When to retire?

[dgpcolorado]

An interesting note on the 72t (SEPP). The wording that outlines how you can take money out only speaks of 3 methods RMD, annuity and amortized. However, if you read closely, those are just examples. You can come up with your own method but will need to run it by the IRS.

I was thinking of doing this when I started my 72t because it was right after Covid hit and the mid term AFR rate used for two of the calculation method had dropped from something like 2.26% to .52%. I was considering using the 2.26% rate and explaining to the IRS that this AFR rate collapse was a short term occurrence and would resolve itself. In the end I decided not to go this route because I figured it would delay my retirement. In the end it really doesn't matter since I'll be switching to RMD this year.

The method you use, and the amortization rate, needs to be "reasonable." Back twenty-two years ago I was able to use 6% because interest rates were a lot higher back then. The base method, using life expectancy tables, would have given me too little to live on. The amortization method was what made it work for me. Back in 1999-2000 it was also possible to buy thirty year TIPS for about 4% plus inflation and Series I savings bonds for as much as 3.6% plus inflation. Things are a lot more difficult now with interest rates so low on low risk places to park cash reserves.

The trick with SEPP is that you absolutely have to keep the withdrawals on track until age 59½, no matter what. The consequences of messing up are severe. SEPP is only for a detail oriented person, IMO.

 

[juanmedina]

Most of our money is in retirement accounts and I been considering not maxing out our 401Ks anymore so we have more money that is easily accessible. Is this a bad idea? I know it reduces my taxable income but the returns of my 401K to what we have done with Tesla is not even close. I probably can sell a Tesla put with the money or buy some more Tesla or options if the price looks right. We been maxing our 401Ks for 7 years.

 

[ReddyLeaf]

Most of our money is in retirement accounts and I been considering not maxing out our 401Ks anymore so we have more money that is easily accessible. Is this a bad idea? I know it reduces my taxable income but the returns of my 401K to what we have done with Tesla is not even close. I probably can sell a Tesla put with the money or buy some more Tesla or options if the price looks right. We been maxing our 401Ks for 7 years.

Not a bad idea at all, though maybe not “maximizing” your money. At least add enough to get the company match, and always max out the ROTH IRA.

Because I started at an early age with max contributions, by age 45 I calculated that my 401(k) was over-funded, and thus reduced contributions significantly a few years before leaving the working world. In contrast, I always max filled the ROTH. With the extra funds, I built a five year CD ladder outside of those retirement accounts, specifically for the purpose of early retirement. It’s definitely a lower return option (best CD rates were 2-2.5%) but easy, straight forward, low risk, and similar to receiving a paycheck. A CD expires every other month for the first three years, then one CD every month for the next two years (I wasn’t able to retire on schedule due to inability to hire a replacement, so extra cash bought a S70D and 12 more CDs). All of my stock and mutual fund investments are in retirement accounts to simplify taxes (tired of capital gains calcs and love the simplicity of low interest CDs). I know I’m not maximizing returns, but this method works for me and allows me to sleep easy.

 

[cusetownusa]

Looking through this.. lots of interesting stories
In medicine and burning out
TSLA is definitely going to let me retire early (will be able to cut back to 3 days a week this spring), but the biggest issue is to still be able to get health care here in the US for me and the family as I am only 52..

is the issue for healthcare because of your location in the US? I am in the US, and at least in my state, it’s pretty easy to go on the health exchange and purchase health insurance. Just treat it like any other expense you might have in retirement.

 

[dhrivnak]

It appears that there are several investors here that have been able to retire at a young age. I'm considering selling some of my TSLA and retiring this year, at 50, from my surgical practice. I can probably continue to work a few days a month as an assistant surgeon to keep my feet wet, without having to worry about answering patient calls anymore. I have plenty of hobbies to keep me busy (I think). I'm curious to hear what experiences different people have had with early retirement. My thought is life is short, and you can't get time back. You also can't rely on your, and your spouse's, good health to continue. So if you can retire and do something different you enjoy more, why not?

I retired at 58 and for me it was one of my best moves getting out of the high stress always on call corporate treadmill. Like you I have plenty of hobbies and opportunities to stay busy and fulfilled.

 

[kcveins]

is the issue for healthcare because of your location in the US? I am in the US, and at least in my state, it’s pretty easy to go on the health exchange and purchase health insurance. Just treat it like any other expense you might have in retirement.

Exactly...
Here in IL the exchanges are not well run and are very opaque as to what they will and will not cover
I have a son who is on the spectrum and finding something with adequate coverage for him has been a challenge

 

[MikeQ]

The trick with SEPP is that you absolutely have to keep the withdrawals on track until age 59½, no matter what. The consequences of messing up are severe. SEPP is only for a detail oriented person, IMO.

Fidelity handles it all for me. I can make changes as to which stock to sell but they automatically distribute the money.

 

[MikeQ]

is the issue for healthcare because of your location in the US? I am in the US, and at least in my state, it’s pretty easy to go on the health exchange and purchase health insurance. Just treat it like any other expense you might have in retirement.

Exchange insurance is pretty expensive because they are required to cover pre-existing conditions. If you don't have any major health issues, I'd stay away from the exchange and look into short term plans. They are 12 month plans that you renew each year. They don't cover pre-existing conditions. Then theirs TriTerm plans that lock the premium for 3 years and have more bells and whistles. They'll have things like a set number of well visits included and a pharmacy plans.

I'm health so I chose the short term plan. No pharmacy, no well visits, etc... I've found though that the plans that include more make it up in the premiums. It's cheaper to just pay out of pocket than to get free visits included. I pair it with an HSA and a dental plan. Dental plans do seem to save some money over paying out of pocket.

So far I've found that GoodRX provides cheaper prescription costs than most insurance and was even cheaper than my work plan when I was working.

My wife has some medical issues so she is on an exchange plan but myself and our two boys are on a United Healthcare plan.

Do your own homework. A lot of what you'll find is based on where you live and the laws of the state that govern what healthcare companies are required to cover in your state.

 

[MABMAB]

Most of our money is in retirement accounts and I been considering not maxing out our 401Ks anymore so we have more money that is easily accessible. Is this a bad idea? I know it reduces my taxable income but the returns of my 401K to what we have done with Tesla is not even close. I probably can sell a Tesla put with the money or buy some more Tesla or options if the price looks right. We been maxing our 401Ks for 7 years.

I can't answer for your situation.

I felt we could retire in 2015, spouse was hesitant to do so. All the numbers made sense given some common metrics but we had a decent amount of debt and little as far as cash reserve. Generally we kept 10K in checking, enough for a few months. Realizing that cash on hand and debt played a part in spousal comfort, I undertook several things. I really wanted to have two years of funds available and set about to have 100K on hand apart from retirement assets, this was going to provide PEACE OF MIND in the event of any market panic. Our portfolio withdrawal method was to be using a variable percentage withdrawal, basically 5% of assets each year (pull out more in good years, less in bad years, just keep it at 5% of assets). Using such a strategy required a reserve fund to draw upon during bad times and to replenish during good times. In order to save this we cut back 401K contributions to only get the match. Checking account accelerated nicely and helped with spousal peace of mind. Somehow, large 401K balances did not help peace of mind as much as cash on hand. BTW, cash on hand got invested in TSLA...and well you know how that has turned out!

The other thing I did was to pull the bulk of my ROTH contributions out and pay off many debts. These were things like a HELOC to build garage, a tractor, and our last ICE vehicle, not anything like high credit card balances. I really thought my spouse would freak out about pulling so much from long term planned savings but they instead cried at the emotional freedom of being debt free.

So, in a way those are two major things that allowed peace of mind to retire. Of note, both of those likely were not the wisest possible financial moves at the time.

We did one other thing before cutting the cord. We wanted to delay SS until max benefit time and had looming large required minimum distributions. I think I am well versed financially but allow myself to listen to financial advisors. One thing a FA suggested to accomplish our goals was to pull a chunk or a 401K out, purchase a short term annuity. So we pulled out 1/3rd of a 401K, bought an annuity that would pay us a large chunk of money each month until age 70. This base floor of guaranteed income gives us comfort during times of emotional or financial stress.

Besides, it has all worked out with share price eh?

So yes, I think cutting back on 401K savings can be a viable strategy.

 

[ReddyLeaf]

........So, in a way those are two major things that allowed peace of mind to retire. Of note, both of those likely were not the wisest possible financial moves at the time.

Agreed. Being debt free and having a few years of low risk cash really helped me. However, definitely no annuities for me. I was talked into whole life insurance decades ago and eventually realized my mistake. My solution was to over-invest in retirement accounts so that I would own my own annuity, and never get into a situation where I was stuck paying those insurance gangsters any more than the absolute minimum.

 

[adiggs]

Agreed. Being debt free and having a few years of low risk cash really helped me. However, definitely no annuities for me. I was talked into whole life insurance decades ago and eventually realized my mistake. My solution was to over-invest in retirement accounts so that I would own my own annuity, and never get into a situation where I was stuck paying those insurance gangsters any more than the absolute minimum.

I was presented with the same idea - buying the annuity for steady and dependable cash (up to the financial stability of the annuity company). I totally get the value of the steady income, but I also decided to go my own way. In my case my own "annuity" via SEPP on the retirement accounts (got to get TO age 60).

The annuity purchase worked out to something like 3 or 4% per year on the invested cash. The SEPP will be paying out around 2.5-3.0%, and will grow (or shrink) with annual changes to the account balance. I expect the SEPP withdrawals to be comfortably outperforming the annuity for at least the next decade, and by then I'll have full access to the accounts.

 

[PKOttawa]

True wealth is the ability to do what you want, when you want, for as long as you want, with who you want.

Hoping to retire at 45 after achieving average yearly returns of 40% for the last 10 years.

Top 4 holdings of 2020:
Shopify
Amazon
Apple
Tesla

 

[clintonandtu]

Hmm interesting thread. I only found it since the investor thread was locked.

I retired at 65 in late August. When I was working I maxed out my 401k for almost 20 years. During that time it grew to "just" about 500k.

When I "discovered " Tesla I went all in (well almost..440k worth) That number has now grown to 4.4 mil.

Not a bad ROI!

Now my first world problem is how to tap into this new wealth. Part of me says just sell some stock...pay the damn tax and live.
Another part says if the POTUS can pay 750 in taxes...why can't I?

I have looked into asset backed loans but since the bulk of mine is in a IRA that does not seem available...at least at first glance.

I am sure there are vehicles to tap into IRA funds without selling the Stock...I just don't know what they are called...yet.

Hello, consider activating the Margin capabilities on your investment account....that way you can simply take out margin loans without selling any of your stocks...low rates (just make sure you keep a large 'House Surplus' to manage your stock volatility...)

 

[NoclafalcoN]

Hmm interesting thread. I only found it since the investor thread was locked.

I retired at 65 in late August. When I was working I maxed out my 401k for almost 20 years. During that time it grew to "just" about 500k.

When I "discovered " Tesla I went all in (well almost..440k worth) That number has now grown to 4.4 mil.

Not a bad ROI!

Now my first world problem is how to tap into this new wealth. Part of me says just sell some stock...pay the damn tax and live.
Another part says if the POTUS can pay 750 in taxes...why can't I?

I have looked into asset backed loans but since the bulk of mine is in a IRA that does not seem available...at least at first glance.

I am sure there are vehicles to tap into IRA funds without selling the Stock...I just don't know what they are called...yet.

If I were you I would take advantage of only a small portion of your gains from your 401k. Ideally if you haven’t done this before you would want to find a partner or you can just read a lot and learn and do it yourself which doesn’t seem imposible.

Take out $500k post tax or if possible roll that $500k into a self directed IRA so you can invest in Commercial Realestate... ideally Multifamily 40+ units near or in Tennessee, Georgia, or North Carolina. Use the $500k as a partial down payment and to cover any soft costs. Finding the “deal” or the right property will take a lot of time but after you close on the property it will also take a good amount of time to position that runs like clockwork.

If you use invest in MultiFamily then you’d be able to take advantage of all the Real Estate Taxes and live off the Cash Flow from your property.
you could also get involved in some sort of JV partnership or syndication that may have some sort of equity and quarterly distribution which would probably be the solution that would take the least amount of work.

It’s always going to be easier said then done but in my opinion it’s worth diving dee on the implications of Commercial Real Estate vs other investment vehicles.

Have a great New Year everyone!

 

[Magneto3]

Hoping to retire early here as well, maybe even this year! I'm curious, how much USD do you early retirees spend each month, and does that include rent/mortgage or do you have a paid off home?

I am currently projecting a 3k / month net spend from a gross 46k / year investment income. Very tight but it's a start. May working a few more years to add a paid off home to the mix, but I'm really wanting to live the rest of my life for me and not for some corporation.

 

[MABMAB]

Hoping to retire early here as well, maybe even this year! I'm curious, how much USD do you early retirees spend each month, and does that include rent/mortgage or do you have a paid off home?

I am currently projecting a 3k / month net spend from a gross 46k / year investment income. Very tight but it's a start. May working a few more years to add a paid off home to the mix, but I'm really wanting to live the rest of my life for me and not for some corporation.

I've kept track of every receipt since 2015 and tally things monthly. Perhaps you should do the same, then you will know!

 

[CarlS]

I've kept track of every receipt since 2015 and tally things monthly. Perhaps you should do the same, then you will know!

I spoke to a financial advisor last month and he recommended looking at your checking and savings account statements. They don't lie. You have your total expenses right there. There might be expenses that are deducted from your paycheck (e.g. medical insurance) that you'll have to add in to the totals. Add up a year's worth of statements and average them out to see what you're really spending.

I added up mine and found that I spent a little bit more than I thought.

Edit: He meant to look at the totals every month, not the details. It was quick and easy.

 

[mekberg]

I've kept track of every receipt since 2015 and tally things monthly. Perhaps you should do the same, then you will know!

OOF that sounds painful. I use Personal Capital for budgeting and a birds-eye view of finances.

 

[WattsHappening]

OOF that sounds painful. I use Personal Capital for budgeting and a birds-eye view of finances.

I use Personal Capital also. I switched from Mint last year. Other than the annoying marketing emails and notifications (Personal Capital is an arm of a financial advisory services company), it's a great app. And it's all automated once you link your accounts.

 

[Christine69420]

I use YNAB. But not the automated part. I started with YNAB way back before it could do that.

Tested it out but opted out of the auto import function. Because I've learned so much about my own economy punching the relatively few transactions in manually. I've had several moments when I realised better ways of doing things and ended up with more money for my most loved categories.

And of course I've used the reports to graph my monthly and yearly expenses.

And run my numbers trough FireCalc.