Couples that take the F.I.R.E. (Financial Independence Retire Early) ethos to heart often get anxious the closer they approach their FIRE net worth Financial Independence number and fixate on the Retire Early aspect – sometimes prematurely.

Jumping the Gun?

A 50-year-old poster and his wife have been devoted to the F.I.R.E. strategy since their mid-20s. They recently posted on Reddit about being roughly $650,000 shy of their F.I.R.E. target of $3 million:

• Their lifestyle spending is $120,000 per year. 
• The bulk of their holdings are in retirement-based deferred tax accounts, and the husband is concerned about corporate downsizing at both his company and in his industry as a whole. 
• He is reluctant to leave his current employer, as they have given him a waiver for his 401-K on the early withdrawal tax penalty if he stays with the company until age 55.
• They have $500,000 in home equity but have no plans to move. A snapshot breakdown  of their portfolio appears thus:

Name	Amount	Account Type
401-K plan	$1,630,000	Employer-sponsored retirement account – subject to early 10% w/d penalty
Roth IRA	$180,000	IRA account – after-tax dollars
HSA	$90,000	Health savings account – tax-free w/d for qualified medical treatment
Unencumbered Post-Tax	$440,000	Liquid funds
Sub-Total:	$2,340,000
F.I.R.E. Target	($3,000,000)
Shortfall	($660,000)

The poster had three questions:

1. Is $3 million an accurate F.I.R.E. target, based on a 4% annual passive income requirement?
2. Should post-tax investment become a priority if retirement before age 59 1/2 is a goal?
3. If he is downsized prior to age 55, will he need more income from his post-tax investments while seeking employment elsewhere, and what other options might he have?

Underestimating Taxes, Inflation and Healthcare

It is understandable that the poster and his wife are closing in on their $3 million target and are feeling anxious as their goal appears to be in sight. However, there are a number of real-life caveats that they should bear in mind, and planning contingencies for them in advance will certainly not hurt, and perhaps be crucial.

• Taxes on 401-K withdrawals may automatically be taxed as much as 20%, depending on tax status at the date of the withdrawal, so deferring withdrawals until one is in a lower tax bracket is advisable. 
• There is a good chance that Inflation has elevated the price of goods and services far above the previous $120,000 annual income estimate needed. Even if the incoming Trump administration substantially reduces the rate of inflation, that is only the pace of rising prices. There is no guarantee that prices themselves will fall. 
• Economists predict that unless drastic changes are made, Medicare will be insolvent by 2036, perhaps sooner, due to the additional Medicare services that have been granted to the millions of undocumented migrants over the past 4 years. The HSA account may be insufficient to cover essential healthcare needs by the time the couple wishes to draw down on those funds. 

Some Suggestions to Consider

• The poster is only 50, and his wife is 46. Both of them should network and contact recruiters to get an idea of what the job market may be for their skill sets. They can get assessments as to what transferable skills they have for possibly shifting into different occupations, especially if the poster’s industry is on the road to obsolescence. As history shows, an incoming Trump administration will be very entrepreneurial friendly, so hundreds to thousands of new companies may be cropping up in the near future.  Should the poster be in a position to transition to a better-paying position in a new company with growth prospects, the early withdrawal penalty on his 401-K may become moot. At the very least, he may have more late-career options on his desk to evaluate. 
• By all means, a priority should be placed on maximizing growth for post-tax funds now, so that the deferred funds can be withdrawn when the couple is in a future lower tax bracket.
• Look to see if there are growth investment options available for the retirement plans. If, like many of them, there is a limited menu of investment options based on index ETFs, they might want to look for diversification into indexes based on technology, commodities, and the Russell 2000, as these sectors should all benefit from Trump business policies going forward. Growing past the $3 million F.I.R.E. target can only help and not hurt. 

This article is intended to be for informational purposes only. For more comprehensive advice, a financial professional should be consulted.

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