Can I retire in 5 years if I have 7 figure net worth, but kids to put through college?

[jltsea]

I am not a very engaged or knowledgeable investor. I have benefited from company stock and retirement withholdings that are “out of sight, out of mind” for 26 years. I’m currently 55, and would like to retire when I am 60. I have a kid that is a junior in college, another starting college next year, then a 3rd that will start right when I plan to retire (so I have 9 years of college left to pay for, and they generally are $60k - $80k/year). With the exception of travel (and tuition), we live very modestly (only car is a 14 year old minivan and we raised 3 kids in a small 3 bedroom house).

So, I’m looking at roughly $550k for the remaining college tuitions (not including housing and other expenses). I currently have a net worth in the mid 7 figures. That is split evenly between 401k/Roths, which I can’t use until I’m 62, equity in my house (which will be paid off in 2 years), but you can’t buy groceries with equity, and stock, which is my only liquid asset. I currently plan on using the stock (and 529s, which will pay for one year for each kid) to pay tuition. That should still leave 2/3rds of it (at current market value) to live on until I can access my retirement accounts (and eventually SS). I figure that if we run into problems, we can rent out or sell our house.

Does this scenario sound valid? I’m slightly embarrassed asking this. All the retirement calculators I use tell me that I am fine and that my investments will grow faster than I will draw them down. That seems insane to me, but I’d like to get some opinions.

Thanks!

[marlin2023]

Hard to say. A financial planning software would help here with so many variables. But simply I think

(Net worth - $550k (college expense) ) *.03 = safe portfolio income

Safe portfolio income + social security(find at ssa.gov) + any pensions = ?

compare that to your current expenses. That should give you a ball park.

[uslee2004]

Hard to say. A financial planning software would help here with so many variables. But simply I think

(Net worth - $550k (college expense) ) *.03 = safe portfolio income

Safe portfolio income + social security(find at ssa.gov) + any pensions = ?

compare that to your current expenses. That should give you a ball park.

+1
My knee-jerk response is likely you are, considering mid 7 figures net worth (4,5,6-$M), plus SS and pension?

Welcome to the forum

[thedaybeforetoday]

I am not a very engaged or knowledgeable investor. I have benefited from company stock and retirement withholdings that are “out of sight, out of mind” for 26 years. I’m currently 55, and would like to retire when I am 60. I have a kid that is a junior in college, another starting college next year, then a 3rd that will start right when I plan to retire (so I have 9 years of college left to pay for, and they generally are $60k - $80k/year). With the exception of travel (and tuition), we live very modestly (only car is a 14 year old minivan and we raised 3 kids in a small 3 bedroom house).

So, I’m looking at roughly $550k for the remaining college tuitions (not including housing and other expenses). I currently have a net worth in the mid 7 figures. That is split evenly between 401k/Roths, which I can’t use until I’m 62, equity in my house (which will be paid off in 2 years), but you can’t buy groceries with equity, and stock, which is my only liquid asset. I currently plan on using the stock (and 529s, which will pay for one year for each kid) to pay tuition. That should still leave 2/3rds of it (at current market value) to live on until I can access my retirement accounts (and eventually SS). I figure that if we run into problems, we can rent out or sell our house.

Does this scenario sound valid? I’m slightly embarrassed asking this. All the retirement calculators I use tell me that I am fine and that my investments will grow faster than I will draw them down. That seems insane to me, but I’d like to get some opinions.

Thanks!

Welcome to the forum.

I was 52 and wife was 50 when we dramatically downsized our income. Similar timing with the paying for college question and number of college years, although we certainly didn't have near the net worth you have. We did, (and still do) have an early retirement generous hazard duty pension from my wife's previous employer.

At that time we were looking at paying for another 10 years of college over a 7 year period (our 3 kids are close in age and our oldest was a sophomore in college at the time).

I ran the Net Price Calculators for the two kids that were still in high school at the time. The difference in net cost if my wife and I were to remain working full time vs the net cost if we were to downsize our income to about 1/3 of our then current income, was dramatic.

It might be worth your time to run your current household income vs potential, reduced household income in the future, at various, potential colleges to compare the net costs under both scenarios.

Best of luck!

[Parkinglotracer]

Hard to say. A financial planning software would help here with so many variables. But simply I think

(Net worth - $550k (college expense) ) *.03 = safe portfolio income

Safe portfolio income + social security(find at ssa.gov) + any pensions = ?

compare that to your current expenses. That should give you a ball park.

Great reply here. Is the majority of your money still in the company stock? If so you will want to have the company stock tax efficiently moved to a more diversified combo of stocks / bonds say similar to the three fund portfolio bogleheads promote. The idea being you are insulated from the 1 stock risk your company stock has in the chance it takes a huge dive.

It may be good to find a trusted hourly paid tax and investment advisor for a plan you can execute. I am hesitant to recommend it because we know the world is full of financial salesmen who will set you up in a complicated mix of a large number of funds that will do nothing but make them a large management fee. Paying an advisor 1% a year of 5 M portfolio will pay them 50K a year you could be using for college. I would not pay that fee.

Do you think you need tax help re the company stock? Do any of your peers at work know an hourly tax advisor familiar with your general situation? Could they help?

It sounds like you will have plenty of assets to cover your needs depending upon your future annual spending. Obviously we want to see you get the advice you need for smart tax moves and an overall low cost efficient portfolio construction so you don’t make a salesman rich and can have all the money you earned available for you to enjoy.

[rivendell]

If you work 5 more years then two of the three kids will be done with college. Your house will be paid off then too.
Only on bogleheads would someone with about 5 million ask if they are going to be able to retire at that point.
Unless you have a much higher annual spend rate than your post suggests you should have enough.
If you want more specific advice here then you need to share more information but chances appear excellent you are good to leave the workforce then.

[Jack FFR1846]

I think first, you should subtract your home from your total spendable assets. Net worth is not going to help unless you plan to sell the house and rent in retirement. Mid 7 figures is not really meaningful. You can tell us what your total savings are as we don't know who you are, so you're not spilling the beans for your neighbors and friends to know. Mid 7 figures could mean $1.5M to some people or $5M to others. If you're at $1.5M, you're in much less of a sure thing than if you're at $5M. Also, you can get some real value by putting together a "retirement spending" list. I started mine about 5 years before retirement and found that it has nearly nothing in common with my "while working" spending list. Everyone will have their own big things to spend. For DW and me, it's health care between Medicare for me and Cobra for DW. Get that list started. Research all the things you will be spending on during retirement. Many people plan to travel. Personally, I offroad my Jeep, so have a line item in there for that. I retired in June and have found that as my list predicted, we spend 50% MORE than we did when working. Not on trips as we have a cat with medication needs that we're staying home with. Lots of medical expenses (Medicare is far more expensive than I ever thought) with some expenses that have not changed like property tax and insurance.

It does sound like you're living below your means with the 14 year old vehicle but you'd have to put your own spending list together to analyze that. You can do that here. A very, very common overspending place is cell phones. For 5 of you, if you're spending a total over $150, you're spending more than you need to. Each of the big carriers have a sort of budget company who is dramatically cheaper. We have been on Cricket for 10 years and pay $110 for more data than we'll ever use for 4 of us. They use the AT&T network. Verizon has their own smaller company. I forget who it is. The good part with these companies is how they bill. The big guys give you the phone bill, then add 15 other small nickel and dime charges that add up to another 25-50%.

On college costs, we found that when my son was in his expensive northeastern engineering school that during the summers and later, even during normal semesters, he could find a list of acceptable courses at state and community colleges nearby. This saved a good amount of money and in his last year, he officially went part time which jettisoned the ridiculous student union and class fees and we only paid per credit hour. He also took courses at his own college in the summer that were discounted. Something else for the kids to consider is doing major related co-ops. I did this myself when I ran out of money and it changed my direction to a specialty (analog electronics) where there was an extreme shortage in the industry and I have never been without a job. Something to consider and of course it brings in some cash.

[z3r0c00l]

On college costs, we found that when my son was in his expensive northeastern engineering school that during the summers and later, even during normal semesters, he could find a list of acceptable courses at state and community colleges nearby.

State schools will also run $20-$30,000 including housing, another option to save money.

[Olemiss540]

There are many options for accessing your 401k money early.

- 55+ you can access without penalty upon separation from employer
- 72t distributions
- Rolling Roth 401k money into Roth IRA and pulling out contributions (not earnings)
- etc.

[Sandtrap]

I am not a very engaged or knowledgeable investor. I have benefited from company stock and retirement withholdings that are “out of sight, out of mind” for 26 years. I’m currently 55, and would like to retire when I am 60. I have a kid that is a junior in college, another starting college next year, then a 3rd that will start right when I plan to retire (so I have 9 years of college left to pay for, and they generally are $60k - $80k/year). With the exception of travel (and tuition), we live very modestly (only car is a 14 year old minivan and we raised 3 kids in a small 3 bedroom house).

So, I’m looking at roughly $550k for the remaining college tuitions (not including housing and other expenses). I currently have a net worth in the mid 7 figures. That is split evenly between 401k/Roths, which I can’t use until I’m 62, equity in my house (which will be paid off in 2 years), but you can’t buy groceries with equity, and stock, which is my only liquid asset. I currently plan on using the stock (and 529s, which will pay for one year for each kid) to pay tuition. That should still leave 2/3rds of it (at current market value) to live on until I can access my retirement accounts (and eventually SS). I figure that if we run into problems, we can rent out or sell our house.

Does this scenario sound valid? I’m slightly embarrassed asking this. All the retirement calculators I use tell me that I am fine and that my investments will grow faster than I will draw them down. That seems insane to me, but I’d like to get some opinions.

Thanks!

Please explain for a more comprehensive input.
"mid 7 figures new worth" for example: if half is home equity at 500k then the portfolio is 500k. (not much).
Including home value and things like that often clouds the issue of "income producing assets" and income streams needed for retirement.

What is your estimated net annual expenses in retirement in 5 years?

What is your estimated net annual income (stream) in 5 years?

to op:
It would be helpful to edit your original post to this format for better quality input.
Like this: (use pencil icon)
Portfolio Review Request
https://www.bogleheads.org/forum/viewt ... =1&t=6212

j

[Carl53]

I am not a very engaged or knowledgeable investor. I have benefited from company stock and retirement withholdings that are “out of sight, out of mind” for 26 years. I’m currently 55, and would like to retire when I am 60. I have a kid that is a junior in college, another starting college next year, then a 3rd that will start right when I plan to retire (so I have 9 years of college left to pay for, and they generally are $60k - $80k/year). With the exception of travel (and tuition), we live very modestly (only car is a 14 year old minivan and we raised 3 kids in a small 3 bedroom house).

So, I’m looking at roughly $550k for the remaining college tuitions (not including housing and other expenses). I currently have a net worth in the mid 7 figures. That is split evenly between 401k/Roths, which I can’t use until I’m 62, equity in my house (which will be paid off in 2 years), but you can’t buy groceries with equity, and stock, which is my only liquid asset. I currently plan on using the stock (and 529s, which will pay for one year for each kid) to pay tuition. That should still leave 2/3rds of it (at current market value) to live on until I can access my retirement accounts (and eventually SS). I figure that if we run into problems, we can rent out or sell our house.

Does this scenario sound valid? I’m slightly embarrassed asking this. All the retirement calculators I use tell me that I am fine and that my investments will grow faster than I will draw them down. That seems insane to me, but I’d like to get some opinions.

Thanks!

No need to wait until 62 to use retirement assets. If you separated now you could start withdrawing from the 401k with only taxes, no penalty. Once 59.5, no penalty on IRA withdrawals. Even now you likely could withdraw Roth deposits, not gains without penalty assuming you have had a Roth 5 years or more.

Be planning to enjoy your retirement as your resources will accommodate a large bump up in lifestyle. Start planning for significant Roth conversions once you retire to reduce future taxes once RMDs hit in conjunction with SS, assuming that you and or your spouse will get it. Do you make charitable donations? If so, once 70.5 you can make qualified charitable donations from your pretax IRA (funded by a rollover from your 401k after retirement) and pay no income taxes on those funds.

Also, you could reduce 401k contributions to improve your immediate cash flow if needed.

[Jimsad]

I am not a very engaged or knowledgeable investor. I have benefited from company stock and retirement withholdings that are “out of sight, out of mind” for 26 years. I’m currently 55, and would like to retire when I am 60. I have a kid that is a junior in college, another starting college next year, then a 3rd that will start right when I plan to retire (so I have 9 years of college left to pay for, and they generally are $60k - $80k/year). With the exception of travel (and tuition), we live very modestly (only car is a 14 year old minivan and we raised 3 kids in a small 3 bedroom house).

So, I’m looking at roughly $550k for the remaining college tuitions (not including housing and other expenses). I currently have a net worth in the mid 7 figures. That is split evenly between 401k/Roths, which I can’t use until I’m 62, equity in my house (which will be paid off in 2 years), but you can’t buy groceries with equity, and stock, which is my only liquid asset. I currently plan on using the stock (and 529s, which will pay for one year for each kid) to pay tuition. That should still leave 2/3rds of it (at current market value) to live on until I can access my retirement accounts (and eventually SS). I figure that if we run into problems, we can rent out or sell our house.

Does this scenario sound valid? I’m slightly embarrassed asking this. All the retirement calculators I use tell me that I am fine and that my investments will grow faster than I will draw them down. That seems insane to me, but I’d like to get some opinions.

Thanks!

I am close to you in age and have 7 figure networth
I have one junior in college and another junior in high school kids
I grapple with the same question you have . Our younger one may need our support later in life too as he has some challenges
My wife definitely wants to us to both to continue working as she feels it will benefit our kids the longer we work
For now I am ok working but it is stressful at times
I will follow this thread

[student]

Great replies from many posters. You should also think about health care cost before 65.

[Grt2bOutdoors]

How much is healthcare while you are “early retired”? Have you considered all “realistic” expenses at retirement? It really depends on your burn rate.

[UpperNwGuy]

I would keep working until the last kid graduates from college. I retired a year before my third child graduated. If I had a do-over, I would have kept working.

Net worth is not a useful metric in these situations if much of that net worth is tied up in housing.

[AB609]

Sounds like you have a lot of your assets in company stock. You need to be thinking about diversifying your portfolio if so. It is difficult to draw any conclusions since you didn't provide much detail in your post.

[Sandtrap]

I am not a very engaged or knowledgeable investor. I have benefited from company stock and retirement withholdings that are “out of sight, out of mind” for 26 years. I’m currently 55, and would like to retire when I am 60. I have a kid that is a junior in college, another starting college next year, then a 3rd that will start right when I plan to retire (so I have 9 years of college left to pay for, and they generally are $60k - $80k/year). With the exception of travel (and tuition), we live very modestly (only car is a 14 year old minivan and we raised 3 kids in a small 3 bedroom house).

So, I’m looking at roughly $550k for the remaining college tuitions (not including housing and other expenses). I currently have a net worth in the mid 7 figures. That is split evenly between 401k/Roths, which I can’t use until I’m 62, equity in my house (which will be paid off in 2 years), but you can’t buy groceries with equity, and stock, which is my only liquid asset. I currently plan on using the stock (and 529s, which will pay for one year for each kid) to pay tuition. That should still leave 2/3rds of it (at current market value) to live on until I can access my retirement accounts (and eventually SS).

. I figure that if we run into problems, we can rent out or sell our house.

Does this scenario sound valid? I’m slightly embarrassed asking this. All the retirement calculators I use tell me that I am fine and that my investments will grow faster than I will draw them down. That seems insane to me, but I’d like to get some opinions.

Thanks!

to op:
This is a wild card that can turn into a "money pit" or not.....

Not sure how predictable and reliable this option can be....would it mean returning back to work if needed?

j

[Wiggums]

Your sources of retirement income minus your anticipated retirement expenses is the gap that you will need to fill from your portfolio.

It would be helpful for you to state your annual retirement expenses. Personally, I would subtract the remaining college expenses from your portfolio and work with the remaining balance in any calculations..

[fujiters]

Please explain for a more comprehensive input.
"mid 7 figures new worth" for example: if half is home equity at 500k then the portfolio is 500k. (not much).
Including home value and things like that often clouds the issue of "income producing assets" and income streams needed for retirement.

If OP only had 500k portfolio and 500k house, that would be the lowest possible 7 figure net worth possible. It couldn't be described as mid 7 figures net worth.

Mid 7 figures could be 3-8M. I agree how much of net worth the house accounts for is highly relevant though. If 2M house and 1M portfolio, OP probably can't retire yet (unless there's a plan to immediately downsize and free up 1M+ from house to portfolio).

[Sandi_k]

I am not a very engaged or knowledgeable investor. I have benefited from company stock and retirement withholdings that are “out of sight, out of mind” for 26 years. I’m currently 55, and would like to retire when I am 60.

... 401k/Roths, which I can’t use until I’m 62

Three notes:

1) How will you handle medical costs from age 60 to Medicare at 65?

2) Your 401(k) likely allows you to withdraw from the account after age 55 without penalty, when you separate from service. It's called the Rule of 55.

https://www.investopedia.com/rule-of-55-5324286

3) You can withdraw the contributions from your Roth account at any time. The earnings can be withdrawn after age 59.5, *if* you've had the contributions in the account for at least 5 years. There are some complexities around the 5 year holding period, so be sure to know the details.

Welcome to the forum!

[delamer]

Without knowing your actual, non-college, expenses, it is impossible to know if you can retire when you hope to.

Some people consider living modestly to be $40,000/year; others would say $65,000/year or even more. The definition of modest depends a lot on where you live and the size of your household. Obviously, those amounts require a different level of assets to support.

So a deep dive into your expenses should be your first step.

You statement about college costs is confusing. If the $550,000 figure is truly tuition only, then you need to increase your estimate to cover room & board (assuming your kids won’t be living at home). Otherwise, your planning isn’t realistic.

[Golf maniac]

So let’s say $5M NW, half in home equity leaves $2.5M. Let’s say $500k college, that leaves $2M investments for retirement. $2M x .03 percent = $60k per year. Can you live on that with paying for healthcare out of the $60k? You could say you could take 4% ($80k) until SS and then reduce to 3% and be fine. This is the type of analysis you need to do and also use some of the retirement calculators. I like the Fidelity one.

[dekecarver]

Don't short change yourself on monthly health care cost, especially if you don't qualify for subsidized health care. My wife and I are considering retiring next year which will require non-subsidized premiums at the tune of ~$2500/month for family insurance, that's not cheap over 10 years.