Early Retirement

Early Retirement – My Plan: Part 3

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2034 – 2037

The next three-year period will consist of our income coming from my wife’s annual salary, rental income, and withdrawal of our Roth contributions.

Our income will consist of my wife’s salary, an equal distribution of our Roth IRA contributions, rent paid to us, and a small equal distribution from the M1Finance account.  Altogether, our expectation is that we will draw in a total of $67,384 per year or $5,615 monthly.  This amount should cover our monthly expenses of $5,387.  Our income should reflect the amount received in after tax dollars.  This estimate should more than cover us each month and I would say that we have built-in some fat to buffer ourselves in the event that we incur unexpected expenses beyond our savings targets.  Our planned income/expenses is what we are expecting to realize starting in April 2034 – April 2038.

2034 will be a critical year for us to also start taking advantage of a Roth Conversion Ladder.  Depending on your point of view, this is a step that we “technically” likely will not need to take.  In fact, there is wisdom in not pursuing this option due to tax implications.  See, my wife will continue to work in 2034 and her income will be our highest expected source of income.  By converting some of my 401(k) at that point, we will “likely” pay higher income tax than if we waited to withdraw until the proper retirement age or she discontinues working.  However, as I look at the timeline of my life, I would rather pay the government a little extra to have access to more funds at an earlier age.  This just becomes a classic debate on priority and my guess is that I am going to highly value TIME over money as my 50s pass me by.  Judging by the majority of seniors I know, my desire to travel and also spend will decline.  Therefore, the extra wages paid by Social Security can provide a buffer in the reduced retirement income I will have by collecting at an earlier age.  So, these 5 years are going to be critical in starting the Roth Conversion Ladders.

Our plan would be to convert $13,120 for the first two years, increasing to $14,760 in year 3 and then up to $56,000 between years 4-8.  The increase during those years is to cover the difference in my wife hanging up the work shoes early as well.  Her income will need to be covered so that we can continue to maintain the same lifestyle.  After that, our plan would be to convert $17,000 a year for the next four years, which would end our Roth Conversion Ladders and hopefully carry us into retirement.

Taking the conversions into account, our income rises in 2039 due to the increase from our Roth Conversion being realized.  We’d increase to $78,904 or $6,575 monthly.  This would ring true for 2040 also, which is the point I will be age 52 and my wife 49.

In 2041, we will increase again to $80,544 or $6,712 due to the higher Roth Conversion.  This will be constant in 2042.  In 2042, we have another goal/hope to sell our rental property and use the proceeds of the sale to withdraw the same rental income that we had been receiving ($11k) over the next 7 years.  Hopefully it will be worth more than that, but this would be a great result for us because we can continue to count on that money, but have no renter or maintenance to deal with.  That will also carry me through my final year but receiving Social Security benefits.

In 2047, I will be 59.5 and eligible to start withdrawing my retirement benefits.  I feel like we will be in the clear once we hit this point.  Three years later, my wife will be able to start withdrawing her own retirement accounts and I will have SS.  A few years after that, we should also be accessing her pension.  Our final income adjustment occurs in 2053 where we will make $80,844 a year into perpetuity (safe 4% withdrawal).  I expect that amount of money to mean less to us as the years go by, but should cover us nonetheless.  At that point, we will be age 65 and 62 so plenty of money to get us by.

 

Summary

I believe our estimate is fairly conservative.  We are building our portfolio forecast on under 6% annual returns and widened our current expenses a bit especially monthly.  There are also the factors we’re intentionally not considering here like the Health Savings Account.  The wild cards are definitely windfalls or outfalls!  If life or health emergencies happen, we need to adjust.  Same goes with the potential to receive an inheritance.  Maybe we’ll have a long-lost rich uncle 😉

 

Let me know what you think.  Any other areas I should consider?

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