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I agree that drastic moves are not always wise. OP said they had 1.1M in the bank. If that money was invested in dividend stocks, they could have over 38K of pa

I agree that drastic moves are not always wise. OP said they had 1.1M in the bank. If that money was invested in dividend stocks, they could have over 38K of passive income a year. In the US, dividend income is only taxed at 15%, too. They could opt to withdraw the 600K from the 401K, use that to buy a condo in cash, and live off the dividend income. Retire now, basically, and live a fairly comfortable life. It's not princely living, but if I had that option, I would seriously consider it. Having the freedom to do whatever you want with your own time, without the pressure of a job, sounds amazing. I think if I were in that position, I would end up doing something monetizable anyway, through hobby programming projects, but it would be so great to have the freedom to do it at whatever pace I want, and to get to pick what I work on. If retiring on 1.1M cash + 600K 401K doesn't seem like enough, then sucking it up and staying at the 500K/year job for 2-5 years more is also an option. Cut down on champagne a bit, delay the yearly car upgrade, and you should easily be able to put away 100K a year.

shoo 9y ago
> If that money was invested in dividend stocks, they could have over 38K of passive income a year. In the US, dividend income is only taxed at 15%, too. They could opt to withdraw the 600K from the 401K, use that to buy a condo in cash, and live off the dividend income. Retire now, basically, and live a fairly comfortable life. Yep, I agree. This is my first thought as well. I don't think it necessarily needs dividend stocks either, general stocks should do the trick. My back-of-the-envelope is: * expected return on investment from US stocks at current valuation [+]: ~6% * expected inflation rate: ~2% * expected real return: ~4% * assumed tax rate: 15% * annual investment return: (1100000 * 0.04) * (1 - 0.15) = USD $37.4k / year after tax Assuming you don't have a large family with many dependants or unusually high expenses (medical care, etc) it certainly sounds doable, but perhaps with a dramatic decrease in annual spend for non-essentials (overseas holidays, living in an expensive part of the country, etc). [+] Compared to historical prices, US stocks are currently very highly priced, hence expected real returns (~4%) are lower than historical average real returns (~7%). See e.g. http://www.philosophicaleconomics.com/2018/01/future-u-s-equity-returns-a-best-case-upper-limit/ http://www.philosophicaleconomics.com/2018/01/future-u-s-equ...
- EADGBE 9y ago
  The 4% rule is a good one as it's (as you mention) much more likely. Also, if your withdrawal rate is 4%, the likelihood of you seeing that income until you die is much, much higher. As stated elsewhere, getting yourself down to spending 37k a year is going to be the hardest part, no matter where you live. The problem I see, time and time again as a bystander to the financial industry is that people simple aren't saving enough, or what they have saved is overspent at a rate that's unsustainable. If one needs to live off of 24k/80k/200k a year in retirement; then their investments should reflect that.
spyspy 9y ago
15% is for long-term capital gains. Dividend income is taxed at a much higher rate.
notheguyouthink 9y ago
> If retiring on 1.1M cash + 600K 401K doesn't seem like enough, then sucking it up and staying at the 500K/year job for 2-5 years more is also an option. Cut down on champagne a bit, delay the yearly car upgrade, and you should easily be able to put away 100K a year. Definitely. Decide how much a modest retirement is, and then hit that goal. If non-city dwelling is something you like, you can live far away from the city very cheaply. On top of that, I'd try to find ways to cheapen your life now. 500k/y is a lot, and while everything's relative, you could lower your standard of living and put away a ton of money in just a year or two, getting your goals faster.
segmondy 9y ago
If you retired with a family and have 38k and got $28.5k after tax. Do you know how much health insurance costs for a family? Property tax on a property that's $600k is not going to be cheap either. Add utilities, property maintenance. You are going to be looking for another job fast or dipping into your savings.
- deleted 9y ago
  [deleted]
- toomuchtodo 9y ago
  In the right states (ie, those who took ACA subsidies from the federal gov), your premiums are based on your income. Low income = low health insurance premiums. Agreed that a 600k condo is a poor choice; move to a college town where you can get a single family home for $150k-200k and the property taxes are only ~$2-3k/year. Avoid an HOA. You can retire at any time if your investment income can support your expenses. Think about those expenses carefully. It is entirely possible for a family of four to live off of ~$30k/year if you receive ACA subsidies, your house is paid off (no housing expense), and you have no outlier expenses.
HeyLaughingBoy 9y ago
withdraw the 600K from the 401K, use that to buy a condo in cash OP wants to move to a lower COL area. Around here $600k, even if you take the tax + penalty hit for an early withdrawal, buys plenty of house. We're talking 5,000 sq ft on 3-5 acres about 15 minutes outside town if rural living floats your boat. I'd do it in a heartbeat!

shoo 9y ago

> If that money was invested in dividend stocks, they could have over 38K of passive income a year. In the US, dividend income is only taxed at 15%, too. They could opt to withdraw the 600K from the 401K, use that to buy a condo in cash, and live off the dividend income. Retire now, basically, and live a fairly comfortable life. Yep, I agree. This is my first thought as well. I don't think it necessarily needs dividend stocks either, general stocks should do the trick. My back-of-the-envelope is: * expected return on investment from US stocks at current valuation [+]: ~6% * expected inflation rate: ~2% * expected real return: ~4% * assumed tax rate: 15% * annual investment return: (1100000 * 0.04) * (1 - 0.15) = USD $37.4k / year after tax Assuming you don't have a large family with many dependants or unusually high expenses (medical care, etc) it certainly sounds doable, but perhaps with a dramatic decrease in annual spend for non-essentials (overseas holidays, living in an expensive part of the country, etc). [+] Compared to historical prices, US stocks are currently very highly priced, hence expected real returns (~4%) are lower than historical average real returns (~7%). See e.g. http://www.philosophicaleconomics.com/2018/01/future-u-s-equity-returns-a-best-case-upper-limit/ http://www.philosophicaleconomics.com/2018/01/future-u-s-equ...

EADGBE 9y ago
The 4% rule is a good one as it's (as you mention) much more likely. Also, if your withdrawal rate is 4%, the likelihood of you seeing that income until you die is much, much higher. As stated elsewhere, getting yourself down to spending 37k a year is going to be the hardest part, no matter where you live. The problem I see, time and time again as a bystander to the financial industry is that people simple aren't saving enough, or what they have saved is overspent at a rate that's unsustainable. If one needs to live off of 24k/80k/200k a year in retirement; then their investments should reflect that.

spyspy 9y ago

15% is for long-term capital gains. Dividend income is taxed at a much higher rate.

notheguyouthink 9y ago

> If retiring on 1.1M cash + 600K 401K doesn't seem like enough, then sucking it up and staying at the 500K/year job for 2-5 years more is also an option. Cut down on champagne a bit, delay the yearly car upgrade, and you should easily be able to put away 100K a year. Definitely. Decide how much a modest retirement is, and then hit that goal. If non-city dwelling is something you like, you can live far away from the city very cheaply. On top of that, I'd try to find ways to cheapen your life now. 500k/y is a lot, and while everything's relative, you could lower your standard of living and put away a ton of money in just a year or two, getting your goals faster.

segmondy 9y ago

If you retired with a family and have 38k and got $28.5k after tax. Do you know how much health insurance costs for a family? Property tax on a property that's $600k is not going to be cheap either. Add utilities, property maintenance. You are going to be looking for another job fast or dipping into your savings.

deleted 9y ago
[deleted]
toomuchtodo 9y ago
In the right states (ie, those who took ACA subsidies from the federal gov), your premiums are based on your income. Low income = low health insurance premiums. Agreed that a 600k condo is a poor choice; move to a college town where you can get a single family home for $150k-200k and the property taxes are only ~$2-3k/year. Avoid an HOA. You can retire at any time if your investment income can support your expenses. Think about those expenses carefully. It is entirely possible for a family of four to live off of ~$30k/year if you receive ACA subsidies, your house is paid off (no housing expense), and you have no outlier expenses.

HeyLaughingBoy 9y ago

withdraw the 600K from the 401K, use that to buy a condo in cash OP wants to move to a lower COL area. Around here $600k, even if you take the tax + penalty hit for an early withdrawal, buys plenty of house. We're talking 5,000 sq ft on 3-5 acres about 15 minutes outside town if rural living floats your boat. I'd do it in a heartbeat!