Winding Down

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
hebeoldage
Posts: 1
Joined: Sat Jun 29, 2019 5:52 pm

Winding Down

Post by hebeoldage » Wed Jul 10, 2019 5:56 pm

Hello Bogleheads!

Long time lurker, first time poster!

I am getting ready to start winding down my finances for retiring at 55 and wanted some advice and opinion on the best way to get things in order for minimal tax impact in retirement.

Current age: 51.5, Married (spouse age 50), no kids.
401k: $995,000
Roth: $442,000
Taxable: $0
Home Equity Home-1 (Rented out, cash flow neutral): $500,000 (Gains if sold: $500,000)
Home Equity Home-2 (Living in currently): $600,000 (Gains if sold: $20,000)
Non-Cola Pension at 65: $60,000/year
SS (combined): $30,000/year?

Goals:
--Retire at age 55 with $125,000 to $150,000 in yearly expenses (includes housing, taxes, living, travel, medical)
--Don't want to own a home in retirement. Will be renters (cost included in the above budget)
--Not in a rush to pay off the home loans

Some very simple back-of-napkin math:
--Withdrawing $140,000 per year from 401k & Roth: from 55 to 65
--Funds from sale of both homes at 65: 1,100,000 * 4.5% = $50,000 (swr) + $30,000 (SS) + $60,000 (pension) = $140,000/yr
--(I know I am using non-cola'd pension and many details but also not counting growth in home equity etc to keep it simple)
Seems workable.

My questions are regarding the glaring lack of non-retirement funds and how to stay in the 12% bracket in retirement.

My rough plan is as follows:
0) Age 51.5 (Today): Start saving as much as I can in taxable.
1) Age 52.5: Rent out Home 2 and move into Home 1 (to stay there for next 2 years to avoid capital gains)
2) Age 55.0: Sell Home 1, Move to a rental. Retire! Use Home 1 sale proceeds to live on (Should last 4-5 years)
3) Age 55: Start converting 401k->Roth, just enough to keep in 12% bracket.
4) At age 60: Sell Home 2. [Capital gains: unknown??] Live on proceeds from age 60-65. Keep the conversions going.
5) At age 65/66: Start taking pension and SS and withdraw rest from ROTH. 401k should have all been converted to Roth by now.

Does the sequence of events look plausible?
Should I stop contributing to 401k? (Currently contributing $25,000/year before taxes)
How do I model this in Firecalc or Fidelity Planner? Is 137-140 the maximum that I can safely withdraw in retirement?

Thanks for any advice!
--r

chevca
Posts: 2494
Joined: Wed Jul 26, 2017 11:22 am

Re: Winding Down

Post by chevca » Wed Jul 10, 2019 7:29 pm

I don't believe you can avoid all capital gains by moving to the rental forna couple years. That's something that rarely gets straightened out here on Bogleheads though. How long has it been used as a rental?

I don't know that hanging onto a cash flow neutral rental is a great idea. What if a major repair or replacement comes along between now and the time you sell it?

User avatar
CyclingDuo
Posts: 2358
Joined: Fri Jan 06, 2017 9:07 am

Re: Winding Down

Post by CyclingDuo » Wed Jul 10, 2019 9:02 pm

hebeoldage wrote:
Wed Jul 10, 2019 5:56 pm
Hello Bogleheads!

Long time lurker, first time poster!

I am getting ready to start winding down my finances for retiring at 55 and wanted some advice and opinion on the best way to get things in order for minimal tax impact in retirement.

Current age: 51.5, Married (spouse age 50), no kids.
401k: $995,000
Roth: $442,000
Taxable: $0
Home Equity Home-1 (Rented out, cash flow neutral): $500,000 (Gains if sold: $500,000)
Home Equity Home-2 (Living in currently): $600,000 (Gains if sold: $20,000)
Non-Cola Pension at 65: $60,000/year
SS (combined): $30,000/year?

Goals:
--Retire at age 55 with $125,000 to $150,000 in yearly expenses (includes housing, taxes, living, travel, medical)
--Don't want to own a home in retirement. Will be renters (cost included in the above budget)
--Not in a rush to pay off the home loans

Some very simple back-of-napkin math:
--Withdrawing $140,000 per year from 401k & Roth: from 55 to 65
--Funds from sale of both homes at 65: 1,100,000 * 4.5% = $50,000 (swr) + $30,000 (SS) + $60,000 (pension) = $140,000/yr
--(I know I am using non-cola'd pension and many details but also not counting growth in home equity etc to keep it simple)
Seems workable.

My questions are regarding the glaring lack of non-retirement funds and how to stay in the 12% bracket in retirement.

My rough plan is as follows:
0) Age 51.5 (Today): Start saving as much as I can in taxable.
1) Age 52.5: Rent out Home 2 and move into Home 1 (to stay there for next 2 years to avoid capital gains)
2) Age 55.0: Sell Home 1, Move to a rental. Retire! Use Home 1 sale proceeds to live on (Should last 4-5 years)
3) Age 55: Start converting 401k->Roth, just enough to keep in 12% bracket.
4) At age 60: Sell Home 2. [Capital gains: unknown??] Live on proceeds from age 60-65. Keep the conversions going.
5) At age 65/66: Start taking pension and SS and withdraw rest from ROTH. 401k should have all been converted to Roth by now.

Does the sequence of events look plausible?
Should I stop contributing to 401k? (Currently contributing $25,000/year before taxes)
How do I model this in Firecalc or Fidelity Planner? Is 137-140 the maximum that I can safely withdraw in retirement?

Thanks for any advice!
--r
Dump the cash flow neutral property and get that money working for you in taxable. Or figure out how to make it cash flow positive.

If you don't do that, you'll have to save like a mad man the next four years in taxable to build up the nest egg. Those gap years between age 55 and 65 will eat through your current savings based on the rate you listed of $125-150K, so you need to build that base for your gap years. Yes, keep contributing to your 401k at the max!
"Everywhere is within walking distance if you have the time." ~ Steven Wright

Post Reply