May 2, 2018
Okay, as I get more information, I continually have to look at adjusting my draw down plan – even as I hit 26 months to go. If you remember from my previous draw down update, the desire of Mrs. 39 Months to continue working, combined with the $64K limit to income for maintaining health subsidies had put me in a bit of a quandary. How do I match my spending to the need for health care? Spend too much, and I end up needing an additional $12K a year.
Well, I got a bid of a surprise with one of my company retirement accounts a week ago, which meant that I would be paying a large lump sum when I left the company (instead of being able to draw it out over time). However, this meant that the remaining funds were “post tax” and thus could be used without endangering me going over the $64K limit. Sweet!
So, based on that, updates on my current investments and plans for deposits over next 26 months, here is what I am looking at:
- Savings: $132K (can spend without having to pay taxes)
- Deferred Income from work: $156K (after taxes withdrawn – don’t have to pay taxes on it)
- Brokerage Account: $87K (can spend about $60K of it without paying taxes. The rest will be taxable.
- Inherited IRA from my father: $137K (taxable when we take it out)
- 401K/IRAs: $613K (taxable + penalty)
- Roth IRAs: $298K (non-taxable)
- Total: $1,445K liquid assets (350K with no tax)
- House: $298K (not depending on it unless absolutely necessary, i.e. no reverse mortgage
- Expected expenses $54K + Mrs. 39 Months spending (assuming equivalent of her take home pay). This assumes having a taxable income below $64K, and thus keeping the subsidies
As you can see, I’m actually in pretty good shape. Current plan:
- For first 6 months, pay for medical with Cobra and take $18K from Deferred (tax free) and mandatory $9K from inherited IRA
- For each year following, Take $12K from inherited IRA each year, and pay very little tax on it. Should last for 10+ years (till I hit 67)
- Take $42K from Deferred/post –tax. Should last at least three years (till I’m 60)
- Move to my investment account. Should last for at least two years with limited taxes (Gets me to 62 and Mrs. 39 Months to 64). At this point, I’m assuming Mrs. 39 Months wants to stop working, so we bump up expenses to $72K a year
- Draw down 401K at $72K a year. This should last us for 16+ years.
- At that point, switch to Roth IRA, which has been growing for 20+ years without getting tapped, so it should have over $800K. This should last us for the rest of our lives.
- Never touch the savings account/emergency fund, or the home value (these are our backups).
Note: all growth, expense and investments assume a 3% inflation rate.
Overall, I’m more confident now that I was a couple of months ago (even with the market not going anywhere). I could conceivably take a few months off my count and go earlier, but I don’t want to do that just yet.
How have your plans changed?
Original Draw Down Plan: June 2017
Several FIRE-related blogs (see below) have started a blog chain on how they are/plan to draw down their savings over their retirement. There are an infinite number of ways to do this, and a lot of its based on your own particular issues/resources.
It’s a topic that isn’t covered very much, and when I stumbled onto it today, I read just about every link I could.
I thought I’d join the chain and list my plan.
Expected resources at time of retirement (July 2020)
- Savings: $132K
- Deferred Income from work: $179K**
- Brokerage Account: $94K
- Inherited IRA from my father: $137K
- 401K/IRAs: $546K
- Roth IRAs: $257K
- Total: $1,345K liquid assets
- House: $298K (not depending on it unless absolutely necessary, i.e. no reverse mortgage)
** My company allows you to “defer” income from work (i.e. don’t get paid it) until a later date, up to a certain percentage. Once you leave the company, you can take it as a lump sum or as regular monthly payments over a 5 year span. You pay taxes on it as you are paid it. In the meantime, you can invest it just like a 401K
Plan is to take out $72,000 a year/$6,000 a month. We will draw this back the equivalent when we start taking social security in 2024 (Mrs. 39 months) and 2031 (Mr. 39 months). I’ve used the FireCalc to determine that, even without social security, we have over a 90% chance to go till 95, so Social Security is a bonus here.
- Year 0: Setup savings as base of 2X annual salary. Plus that up at the beginning of each year from investment accounts.
- Year 1-3: Use Deferred income to pay for withdrawals till exhausted. Note that I still have to take a portion of my father’s inherited IRA ($5K a year)
- Year 4-5: Draw down brokerage account to 0. It is here that we could start getting Social Security for Mrs. 39 months
- Year 6-8: Draw down my father’s IRA to 0 while continuing (if possible) to get SS for Mrs. 39 months
- Year 9 – 25: Draw down 401K/IRA to 0. It is here that we would finally start taking Mr. 39 months social security
- Year 26+: Still plenty of money left over in the Roth IRA to last us, plus we have the 2X money in savings and the house, so it should enable us to be OK.
Overall, we could retire right now if I had confidence that Social Security (or at least 75% of Social Security ) would be there for us. I just don’t know, so I intend to work till July 2020 (Independence day!) to make sure we will be OK no matter what.
More Withdrawal Strategies
Here are more retirement strategies from the PF blogger community. Some of these are much more detailed than mine. Check them out!
Anchor: Physician On Fire: Our Drawdown Plan in Early Retirement
Link 1: The Retirement Manifesto: Our Retirement Investment Drawdown Strategy
Link 2: OthalaFehu: Retirement Master Plan
Link 3: Plan.Invest.Escape: Drawdown vs. Wealth Preservation in Early Retirement
Link 4: Freedom Is Groovy: The Groovy Drawdown Strategy
Link 5: The Green Swan: The Nastiest, Hardest Problem In Finance: Decumulation
Link 6: My Curiosity Lab: Show Me The Money: My Retirement Drawdown Plan
Link 7: Cracking Retirement: Our Drawdown Strategy
Link 8: The Financial Journeyman: Early Retirement Portfolio & Plan
Link 9: Retire by 40: Our Unusual Early Retirement Withdrawal Strategy
Mr. 39 months