When to retire?

[Mahi-Mahi]

My wife and I have both been retired for almost 20 years. I am in my early 70s and she is in her mid-60s. Here is my perspective on early retirement.

First, if you have the means, do what we did. Fill out your bucket list and do as much as you can as soon as you can, don't wait for some vague day in the future. Ski those black diamonds in British Columbia, climb that mountain in Tibet, dive the Great Barrier Reef. Believe me, by age seventy, those black diamonds are going to be a lot more intimidating than they were at fifty. Face it and plan for it-- after twenty years, your body will no longer work as well as it did when you first retired. Being able to retire while everything still works, and works well, is a gift. Don't squander those early years.

Next, treat retirement like a job. Create an office at home if you don't already have one. Establish goals, rank them and continuously track them. Maintain a working calendar Build and stick to a budget. Take advantage of your spouse's skills (mine is a CPA).

Beware the volunteer trap. It's great to volunteer and it can make a huge difference in your community, plus you will feel a real sense of accomplishment from successful volunteer work. Just know when to pull back. In our case, every worthy non-profit we supported seemed to need the skills of a CPA and an IT specialist. Before we knew what had happened, we were back to working sixty hour weeks, but this time for free! Yikes! It can be very hard to say "no" when your skills can have a very real positive impact on other people's lives, but understand that you must establish a reasonable limit on what you can contribute.

If you don't already live there, find and move to the perfect place to settle. The area where we chose to settle houses the state's flagship university and our public schools (we still had school age children when we retired) are second to none . We have an outstanding medical center, housing is affordable and our air is the cleanest within the continental US. We have a symphony orchestra and two venues for live theatre. A national park is within an hour's drive and I can be skiing black diamonds--lots of them--after a two hour drive. And if I want to immerse myself in a culture where everyone around me is speaking French (important to me because that's what I spoke at home growing up), in a little over four hours I can be in Quebec City.

So if you do decide to retire early, treat it like the dream job you've always wanted and enjoy the ride.

Thanks for the sage advice. I am in my early 50s and thinking about the above intently. I own a company and will be working on it and it's success for at least the next 3- years. Covid gave us a chance to re-assess (in this world remote work) why we don't settle where we want to live now vs in the future. We decided to make the move to Hawai'i now, and to your point, make sure we are where we want to be. I'll be focused on working (a lot!) but have starting listing those ski resorts I want to hit up (not much locally). Thank you for the perspective!

 

[Magneto3]

There's a big difference between current expenses in the accumulation phase living in a HCOL location, what I plan to spend after FIRE in a LCOL, and what I'll end up spending. My question is not how much am I spending right now while living somewhere expensive and working, my question is: for those that have already retired, how much are you spending in early retirement?

 

[MABMAB]

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.

+1 Firecalc!

FIRECalc: A different kind of retirement calculator

 

[Roger61]

I retired at 55 when I couldn't put any more money into a Pension (Lifetime Allowance Limits) and I realised my Pension was more than I was earning working. And work was 3 hours commute every day, 8 hours in the office, plus unpaid evenings and weekends. Just have to keep yourself busy. Although that has been harder the last year with all the lockdowns (which we are still here in UK) and the self Isolation periods.

To be honest I am much better off now. Much less tax, no national insurance payments. No work travel expenses, and no lunch expenses. No maintenance payments. No saving for retirement. More holidays. And a Tesla instead of a Prius.

 

[Rownolds]

I can for sure second the sentiment of retiring early!! I read something that said the #1 regret of retirees was that they didn't travel more when they were younger, and I'd never met someone who said they'd wished they hadn't retired (I'm sure they're out there), and there was an article in the Wall Street Journal about the whole early retirement vibe that pushed me over the edge.
My wife and I retired in 2014 and spent a year driving around the country in our model S, pretty randomly (in sharp contrast to the gentleman who prepped a full bucket list and planned a timeline for all of it. Not bad, just not my style). It was fabulous! See my blog teslatent{dot}wordpressdotcom
We spent $4000 per month. That's broken out in one of the blog posts.
One of the financial tricks I used was to convert a large part of our traditional IRA's to Roth IRA's in March '20, when their value had plummeted so much. Since most of the value was in TSLA stock and it had dropped more than the 30% of the wider market, and then rebounded so nicely. And rebounded and rebounded YAY! now most of our wealth will be tax free when we withdraw. If the market plummets again for whatever reason, consider this trick. It's expensive in the short term but worth it long term.
Also, I've always been one to just say 'screw it. Sell some stock and pay the tax'. It gives peace of mind, but if you can manage some other trick with various financial instruments, more power to you.
Our primary tax avoidance strategy is to give UUUGE amounts to charity. Since we bought TSLA at $8.40 we give those shares to the charities, thus harvesting the full market value of the stock w/o having to pay capital gains. So generally we will, for example, buy 10 shares of TSLA and at the same time give away 10 of the low-basis shares, thus effectively converting low basis shares into high-basis shares. Way better than donating cash, for sure.

 

[MikeQ]

my question is: for those that have already retired, how much are you spending in early retirement?

We are spending about what we spent working. Mainly because we can and don't want to live frugally. We do what we want, when we want. We don't intent to move to a LCOL area, we are in HCOL area now and like it. Health Insurance was a big increase in retirement but it was offset by other things we no longer need to spend on since leaving work.

 

[ReddyLeaf]

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.

$3k/mo here in eastern Washington is easy, but LA? No way. Prior to retirement, I completely tracked expenses and during one year managed to live off of $3k/mo, including 4 vacations (+3 weeks in Italy). Now, with Covid, it’s between $2-$3k/mo because I no longer go to restaurants and only one vacation. However, don’t forget to plan for those unexpected costs (just replaced a 20 yo heat pump for $12k). I don’t budget for specific items, just expect something to happen eventually that costs up to $20k. The next important items are bathroom (planning for aging in-place so full handicap access) and kitchen renovations. This old 1960s house is completely functional but could use some updates (though I understand that the pea green linoleum is back “in” again. Edit: everything is paid off, no loans. CC carry zero balance.

 

[WattsHappening]

Love this thread. A year ago, I would have said we are many (7-10) years away from retirement. Given the TSLA stock performance this year plus the increased confidence in future SP expectations, our retirement date (both my wife and I want to retire around the same time) has been pulled in by several years. One or two more years of outsized TSLA SP performance and we will be done. We could pull it off today if we moved to a LCOL area, but we are planning for a higher cost of living in retirement (house in a golf community, lots of travel).

 

[dgpcolorado]

There's a big difference between current expenses in the accumulation phase living in a HCOL location, what I plan to spend after FIRE in a LCOL, and what I'll end up spending. My question is not how much am I spending right now while living somewhere expensive and working, my question is: for those that have already retired, how much are you spending in early retirement?

Not counting my car loan, which is almost paid off, I spent about $15,300 in 2020; that's a bit lower than usual due to being mostly at home, as opposed to on road trips. In 2019 I spent about $17,200, a more typical year. My expenses were offset somewhat by pay for my service as an election judge (state law requires election workers to be paid).

Unlike some others above, I don't mind being thrifty, save for frivolous expenses on electric cars. I own my house free and clear, so no mortgage (my income is too low to qualify for one anyway). Property taxes are cheap in my rural county. Since I drive a Tesla, my car insurance is pretty high, around $1500 a year. My health insurance is Medicare plus Medigap (cheapest high deductible plan, since I spend little on health care) plus a cheap Part D plan. That health insurance is one of my largest annual expenses, no surprise. (I do not get Social Security since I am still some years away from age 70.)

I spend almost nothing on electricity — just the basic monthly service charge — because I have solar panels. I spend about $300 a year on natural gas for heating and cooking. We have very expensive water here so I spend about $1000 a year for that. I spent about $1000 on my two adopted shelter cats (pets can be expensive). And so forth.

YMMV.

 

[mongo]

One of the financial tricks I used was to convert a large part of our traditional IRA's to Roth IRA's in March '20, when their value had plummeted so much. Since most of the value was in TSLA stock and it had dropped more than the 30% of the wider market, and then rebounded so nicely. And rebounded and rebounded YAY! now most of our wealth will be tax free when we withdraw. If the market plummets again for whatever reason, consider this trick. It's expensive in the short term but worth it long term.

On a dollar basis, you pay less in taxes, but the difference in net gains depends on the effective tax rate difference.

Simple version of the calculation:
Say you have $100k and move it to a Roth at 24% tax rate, so the Roth has $76k net (given the 24k you pull from somewhere else to pay the tax). Tesla goes up 10x and you have $760k tax free.

If you left the money alone, it goes up 10x to $1,000k. If you withdraw at a 24% tax rate, you pay $240k in taxes, but still end up with $760k.
If your retirement tax rate is less than the lump sum roll over rate, you are better off not shifting to the Roth.

For married filers the big jump is at $326k where the tax rate goes from 24% to 32% (single filers at $163k). So a roll over greater than that amount likely hurts you, or any situation where the roll over amount (plus normal income, so rollover is at your highest tax bracket) is significantly higher than the annual retirement withdrawl.

The annual IRA withdrawl also benefits from the yearly deduction. 20 years of retirement * 24.8k(married standard) = $500k tax free.

 

[dm28997]

A new law in CA that allows property tax to transfer when buying another home passed. Not sure how the logistics work but it starts in April.
If we build a new home, thinking Tesla type set up, can one build it and then sell current home or does the current home need to be sold first?

 

[OCR1]

Interesting thread. I spend about equal amounts of time posting in this forum and the Early Retirement Forum (Early Retirement & Financial Independence Community). Somehow I find myself talking about EVs in that forum so it’s only appropriate that I talk about retirement in the Tesla forum.

I semi retired at 46 although I continued to do consulting until I turned 50. I’ve been fully retired for the past four years and am very happy to be out of the workforce. I spent a lot of time analyzing our numbers on Firecalc.com before pulling the plug. It’s a great website. And the folks on the ER forum have been very helpful in answering any questions on retirement, life after retirement, and anything else that’s on your mind.

Now if I had bought Tesla stock during their IPO, I might have retired ten years earlier. Live and learn.

 

[OldPro]

My wife and I have both been retired for almost 20 years. I am in my early 70s and she is in her mid-60s. Here is my perspective on early retirement.

First, if you have the means, do what we did. Fill out your bucket list and do as much as you can as soon as you can, don't wait for some vague day in the future. Ski those black diamonds in British Columbia, climb that mountain in Tibet, dive the Great Barrier Reef. Believe me, by age seventy, those black diamonds are going to be a lot more intimidating than they were at fifty. Face it and plan for it-- after twenty years, your body will no longer work as well as it did when you first retired. Being able to retire while everything still works, and works well, is a gift. Don't squander those early years.

Next, treat retirement like a job. Create an office at home if you don't already have one. Establish goals, rank them and continuously track them. Maintain a working calendar Build and stick to a budget. Take advantage of your spouse's skills (mine is a CPA).

Beware the volunteer trap. It's great to volunteer and it can make a huge difference in your community, plus you will feel a real sense of accomplishment from successful volunteer work. Just know when to pull back. In our case, every worthy non-profit we supported seemed to need the skills of a CPA and an IT specialist. Before we knew what had happened, we were back to working sixty hour weeks, but this time for free! Yikes! It can be very hard to say "no" when your skills can have a very real positive impact on other people's lives, but understand that you must establish a reasonable limit on what you can contribute.

If you don't already live there, find and move to the perfect place to settle. The area where we chose to settle houses the state's flagship university and our public schools (we still had school age children when we retired) are second to none . We have an outstanding medical center, housing is affordable and our air is the cleanest within the continental US. We have a symphony orchestra and two venues for live theatre. A national park is within an hour's drive and I can be skiing black diamonds--lots of them--after a two hour drive. And if I want to immerse myself in a culture where everyone around me is speaking French (important to me because that's what I spoke at home growing up), in a little over four hours I can be in Quebec City.

So if you do decide to retire early, treat it like the dream job you've always wanted and enjoy the ride.

Very nice comments and insight. Too bad such good insight and respect for such comes to we "Seniors". When one is young,
we are often too busy "being busy" to find time for this kind of reflection. At age 67, soon to be 68-I just purchased a small travel trailer for my spouse and I. (+2 dogs) In 10 years I may not be able to hitch and manage a travel trailer...for now...I'm going for it so I don't have to ever say "I wish I had..."

 

[juanmedina]

$3k/mo here in eastern Washington is easy, but LA? No way. Prior to retirement, I completely tracked expenses and during one year managed to live off of $3k/mo, including 4 vacations (+3 weeks in Italy). Now, with Covid, it’s between $2-$3k/mo because I no longer go to restaurants and only one vacation. However, don’t forget to plan for those unexpected costs (just replaced a 20 yo heat pump for $12k). I don’t budget for specific items, just expect something to happen eventually that costs up to $20k. The next important items are bathroom (planning for aging in-place so full handicap access) and kitchen renovations. This old 1960s house is completely functional but could use some updates (though I understand that the pea green linoleum is back “in” again. Edit: everything is paid off, no loans. CC carry zero balance.

For the year we a family of 4 spent 64K in 2020. We had to get a new roof and two small car loans. After removing those expenses we spent 42K and we bought a ton of crap that we don't need like a 1.5k gaming monitor lol. We live in a LCOL area and my work obviously subsided most of our healthcare.

We are spending about what we spent working. Mainly because we can and don't want to live frugally. We do what we want, when we want. We don't intent to move to a LCOL area, we are in HCOL area now and like it. Health Insurance was a big increase in retirement but it was offset by other things we no longer need to spend on since leaving work.

Around how much are you paying for insurance?

I am thinking about leaving the work force but this year I am going to work and try to build my accessible cash position as much as I can. I wish Tesla had a travel van because I would love to something with my kids like Dave Lee is doing.

 

[MikeQ]

For the year we a family of 4 spent 64K in 2020. We had to get a new roof and two small car loans. After removing those expenses we spent 42K and we bought a ton of crap that we don't need like a 1.5k gaming monitor lol. We live in a LCOL area and my work obviously subsided most of our healthcare.

Around how much are you paying for insurance?

I am thinking about leaving the work force but this year I am going to work and try to build my accessible cash position as much as I can. I wish Tesla had a travel van because I would love to something with my kids like Dave Lee is doing.

UHC short term plan. Myself and 2 kids (both 18+ years old) ~$350 a month.
Oscar Health Bronze. Wife only ~$550 a month.

So $900 a month.

 

[SmartElectric]

Non-retired Canadian here:

1. Live near quality health care. Easy to say in Canada with our excellent single payer health system I guess. My point : some of my family retired well outside of the population centers, ended up with very poor nursing care and even worse specialists. COVID response in the larger nursing homes was poor here, if you are destined for nursing, make sure to find smaller and better managed establishments.

2. Organize your home to reduce monthly costs. Renovated to add insulation, heat pump, solar, battery, plug air gaps and heat recovery ventilation (HRV) for the months of the year when outside temp is nice enough for inside.

3. Reduce transportation costs. We have two EV's, one of which (Smart) is truly the lowest cost personal transportation ever made. Expect to reduce to just Cybertruck when I retire so we can tow trailers and travel across the continent in style.

4. Find ways to shift taxes paid in retirement to pre-retirement. Used "spousal RRSP" in Canada to make periodic investments to defer taxes today, then my wife withdraws for 4 years in a row and repeat, helped us pay mortgage down to 0. Don't put too much $ in RRSP or other retirement funds that will be taxed on the way out in retirement, take the pain today.

5. Don't have kids in your 40's like we did, you'll end up working to nearly 60 like I will be. Have your kids earlier so you can enjoy grandchildren earlier.

Cheers.

 

[juanmedina]

UHC short term plan. Myself and 2 kids (both 18+ years old) ~$350 a month.
Oscar Health Bronze. Wife only ~$550 a month.

So $900 a month.

Thanks. That's not horrible.

Why are you using the (72t) SEPP vs Roth IRA Ladder to pull your money from retirement accounts? My understanding is that the SEPP is an equal payment distribution until 59-1/2. I don't know how this would work for me since I am 35 and with inflation the value of my distribution probably would be cut 1/3rd (purchasing power) in my 50s. Maybe there is something I am missing. I would be fine pulling 5-4% annually of my retirement accounts.

 

[adiggs]

Thanks. That's not horrible.

Why are you using the (72t) SEPP vs Roth IRA Ladder to pull your money from retirement accounts? My understanding is that the SEPP is an equal payment distribution until 59-1/2. I don't know how this would work for me since I am 35 and with inflation the value of my distribution probably would be cut 1/3rd (purchasing power) in my 50s. Maybe there is something I am missing. I would be fine pulling 5-4% annually of my retirement accounts.

One of the SEPP choices is the Required Minimum Distribution (it's got another name as well I forget), the primary characteristic of which is that it is recalculated each year based on the end of year account balance. When I've looked at this in previous years, this dynamic method would start off with a withdrawal of around 1/2 (or less) of either of the other two methods. But this year, with interest rates being so low, the first year withdrawal is very similar among all 3 options, with the RMD method adjusting dynamically (and therefore, presumably, up) as the account balance changes.

And it looks like (for me at least), the RMD method will enabled a 2-3% annual withdrawal. I'd like closer to 4-5%, but 2-3% enables sufficient access that it'll provide a significant fraction of our monthly living expenses. Sort of like an annuity, but I manage the investments.

 

[Tiger]

5. Don't have kids in your 40's like we did, you'll end up working to nearly 60 like I will be. Have your kids earlier so you can enjoy grandchildren earlier.

Ha, yes, kids are an insane amount of work! Can't immagine how I could have managed them while still at work, though.

 

[mongo]

One of the SEPP choices is the Required Minimum Distribution (it's got another name as well I forget), the primary characteristic of which is that it is recalculated each year based on the end of year account balance. When I've looked at this in previous years, this dynamic method would start off with a withdrawal of around 1/2 (or less) of either of the other two methods. But this year, with interest rates being so low, the first year withdrawal is very similar among all 3 options, with the RMD method adjusting dynamically (and therefore, presumably, up) as the account balance changes.

And it looks like (for me at least), the RMD method will enabled a 2-3% annual withdrawal. I'd like closer to 4-5%, but 2-3% enables sufficient access that it'll provide a significant fraction of our monthly living expenses. Sort of like an annuity, but I manage the investments.

You can also switch from the annuity or annualized methods to RMD once which may allow quicker withdrawls at the start.

This calculator compares the three methods:
72t Distribution Calculator

Post 5 years of SEPP or age 59.5 (whichever is longer) withdrawls are uncapped.