84

The question is "personal relationship" as much, if not more, than personal finance. It's one thing for a single person to make this decision, but another thing altogether to make such a decision pre-couple. And that's the piece that isn't fully addressed in the question. Is the fiancée in agreement with this? (You seem afraid he expects her support, but ...


80

I retired at 40, with well over $1M in actual investments. But I not only had to deal with a major market crash, but also dramatic life changes that increased my living costs dramatically. We had two kids, one of whom who turned out to require hundreds of thousands in medical care that wasn't covered by my self-employed insurance. I found it's really hard to ...


38

Assuming your brother dies at 90 and retires now (37), he has to be able to live off his investments for 53 years. using this calculator: https://www.firecalc.com/ with the following numbers: spending: $40,000 , Portfolio: 1,000,000 and years: 53 your brother has an 81.9% chance of dying with money left over. Assuming he can indeed live off 40K a year (...


32

I can see several problems with your plan: Retirement exists for a reason. There are various things that may prevent you from working when you are older: You may be less able to work, be it because of physical deterioration of your body or mental exhaustion. And that's just the normal process - if you are unlucky, you might become sick and completely ...


26

Yes, I think you will be able to withdraw from your 401(k) without penalty. Normally, you need to be age 59½ before you can withdraw without incurring a 10% penalty. However, an exception to this rule is described in an IRS 401(k) Resource Guide: Exceptions. The 10% tax will not apply if distributions before age 59½ are made in any of the following ...


21

There is a provision for this. It’s called Sec 72(t) and it permits you to take annual withdrawals according to your age, for 5 years or until age 59-1/2 whichever is later. Tax is due, but this avoids the 10% penalty. Note - while not really part of the question, you should be aware that the 401(k) withdrawal has a fixed 20% withholding for taxes. ...


19

After he has already made a budget, is there any way he can take a long term leave work, about 6 months without pay? This will allow him to try to live off of 20k and see if he can stay within his budget. Even if he is able to live of 20k if he is anywhere close to spending that much he will need more because there's a low chance he will hit any long term ...


17

Some employers actually support a lifestyle similar to this in form of allowing "sabbaticals". It usually works like this: Over a course of a few years, you either work extra hours or take a paycut. Then you can take an extended period of paid leave, equivalent to the unpaid hours you've worked during those years (usually up to one year). During that paid ...


16

Since there are so many less than optimistic answers here, I'm going to suggest something different. With your brother doing his hobbies, if he gets really good at them, like wood working, model building, sculpture, whatever, he might be able to turn that into a decent small time business. Personally, I'm trying to transition away from a day job to the ...


14

The most common method for early retirement from IRA/401k is to use a Roth conversion ladder optionally combined with taxable accounts. With a Roth conversion ladder you would start 5 years before your planned retirement and convert a years worth of expenses to a Roth IRA each year. Then on year 6 you can withdraw what you converted 5 years ago because it is ...


12

I would say your brother is overly optimistic, but not drastically so. Based on historical data, a $1 million portfolio (75% stocks/25% bonds) can sustain $40k annual spending, adjusted for inflation, for 30 years, with about a 95% success rate. Your brother should be planning for 60 years, so he should probably shoot for a 3.5% withdrawal rate instead of ...


12

Defined benefit pensions are generally seen as valuable, and hard to replace by investing on your own. So my default assumption would be to keep that pension, unless you think there's a significant risk the pension fund will become insolvent, in which case the earlier you can get out the better. Obviously, you need to look at the numbers. What is a ...


11

The very big risk I can see is that you don't plan to retire, ever: Repeat steps 1 and 2 until graveyard time. While that might sound feasible now, at a still fairly young age, can you honestly, really say that you'll still be willing (and even able) to work when you're 70? 80? 90?


10

1) Does it make sense to invest more into my 401k beyond what my company will match? Yes. The tax advantages of the 401k typically are worth it and especially so in an early retirement scenario. If you retire at 40 and have no income in year 41 you can spend year 41 converting money from your 401k into a Roth IRA and end up with money that you have ...


10

He is overly optimistic. Which sucks if you have to live with the results of that for 50 years or more - life expectancy of people with money is going up. Sadly as is health care cost. I also would challenge him to live on 40k USD per year. See, basic faulty errors: Kids cost money, as will his house. Let's leave the partially ridiculous US property tax out ...


9

Under those circumstances, I would probably work another decade or two. 4% withdrawal rates are based on a study of historical market performance and an expected retirement age of 65. It sounds like your brother is very conservative with his spending to have saved as much as he has. There's no reason he couldn't get by on a frugal lifestyle, but there is a ...


8

You are assuming that the funds saved for your retirement must all be in specific tax accounts at the outset. First of all, you should be wary of the difference between your investment portfolio (ie: which stocks/bonds/etc. you invest in), and the investment 'vehicles' that you use to make those investments (ie: 401k vs IRA etc.). This distinction is ...


8

I "retired" at 50. In no particular order, here are my thoughts in response to your question: You offer a mix of numbers ($$) saved and percent moving forward. There are a few issues with this. Few FIRE savers are saving so little. My minimum goal was always to maximize the 401(k) along with 5% company match. This meant at least 20% of gross was saved. More ...


7

He has saved over one million USD on a salary of £150,000 per year. He is good with money and understands saving and investment. I'd trust him to live his own life. If he's wrong then he'll lose money slowly and he can always go back to work.


7

Half of the US makes (gross) less than $60,000 per year. Many families also have mortgages, car payments, children, etc. and they are making it work. So if his spouse were to contribute to the family budget then they would likely be doing better than half of American households. The biggest financial concern with not working is healthcare. If his (future) ...


7

You are missing out on a huge chunk of compound interest Long-term investments enjoy the magic of compound interest, which requires that growth in savings stays invested so it can grow even more. Imagine a situation where you are able to save $1,000 every month. If you save for 3 years at 6.5% interest, you will have nearly $40k before you quit working and ...


7

I have the exact same goal as you so I have been thinking about this problem a lot. The biggest issue I have (and you seem to be missing in your plan) is when your retirement funds will be available to withdraw. If you plan to retire at 50 you have 9.5 years before you can touch your traditional 401K (or IRA) funds without tax penalties. and 12 years ...


6

The scope of your question is pretty broad. The 401(k) issue has other questions, one about a horrible 401k plan. If your plan expenses are reasonable, it makes sense to use the 401(k) as much as you can. You'll see warnings about pre-59-1/2 penalty, but if you are wealthy by 40, or 50, you can transfer the account to an IRA and use Sec 72(t) withdrawal ...


6

It turns out that the SSA has several benefit calculators, they're just slightly hidden. I'll post the URLs here but if SSA.gov changes things, just google for it. You can find a small collection of calculators at https://www.ssa.gov/planners/benefitcalculators.html. To answer this question you want the pretty awful web calculator at https://www.ssa.gov/...


6

I give this problem out to students when I teach financial planning. The easy answer is "yes" it can work. Are there sizable risks from what you have posted, "yes." If it were me, I would do one of three things. The more likely choice for me would be to go to a bank trust department and open up a spendthrift trust. Legally, he would irrevocably be ...


5

No, generally your plan as stated is not reasonable. Unforeseen emergencies mean you are running the risk of finding yourself in a financial black hole by spending your money every few years. What happens if you get injured while travelling in a way that means you can't work and your savings run out getting you back home? You also miss out on the benefits of ...


5

There are a lot of topics here but I'll just try to touch on the main ones. Figure out what your expenses will be when you retire--look at your current expenses and determine what will change if you stop working. A major issue is how you will get health insurance (if it is currently subsidized by your employer) until Medicare kicks in. If you will need to ...


4

In my experience, the two most expensive things a person can have in their life are a spouse who doesn't work outside the home, children. I would strongly suggest that your brother delays his decision about retiring until he has some idea how many children he's likely to be fathering, how many years his wife is likely to take outside of the workforce, in ...


3

Yes. It is quite doable, many families are making this amount, combined. Health care, at 40k, he will be able to get subsidized, especially with kids. He may also be able to get other tax credits, since his gross income will likely be low. The big take is real estate taxes. I would look at states that are known for retiring within, say Florida, vs New ...


3

All US workers must pay into Social Security unless they work for a State government which has opted out of the Social Security system for its employees (usually because the State does not want to pay the employer's share of SS taxes to the Federal Government). But, the Federal Government does not allow such opting out by a State unless the State provides ...


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