Can We Retire at 40? or 45?

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steadyeddy123
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Can We Retire at 40? or 45?

Post by steadyeddy123 »

Can we retire at 40? or 45?

My spouse and I make a combined $195,000/year gross. Both age 36. Currently saving $50,000 per year, $38,000 in pre-tax 401(k) and $12,000 in Roth IRA. No kids, and we don't plan on having any.

Taxable Brokerage: $1,150,000
Roth IRA: $155,000
Traditional IRA: $100,000
401(k): $400,000
Inherited IRA: $585,000
Total Invested: $2,390,000 (all in VTSAX currently)

Additional Real Estate: $300,000 equity to be sold at age 50
Additional Real Estate: $500,000 equity to be sold at age 60
Social Security: $36,000/year combined starting age 67 if retire at 45 (slightly less if retire at 40)

Expenses in Early Retirement = $115,000 including mortgage until age 66 including heavy travel (can be reduced if necessary)
Expenses at Age 66 = $90,000 after mortgage is paid off

The plan is to roll-over the 401(k)s to Trad. IRA once we stop working. Keep Roth IRA intact and grow via Roth Conversions from Trad. IRA, and to take monies from the following sources to pay for expenses.

Taxable Brokerage (with assumed 40-60% gains in LT capital gains) = $70,000/year
Inherited IRA RMDs (pre-Secure Act) = ~$17,000 at age 45 and increasing from there
Dividends from Taxable VTSAX = ~$30,000 assuming 2% yield

This method would allow us to pay effectively 0 taxes for quite some time if we tailor our Roth Conversions to limit our After Deductions income to under $80,000.

i-ORP analysis indicates we can retire at 40 with $160,000/year income after taxes with a buffer of $3,000,000 when we both die at 95.

Thoughts? Thank you for your help.
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HomerJ
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Re: Can We Retire at 40? or 45?

Post by HomerJ »

Heh, you ain't "steadyeddy", you are "SuddenlySeymour".

There's no way you amassed that much with steady Eddy savings.

But yes, you can definitely retire at 40.

I would move some to bonds/cash/CDs if you plan to retire in 4 years.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
ShadowRegent
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Re: Can We Retire at 40? or 45?

Post by ShadowRegent »

Looks good to me. CFiresim shows a 100% chance of success without accounting for your reduction in spending at age 66. 95% success rate if you spend up to $133k per year.
randomguy
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Re: Can We Retire at 40? or 45?

Post by randomguy »

ShadowRegent wrote: Mon Sep 20, 2021 7:54 pm Looks good to me. CFiresim shows a 100% chance of success without accounting for your reduction in spending at age 66. 95% success rate if you spend up to $133k per year.
Really need to check back in 4 years. if we have a 2000-3, you might not feel up for retiring. Have a couple years like the last couple and you will be beyond fine. A lot also depends on that real estate. Counting on events 15-25 years in the future is a bit of uncertainty.

In the end your biggest risks are the unknowns of 50 years of living compared to if your portfolio can support 100k of spending or 120k of spending.
ShadowRegent
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Re: Can We Retire at 40? or 45?

Post by ShadowRegent »

randomguy wrote: Mon Sep 20, 2021 7:57 pm
ShadowRegent wrote: Mon Sep 20, 2021 7:54 pm Looks good to me. CFiresim shows a 100% chance of success without accounting for your reduction in spending at age 66. 95% success rate if you spend up to $133k per year.
Really need to check back in 4 years. if we have a 2000-3, you might not feel up for retiring. Have a couple years like the last couple and you will be beyond fine. A lot also depends on that real estate. Counting on events 15-25 years in the future is a bit of uncertainty.

In the end your biggest risks are the unknowns of 50 years of living compared to if your portfolio can support 100k of spending or 120k of spending.
All plans have risk-- it's something we can shift around, but not eliminate. We each have to decide which risks to accept. The historical returns used in cFIREsim include the Great Depression, 2000-2003, and others. While it's possible that something even worse may happen, the reality is that there are far more likely risks such as declining health or early death.

I'd sleep well at night knowing my portfolio would support my expenses to age 95 in every known period of market returns. If something extraordinary terrible happens, you might be in just as much financial trouble if you had continued working anyway.
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Watty
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Re: Can We Retire at 40? or 45?

Post by Watty »

steadyeddy123 wrote: Mon Sep 20, 2021 5:52 pm Additional Real Estate: $300,000 equity to be sold at age 50
Additional Real Estate: $500,000 equity to be sold at age 60
How much income do these houses generate now?

Do you have that much equity in the houses now, or do you have loans on these properties too?

You did not mention how large a mortgage you have or what your primary residence is worth including your home equity. It sounds like your mortgage payment is around $25K a year based on your expenses dropping when the mortgage is paid off at 65.

As a wild guess I would think that you might have $1.5 million in real estate and that may all be in the same city. That is diversification problems and if you are going to travel extensively it will be difficult to manage rental property even with a property manager.
steadyeddy123 wrote: Mon Sep 20, 2021 5:52 pm Taxable Brokerage (with assumed 40-60% gains in LT capital gains) = $70,000/year
Inherited IRA RMDs (pre-Secure Act) = ~$17,000 at age 45 and increasing from there
Dividends from Taxable VTSAX = ~$30,000 assuming 2% yield

This method would allow us to pay effectively 0 taxes for quite some time if we tailor our Roth Conversions to limit our After Deductions income to under $80,000.
Should you include the rental income from the investment properties in that calculation?

I don't have a good handle on what is going on with your real estate but you really need to dig into that more. The three pieces of real estate are a huge part of your net worth and you did not give a lot of details about that.

There are all sorts of opinions about having a mortgage in retirement but if interest rates are not a lot higher when you retire then it would be safer to pay off your mortgage when you retire.
smectym
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Re: Can We Retire at 40? or 45?

Post by smectym »

Steady, you *can* retire—but if you also *can*, by continuing to work, continue to pull in similar income for x additional years indefinitely, then perhaps not wise to retire so young—absent some exigent circumstance not disclosed in your posts.

The capital you have accumulated may seem like “a lot,” but it’s not so impressive given your remaining lifespan. There is, without much doubt, a “who knows what” lying just over the horizon of your early retirement date. In your position, I’d play it safe and continue to bolster the capital position.
Marseille07
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Re: Can We Retire at 40? or 45?

Post by Marseille07 »

smectym wrote: Tue Sep 21, 2021 12:53 am Steady, you *can* retire—but if you also *can*, by continuing to work, continue to pull in similar income for x additional years indefinitely, then perhaps not wise to retire so young—absent some exigent circumstance not disclosed in your posts.

The capital you have accumulated may seem like “a lot,” but it’s not so impressive given your remaining lifespan. There is, without much doubt, a “who knows what” lying just over the horizon of your early retirement date. In your position, I’d play it safe and continue to bolster the capital position.
Err, what? If 2.4M at age 36 isn't impressive, I'm not sure what is...
smectym
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Re: Can We Retire at 40? or 45?

Post by smectym »

Marseille07 wrote: Tue Sep 21, 2021 12:56 am
smectym wrote: Tue Sep 21, 2021 12:53 am Steady, you *can* retire—but if you also *can*, by continuing to work, continue to pull in similar income for x additional years indefinitely, then perhaps not wise to retire so young—absent some exigent circumstance not disclosed in your posts.

The capital you have accumulated may seem like “a lot,” but it’s not so impressive given your remaining lifespan. There is, without much doubt, a “who knows what” lying just over the horizon of your early retirement date. In your position, I’d play it safe and continue to bolster the capital position.
Err, what? If 2.4M at age 36 isn't impressive, I'm not sure what is...
Then I stand corrected. But if course I meant not that impressive facing the prospect of navigating a 40 or 50 year retirement.
Marseille07
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Re: Can We Retire at 40? or 45?

Post by Marseille07 »

smectym wrote: Tue Sep 21, 2021 1:05 am Then I stand corrected. But if course I meant not that impressive facing the prospect of navigating a 40 or 50 year retirement.
I'm not sure why you're using their current numbers. If they have amassed 2.4M by age 36, it's conceivable they're reaching 3~3.5M by age 40. Why isn't this impressive for a 40~50 year retirement? It's plenty for RegularFIRE imo.
PowderDay9
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Re: Can We Retire at 40? or 45?

Post by PowderDay9 »

If you're intent on retiring in 4-9 years, I'd consider not being 100% stocks. I think you're on track to retire in your 40s but also think you need more balance in your portfolio.
Wannaretireearly
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Re: Can We Retire at 40? or 45?

Post by Wannaretireearly »

Amazing savings at age 36, with an income under $200k. Bravo 👏. Do you have any big/lumpy expected expenses before retirement? Renovations, housing, education, etc.
“At some point you are trading time you will never get back for money you will never spend.“ | “How do you want to spend the best remaining year of your life?“
randomguy
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Re: Can We Retire at 40? or 45?

Post by randomguy »

Marseille07 wrote: Tue Sep 21, 2021 9:48 am
smectym wrote: Tue Sep 21, 2021 1:05 am Then I stand corrected. But if course I meant not that impressive facing the prospect of navigating a 40 or 50 year retirement.
I'm not sure why you're using their current numbers. If they have amassed 2.4M by age 36, it's conceivable they're reaching 3~3.5M by age 40. Why isn't this impressive for a 40~50 year retirement? It's plenty for RegularFIRE imo.
At least 585k is an inheritance that may or may not be repeated. And I have no clue what the deal is with the real estate. But yes the big question is where they are in 4 years. If they are still at 2.4m (big recession), then things get a bit sketchy (say 70%). Up at 4 million as the bull market keeps rolling? They are very safe. Hit that 3-3.5m range that seems likely and they are probably good to go. Obviously you can retire on 2.4 million at any time and life a normal middle class life. If you want to push up into the bottom of the upper middle class, you probably want another million.
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HomerJ
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Re: Can We Retire at 40? or 45?

Post by HomerJ »

The real estate is a question mark for me too.

What does that mean that they will get $300k and $500k in 14 years and 24 years?

Very specific numbers for something that is so far away...

But yeah, if that extra $800k is guaranteed (not sure how it could be), then they are more than fine.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Topic Author
steadyeddy123
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Re: Can We Retire at 40? or 45?

Post by steadyeddy123 »

Thank you all for the replies.

To answer some of the real estate questions, we own one home outright that is worth approximately $420,000 currently and a family member is living in the home rent-free until their death. The other home has a mortgage, with another family member living in it, with current equity of $150,000 anticipated to increase to $300,000 with principal and price growth in 14 years. Both houses are occupied rent-free and the one mortgage is figured into our assumed expenses. One family member will likely move into the home that is owned outright in 14 years and that house will be sold with equity of $300,000. That family member will likely live until we are 60 and therefore we will sell the house in the event of their death, for a conservative $500,000. The houses are in the same geographic area of the US, but not in the same city.

As far as the inheritance, yes, it was a one-time event.

No lumpy expenses are expected through retirement, healthcare costs being the biggest variable.
heyyou
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Re: Can We Retire at 40? or 45?

Post by heyyou »

Yes, you can retire. Just expect to adapt your spending to your somewhat variable portfolio value over time, as opposed to spending some fixed amount regardless of wherever the stock market is going. It is common for new retirees to experience a significant market drop early in retirement since the previously rising market is what produced a retirement sized asset amount.

One contingency plan is always having the expectation of moving to a lower cost area to continue your retirement as opposed to "going back to work" if your portfolio falls by a huge fraction and does not recover for decade or longer, as happened once and only in Japan.

Many are tired of hearing this, but I am using a longevity based spending plan (using the annual RMD percentages for the retiree's specific age, plus spending annual dividends and interest) that starts spending at a far more conservative rate than the 4% SWR which is tailored for 30 year retirements based on retiring at age 65. The 4% SWR was the very first research-based retirement spending plan, however more research has found other plans to be more reliable or more suitable for early and very early retirees.
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