4 ms·

Has the FU level of money changed? You referenced FU as $5-9M, unless I'm mis-reading. I see it as something around $4M, possibly lower. If you conservatively

by matt_s 5y ago

Has the FU level of money changed? You referenced FU as $5-9M, unless I'm mis-reading. I see it as something around $4M, possibly lower. If you conservatively estimate 5% earnings per year on average, that will get you gross $200k/year just on earnings without dipping into the $4M. After taxes/penalties that is $100k/year, depending locale, until 59.5 here in US where you don't have a 10% early withdrawal penalty. If you are mid-40's and estimate having to live for another 40 years then you will have some years that dip in to the nest egg and other years where you get 5% more in interest. Inflation will eat into it some I suppose. If your goal is to have used all of it before expiring then $4M sounds like more than enough. If you intend on leaving some for descendants then I suppose you could hold off. I'm mid-forties and often have thoughts about when retirement is possible. So one idea is to work contract work part time (like 6 months/year) for a few years to "stay in the game" so to speak and experience mini-retirement periods of time if you are hesitant.

throwawayretire 5y ago
My post wasn’t clear, sorry. I consider FU to be >$10M. So I would think folks in my boat would have $5-$9M in assets. I don’t think $4M is enough for the burn rate I’ve described. It’s close though so sure if someone here retired at $4M then would still be happy to hear about it.
- matt_s 5y ago
  Curious then if you are simply not investing it at all? Average returns over 10 years for something like VTSAX (total stock market index) is 13%, granted the last 10 years has been a bull market. 13% of $4M is $520k even half that is $260k before taxes which I think is comfortable to live on, exception of HCOL areas.
  - deanmoriarty 5y ago
    There is sequence of return risk. The average return by itself can hide that risk. Imagine if the day you retire you experience a series of bad crashes, followed by years of stagnant growth, and finally the last couple decades of your life of massive growth. In that case, the average will tell you one thing, but in reality you’ll be destitute because you’ll have to consume your capital during those early years while it is depressed. A Monte Carlo simulation is the best practical estimation for looking at that. I believe that historically a ~3% withdrawal rate was the highest you could go, for retirement periods of 50 years or longer with substantial equity investments.
    - throwawayretire 5y ago
      3% withdrawal for 50 yr equity based retirement is interesting. Hadn’t heard that before. Our burn rate is between 2-3%. So we may in fact be done.
stocknoob 5y ago
If you are paying anywhere close to 50% in taxes you need to fire your accountant. The long-term capital gains tax is 0 - 20%. For a couple, the first 78k can be withdrawn tax-free. The rest can be withdrawn at 15% tax rate. In the unlucky case all 4M is in an IRA, you take a 72t election to avoid the early withdrawal penalty. Then, the rest can be withdrawn (if needed) with the 10% penalty + 15% tax rate (above 78k). Not sure how you're getting anywhere close to 50%.
- matt_s 5y ago
  I was doing napkin math, assuming a large distribution would hit the 37% bracket + 10% penalty + state income tax somewhere in 1-10% range. I know that 37% is the highest bracket and really only applies to income over a threshold but that depends on filing status, exemptions, etc. My example was more thinking the nest egg OP has is more than enough, especially since I've over-estimated taxes. Also if it is in a tax-protected 401k/IRA then capital gains is irrelevant since it is income tax for distributions as I understand it. This 72T election is an interesting concept for an early retirement scenario, thanks for sharing that, I never heard about it.

by matt_s 5y ago

throwawayretire 5y ago

My post wasn’t clear, sorry. I consider FU to be >$10M. So I would think folks in my boat would have $5-$9M in assets. I don’t think $4M is enough for the burn rate I’ve described. It’s close though so sure if someone here retired at $4M then would still be happy to hear about it.

matt_s 5y ago
Curious then if you are simply not investing it at all? Average returns over 10 years for something like VTSAX (total stock market index) is 13%, granted the last 10 years has been a bull market. 13% of $4M is $520k even half that is $260k before taxes which I think is comfortable to live on, exception of HCOL areas.
- deanmoriarty 5y ago
  There is sequence of return risk. The average return by itself can hide that risk. Imagine if the day you retire you experience a series of bad crashes, followed by years of stagnant growth, and finally the last couple decades of your life of massive growth. In that case, the average will tell you one thing, but in reality you’ll be destitute because you’ll have to consume your capital during those early years while it is depressed. A Monte Carlo simulation is the best practical estimation for looking at that. I believe that historically a ~3% withdrawal rate was the highest you could go, for retirement periods of 50 years or longer with substantial equity investments.
  - throwawayretire 5y ago
    3% withdrawal for 50 yr equity based retirement is interesting. Hadn’t heard that before. Our burn rate is between 2-3%. So we may in fact be done.

stocknoob 5y ago

If you are paying anywhere close to 50% in taxes you need to fire your accountant. The long-term capital gains tax is 0 - 20%. For a couple, the first 78k can be withdrawn tax-free. The rest can be withdrawn at 15% tax rate. In the unlucky case all 4M is in an IRA, you take a 72t election to avoid the early withdrawal penalty. Then, the rest can be withdrawn (if needed) with the 10% penalty + 15% tax rate (above 78k). Not sure how you're getting anywhere close to 50%.

matt_s 5y ago
I was doing napkin math, assuming a large distribution would hit the 37% bracket + 10% penalty + state income tax somewhere in 1-10% range. I know that 37% is the highest bracket and really only applies to income over a threshold but that depends on filing status, exemptions, etc. My example was more thinking the nest egg OP has is more than enough, especially since I've over-estimated taxes. Also if it is in a tax-protected 401k/IRA then capital gains is irrelevant since it is income tax for distributions as I understand it. This 72T election is an interesting concept for an early retirement scenario, thanks for sharing that, I never heard about it.