One very long term conversation we've been having at all the various URLs where I've been writing has been marking various age or life milestones as sort of a progress check. Where I write about retirement and give input, reviewing my progress hopefully provides accountability and maybe even credibility to give that input. I've called that series A Blogger Looks At and then say whatever age like 40 or 55 and so on. Here's a link to A Blogger Looks At 59 which will link to the others in this series.
A big part of my thought process has been to frame out what could possibly go wrong and then solve the problem from there. For the last few years I've isolated 59 1/2 as an important milestone in the context of having to go Plan B in case something goes wrong at work. That is when we can take penalty free, IRA withdrawals. I hit that milestone earlier in October which led me to think about some things a little differently in terms of optionality.
A few weeks ago, Bespoke quoted Eleanor Roosevelt as saying “I am who I am today because of the choices I made yesterday.” She is talking about doing favors our future selves which we have also described as giving ourselves financial optionality and physical optionality because we cannot know what our future self might want to do.
The financial optionality has to include living below your means which everyone has heard at some point but I think there is a better way to articulate it. The life I want to live costs less than we make. There's less sense of sacrifice with that framing. As far as physical optionality, I am always going to bang the drum of lifting weights, cutting carb and processed food consumption and next level, skipping breakfast.
We can start to benefit from good decisions by our younger selves in our 40's, making every aspect of getting older easier. As I've said before, being in your 50's and healthy with a little bit of money in the bank is a great spot to be in especially if you are fit and able-bodied and I am optimistic that will be the case for 60's as well.
To the extent you don't know what your future self will want to do, my wife and I had a big thing come up, we are buying a house in Tucson. We are very close to our closing date, beyond our inspection period so I think at this point, it I believe it would take something very strange for the purchase to go sideways from here. It's a small, older house on a pretty big lot, away from the downtown area, very close to Saguaro National Park. We're not leaving Walker. The house will be occasional second home use and we each have family members interested in using it too. It's insurance in case we ever get too old for the winters in Walker and if there's ever a catastrophic wildland fire in Walker, we'd have a place to go. Even without a catastrophic fire, we've had two instance of needing to evacuate for a week. Being on the fire department, I stay of course but if we get evacuated it will be much easier for my wife to go to a house that is ours instead of her parents'.
This is not something we'd thought about until recently so at 50 and 55, until very recently, I had no idea I would want to do this. A couple of good financial decisions when we were younger gave us the optionality now to do this. I think it will be a good investment but if nothing else, I think it can be a store of value against price inflation.
I've come to have a different view on utilizing Roth and traditional IRA money which is the heresy mentioned in the title. An important point of understanding is that I don't want or plan to retire. My thoughts about not wanting to retire have not changed in more than 20 years of being an investment advisor and I am making a calculated bet that my thoughts about retiring will not change.
We are putting a lot, in percentage terms, in as a down payment and we're doing that from our joint account. I don't want a large monthly payment. Where we get into heresy is that at the original price, I was prepared to take from my Roth IRA if needed for the down payment percentage I wanted. 59 1/2 and in there for five years makes that money accessible. The final price ended up coming down a lot because the inspection revealed a lot of work that needs to get done and the seller decided to lower the price rather than get the work done herself. That made our down payment a little smaller which probably leaves enough money to fix it up and furnish it.
I think of our situation as being coast FIRE which means that maybe you have enough saved to retire at a "normal" age but still need to work until that "normal" retirement age. You could downshift, if wanted into a lower paying job that you might enjoy more without necessarily needing to save more. We probably don't need to add to our retirement savings because I want to keep working. We plan to pay this house off quickly by diverting what I would have otherwise put into my solo 401k into paying down the mortgage instead. Maybe we can put a little more in but I think we can knock it out in four years.
As we made our way to figuring that out, I had an interesting thought about accessing my 401k to pay for the house. The amount of tax paid on distributions would be less than the interest paid on the mortgage. A lot less.
According to mortgagecalculator.org, a $400,000 loan for 30 years will pay $486,000 in interest at 6.375% plus the original $400,000 balance. Taking $100,000/yr from an IRA or 401k net for four years might cost $88,000 in taxes at 22% $22,000/yr or $96,000 at a 24% tax rate. For a 15 year mortgage, the interest paid would total $217,000. I would reiterate that having the option to consider this comes from good decisions about lifestyle and saving at a younger age and being old enough now to access those funds without a penalty. If we did end up pulling from my 401k for four years, we could hopefully replace that in my late 60's and into my early 70's.
We're not doing this but even considering it is a change of thought process, HERESY! The taxes, spaced out correctly, are much less than the interest. If nothing else, that is interesting to consider if you have the option. I would not suggest emptying out a 401k in this context. No debt but nothing in the bank isn't a great position to be in.
I will close by reiterating that I believe I know myself well enough to know my thoughts about continue to work will remain the same, 22 years and counting on that one, and that I believe we planned for something we could not have predicted ever wanting to do. We cannot know what our future selves will want to do.
The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.
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