one of them has his hand in my pocket for very little useful gain. Maybe that will change...but I'd wager that I'll doing this myself.
If you trust/like Vanguard you could consolidate your wife and your 401K into Vanguard in a Rollover IRA. Once you have $1 million in Vanguard fund assets you are a Flagship client and can talk to a financial advisor about any specific questions as well as get a free annual plan. They will try to enroll you in their Personal Advising services but it is low pressure and easy to decline. See https://investor.vanguard.com/investing ... e-flagship

ColoradoNewBiker
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Re: I think I can retire. Help me with the confidence and a plan.

Post by ColoradoNewBiker » Sat Mar 09, 2019 6:11 pm

Did you take into account the tax? Looks like 4% will give you 160k per year (pre-tax) but you said you had expense around 160k. Maybe you need to adjust a bit of your expense to match the after-tax income?

ColoradoNewBiker
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Re: I think I can retire. Help me with the confidence and a plan.

Post by ColoradoNewBiker » Sat Mar 09, 2019 6:12 pm

But in general, I believe you're in a good shape to retire right now. Congratulations!

Luckywon
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Re: I think I can retire. Help me with the confidence and a plan.

Post by Luckywon » Sat Mar 09, 2019 6:55 pm

CaliforniaKings wrote:
Sat Mar 09, 2019 1:58 pm
The basic question, then, is, can I fund this desired retirement with $4.25M in assets (plus home equity for emergency use)? Using the magic 4% rule, I'm there!
California resident similar age and expenses here so I appreciate many of the specifics of your situation.

It seems to me that applying the 4 % rule to your situation is risky because:
-An unusually large portion of your non-retirement funds is subject to capital gains taxes. Compounding this remember that living in California in retirement means that both capital gains and non Roth retirement account withdrawals are taxed as regular income at the state level.
-A large portion of your assets is not diversified and presumably you are stuck with these due to capital gains taxes if sold.
-You have a long retirement horizon.
-Large number of financial unknowns with two children.
-My personal belief is that the 4 % rule is optimistic at this point in time.

Considering these factors, assuming in your case you had to withdraw $200k to net $160k, and a more realistic 3.5 % SWR, I think you should shoot for investable assets around $5.75 million before retiring.

This is assuming an asset allocation somewhere between 50:50 and 75:25 equities to bonds. If you're thinking of staying near 100 % in equities, along with your high exposure to two stocks, and retiring, I rather doubt you'd make it through retirement without at some point needing to go back to work, drastically reducing your expenses, or selling your home (or all three).

Good luck with whatever you decide and welcome to the forum.

delamer
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Re: I think I can retire. Help me with the confidence and a plan.

Post by delamer » Sat Mar 09, 2019 8:34 pm

miket29 wrote:
Sat Mar 09, 2019 6:03 pm
CaliforniaKings wrote:
Sat Mar 09, 2019 1:58 pm
  • Stock in my current employer (roughly 50/50 split in unexercised options and vested RSU grants): $600k
  • Stock in previous employer: $1.5M - long term holding, with a near zero cost basis.
This is the part that concerns me. You have more than 2 million in 2 stocks. Sure, maybe they keep going up or hold their value, but maybe they crater with a bad quarter or the CEO gets caught having an affair or whatever.

I don't know how to sell these to minimize taxes, might be worth an hour of a CFAs time if nobody here has good ideas. Paying taxes isn't fun, since you're in CA it would be a big hit. Or you hold and cross your fingers that any future dip before you sell plus the eventual taxes is more than the taxes...
I completely agree with the above.

You can’t tolerate more risk, you have too much risk already. Half of your portfolio is in two stocks; 35% is in one stock.

Until you figure out how to unwind those positions, retiring — with your current spending levels — is too risky.

aristotelian
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Re: I think I can retire. Help me with the confidence and a plan.

Post by aristotelian » Sat Mar 09, 2019 8:46 pm

I am going to be somewhat cautious. Half of your net worth is in two stocks. You are taking tremendous risk there. You will incur a big tax hit to get out of them, but taking risk by staying in them. You should either discount them by the tax hit or value them conservatively. If you allow for them to drop by 50%, that gives you a $3M portfolio which gives you a safe budget around $100K. Most people could retire on that but you want a budget of $165K.

That said, for your well being I would certainly encourage you to quit your job. Then decide whether you want to either work a less stressful job or cut back your lifestyle. For example, if you are retired you could probably get by on one car. Let that lease expire and then save $600/month plus another $400 or so in insurance. You should be able to get your health care budget under $30K. Downsizing your home and/or moving to LCOL area would make it a slam dunk.

deikel
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Re: I think I can retire. Help me with the confidence and a plan.

Post by deikel » Sat Mar 09, 2019 8:55 pm

I would go about this slowly and absolutely slow down in your current job...you might think that is not possible, but in reality, you should shoot to work the absolute minimum to not get fired...and even if you get kicked, you know you are fine, so behave bullet proof because you are and you might be amazed of what is possible.

Your are only 50, so you can get another job that provides healthcare and your 40k per year budget for healthcare might drop to something like 15k - that's money well saved.

Start with consolidating your 401ks into one IRA, start selling off your single stocks ad make a plan for the selloff over the next months, start eliminating debt to improve cashflow and it would not hurt to start simply saving money, raining in spending habits and setting expectations for the whole family early....your are killing your health right now to provide for the current lifestyle for everyone, so that is not very smart.

You probably don't want to move and cash out the house, but its always an option and would immediately make your retirement possible. The personal freedom gained would trump family complains IMO.

Start slow, revisit in 6 months and check where you are at that time - no rash decisions, but also don't allow inertia from the rest of the family
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catalina355
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Re: I think I can retire. Help me with the confidence and a plan.

Post by catalina355 » Sat Mar 09, 2019 9:46 pm

delamer wrote:
Sat Mar 09, 2019 8:34 pm
miket29 wrote:
Sat Mar 09, 2019 6:03 pm
CaliforniaKings wrote:
Sat Mar 09, 2019 1:58 pm
  • Stock in my current employer (roughly 50/50 split in unexercised options and vested RSU grants): $600k
  • Stock in previous employer: $1.5M - long term holding, with a near zero cost basis.
This is the part that concerns me. You have more than 2 million in 2 stocks. Sure, maybe they keep going up or hold their value, but maybe they crater with a bad quarter or the CEO gets caught having an affair or whatever.

I don't know how to sell these to minimize taxes, might be worth an hour of a CFAs time if nobody here has good ideas. Paying taxes isn't fun, since you're in CA it would be a big hit. Or you hold and cross your fingers that any future dip before you sell plus the eventual taxes is more than the taxes...
I completely agree with the above.

You can’t tolerate more risk, you have too much risk already. Half of your portfolio is in two stocks; 35% is in one stock.

Until you figure out how to unwind those positions, retiring — with your current spending levels — is too risky.
Agreed. It's likely that the OP has positions in tech stocks so even more concentrated and risky. The OP should not let the tax tail wag the investment dog.

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catalina355
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Re: I think I can retire. Help me with the confidence and a plan.

Post by catalina355 » Sat Mar 09, 2019 9:49 pm

CaliforniaKings wrote:
Sat Mar 09, 2019 1:58 pm
We owe on one car loan ($50k @3%, payments of $800/month) and one lease ($600/month, 14 months remaining).[/list]
If you want to reduce your expenses so you can retire or take a well deserved break I would get out of the car loan and lease. Do you really need or want a $50K+ car? You could consider a Camry or Accord. How much is the maintenance on the $50K car?

larsm
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Re: I think I can retire. Help me with the confidence and a plan.

Post by larsm » Sat Mar 09, 2019 10:10 pm

Unless I misunderstood your assets, it appears all are subject to hefty future taxes as they are either in tax advantaged accounts (IRA/401K) or stock, which have zero basis.

I assume, therefore, you have looked carefully at the future amounts and timing of tax bill and how that will impact your cash flow.

Honestly my gut reaction is that with wanting to spend $160k plus (not including taxes for tax advantaged assets) out of a $4.25 m portfolio you are being quite aggressive.

I would not feel comfortable with that scenario.

multiham
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Re: I think I can retire. Help me with the confidence and a plan.

Post by multiham » Sat Mar 09, 2019 10:20 pm

I think you are good to retire given your current assets and your health concerns. If you find that you need a little more $, just get a part time job with no stress. Waiting until you get $5 million isn't a good idea when your health is being impacted as much as you describe. It's simply not worth it.

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sergeant
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Re: I think I can retire. Help me with the confidence and a plan.

Post by sergeant » Sat Mar 09, 2019 10:25 pm

You have received good financial information from other posters. If I were in this situation I would concentrate on my health and spending quality time with family. I would just do the minimum at work until my health was excellent. It is possible to be healthy and work. Exercise, eat right, and reduce stress.
You can retire now but may have to adjust your spending down or sell the home and go to a lower COL area.
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Dandy
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Re: I think I can retire. Help me with the confidence and a plan.

Post by Dandy » Sun Mar 10, 2019 7:30 am

I think you have enough but your health is the key to why I'd suggest retiring soon. Life is short and enjoying family and supporting a terminally ill mom is important. I had a taste of what you are experiencing with a stressful job, two kids of college age and a wife with a life threatening illness. But, I didn't have your health issues. I was forced out of that stressful job and it was a blessing. I remember tensing up Sunday evenings as I dreaded going to work that Monday.

Life, health, family are the important things not adding a bit more to a very decent asset level. I'm sure with your tech experience you could find some less stressful work in the future if you needed to.

Jack FFR1846
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Re: I think I can retire. Help me with the confidence and a plan.

Post by Jack FFR1846 » Sun Mar 10, 2019 7:52 am

I'd like to propose a potential mid step instead of just leaving your job. Downshift into a lower level job in your field that you can easily do and where responsibility and stress is reduced. I've seen a number of low level directors (in charge of location research facility) drop down to being individual contributors. Every one of them look like they're a million percent happier and completely unstressed. Is there a place where you can go to make this happen at your current employer? If so, things like benefits and seniority stay as they are but you are relieved of some of the stress.

Oh....get rid of the single stocks.
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marcopolo
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Re: I think I can retire. Help me with the confidence and a plan.

Post by marcopolo » Sun Mar 10, 2019 12:43 pm

Jack FFR1846 wrote:
Sun Mar 10, 2019 7:52 am
I'd like to propose a potential mid step instead of just leaving your job. Downshift into a lower level job in your field that you can easily do and where responsibility and stress is reduced. I've seen a number of low level directors (in charge of location research facility) drop down to being individual contributors. Every one of them look like they're a million percent happier and completely unstressed. Is there a place where you can go to make this happen at your current employer? If so, things like benefits and seniority stay as they are but you are relieved of some of the stress.

Oh....get rid of the single stocks.
I often see this advice to take a lower level job to reduce stress. How realistic is that?
First, do many companies entertain this type of downshifting? Has not been my experience.

Moreover, at least in my career, I found that the level of stress actually went down as I got into more senior level roles. Sure, there was more responsibility, but there was also much more independence and control. The latter far outweighed the former.

Definitely, diversify. But, with the level of assets available, OP could choose pretty much any path and be fine.
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fortunefavored
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Re: I think I can retire. Help me with the confidence and a plan.

Post by fortunefavored » Sun Mar 10, 2019 12:58 pm

I'm in a similar situation, minus the kids.

I think you're close and just need to get your ducks in a row.

1) Your expenses need a lot more refinement, especially taxes. Back of the envelope, you'll be looking at 10-15% in fed+state taxes at that high draw rate.

Most FIRE discussions focus on being at near zero taxes, but when you're into the >$200K/year range, you won't escape the tax man, especially in CA.

Figure out your mortgage situation, you can either include it or exclude it. Excluding it is easiest from a math point of view, but you can also model rolling it off.

Health care may be more favorable than a straight $40K/year - I model the year-by-year numbers, total it up, and that's the lump I reserve. Kaiser's ACA premium calculator is useful: https://www.kff.org/interactive/subsidy-calculator/

Broad 25X or 30X expense calculations are useful as a barometer, but less useful when it comes down to answering "Where is every dollar actually going to go?"

2) Lots of comments on the portfolio above. Mostly you just need a goal and a plan. If the goal is 60/40 total stock/total bond, figure out how to get there. That may be a mass liquidation immediately, or a 3 year post-retirement liquidation - you'll need to run the math as far as risk/reward goes. You will also want to model future Roth conversion potential. Tax management will be your new hobby.

3) That big house equity is insurance if things go wrong in 5 or 10 years and that small (possible) inheritance implies your extended family won't need your support - those are two big positives.

4) People often talk about downshifting, consulting, returning to work, or part time.. only you can measure how likely any of these can be and adjust your risk profile appropriately. Personally, when I am out, I am out.

So I'd say make a 1 year plan to clean up your numbers and go for it. Once your plan is solid, check out at work until they kick you out!

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CaliforniaKings
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Re: I think I can retire. Help me with the confidence and a plan.

Post by CaliforniaKings » Sun Mar 10, 2019 9:53 pm

Thank you all for the advice.

My plan is evolving thusly:
  • End my work stress
I'm liking the idea of an FMLA leave - I can spend time with my mom helping take care of her and basically give myself a few months to sort my head out without having to make a life-altering choice today. I can always quit at the end of the leave or if I recharge and want to come back, I have that option.
  • I want to consolidate all our accounts into one location - let's get all our 401ks and IRAs into one place.
Where to put everything? We have multiple accounts at Morgan Stanley and Fidelity now - I could centralize at one of those. I know Vanguard is popular, too. Anyone have advice for which institution to pick? My wife will want another set of eyes from some sort of advisor to say we're not being crazy - I believe our portfolio size should put us into the category where advisor access isn't a problem.
  • I need to diversify - I know this and I'm no longer comfortable with that concentration.
Currently thinking that I'll move 10% of the portfolio balance out of each of the two large single-stock holdings each quarter. If I'm not working, I'd like a chunk of cash (the better part of one year's budget - so let's say $100-$150k). Beyond that, I'm still an S&P fan and would lean towards dumping everything else in there. But I can work on an investment allocation strategy as I go. Doesn't have to be solved today.
  • Debt
We have three primary debts: the mortgage (2.885%, 2000/month), a car payment (3%, 800/month 50k remaining), and a lease (600/month). The lease has a year to run and I'll ride that out. Once it's gone, I don't need to replace it. The loan can be paid off (as can the mortgage to be honest), but at 3% I don't mind holding the cash and making payments. When I stop working, I'd pay off the car but probably wouldn't do the mortgage right away.
  • Expenses
I know my expenses are high - part of the plan here is to explore how close we are to being able to maintain our current lifestyle. In other words, the most conservative thing for me to do is model my budget based on what we're spending now, then we can decide what we want to cut from there.

Health insurance is a massive line item. Covered California says the base rate for the four of us is $3300/month for a blue cross silver plan (which is where I get my $40k/year estimate). If I managed to keep our income below $100k, we get the ACA subsidy of $2k/month. That would be a big boost. In another five years, medicare will kick in for the wife, too. This motivates me to try and set up a plan where I could live under that 100k limit for the next six years. Because, at that point...
  • Now+ six years
In six years, kid #1 will (theoretically) be out of college and I can dream he's off my medical and auto insurance. In the same timeframe, kid #2 will move into her college-age years, the wife will pick up medicare and her social security will kick in...Cash flow gets much easier there and my current model shows our budget shrinks by 20-30k/year.

Also, in the six+ year timeframe, we can look at the option of perhaps downsizing and relocating to a lower cost of living area. That's not on the table until the kids are through high school...so until then we're anchored here.

Again...thanks for the advice and feedback, everyone! Please keep the information coming!

Open questions:
  • Vanguard or Fidelity or Morgan Stanley or...what?
  • Roth conversions for our 401ks? Yes? No? Indifferent? I have to admit that I've mostly hidden my head in the sand when it comes to thinking about Roth conversions.

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onthecusp
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Joined: Mon Aug 29, 2016 3:25 pm

Re: I think I can retire. Help me with the confidence and a plan.

Post by onthecusp » Sun Mar 10, 2019 10:39 pm

I'll offer a little advice regarding Fidelity vs. Morgan Stanley.
I don't know anything about Morgan Stanley so this is really just some one sided experience.

I consolidated most of my accounts 2-3 years ago with Fidelity and it has been a good experience overall.
Pros.
-Low cost index based mutual funds and ETFs are available with no trading fees to implement a Bogleheads style asset allocation.
-Regular broker services seem to work fine for simple trades such as unwinding large single stock investments. You could probably score a limited number of free trades when you talk about moving accounts.
-The web site works well. Electronic fund transfers to / from my bank work just fine.
-The account rep was very helpful getting the transfers done. I was clear that I was not looking for investment advice and he left me alone.
-The annual statement has worked seamlessly with turbo tax.

Cons.
-They seem to be pushing investment advice recently. An adviser has been assigned to me with a smiling picture on my account page. She called the other day and I politely said no thanks. Don't know if there will be more contact, but I suspect they are offering some sort of fee service. She said my account rep was a "different" function.
-More Bogleheads are with Vanguard so you would be an outcast here. No, just kidding. If memory serves Vanguard, Fidelity, and Schwab are the three most recommended. If you would like a touch of financial advising Vanguard does seem to offer a low cost and well regarded advisor service for significantly less than a typical 1% asset under management advisor. I've seen advice for people to take them up on it for a year or so then cancel once all the accounts are set. The advice you get here will be similar but that may sit better, since you mentioned a possible adviser. Unless you get extraordinarily lucky most adviser are going to be in your pocket for more, sometimes much much more if they also are authorized to trade your account. You really can do it on your own, with remarkably little stress, by working through the issues here.

You are in great shape, but some decisions ahead, enjoy the ride.

blahblahsunshine
Posts: 41
Joined: Sun Jan 14, 2018 8:11 pm

Re: I think I can retire. Help me with the confidence and a plan.

Post by blahblahsunshine » Thu Mar 14, 2019 11:01 pm

Our situation is very much like yours. We are having some of the same questions/fears about punching out. Couple thoughts:
You likely are well situated re:social security and probably have something greater than 30K per year coming to you (maybe wife too?) at 70.
You might examine your costs to see if you really need 165 or not. We are planning around about that much, but in reality our epenses are significantly less. You might be surprised to find your expenses can be a bit lower...and for every dollar you reduce from your annual run rate translates into 25-40x dollars you don't need in your retirement funds. Also re:taxes I think 15% would be the top side of the tax implications (aside from state taxes).

I think you could punch out now if you want, and you have a bunch of equity you can tap in the house if you need to. It really is a personal fear thing. We are waiting one more year ourselves, but don't have the same urgency that you describe.

3504PIR
Posts: 704
Joined: Mon Jul 26, 2010 2:46 am

Re: I think I can retire. Help me with the confidence and a plan.

Post by 3504PIR » Fri Mar 15, 2019 12:26 am

I would retire this summer or at least do something different if you need to do something with yourself.

Didn’t see this posted, but I’d move to a cheaper location, like Colorado or Bend, OR. Spend half or less of your equity on a great new house and then you’ll really be in great shape.

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catdude
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Joined: Mon Jul 16, 2007 8:11 pm
Location: Central Oregon

Re: I think I can retire. Help me with the confidence and a plan.

Post by catdude » Fri Mar 15, 2019 3:39 am

3504PIR wrote:
Fri Mar 15, 2019 12:26 am
Didn’t see this posted, but I’d move to a cheaper location, like Colorado or Bend, OR. Spend half or less of your equity on a great new house and then you’ll really be in great shape.
I see that OP is from the SF Bay Area. OP, join the stampede coming to Bend! We already have tons of Bay Area refugees here, you'll fit right in...
catdude | | All generalizations are false, including this one.

Carl53
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Re: I think I can retire. Help me with the confidence and a plan.

Post by Carl53 » Fri Mar 15, 2019 5:30 am

Not sure this would be worth considering, but your wife could take SS at 62 with at least your younger child being eligible for benefits for a few years. I believe your wife would have to continue benefits until at least her Full Retirement Age. If she were to suspend her benefit at FRA and then delay until 70 they would be nearly as large as they would have been had she originally waited until FRA.

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Tamarind
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Joined: Mon Nov 02, 2015 2:38 pm

Re: I think I can retire. Help me with the confidence and a plan.

Post by Tamarind » Fri Mar 15, 2019 6:19 am

OP, you can absolutely afford to take a year off for your and your family's health and well-being, and I think you should. But I don't think you can retire permanently at $165k per year without either reducing expenses or dealing with that concentrated stock.

Think about it as a discounting issue. You list $2.1M in stock in two companies. If you liquidated that to move it into diversified funds, how much would you lose to taxes? You might owe AMT on the options preference at exercise. You'll owe short or long term capital gains at sale depending on date and your basis. Take a stab at this math and tell us what this part of your nest egg is actually worth apples-to-apples with a diversified portfolio.

A ballpark guess would be more like $3.7M. At 4% that's less than $150/year over 30 years.

Of course you don't have to sell it all and deal with a massive tax bill this year. You could draw it down gradually for living expenses. But while you are doing so, your portfolio is at much higher risk than a similar stock/bond portfolio, so your ability to safely withdraw would be reduced anyway.

I think you're actually pretty close, though. I personally don't think you need to go lower than 3.5% for a withdrawal rate even for an early retirement. If you stopped working and took advantage of the period before either of you starts SS you'd have a bit more room to convert your employer stock at lower tax rates.

Can you get your expenses down to $130k annually before taxes? That would be a more realistic number which you could support without having to pile on more risk.

Your housing expenses are superbly well-controlled for the area. Cars less so - can you stop leasing when this one ends and decide to buy 50% cheaper vehicles? You enumerated $86k of major expenses, but what are your more discretionary expenses?

Can you provide more info on your and your wife's projected Social Security? Whose amount is higher once you average in zeros for the rest of your pre-62 years?

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nativenewenglander
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Joined: Sun Jul 30, 2017 6:05 am

Re: I think I can retire. Help me with the confidence and a plan.

Post by nativenewenglander » Fri Mar 15, 2019 6:27 am

The other part I don't see mentioned is your wife is 11 years older. My mother was 9 years older than my dad, he retired early to travel with her while they were both at their best. This something you should had to the conversation as to why it's important to slow down now.

rkd
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Joined: Tue Aug 21, 2018 12:49 am

Re: I think I can retire. Help me with the confidence and a plan.

Post by rkd » Fri Mar 15, 2019 7:54 am

Thanks OP for posting. I hesitate to add anything given excellent advice in the thread.

I suggest to do the math again assuming diversification post stock sales. Federal and CA state taxes will take a big chunk. Personally I feel that given a stressful job that is taking its own toll, keeping so much money in two stocks is very risky. I am sure these are good tech companies but if for whatsoever reason (think Boeing this week) these take a plunge you will be in a tougher situation. Also you should consider if you can lower your committed yearly expenses which will give you more control over how much to draw. Thanks and all the best!!

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