OT: Early Retirement by Tapping IRA

[earlyretirement]

[quote=ice9]I appreciate the comments/feedback earlyretirement.

It’s very useful to hear the thoughts from someone who has spent a lot of time thinking about this, and even done it.

Maybe it’s splitting hairs, but I don’t think of myself as having debt. I have a mortgage, yes, but there is 100K equity in the house. No student loans, credit card debt, etc.

Given the tax deduction on mortgage interest, I feel more comfortable having money earning dividends (that are taxed at 10% currently) than sitting in home equity.[/quote]

No problem. You are totally welcome. I totally understand your thoughts and worries and fears and dreams, etc. I went through the SAME things as you last year planning my “early retirement”.

I’m not saying to abandon your dream but I still think you should work several years, pay off your house and not have that worry. I understand you don’t think of it as “debt” but it is debt. You don’t own it. The bank does. Don’t get too into that whole “mortgage tax deduction is great thingy”. Also, I know people that say they will make more money investing it instead of paying off the house and they’ve lost it all. You just have to be realistic and careful there.

I don’t think of having $100k equity in a house as too much to write home about these days. I’m not sure how expensive it is or how much you have left but from what I’ve seen in San Diego…nice homes here are fairly expensive there so you still have a lot more to pay off.

Also, it’s still relative having a house paid off if the ongoing monthly expenses are high. Case in point, my house is totally paid off and it was fairly expensive but I have $16,000 in annual property taxes and Mello Roos as well as $450 a month in HOA fees not to mention we joined a country club that has $250/month in monthly expenses so even having a paid off house our bills are higher than many.

Definitely I think it’s a good goal to work towards as long as you always stay realistic and don’t fool yourself or talk yourself into something that you’re really not ready for.

It sounds like with your work at least you could do freelance work if you wanted to and earn money from time to time.

Also, you have to factor in the whole segment of the population (even friends/family) that will absolutely HATE you for being able to retire early. You’d think people would feel happy for you but in reality that doesn’t really seem to be the case in the majority of the cases.

I guess to be fair I’m not really retired as I still work about 5 or 6 hours a day but it feels retired compared to the 14 to 16 +hour days I worked before I “retired”. I worked INSANE hours before and much of it was stressful in the financial/investment realm.

I don’t really care what people think though. I give my kids a bath every morning, give them a bath every night. My daughter recently started pre-school last week and I pick her up every afternoon in the middle of the day at 1 PM. You should see the looks I get from all the other housewives picking up their kids. A few of them have asked what I do as I’m one of the only dads picking up their kids everyday and I’m doing it in shorts and casual clothes. (I think the other guy is an unemployed guy that lost his job and looking).

It’s a great feeling of being able to do what you want with your kids when you want, going to the pool, taking them to the beach, to the Zoo, etc during the week in the middle of the day. It’s great!

I do NOT dare tell people I’m retired but when they hear we’ve been traveling around for months on end around the world to exotic places…..the reaction I usually get is “did you win the lottery or something”??

There are wonderful things about “early retirement” once you get to that point. So don’t give up on the idea and try to ignore the haters….. I’d just advise to be realistic and factor in the great unknowns like inflation and future health care costs. Contrary to popular belief…..being a millionaire these days is NOTHING to write home about.

Fortunately I never HAVE to go back to work full time if I didn’t want to. I make enough in passive income to cover my monthly nut. But I definitely think after another year or so I will. Even to me it seems a bit ridiculous to be “retired” still in my 30’s….

And also to be honest I still have worries/fears almost each and every day and wonder if I truly have enough to retire. You can plan and think you know if it’s enough but in the end it’s still just a guess.

Best of luck with your goals and plans.

[UCGal]

I can relate to your desire to retire and spend more time with your family and pursuing interests not related to making money. I’ve been running the numbers regularly for a similar goal.

Difference is that I’m 10 years older, have my house *almost* paid off, and have more of a nest egg. My net worth is somewhat of a myth because a large chunk of the “net worth” is my house – and you can’t spend a house. But on paper, my net worth looks good.

I use the quicken planning tools to “what-if”. I run the numbers obsessively. I can’t figure out a way to work unless I can figure out a cheaper option for healthcare… Insurance is the budget killer. My husband has just over 5 years till medicare age, I have just over 15. We have kids that have 8-10 years till they start college – so we have to insure them for the long haul too.

I’ve got an option most don’t have… My husband and kids are in process of being recognized as dual Italian citizens… and some (not all) of the southern regions let you buy into the national healthcare for a very low amount ($1200/year vs per month). But as most of us know… Italy (and the other PIIGS countries) isn’t in the best fiscal shape… so I don’t feel confident banking on that solution to the budget busting healthcare.

I strongly suggest you get a good comprehensive tool and forecast various scenarios. Forecast what happens in down markets. Forecast what happens if insurance goes up to much. Forecast college costs for your kids. Forecast what happens if inflation happens bigtime.

For me – I need to have the house paid off and close to 2M in various savings/investments. With the market fluctuations of the past couple of years… I may have to up that number… I’m not comfortable with the idea of running out of money before I die.

My maternal grandfather retired at 55. They thought his pension and soc.sec. would be more than enough. 6 years later, my grandmother had to take a job as a “shop girl” for a downtown La Jolla gift shop… Anyone who remembers the 70’s remembers the inflation…. and how people on fixed incomes were hit hard.

Keep the dream – but run the numbers and save aggressively.

[UCGal]

I can relate to your desire to retire and spend more time with your family and pursuing interests not related to making money. I’ve been running the numbers regularly for a similar goal.

Difference is that I’m 10 years older, have my house *almost* paid off, and have more of a nest egg. My net worth is somewhat of a myth because a large chunk of the “net worth” is my house – and you can’t spend a house. But on paper, my net worth looks good.

I use the quicken planning tools to “what-if”. I run the numbers obsessively. I can’t figure out a way to work unless I can figure out a cheaper option for healthcare… Insurance is the budget killer. My husband has just over 5 years till medicare age, I have just over 15. We have kids that have 8-10 years till they start college – so we have to insure them for the long haul too.

I’ve got an option most don’t have… My husband and kids are in process of being recognized as dual Italian citizens… and some (not all) of the southern regions let you buy into the national healthcare for a very low amount ($1200/year vs per month). But as most of us know… Italy (and the other PIIGS countries) isn’t in the best fiscal shape… so I don’t feel confident banking on that solution to the budget busting healthcare.

I strongly suggest you get a good comprehensive tool and forecast various scenarios. Forecast what happens in down markets. Forecast what happens if insurance goes up to much. Forecast college costs for your kids. Forecast what happens if inflation happens bigtime.

For me – I need to have the house paid off and close to 2M in various savings/investments. With the market fluctuations of the past couple of years… I may have to up that number… I’m not comfortable with the idea of running out of money before I die.

My maternal grandfather retired at 55. They thought his pension and soc.sec. would be more than enough. 6 years later, my grandmother had to take a job as a “shop girl” for a downtown La Jolla gift shop… Anyone who remembers the 70’s remembers the inflation…. and how people on fixed incomes were hit hard.

Keep the dream – but run the numbers and save aggressively.

[UCGal]

I can relate to your desire to retire and spend more time with your family and pursuing interests not related to making money. I’ve been running the numbers regularly for a similar goal.

Difference is that I’m 10 years older, have my house *almost* paid off, and have more of a nest egg. My net worth is somewhat of a myth because a large chunk of the “net worth” is my house – and you can’t spend a house. But on paper, my net worth looks good.

I use the quicken planning tools to “what-if”. I run the numbers obsessively. I can’t figure out a way to work unless I can figure out a cheaper option for healthcare… Insurance is the budget killer. My husband has just over 5 years till medicare age, I have just over 15. We have kids that have 8-10 years till they start college – so we have to insure them for the long haul too.

I’ve got an option most don’t have… My husband and kids are in process of being recognized as dual Italian citizens… and some (not all) of the southern regions let you buy into the national healthcare for a very low amount ($1200/year vs per month). But as most of us know… Italy (and the other PIIGS countries) isn’t in the best fiscal shape… so I don’t feel confident banking on that solution to the budget busting healthcare.

I strongly suggest you get a good comprehensive tool and forecast various scenarios. Forecast what happens in down markets. Forecast what happens if insurance goes up to much. Forecast college costs for your kids. Forecast what happens if inflation happens bigtime.

For me – I need to have the house paid off and close to 2M in various savings/investments. With the market fluctuations of the past couple of years… I may have to up that number… I’m not comfortable with the idea of running out of money before I die.

My maternal grandfather retired at 55. They thought his pension and soc.sec. would be more than enough. 6 years later, my grandmother had to take a job as a “shop girl” for a downtown La Jolla gift shop… Anyone who remembers the 70’s remembers the inflation…. and how people on fixed incomes were hit hard.

Keep the dream – but run the numbers and save aggressively.

[UCGal]

I can relate to your desire to retire and spend more time with your family and pursuing interests not related to making money. I’ve been running the numbers regularly for a similar goal.

Difference is that I’m 10 years older, have my house *almost* paid off, and have more of a nest egg. My net worth is somewhat of a myth because a large chunk of the “net worth” is my house – and you can’t spend a house. But on paper, my net worth looks good.

I use the quicken planning tools to “what-if”. I run the numbers obsessively. I can’t figure out a way to work unless I can figure out a cheaper option for healthcare… Insurance is the budget killer. My husband has just over 5 years till medicare age, I have just over 15. We have kids that have 8-10 years till they start college – so we have to insure them for the long haul too.

I’ve got an option most don’t have… My husband and kids are in process of being recognized as dual Italian citizens… and some (not all) of the southern regions let you buy into the national healthcare for a very low amount ($1200/year vs per month). But as most of us know… Italy (and the other PIIGS countries) isn’t in the best fiscal shape… so I don’t feel confident banking on that solution to the budget busting healthcare.

I strongly suggest you get a good comprehensive tool and forecast various scenarios. Forecast what happens in down markets. Forecast what happens if insurance goes up to much. Forecast college costs for your kids. Forecast what happens if inflation happens bigtime.

For me – I need to have the house paid off and close to 2M in various savings/investments. With the market fluctuations of the past couple of years… I may have to up that number… I’m not comfortable with the idea of running out of money before I die.

My maternal grandfather retired at 55. They thought his pension and soc.sec. would be more than enough. 6 years later, my grandmother had to take a job as a “shop girl” for a downtown La Jolla gift shop… Anyone who remembers the 70’s remembers the inflation…. and how people on fixed incomes were hit hard.

Keep the dream – but run the numbers and save aggressively.

[UCGal]

I can relate to your desire to retire and spend more time with your family and pursuing interests not related to making money. I’ve been running the numbers regularly for a similar goal.

Difference is that I’m 10 years older, have my house *almost* paid off, and have more of a nest egg. My net worth is somewhat of a myth because a large chunk of the “net worth” is my house – and you can’t spend a house. But on paper, my net worth looks good.

I use the quicken planning tools to “what-if”. I run the numbers obsessively. I can’t figure out a way to work unless I can figure out a cheaper option for healthcare… Insurance is the budget killer. My husband has just over 5 years till medicare age, I have just over 15. We have kids that have 8-10 years till they start college – so we have to insure them for the long haul too.

I’ve got an option most don’t have… My husband and kids are in process of being recognized as dual Italian citizens… and some (not all) of the southern regions let you buy into the national healthcare for a very low amount ($1200/year vs per month). But as most of us know… Italy (and the other PIIGS countries) isn’t in the best fiscal shape… so I don’t feel confident banking on that solution to the budget busting healthcare.

I strongly suggest you get a good comprehensive tool and forecast various scenarios. Forecast what happens in down markets. Forecast what happens if insurance goes up to much. Forecast college costs for your kids. Forecast what happens if inflation happens bigtime.

For me – I need to have the house paid off and close to 2M in various savings/investments. With the market fluctuations of the past couple of years… I may have to up that number… I’m not comfortable with the idea of running out of money before I die.

My maternal grandfather retired at 55. They thought his pension and soc.sec. would be more than enough. 6 years later, my grandmother had to take a job as a “shop girl” for a downtown La Jolla gift shop… Anyone who remembers the 70’s remembers the inflation…. and how people on fixed incomes were hit hard.

Keep the dream – but run the numbers and save aggressively.

[svelte]

I don’t think you’ve adequately taken into account the effects of inflation over the next 40 years, which at 40 years old is about how much longer you can expect to live.

The average wage in 2010 was about $40K/yr, so with $1.5M you have saved 37.5 times the average yearly wage.

Let’s wind the clock back 40 years from 2010…to the year 1970. The average wage in 1970 was $7.5K/yr, so someone who stood in your shoes back then would have saved the equivalent 37.5 times the average wage, had $281K and retired at 40. If they were taking out the 5% estimated earnings (your number) every year on that, they would be living on $14K a year. Which would probably have been okay in 1970, but now 40 years down the line that would be very uncomfortable.

Electricity, food, insurance, gas, everything would come out of that thousand dollars a month. No money would be left to do anything else.

I vote with flu, keep working as long as you can. 40 years can throw you many curve balls, some of which might take away your opportunity to go back to work. Keep shoveling money away and find work that you like. It doesn’t have to mean 10-12 hour days, maybe find something that is 30-40 hrs/week.

[svelte]

I don’t think you’ve adequately taken into account the effects of inflation over the next 40 years, which at 40 years old is about how much longer you can expect to live.

The average wage in 2010 was about $40K/yr, so with $1.5M you have saved 37.5 times the average yearly wage.

Let’s wind the clock back 40 years from 2010…to the year 1970. The average wage in 1970 was $7.5K/yr, so someone who stood in your shoes back then would have saved the equivalent 37.5 times the average wage, had $281K and retired at 40. If they were taking out the 5% estimated earnings (your number) every year on that, they would be living on $14K a year. Which would probably have been okay in 1970, but now 40 years down the line that would be very uncomfortable.

Electricity, food, insurance, gas, everything would come out of that thousand dollars a month. No money would be left to do anything else.

I vote with flu, keep working as long as you can. 40 years can throw you many curve balls, some of which might take away your opportunity to go back to work. Keep shoveling money away and find work that you like. It doesn’t have to mean 10-12 hour days, maybe find something that is 30-40 hrs/week.

[svelte]

I don’t think you’ve adequately taken into account the effects of inflation over the next 40 years, which at 40 years old is about how much longer you can expect to live.

The average wage in 2010 was about $40K/yr, so with $1.5M you have saved 37.5 times the average yearly wage.

Let’s wind the clock back 40 years from 2010…to the year 1970. The average wage in 1970 was $7.5K/yr, so someone who stood in your shoes back then would have saved the equivalent 37.5 times the average wage, had $281K and retired at 40. If they were taking out the 5% estimated earnings (your number) every year on that, they would be living on $14K a year. Which would probably have been okay in 1970, but now 40 years down the line that would be very uncomfortable.

Electricity, food, insurance, gas, everything would come out of that thousand dollars a month. No money would be left to do anything else.

I vote with flu, keep working as long as you can. 40 years can throw you many curve balls, some of which might take away your opportunity to go back to work. Keep shoveling money away and find work that you like. It doesn’t have to mean 10-12 hour days, maybe find something that is 30-40 hrs/week.

[svelte]

I don’t think you’ve adequately taken into account the effects of inflation over the next 40 years, which at 40 years old is about how much longer you can expect to live.

The average wage in 2010 was about $40K/yr, so with $1.5M you have saved 37.5 times the average yearly wage.

Let’s wind the clock back 40 years from 2010…to the year 1970. The average wage in 1970 was $7.5K/yr, so someone who stood in your shoes back then would have saved the equivalent 37.5 times the average wage, had $281K and retired at 40. If they were taking out the 5% estimated earnings (your number) every year on that, they would be living on $14K a year. Which would probably have been okay in 1970, but now 40 years down the line that would be very uncomfortable.

Electricity, food, insurance, gas, everything would come out of that thousand dollars a month. No money would be left to do anything else.

I vote with flu, keep working as long as you can. 40 years can throw you many curve balls, some of which might take away your opportunity to go back to work. Keep shoveling money away and find work that you like. It doesn’t have to mean 10-12 hour days, maybe find something that is 30-40 hrs/week.

[svelte]

I don’t think you’ve adequately taken into account the effects of inflation over the next 40 years, which at 40 years old is about how much longer you can expect to live.

The average wage in 2010 was about $40K/yr, so with $1.5M you have saved 37.5 times the average yearly wage.

Let’s wind the clock back 40 years from 2010…to the year 1970. The average wage in 1970 was $7.5K/yr, so someone who stood in your shoes back then would have saved the equivalent 37.5 times the average wage, had $281K and retired at 40. If they were taking out the 5% estimated earnings (your number) every year on that, they would be living on $14K a year. Which would probably have been okay in 1970, but now 40 years down the line that would be very uncomfortable.

Electricity, food, insurance, gas, everything would come out of that thousand dollars a month. No money would be left to do anything else.

I vote with flu, keep working as long as you can. 40 years can throw you many curve balls, some of which might take away your opportunity to go back to work. Keep shoveling money away and find work that you like. It doesn’t have to mean 10-12 hour days, maybe find something that is 30-40 hrs/week.

[sdduuuude]

[quote=ice9]No, my job isn’t bad.

I just think I would be overall happier if I didn’t have to work. I would have more time to spend with my family, and pursue my own interests.

I’m not sure I see the point of working another 15-20 years just to end up with more possessions and money than I need.

You’re probably right about the 5.5% yield being difficult to achieve. Apparently a 4% withdrawal rate is “safe”. However, I could sleep just fine at night with all the IRA in MO.

Also, my point is I do have enough saved, assuming I can tap income from the IRA.[/quote]

I can’t say if you have enough or not. Here is an idea, though.

What if you pulled out more than just interest from your non_IRA investments until you can take IRA money without penalty ? Take interest plus some captial from your non-IRA investment to give you the income you need.

Obviously, this will deplete the capital, but I’m suggesting you manage it such that after you are allowed to tap into the IRA, you would then take IRA money plus interest on the remaining non-IRA capital.

It all sounds risky to me, but if you can get it to pencil out, it would be a way to avoid the 10% hit.

[sdduuuude]

[quote=ice9]No, my job isn’t bad.

I just think I would be overall happier if I didn’t have to work. I would have more time to spend with my family, and pursue my own interests.

I’m not sure I see the point of working another 15-20 years just to end up with more possessions and money than I need.

You’re probably right about the 5.5% yield being difficult to achieve. Apparently a 4% withdrawal rate is “safe”. However, I could sleep just fine at night with all the IRA in MO.

Also, my point is I do have enough saved, assuming I can tap income from the IRA.[/quote]

I can’t say if you have enough or not. Here is an idea, though.

What if you pulled out more than just interest from your non_IRA investments until you can take IRA money without penalty ? Take interest plus some captial from your non-IRA investment to give you the income you need.

Obviously, this will deplete the capital, but I’m suggesting you manage it such that after you are allowed to tap into the IRA, you would then take IRA money plus interest on the remaining non-IRA capital.

It all sounds risky to me, but if you can get it to pencil out, it would be a way to avoid the 10% hit.

[sdduuuude]

[quote=ice9]No, my job isn’t bad.

I just think I would be overall happier if I didn’t have to work. I would have more time to spend with my family, and pursue my own interests.

I’m not sure I see the point of working another 15-20 years just to end up with more possessions and money than I need.

You’re probably right about the 5.5% yield being difficult to achieve. Apparently a 4% withdrawal rate is “safe”. However, I could sleep just fine at night with all the IRA in MO.

Also, my point is I do have enough saved, assuming I can tap income from the IRA.[/quote]

I can’t say if you have enough or not. Here is an idea, though.

What if you pulled out more than just interest from your non_IRA investments until you can take IRA money without penalty ? Take interest plus some captial from your non-IRA investment to give you the income you need.

Obviously, this will deplete the capital, but I’m suggesting you manage it such that after you are allowed to tap into the IRA, you would then take IRA money plus interest on the remaining non-IRA capital.

It all sounds risky to me, but if you can get it to pencil out, it would be a way to avoid the 10% hit.

[sdduuuude]

[quote=ice9]No, my job isn’t bad.

I just think I would be overall happier if I didn’t have to work. I would have more time to spend with my family, and pursue my own interests.

I’m not sure I see the point of working another 15-20 years just to end up with more possessions and money than I need.

You’re probably right about the 5.5% yield being difficult to achieve. Apparently a 4% withdrawal rate is “safe”. However, I could sleep just fine at night with all the IRA in MO.

Also, my point is I do have enough saved, assuming I can tap income from the IRA.[/quote]

I can’t say if you have enough or not. Here is an idea, though.

What if you pulled out more than just interest from your non_IRA investments until you can take IRA money without penalty ? Take interest plus some captial from your non-IRA investment to give you the income you need.

Obviously, this will deplete the capital, but I’m suggesting you manage it such that after you are allowed to tap into the IRA, you would then take IRA money plus interest on the remaining non-IRA capital.

It all sounds risky to me, but if you can get it to pencil out, it would be a way to avoid the 10% hit.

[Author]

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