Can I retire?

[ddog44]

Our current financial situation is the following:

Me: 60.5
Wife: 62

Brokerage account: $350k
Roth IRA: $405k
HSA: $80k
Money Marrket, CDs: 185k
IBonds: 34k
IRAs and 401k: 1325k

Total: $2.3 mil

10% Cash
45% Total Bond Index and TIPs
45% Stocks

Home is paid off and about $650k

Social Security:
Me: 29k/year at 62, 41k at 67 and 50k at 70
Wife $12k/year at 62, then 50% of mine.

Health Insurance: ACA until we are both 65. Manage income for at least 3 year to get subsidy. After 3 year it is just me.

Annual Expenses: 100k and include travel, health insurance, house maintenance.

Can I retire now? If retire before New Year I will get COBRA.

[Metsfan91]

Yes, you can retire now. I think you should delay claiming social security at least until 67 for guaranteed higher income.

[Watty]

Total: $2.3 mil
....
Annual Expenses: 100k and include travel, health insurance, house maintenance.

A back of the envelope reality check.

Your investments will generate around $50k a year just with interest and dividends.

That means that you will need about $50K a year more from your investments for the next ten years until you are both getting Social Security. You could buy a 10 year TIPS ladder for $500K where $50K matures each year.

That would leave you with $1.8 million to invest until you are 70 and getting Social Security.

There are lots and lots of details and you will need to figure out your plan but you will be fine as long as you don't do something crazy like buy a yacht.

Congratulations.

[Wannaretireearly]

Congrats! Enjoy your retirement. Let us know what you plan to do!

[doobiedoo]

Me: 60.5
Wife: 62
..
Total: $2.3 mil

10% Cash
45% Total Bond Index and TIPs
45% Stocks
Home is paid off and about $650k

Social Security:
Me: 29k/year at 62, 41k at 67 and 50k at 70
Wife $12k/year at 62, then 50% of mine.

Health Insurance: ACA until we are both 65. Manage income for at least 3 year to get subsidy. After 3 year it is just me.
Annual Expenses: 100k and include travel, health insurance, house maintenance.

Can I retire now? If retire before New Year I will get COBRA.

Yes -- but it may be iffy for a couple of years.

4% of $2.3M is $92k per year.
On the one hand, you should probably use 3.5% [or something less than 4%] since you are retiring early[ier].
OTOH, your wife can claim SS now.

Your biggest financial risk is SORR [Sequence of Return Risk].
If the markets do well in the first few years or retirement, you will be fine.
If you have to take money out in those 1st two years when the markets are going down, SORR can make retirement stressful.

If it was me, I'd wait. Why retire if you just trade one type of stress for another?

But your decision really depends on some of qualitative things.
Do you hate your job? Or is working ok?
Can you go back to work in 2 years if you need to?
Are there things you will miss out on if you don't retire now?
If push comes to shove, are you willing to sell your house [downsize]?
It's not just about the numbers.

P.S. You've done a good job of planning.

[CaptainT]

Yes you can afford to.
4% rule is 92k(actually could be higher if includedhouse value)+wife 12k social security =104k. Planned spending is 100k. If you are confident in that number you will be fine. I find the 100k number suspiciously round so I might in your shoes dig a bit deeper and make sure 100k but should be good to go.

[Watty]

The "4% rule" is being misapplied the way that it has been mentioned because the income which is needed from the OP's portfolio will change when they start Social Security.

There are lots of threads about problems with the "4% rule" which was never really a "rule" but it was just an academic study for backtesting with lots of assumptions and qualifications.

https://www.bogleheads.org/wiki/Safe_withdrawal_rates

If you must try to use the "4% rule" here is a better way to look at it. I am using round numbers to make it easier to follow.

Assumptions;
1) The OP wants $100K in income for the next 30 years.
2) They will get $50K in Social Security starting in 10 years.

If you insist on using the 4% rule I would look at it this way

1) They will always need $50K a year from their portfolio for the rest of their lives.
2) For the next 10 years they will need an additional $50K a year before they start SS.

With the 4% rule to generate $50K a year they would need a portfolio of $1.25 million because $1.25 million x 4% = $50k

They would also need a seperate chunk of money to provide $50K a year for the next 10 years. There are lots of ways to do that but a 10 year ladder of TIPS could do that for $500K.

Combined that would require $1.75 million. The OP has $2.3 million so they have a $550K margin of safety or which is about a 31% margin of safety. They also have a paid off house which is an additional safety net since the home equity can be accessed if needed either by selling the house or getting some sort of loan or reverse mortgage.

Like I mention the 4% rule may be useful for a quick reality check but it is not really all that useful because peoples income and expenses are not constant.

Another alternative is to put your numbers into retirement calculators like Firecalc but that takes some time to set up things like future Social Security income.

https://www.firecalc.com/

Those can be misleading though since a 95% percent chance of success implies a 5% chance of "failure" which sound like you would end up broke and homeless. In reality unless you are planning a bare bone retirement what "failure" might really mean is that you might need to reduce your spending by 10% when you are 75 if your portfolio is declining faster than expected.

Retirement is sometimes referred to as the "go go years", "slow go years", and "no go years". There are a limited number of "go go years" so the OP needs to be cautious about delaying retirements since there may not be a lot of good years left.

[Dottie57]

Yes, you can retire now. I think you should delay claiming social security at least until 67 for guaranteed higher income.

I am waiting for SS until 70 for that 50+k benefit. My need for portfolio goes way down then.

P.S. 4% was a suggested RATE of safe withdrawls NOT A RULE. Somehow rate turned into rule.

And 4% was for a period of 30 years not 36,40 or more.

[Harmanic]

Annual Expenses: 100k and include travel, health insurance, house maintenance.

Can I retire now? If retire before New Year I will get COBRA.

Is that before or after taxes? Also a lot of expenses drop away in retirement, causing many people to overestimate their expenses. You could try the VPW spreadsheet to get a ballpark. It includes the cost of bridging social security.

[mtwhmemn]

Our current financial situation is the following:

Me: 60.5
Wife: 62

Brokerage account: $350k
Roth IRA: $405k
HSA: $80k
Money Marrket, CDs: 185k
IBonds: 34k
IRAs and 401k: 1325k

Total: $2.3 mil

10% Cash
45% Total Bond Index and TIPs
45% Stocks

Home is paid off and about $650k

Social Security:
Me: 29k/year at 62, 41k at 67 and 50k at 70
Wife $12k/year at 62, then 50% of mine.

Health Insurance: ACA until we are both 65. Manage income for at least 3 year to get subsidy. After 3 year it is just me.

Annual Expenses: 100k and include travel, health insurance, house maintenance.

Can I retire now? If retire before New Year I will get COBRA.

Very similar to our situation at the end of last year. My wife retired and I'm mostly retired doing a little contract work. So, yes , I think you can retire if you spend sensibly. As said above, sequence of return risk is your enemy, but there are things you can do to fight it. Being in a very similar situation as you we bought a SPIA with a portion of our bond allocation (we're currently 35% US index/25% Total Int'l/35% Bond Index/5% Cash) that immediately pays both of us ~24K/year for life with a 2% COLA to mitigate loss to inflation. That move plus a ~4% withdrawal rate gets us to the $100K-120K/year 'til we're 70 when we take SS and then we won't need much of anything from our portfolio! So, we may die very rich and heir millions to our son IF we don't fall prey to a horrible sequence of return. We plan to accelerate spending as we get closer to 70 if we don't encounter a horrible sequence of return. Life is good. Congratulations.

[cmr79]

Approved...as long as the true overall spending is in the neighborhood of the $100k that you think it is and that you aren't missing intermittent lumpy expenses like a new car or roof.

Agree with other above that mindlessly parroting 4% withdrawal rates as a rule isn't correct, and I would further argue that life expectancy at age 60/62 makes a 30 year planning horizon pretty appropriate--this isn't a situation where you're asking at age 40 and a much lower average withdrawal rate might be more reasonable. If you have some spending flexibility, you will be fine even if SS reimbursements drop to the 80% of benefits that current FICA payments would support, which seems about the worse case scenario.

[delamer]

You have enough current assets and future income to retire now. You’ll have a substantial annual drawdown of your assets in the early years of your retirement, but that will go down significantly once you begin collecting Social Security (which also will bump up your wife’s benefit, as you know).

My questions are 1) does the $100,000 include income taxes and 2) have you done an estimate of how much you’ll pay for basic Medicare plus a supplement? Depending on how much of an ACA subsidy you’ll be getting, it’s possible that your health insurance costs will go up at 65.

Good luck.

[sailaway]

I sure hope so: our numbers are within a rounding error of yours and we retired long before SS eligibility. Well, in absolutes they feel like a rounding error, but our portfolio is slightly larger and our spend slightly lower so we expect a 3.5% SWR, but again, we won't have SS income any time soon.

If any of your funds are at Fidelity, they have a nifty little retirement calculator that can help reassure you. It isn't overly precise, but has the option to choose from worse than average or average returns. Our worse than average result is that we run out the year my spouse turns 62, so we would still have options.

[HomerJ]

I would suggest building a TIPs ladder where you replicate your planned SS draw.

That is what I did, and it does make things a lot easier. Instead of trying to calculate "Before-SS" withdrawals, and "After-SS" withdrawals, you can start today with just one calculation.

For instance, you could buy 10 TIPs bonds, each paying $63k (you would buy one that matures in Jan 2025, one in Jan 2026, one in Jan 2027, etc.)

That would cost you around $630,000 (do it in tax-deferred space, so you won't pay any tax and pull the maturing $63k each year as income)

What that gives you is $75,000 a year coming in every year for the rest of your lives (well until one of you dies, then it drops to $50,000)

Your wife will get $12,000 a year from SS until age 72, you guys will cash in one $63,000 TIP every year for the next 10 years, and then when you turn 70, you'll apply for $50,000 SS and your wife will bump up to 50% spousal, and you guys will still get $75,000 a year every year after that.

So now, you are just doing the math around that.

After buying the TIPs bonds, you still have $1.7 million

You've got $75,000 coming in for life. You only need to pull $25,000 from $1.7 million, a measly 1.4% withdrawal rate.

Easy peasy, lemon squeezy. Retire today.

Even if SS payments drop to 80% in the future (doubtful, but maybe), you'll still only need to pull $40,000 from $1.7 million or a 2.4% withdrawal rate.

[ddog44]

Thanks for the replies.

@delamer

Our expenses are relatively low. Last year we spent about $60k without taxes, medical insurance and house repairs. So I added another 40k for taxes, medical insurance and house repairs.

Below is our survival expenses:

4k - property tax
$10k - food
$5.5k - utility and phone
$3k - household
$3k insurance (car/home/umbrella)
$2k -Gas
Total: ~ 30k

Another 30k are travel, restaurants etc

[CuriousJoe]

For instance, you could buy 10 TIPs bonds, each paying $63k (you would buy one that matures in Jan 2025, one in Jan 2026, one in Jan 2027, etc.)

That would cost you around $630,000 (do it in tax-deferred space, so you won't pay any tax and pull the maturing $63k each year as income)

Am I missing something?
Does TIPS bonds pay an yield of 10% as per above suggestion?

[HomerJ]

For instance, you could buy 10 TIPs bonds, each paying $63k (you would buy one that matures in Jan 2025, one in Jan 2026, one in Jan 2027, etc.)

That would cost you around $630,000 (do it in tax-deferred space, so you won't pay any tax and pull the maturing $63k each year as income)

Am I missing something?
Does TIPS bonds pay an yield of 10% as per above suggestion?

I may have made it confusing talking about "pulling $63k each year as income".

It's your own money. You buy ten different $63,000 bonds. When each one matures, you spend the entire amount. Nothing is left. It's not interest you are spending from the $630,000. You are spending it all, $63,000 a year for ten years. And it's all gone at the end.

Doing it all in IRA means when you pull the $63,000 from the IRA it counts as income for that year (which is similar to Social Security). And buying TIPs means it's inflation-adjusted (also like Social Security), so you don't have to worry about any weird inflation jumps 5 years from now.

It will actually cost less than $630,000, since older 0% TIPs trade at a discount these days.

[JBTX]

Social security at 62 is $40k
4% of total assets is $90k

3% of assets is $70k

So your income stream will be $110k to $130k vs $100k expenses, so yes per the numbers you can.

- I’d make sure that the $100k is a good number that includes taxes and everything else. You won’t have a ton of wiggle room

- as mentioned a severe stock market hit in the first decade of retirement will make the numbers worse.

For me personally it would be a little bit tight, but it really would depend on how badly I wanted to retire and the reasons why.

[Wrench]

I second the TIPS ladder idea of HomerJ (and others). See
https://www.tipsladder.com/build?income ... =BestYield
which shows for $63K per year income from 2025 - 2034 the cost is currently $591K. So in my book, you are good to go! Congratulations and enjoy your retirement!

Wrench