Saturday, July 26, 2014

Milestones Towards Retirement To Keep in Mind

US News and World Report has a pretty nifty slideshow titled, 9 Important Ages for Retirement.

Of significant importance to me is Age 55 -- I can leave (or get shit-canned from) my job in the calendar year I turn 55 and still take 401(k) withdrawals from the retirement account associated with the job I left without having to pay the 10% penalty tax, according to IRS Code
72(t)(2)(A)(v).  If I roll my 401k into an IRA, I have to wait until I'm 59 1/2 years old.
(t) 10-percent additional tax on early distributions from qualified retirement plans

(1) Imposition of additional tax

If any taxpayer receives any amount from a qualified retirement plan (as defined in section 4974 (c)), the taxpayer’s tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the portion of such amount which is includible in gross income.

(2) Subsection not to apply to certain distributions

Except as provided in paragraphs (3) and (4), paragraph (1) shall not apply to any of the following distributions:

(A) In general

Distributions which are—

(v) made to an employee after separation from service after attainment of age 55….

NOTE TO SELF:  If I change jobs between now and when I turn 55, assuming that my new company's 401k is not completely craptastic, it would appear that rolling my 401k into my new company's 401k plan would be a better strategy than rolling it into an IRA.

Saturday, July 19, 2014

Operation Retirement in Fourteen... Errrrr.... Fifteen Years Maybe?

I'm already changing my mind about the timing of my retirement.  I was pretty convinced that I would retire in fourteen years once I paid off my mortgage.  I was thinking I could fulfill two dreams at once:  burning my mortgage documents and quitting via cake.

But the more I thought about it, I think the better plan would be to retire in fifteen.  I think I need the final year as a "test-run" to see what my true cost of living sans old major expenses would be and to plan for new major expense (e.g., health insurance, long term care insurance).  I did some rudimentary math to see what my anticipated cost of living (assuming 4%/year inflation) might be compared to now.

My monthly expenses currently run around $4,600/month.

 Credit Card
 $     520.00
 Cable + Cell + Massage
 $     319.00
 Monthly Living Expenses - Food, Gas, Entertainment, Misc.
 $     800.00
 DOE (Student Loans)
 $     360.00
 $   1,289.00
HOA I - Subdivision
 $     290.00
HOA II - Master Assoc
 $       30.00
Bank of Mom
 $     225.00
Prop Tax
 $     375.00
Gas & Electric
 $       55.00
 Life Insurance
 $       48.00
 Auto Home/Insurance
 $     185.00
 $     100.00
  TOTAL (Monthly)
 $   4,596.00
 TOTAL (Annual)
 $ 55,152.00

In 2029, I'm expecting my monthly expense will run about $5,290.91/month.  It's a bit hard to foresee what other expenses I might have then that I don't have now.  Hence, why I think an additional year in the workforce would be helpful.

Anticipated Expenses
 $     742.85
 Cable + Cell + Massage
 $     571.01
Living Expenses
 $   1,432.00
 $     644.40
HOA I - Subdivision
 $     519.10
HOA II - Master Assoc
 $       53.70
Prop Tax
 $     671.25
Gas & Electric
 $       98.45
Life Ins
 $       48.00
Auto/Home Ins
 $     331.15
 $     179.00
  TOTAL (Monthly)
 $   5,290.91
 TOTAL (Annual)
 $ 63,490.92

My exercise above was to see whether I can live just of off the dividends I earn in my 401k, Roth IRA and traditional IRA.  Assuming a 2% dividend yield (pretty much what I'm earning now) and an projected balance in my 401k of $1.4 million, I'll run out of funds in my 401k when I'm about 85 years old (taking into account I claim Social Security at age 72).  If the dividend yield goes up to 3%, I'm golden indefinitely.

This is a wake-up call that I need to get more serious about increasing my savings rates.  ... And not getting fired in the mean time.