[talking on the phone] And I said, I don’t care if they lay me off either, because I told, I told Bill that if they move my desk one more time, then, then I’m, I’m quitting, I’m going to quit. And, and I told Don too, because they’ve moved my desk four times already this year, and I used to be over by the window, and I could see the squirrels, and they were merry, but then, they switched from the Swingline to the Boston stapler, but I kept my Swingline stapler because it didn’t bind up as much, and I kept the staples for the Swingline stapler and it’s not okay because if they take my stapler then I’ll set the building on fire…
Milton Waddams
My brother and I have been having some lengthy text exchanges recently about F-you money, sabbaticals, mid-life crises, itches that need scratched. What else would two finance dorks with small children do during a pandemic? We can’t go anywhere. Along these lines I’ve been thinking about how one would optimally access the different buckets of money and how long they might last?
Key to answering these questions of course is how much do you spend? If you don’t know that, stop and use personal capital, mint, a spreadsheet, notebook, napkin or post-it note to figure it out. Once you know the expense number (annual or monthly), your next step is to figure out how long of a break you may take from employment income: months (aka emergency savings), years (sabbatical), forever (financial independence). In a two income household, perhaps this is just an exercise in giving one person a break to recharge, reinvent, renew.
For the next steps in this exercise, I took the pie chart you see on the sidebar and created a new sheet where I divided the buckets into two types: after age 59 1/2 and before age 59 1/2. This is because in your 401k/403b/IRA, the earliest you may withdraw money without an additional 10% tax penalty is age 59 1/2. There are of course many exceptions including employee separation from service during or after the year the employee turns 55. There’s also withdrawing your Roth IRA contributions (not earnings) at any time and a more advanced 5-year Roth IRA conversion ladder.
In the after age 59 1/2 bucket we have: 401k, 403b, Roth IRAs and Mrs. Dress Pockets pension rollover. Simple, straightforward and the bulk of our investment net worth at 73.8%. Ok maybe the cash balance pension rollover isn’t simple but I just figured out how to estimate and track the pension this week.
In the before age 59 1/2 bucket we have: cash, after tax brokerage accounts, 457b and HSA. In order to access the 457b, Mrs. Dress Pockets would have to separate from her employer and I believe there are lump sum or installment payments over 5, 10 or 15 years. And in order to access the HSA penalty free we need medical expenses. There are more accounts to track here because our cash situation is spread out, but the grand total comes to 26.2%
More interesting than the percentages is the dollars themselves and with a three quarter : one quarter split we have just north of 500k that we could access now mostly pain free and without penalty. If you spend 100k per year, that’s 5 years of freedom. However without day care and a mortgage we spend closer to 60k than 100k. So that’s over 8 years of freedom. Ideally if Mrs. Dress Pockets and I both aren’t working, with low spending we have the 0% capital gains tax headroom to convert some 401k/403b money to Roth IRA each year and prime that 5 year conversion ladder. A perpetual freedom machine.
Yes I’ve omitted the future cost of health care and college education entirely. HSA helps with the expense portion of the former and 529 accounts with the latter. And I’ve created further questions for myself wondering if I should save less pretax money and more posttax money for early retirement flexibility. But the dream of telling my boss I retired yesterday or not panicking when they call to say there’s been a resource action today is very much alive and well.
