We Are 56 & 54 With $450,000 Income And $5.1 Million Portfolio, But Live In A Pricey Area With Our 14-Year-Old: Can We Retire Now?

On Bogleheads.org, a post titled "Let me retire! Please?" sparked a discussion about early retirement viability. 

A couple from Pennsylvania, aged 56 and 54, is contemplating quitting their high-paying jobs to pursue volunteer activities. 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 post-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 allocated 55% to stocks (20% international), 30% to bonds, and 15% to 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 provided their perspectives on the couple's retirement plan. The consensus is optimistic, with some variations in opinion on portfolio risk and spending flexibility.

One user noted, "As long as your expenses are accurate, you should be fine. You are a touch on the conservative side with your investments, but you would likely be fine even without Social Security, providing a buffer for you." Applying the 4% rule, which suggests a safe withdrawal rate of 4% of the portfolio, the couple could potentially withdraw $204,000 annually. This aligns well with their predicted spending of $180,000, leaving some room for unexpected expenses or market downturns.

Another user asked, "What is the breakout of your portfolio (401(k), brokerage, Roth, etc.)? How much help do you intend to give your 14-year-old for college and later?" Clarifications were requested regarding the breakdown of their portfolio and college funding plans 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 therefore also suggest that you up your equities from 55% to 60%. Move that money from bonds to equities, not cash to equities." 

The 4% rule, while a good guideline, may need adjustments given the couple's early retirement age and long retirement horizon. Another member commented, "A 3.5% withdrawal rate is nearly guaranteed to last you 30 years with that asset allocation."

The couple needs to remain flexible with their spending, especially in response to market fluctuations. One user advised, "Make yourself a ‘retirement spending' list. This can be quite different from ‘while working.'" 

Health care costs could increase significantly before Medicare kicks in. Another user asked, "Have you researched costs when you're both on Medicare?" 

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It's important to understand these expenses and factor them into the retirement budget. College expenses for their child should also be planned for, ensuring they don't derail their retirement plans. Exploring Roth conversions and understanding ACA subsidies until Medicare eligibility could provide additional tax advantages and cost savings.

The couple appears well-positioned for early retirement, provided they maintain flexibility in their spending and remain vigilant about potential market changes. Their financial situation allows for a comfortable retirement, but ongoing assessment and potential adjustments to their portfolio and spending will be crucial for long-term success. 

Would you feel confident about retiring now if you were in their shoes? 

If you're uncertain about your early retirement plans or think you may need to address specific financial goals, consider consulting a financial advisor. They can help create a personalized plan tailored to your unique situation.

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