A post on Bogleheads.org titled “Let Me Retire! Please?” sparked a discussion about the feasibility of early retirement.
A Pennsylvania couple, ages 56 and 54, is considering quitting their high-paying job to volunteer. With a 14-year-old child, the couple seeks advice on whether their financial situation can support a sustainable retirement in a high cost of living (HCOL) area.
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The couple has a combined income of $450,000 in 2024 and expects to spend $180,000 annually after 2025. They have an effective federal tax rate of 24% and a state tax rate of 3.07%. Their total portfolio is $5.1 million, and they invested 55% in stocks (20% international), 30% in bonds and 15% in cash. They are primarily invested in Vanguard and Schwab funds with an expense ratio of 0.10%. They have no debt or mortgage, and their projected Social Security benefits are $35,000 for him at age 70 and $19,000 for her at age 62.
Several forum members offered their perspectives on the couple’s retirement plan. The consensus is optimistic, with some differences of opinion on portfolio risk and spending flexibility.
One user commented: “As long as your spending is right, you’ll be fine. You’re a bit conservative with your investments, but you’d probably be fine without Social Security, which gives you a cushion.” By applying the 4% rule, which suggests a safe withdrawal rate of 4% of the portfolio, the couple could potentially withdraw $204,000 annually. This matches up well with their forecasted spend of $180,000, leaving room for unexpected expenses or market downturns.
Another user asked, “What is the breakdown of your portfolio (401(k), brokerage, Roth, etc.)? How much help do you plan to give your 14 year old for college and beyond?” Clarification was requested regarding the distribution of their portfolio and plans for college financing for their child.
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Some forum members noted that the couple’s current 55/45 asset allocation is somewhat conservative, but within a safe range. One member suggested, “I would also suggest that you increase your stocks from 55% to 60%. Move that money from bonds to stocks, not from cash to stocks.”
Although the 4% rule is a good guideline, it may require adjustments given the early retirement age and the couple’s long retirement horizon. Another member noted, “With a 3.5% withdrawal rate, you’re pretty much guaranteed to last 30 years with that asset allocation.”
The couple should remain flexible with their spending, especially in response to market fluctuations. One user advised, “Create a ‘retirement spending list.’ This can be very different than ‘while working.'”
Healthcare costs could increase significantly before Medicare kicks in. Another user asked, “Have you researched the costs if you’re both on Medicare?”
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It is important to understand these costs and factor them into your retirement budget. College costs for your child should also be planned for so they do not disrupt your retirement plans. Researching Roth conversions and understanding ACA subsidies until Medicare eligibility can provide additional tax benefits and cost savings.
The couple appears well-positioned for early retirement, provided they remain flexible in their spending and remain vigilant for potential market changes. Their financial situation allows for a comfortable retirement, but ongoing assessment and potential adjustments to their portfolio and spending will be critical to long-term success.
Would you be confident about retiring now if you were in their shoes?
If you’re unsure about your early retirement plans or think you need to pursue specific financial goals, consider consulting a financial advisor. They can help you create a personal plan tailored to your unique situation.
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This article We’re 56 and 54 with an income of $450,000 and a portfolio of $5.1 million, but live in an expensive neighborhood with our 14-year-old: Can we retire now? originally appeared on Benzinga.com
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