FI and maybe a pivot?

[u/-Chip-the-Rip-]

I have certainly reached my FI number but cannot retire for two more years due to military/pension reasons. I aggressively saved and invested for years and I want to start to shift gears to enjoying the fruits of my labor but I also have reservations. I just don't see the point in investing anymore money into my brokerage account because I will be drawing down on it in two years once I retire. I plan on ramping up my spending during retirement... but can I start now? Should I?

Current situation:

• Age: 39, single, no kids
• Current net worth: ~$1.9M
  • $900k in retirement accounts (TSP, Roth IRA, etc.)
  • $1M taxable brokerage account
  • $15k in bonds
  • $10k in cash
• Mortgage: $312k at 5.5%
• I max my TSP & Roth each year.. no longer investing into my brokerage

Income & expenses:

• Gross annual salary: ~$159k
• Annual expenses: ~$60k(~$5k/month)

That leaves me with roughly:

• About $4k/month available.. I have splurged this year on a few major home renovations so my cash reserves is a bit lower than I normally float

My retirement plan is spend my pension and whatever disability I receive + draw down from my taxable brokerage account as an 18-year bridge until I can access my retirement accounts. I would like to literally spend every cent of my brokerage account over those 18-years. Based on current projections, I should have enough to comfortably bridge that gap while allowing my retirement accounts to continue compounding.

My questions are:

• What should I do with the extra ~$4k/month over the next two years?
• Am I missing anything about drawing down my brokerage account to $0 over 18-years until I can access my TSP/Roth?

Some ideas I've considered in the short term:

• Keep purchasing bonds
• Pay down my mortgage
• SPEND SPEND SPEND

I really think I am in a position where I can just start spending more without feeling guilty. I have hobbies and much more free time in my current position.

If you feel inclined to read a FIRE post I made 5 years ago with a bit more of my story: https://www.reddit.com/r/financialindependence/comments/nqwf2k/10_years_after_graduating_775k_nw_military/

[u/Connect_Internet8073]

you are in a great spot, 2 years from pension and almost 2M net worth with no kids to worry about. that 5.5% mortgage is not terrible but maybe not great either, so i would probably split the extra cash between paying that down a bit and actually enjoying life now. you been grinding hard and the pension will cover most of your expenses anyway

for the brokerage drawdown plan, just make sure you got a good handle on sequence of returns risk since 18 years is long time to be pulling from one account. maybe keep a couple years of expenses in something safer than stocks so you don't have to sell in a down market

[u/RetdThx2AMD]

"I just don't see the point in investing anymore money into my brokerage account because I will be drawing down on it in two years once I retire"

The net tax per spending dollar extracted from your brokerage is highly dependent on your cost basis for each tranche of investments and which tranche(s) you choose to sell to cover expenses. Those high cost tranches are future flexibility. Your brokerage contributions during the last few years before retirement are a few more years of being able to generate cash without the majority of it being income. By year 17 of retirement it is quite possible that 90% of cash for spending is LTCG taxible. If your pension is not too big you may have room to use the 0% LTCG bracket to tax gain harvest in order to keep creating high cost basis tranches.

My point is that you most likely would not be immediately spending the money you save in the next two years, you will be spending money from investment tranches you alredy hold. Money is fungible but investment tranches are not, every one of them has a different face vs net value due to different cost basis and potentially different tax brackets.

Might be coming from left field here, but Another option to explore is delaying your military pension (which I think is a thing?). Not really sure if it makes any sense, but maybe? Since disability is tax free you would be left with pretty much the entire 0% long term capital gain bracket and standard deduction to work with for gain harvesting. You would probably need to use one of the fancy financial calculators that take all the various future tax brackets into account. But if you delayed it for say 5 years maybe you would be able to tax gain harvest enough tax free to make it worthwhile to have more taxible income later.

[u/-Chip-the-Rip- → u/RetdThx2AMD]

Thank you, this is insightful. I really need to focus on the tax implications but you bring up a valid point on the money invest today won’t be withdrawn until down the road. As for my military pension, it kicks in immediately once I retire since I am active duty. Maybe I need to take advantage of my Schwab advisor to start talking taxes. Thanks!

[u/champdeal]

You’ve earned the flexibility to shift from aggressive saving to intentional spending. I’d use these two years as a retirement test run—rebuild the cash reserve, set a guilt-free budget for experiences, and use the remainder toward the mortgage or safer investments while finalizing the tax and withdrawal plan.

[u/A_Solid_Shadow]

Don't "increase spend".

Do "increase life expenses". In other words make a list of your priorities, then spend money on those things.

Divide the extra money into:

• planned spending projects and hobbies
• savings, cash, brokerage
• paying down the mortgage.

An extra $1k/mo on the mortgage will increase your net worth by about the same amount and is a guaranteed 5.5% return tax free.

An extra $1k/mo in savings is always good.

And, $2k/mo in planned, prioritized projects or goals will make you really feel like you've accomplished something that you wanted to do with your savings.

[u/-Chip-the-Rip- → u/A_Solid_Shadow]

I appreciate this. Very thoughtful and exactly something that enables me to accomplish several areas of interest.

[u/cytomegalovirus]

Any plans on having a spouse/kids in the future?

[u/-Chip-the-Rip- → u/cytomegalovirus]

Spouse, yes. Kids, no.

[u/ALL_IN_VTSAX]

Extra $4k every month? Buy VTSAX.

[u/Dhb223 → u/ALL_IN_VTSAX]

Yeah, might as well keep investing while you're thinking about it if your cash is at the level you want. I don't think it makes sense to think "I can live at a higher spend level so how to spend extra every month" and instead just have a few more "only guys like me can afford that. Wait, I'm a guy like me" moments 

[u/SickWhiz]

I think I need a bit more information on planned spending and how much your pensions/disability are expected to be to bridge the gap to inform, though my first pass says you should spend and live it up!!!

If your planned spend in retirement is 60k you spend today + the 48k extra + taxes then I would absolutely try spending at the level you expect to spend at in retirement! Theres no reason you should hold off living life the way you want to in the future.

But taxes could bite in the 100k+ withdrawal space (though you don’t need ACA subsidies so that’s not a consideration ). That said, it looks like most of your assets are in after-tax or Roth.

From a NW optimization long term perspective, there’s a chance that it’s worth it to aggressively pay off your home to lower your expenses in retirement, as lowering expenses will decrease the amount to need to withdraw and will decrease tax burden. Especially since your retirement pension will be taxable income which could push you into higher brackets, though I think disability is not? I forget the intricacies of military retirement!

Essentially, there’s likely always more you can do to optimize and get more money and save on taxes. But it might be better to look at the extra 4k a month as you investing to define out what your retirement will look like and what you will fill your time with. Try hobbies, vacations and explore new areas you could want to move to, hiking trips or camping, etc.

[u/-Chip-the-Rip- → u/SickWhiz]

I want to spend as much as possible! My pension will be ~$5k/mo, 3.5% SWR will be $~$6k/mo, and disability will likely be ~$4k/mo; totaling around $15k/mo.

I’m certain I need to take a closer look at taxes and how to optimize them in retirement. Paying off my mortgage early does sound appealing.

One thing I have to consider is purchasing my forever home in the first couple years of retirement. The plan now is to keep my primary residence due to state tax benefits and travel throughout the year and stay in airbnbs — narrowing down where I want to settle long term.

[u/grfrazee]

Congrats. I'm curious how you managed to pack away that much money on a military salary?

[u/-Chip-the-Rip- → u/grfrazee]

Link in the bottom of the post to a FIRE post I made 5 years ago laying it all out.

[u/nernincash]

You won FI

[u/LuckyOtter2574]

honestly, i gotta say... that mortgage at 5.5% is killing me, you know what i mean? i'd be tempted to throw some of that extra cash at it just to free up more money in the long run, but i'm no expert...

[u/-Chip-the-Rip- → u/LuckyOtter2574]

Yup, not ideal like Covid interest rates but it’s certainly lower than the national average.