This is a thought experiment for now, but the thought is of course very nice. I've always dreamed of buying my freedom from "work" where I have enough money to live off of my investments and work on projects that interest me or just live a life of leisure as I see fit. Assuming living expenses and needs are modest at $50,000/year, what are the considerations for such an early retirement portfolio? I'm thinking a very conservative withdraw rate of 1.5-2.0% per year, living off of dividends/interest and not selling shares other than for re-balancing would be wise to start with. This would prevent having to "lock in" losses during periods of poor equity performance decimating a portfolio. Looks like $3.5 million could do it. For the purposes of this analysis, assume only taxable accounts.
I've considered modeling the portfolio loosely after the Vanguard Target Retirement Income fund.
20% Total Stock Market
10% Total International
50% Total Bond
Yet I'm unsure if that is wise considering the needs a portfolio may need to last me 50-60 years and bond yields are near generational lows. More equity means more qualified dividends taxed at 0% and 15%. Munis are relatively undiversified and don't seem to make a lot of sense in the 25% tax bracket.
A 50/50 equity split may be better.
35% Total Market
15% Total International
35% Total Bond
The big issues I've thought about:
Go Simple or add asset classes: Does a 4 fund portfolio get the job done or do I need to add more asset classes? Are TIPS even necessary and would a 3 fund portfolio do just as well?
Health Care: With the Affordable Care Act bill starting in 2014, the biggest concern about not getting health care for pre-existing conditions is over. My research indicates a "silver" plan would be around $300 a month with no subsidies. A "bronze" plan would be cheaper and might make more sense if I'm healthy.
Relocation: Consider Relocating to cheaper cost of living areas in states with no state income tax that provide the recreational, cultural things I'm interested in to maximize portfolio for the long term.
Things to Do/Part-Time Income: It would be important to find an outlet for things to do, taking classes, travel, volunteering, work on my terms - a part-time consulting or contract job giving off even $20,000 year could substantially reduce risks in my portfolio as well as provide me with an outlet if I'm bored.