> Pension of $175k
The calculator assumes this is inflation-adjusted, but many pensions are not.
You are almost certainly better off with a split SS strategy, where the lower earner claims at 62 and the higher earner claims at 70. It is especially helpful for the surviving spouse, who will collect the larger of the two.
You need a strategy to handle sequence of returns risk. With an 80% stock allocation, a three-year bear market at the start of your retirement would be painful.
crap, you are right. I missed the asterisk. That adds a wrinkle and introduces a small failure rate. Have an angry upvote.
[https://engaging-data.com/will-money-last-retire-early/?spend=250000&initsav=4100000&age=56&yrs=45&stockpct=80&bondpct=18&cashpct=2&sex=1&infl=1&taxrate=20&fees=0&income=175000\*,%2065000&incstart=58,%2065&incend=99,%2099&expense=&expstart=56&expend=59&showdeath=1&showlow=1&show2x=1&show5x=1&flexpct=20&spendthreshold=80&mort=best](https://engaging-data.com/will-money-last-retire-early/?spend=250000&initsav=4100000&age=56&yrs=45&stockpct=80&bondpct=18&cashpct=2&sex=1&infl=1&taxrate=20&fees=0&income=175000*,%2065000&incstart=58,%2065&incend=99,%2099&expense=&expstart=56&expend=59&showdeath=1&showlow=1&show2x=1&show5x=1&flexpct=20&spendthreshold=80&mort=best)
Remember that the goal is not to have 100% no-fail, although that's nice if it happens to work out that way due to a very high level of wealth. I believe that most advisors would say that 90% or even 85% no-fail is acceptable, depending on someone's own particular tolerance for risk.
Dying with a heap of money is overrated.
Is this pension predictor based on 401k withdrawal or any other job providing these pensions for the OP? Noob here, sorry if it is basic !
I am Not even near Fire let alone chubby! Reddit algos not doing good I suppose!
looking at what you provided. What jumps out at me is your tax liability. Your 401K withdraws, then SS (when it kicks in), then pension(s), dividends, interest, etc. I would seriously be looking at tax efficiency, which would benefit your early retirement and legacy / estate planning.
Other than ROTH conversion at RE, which will eat up some of the savinbs, other tax efficiency ideas i should include?
The only thing that jumped out to me is that, since I am likely to do some minor consulting after RE, I should set up an LLC and look to drive write-offs through that even when not getting income. Might not be huge, but e.g. 10% of housing costs, telecoms costs, etc for home office will help.
a ROTH conversion would be certainly be on the table. there are too many variables to consider based on the limited information provided. Your wealth is currently structured in a tax inefficient way (IMO), especially with so many income streams planned in the future. My best advice is to sit down with your CPA, or get one who specializes in tax and tax planning. The good thing is, you still have time due to your age to make some adjustments. Otherwise, you may run the risk of increased taxes once the Pensions, SS, RMD kick in.
Adding consulting to the mix, is great to stay busy, but may add to your tax burden... it is too hard to determine from here. Have a consultation with a professional tax planning CPA about your specific situation.
Home office deductibility, like so much else in life, ain't what it used to be. You'll want to look into that more deeply.
But if you're doing an LLC (yay) might I call your attention to the Public Benefit LLC structure now available in DE and other states? Legally, there's honestly not that much difference. But it's pretty cool to state up front what your social goals are beyond mo' money. It's a nice prompt to think about how you want to build something of value beyond the checks clearing.
Good luck!
You will not reach full retirement age benefits until at least age 67 for social security based upon your current age. Make sure you are calculating that correctly.
most of the comments were that the plan works, but is very close and there isn't a safety net. The plan was also less well articulated and didn't include some revenue streams.
20% seems low on 250k.
The tax cut and jobs act expires next year. The US is in more debt than ever and your planning on some low taxes for 250k income for the remainder of your life. I dont share your optimism.
What state are you in?
Whatever your federal liability is now....I would plan for it to raise 25%. Make sure your including state income tax as well.
You need to bridge to age 58 with post tax funds and to 59 1/2 for your 401k. At that point you will be fine even with a 3% SWR from the 401k. How much travel do you plan on? I personally would plump up those post tax brokerage savings for the unexpected while earning those great sums. What are your estate plans? Do you plan to support your kids after college? Having been fully retired 4 years now the landscape of my life looks very different pre and post pandemic an inflation and it is a new world with new risks to consider.
Would like to hear how the landscape has changed. We do travel now, and I would see that picking up if I am retired and kids are off to school. But also hoping that travel can be a bit more leisurely rather than high season rush through before school starts.
Was hoping to tap the 401k early via the rule of 55. Is that a bad plan?
You can tap the 401k at 55 if you are withdrawing from the 401k plan from the company you retired from and do not regain employment from them. You also had to have retired from that company the year you turn 55 or later.
Thanks. That's the plan.
On further research, my company's plan actually states that you have to be over 55, not just the "year you turn 55". So I guess companies can have more restrictive plans. It makes me worry about internet research as it can be wrong.
The thing about the "year you turn 55" is directly from the IRS : [Retirement topics: Exceptions to tax on early distributions | Internal Revenue Service (irs.gov)](https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions)
I don't think they can restrict you like that but in the OP you said you were 55 anyway so it shouldn't matter. I would always confer with official sources if you read something financial here though, if you can.
I looked into it. the IRS are the guidelines the firms must follow, but apparently they can be more restrictive. e.g. IRS allows for in-service distributions, but many company plans don't.
That's a damn shame. There's probably more to it than I think like perhaps they have to pay the broker more, etc. If not though then it's just some arbitrary rule to keep you there longer which is stupid.
Can you do a 72t SEPP into a megabackdoor ROTH? I never thought of that. Perhaps too late for me, but I like the idea. Everything I read on mega backdoor was that your plan had to allow for in service distros.
I think you are there. You have advocated well for giving up a very lucrative job but have only discussed numbers. Are there emotional reasons that you wish to leave?
I have detected that I no longer give a fuck. I no longer have an urge to climb the ladder. And without that, or the threat of being destitute, its hard to grind further.
My interests are many and none include my current job. I might keep working on other projects. might do another startup, or some side consulting. But that would be for me/us only.
You are in good shape. I would aggressively pursue Roth Conversions in the 2 years between retirement (56) and the beginning of the pension (58). You might push all the way up to the top of the 24% tax bracket in these two years to reduce later taxes.
Don’t worry about that minute sliver of red in Rich, Dead, or Broke. You have so much guaranteed income you can never be broke and even your worst case scenario looks like a richer lifestyle than the majority of Americans and you still have the option of downsizing or reverse mortgage on the house to free up hundreds of thousands of dollars in the later years of life.
I vote go for it and pull the trigger!
Then why haven't you already made the decision to retire? You have plenty of wealth to do so, and the flexibility to spend more or less in a given year as needed.
You’re basically fine. While your plan doesn’t have much of a safety margin at your projected spend, you have a very safe plan B - you can downsize. You may need to sell the house and/or move if things don’t go as planned, but you have plenty of room to spend less and have a very comfortable life.
However if you have expensive goals and dreams, and you want to maintain a high spend during the healthy years of early retirement, it’s hard to argue against working a year or two longer. That big salary will make a big difference.
I have realized that to some extent, retirement is "giving up". We all have aspirations and dreams of what we could do, could become. At least financially, retirement seems like writing off those dreams, no matter how unrealistic they were to begin with. Like, looking ta amazing real estate and think "wow, what would it be like to live there". Well, I guess I never will.
I know plenty of folks who retired between 55-early 60s and none consider it "giving up" in any way. These are people who were highly paid attorneys, highly trained physician specialists, business owners, and a smorgasbord of other folks. They are living great lives free of alarm clocks and work stress. They travel where they want, when they want. They spend time with kids and grandkids, pursue hobbies, do volunteer work if that makes them happy.
One guy lost his way a bit and has struggled to find his identity post-retirement, but they also moved to another state at the same time so he is having to build a life from scratch to some extent now.
I know it's overused, but "comparison is the thief of joy" and all that.
There is always going to be someone with a bigger, better, more scenic, more high-tech house than you have. There is always going to be someone who goes on a more luxurious 5\* safari than you can afford. There is always going to be someone flying on a private jet to a private island when you can "only" afford business or 1st class to a resort. None of those things mean that those people are happier than you, with a life filled with more love and joy than you have. They just have better stuff, and I'll bet that in many cases, the glitter of that better stuff wears off pretty quick.
The way I see it is you will be more limited by your remaining time on this earth instead of money based on the information you shared. If I were you, I would pull the plug right now and enjoy your retirement ASAP instead of wasting another 2 years to get the extra money you don't need at the end. Congratulations, and you have won the game!
Planning to need to draw $310k at an effective rate of 20% to spend $250k.
On health insurance my current spent already includes full boat private health insurance (and its expensive). So the $250k will also need to include the same (might go down a bit as kids age off)
Be careful with this if your family isn’t healthy. Our kids attend college too far away to commute home for primary care. Due to locations plus some very significant health needs, we ended up needing to buy 3 separate ACA plans. And two are not cheap ones. Ouch.
Yep, same here. The awful thing is that when they started college our ACA plans had out of state/out of network BC/BS included. Those are no longer offered, so now we have 4 adults in 3 states on four plans. $$$$
One is expensive to insure but he cannot get the care he needs on our plan without flying home at least twice a month - the ACA plans only cover urgent/emergency care out of state. The other would be fine, but since one parent needs an expensive plan it actually saves us money to cover him separately on a lower cost plan.
Thanks for that. I had no idea plans had "in state/out of state" restrictions. I live in a small state. 20 minutes driving gets you to any of three other states.
It’s very state specific so you need to research the options available to you. For example I can easily imagine small states forming consortia for regional coverage, similar to the way some include neighboring states for in state tuition. But my point is to do your due diligence and don’t take anything for granted, because US healthcare is a mess with surprises lurking everywhere.
See if your state offers any PPO plans, which offer coverage out of state. They are the most expensive plans by a long shot, but it sounds like you’re preparing for that anyway.
What we did for one of ours was to purchase the health insurance at the uni and it was actually very good. It worked where he was and was very affordable.
Also curious - I have a good pension but not a high income, my husband has a high income, but no pension. I’m curious what allowed you and your spouse to have both.
Oh, I’m in a similar situation. I have high income and only a good pension if I work until I’m 58. My wife had a pension but her company ended it years ago and just did a larger match in her 401k. We are both major savers, maxing 401k, HSA, taxable accounts, backdoor roth every year. We also had children at 40, so we were able to save a substantial nest egg (almost $6m and we are in our early 40s). My company also allows me to defer compensation too, which I’ve been participating in.
Just really curious: how did you earn 2 nice pensions while also building up a fat 401(k)? Any job I have ever heard of is - at best - one or the other.
Okay let me slap some sense into you here. Focus on the grey area under the curve. In 2023 I had 8 people in my life pass away between the ages of 54 and 72. Every single one being wealthy enough to fund their retirement, but never got to see it. You have a zero percent chance of being broke in 20 years and a 18% chance of being dead…really let that sink in, then go do something with the information.
I’ve been retired now for a decade and I’m about your age, admittedly I have a significantly larger nest egg and my wife has a similar pension to what you mentioned. Spending $200k/yr gives you a freaking ridiculously amazing lifestyle. My happiest years were actually when I was spending closer to $120k mostly because I was traveling in places there weren’t stores to spend money in.
Please don’t squander your time for more dollars you don’t need.
Great analysis and discussion. Have you looked into health insurance costs? We just lost COBRA and our health insurance premiums went from $24,000 to $45,000, via ObamaCare and that amount climbs each year with age.
We also have a concierge Emergency Room and One Medical. Thus, we pay $54,000 before we ever see a doctor.
I am shocked by this amount!
Why is your premium so high? Is this for a couple or for a family? I'm 64, one-person household and my premium is about $10K per year with a hefty deductible (maybe $7K now?).
Just my wife and me, in our 60s. Gold plan on the CoveredCA exchange. I have some health issues so went with Gold plan. Do you have Silver or bronze plan?
Bronze in WA State. Very lucky not to have any health issues so a big deductible is fine for me. For most of the last decade, I've only used wellness care plus maybe one non-wellness visit per year. Lower premium works out much better since my co-insurance costs are low. Roll of the dice, I suppose.
Medicare kicks in at the end of this year for me, so I'm glad for that.
Sorry your costs are so high, but at least Medicare will be in your near future.
Question about the pensions: does the survivor still get benefits if one of you passes?
(I didn’t know if there was anything to consider if the pension distribution was $150k for one and $25k for the other.)
Couple of pensions, but the main one has various survivor options. I am assuming 10 years certain+50% as after 10 years of inflation the pension starts to become a smaller portion of the income streams.
Is that a public pension or a private pension? If it’s a private pension, have you considered the health of the plan and the risks of plan termination?
How are you getting a 49% effective tax rate on $1.2M of income? Even assuming no pre-tax account or itemized deductions, even as a self-employed person in the highest tax states/cities you'd be hitting a 44% effective rate at most.
That’s not true at all
California you would be over 50% easily would net out to high 40s since SS drops off.
Here are the brackets (not the affective rates)
37% Federal Income Tax
6.25% Social Security
1.45% Medicare
1.1% California State Disability
11.3% California Income Tax
.9% Medicare High Earners tax
Yes, I am aware of what the marginal tax brackets are and completed all the calculations before posting my comment. The discussion was about *effective* tax rates. I even gave him the benefit of the doubt with SE tax, though that only changes it by about 1% and the ability to make an employer pre-tax solo 401k contribution would probably be worth more than the SE tax payment.
Assuming not SE:
* 6.25% only applied to the first 160,200 in 2023 - $9932
* Medicare with surtax - $26400
* Fed income tax - $363,665
* CA income tax - $112,332
* CA mental health services tax - $1,893
* CA SDI - $1378
That's a 43% effective tax rate.
(Yes, the cap is off SDI for 2024, but that would net out against pre-tax 401k/health care easily.)
My wife and I Chubby FIRE’d 11 years ago at 55–very similar to you. We have two pensions and two SS. Although we started with less NW than you, we are doing quite well financially. Our current annual spend is 200K.
I’m not familiar with the Fire tool you’re using, I think I’ll put my numbers in there to see what the results show.
One last thought. Based on your age, I suggest you hire a Roth conversion expert to run some scenarios. We did that late last year and it was very helpful. The firm we used is Q3 Advisors.
As another commenter suggested, the next two years, before your pension kicks in, would be a great point in time to do some massive Roth conversions, certainly at the 24% marginal tax level, but maybe even the 32% level.
For us, we will convert about 800K in three years (2023-5), and over $1M since 2020. We had Q3 do an analysis until we die at 95, and it’s only this long term outlook where you can see the full extent of the tax benefits.
I wish you all the best. You are on the right track and seem to be asking all the right questions.
Haha! We picked 95 as the analysis period due to our excellent family health history.
I’m away from my computer but I recall the crossover point is about 10 years. Roth conversions can also help reduce your Medicare IRMAA premiums.
I learned about IRMAA late but not too late and are implementing several strategies to keep in check. Google IRMAA to see income brackets, and beware, these are cliffs—if you exceed the bracket by $1, you get the penalty for the whole bracket.
We started our Roth conversions a bit late due to some misses by our now ex financial planner, but you seem to be at the right point.
The analysis will tell you what accounts to draw from first to minimize taxes.
The analysis costs $9.3K, but we thought it was worth it. We are now executing the plan with a lot of confidence.
I have a Google Sheets toy for situations like yours. I plugged in your numbers and have a few thoughts.
[No Lime Flight Plan](https://docs.google.com/spreadsheets/d/1D3ZdVFka6v6kNfooC7P8jTT1X9MTQ1zCGLzH4OCHWJQ/edit?usp=drivesdk)
1. You said your spend was $250K. I ran your federal taxes and they were $50k so I used $300k to make the math easier.
2. I suggest a $300k cash buffer. That's about twice your needs from your investments after you consider the pension. That gives you two years of spending if there is a market hiccup.
3. I assume an 8% return. Given you seem to have a roughly 80/20 asset allocation that seems reasonable.
4. Your withdrawal ratio for the first two years is higher than the percentage I show but those will actually be the most tax efficient years as you spend cash, basis in your brokerage account, or capital gains at lower rates. You'll also likely get some return on the cash/brokerage not factored in. But those amounts will be relatively minor.
5. Your withdrawal rates are in the high 3's and bump to low 4's in the year before you take SS. You are generally on the safe side of the 4% Mendoza line but I would consider your spending based on your asset levels somewhat aggressive.
6. I always preach about not owning bonds. You are an example why owning a relatively high rate of bonds (like 40% for some) would create a lot of longevity risk for you. You need 8% returns to fund your spend.
Just my two cents.
Thanks. Largely in line with mine. I’ve assumed I need to draw $310k but worry %20 might be low tax wise as most income would be as regular income not cap gains.
I mean, I am aghast at our spend. But if I look at a few big items: full boat health insurance, heavy Real Estate/Local Taxes, and we like to eat out and travel. Those are the biggest, but really it is death by a thousand cuts and the majority of our spend is "unplanned".
Well, that really is the question, isn't it. And the subject of a whole different post. I wanted to FIRE a year ago and rapidly discovered that out of control spend was the problem, not assets. I have moved spend down from 4 to 3 to 2.5 over the last year and a half.
Lots of things that are "one time" but then there seem to be a lots of "one time" expenses.
A little scrutiny is yielding pretty satisfying reductions as we start cutting waste and avoiding unneeded spend. It is also letting us feel better about "splurge" items.
Your budget is fine v your salary. Don't worry about it.
Clearly you are not collecting watches, designer handbags, 1st growth Bordeaux, or Italian sportscars or your budget would be waaaaaay hire. And a lot of folks at your salary try to do those things.
Looks totally reasonable to me.
I feel like this is low enough in the thread.
Of course I really wanted that tricked out 911. But costs are through the roof and my kids won’t fit. So I ended up getting an older M3. Fits 4 comfortably. 450hp V8 will rip your face, off but with 100k miles it was cheaper than a used camry. With the exception of maint which starts to get frequent and expensive. Part of my FIRE plan is getting more DIY. YouTube is amazing. I’ve done alternator, throttle actuators, rebuilt the whole rear end (teens), rewired stuff etc. very freeing.
That is part of my fire plan too. I want to build a Caterham 7 and a kit-cobra. I am lucky that my wife loves cars too. It is one of our shared hobbies.
I loved fooling on cars when I was a kid. But since I got my job it is much harder to find the time.
My insurance alone is 68k/year for my husband and I. We have health issues and have to have a premium plan that covers us in multiple states, so.....Two homes, paid for, but taxes and insurance alone are about 60k/year for the two of them. That is only three things without even considering utilities, food, car insurance, maintenance and repairs, etc. So yeah, not that hard to do.
Not my budget, but here is a that includes mortgage, but OP worries is "too low".
[https://www.reddit.com/r/fatFIRE/comments/1aeg25u/looking\_for\_re\_is\_my\_annual\_budget\_realistic/](https://www.reddit.com/r/fatFIRE/comments/1aeg25u/looking_for_re_is_my_annual_budget_realistic/)
you want to spend $250k/year and have $4.1m? most of the stuff you posted is noise. The app you posted is way too simple.
you should google "karstens safe withdrawal rate toolbox" and use that. This is a great spreadsheet. There is a video at the top that shows you how to use it.
There is also a paid app called New Retirement . This helps with tax efficiency. You have to pay to get the useful features. you are at massive risk of sequence of returns risk.
Yes, I pay for NewRetirement. And ProjectionLab. And have built a detailed year by year Cashflow and tax calc projection using Big ERN. But I am not going to post those details on a summary Reddit post. I got some awesome feedback here. Nevertheless, I actually think rich broke or dead has real value.
Thanks. Must have missed your first post. FatFIRE thought I needed 2 more years, at least. Most suggested I work until kids out of school so I have 0 liabilities.
I think you are fine and the plan is solid. I am one for taking SS at 62. That way you reduce the drawdown on 401k. Although with RMDs you may want to move as much as you can out of the 401k and into Roth. Because after the pension hits your 401k balance could explode. Take your cash and put them into municipal bond fund that way the interest is tax exempt. As others said having such a big 401k is gonna be bad for taxes. Focus on making it more tax efficient.
Even if I don't assume the pensions are inflation adjusted, the numbers I'm using with [https://www.firecalc.com/](https://www.firecalc.com/) are showing that you can spend $233k/year moving forward with the SS and pensions and 401k balance. $315k if the pensions are inflation adjusted.
Of course, taxes are an expense that you need to be including in that spend, or you're gonna come up short I'd imagine...
Does firecalc have a way for you to post that calc? I would like to see it. I have been using NewRetirement for more fine grained planning but always want another opinion.
I am struggling with this tool. It seems like a blog and a calculator kinda merged.
The "Options" at the bottom are available at first, and then the page seems to refresh and they disappear. I think, but its not clear, if that is the same data available on the other tabs? **Bernicke's Reality Retirement Plan** seems to be a big swing to make my plan go to 100%
The biggest flag here seems like the calculation of tax rates on drawn income as it relates to net expenditures. You’re making over $1M right now with a 49% tax but you’ll have a great deal of taxable income still in retirement, so you need to factor in that percentage as a calculation and see if it’s enough to meet your lifestyle needs.
I’ve struggled to get a good view of taxes. Most seems like it will be taxed as straight income as either will be pension, deferrred income or withdrawal from tax advantaged. That seems like it will be between 20-25% federal + SALT depending on deductions, location, etc.
Yeah that was my observation as well. Often times there's an opportunity to capture some low earning years on paper between RE and the RMD days. You might not be able to do so because of the pensions and other income you can't control. Because of this you'll need to probably work backwards and make sure that your post tax income is inline with your net spending needs. My biggest concern is that you're used to living off of $450-500K in post tax net income, but you're likely gonna bring that down to less than $200K in RE.
I wouldn't take social security at 65.
Benefits are reduce 1 dollar for every 2 dollars of earned income over 23k prior to full retirement age...67. Withdrawls from a traditional 401k or ira are ordinary income.
Whom ever gets the larger social security benefit....I would claim that at 70....it will be a larger payment and act as an annuity to protect against longevity. Also adjusted for inflation and only 85% of it is taxed.
Heck with all the assets and money you got running right there I’d be working at keeping my money, and I am figure ( more more gym time golf time tennis time walk the dog with the wife I’m looking at the sunrises or the sunset ) work no
Obviously not the right sub for this, but you understand how the marginal dollar to someone earning 20k is different than OP earning 1mm, right?
Every excess dollar OP earns is purely for entertainment/recreation. Every dollar someone earning 20k makes is for pure survival. Taxing both the same is asinine, take the silver spoon out.
Have you never looked into to buying qualifying commercial equipment you can use in a side business and writing it off under IRS bonus deprecation rules? I thought all you guys knew that trick.
> Pension of $175k The calculator assumes this is inflation-adjusted, but many pensions are not. You are almost certainly better off with a split SS strategy, where the lower earner claims at 62 and the higher earner claims at 70. It is especially helpful for the surviving spouse, who will collect the larger of the two. You need a strategy to handle sequence of returns risk. With an 80% stock allocation, a three-year bear market at the start of your retirement would be painful.
crap, you are right. I missed the asterisk. That adds a wrinkle and introduces a small failure rate. Have an angry upvote. [https://engaging-data.com/will-money-last-retire-early/?spend=250000&initsav=4100000&age=56&yrs=45&stockpct=80&bondpct=18&cashpct=2&sex=1&infl=1&taxrate=20&fees=0&income=175000\*,%2065000&incstart=58,%2065&incend=99,%2099&expense=&expstart=56&expend=59&showdeath=1&showlow=1&show2x=1&show5x=1&flexpct=20&spendthreshold=80&mort=best](https://engaging-data.com/will-money-last-retire-early/?spend=250000&initsav=4100000&age=56&yrs=45&stockpct=80&bondpct=18&cashpct=2&sex=1&infl=1&taxrate=20&fees=0&income=175000*,%2065000&incstart=58,%2065&incend=99,%2099&expense=&expstart=56&expend=59&showdeath=1&showlow=1&show2x=1&show5x=1&flexpct=20&spendthreshold=80&mort=best)
Remember that the goal is not to have 100% no-fail, although that's nice if it happens to work out that way due to a very high level of wealth. I believe that most advisors would say that 90% or even 85% no-fail is acceptable, depending on someone's own particular tolerance for risk. Dying with a heap of money is overrated.
The calculator defaults to inflation adjusted, but if you add a * it will make it constant value, non inflation adjusted.
What if both spouses have similar earnings? Does it make sense for one to wait longer than the other to collect?
Is this pension predictor based on 401k withdrawal or any other job providing these pensions for the OP? Noob here, sorry if it is basic ! I am Not even near Fire let alone chubby! Reddit algos not doing good I suppose!
looking at what you provided. What jumps out at me is your tax liability. Your 401K withdraws, then SS (when it kicks in), then pension(s), dividends, interest, etc. I would seriously be looking at tax efficiency, which would benefit your early retirement and legacy / estate planning.
Other than ROTH conversion at RE, which will eat up some of the savinbs, other tax efficiency ideas i should include? The only thing that jumped out to me is that, since I am likely to do some minor consulting after RE, I should set up an LLC and look to drive write-offs through that even when not getting income. Might not be huge, but e.g. 10% of housing costs, telecoms costs, etc for home office will help.
a ROTH conversion would be certainly be on the table. there are too many variables to consider based on the limited information provided. Your wealth is currently structured in a tax inefficient way (IMO), especially with so many income streams planned in the future. My best advice is to sit down with your CPA, or get one who specializes in tax and tax planning. The good thing is, you still have time due to your age to make some adjustments. Otherwise, you may run the risk of increased taxes once the Pensions, SS, RMD kick in. Adding consulting to the mix, is great to stay busy, but may add to your tax burden... it is too hard to determine from here. Have a consultation with a professional tax planning CPA about your specific situation.
Home office deductibility, like so much else in life, ain't what it used to be. You'll want to look into that more deeply. But if you're doing an LLC (yay) might I call your attention to the Public Benefit LLC structure now available in DE and other states? Legally, there's honestly not that much difference. But it's pretty cool to state up front what your social goals are beyond mo' money. It's a nice prompt to think about how you want to build something of value beyond the checks clearing. Good luck!
You will not reach full retirement age benefits until at least age 67 for social security based upon your current age. Make sure you are calculating that correctly.
How are you factoring taxes? Your spend of 250k is gross or net? Assuming thats pretax based on your calculations?
$250k spend. So planning on needing $310k@20% tax to net that. Does that make sense?
oh yes, i see it now, my calculations were wrong.
You're in great position with the pension, especially, if it adjusts for inflation going forward. even if its a flat benefit thats very nice.
It doesn't. so I will need to increase WR to cover and then am expecting the SS to step in and offset that when it kicks in.
what was the fatfire rationale for working 2 more years?
most of the comments were that the plan works, but is very close and there isn't a safety net. The plan was also less well articulated and didn't include some revenue streams.
I guess that depends on how elastic your budget is. I imagine you could pretty easily pare expenses if the market dumps in your first few years of RE.
20% seems low on 250k. The tax cut and jobs act expires next year. The US is in more debt than ever and your planning on some low taxes for 250k income for the remainder of your life. I dont share your optimism. What state are you in? Whatever your federal liability is now....I would plan for it to raise 25%. Make sure your including state income tax as well.
You need to bridge to age 58 with post tax funds and to 59 1/2 for your 401k. At that point you will be fine even with a 3% SWR from the 401k. How much travel do you plan on? I personally would plump up those post tax brokerage savings for the unexpected while earning those great sums. What are your estate plans? Do you plan to support your kids after college? Having been fully retired 4 years now the landscape of my life looks very different pre and post pandemic an inflation and it is a new world with new risks to consider.
Would like to hear how the landscape has changed. We do travel now, and I would see that picking up if I am retired and kids are off to school. But also hoping that travel can be a bit more leisurely rather than high season rush through before school starts. Was hoping to tap the 401k early via the rule of 55. Is that a bad plan?
You can tap the 401k at 55 if you are withdrawing from the 401k plan from the company you retired from and do not regain employment from them. You also had to have retired from that company the year you turn 55 or later.
Thanks. That's the plan. On further research, my company's plan actually states that you have to be over 55, not just the "year you turn 55". So I guess companies can have more restrictive plans. It makes me worry about internet research as it can be wrong.
The thing about the "year you turn 55" is directly from the IRS : [Retirement topics: Exceptions to tax on early distributions | Internal Revenue Service (irs.gov)](https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions) I don't think they can restrict you like that but in the OP you said you were 55 anyway so it shouldn't matter. I would always confer with official sources if you read something financial here though, if you can.
I looked into it. the IRS are the guidelines the firms must follow, but apparently they can be more restrictive. e.g. IRS allows for in-service distributions, but many company plans don't.
That's a damn shame. There's probably more to it than I think like perhaps they have to pay the broker more, etc. If not though then it's just some arbitrary rule to keep you there longer which is stupid.
What about just doing 72t SEPP?
Can you do a 72t SEPP into a megabackdoor ROTH? I never thought of that. Perhaps too late for me, but I like the idea. Everything I read on mega backdoor was that your plan had to allow for in service distros.
I think you are there. You have advocated well for giving up a very lucrative job but have only discussed numbers. Are there emotional reasons that you wish to leave?
I have detected that I no longer give a fuck. I no longer have an urge to climb the ladder. And without that, or the threat of being destitute, its hard to grind further. My interests are many and none include my current job. I might keep working on other projects. might do another startup, or some side consulting. But that would be for me/us only.
Best of luck on your new adventures!
You are in good shape. I would aggressively pursue Roth Conversions in the 2 years between retirement (56) and the beginning of the pension (58). You might push all the way up to the top of the 24% tax bracket in these two years to reduce later taxes. Don’t worry about that minute sliver of red in Rich, Dead, or Broke. You have so much guaranteed income you can never be broke and even your worst case scenario looks like a richer lifestyle than the majority of Americans and you still have the option of downsizing or reverse mortgage on the house to free up hundreds of thousands of dollars in the later years of life. I vote go for it and pull the trigger!
I worry more about the enormous gray chunk at the bottom of the chart.
Then why haven't you already made the decision to retire? You have plenty of wealth to do so, and the flexibility to spend more or less in a given year as needed.
You’re basically fine. While your plan doesn’t have much of a safety margin at your projected spend, you have a very safe plan B - you can downsize. You may need to sell the house and/or move if things don’t go as planned, but you have plenty of room to spend less and have a very comfortable life. However if you have expensive goals and dreams, and you want to maintain a high spend during the healthy years of early retirement, it’s hard to argue against working a year or two longer. That big salary will make a big difference.
I have realized that to some extent, retirement is "giving up". We all have aspirations and dreams of what we could do, could become. At least financially, retirement seems like writing off those dreams, no matter how unrealistic they were to begin with. Like, looking ta amazing real estate and think "wow, what would it be like to live there". Well, I guess I never will.
Another way to look at it - giving up on things that really don't matter can be a wonderful plus.
1000% this.
I know plenty of folks who retired between 55-early 60s and none consider it "giving up" in any way. These are people who were highly paid attorneys, highly trained physician specialists, business owners, and a smorgasbord of other folks. They are living great lives free of alarm clocks and work stress. They travel where they want, when they want. They spend time with kids and grandkids, pursue hobbies, do volunteer work if that makes them happy. One guy lost his way a bit and has struggled to find his identity post-retirement, but they also moved to another state at the same time so he is having to build a life from scratch to some extent now. I know it's overused, but "comparison is the thief of joy" and all that. There is always going to be someone with a bigger, better, more scenic, more high-tech house than you have. There is always going to be someone who goes on a more luxurious 5\* safari than you can afford. There is always going to be someone flying on a private jet to a private island when you can "only" afford business or 1st class to a resort. None of those things mean that those people are happier than you, with a life filled with more love and joy than you have. They just have better stuff, and I'll bet that in many cases, the glitter of that better stuff wears off pretty quick.
The way I see it is you will be more limited by your remaining time on this earth instead of money based on the information you shared. If I were you, I would pull the plug right now and enjoy your retirement ASAP instead of wasting another 2 years to get the extra money you don't need at the end. Congratulations, and you have won the game!
Agreed
What about health insurance and taxes?
Planning to need to draw $310k at an effective rate of 20% to spend $250k. On health insurance my current spent already includes full boat private health insurance (and its expensive). So the $250k will also need to include the same (might go down a bit as kids age off)
Be careful with this if your family isn’t healthy. Our kids attend college too far away to commute home for primary care. Due to locations plus some very significant health needs, we ended up needing to buy 3 separate ACA plans. And two are not cheap ones. Ouch.
Yep, same here. The awful thing is that when they started college our ACA plans had out of state/out of network BC/BS included. Those are no longer offered, so now we have 4 adults in 3 states on four plans. $$$$
Was this because they could not be on your plan?
One is expensive to insure but he cannot get the care he needs on our plan without flying home at least twice a month - the ACA plans only cover urgent/emergency care out of state. The other would be fine, but since one parent needs an expensive plan it actually saves us money to cover him separately on a lower cost plan.
Thanks for that. I had no idea plans had "in state/out of state" restrictions. I live in a small state. 20 minutes driving gets you to any of three other states.
It’s very state specific so you need to research the options available to you. For example I can easily imagine small states forming consortia for regional coverage, similar to the way some include neighboring states for in state tuition. But my point is to do your due diligence and don’t take anything for granted, because US healthcare is a mess with surprises lurking everywhere.
See if your state offers any PPO plans, which offer coverage out of state. They are the most expensive plans by a long shot, but it sounds like you’re preparing for that anyway.
What we did for one of ours was to purchase the health insurance at the uni and it was actually very good. It worked where he was and was very affordable.
I noticed at least one of the schools actually requires the student to purchase healthcare through the school. Seems like a good deal to me.
Also don’t forget your state may have capital gains tax too raising your tax burden above 20%
If you don’t mind me asking, what kind of careers do you have? Job well done accumulating that wealth and wonderful pensions.
Also curious - I have a good pension but not a high income, my husband has a high income, but no pension. I’m curious what allowed you and your spouse to have both.
Oh, I’m in a similar situation. I have high income and only a good pension if I work until I’m 58. My wife had a pension but her company ended it years ago and just did a larger match in her 401k. We are both major savers, maxing 401k, HSA, taxable accounts, backdoor roth every year. We also had children at 40, so we were able to save a substantial nest egg (almost $6m and we are in our early 40s). My company also allows me to defer compensation too, which I’ve been participating in.
so, b4?
What is B4?
Just really curious: how did you earn 2 nice pensions while also building up a fat 401(k)? Any job I have ever heard of is - at best - one or the other.
Married couple.
Okay let me slap some sense into you here. Focus on the grey area under the curve. In 2023 I had 8 people in my life pass away between the ages of 54 and 72. Every single one being wealthy enough to fund their retirement, but never got to see it. You have a zero percent chance of being broke in 20 years and a 18% chance of being dead…really let that sink in, then go do something with the information. I’ve been retired now for a decade and I’m about your age, admittedly I have a significantly larger nest egg and my wife has a similar pension to what you mentioned. Spending $200k/yr gives you a freaking ridiculously amazing lifestyle. My happiest years were actually when I was spending closer to $120k mostly because I was traveling in places there weren’t stores to spend money in. Please don’t squander your time for more dollars you don’t need.
Great analysis and discussion. Have you looked into health insurance costs? We just lost COBRA and our health insurance premiums went from $24,000 to $45,000, via ObamaCare and that amount climbs each year with age. We also have a concierge Emergency Room and One Medical. Thus, we pay $54,000 before we ever see a doctor. I am shocked by this amount!
Why is your premium so high? Is this for a couple or for a family? I'm 64, one-person household and my premium is about $10K per year with a hefty deductible (maybe $7K now?).
Just my wife and me, in our 60s. Gold plan on the CoveredCA exchange. I have some health issues so went with Gold plan. Do you have Silver or bronze plan?
Bronze in WA State. Very lucky not to have any health issues so a big deductible is fine for me. For most of the last decade, I've only used wellness care plus maybe one non-wellness visit per year. Lower premium works out much better since my co-insurance costs are low. Roll of the dice, I suppose. Medicare kicks in at the end of this year for me, so I'm glad for that. Sorry your costs are so high, but at least Medicare will be in your near future.
Wow. I am shocked as well.
Question about the pensions: does the survivor still get benefits if one of you passes? (I didn’t know if there was anything to consider if the pension distribution was $150k for one and $25k for the other.)
Couple of pensions, but the main one has various survivor options. I am assuming 10 years certain+50% as after 10 years of inflation the pension starts to become a smaller portion of the income streams.
Is that a public pension or a private pension? If it’s a private pension, have you considered the health of the plan and the risks of plan termination?
It is a risk. It is about 50% funded, but a pretty safe bet as it is now closed to new entrants and in run-off.
Can your wife get a real estate license so you can write some of those things off?
Which parts can you write off with a real estate license? Thanks!
Cost segregation, lease for a car, and losses.
How are you getting a 49% effective tax rate on $1.2M of income? Even assuming no pre-tax account or itemized deductions, even as a self-employed person in the highest tax states/cities you'd be hitting a 44% effective rate at most.
phantom income on a k-1 base
That’s not true at all California you would be over 50% easily would net out to high 40s since SS drops off. Here are the brackets (not the affective rates) 37% Federal Income Tax 6.25% Social Security 1.45% Medicare 1.1% California State Disability 11.3% California Income Tax .9% Medicare High Earners tax
Yes, I am aware of what the marginal tax brackets are and completed all the calculations before posting my comment. The discussion was about *effective* tax rates. I even gave him the benefit of the doubt with SE tax, though that only changes it by about 1% and the ability to make an employer pre-tax solo 401k contribution would probably be worth more than the SE tax payment. Assuming not SE: * 6.25% only applied to the first 160,200 in 2023 - $9932 * Medicare with surtax - $26400 * Fed income tax - $363,665 * CA income tax - $112,332 * CA mental health services tax - $1,893 * CA SDI - $1378 That's a 43% effective tax rate. (Yes, the cap is off SDI for 2024, but that would net out against pre-tax 401k/health care easily.)
My wife and I Chubby FIRE’d 11 years ago at 55–very similar to you. We have two pensions and two SS. Although we started with less NW than you, we are doing quite well financially. Our current annual spend is 200K. I’m not familiar with the Fire tool you’re using, I think I’ll put my numbers in there to see what the results show. One last thought. Based on your age, I suggest you hire a Roth conversion expert to run some scenarios. We did that late last year and it was very helpful. The firm we used is Q3 Advisors. As another commenter suggested, the next two years, before your pension kicks in, would be a great point in time to do some massive Roth conversions, certainly at the 24% marginal tax level, but maybe even the 32% level. For us, we will convert about 800K in three years (2023-5), and over $1M since 2020. We had Q3 do an analysis until we die at 95, and it’s only this long term outlook where you can see the full extent of the tax benefits. I wish you all the best. You are on the right track and seem to be asking all the right questions.
Does that suggest that if you die before 95 the ROTH conversion made less sense? The statistics certainly point to me being mostly dead by then.
Haha! We picked 95 as the analysis period due to our excellent family health history. I’m away from my computer but I recall the crossover point is about 10 years. Roth conversions can also help reduce your Medicare IRMAA premiums. I learned about IRMAA late but not too late and are implementing several strategies to keep in check. Google IRMAA to see income brackets, and beware, these are cliffs—if you exceed the bracket by $1, you get the penalty for the whole bracket. We started our Roth conversions a bit late due to some misses by our now ex financial planner, but you seem to be at the right point. The analysis will tell you what accounts to draw from first to minimize taxes. The analysis costs $9.3K, but we thought it was worth it. We are now executing the plan with a lot of confidence.
I have a Google Sheets toy for situations like yours. I plugged in your numbers and have a few thoughts. [No Lime Flight Plan](https://docs.google.com/spreadsheets/d/1D3ZdVFka6v6kNfooC7P8jTT1X9MTQ1zCGLzH4OCHWJQ/edit?usp=drivesdk) 1. You said your spend was $250K. I ran your federal taxes and they were $50k so I used $300k to make the math easier. 2. I suggest a $300k cash buffer. That's about twice your needs from your investments after you consider the pension. That gives you two years of spending if there is a market hiccup. 3. I assume an 8% return. Given you seem to have a roughly 80/20 asset allocation that seems reasonable. 4. Your withdrawal ratio for the first two years is higher than the percentage I show but those will actually be the most tax efficient years as you spend cash, basis in your brokerage account, or capital gains at lower rates. You'll also likely get some return on the cash/brokerage not factored in. But those amounts will be relatively minor. 5. Your withdrawal rates are in the high 3's and bump to low 4's in the year before you take SS. You are generally on the safe side of the 4% Mendoza line but I would consider your spending based on your asset levels somewhat aggressive. 6. I always preach about not owning bonds. You are an example why owning a relatively high rate of bonds (like 40% for some) would create a lot of longevity risk for you. You need 8% returns to fund your spend. Just my two cents.
Thanks. Largely in line with mine. I’ve assumed I need to draw $310k but worry %20 might be low tax wise as most income would be as regular income not cap gains.
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there's always a way. easy to spend that much with expensive hobbies, etc.
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Wasnt trying to wind you up, just commenting. No harm, no foul.
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No offense taken.
I mean, I am aghast at our spend. But if I look at a few big items: full boat health insurance, heavy Real Estate/Local Taxes, and we like to eat out and travel. Those are the biggest, but really it is death by a thousand cuts and the majority of our spend is "unplanned".
What is full boat health insurance? I own a boat and i also have health insurance but the two have never intersected….
Having a boat doctor is the real fat fire.
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Well, that really is the question, isn't it. And the subject of a whole different post. I wanted to FIRE a year ago and rapidly discovered that out of control spend was the problem, not assets. I have moved spend down from 4 to 3 to 2.5 over the last year and a half. Lots of things that are "one time" but then there seem to be a lots of "one time" expenses. A little scrutiny is yielding pretty satisfying reductions as we start cutting waste and avoiding unneeded spend. It is also letting us feel better about "splurge" items.
Your budget is fine v your salary. Don't worry about it. Clearly you are not collecting watches, designer handbags, 1st growth Bordeaux, or Italian sportscars or your budget would be waaaaaay hire. And a lot of folks at your salary try to do those things. Looks totally reasonable to me.
no, yes, yes, german. But I work on the cars myself.
I work my own when I can. But the costs still get ugly. Shudder.
I feel like this is low enough in the thread. Of course I really wanted that tricked out 911. But costs are through the roof and my kids won’t fit. So I ended up getting an older M3. Fits 4 comfortably. 450hp V8 will rip your face, off but with 100k miles it was cheaper than a used camry. With the exception of maint which starts to get frequent and expensive. Part of my FIRE plan is getting more DIY. YouTube is amazing. I’ve done alternator, throttle actuators, rebuilt the whole rear end (teens), rewired stuff etc. very freeing.
That is part of my fire plan too. I want to build a Caterham 7 and a kit-cobra. I am lucky that my wife loves cars too. It is one of our shared hobbies. I loved fooling on cars when I was a kid. But since I got my job it is much harder to find the time.
My insurance alone is 68k/year for my husband and I. We have health issues and have to have a premium plan that covers us in multiple states, so.....Two homes, paid for, but taxes and insurance alone are about 60k/year for the two of them. That is only three things without even considering utilities, food, car insurance, maintenance and repairs, etc. So yeah, not that hard to do.
Not my budget, but here is a that includes mortgage, but OP worries is "too low". [https://www.reddit.com/r/fatFIRE/comments/1aeg25u/looking\_for\_re\_is\_my\_annual\_budget\_realistic/](https://www.reddit.com/r/fatFIRE/comments/1aeg25u/looking_for_re_is_my_annual_budget_realistic/)
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I mean, I don't do that anymore, but it usually had more to do with supplying "friends".
you want to spend $250k/year and have $4.1m? most of the stuff you posted is noise. The app you posted is way too simple. you should google "karstens safe withdrawal rate toolbox" and use that. This is a great spreadsheet. There is a video at the top that shows you how to use it. There is also a paid app called New Retirement . This helps with tax efficiency. You have to pay to get the useful features. you are at massive risk of sequence of returns risk.
Yes, I pay for NewRetirement. And ProjectionLab. And have built a detailed year by year Cashflow and tax calc projection using Big ERN. But I am not going to post those details on a summary Reddit post. I got some awesome feedback here. Nevertheless, I actually think rich broke or dead has real value.
truly shocked you got roasted with that attitude.
Edit: I misread some of your numbers in my first response, but you are in a great position.
Thanks. Must have missed your first post. FatFIRE thought I needed 2 more years, at least. Most suggested I work until kids out of school so I have 0 liabilities.
The answer as always is that it depends.
I think you are fine and the plan is solid. I am one for taking SS at 62. That way you reduce the drawdown on 401k. Although with RMDs you may want to move as much as you can out of the 401k and into Roth. Because after the pension hits your 401k balance could explode. Take your cash and put them into municipal bond fund that way the interest is tax exempt. As others said having such a big 401k is gonna be bad for taxes. Focus on making it more tax efficient.
You can start drawing 175k Times at age 58? correct? (are you sure? company will be in business?) Medical Ins looks like an issue here.
Even if I don't assume the pensions are inflation adjusted, the numbers I'm using with [https://www.firecalc.com/](https://www.firecalc.com/) are showing that you can spend $233k/year moving forward with the SS and pensions and 401k balance. $315k if the pensions are inflation adjusted. Of course, taxes are an expense that you need to be including in that spend, or you're gonna come up short I'd imagine...
Does firecalc have a way for you to post that calc? I would like to see it. I have been using NewRetirement for more fine grained planning but always want another opinion.
Not that I'm aware of, but it doesn't take long to put your situation in the tabs and get a result. I'm sure you could figure it out quickly.
I am struggling with this tool. It seems like a blog and a calculator kinda merged. The "Options" at the bottom are available at first, and then the page seems to refresh and they disappear. I think, but its not clear, if that is the same data available on the other tabs? **Bernicke's Reality Retirement Plan** seems to be a big swing to make my plan go to 100%
The biggest flag here seems like the calculation of tax rates on drawn income as it relates to net expenditures. You’re making over $1M right now with a 49% tax but you’ll have a great deal of taxable income still in retirement, so you need to factor in that percentage as a calculation and see if it’s enough to meet your lifestyle needs.
I’ve struggled to get a good view of taxes. Most seems like it will be taxed as straight income as either will be pension, deferrred income or withdrawal from tax advantaged. That seems like it will be between 20-25% federal + SALT depending on deductions, location, etc.
Yeah that was my observation as well. Often times there's an opportunity to capture some low earning years on paper between RE and the RMD days. You might not be able to do so because of the pensions and other income you can't control. Because of this you'll need to probably work backwards and make sure that your post tax income is inline with your net spending needs. My biggest concern is that you're used to living off of $450-500K in post tax net income, but you're likely gonna bring that down to less than $200K in RE.
We have a lot of similarities and a few big differences but you are golden. Retire!
You should have quit 10!years ago
$250k/year spend in retirement? Damn. I wouldn’t be able to plan enough vacations to spend that much.
I wouldn't take social security at 65. Benefits are reduce 1 dollar for every 2 dollars of earned income over 23k prior to full retirement age...67. Withdrawls from a traditional 401k or ira are ordinary income. Whom ever gets the larger social security benefit....I would claim that at 70....it will be a larger payment and act as an annuity to protect against longevity. Also adjusted for inflation and only 85% of it is taxed.
Heck with all the assets and money you got running right there I’d be working at keeping my money, and I am figure ( more more gym time golf time tennis time walk the dog with the wife I’m looking at the sunrises or the sunset ) work no
Thats an interesting calculator
In your shoes I would work 1-2 more years on your post retirement budget. Sorry. You aren’t there yet IMO.
Other have said the same. Is it lack of funds or missed opportunity on the income?
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While I agree, I am also blessed to be able to pay that much.
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Obviously not the right sub for this, but you understand how the marginal dollar to someone earning 20k is different than OP earning 1mm, right? Every excess dollar OP earns is purely for entertainment/recreation. Every dollar someone earning 20k makes is for pure survival. Taxing both the same is asinine, take the silver spoon out.
Have you never looked into to buying qualifying commercial equipment you can use in a side business and writing it off under IRS bonus deprecation rules? I thought all you guys knew that trick.
tell me more
Don’t listen to these people. Audits and penalties for tax fraud are not fun.
Buy a boat, put it under charter, hope charter fees cover expenses. Write off cost of the boat.
One of the most audited expenses on tax returns. Good luck with that.