FIRE (Financial Independence, Retire Early) execution

Retirement
1

Hello,

I was laid off toward the end of last year. I like to keep working, but I’m not interested in corporate rat race, so now I am seriously considering FIRE option (Financial Independence, Retire Early). My situation is the following:

Age: 58 single

$2 million in 401K+ Roth+ Investment (on a good day): all in MFs & ETFs (80-20 stock-bond)

$124K money market+savings+checking (rate~3.94% for now)

$1.15 million house owed &391K, monthly mortgage $1966, matured 03/01/2052

$65K~75K annual spending for the past 9 years (including mortgage)

It seems OK under the old 4% withdrawal rule. The real execution could be complicated.

My simple plan is to keep 30-month expense in money market and CD in tiers as my regular spending bucket, and the rest of the money in 80-20 Stock/Bond, under the assumption that market downturn rarely lasts over 24 months.

When social security kicks in in 67 or 70, it will be earmarked for long-term care expense first.

Am I missing anything major?

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2

You’ve done great. Health insurance is an issue until you turn 65. A high deductible plan will run you about $700 to $800 per month.

I would consider moving to a less expensive house and paying cash. That will free you of a mortgage and likely cut your property taxes in half.

You don’t need long-term care insurance. You have enough assets to be self insured.

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3

Good point. I should add $12,000 for medical/dental insurance in the budget, that means my annual spending is $77K~$87K until 2032. It is out of the limit of the 4% rule! Maybe Obama Care could help, whatever it becomes.

4

Couple additions for your budget: 1) you’ll need to pull money out to pay income taxes on the taxable portion of the $77K-$87K of spending, and 2) money spent on medical insurance won’t be pre-tax in retirement like it can be when employed so you’ll have additional “income” equal to your insurance premiums to pay taxes on.

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5

Humm… Interesting, I never really thought hard about the issues until now.

  1. I have not dealt with tax from long-term capital gain that has a real impact yet. The tax for money market/savings/checking is not a big concerns. But eventually I will sell my MFs and ETFs for my spending bucket. Let’s say the initial value of my MF is $70K, and sold for $77K (10% gain). Since my regular income will drop significantly, let’s say $20K, From the on-line calculator: 2026 Capital Gains Tax Calculator - Long-Term & Short-Term Gains, my capital gain tax is about $140. Did I make a mistake for this estimate?

  2. As for the medical premium, that is from my spending bucket. I pay whatever tax I have to pay to maintain the bucket.

Please let me know if I misunderstand what you thought.

Edited: Oh… I was thinking about my Investment bucket $375K, not 401K bucket ($1,032K). The rest is in Roth and it should be fine. I think it makes sense for me to do the Roth Conversion when my income is low. So the big question for me is how to reasonably manage my tax from my spending budget…

6

I think you’ve got the capital gains and Roth conversions while income is low concepts correct. I didn’t verify your math.

I’d suggest you get an app that will help you with retirement planning. We use The Complete Retirement Planner, but there are others. You’ll enter all your current values (bank and brokerage accts, SS PIA, property taxes, mortgage, other expenses), then use their assumptions or customize your own, and it will project into the future how long your money will last, how much your RMDs will be, taxes, etc. Then you can play what-ifs (change the year you start SS, vary the Roth conversion amounts, get a part-time job, etc) and see the affects. Good fun during a winter storm!

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