FrioAg 00 said:
I haven't spent enough time reverse engineering the model here, but the first thing that stands out to me is:
Current income is $200k, so call that $130k after taxes.
You want to replace that income with spin-off of a retirement balance of $2.5.
Let's say long term nominal rate of return is 6.5%, and we'll use a 50 year inflation number of 2% reinvestment rate just to keep up with spending power. So you could draw 4.5% per year out, and after taxes (assume long term cap gains at 25%) you'd get 3.375% to replace your income.
$2.5 x 3.375% is $85k
I think you'd be underfunded by 30%. It's true you are saving money today (expenses coming in less than cash income) but it's also true that people's expectations for future costs of living are chronically underestimated.
I disagree on some math.
Income: $200k - 43k (tax deferred assumption) * effective rate = ~$165 after taxes. To early retire you need to hammer 401(k)/b/back door and you tax arbitrage with future you. I'm not trying to nitpick, but taxes are the topic I want to focus on below.
Income doesn't matter for early retirement. You need to match expected costs to withdrawals. In retirement, you won't be contributing to a 401k anymore. Ideally, you won't have a mortgage anymore, or childcare expenses, or car notes, etc. OP needs to bottom-up estimate expenses expected at 50 and target the 25x multiple against that.
Long term cap gains are 15% for married jointers in the $90 - $500k bracket - not 25%. BUT, the brackets matter because they're AGI. In theory, married jointer could realize gains up to $116k ($89k + standard deduction of $27k) at the 0% LTCG rate.
AGI is also critical for healthcare in early retirement. The subsidy cliffs are driven by MAGI.
Net, net: controlling AGI through Roth and Taxable withdrawals (cost basis excluded from AGI) is where you need to plan for early retirement for efficient taxes and securing affordable healthcare.
Also, it's entirely feasible to access 401(k)s early through Roth ladders. Again, you need to model out planned expenses then find the right balance of conversions, Taxable and existing Roth to minimize taxes and gun for ACA subsidies. E.g., we plan for $100k FIRE budget and expect ~$30k in MAGI. Our goals is $2.5m and target 40. SORR and healthcare will be the risks to those goals. You might think I'm underfunded, but our fixed expenses will be minimal so we'll be able to dial down withdrawls if needed. The extra 2,3,4 years or whatever to save that extra 30% isn't worth the time trade off to me.
I hope to only have 5 more years of work. I'm a volunteer ski patroller and will flip to paid (day or so a week) at 40 (fingers crossed). So not really RE, more like Barista-FI or something. Point being, I 100% know how I'll be spending my non-big boy job life.
