39 & Looking to retire this year. Advice appreciated

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Hristo Botev
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Re: 39 & Looking to retire this year. Advice appreciated

Post by Hristo Botev »

Thoroughly enjoying this discussion; thanks to the OP for bringing it to the forum. Not sure if this is the case for OP (likely not, given how much OP has stashed away and what I expect is a 50%+ savings rate), but in my experience, a lot of high salary professional types (me) get lulled into thinking in their late 20s and 30s: max out 401Ks/IRAs, HSAs, and 529s, and then you're done, way ahead of the curve even, and free to spend the rest on house upgrades and renovations, vacations, fancy kids' activities and the like. Then you burn out in your 40s or even early 50s and realize that despite a multi-million $ net worth, you're living paycheck to paycheck b/c all those millions are in tax-deferred and restricted accounts. Throw in that you're likely in piss-poor health and therefore dependent on your fancy employer-provided healthcare, and golden handcuffs indeed.

Married2aSwabian
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Re: 39 & Looking to retire this year. Advice appreciated

Post by Married2aSwabian »

Welcome @caniretirenow ... coming from someone who’s been here for a couple of weeks!

Numbers indicate you can retire, but would second the thought mentioned by others to downsize the house while the market is strong. Obviously there are many considerations other than $ for housing decisions.

Older members of our family have had a situation similar to yours going back to 2000, but with a somewhat smaller nest egg. At that time, the decision was to put some money in equities, but a big chunk into laddered munis for tax benefits plus guaranteed income. Not sure about what muni market looks like now, however. More risk, for sure.

Another point for you is to talk with a good estate planning attorney, if you’ve not done so already.

We’ve had our IRA with Vanguard for over ten years and used their personal advisor services for 0.3% annual fee. It’s been helpful for us, as I’m not so interested in stock picking. You’ve obviously kicked ass on your saving and investing without their help, but putting a small percentage of your nest egg there would provide analysis and planning for a low price. They have great planning software and take a big picture view of retirement needs.

...oh yeah, and I would avoid investing in Game Stop! :lol:

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unemployable
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Re: 39 & Looking to retire this year. Advice appreciated

Post by unemployable »

2Birds1Stone wrote:
Thu Jan 28, 2021 7:44 am
Even adding a 10% penalty doesn't come anywhere close to $650k.
My bad; I was thinking that was an annual amount.

You'd want to take smaller amounts out every year rather than all at once so you're not pushed into a higher bracket.

jacob
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Re: 39 & Looking to retire this year. Advice appreciated

Post by jacob »

Sclass wrote:
Thu Jan 28, 2021 6:50 am
Yeah that is pretty cool stuff I had no idea something like 72t existed. ...
... which I think is not uncommon here(?) While the existence/functionality of 72t has been discussed before I only remember a single instance on over ten years on this forum where someone either had or seriously considered using it. (This was a similar situation with a same age high ROI investor who had burned out on his job with most of his money in retirement accounts.) I myself have only skimmed through the relevant IRS instructions once many years ago.

This is part of why I referred the OP retirement-question to bogleheads or early-retirement.org although I can see how my post came across as unwelcoming. They deal with this kind of financial situation all the time or at least often enough and have probably run the numbers for multiple scenarios including dealing with various state-level exceptions (e.g. which state residence is optimal for conversions) .... whereas the typical numbers on this forum (for 99% of the posters) are small enough to allow much simpler tax solutions---the most complicated typically being a roth conversion ladder---because spending/withdrawals are so low that we often pay [close to] no taxes at all.

In short, with all due respect to our capacity to give advice on high networth situations, I think it's like asking on bogleheads about how to live well on a $500/month budget or whether to retire instead of maxing out one's earnings potential. You get answers according to what people are familiar with hence my comment about "another universe". See e.g. viewtopic.php?t=11804

What the OP need is either a wealth-manager (much cheaper than screwing up the tax situation), or to become a near expert on the tax/estate law as it applies to life-time wealth management, or to crowd-source the tax-answers from people who have done it.

2Birds1Stone
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Re: 39 & Looking to retire this year. Advice appreciated

Post by 2Birds1Stone »

All good, I figured that may have been the case. In his scenario, tax + 10% penalty would be ~26% on top of the $350k, so long as the laws don't change and they stay MFJ. I would also look careful at how each state taxes investments with a NW/spend that high. Federal should not be an issue. Even LTCG are not taxed below $80k/yr income. OP will receive healthy SS on top of their investments, just a smidge of cost optimization and it should be a straight forward plan.

Qazwer
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Re: 39 & Looking to retire this year. Advice appreciated

Post by Qazwer »

The concern of going with a wealth manager is that they will likely try up selling. The problem with your standard tax preparing CPA is that they will not understand the intricacies of early retirement. The only option is becoming an expert yourself and maybe worth some help once you know enough to spot wrong answers.

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unemployable
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Re: 39 & Looking to retire this year. Advice appreciated

Post by unemployable »

We had this discussion last month; OP seems to have disappeared

viewtopic.php?f=3&t=11748

flying_pan
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Re: 39 & Looking to retire this year. Advice appreciated

Post by flying_pan »

OP, you have $1m in brokerage account. Even if we assume no growth and $7000 per month (as you stated), it is 12 years. You can set up a Roth IRA ladder and transfer enough money to survive the rest of 8 years to get to that 59.5 age. Also, when you quit your job, your expenses will go down a bit.

You can always get what you put into Roth IRA any time (not the gains, only principal), tax-free and no penalties (you already paid the tax for it). Spend HSA now for medical expenses, don't burn brokerage cash.

So, if you want to retire now, you totally can. Get 1 year of expenses out of brokerage account, and spend this year learning about tax code and look potential areas where you can decrease your spending, which you can apply down the road.

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Sclass
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Re: 39 & Looking to retire this year. Advice appreciated

Post by Sclass »

unemployable wrote:
Thu Jan 28, 2021 9:56 am
My bad; I was thinking that was an annual amount.

You'd want to take smaller amounts out every year rather than all at once so you're not pushed into a higher bracket.
Actually that was what I meant when @unemployable replied with the high tax expense. I had the idiotic idea to take out the $350,000 in one shot, in a single tax year to cover the following 4.5 years.

While this would be affordable for the OP it’s wasteful and plain dumb. There are some really clever tricks in the endgame of these accounts. I plead ignorance as I never participated. This thread has been a real eye opener since I missed the other 72t threads.

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unemployable
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Re: 39 & Looking to retire this year. Advice appreciated

Post by unemployable »

An exhaustive paper on all the ins and outs of 72t's.

https://72tnet.com/a-practical-guide-to-sepps/

Worth downloading and saving. Dated 2004 but functionally little or nothing had changed that I'm aware of.
Last edited by unemployable on Thu Jan 28, 2021 12:52 pm, edited 2 times in total.

IlliniDave
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Re: 39 & Looking to retire this year. Advice appreciated

Post by IlliniDave »

jacob wrote:
Thu Jan 28, 2021 10:01 am
... which I think is not uncommon here(?) While the existence/functionality of 72t has been discussed before I only remember a single instance on over ten years on this forum where someone either had or seriously considered using it.
That's not entirely true, I don't think. I'm fairly certain it came up in my old journal a number of times as it was a a major option of my plan early on. But maybe I misremember and I'm not interested enough to go back and look.

Your main point is fully acknowledged, as SEPP was something I brought with me from bogleheads.org. Bogleheads is not the myopic altar to index funds it is often expected to be (obviously that's not news to you). Actually, a conversation there about working the expense side of retiring early is was what led me here. Among the participants there are SMEs on all manner of personal finance topics and it's a great place to get enough of a handle on unknowns (known or unknown) in that realm to start the due diligence process of figuring out what's right for an individual's situation. They have a decent wiki too, or at least had one, haven't tried to use it in a number of years.

flying_pan
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Re: 39 & Looking to retire this year. Advice appreciated

Post by flying_pan »

I just looked it up and you can get $80,000 per year tax-free from long-term capital gains (and they are not taxed as income). OP can also convert ~$25,000 per year (standard exemption, maybe OP has big enough mortgage to get even more) tax-free using Roth ladder (there will be some state tax, though). With this structure, you could probably qualify for ACA subsidy, if it does not include capital gains.

Plus, even at 4%, OP will get $40,000 per year in their brokerage account (it will decrease, of course, over time with withdrawing, but it should be almost enough to get to that bridge), so together with Roth principal and ladder, there is almost no way to fail.

IlliniDave
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Re: 39 & Looking to retire this year. Advice appreciated

Post by IlliniDave »

flying_pan wrote:
Thu Jan 28, 2021 1:23 pm
I just looked it up and you can get $80,000 per year tax-free from long-term capital gains (and they are not taxed as income).
That's true if you have no other taxable income. And I'm feeling pretty foolish. I try to keep reasonably up-to-date on tax laws but I thought capital gain exemptions were much smaller and phased out at much lower income levels. So for as long as it takes the new admin to deliver on it's promise to raise taxes, strike what I said above about capital gains liabilities.

Caniretirenow
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Re: 39 & Looking to retire this year. Advice appreciated

Post by Caniretirenow »

You guys are awesome. Thank you to every one of you.
I've read every comment but i havn't had a chance to look at every detail and consider things closely. I also havn't yet looked at all the links. I will. But just wanted to say a quick thank you in the mean time.

Ps. My biggest worry (i think) is:

- a big recession/ depression where 50-70% of my portfolio is wiped out. While I'm still withdrawing....and I'm too old/rusty to get back to the work force.

- major disease like cancer.....wiping out our savings. Not sure how realistic that is considering we will always have decent enough insurance which surely come with max out of pocket limits....

Anyway...these keep me up at night when considering all of this.

IlliniDave
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Re: 39 & Looking to retire this year. Advice appreciated

Post by IlliniDave »

Caniretirenow wrote:
Thu Jan 28, 2021 11:03 pm
Ps. My biggest worry (i think) is:

- a big recession/ depression where 50-70% of my portfolio is wiped out. While I'm still withdrawing....and I'm too old/rusty to get back to the work force.
At the risk of sounding glib, join the club. I'm 17 years older than you and will be punching out in the next 6 months. I've presumably got less time to cover, and similar overall numbers on a per household adult basis, but it is still a concern. I also have much weaker investing chops. The textbook way of mitigating that risk is diversification. The caveat to what I'm about to say is the textbook was written without the benefit of hindsight looking back on the present situation.

The usual approach is to spread assets over stocks, bonds, cash, real estate, and commodities like gold. None are bargains at the moment. With the approach you are theoretically trading upside potential for stability. A relatively well-known approach in that vein is the "Permanent Portfolio". Another advanced by "Tyler9000" (a occasional participant here and bogleheads) is the "Golden Butterfly Portfolio". If you are not familiar with those types of strategies it's not hard to find information on them via Google just to get a feel for what they entail.

A big crash that is permanent is a problem, no question. If you run that line of thought to the extreme you get to the realm of preppers. ERE is a good hedge in that direction as well. Jacob can speak more authoritatively on that, but the 10-cent version is less reliance on money means "lost" money has less of an impact.

For the most part people expect crashes to be temporary in that given time, economic recovery will occur. So it's more of a "ride it out" game in that scenario rather than accepting a new permanent reality. That's part of the reason why you'll see a lot made out of "withdrawal rates". A hefty withdrawal rate can take a big chunk out of a stash in a hurry during a sustained period of depressed asset prices. Smaller withdrawal rates less so.

Historically 4% has been considered a "safe" withdrawal rate for people who retire at typical retirement ages and live typical lifespans (i.e., covering 30 years or so). I've seen recommendations as low as 2% in print by more pessimistic authors for early retirees. I'd guess if you asked those authors today they might suggest even lower numbers. I'm a little neurotic about it, but my "baseline" plan has me at a < 1% withdrawal rate. That is driven by some legacy goals and I'm not giving it as a recommendation, just providing an English-to-iDave translator.

If you seek advice from a "professional" they will almost certainly recommend annuities. One of the reasons my expected withdrawal is low is that I'm grandfathered into legacy retirement benefits from my employer which includes a retirement annuity (aka pension). DIY investors tend to view annuities with disdain, but the idea of having a steady inflow of cash is something a lot of people find comforting when contemplating future unknowns. Beware though that annuities are vulnerable to inflation and those pumped by advisors tend to be spendy.

Those are just things to think about, the ideal approach for whatever the future will hold is essentially unknowable.

I mentioned it earlier, but having a deep understanding of your outflows, and how important each element of the outflow is to maintaining a lifestyle in which you'd be content, is a useful tool. I spent a few years experimenting with that and now I've got a piece of paper I can go to in a SHTF scenario with a checklist of things I can stop, sell, pull the plug on, cut the cord, whatever; to immediately drop me to just above the threshold-of-discontent lifestyle spending. Its likely you and most normal people could make those adjustments on the fly and don't need a list, but it's worth thinking about in advance.

Barring government-imposed changes to the contrary, most medical insurance policies have annual out-of-pocket maximums. As long as you are willing to stick with "allowed"/conventional treatment, you can get a good handle on your downside liability by examining your policy. With ACA there isn't ton of difference between policies when you look at the total of premiums + OOP max. Being older it is something I've given a lot of thought to, and consider one of my top 3 risks. I just built my plan around hitting the OOP max every year (extremely conservative assumption) and threw in a couple K extra per year for miscellaneous uncovered items that might come up, and will go around with my fingers crossed.

Qazwer
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Re: 39 & Looking to retire this year. Advice appreciated

Post by Qazwer »

Be careful with annuities. I am really oversimplifying but I consider them in three categories. Tax and lawsuit shelters for people making more money than you are. Some states protect them from lawsuits and they are tax deferred.
A good way to rip you off. They can be structured in really opaque ways that would need a Jacob to untangle. They are then sold to average investors. You can hide a lot of fees in there as you have no idea what you are buying.
There third type of annuity is actual a pretty good thing but unfortunately aimed at older people. It takes advantage of the fact that people die so we can take a bunch of older peoples money and pool them together and pay a higher rate to those still living.
You have shifted from income generation to preservation stage. William Bernstein popularized the phrase, ‘If you have won the game, stop playing.’ For within bounds events, a simple portfolio of index funds and bonds now makes sense. When you get older, then perhaps purchase an annuity (makes sure you know what kind) to take advantage of age.
For out of bound events changing the world, I am a lurker on this forum for good reason to me. I think it has the best discussions of change that might occur over the next decades that current simple responses cannot control. The COVID threads have been invaluable (thank you all for letting me read).

The Old Man
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Re: 39 & Looking to retire this year. Advice appreciated

Post by The Old Man »

IlliniDave wrote:
Fri Jan 29, 2021 7:01 am
Barring government-imposed changes to the contrary, most medical insurance policies have annual out-of-pocket maximums.
You have to consider "surprise" billing. As an example consider that you are unconscious and in need of treatment. A doctor is found and treatment is done. Unfortunately, for you the doctor/treatment is Out-of-Network; therefore, the insurance company will pay only what is considered "fair and reasonable." Example, the insurance company receives a bill for $25,000. The insurance company decides a fair and reasonable price for the service rendered is $10,000. For simplicity, we will say the OOP maximum for Out-of-Network is $10,000 and you have had no other charges for the year. In consequence, even though you have insurance it pays exactly ZERO. You are liable for the full $25,000. Since you were unconscious at the time services were rendered you may be able to negotiate after the fact a lower price. You can also go to court and hope for the best. Bankruptcies caused by medical expenses even for those with insurance is not uncommon. The Affordable Care Act has not changed anything.

There was a bill before Congress to end the practice of "surprise" billing, but it was defeated.

Freedom_2018
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Re: 39 & Looking to retire this year. Advice appreciated

Post by Freedom_2018 »

Balance billing varies by state. See this link: https://www.commonwealthfund.org/public ... rotections

If possible try to have your emergency/expensive medical care in one of the 'safe' states.

I had personal experience with this when my appendix had to be removed at the other end of the country from my insurance network. Tried to hit me with excess charges insurance did not cover. Called them on it and ended up not paying a dime excess since it was a state with balance billing protections.

The Old Man
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Re: 39 & Looking to retire this year. Advice appreciated

Post by The Old Man »

Caniretirenow wrote:
Thu Jan 28, 2021 11:03 pm
Ps. My biggest worry (i think) is:

- a big recession/ depression where 50-70% of my portfolio is wiped out. While I'm still withdrawing....and I'm too old/rusty to get back to the work force.
Eyeballing it, your planned drawdown is less than 2%. Even with a 50% decline you would still have a drawdown less than 4%. The 4% Rule is considered a reasonable rule of thumb for retirement planning. The 4% Rule, using a stock/bond portfolio has a 95% success rate. It survived the Great Depression. The failures were for retirements commencing in the 1960s/1970s. These failures were due to the high inflationary environment of that era. Stocks and bonds do not do well in an inflationary environment. I am not sure of the best inflation hedge, but I believe a home with a mortgage would be ideal for most people. The 4% Rule survived the Great Depression where stock prices fell 90%, so I believe you are covered there. This is an incomplete analysis, but you should be in good shape to whether any storm.

While it is important to study up on the techniques for accessing your retirement funds, I believe it would be beneficial to consult with a professional. The cost would be trivial relative to your assets. A CPA with a side practice in financial planning specializing in early retirement would probably be what you would be looking for. Choose a fee-only advisor. You don't need products.

IlliniDave
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Re: 39 & Looking to retire this year. Advice appreciated

Post by IlliniDave »

The Old Man wrote:
Fri Jan 29, 2021 3:08 pm
You have to consider "surprise" billing. As an example consider that you are unconscious and in need of treatment. A doctor is found and treatment is done. Unfortunately, for you the doctor/treatment is Out-of-Network; therefore, the insurance company will pay only what is considered "fair and reasonable." Example, the insurance company receives a bill for $25,000. The insurance company decides a fair and reasonable price for the service rendered is $10,000. For simplicity, we will say the OOP maximum for Out-of-Network is $10,000 and you have had no other charges for the year. In consequence, even though you have insurance it pays exactly ZERO. You are liable for the full $25,000. Since you were unconscious at the time services were rendered you may be able to negotiate after the fact a lower price. You can also go to court and hope for the best. Bankruptcies caused by medical expenses even for those with insurance is not uncommon. The Affordable Care Act has not changed anything.

There was a bill before Congress to end the practice of "surprise" billing, but it was defeated.
Agree, the big hole in ACA seems to be getting caught in an emergency out-of-network.

OP was commenting about a chronic ongoing condition like cancer were going out of network would be a deliberate choice.

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