Early-retired 35 year old with $1 million

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BonziBuddy
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Joined: Fri Oct 27, 2017 11:41 pm

Early-retired 35 year old with $1 million

Post by BonziBuddy » Sat Oct 28, 2017 12:15 am

    A very high savings rate and a high paying job allowed me to early-retire this year.

    Basics
    • Debt: None
    • Tax Filing Status: Single
    • Age: 35

    Assets
    • $1 million in income-generating assets:
      • ~$700K Taxable (with ~$50K of unrealized gains)
      • ~$250K Tax-deferred (pre-tax 401k and HSA)
      • ~$60K Tax-free (Roth IRA and 401k)
      • Asset allocation: 80% stocks / 20% bonds
      • International allocation: 25% of stocks
      • Standard 3-fund portfolio (Total US Stock Market VTSAX, Total International Stock Market VTIAX, and Total US Bond Market VBTLX)
    • $75K cash (checking, savings, and no penalty CDs)
    • $400K home (owned outright) in a low cost of living area

      Other Information
      • I’m not sure I’ll be retired forever and may try some sort of relatively low-income self-employment in a few years. Though I think one million in income-generating assets is enough for myself, I’ll definitely need more If I marry my girlfriend (who has a low net worth) and we decide to have kids.
      • I’m insured with a 2 million umbrella policy

      Questions
      1. Please criticize my portfolio, I’m open to all feedback!
        • How should I best take advantage of the following low income years?
          A) Realize long term capital gains until I fill up the 15% tax bracket?
          B) Perform Roth IRA conversions of my pre-tax 401k until I fill up the 15% tax bracket?
          C) Keep a low income to maximize tax credits? (If my MAGI is $10K, I'll receive a $4,000 ACA premium tax credit. The ACA premium tax credit linearly decreases to zero at as I approach a MAGI of $45K.)
          D) Something else?
          • Is $75K cash appropriate for my situation?
            It’s about 2 years’ worth of expenses and 5% of my total net worth. I do not expect any large purchases on the horizon.
            Last edited by BonziBuddy on Sat Oct 28, 2017 10:22 am, edited 1 time in total.

            Bryan995
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            Re: Early-retired 35 year old with $1 million

            Post by Bryan995 » Sat Oct 28, 2017 9:05 am

            Sorry new here - following for the discussion to come. Planning to (hopefully) be in a similar situations a few short years from now.

            MikeG62
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            Location: New Jersey

            Re: Early-retired 35 year old with $1 million

            Post by MikeG62 » Sat Oct 28, 2017 9:27 am

            I don't have an issue with your portfolio or it's composition.

            My worry is you do not have enough money to be retired at 35 (as your remaining lifespan could be another 60 years). Plus, you have some major variables too - girlfriend you may marry and possibly have kids. That would ramp your expenses considerably.

            I know you say you may/could take some low paying self employment work in the future, but that is a big unknown and it may not be all that much $. You are young now and have a lot of high earning years ahead of you (if you choose to go that route). If I were you I'd go back to the high(er) earning job you had (or something like it) now until I had significantly more than you have now.

            While you may be able to get (scrape) by on $37.5K per year now, being retired you are not going to want to sit around at home all day. You will likely want to travel and experience things you have previously been unable to do because you were working - and that costs money, perhaps a lot of money. This I know from first hand experience as I early retired two years ago (at 53) and my wife and I spend more now (a lot more) than before we I retired.

            I do applaud you for living well below your means, accumulating a nice nest egg and being debt free at 35. That should not be lost in my comments above.

            Good luck.

            skor99
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            Re: Early-retired 35 year old with $1 million

            Post by skor99 » Sat Oct 28, 2017 9:37 am

            It would seem a little counter intuitive, but having 1 MM at age 65 is better than 1 MM at 35 if you want to quit working. You still have many years to live and 1 MM in all probability will not cut it. Also IMO, it is tough to get back in the job market after a big gap in most professions. So unless you are ready to do menial jobs for little money ( which btw would be very hard to do after you being used to high paying ones), it is better that you work atleast till 45-50 or so and then re-evaluate

            dbr
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            Re: Early-retired 35 year old with $1 million

            Post by dbr » Sat Oct 28, 2017 9:41 am

            As others are suggesting $1M is hardly likely to generate enough income to meet your needs. But, of course, the question is now much are you planning on spending? If that amount is down around $30,000 a year or something that might work.

            Realistically though at your age there are so many things you don't know about yet that it is impractical to just think you are retired.

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            zaboomafoozarg
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            Re: Early-retired 35 year old with $1 million

            Post by zaboomafoozarg » Sat Oct 28, 2017 9:43 am

            dbr wrote:
            Sat Oct 28, 2017 9:41 am
            But, of course, the question is now much are you planning on spending?
            Agreed, that's the big missing piece of info from the OP.

            Ruger
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            Re: Early-retired 35 year old with $1 million

            Post by Ruger » Sat Oct 28, 2017 9:46 am

            I agree with the others-you may not have enough money to last the rest of your life. Especially if kids come into the picture.
            Have you figured out how all this affects SS? Since they take the top 35 years of earning, and if you have a lot of zeros in those 35 years,
            you are not going to be getting much in the way of SS.
            Last edited by Ruger on Sat Oct 28, 2017 9:47 am, edited 1 time in total.

            Soon2BXProgrammer
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            Re: Early-retired 35 year old with $1 million

            Post by Soon2BXProgrammer » Sat Oct 28, 2017 9:47 am

            not saying you can't make it work... but if you want to decrease lifetime risk.. making a little money for a few years, and not spending out of your 1 million will really reduce your longevity risk.

            THink about it this way..

            35 with 1
            36 with 1.05
            37 with 1.1

            Not that you have to work super hard... but the biggest bang for your buck is not to spend money out of your portfolio now.. and make a little income (might not take that many hours if your high pay).. and keep your skills fresh, and reduce your longevity risk.

            personally, i want to quit too... and i'm just a little younger than you.. with roughly the same asset base.. maybe i have "OMY" (one more year) syndrome... but... there are just too many unknowns and the tolerance for errors is too tight....

            I know the money right now is really good, and as a risk reduction exercise i am still working... Hopefully i'll be able to switch to part time in a year or so.. if they say no.. i am not sure if they have a choice.

            But that part time work for me wouldn't be to save more money.. but to not spend my assets for another year or so... or maybe 2

            chessknt
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            Re: Early-retired 35 year old with $1 million

            Post by chessknt » Sat Oct 28, 2017 9:53 am

            Major variables I worry you did not account for:
            1-social security-You benefit will likely be much smaller given the lower number of work credits which may impact you when your expenses (ie health) go up as you ate
            2-health insurance-this is quite expensive on the individual market and could financially devastate you if you were in an accident or had some illness develop if you have a high deductible plan.

            In short it seems like not enough to retire so young safely. What if the market crashes and you need to reduce your expenses-how much lower can they realistically go before you are eating ramen?

            Rupert
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            Re: Early-retired 35 year old with $1 million

            Post by Rupert » Sat Oct 28, 2017 10:02 am

            I assume you're a devotee of Mr. Money Mustache? If not, you should be, as you're likely to get more encouragement from posters there. SatuMedia, in general, tend to be a little too risk averse to ever attempt what you're attempting to do. My advice? (And keep in mind I'm definitely more a Boglehead than a MMM follower) You need to keep a toe in the professional world, whatever it is you were doing that allowed you to save $1million by age 35. Why? Because man plans and god laughs. With your plan, you're potentially one medical diagnosis away from financial ruin.

            JW-Retired
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            Re: Early-retired 35 year old with $1 million

            Post by JW-Retired » Sat Oct 28, 2017 10:06 am

            BonziBuddy wrote:
            Sat Oct 28, 2017 12:15 am
              A very high savings rate and a high paying job allowed me to early-retire this year.

              [*]How should I best take advantage of the following low income years?
              A) Realize long term capital gains until I fill up the 15% tax bracket? Sure, costs you nothing.
              B) Perform Roth IRA conversions of my pre-tax 401k until I fill up the 15% tax bracket? No, if you follow your plan you won't pay income tax in retirement anyway because you will have very little income.
              C) Keep a low income to maximize tax credits? (If my MAGI is $10K, I'll receive a $4,000 ACA premium tax credit. The ACA premium tax credit linearly decreases to zero at as I approach a MAGI of $45K.) Don't know
              D) Something else? IMO, this isn't going to work even if you do live like a hermit for the next 50 years.
                But good luck giving it a try for a while!

                Welcome to the Forum!
                JW
                Retired at Last

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                Watty
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                Re: Early-retired 35 year old with $1 million

                Post by Watty » Sat Oct 28, 2017 10:09 am

                Even with a paid off house you would have to live very frugally to make your money last.

                There have been academic studies about how much people could have spent in the past to have a "safe withdrawal rate" and not outlast their money in a 30 year retirement and for 30 years it starts out at about 4%. It is that low because you might need to get through periods like the Great Depression or high inflation like the late 1970's.

                /wiki/Safe_withdrawal_rates

                The longer the retirement the lower this rate would be. I didn't try to look it up but for a 60+ year retirement it would likely be less than 3%. Living on $30,000 - before taxes - would be a pretty basic life style after paying for health insurance and property taxes. People do live on that much but usually not by choice.

                Talking about politics is not allowed here but I would not count on having the same health insurance for the long term. I have less than four years until I will get on Medicare and I am not taking that for granit.

                With so few years of work your eventual Social Security check will likely be very small too.

                Taking some time off work might be a reasonable choice but I don't think that you have enough to really consider yourself permanently retired at this point.
                BonziBuddy wrote:
                Sat Oct 28, 2017 12:15 am
                How should I best take advantage of the following low income years?
                A) Realize long term capital gains until I fill up the 15% tax bracket?
                B) Perform Roth IRA conversions of my pre-tax 401k until I fill up the 15% tax bracket?
                C) Keep a low income to maximize tax credits? (If my MAGI is $10K, I'll receive a $4,000 ACA premium tax credit. The ACA premium tax credit linearly decreases to zero at as I approach a MAGI of $45K.)
                D) Something else?
                The best thing to do would be to make a spreadsheet and do dummy tax returns to see what works best with the details of your numbers.

                One thing that you should also consider is that if you can get $5,500 in wage or self employment income in 2018 you could also make a Roth contribution for 2018 and you might be able to get up to a $1,000 Retirement Savings Contribution Credit.

                https://irs.gov/retirement-plans/pl ... ers-credit

                BonziBuddy
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                Re: Early-retired 35 year old with $1 million

                Post by BonziBuddy » Sat Oct 28, 2017 10:10 am

                Ok you guys win! I'm convinced it would be unsafe to retire on a million at my age. (For those who asked, my actual yearly expenses have been $30K/year now but will of course go up a ton if I get married and have kids. I was just being conservative when I stated the 75K was for two years of expenses.)

                I appreciate everyone's feedback but could you guys help me with my two other questions?

                2. How should I best take advantage of the following low income years?
                A) Realize long term capital gains until I fill up the 15% tax bracket?
                B) Perform Roth IRA conversions of my pre-tax 401k until I fill up the 15% tax bracket?
                C) Keep a low income to maximize tax credits? (If my MAGI is $10K, I'll receive a $4,000 ACA premium tax credit. The ACA premium tax credit linearly decreases to zero at as I approach a MAGI of $45K.)
                D) Something else?

                3.Is $75K cash appropriate for my situation?

                It’s about 2 years’ worth of expenses and 5% of my total net worth. I do not expect any large purchases on the horizon.

                    EDIT: I see some people posted answers to question #2 while I was creating this post. Sorry, wasn't fast enough! :P
                      Last edited by BonziBuddy on Sat Oct 28, 2017 10:20 am, edited 3 times in total.

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                      Watty
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                      Re: Early-retired 35 year old with $1 million

                      Post by Watty » Sat Oct 28, 2017 10:16 am

                      Rupert wrote:
                      Sat Oct 28, 2017 10:02 am
                      I assume you're a devotee of Mr. Money Mustache? If not, you should be, as you're likely to get more encouragement from posters there.
                      Take Mr. Money Mustache with a huge grain of salt.

                      Retiring very early is a LOT easier if your spouse is still working :oops:

                      http://mrmoneymustache.com/2017/03/06/etsy-shop/

                      Soon2BXProgrammer
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                      Re: Early-retired 35 year old with $1 million

                      Post by Soon2BXProgrammer » Sat Oct 28, 2017 10:20 am

                      not saying you can't or shouldn't "Downshift" in life.... actually downshifting to a sustainable pace, might be a good idea....

                      basically you need to do a bunch of simulations with regard to your roth conversion or tax gain harvesting and the ACA credit as well as others..

                      its complicated. personally i'm a fan of leaning towards roth conversions over tax gain harvesting... because of the favorable tax treatment of table gains.... but thats based on the current code...

                      i might actually "spend out of taxable, and convert to roth" as a joint strategy.

                      i am actually in a very different spot.. i have 90% of my dollars in 401k/ira's so i'm putting together a roth pipeline.

                      http://madfientist.com/how-to-acces ... nds-early/

                      TIAX
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                      Re: Early-retired 35 year old with $1 million

                      Post by TIAX » Sat Oct 28, 2017 10:24 am

                      BonziBuddy wrote:
                      Sat Oct 28, 2017 12:15 am
                      I’ll definitely need more If I marry my girlfriend (who has a low net worth) and we decide to have kids.
                      Only if you're planning on supporting them without the help of your girlfriend/wife. If she plans to work and your spending is low (which it sounds like it is), you shouldn't need to un-retire.

                      David Scubadiver
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                      Re: Early-retired 35 year old with $1 million

                      Post by David Scubadiver » Sat Oct 28, 2017 10:26 am

                      I am 49 with a portfolio of 2.8MM and am not quite comfortable with the idea of retiring. I am assuming you don’t live in NY or California. But wherever you are, have you accounted for medical costs in your post-Work years?

                      Will your portfolio generate sufficient income if we head into a bear market over the next 5 years?

                      GmanJeff
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                      Re: Early-retired 35 year old with $1 million

                      Post by GmanJeff » Sat Oct 28, 2017 10:27 am

                      Consider the risks you're taking which are not related to your asset allocation.

                      The the longer you are unemployed, the less employable you'll be, and the lower your potential will be to actively generate income to supplement or enhance your existing investments. Your professional skills and networks will almost certainly lag behind those of your peers, and your cessation of employment at your age will be viewed by most potential employers as odd at best. If you have the skills to be self-employed, will you have the capital and/or cash flow you need to start and support a business which will provide income if needed?

                      Others have spoken to the very significant lifestyle limits you'll face with a very low income - very restricted funding for travel, other forms of recreation, philanthropy, or to support a future family.

                      Could your anticipated income stream accommodate presently unanticipated changes to federal, state, local, real estate or other taxes?

                      How do you plan to pay for health care? Long-term care if you need it when elderly? Any unanticipated expenses for which you are uninsured? Will you be able to pay the premiums for such insurance as you currently have, if premiums increase?

                      Locking into a low income in perpetuity places enormous restrictions on your future options and flexibility. The risk of not having enough money to meet your needs in the future is arguably very significant.

                      randomguy
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                      Re: Early-retired 35 year old with $1 million

                      Post by randomguy » Sat Oct 28, 2017 10:29 am

                      BonziBuddy wrote:
                      Sat Oct 28, 2017 10:10 am
                      Ok you guys win. I'm convinced it would safer (and more comfortable) to have more than one million to retire on. (For those who asked, my actual yearly expenses have been $30K/year now but will of course go up a lot if I get married and have kids. I was just being conservative when I stated the 75K was for two years of expenses.)

                      I appreciate everyone's feedback but could you guys help me with my two other questions?

                      2. How should I best take advantage of the following low income years?
                      A) Realize long term capital gains until I fill up the 15% tax bracket?
                      B) Perform Roth IRA conversions of my pre-tax 401k until I fill up the 15% tax bracket?
                      C) Keep a low income to maximize tax credits? (If my MAGI is $10K, I'll receive a $4,000 ACA premium tax credit. The ACA premium tax credit linearly decreases to zero at as I approach a MAGI of $45K.)
                      D) Something else?

                      3.Is $75K cash appropriate for my situation?

                      It’s about 2 years’ worth of expenses and 5% of my total net worth. I do not expect any large purchases on the horizon.
                        Assuming zero outside income. Do ROTH conversions up to the end of the deduction/person exemption (~10k), and take LTGC up until you qualify for ACA. At that point you are paying ~10% tax on future LTGC income. Given your current situation it seems like you don't have a need to go much higher.

                        You could also fill up the 10% with ROTH conversions and then do LTGC for whatever needs you have. It is unlikely you will ever be moving out fo the 15% bracket and will have a chance to take a lot of money out at 0%,10% so I wouldn't be in any hurry to pay 15%.

                        I would go with 3-4 years of cash and plan on doing market timing about when to replenish that cash supply (i.e. markets up, keep 4 years, in down markets let it drop to 1 year). It doesn't really matter much though.

                        Realistically I would say work 5 more years if you were still employed. That should get you to 1.5-2 million pretty easily and if you are living on 30k, you will have zero problems even adding a kid and ACA going away. And having another 5 years will probably get you the SS point where more income adds very little to your net payment.But it sounds like that boat already sailed

                        rob65
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                        Re: Early-retired 35 year old with $1 million

                        Post by rob65 » Sat Oct 28, 2017 10:31 am

                        IMHO, the people on this site are too conservative about how much it takes to retire early and the folks over at Mr. Money Mustache are too optimistic. You might post both places and "average" the responses. Personally, I don't think you have quite enough. If it were one of my kids, I would advise them to keep working, but that a lower paying job they enjoyed or found less stressful would be fine. YMMV.

                        If you haven't already, I would browse some at gocurrycracker.com and rootofgood.com. You get two different views of home ownership from early retirees. Rootofgood went the paid off house in LCOL area route. Gocurrycracker argues for renting and leads a more nomadic lifestyle.

                        Double check your ACA numbers. I think your figure of $10,000 is too low to qualify for a subsidy. It depends on if your state expanded Medicaid, but I think you need at least $12,060 in MAGI in a non-medicaid expanded state and $16,643 in a medicaid expanded state to qualify for a subsidy in 2018. (Values for Alaska and Hawaii are different.) Please double check those numbers; that's just from a quick google search.

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                        TomatoTomahto
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                        Re: Early-retired 35 year old with $1 million

                        Post by TomatoTomahto » Sat Oct 28, 2017 10:34 am

                        Right now, your human capital is far larger than your investment capital. Retiring throws the human capital out the window and forces you to rely on the investment capital. Don't underestimate how difficult it can be to get back in the labor market.

                        Congratulations on where you've gotten so far, but get a grip, you're not close unless you, your GF, and whatever kids you have will live like paupers.

                        gclancer
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                        Re: Early-retired 35 year old with $1 million

                        Post by gclancer » Sat Oct 28, 2017 10:37 am

                        Answer to your question: staying below the ACA premium cliff will give you the most bang for your buck. I would convert to Roth up to the cliff with the idea that you’ll replenish your cash reserves 5 years from now with whatever is converted. With some careful planning (just the right amount of Roth conversions, selling lots with high basis from your taxable account, etc.) you should be able to stretch out your cash and Roth contribution/conversions (which can be withdrawn tax-free and don’t add to MAGI) for 5-10 years. Then you’ll be left with mostly gains in your Roth (generally can’t be withdrawn until 59.5 without penalty) and your taxable account. You can then continue to liquidate taxable allowing Roth/Traditional IRA to grow. Since you’re retired you should have plenty of time to research miticulous tax planning which will greatly benefit you.

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                        Sandtrap
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                        Re: Early-retired 35 year old with $1 million

                        Post by Sandtrap » Sat Oct 28, 2017 10:38 am

                        "Early retired 35 year old with $1 million"?

                        No can do.
                        $1 million in todays dollars is not much. (Unless you explore radical options such as moving to a country where it costs pennies to live every day, though the living conditions may be somewhat lacking. . . . :shock: )

                        Focus on the basics.
                        1
                        Invest and maximize your "human capital". Education, career expansion, etc, etc. "TomatoTomahto" above said it well.
                        2
                        Maximize income stream. Explore and maximize alternative/multiple income streams. The more you exploit this, the smaller your portfolio has to be IE: 20x vs 25x.
                        3
                        Minimize expenses. (Frugality is a good habit) The more you exploit this, the more your contribution to your portfolio.
                        4
                        Follow "Boglehead Investment basics".
                        5
                        Avoid life's "black swans" . . . and lifestyle "black swans". :shock:
                        (not able to fill this in per forum rules but a lot of country music and blues music lyrics explain this better.)

                        You're on a great path right now and congratulations on your accomplishments. :sharebeer
                        Keep on keeping on. . .
                        Then, perhaps, early retire at 45, or 50, or. . . . . :D

                        snarlyjack
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                        Re: Early-retired 35 year old with $1 million

                        Post by snarlyjack » Sat Oct 28, 2017 10:42 am

                        Some thoughts for you:

                        1). Read "Mr Free At 33.com" he has good information.
                        2). I would use a bucket approach:
                        a). Roth Ira (Total Stock Market) long term bucket (age 60 & beyond).
                        b). Taxable account, (income account, 3 fund portfolio) (dividends).
                        c). Housing expense (property taxes, homeowners ins, maintenance) Savings.
                        d). Current checking/savings account (available cash/emergency fund.
                        e). Be super frugal,(buy a high gas mileage motorcycle).
                        f). Be smart, be private, don't become a target...
                        g). Congrats & good luck...

                        random_walker_77
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                        Re: Early-retired 35 year old with $1 million

                        Post by random_walker_77 » Sat Oct 28, 2017 10:47 am

                        So call this a sabbatical instead. Recharge, cultivate your network of contacts, and come back to earn another million or two. The first million is the hardest. How easily can you resuscitate your high income?

                        Also, for an extremely early retiree, read up on perpetual withdrawal rate, such as used by foundations. Personally, with a family, in a lcol with a paid off house, I'd want 4-5 million to sustain a upper-middle 70-80k after-tax budget that pays for living expenses, entertainment, prop taxes, and healthcare. I think 3 million would do it, if the sequence of returns is reasonable favorable, but 5 million is almost certainly "escape velocity" territory where your funds will keep growing.

                        A big part of this is about sequence of returns, ability to cut spending, and ability to restart income as a function of years away. Keep in mind that the scenario where you need to find income again correlates heavily with the scenario where job availability is poor and labor supply is high.

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                        Sandtrap
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                        Re: Early-retired 35 year old with $1 million

                        Post by Sandtrap » Sat Oct 28, 2017 10:51 am

                        GmanJeff wrote:
                        Sat Oct 28, 2017 10:27 am
                        Consider the risks you're taking which are not related to your asset allocation.

                        The the longer you are unemployed, the less employable you'll be, and the lower your potential will be to actively generate income to supplement or enhance your existing investments. Your professional skills and networks will almost certainly lag behind those of your peers, and your cessation of employment at your age will be viewed by most potential employers as odd at best. If you have the skills to be self-employed, will you have the capital and/or cash flow you need to start and support a business which will provide income if needed?

                        Others have spoken to the very significant lifestyle limits you'll face with a very low income - very restricted funding for travel, other forms of recreation, philanthropy, or to support a future family.

                        Could your anticipated income stream accommodate presently unanticipated changes to federal, state, local, real estate or other taxes?

                        How do you plan to pay for health care? Long-term care if you need it when elderly? Any unanticipated expenses for which you are uninsured? Will you be able to pay the premiums for such insurance as you currently have, if premiums increase?

                        Locking into a low income in perpetuity places enormous restrictions on your future options and flexibility. The risk of not having enough money to meet your needs in the future is arguably very significant.
                        Outstanding!
                        Beyond the quantifiable. . .the "spreadsheetable", this is the huge "elephant in the room" that needs to be considered.
                        j

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                        topper1296
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                        Re: Early-retired 35 year old with $1 million

                        Post by topper1296 » Sat Oct 28, 2017 10:53 am

                        I echo the others that say congrats for hitting $1M at such a young age, however that isn't enough to retire at 35.

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                        Pajamas
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                        Re: Early-retired 35 year old with $1 million

                        Post by Pajamas » Sat Oct 28, 2017 10:53 am

                        A $400k home seems like a large percentage of your net worth in the context of retirement. If you are truly in a low cost of living area, that even sounds fairly expensive regardless of your net worth or retirement status. With a large or expensive home come additional expenses such as taxes, maintenance, insurance, and also extra time and effort just in keeping it clean and tidy. Something seems a little off with that for such an early retirement with such limited liquid assets.

                        Health care costs are a big future unknown. How closely have you looked at what is actually available to you for next year? In at least some states, a $10k MAGI would qualify you for Medicaid and the newer ACA plans and subsidies simply wouldn't be available to you. All of that could change rapidly, though.

                        As others are saying, you potentially have close to twice as many years ahead of you than you have already lived and that introduces a lot of variables and potential expenses. Rather than focusing on retirement, consider focusing on financial independence instead. That may make it easier to think about being on a sliding scale from being destitute to being Jeff Bezos rather than flipping a switch to change from working to retired. If I were your age with your net worth, I would consider myself not quite financially independent but would also acknowledge that there is much less pressure to focus on the income aspect of the time spent on income-producing activities. You don't have to take or keep a particular job to put food on the table for the week like so many people do.

                        That said, certainly many people have less income during their lifetime than you have in wealth, so it is certainly possible if you are willing to adhere to a very low-cost lifestyle. (Those people probably don't live in a $400k house, though.)

                        Something you should also consider is that many of the people who advocate retiring very early on a very limited amount of wealth aren't actually in that situation themselves. That is especially true of the most popular bloggers, who earn quite a bit from their blogging and related activities.

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                        Re: Early-retired 35 year old with $1 million

                        Post by randomguy » Sat Oct 28, 2017 10:54 am

                        Sandtrap wrote:
                        Sat Oct 28, 2017 10:38 am
                        "Early retired 35 year old with $1 million"?

                        No can do.
                        $1 million in todays dollars is not much. (Unless you explore radical options such as moving to a country where it costs pennies to live every day, though the living conditions may be somewhat lacking. . . . :shock: )


                        35-40k/year pretty much tax free (i.e. no payroll taxes) and a paid off house puts him well into the middle class in the US. There are a lot of people getting by and raising families on <50k/year jobs. IF the OP downsizes to a 200k house, they can free up even more money. Now you have to decide if this lifestyle or one where you spend 70k/year but had to work another 5 years makes you happier.

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                        Re: Early-retired 35 year old with $1 million

                        Post by David Jay » Sat Oct 28, 2017 11:02 am

                        You don't have to go back to the "employment grind", a million in the bank give you a host of options.

                        You can do any number of things with your life: consulting, rental property (that's a part-time job), skilled trade contractor. Is there any hobby you would like to turn into a revenue stream, like woodworking or excavating. For instance, I love to "move dirt". In retirement (just a year or so away) I am thinking of helping out a friend part time on an excavator during his busy season.

                        It's kind of like a 20-and-out military career. Your can't really do nothing, but you can do almost anything.
                        Last edited by David Jay on Sat Oct 28, 2017 11:03 am, edited 1 time in total.
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                        Re: Early-retired 35 year old with $1 million

                        Post by quantAndHold » Sat Oct 28, 2017 11:02 am

                        Yeah, ummm...no. Stock market is at historic highs. Medical care inflation is rampant. Kids expected. Doing yourself out of social security.

                        You can live frugally, but you’ll still need an income stream to make it, or you’re gonna be looking for work the first time the stock market dips. If you really don’t want a job, you might read “The Four Hour Workweek.”

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                        Re: Early-retired 35 year old with $1 million

                        Post by Sandtrap » Sat Oct 28, 2017 11:04 am

                        randomguy wrote:
                        Sat Oct 28, 2017 10:54 am
                        Sandtrap wrote:
                        Sat Oct 28, 2017 10:38 am
                        "Early retired 35 year old with $1 million"?

                        No can do.
                        $1 million in todays dollars is not much. (Unless you explore radical options such as moving to a country where it costs pennies to live every day, though the living conditions may be somewhat lacking. . . . :shock: )


                        35-40k/year pretty much tax free (i.e. no payroll taxes) and a paid off house puts him well into the middle class in the US. There are a lot of people getting by and raising families on <50k/year jobs. IF the OP downsizes to a 200k house, they can free up even more money. Now you have to decide if this lifestyle or one where you spend 70k/year but had to work another 5 years makes you happier.
                        Thanks.
                        Well said and so very true.
                        The decision is whether one wants to be "getting by" or otherwise.
                        Lifestyles and present and future needs. Anticipation of financial and personal "black swans".
                        Tough choices only the OP can make.

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                        Re: Early-retired 35 year old with $1 million

                        Post by Sandtrap » Sat Oct 28, 2017 11:09 am

                        David Jay wrote:
                        Sat Oct 28, 2017 11:02 am
                        You don't have to go back to the "employment grind", a million in the bank give you a host of options.

                        You can do any number of things with your life: consulting, rental property (that's a part-time job), skilled trade contractor. Is there any hobby you would like to turn into a revenue stream, like woodworking or excavating. For instance, I love to "move dirt". In retirement (just a year or so away) I am thinking of helping out a friend part time on an excavator during his busy season.

                        It's kind of like a 20-and-out military career. Your can't really do nothing, but you can do almost anything.
                        I did this and loved it so much that I ended up buying an excavator for my construction company just so I could have fun with it. . also earned money.
                        Whether a mini excavator or a street size one, all awesome. The power is addictive.
                        OP: actionably: fun things can turn into income things, sometimes big big income things. :D

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                        Re: Early-retired 35 year old with $1 million

                        Post by stlutz » Sat Oct 28, 2017 11:21 am

                        One thing to watch for is that your income is high enough to qualify for ACA subsidies. Otherwise you will need to go on Medicaid (which can be good or bad depending on what state you live in). If your income is not that high, you'll want to manufacture some income via capital gains or Roth conversions.

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                        Re: Early-retired 35 year old with $1 million

                        Post by David Jay » Sat Oct 28, 2017 11:24 am

                        Sandtrap wrote:
                        Sat Oct 28, 2017 11:09 am
                        I did this and loved it so much that I ended up buying an excavator for my construction company just so I could have fun with it. also earned money.
                        Whether a mini excavator or a street size one, all awesome. The power is addictive.
                        Now I'm the one who is jealous :happy
                        Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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                        Re: Early-retired 35 year old with $1 million

                        Post by Slacker » Sat Oct 28, 2017 11:34 am

                        TomatoTomahto wrote:
                        Sat Oct 28, 2017 10:34 am
                        Congratulations on where you've gotten so far, but get a grip, you're not close unless you, your GF, and whatever kids you have will live like paupers.
                        Watty wrote:
                        Sat Oct 28, 2017 10:09 am
                        Even with a paid off house you would have to live very frugally to make your money last.
                        ...Living on $30,000 - before taxes - would be a pretty basic life style after paying for health insurance and property taxes. People do live on that much but usually not by choice.
                        OP is in a low cost of living area, single, with a paid off house and you guys think $30,000/yr in expenses is living like a pauper and people only live on that because they are forced to? Maybe if healthcare is very expensive...

                        My wife and I are living on $31,000 / yr combined expenses after taking out Housing costs (also supporting several pets). Our annual savings is almost double our expenses (including housing costs) so we could easily spend more, but we see no reason for that. We also live in a LCOL area.
                        Last edited by Slacker on Sat Oct 28, 2017 11:35 am, edited 1 time in total.

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                        Re: Early-retired 35 year old with $1 million

                        Post by snarlyjack » Sat Oct 28, 2017 11:35 am

                        Most of the blog's I've read think owning a house is
                        a huge mistake. They much prefer renting & using
                        rent mobility. For example rent an apartment in
                        Lincoln, Mt. (pretty cheap rent). They would suggest
                        sell the house (save on property taxes, insurance, etc)
                        and move to Thailand. They are using mobility to save money.
                        I guess Thailand cost's 1/4 of what America does. Or,
                        the van life. Buy a Plymouth mini-van (fairly good gas mileage)
                        and go from camp site to camp site & see America. Just a
                        couple more suggestions for you...Good luck & have fun.

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                        bligh
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                        Re: Early-retired 35 year old with $1 million

                        Post by bligh » Sat Oct 28, 2017 11:43 am

                        You are in really good shape financially, but I echo the opinion of others in this thread, you are cutting it a bit close. It is impossible to say without knowing your what decisions you plan to mak. Perhaps you are the MMM/Ultra minimalist type who enjoys living on $24K? ( Based on $75K being 2 years worth of expenses, seems like you have ~$40K/year in expenses at the moment. Will these drop if you stop working?)

                        Since you are probably going to be looking for self-employment income, that likely pushes you over the edge. I don't look at that as retirement as much as becoming self employed. Nothing wrong with that, that is what I did (with less money than you) and it has worked out well for me so far.

                        Another thing to note is that in some industries (such as Technology), if you were good enough to have been getting paid the way you were, to have amassed what you have, at such a young age, I would be willing to bet that you'd be able to return to employment relatively easily. So taking a 'break from employment to try your hand at something new and recharge your batteries' isn't necessarily the end of your career.

                        Also discuss this with your Girlfriend (possible fiancee/wife) and see what her plans might be. If she plans/needs to stay employed for a while, perhaps her benefits will cover your health insurance cost?

                        Another option is to live abroad for the first 5-10 years of your retirement. Since you are so young, if you are so inclined, you could leave the US and live in one or more low cost of living countries for the first 5-10 years or so of your retirement, you will let your portfolio grow while minimizing your withdrawals, and saving on health insurance costs.

                        Regardless of what you decide to do. Congratulations. You have put yourself in a fabulous place financially, and you have plenty of options open to you. Best of luck!
                        Last edited by bligh on Sat Oct 28, 2017 11:45 am, edited 1 time in total.

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                        celia
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                        Re: Early-retired 35 year old with $1 million

                        Post by celia » Sat Oct 28, 2017 11:44 am

                        We frequently have posters here from someone in their fifties with 3-5 million asking if they can retire early. They are often cautioned about unknown health care premiums which have been rising substantially in the last several years. They are too young for Medicare (not 65) and would be dropping their employer insurance. Older people remember the pre-Obamacare days where you couldn't get medical insurance if you had a pre-existing serious condition unless you or your spouse had insurance through an employer. I don't know that we would ever go back to those days, but it is a possibility. So be sure you carry medical insurance continuously.

                        The other thing we usually suggest is that they project the value of the tax-deferred retirement accounts at age 70. (You can't withdraw from them until age 59.5 anyway without an early withdrawal penalty (besides paying regular taxes on the withdrawal), so you are really depending on $700K to get you to that point.) Then calculate the RMDs from the tax-deferred retirement accounts. RMDs for someone who is 70 start at 3.65% and increase each year. The account balance (and RMD values) will continue to go up as long as the RMD percentage is less than the growth percentage. What would the taxes be on that alone? (Use the latest tax software and you can add in dividends, interest or any other income you suspect you might have.) I'm fairly certain you will find that the RMDs alone will put you in the top tax bracket. So that suggests you want to start converting while you have some low-income years.

                        It is best to pay taxes from the taxable account, so you don't lose space in the retirement accounts which you might never recover (if you don't go back to work). If you should pay taxes out of the converted amount before you are 59.5, the withheld taxes will not only be taxed, but have a 10% early withdrawal penalty, since you are actually distributing some of the conversion into taxable.

                        The two positives for your situation are that you have a paid-for house, which helps control your living expenses and you have the skills needed to obtain a high-paying job. I think you should be conscious of maintaining the house and the skills, so you can protect your future.

                        I think your projected $30K of living expenses (for one) ignores the big one-time expenses, like a new roof every 30 years, car replacements, or even the possibility of having a special needs child. You also can't predict natural or man-made disasters, disabilities, and parents/children needing your help.

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                        unclescrooge
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                        Re: Early-retired 35 year old with $1 million

                        Post by unclescrooge » Sat Oct 28, 2017 12:17 pm

                        Watty wrote:
                        Sat Oct 28, 2017 10:16 am
                        Rupert wrote:
                        Sat Oct 28, 2017 10:02 am
                        I assume you're a devotee of Mr. Money Mustache? If not, you should be, as you're likely to get more encouragement from posters there.
                        Take Mr. Money Mustache with a huge grain of salt.

                        Retiring very early is a LOT easier if your spouse is still working :oops:

                        http://mrmoneymustache.com/2017/03/06/etsy-shop/
                        And if you have a blog making over a quarter million dollars a year!

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                        Re: Early-retired 35 year old with $1 million

                        Post by Hyperborea » Sat Oct 28, 2017 12:25 pm

                        I will suggest that you read the really great multi-part series on retirement withdrawals at Early Retirement Now. He covers this topic in more detail than I've seen anywhere else. He particularly has a lot of emphasis on long retirements and has some interesting results for the 40, 50, and 60 year retirements. For those long retirements you are only looking at withdrawal rates of 3.5% at best and that's with equity allocation of 75-100%. Below that and you are looking at 3-3.5% WRs.

                        There was a comment above about being too conservative. That's probably true. With those WRs in the 3-4% range you probably won't fail. Historically, with a decent equity allocation you won't. Push a little beyond that or drop the equity allocation and it's still a low percentage. Even with a 4.5% WR at 100% equity for 60 years you historically have an 80% success rate. So, most of the people who would have tried that didn't fail.

                        The problem is that after you've been retired a while or at an older age getting decent paying work again can be hard. The money from another year at a good paying job could be worth many years, maybe a decade or more, of work at a low paying job. Make sure that you have extra before you jump off the gravy train.

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                        Re: Early-retired 35 year old with $1 million

                        Post by stoptothink » Sat Oct 28, 2017 12:27 pm

                        Slacker wrote:
                        Sat Oct 28, 2017 11:34 am
                        TomatoTomahto wrote:
                        Sat Oct 28, 2017 10:34 am
                        Congratulations on where you've gotten so far, but get a grip, you're not close unless you, your GF, and whatever kids you have will live like paupers.
                        Watty wrote:
                        Sat Oct 28, 2017 10:09 am
                        Even with a paid off house you would have to live very frugally to make your money last.
                        ...Living on $30,000 - before taxes - would be a pretty basic life style after paying for health insurance and property taxes. People do live on that much but usually not by choice.
                        OP is in a low cost of living area, single, with a paid off house and you guys think $30,000/yr in expenses is living like a pauper and people only live on that because they are forced to? Maybe if healthcare is very expensive...

                        My wife and I are living on $31,000 / yr combined expenses after taking out Housing costs (also supporting several pets). Our annual savings is almost double our expenses (including housing costs) so we could easily spend more, but we see no reason for that. We also live in a LCOL area.
                        Ditto. I'm a year older than OP, with approximately half the portfolio (and a family), but in his shoes, I absolutely could make it work, and probably would go for it if I was planning on not having a family. Total expenses for our family of 4 is $~42k, 2/3 of which is mortgage and childcare in a LCOL to MCOL area. A handful of years ago, as a single PhD student, my living expenses were ~$10k/yr, and yes, that included rent. That was a spartan existence. I could have a blast off $25k/yr if I had no housing cost.

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                        Re: Early-retired 35 year old with $1 million

                        Post by TravelforFun » Sat Oct 28, 2017 12:39 pm

                        BonziBuddy wrote:
                        Sat Oct 28, 2017 10:10 am
                        Ok you guys win! I'm convinced it would be unsafe to retire on a million at my age. (For those who asked, my actual yearly expenses have been $30K/year now but will of course go up a ton if I get married and have kids. I was just being conservative when I stated the 75K was for two years of expenses.)

                        I appreciate everyone's feedback but could you guys help me with my two other questions?

                        2. How should I best take advantage of the following low income years?
                        A) Realize long term capital gains until I fill up the 15% tax bracket?
                        B) Perform Roth IRA conversions of my pre-tax 401k until I fill up the 15% tax bracket?
                        C) Keep a low income to maximize tax credits? (If my MAGI is $10K, I'll receive a $4,000 ACA premium tax credit. The ACA premium tax credit linearly decreases to zero at as I approach a MAGI of $45K.)
                        D) Something else?

                        3.Is $75K cash appropriate for my situation?

                        It’s about 2 years’ worth of expenses and 5% of my total net &worth. I do not expect any large purchases on the horizon.

                            EDIT: I see some people posted answers to question #2 while I was creating this post. Sorry, wasn't fast enough! :P
                              Can you live on $30K a year or less? If you can, you could retire now and your asset would continue to grow with a 60/40 asset allocation. The only problem is your lifestyle would be nowhere near a millionaire's lifestyle. :D

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                              Taylor Larimore
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                              Re: Early-retired 35 year old with $1 million

                              Post by Taylor Larimore » Sat Oct 28, 2017 12:39 pm

                              BonziBuddy:

                              Welcome to the SatuMedia Forum!

                              You can use this monte-carlo tool to give you the possible outcomes for a one-million dollar portfolio using various withdrawal rates:

                              https://portfoliovisualizer.com/mon ... sisResults

                              Best wishes.
                              Taylor
                              "Simplicity is the master key to financial success." -- Jack Bogle

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                              Re: Early-retired 35 year old with $1 million

                              Post by supersecretname » Sat Oct 28, 2017 12:40 pm

                              Yes it’s totally enough. You’ll find more responses on MMM. BHs tend to be more conservative with this kind of stuff.

                              I might give it another year or two to see f we get a correction. If we do, you are still earning and saving so no big deal. If not, you’ve padded your balance, so if it comes in 2+ years you will be much better prepared.

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                              wander
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                              Re: Early-retired 35 year old with $1 million

                              Post by wander » Sat Oct 28, 2017 12:43 pm

                              Rupert wrote:
                              Sat Oct 28, 2017 10:02 am
                              I assume you're a devotee of Mr. Money Mustache?
                              Somehow, think this man is still making money.

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                              Re: Early-retired 35 year old with $1 million

                              Post by Temuchin » Sat Oct 28, 2017 12:50 pm

                              I am 43 and have very similar finances as you - half a million in taxable and half a million in IRAs but I do work in a moderately paying job in a low-cost city. I don't feel I am ready at all to retire. For instance, I just learned that I have a root canal infection that will require an extraction and implant. I take great care of my teeth, go regularly to the dentist, and yet stuff like that happens. This will cost quite a bit. These are the types of expenses you can expect in your forties and fifties and beyond. Of course, you may get lucky and have perfect teeth and no health issues. There is no perfect prescription. It's like in Finance - you are choosing high risk (quitting early) and high return (have fun instead of being an office rat). But my nature is to be prepared for tough eventualities. Plus, having a steady job allows you to have a much more aggressive stock portfolio. I think of work as a bond - i.e. there is some risk of losing the principal, but low risk, and in exchange you get steady earnings. Then you can keep more of your money in stock funds, diversify into high growth/high risk sectors, etc.

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                              Re: Early-retired 35 year old with $1 million

                              Post by MrJones » Sat Oct 28, 2017 12:54 pm

                              Bryan995 wrote:
                              Sat Oct 28, 2017 9:05 am
                              Sorry new here - following for the discussion to come. Planning to (hopefully) be in a similar situations a few short years from now.
                              Welcome!

                              By the way, it is not necessary to post in order to follow in case that's what you were doing. You can simply use the button on the top to subscribe to this thread.

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                              Re: Early-retired 35 year old with $1 million

                              Post by WanderingDoc » Sat Oct 28, 2017 12:56 pm

                              TomatoTomahto wrote:
                              Sat Oct 28, 2017 10:34 am
                              Right now, your human capital is far larger than your investment capital. Retiring throws the human capital out the window and forces you to rely on the investment capital. Don't underestimate how difficult it can be to get back in the labor market.

                              Congratulations on where you've gotten so far, but get a grip, you're not close unless you, your GF, and whatever kids you have will live like paupers.
                              This is something I have been struggling with myself. I am in a very similar situation financially at the same age. Although instead of taking a withdrawal rate, I would continue to collect real estate rental income.

                              The plan is to retire at 37.. this would mean foregoing a $400-600K salary that my specialty pays. My parents think this is nuts. Bad idea?
                              One day it suddenly dawned on me that I had won the real estate lottery. | I'm not looking to get rich quickly. I'm not looking to get rich slowly. I'm looking to get rich for sure.

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                              Re: Early-retired 35 year old with $1 million

                              Post by Tanelorn » Sat Oct 28, 2017 12:57 pm

                              Health cost planning is a big one, but if OP wants to live on $30k/year in expenses in a LCOL area, he is probably better off than most people think. With that low an income hypothetically from investments, he would pay nearly nothing in taxes and could qualify for various government subsidies for lower income people, most notably health insurance. For 2017 currently, the first $10k in taxable income (single) is covered by your standard deduction and exemption, and the next $10k is only 10%, and then 15% for a while. If the whole $30k of his annual budget was taxable income (this is unclear to me, maybe some of it's not taxable), he'd be looking at an average tax rate of only 8% or so.

                              I agree you would probably rather just hit 100% FPL for the subsidized Obamacare plans rather than going the Medicaid route, but if you're young and healthy and can jack up your income later (via realized gains or Roth conversions), maybe you start with Medicaid since it's cheaper and have the option to switch to an ACA plan later if you need/want it.

                              Income manipulation tactics aside, if I had some no/low income years to make use of, I would first do Roth conversions rather than realizing capital gains. Retirement income is ordinary and taxed at a higher rate than long term gains, so it would be better to avoid the future liability with the higher tax rate. I would not pay more than 10% unless it was to get health insurance subsidies worth more than that, since if he gets married later with kids his 0% tax brackets will get much bigger and it will have been a waste to pay more now unnecessarily.

                              Lastly, I will point out that at 35, you'd want to plan for a much longer than standard retirement. Standard retirement of 30 years assumes a withdrawal rate of 4% of the investment portfolio annually ($40k year), and OP is proposing about $30k or 3%. I think this could work given his relatively aggressive 80/20 stock portfolio but the markets are high and 80% is a lot in stock if the market falls and you have to spend $30k each year regardless. Figure 3% inflation, an 8% market return and a 2% bond return will give you an average nominal return of 6.8% at 80/20, or a 3.8% real return after inflation. This suggests 3% withdrawals could be sustained indefinitely under these assumptions, but I would feel a whole lot more comfortable in OP's shoes with 60/40 or 50/50 in stocks instead. Those produce 5.6% and 5% nominal returns given my assumptions, which are only 2-2.6% real returns and hence less sustainable at a 3% withdrawal rate without more careful planning of sequence-of-returns risk and slowly spending principle to supplement investment income over a very long period (50+ years of retirement).

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