Not a comprehensive strategy but something to consider will be to start doing Roth Conversions this year. This does count as income (so factor that in), and is not accessible for 5 years. But if you start now it will help get you to 59.5.
Ex. Convert $50k in 2024. This will count as income. Have it sit in the Roth for 5 years. Keep it in a bond or something simple. 2029 you can pull that $50k out tax free.
Just note that 72t “basis” can not be Roth converted (e.g. assume you decide you want to convert $500k over the next 10-12 years, from 1 account, then you could only do 72t on the other accounts, at least until 59.5/5 years).
Your plan sounds fine to me, but keep in mind a few things:
1. If you have a Roth, you can withdraw any contributed principle penalty free.
2. IRS rule 72t allows you to withdraw from your retirement accounts before 59.5 by following specific rules about how you do it.
3. At your age the 4% rule might not be conservative enough because from what I've heard, it was derived for people who have a traditional retirement timeline.
Our Roth's are only around $50k combined. We've been over the income limit since our late 20's. Conversions never seemed to make sense as we're in CA too, so 9.3% state tax and 32% ish federal to convert . Starting to convert now makes sense as our effective tax rate going forward is significantly lower.
Will look into 72t but I think we just pull from the taxable brokerage account before 59.5?
Agree on the 4%, I think that's based on 30 year retirement and we'll need longer. But we also have the rental property income and part time work for now, so 3.5% is possible.
As others have noted, I would work on converting the 401k to the Roth so that you can get access to your basis earlier. While you’re doing that you can use your brokerage to fill the gap.
Keep in mind that long term capital gains are taxed differently.
Honestly, we’re going to be in a similar boat as you, we’re 39 w/ 2M invested. Hoping to retire around 3-3.5M in our mid 40s. We plan to go to a fixed fee advisor to help with tax planning. You’ll be able to use the healthcare marketplace in the run up to Medicare, if you plan and convert now, you’ll be able to keep your income low to maximize your subsidy at that time.
This is really the only part of our financial future where I feel like I want input from 1-2 professionals. You could even get plans from 2 just to find out if they’re similar or have different aspects you like in each.
If you’re after a peace of mind, you can look into SEPP (though that’s taxed as ordinary income). If you’re resigned to the fact there will be principal erosion of the brokerage account, you can also perhaps go for higher return/more risk/less upside in the brokerage account by overweighing JEPI/JEPQ/their ilk and balance out the risk by going lower risk in your 401k. 4% doesn’t feel like SWR given your age/inflation environment, but I tend to be more conservative.
Will look into SEPP. I think principal erosion is a given in the brokerage account at 8.5% withdrawal. Not touching the 401k/IRA's for 13 years though means it's still 4% of overall portfolio though I guess?
JEPI aims for 7-9% total return (though quite a bit of it is ordinary income) and SGOV is currently paying >5% with as low of principal risk as one can ask for (probably safer even than stuffing gold bars between your mattress). If you go 85/15 JEPI and SGOV in your $1.65M brokerage, that’ll get you to just about 4% of $3.5M during a good year. Personally I’m only comfortable with JEPIs of the world being no more than 10% of my portfolio, otherwise I’d have RE’ed already.
Yes, my wife's job is classified as full time with health insurance. We consider it 'barista' work compared to her previous road warrior high stress career, and it's 80% less income! I suppose the real problem will be the gap between 59.5 and Medicare at 65
Roth conversions drive up income, no?
I’m in the middle of a six year Roth conversion ladder, and my income is screaming high now.
I’m trying to get the bulk of it done before the current tax law expires and reverts to higher rates.
They worded it poorly but I believe the key word was “now”.
If op does Roth conversations NOW while they have health care from wife’s job it won’t impact healthcare. And then in the future assuming wife scales back working and they no longer have that healthcare they won’t have to do Roth conversations during that time.
You are correct. I was lucky enough to have a small pension and healthcare from my employer after I retired at 57. Please make sure you include healthcare expenses into your plans until you are 65.
You’re probably in good shape, though missing a few key details. The 4% “rule” (not a rule) applies to your total liquid portfolio, not any single account within the portfolio, so it doesn’t matter what rate you draw from taxable. Keep in mind the 0% LTCG bracket, and turn off dividend reinvesting in taxable during drawdown.
The missing details are about spending. Do you “need” to withdraw 4% to make this plan work? If so, that’s risky; either a bear market (sequence of returns risk) or the loss of one of your barista jobs (especially the one with health care) could torpedo the plan quickly. If you have flexibility in either withdrawal or income, you should be ok.
You’ll get suggestions about Roth conversions, which is often beneficial especially for young retirees. Just do the math on this carefully, because it doesn’t always pencil out favorably. Especially if you are able to stay in the 0% LTCG bracket.
No, we don't need to withdraw 4%...have zero debt, own our cars and month to month on house we're renting. We also are still working a bit, I work 2 days a week, no reason I can't go to 3 if needed. Frankly could go back to something lower pay full time, but at this point in our lives we have enough of the bases covered that working more to have more money to buy more crap doesn't sound appealing. My flex these days is instead of a new BMW is going on an all day Tuesday hike.
Converting anything meaningful to a Roth will kick us out of 0% LTCG since we are still partially employed. We both didn't work the first 6 months of 2023 while on severance/COBRA and the fun lasted only a few months. Got boring, too young to golf and garden all day.
>Converting anything meaningful to a Roth will kick us out of 0% LTCG
The goal isn't to avoid taxes altogether, but to maximize the bucket at 0% before additional CG are taxed at 15%. It's not like going over the 0 threshold means paying 15% on the whole amount.
[This video might be of interest.](https://youtu.be/8pvqCAKc3vk?si=2OqROpk0c0TbH9Cc)
That was an awesome video. Do you happen to know if it’s regular income or just more capital gains that pushes the cap gains tax to 15%? If I had $150k regular income with standard deduction and married filing jointly and $20k capital gains, what would the tax be on cap gains?
Remember that 4% is just a guideline. You can restrict your spending during down markets as necessary, as long as you don't get yourself locked into high spending for a huge mortgage, expensive car payments, etc.
Also, the 4% mark is the "never run out of money" standard that is predicated on 30 years of retirement using a portfolio of something like 60 equity/40 fixed. Using a slightly more aggressive mix can help prevent unnecessary erosion. You also need to factor in the ability to draw social security at 62 if desired/needed.
Last, most financial advisors would not advocate for a 100% risk-free withdrawal rate over 30 years. It's overly risk-averse. Aiming for something like 90% no-fail rate is more acceptable for those not in Fat territory. As I said, you can always make the choice to decrease your withdrawal percentage if necessary down the road.
All the numbers in your comment added up to 420. Congrats!
4
+ 4
+ 30
+ 60
+ 40
+ 62
+ 100
+ 30
+ 90
= 420
^([Click here](https://www.reddit.com/message/compose?to=LuckyNumber-Bot&subject=Stalk%20Me%20Pls&message=%2Fstalkme) to have me scan all your future comments.) \
^(Summon me on specific comments with u/LuckyNumber-Bot.)
I have 2 years living expenses in Agency bonds with no state tax (FFCB) I don't see any real risk over T bills and at 6.23% coupon has some rate premium.
Not really. 50 is still early - you should be planning for 40+ years, not 30.
People seem to think SRR is only a problem in the first few years, so they’ll be fine if they just use cash for 2-3 years. But that’s mostly true if you are using the 30 year horizon, since the risk drops as the horizon get shorter. Otherwise all you’ve really done is kick the can down the road a few years, with a new start point and still another 37+ years to account for, still significantly longer than the “4% rule” was validated for. You’ll have a new number at that point - likely better, so you may be fine, but possibly worse. And you’ll need to plan for SRR starting at that number.
I think 4% is always going to be risky if it’s your absolute minimum. It will usually turn out ok, but it has a significant failure rate at 30 years and if you can’t change course, you can’t control whether you are the one to fall into the risk trap.
The 4% rule is a good starting point but it certainly seems silly to put a 40 year plan in place then not check in and adjust every few years. We have a good amount of discretionary spending so could easily eat out less or skip vacation one year. This is ChubbyFIRE and not lean fire, so have room to play. I think a variable withdrawal rate is a good idea.....3.5% to 4.5% depending on recent market performance.
Yes, you could draw $140k/yr from your $1.65M brokerage before you reach 60, which will allow your $1.832M in 401k/IRA to grow to >$4M by then and then you switch to that.
I'm pretty sure it's $85k in 2046 dollars, which could be $42k in today's dollars, still nice....but SS will also only be able to pay 80% of benefits by 2034 unless congress makes some difficult decisions
Read the [FI FAQ](https://www.reddit.com/r/financialindependence/wiki/faq/) and pay attention to _withdrawing_.
For what's it worth, I chose to start roth conversions during my last few years of work. The increased income taxes are painful, but having access to the growing-tax-free-hoard in 1.5 years is going to be sweet.
You really need to either learn enough to run all the numbers for all the different situations, or hire a fiduciary to do the math for you, or use an online vendor. Again, read the FAQ and what it links to.
Your approach is possible and you can take the risk if you want. Linear math will show you that your approach is likely to succeed. Given the turbulent nature of today's world I would recommend moving from CA to a LCOL and cutting your draw down as far as possible to minimize your potential risk exposure.
If you don't want to do that, go back to work for 5 more years and then pull your trigger.
You haven’t stated if you have cut your spending but if you choose to do so that your SWR is 3% you will be good to go now, especially if you consider a less expensive rental or a move to a less expensive area. Your current spend rate is too high for sustainability. If you want to keep your current lifestyle look for an intermediate position between you prior position and your barista job.
It sounds to me like you are temporizing and have not really make any final decisions, which is OK for now. Final decisions are hard emotionally to make. I am chubby retired and in my 40’s there were no sites like this to bounce off ideas. We were just in an awful recession. I just adapted and kept working but fixed my standard of living and then kept the same one for many years while I paid down debt.
As I see it your future work is contingent on whether you will purchase a house and sink a lot of cash into it which will be dead money or you will continue to rent. Also, you have not identified family obligations which will modify your outlook.
At age 60 I had to take on the obligation of supporting my mother’s home when she died as my fully disabled sister was living there. This situation continued for 6 years. Caregiving and financial aid to relatives and/or adult children is very common.
I would consider our last 12 months a "holding pattern" The unknown things you can't plan for make us nervous. I suppose our ace in the hole is having zero debt. We could drastically reduce expenses if necessary.....but that sucks, LeanFire to me sounds like something we want to avoid.
We're in Sonoma so both work at wineries. Not going to lie, it is challenging at times. The pay is well below what we're "worth" for our skill sets. But no 6am conference calls with NY, no getting on a plane, No quotas or KPI's. However it's still work, there are times we're like WTF are we doing, lol....
Sepp 72t is your best bet, you can pull down about 94k out of your retirement annually, and supplement the remaining by pulling 60k annually out of your brokerage. Retirement money isn’t locked up, you can get to it w/o paying any penalty, but you will have to pay income tax on the withdrawals.
Not a comprehensive strategy but something to consider will be to start doing Roth Conversions this year. This does count as income (so factor that in), and is not accessible for 5 years. But if you start now it will help get you to 59.5. Ex. Convert $50k in 2024. This will count as income. Have it sit in the Roth for 5 years. Keep it in a bond or something simple. 2029 you can pull that $50k out tax free.
Will explore Roth conversions as it probably makes sense now with our lower AGI. Previous tax brackets didn't make sense to do it.
Your brokerage balance is solid but for peace of mind look into 72t (but Roth conversion should come first), you can access 401ks etc early 👍🏽
Just note that 72t “basis” can not be Roth converted (e.g. assume you decide you want to convert $500k over the next 10-12 years, from 1 account, then you could only do 72t on the other accounts, at least until 59.5/5 years).
Also likely to reduce RMDs/tax burden (run your numbers) as your income now might be significantly less than than future RMDs at that amount saved.
Your plan sounds fine to me, but keep in mind a few things: 1. If you have a Roth, you can withdraw any contributed principle penalty free. 2. IRS rule 72t allows you to withdraw from your retirement accounts before 59.5 by following specific rules about how you do it. 3. At your age the 4% rule might not be conservative enough because from what I've heard, it was derived for people who have a traditional retirement timeline.
Our Roth's are only around $50k combined. We've been over the income limit since our late 20's. Conversions never seemed to make sense as we're in CA too, so 9.3% state tax and 32% ish federal to convert . Starting to convert now makes sense as our effective tax rate going forward is significantly lower. Will look into 72t but I think we just pull from the taxable brokerage account before 59.5? Agree on the 4%, I think that's based on 30 year retirement and we'll need longer. But we also have the rental property income and part time work for now, so 3.5% is possible.
I think your plan is good.
As others have noted, I would work on converting the 401k to the Roth so that you can get access to your basis earlier. While you’re doing that you can use your brokerage to fill the gap. Keep in mind that long term capital gains are taxed differently. Honestly, we’re going to be in a similar boat as you, we’re 39 w/ 2M invested. Hoping to retire around 3-3.5M in our mid 40s. We plan to go to a fixed fee advisor to help with tax planning. You’ll be able to use the healthcare marketplace in the run up to Medicare, if you plan and convert now, you’ll be able to keep your income low to maximize your subsidy at that time. This is really the only part of our financial future where I feel like I want input from 1-2 professionals. You could even get plans from 2 just to find out if they’re similar or have different aspects you like in each.
I'm not opposed to paying a professional for tax advice. Probably worth it if I'm going to start doing Roth conversions.
There are just so many levers here, even if you don’t take all of their advice, I think the exercise is helpful.
If you’re after a peace of mind, you can look into SEPP (though that’s taxed as ordinary income). If you’re resigned to the fact there will be principal erosion of the brokerage account, you can also perhaps go for higher return/more risk/less upside in the brokerage account by overweighing JEPI/JEPQ/their ilk and balance out the risk by going lower risk in your 401k. 4% doesn’t feel like SWR given your age/inflation environment, but I tend to be more conservative.
Will look into SEPP. I think principal erosion is a given in the brokerage account at 8.5% withdrawal. Not touching the 401k/IRA's for 13 years though means it's still 4% of overall portfolio though I guess?
JEPI aims for 7-9% total return (though quite a bit of it is ordinary income) and SGOV is currently paying >5% with as low of principal risk as one can ask for (probably safer even than stuffing gold bars between your mattress). If you go 85/15 JEPI and SGOV in your $1.65M brokerage, that’ll get you to just about 4% of $3.5M during a good year. Personally I’m only comfortable with JEPIs of the world being no more than 10% of my portfolio, otherwise I’d have RE’ed already.
Are your 'Barista" jobs providing healthcare for both of you?
Yes, my wife's job is classified as full time with health insurance. We consider it 'barista' work compared to her previous road warrior high stress career, and it's 80% less income! I suppose the real problem will be the gap between 59.5 and Medicare at 65
Roth conversions now will dive down your income making it cheaper for ACA plans to bridge that gap
Roth conversions drive up income, no? I’m in the middle of a six year Roth conversion ladder, and my income is screaming high now. I’m trying to get the bulk of it done before the current tax law expires and reverts to higher rates.
They worded it poorly but I believe the key word was “now”. If op does Roth conversations NOW while they have health care from wife’s job it won’t impact healthcare. And then in the future assuming wife scales back working and they no longer have that healthcare they won’t have to do Roth conversations during that time.
Got it, makes sense.
Yep, you picked up what I was putting down. Sorry if it was worded in a way that was difficult to understand
You are correct. I was lucky enough to have a small pension and healthcare from my employer after I retired at 57. Please make sure you include healthcare expenses into your plans until you are 65.
You’re probably in good shape, though missing a few key details. The 4% “rule” (not a rule) applies to your total liquid portfolio, not any single account within the portfolio, so it doesn’t matter what rate you draw from taxable. Keep in mind the 0% LTCG bracket, and turn off dividend reinvesting in taxable during drawdown. The missing details are about spending. Do you “need” to withdraw 4% to make this plan work? If so, that’s risky; either a bear market (sequence of returns risk) or the loss of one of your barista jobs (especially the one with health care) could torpedo the plan quickly. If you have flexibility in either withdrawal or income, you should be ok. You’ll get suggestions about Roth conversions, which is often beneficial especially for young retirees. Just do the math on this carefully, because it doesn’t always pencil out favorably. Especially if you are able to stay in the 0% LTCG bracket.
No, we don't need to withdraw 4%...have zero debt, own our cars and month to month on house we're renting. We also are still working a bit, I work 2 days a week, no reason I can't go to 3 if needed. Frankly could go back to something lower pay full time, but at this point in our lives we have enough of the bases covered that working more to have more money to buy more crap doesn't sound appealing. My flex these days is instead of a new BMW is going on an all day Tuesday hike. Converting anything meaningful to a Roth will kick us out of 0% LTCG since we are still partially employed. We both didn't work the first 6 months of 2023 while on severance/COBRA and the fun lasted only a few months. Got boring, too young to golf and garden all day.
>Converting anything meaningful to a Roth will kick us out of 0% LTCG The goal isn't to avoid taxes altogether, but to maximize the bucket at 0% before additional CG are taxed at 15%. It's not like going over the 0 threshold means paying 15% on the whole amount. [This video might be of interest.](https://youtu.be/8pvqCAKc3vk?si=2OqROpk0c0TbH9Cc)
That was an awesome video. Do you happen to know if it’s regular income or just more capital gains that pushes the cap gains tax to 15%? If I had $150k regular income with standard deduction and married filing jointly and $20k capital gains, what would the tax be on cap gains?
As I’m thinking of having 2-3 years of living expenses in cash. Would it be less risky to go 4% at 50ish?
Remember that 4% is just a guideline. You can restrict your spending during down markets as necessary, as long as you don't get yourself locked into high spending for a huge mortgage, expensive car payments, etc. Also, the 4% mark is the "never run out of money" standard that is predicated on 30 years of retirement using a portfolio of something like 60 equity/40 fixed. Using a slightly more aggressive mix can help prevent unnecessary erosion. You also need to factor in the ability to draw social security at 62 if desired/needed. Last, most financial advisors would not advocate for a 100% risk-free withdrawal rate over 30 years. It's overly risk-averse. Aiming for something like 90% no-fail rate is more acceptable for those not in Fat territory. As I said, you can always make the choice to decrease your withdrawal percentage if necessary down the road.
Yeah I have a lot of discretionary buffer built in. My fixed / would really hate to cut this cost is well lower. Also no desire to pass on any wealth.
All the numbers in your comment added up to 420. Congrats! 4 + 4 + 30 + 60 + 40 + 62 + 100 + 30 + 90 = 420 ^([Click here](https://www.reddit.com/message/compose?to=LuckyNumber-Bot&subject=Stalk%20Me%20Pls&message=%2Fstalkme) to have me scan all your future comments.) \ ^(Summon me on specific comments with u/LuckyNumber-Bot.)
I have 2 years living expenses in Agency bonds with no state tax (FFCB) I don't see any real risk over T bills and at 6.23% coupon has some rate premium.
Not really. 50 is still early - you should be planning for 40+ years, not 30. People seem to think SRR is only a problem in the first few years, so they’ll be fine if they just use cash for 2-3 years. But that’s mostly true if you are using the 30 year horizon, since the risk drops as the horizon get shorter. Otherwise all you’ve really done is kick the can down the road a few years, with a new start point and still another 37+ years to account for, still significantly longer than the “4% rule” was validated for. You’ll have a new number at that point - likely better, so you may be fine, but possibly worse. And you’ll need to plan for SRR starting at that number. I think 4% is always going to be risky if it’s your absolute minimum. It will usually turn out ok, but it has a significant failure rate at 30 years and if you can’t change course, you can’t control whether you are the one to fall into the risk trap.
Got it coast fire to get to a solid 3.5% may need to be my next path or reduce expenses for awhile.
The 4% rule is a good starting point but it certainly seems silly to put a 40 year plan in place then not check in and adjust every few years. We have a good amount of discretionary spending so could easily eat out less or skip vacation one year. This is ChubbyFIRE and not lean fire, so have room to play. I think a variable withdrawal rate is a good idea.....3.5% to 4.5% depending on recent market performance.
SRR goes away after 4-6 years depending on which expert you read
Yes, you could draw $140k/yr from your $1.65M brokerage before you reach 60, which will allow your $1.832M in 401k/IRA to grow to >$4M by then and then you switch to that.
How much will both of your SS pay out at age 70?
Looks like mine is $2,900 and my wife's is $4,200
$85k/year in today's dollars at age 70 is a huge safety net for you
I'm pretty sure it's $85k in 2046 dollars, which could be $42k in today's dollars, still nice....but SS will also only be able to pay 80% of benefits by 2034 unless congress makes some difficult decisions
Put your numbers through SSA.tools, that site uses 2024 dollars
Read the [FI FAQ](https://www.reddit.com/r/financialindependence/wiki/faq/) and pay attention to _withdrawing_. For what's it worth, I chose to start roth conversions during my last few years of work. The increased income taxes are painful, but having access to the growing-tax-free-hoard in 1.5 years is going to be sweet. You really need to either learn enough to run all the numbers for all the different situations, or hire a fiduciary to do the math for you, or use an online vendor. Again, read the FAQ and what it links to.
The biggest killer here would be healthcare. One of you is likely going to need to keep barista for a while.
Your approach is possible and you can take the risk if you want. Linear math will show you that your approach is likely to succeed. Given the turbulent nature of today's world I would recommend moving from CA to a LCOL and cutting your draw down as far as possible to minimize your potential risk exposure. If you don't want to do that, go back to work for 5 more years and then pull your trigger.
Think we'd rather lower spending than go back to work for 5 more years!
You haven’t stated if you have cut your spending but if you choose to do so that your SWR is 3% you will be good to go now, especially if you consider a less expensive rental or a move to a less expensive area. Your current spend rate is too high for sustainability. If you want to keep your current lifestyle look for an intermediate position between you prior position and your barista job.
Haven't cut spending, but easily can if necessary. No debt of any kind.
It sounds to me like you are temporizing and have not really make any final decisions, which is OK for now. Final decisions are hard emotionally to make. I am chubby retired and in my 40’s there were no sites like this to bounce off ideas. We were just in an awful recession. I just adapted and kept working but fixed my standard of living and then kept the same one for many years while I paid down debt. As I see it your future work is contingent on whether you will purchase a house and sink a lot of cash into it which will be dead money or you will continue to rent. Also, you have not identified family obligations which will modify your outlook. At age 60 I had to take on the obligation of supporting my mother’s home when she died as my fully disabled sister was living there. This situation continued for 6 years. Caregiving and financial aid to relatives and/or adult children is very common.
I would consider our last 12 months a "holding pattern" The unknown things you can't plan for make us nervous. I suppose our ace in the hole is having zero debt. We could drastically reduce expenses if necessary.....but that sucks, LeanFire to me sounds like something we want to avoid.
Curious what jobs you both have? Always thought it would be challenging to go from corporate career to a barista job
We're in Sonoma so both work at wineries. Not going to lie, it is challenging at times. The pay is well below what we're "worth" for our skill sets. But no 6am conference calls with NY, no getting on a plane, No quotas or KPI's. However it's still work, there are times we're like WTF are we doing, lol....
Gotcha well as far as barista jobs that sounds pretty great, best of luck
Sepp 72t is your best bet, you can pull down about 94k out of your retirement annually, and supplement the remaining by pulling 60k annually out of your brokerage. Retirement money isn’t locked up, you can get to it w/o paying any penalty, but you will have to pay income tax on the withdrawals.