1st time poster. Seeking advice on my early semi-retirement plan. Do you see any ways to improve the plan?
DW and I are in our late 30s and live in a MCOL city in a state with no state income tax. We are both professionals employed in stable government jobs. Current approximate net worth excluding primary residence is 1.5m. Our only debt is our primary residence mortgage (< 3% interest rate) and mortgages on 1.25 sfr properties (< 4% interest). Total after-tax household income is 200k. Total average yearly spending (after taxes) is 140k. One child with no plans for another. We plan to use public schools and we are also funding a 529 account up to 80% of the cost of 4 years at our top state institution.
DW loves her career and wants to keep working until “normal” retirement age. I’ve been bored with my work for years but the benefits and stability have been too good to leave. Once we hit our FIRE goals in the next couple of years, my plan is to drop down to about 10 hours of part-time work per week. My employer allows for this. I wouldn’t get benefits and would take a big pay cut, but it would allow me to earn about 15k in after-tax income in a flexible, low-stress role and stay engaged while I figure out what else I’d like to be doing. (No, I don’t know what else I’d like to be doing, other than to travel more and spend more time with family and friends.![:sharebeer]( "celebrate")
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All the numbers I present in this post are in 2024 after-tax dollars to simplify things and any expected growth in our portfolio is based on an assumed annual real rate of return of 4% (after accounting for inflation). This assumes our effective tax rate in retirement is similar to our effective tax rate today (about 15%). Our current overall AA is 85/15, but it varies based on type of account (see below). I used the amortization-based withdrawal (ABW) calculator shared on this forum to make my calculations.
This retirement plan consists of two phases. Phase 1 will start when I semi-retire at about age 40 and last about 20 years until my wife and I both fully retire around age 60. This phase can start when (1) we’ve accrued a total of $500k across our taxable brokerage account + my 457b deferred compensation plan, (2) our primary residence mortgage is paid off, and (3) we have a total of $1m in all of our other tax-advantaged accounts (i.e., Bucket 2). During Phase 1, we will stop saving any additional money for retirement except for DW’s mandatory employer-matched pension contributions. Health insurance for the family will come from DW’s job. The $140k in after-tax spending will be funded through DW’s job ($80k), rental property income ($15k), my part-time work ($15k), and annually-adjusted ABWs from our Bucket 1 investments ($30k). The goal is to slowly drain Bucket 1 down to zero the year that we transition into Phase 2. Current AA in Bucket 1 is 60/40 overall with more bonds concentrated in the 457 account and more equities concentrated in the taxable account. I confirmed with my employer that the rules of the 457 account allow for no-fee early access as long as I separate from full-time employment with them (work fewer than 30 hours per week).
During Phase 1, I also plan to start doing IRA rollovers each year to convert pre-tax retirement dollars to our Roth accounts. Amounts converted will depend on how much tax we want to pay each year.
In Phase 2, we will both fully retire (around age 60). We expect the real (in 2024 dollars) total value of Bucket 2 investments to be about $2.2m at that time, and we are planning to draw on these investments for up to 40 years until age 100 (if we are lucky enough to live that long). We are okay zeroing out these accounts at age 100, as we plan to leave our rental properties and primary residence as an inheritance for our child. The 140k in after-tax spending will come from DW’s pension ($40k), rental property income ($15k), and annually-adjusted ABWs from our Bucket 2 investments ($85k). The current Bucket 2 AA is 100/0, since we don’t plan to touch it for over 20 years from now. Will adjust it over time to increase stability and lower risk.
A final note is that we are of course planning to be flexible since who knows what will happen over the next several decades…. I could always return to full-time employment if needed. Also, I am not including future SS income or inheritance income in this plan. I view both as extra cushions in Phase 2 that would be nice to have, but not counting on them. We also have the ability to sell our rental properties and primary residence if needed.
DW and I are in our late 30s and live in a MCOL city in a state with no state income tax. We are both professionals employed in stable government jobs. Current approximate net worth excluding primary residence is 1.5m. Our only debt is our primary residence mortgage (< 3% interest rate) and mortgages on 1.25 sfr properties (< 4% interest). Total after-tax household income is 200k. Total average yearly spending (after taxes) is 140k. One child with no plans for another. We plan to use public schools and we are also funding a 529 account up to 80% of the cost of 4 years at our top state institution.
DW loves her career and wants to keep working until “normal” retirement age. I’ve been bored with my work for years but the benefits and stability have been too good to leave. Once we hit our FIRE goals in the next couple of years, my plan is to drop down to about 10 hours of part-time work per week. My employer allows for this. I wouldn’t get benefits and would take a big pay cut, but it would allow me to earn about 15k in after-tax income in a flexible, low-stress role and stay engaged while I figure out what else I’d like to be doing. (No, I don’t know what else I’d like to be doing, other than to travel more and spend more time with family and friends.
)All the numbers I present in this post are in 2024 after-tax dollars to simplify things and any expected growth in our portfolio is based on an assumed annual real rate of return of 4% (after accounting for inflation). This assumes our effective tax rate in retirement is similar to our effective tax rate today (about 15%). Our current overall AA is 85/15, but it varies based on type of account (see below). I used the amortization-based withdrawal (ABW) calculator shared on this forum to make my calculations.
This retirement plan consists of two phases. Phase 1 will start when I semi-retire at about age 40 and last about 20 years until my wife and I both fully retire around age 60. This phase can start when (1) we’ve accrued a total of $500k across our taxable brokerage account + my 457b deferred compensation plan, (2) our primary residence mortgage is paid off, and (3) we have a total of $1m in all of our other tax-advantaged accounts (i.e., Bucket 2). During Phase 1, we will stop saving any additional money for retirement except for DW’s mandatory employer-matched pension contributions. Health insurance for the family will come from DW’s job. The $140k in after-tax spending will be funded through DW’s job ($80k), rental property income ($15k), my part-time work ($15k), and annually-adjusted ABWs from our Bucket 1 investments ($30k). The goal is to slowly drain Bucket 1 down to zero the year that we transition into Phase 2. Current AA in Bucket 1 is 60/40 overall with more bonds concentrated in the 457 account and more equities concentrated in the taxable account. I confirmed with my employer that the rules of the 457 account allow for no-fee early access as long as I separate from full-time employment with them (work fewer than 30 hours per week).
During Phase 1, I also plan to start doing IRA rollovers each year to convert pre-tax retirement dollars to our Roth accounts. Amounts converted will depend on how much tax we want to pay each year.
In Phase 2, we will both fully retire (around age 60). We expect the real (in 2024 dollars) total value of Bucket 2 investments to be about $2.2m at that time, and we are planning to draw on these investments for up to 40 years until age 100 (if we are lucky enough to live that long). We are okay zeroing out these accounts at age 100, as we plan to leave our rental properties and primary residence as an inheritance for our child. The 140k in after-tax spending will come from DW’s pension ($40k), rental property income ($15k), and annually-adjusted ABWs from our Bucket 2 investments ($85k). The current Bucket 2 AA is 100/0, since we don’t plan to touch it for over 20 years from now. Will adjust it over time to increase stability and lower risk.
A final note is that we are of course planning to be flexible since who knows what will happen over the next several decades…. I could always return to full-time employment if needed. Also, I am not including future SS income or inheritance income in this plan. I view both as extra cushions in Phase 2 that would be nice to have, but not counting on them. We also have the ability to sell our rental properties and primary residence if needed.
Statistics: Posted by Wolverine88 — Fri May 10, 2024 5:03 pm — Replies 1 — Views 373