I grew up poor and in an unstable environment as a result of my parents\u2019 serial divorces. I started saving at 16 as a direct result of the financial instability of my youth, and my wife and I have been able to build what most of the world would describe as a small fortune through diligent saving and investing. I recently left a job, and my wife is unsatisfied with hers.\u00a0<\/p>\n
We are 47 and 45 and we\u2019re dreaming of a new life. We are both looking for work, but we are also considering leaving the workforce for volunteer roles or expatriating ourselves to a Latin American country.<\/p>\n
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\n \u201c<\/span>\u2018We have been able to build what most of the world would describe as a small fortune through diligent saving and investing.\u2019\u201d<\/span>\n <\/p>\n<\/p><\/div>\n<\/p><\/div>\n We have $1.5 million in our IRA accounts, $1 million in our brokerage accounts, a home with $400,000 in equity, $100,000 in cash and no other debt. In the next five years we expect to receive $200,000 from an estate sale. We do not have children and do not plan to have any.\u00a0 We have a few years until we can access our IRAs without penalties, and we plan to draw down our balances later in life.<\/p>\n We have used the Marketwatch Retirement Planner, which indicates that we could retire now if we can lower our spending to $90,000 per year. The math seems to work even if we take the 10% early withdrawal penalty on our tax-deferred accounts.<\/p>\n We love the idea of moving to a beach town in a Latin American country, learning Spanish and immersing ourselves in a new culture. What do you think? Have we reached a point where we can hit the beach, or do we need to work another five or 10 years?<\/p>\n Dreaming of Sunsets<\/p>\n Whether you move to Latin America, Europe or retire close to home, you should at all costs avoid withdrawing money from your IRA before the age of 59\u00bd. If you do make early withdrawals, you will incur penalties: The federal government will charge you a 10% penalty, which you\u2019ll pay in addition to any state taxes. You can avoid a penalty if you\u2019re withdrawing to help pay for your first home \u2014 although there are limits \u2014 or if it\u2019s for certain medical, disability or education expenses, among other reasons.<\/p>\n One of the best parts of retirement \u2014 for those who can afford to retire \u2014 is the planning and the dreaming. The thought of moving to a Central or South American country with your beloved is a wonderful idea \u2014 and you have many countries to choose from. Anyone thinking about retiring overseas should know that many Latin American, European and Asian countries have rules about minimum monthly income for expats. The good news: Your income far exceeds any of those thresholds.<\/p>\n Taking $90,000 a year before taxes on $2.6 million in total liquid assets equates to a 3.46% withdrawal rate, which is below the 4% annual recommended withdrawal rate, but if you factor in income taxes, you may hit that 4% rate, says Cary Carbonaro, senior vice president and director of women and wealth at Advisors Capital Management. And because you are still in your mid-40s, your current projections may need to be revised upwards. The IRS has more details here.<\/p>\n <\/p>\n \n \u201c<\/span>Start taking Spanish classes today so you can hit the ground running when the time comes, and don\u2019t sell your home until you are 100% sure that you are happy in your new overseas life.\u201d<\/span>\n <\/p>\n<\/p><\/div>\n<\/p><\/div>\n If you want to avoid that aforementioned 10% penalty, you would have to withdraw $90,000 a year from after-tax assets, which equates to a 8.2% withdrawal rate, Carbonaro says. \u201cThis is unsustainable over that same time period, regardless of investment returns. This would create quite a bit of risk to your withdrawal strategy, if electing to try to avoid pre-59\u00bd IRA withdrawal penalties, and having full withdrawal access to your retirement funds, in the event you need it.\u201d<\/p>\n Start taking Spanish classes today so you can hit the ground running when the time comes, and don\u2019t sell your home until you are 100% sure that you are happy in your new overseas life. If you have the freedom to choose, you might end up deciding to spend six months or a year in Panama and another six months in Argentina, Mexico or the Dominican Republic. Always go carefully when making decisions that are irreversible \u2014 in retirement and in life.\u00a0<\/p>\n Ultimately, you can sell your home and likely buy a nice residence for $400,000 in the city or town of your choice \u2014 if you decide to buy rather than rent. But if you find yourself jumping through hoops to make this early retirement happen, the answer is in the question: Your job may not always fulfill you, but that\u2019s not a reason to pull the plug just yet. If you cut your expenses now and work five years longer than you planned to, you will be in a better position to retire.<\/p>\nDear Dreaming,<\/strong><\/h2>\n