This post is going to be dedicated as my first attempt at outlining how the diligent saving and investing that my family is doing each month will be utilized going into retirement. I’ve done a lot of thinking each month on how to maximize savings and allocate which dollar will go to which investment, which helps cover getting to financial independence. The second half of the acronym was one that I felt would just fall into place at some point for me. This weekend was the first time that I toyed around with some numbers, so I wanted to post them along with my methodology for additional input on more effective methods.
There are several factors to consider when mapping out your retirement plan.
- Age – What is the desired age that you ultimately want to hang up the work boots? For many of us, that answer would be most justified with a truthful answer and my truthful answer would be yesterday. Unfortunately, desire and reality are often not in alignment, so I know that I am going to need to push that back. I’ve done some simple forecasting on my savings each year and interest gains that showed I most likely should be able to call it quit around 44 if calculating a safe withdrawal rate of 4%. However, additional factors beyond my desire to retire at the earliest point need to be considered.
- Investment Accounts – What retirement vehicles are you utilizing today? Tax advantaged accounts are clearly the way to go, but are you utilizing a mix of tax deferred, Roth, and brokerage? In my opinion, that will come down to your income and then your allocation from there. Putting away the most money that you can in these accounts makes life more simplified when it’s time to start withdrawing. Of course, maximizing your tax advantaged accounts first is the priority. For me, I know that to successfully FIRE, I will not likely be able to cover my early retirement years with a taxable brokerage. I’m going to need to rely on the contributions that I’ve made to Roth accounts and using a Roth Conversion Ladder.
- Taxes – Taxes are not an area that we will be able to forecast with 100% accuracy. Despite this, we want to be able to consider the implications on our goals. In my scenario, my wife will continue to work beyond the time that I plan to stop. However, my income is the breadwinner in the family and drives us up on the tax table. Because of this, it will make the most sense for me to wait to complete any Roth Ladder Conversions until I am not earning work income any longer.
- Timing – The culmination of these points should help you drive your decision to choose a logical stopping point. A few additional considerations for me pertain to the fact that paid time off or vacation time is restarted at the beginning of a calendar year. My company like many others awards their incentive bonus pay in April for the preceding working year. Hopefully I will be able to remain at my current company for the next 14 years at which point I would like to leave after receiving the incentive bonus the following April. My 45th birthday would be toward the end of 2032 and 45 had always been an appealing age to be retired. That would give me hopefully around 10 really solid years to continue to enjoy life and some amazing vacations. More importantly, I’d have a few years left of being totally available for the needs of hopefully multiple children.
So, ideally, I will hit 45 and by that point, our investment account, which is being used to invest the difference between our hypothetical 15-year mortgage payment and our actual 30-year payment, should more than cover the balance of the mortgage and leave around $28k left after taxes are paid. At the start of 2033, I’d use up my paid time off between January – March likely about 1 month of the time off. After receiving the bonus payment, I would officially retire. To celebrate the two milestones, retirement and mortgage payoff, my family would use the remaining $28k to take an amazing vacation during the summer.
From here, I’d like to get into the weeds a bit on where I’d like to see myself end up in terms of account balances and ultimately how I’d withdraw that money to cover the lack of working income that I will be producing.
Categories: Early Retirement