When to retire?

[adiggs]

I'm struggling with wanting to retire asap versus getting to a more comfortable financial position before pulling the trigger. And the biggest unknown is what kind of returns we can expect going forward.

If we assume a 7-9%, 'safe' annual return, we probably wait several years, build up our finances, and figure out what our daughter's higher education costs are going to be before we retire.

BUT, if we assume any kind of outsized returns from TSLA for the next 5-10 years (say 30%+ annually), I am sure we can retire tomorrow and our assets would outgrow our spending.

Guess there are multiple layers of 'going all in' on TSLA. Putting the vast amount of investable funds into TSLA is one. Retiring assuming continued big returns on TSLA is another.

When to retire is of course an incredibly personal and context specific decision.

That being said the way that I 'prepared', or more accurately tracked, when I might be able to retire, was using the 4% rule. It's not a rule of course, but the idea is to assume that you withdraw 4% of your portfolio each year to live on - how are you doing? If you're living on $80k and believe that will make for a comfortable retirement, then $2M is what you would need.

As I said that was a first order approximation that I used. Then when that number started sounding feasible I got more detailed in my analysis to see if the cash flow and stuff would actually work. Most of my portfolio is in retirement accounts that aren't available for several years (without penalty). So I had to think about the annual cash flow we'd be living on.

I talked to 2 financial planners about the idea (it just worked out that way - I wasn't going out of my way to get a 2nd opinion). I learned a lot of useful stuff, but I'm also the financial planner for my family and I used their input and did my own thing. I also find this stuff fascinating so handing it all over to somebody else doesn't make sense to me (it does make sense to me why people do hand it over though).

One piece of advice that surprised me, but that I have in the back of my mind should it become necessary -- spend down my brokerage / not tax advantaged account for living expenses now, even if that goes to 0, enabling the tax advantaged accounts to keep growing tax free for most of a decade. THen incorporate those into the larger plan. That actually works and wasn't something I had considered. See - those financial planners were actually helpful

Part of getting detailed and specific was also building a much more detailed expenses plan. Not just "we've been living on $X, so we can keep living on $X" plan, but details on big expenses coming, changes in spending levels, and so forth. Our expenses are up in retirement. You have a college education coming up and I hear those aren't cheap.


My NOT-ADVICE relative to one of your observations - if you assume outsized returns for TSLA then you're ready to go now (or at least sooner than assuming a more typical return for a random good company). I wouldn't (and didn't personally) assume outsized returns. I expect outsized returns over the balance of the decade (10x from here by 2030; call it $4k - $10k / share). But I don't assume it - I've seen the share price go ~nowhere for many years; I've seen 50% pullbacks. Price action that can be just random noise while working can turn disastrous if you've built a plan around something different.

The outsized returns will enable a wider range of choices in retirement, as well as providing a much bigger pile to give away.

So I'm all in in my ownership of TSLA (cash + TSLA, and the cash is being used to back put sales), but I'm not all in on a need for TSLA to rise at any particular rate.


One thing I've learned about myself roughly 6 months into retirement - I am rapidly becoming unemployable, at least in my former profession, and definitely at my former pay scale. If I had a strong financial NEED to return to work it would be pretty disastrous for me all around. So I have that in the back of my mind and I don't make choices that put that at risk.

Then again I also have the luxury to make a choice like that. I know that we don't all have that.

 

[mongo]

Most of my portfolio is in retirement accounts that aren't available for several years (without penalty). So I had to think about the annual cash flow we'd be living on.

Have you looked at the SEPP option to access IRAs without penalty?

 

[adiggs]

Have you looked at the SEPP option to access IRAs without penalty?

Yes I have. I keep going back and forth - it sort of varies with how the option sales are making out . Mostly my preference is to get them started - the income now is more valuable to me, than more income later (an idea I find that financial planners struggle with - they are focused on max money over lifetime and I am optimizing differently these days).

Something I am trying to figure out with the SEPPs are the mechanics. I've read enough that I'm confident I understand the concept and the calculators that tell me what's possible. I've found calculators online to help me figure out how much of a withdrawal I can make each year.

But then the question arises - are those calculators trustworthy to make actual decision that get implemented, or are they only good enough to get an idea?

Do I need to file an SEPP plan with the IRS? Or do I just start taking withdrawals and at tax time report that it's an SEPP withdrawal?

I know that I use the account value as of the start of the year (Dec 31 of the previous year actually) to do the calculations, and I know there are choices available that lead to recalculating each year and ones that are fixed. I also know that there is a one time shift from fixed to variable, but at the current interest rates I would probably just start and continue with the variable choice. But do I need to run the calculation myself each year, or can I rely on one of the calculators and then make my own adjustments to the monthly withdrawal.

These are the things stopping me at this point.

If I were going to go to a professional to help me set this up, is it a tax accountant, tax attorney, CPA, ..?


These questions are arising as I believe that Fidelity will do the math and automate the monthly withdrawals, but I find myself thinking of changing brokerages and I'm pretty sure the new brokerage won't do that sort of stuff for me.

 

[CHGolferJim]

One piece of advice that surprised me, but that I have in the back of my mind should it become necessary -- spend down my brokerage / not tax advantaged account for living expenses now, even if that goes to 0, enabling the tax advantaged accounts to keep growing tax free for most of a decade. THen incorporate those into the larger plan. That actually works and wasn't something I had considered. See - those financial planners were actually helpful

Appreciate that comment which confirms what I’ve been doing since retirement from 9-5 at 44 twenty years ago. With limited ordinary income, I’ve had to Roth convert like mad to cover deductions (mortgages, health insurance premiums, etc.). About the time I turn 65, I’ll have all other IRAs converted to Roth — which has gotten quite healthy since 2015 when I first came across Tesla and TSLA. My options trading is designed to boost income well beyond the salary years, escape mortgages, expand quality of life (travel, restaurants, charitable giving), etc. With the new income provided by covered calls strategy (eventually to be balanced and increased by adding puts), I perceive a new sense of freedom, not having to so carefully manage income and expenses. Thanks in part to the Investment and Options threads, I feel confident this stream can continue to provide fish for quite some time.

 

[mspohr]

I just want to put in a good word for rental real estate. I ended up with a small commercial office building when I sold a business about 30 years ago. This is in a small town and has proven to be quite resilient to changes in the economy (it's in a desirable resort community). Even COVID proved to be only a small blip in occupancy which is usually 90+%.
It provides a nice cash flow and tax deductions so we've been able to live without spending any of our savings.
This situation might be unique to me but it is worth investigating.

 

[adiggs]

I just want to put in a good word for rental real estate. I ended up with a small commercial office building when I sold a business about 30 years ago. This is in a small town and has proven to be quite resilient to changes in the economy (it's in a desirable resort community). Even COVID proved to be only a small blip in occupancy which is usually 90+%.
It provides a nice cash flow and tax deductions so we've been able to live without spending any of our savings.
This situation might be unique to me but it is worth investigating.

I've had good success with real estate as well, though I do my investing through a mutual fund type of setup (it's not publicly traded, but it is publicly accessible: outfit called Fundrise). That's been throwing off a consistent 2% each quarter, with no effort on my part.

I have wanted some diversification, I like real estate as the best reasonably uncorrelated asset from the stock market I know of, and I've got relatives that have / had rental homes. I know that direct ownership isn't for me (I know it works really well for many - it was my parent's source of income growing up after all), so I'm happy I've found this different approach. All I've learned about direction ownership from my relatives has reinforced my desire to stay away from direct ownership

Someday I even like the sound of being 1/5th or 1/4th in real estate, but today isn't someday

 

[CHGolferJim]

I've had good success with real estate as well, though I do my investing through a mutual fund type of setup (it's not publicly traded, but it is publicly accessible: outfit called Fundrise). That's been throwing off a consistent 2% each quarter, with no effort on my part.

I have wanted some diversification, I like real estate as the best reasonably uncorrelated asset from the stock market I know of, and I've got relatives that have / had rental homes. I know that direct ownership isn't for me (I know it works really well for many - it was my parent's source of income growing up after all), so I'm happy I've found this different approach. All I've learned about direction ownership from my relatives has reinforced my desire to stay away from direct ownership

Someday I even like the sound of being 1/5th or 1/4th in real estate, but today isn't someday

Owning a rental property generally sucks unless it has a low cost basis.

 

[adiggs]

Owning a rental property generally sucks unless it has a low cost basis.

It just sounds like a lot of work to me. And here in the Portland, OR area at least, there have been a lot of incremental restrictions placed on owners of the properties (and I don't only mean Covid related). If I enjoyed building and maintaining stuff with my hands, at least to that degree (I don't), then it might be a different story. But I don't, so I don't

I invest with Fundrise, they handle the details, and I enjoy watching the chickens running around the back yard

 

[mspohr]

It just sounds like a lot of work to me. And here in the Portland, OR area at least, there have been a lot of incremental restrictions placed on owners of the properties (and I don't only mean Covid related). If I enjoyed building and maintaining stuff with my hands, at least to that degree (I don't), then it might be a different story. But I don't, so I don't

I invest with Fundrise, they handle the details, and I enjoy watching the chickens running around the back yard

Big difference between residential rentals and commercial rentals. Residential rentals are a pain in the ass with demanding, unreliable entitled clients.
Commercial rentals (office space) are much better. Clients are steady, reliable, reasonable. I've had very few issues with clients over 30 years.

 

[mongo]

Yes I have. I keep going back and forth - it sort of varies with how the option sales are making out . Mostly my preference is to get them started - the income now is more valuable to me, than more income later (an idea I find that financial planners struggle with - they are focused on max money over lifetime and I am optimizing differently these days).

Something I am trying to figure out with the SEPPs are the mechanics. I've read enough that I'm confident I understand the concept and the calculators that tell me what's possible. I've found calculators online to help me figure out how much of a withdrawal I can make each year.

But then the question arises - are those calculators trustworthy to make actual decision that get implemented, or are they only good enough to get an idea?

Do I need to file an SEPP plan with the IRS? Or do I just start taking withdrawals and at tax time report that it's an SEPP withdrawal?

I know that I use the account value as of the start of the year (Dec 31 of the previous year actually) to do the calculations, and I know there are choices available that lead to recalculating each year and ones that are fixed. I also know that there is a one time shift from fixed to variable, but at the current interest rates I would probably just start and continue with the variable choice. But do I need to run the calculation myself each year, or can I rely on one of the calculators and then make my own adjustments to the monthly withdrawal.

These are the things stopping me at this point.

If I were going to go to a professional to help me set this up, is it a tax accountant, tax attorney, CPA, ..?


These questions are arising as I believe that Fidelity will do the math and automate the monthly withdrawals, but I find myself thinking of changing brokerages and I'm pretty sure the new brokerage won't do that sort of stuff for me.

Non authoritative disclaimer.

Retirement Plans FAQs regarding Substantially Equal Periodic Payments | Internal Revenue Service

Setting up a SEPP is handy for accessing the value penalty free ahead of time (ignoring account appreciation). It may also be helpful in establishing income for acquiring loans.
Some of the downside of changing to taxed/ taxable monies is the (risky) ability to multiply it with a margin trading account and/or trade more frequently or with different strategies.
Taxes: coordinate with your fund manager so that the 1099-R lists the SEPP exception code (2). If this is not indicated, file form 5329 to indicate the 72(t) exempt status. You'll pick the withholding when you request the distribution(s) which you can split how you wish during the year including lump sum at the end of the year to maximize tax free growth.

Numbers from the online calculator are probably close, but the critical issue is the 120% limit on the interest rate from the baseline (which is hopefully way way low if backed by TSLA).
Your retirement fund would probably be able to answer any questions, as long as they are not focused on your particular overall fiscal situation. Distributions get taxed as normal income.

 

[FoverM]

My advice would be to carefully and thoroughly go through your expenses and calculate how much you think you'll need per year to live like you do now. Then carefully figure out how much you'll be able to withdraw from your investments per year to maintain that level of total income.

After doing all that, double the amount of expenses you came up with and halve the investment income you thought you'd get. Work with that for planning purposes on when to retire

 

[dmvevguy]

Rentals are great if you are a real estate professional and get to depreciate! Write-off all the profits tax free. Commercial is way better, but I also think long term more remote-type work is going to cut into commercial unless you are in a golden location. I love real estate for the tax breaks and depreciation.

 

[mspohr]

Rentals are great if you are a real estate professional and get to depreciate! Write-off all the profits tax free. Commercial is way better, but I also think long term more remote-type work is going to cut into commercial unless you are in a golden location. I love real estate for the tax breaks and depreciation.

Fortunately we are in a desirable location where many city folks have moved to. My building is full of remote workers.

 

[jebinc]

Got out at 52. Was going to do 50, but for some reason, I hung around for another two years. Five years out and lovin’ it!

 

[goinfraftw]

36, in 2020 - just did a SWR earlier this year and have no debt. It's a beautiful thing. Can't wait to move to dividends, philanthopy, and angel investing once TSLA is done running over the next few years for me.

 

[dmvevguy]

Fortunately we are in a desirable location where many city folks have moved to. My building is full of remote workers.

Sweet! My rentals are in a golden location, as well. Most tenants ended up doing 2-3 year long term leases, and fairly great to work with. I do, though, have a property manager to make it more 'passive' for me, but ok with it. I still come out net profit. Esp if it's paid off, great location, then I think real estate is a great safe haven investment outside of stocks.

 

[SageBrush]

If we assume a 7-9%, 'safe' annual return

This is a never ending debate. I recently read a couple interesting articles that took the big data approach to the question and found that a 4.5% REAL draw of assets from age 40 had an ~ 20% chance of depleting savings before death. I suppose I had never considered that the longer the horizon, the greater the likelihood of failure.

My newest rule of thumb for this (and with out a doubt I treat money conservatively) is that I can feel comfortable with my situation in retirement because I look for ways to give money away to help others and society. Not huge amounts, but enough to absorb downturns in the market.

One other comment on this topic: People should try and honestly figure out for themselves what they intend to do about infirmity because it can be really expensive. Since I prefer to die rather than rot away in a Nursing home or e.g from cancer, I discount those costs.

 

[SageBrush]

Have you looked at the SEPP option to access IRAs without penalty?

That was news to me -- interesting !!

What happens if the designated account is depleted ?

 

[CarlS]

That was news to me -- interesting !!

What happens if the designated account is depleted ?

There's no penalty if the account is depleted, but you'd have to be really bad at investments to do that - the amount that is set for your withdrawals is not enough to drain an account even if your account loses some value over the life of the SEPP.

I started my SEPP in the middle of this year at the age of 51 (turning 52 later this year). I'll have to keep it going until I'm 59.5 years old - almost exactly 9 years. The withdrawal that was set for me is 3.6% of the account value. Assuming my account doesn't earn or lose any value over those 9 years (highly unlikely), I'll still have 67.6% of my account intact at the end of the SEPP. If I was older, the percentage would be higher (I'd be taking out more every year), but the required time would be shorter.

 

[dgpcolorado]

There's no penalty if the account is depleted, but you'd have to be really bad at investments to do that - the amount that is set for your withdrawals is not enough to drain an account even if your account loses some value over the life of the SEPP.

I started my SEPP in the middle of this year at the age of 51 (turning 52 later this year). I'll have to keep it going until I'm 59.5 years old - almost exactly 9 years. The withdrawal that was set for me is 3.6% of the account value. Assuming my account doesn't earn or lose any value over those 9 years (highly unlikely), I'll still have 67.6% of my account intact at the end of the SEPP. If I was older, the percentage would be higher (I'd be taking out more every year), but the required time would be shorter.

Yes, I started my SEPP withdrawal at age 45 and continued until 60 (to be absolutely sure I was past age 59 1/2). The amount was amortized based on a 6% interest rate, which was a reasonable figure back in the days of higher rates. Even over that fairly long span, my IRA balance grew. I believe there is a provision in SEPP that allows a one-time adjustment to the withdrawal rate without penalty, to guard against drastic changes to the account balance, although I haven't read up on it in years.

SEPP was the reason I was able to retire at 45. That and being thrifty. My withdrawal amount was $14,228 per year, which was more than I needed in the early years but about right in the later years (something to consider when living on a fixed payment for many years). I still remember that number because it was the same for sixteen years. You can do monthly withdrawals but I preferred the simplicity of one per year; I generally took it at the end of the year to allow for the account to grow more (and to reduce the need to calculate quarterly estimated taxes). I raised cash from my investments by selling during the year, to have enough for the annual SEPP distribution. Makes for challenging financial planning!

One more wrinkle on SEPP: if you have more than one taxable IRA, you can apply SEPP to just one and leave the other(s) as a reserve. It helps to roll 401(k)s into separate IRAs to preserve maximum flexibility. FWIW.