Early retirement help

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Bubbagump
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Joined: Thu May 09, 2013 11:42 pm

Early retirement help

Post by Bubbagump » Tue Dec 17, 2013 12:32 pm

I am in the middle of selling my business with the resultant take home of ~$10mil. I am 35 and looking to retire early... or at the very least not worry about a day job terribly much. (10 years of 80 hour weeks has been enough and I need a rest for at least a while.)

Currently I have VTSAX, VTIAX, and VBTLX in a 60/20/20 (respectively) mix totaling about $180k. VBTLX is 100% tax deferred (Trad IRA).

This set up seemed fine when I was working towards retirement with a long haul growth approach, but with so much more to work with, I am wondering if I need to drastically change my thinking. I'll want to maintain value and income instead of being 100% growth focused. So what is a body to do?

Certainly bonds makes sense to maintain value and income, but I am thinking of ways to deal with the tax implications. How does one usually deal with this as certainly I can't stuff $5mil into an IRA, not to mention I want to withdraw from it before I am 59 1/2. Or is there no good way and you just have to take the income tax on the chin?

The Wizard
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Re: Early retirement help

Post by The Wizard » Tue Dec 17, 2013 12:38 pm

Congrats on your good fortune.
Not much you can do when a big lump sum like that hits.
Put $5M in VTSAX/VTIAX (taxable account) and the other $5M in a CD ladder (also taxable).
Your existing AA is rather volatile, so I'm just going 50/50 here with that windfall so as not to be excessively risky...
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Bubbagump
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Re: Early retirement help

Post by Bubbagump » Tue Dec 17, 2013 12:51 pm

A CD ladder seems perhaps too "safe". What is the down side of just 50% VBTLX (more or less going for a balanced AA)? I'll make 2.5% yield on VBTLX versus 1-1.5% in CDs and would still get taxed the same. Is there another advantage to CDs I am missing?

The Wizard
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Re: Early retirement help

Post by The Wizard » Tue Dec 17, 2013 12:55 pm

Bubbagump wrote:A CD ladder seems perhaps too "safe". What is the down side of just 50% VBTLX (more or less going for a balanced AA)? I'll make 2.5% yield on VBTLX versus 1-1.5% in CDs and would still get taxed the same. Is there another advantage to CDs I am missing?
You can get a bit more than 1.5% for longer term jumbo CD, but you're right, the Total Bond Fund is fine so long as you don't worry about slightly declining principal value as rates edge upward...
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Bubbagump
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Re: Early retirement help

Post by Bubbagump » Tue Dec 17, 2013 12:58 pm

Man, and I thought this would be more exciting, Cayman Island, Swiss Bank sounding. Thank you for confirming my suspicions of this coming down to nothing fancy. :D I am not terribly worried about principal in that case as I figure standard rebalancing principles still apply. If bond rates go up, then I am probably also shifting a bit to stocks which will help maintain overall principal as they are liable to grow.

The Wizard
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Re: Early retirement help

Post by The Wizard » Tue Dec 17, 2013 1:03 pm

Bubbagump wrote:Man, and I thought this would be more exciting, Cayman Island, Swiss Bank sounding. Thank you for confirming my suspicions of this coming down to nothing fancy. :D I am not terribly worried about principal in that case as I figure standard rebalancing principles still apply. If bond rates go up, then I am probably also shifting a bit to stocks which will help maintain overall principal as they are liable to grow.
Well that's just my opinion; others will opine differently, especially the take it off the table if you've won the game crowd.
As long as you stay away from your local Edward Jones office, you'll be fine...
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mike_slc
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Re: Early retirement help

Post by mike_slc » Tue Dec 17, 2013 1:16 pm

$5M in CDs might be tough to manage unless you are willing to forego the FDIC insurance - you'd need at least 20 different institutions if you're single. I would stick to munis with that amount.

Chadnudj
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Re: Early retirement help

Post by Chadnudj » Tue Dec 17, 2013 1:27 pm

It may not apply, but now would be a good time to consider relocating to a state without state income tax.

And I wouldn't worry too much about the tax implications. I mean, with $10 million, you could just invest it all in VTWSX, and with a current dividend yield of 2.26%, you'd get $226k pre-tax annually in dividends, roughly. Is that enough for you to live on? It certainly would be for me....especially if I'm no longer having to save for retirement. Then the principal would grow as the VTWSX shares increased in value (which they would, long-term), as would the dividends. Any dividends that you didn't need to live on could be re-invested.

Minot
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Re: Early retirement help

Post by Minot » Tue Dec 17, 2013 2:52 pm

It wouldn't hurt to read the windfall wiki, even though yours is not a classic windfall. Among other things, it recommends hiring a CPA for help with taxes and other advice.

I'd also seriously consider setting up a charitable endowment, which can easily be done at, e.g., Vanguard Charitble.

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prudent
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Re: Early retirement help

Post by prudent » Tue Dec 17, 2013 3:04 pm

mike_slc wrote:$5M in CDs might be tough to manage unless you are willing to forego the FDIC insurance - you'd need at least 20 different institutions if you're single. I would stick to munis with that amount.

The CDARS program handles this - you deal with one institution, and they farm out CD money to other participating institutions so no single bank holds more than the FDIC limit. You get one combined statement. The equivalent program for demand deposits is ICS (Insured Cash Sweep).

Bubbagump
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Re: Early retirement help

Post by Bubbagump » Wed Sep 17, 2014 8:35 pm

I know this is an old thread, but the chickens have come back to roost so to speak. Is there any value in doing a DCA with the pay out? Say buy in 2mil at a time every 4 months? Or is that ridiculous market timing think?

tj
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Re: Early retirement help

Post by tj » Wed Sep 17, 2014 9:02 pm

Bubbagump wrote:I know this is an old thread, but the chickens have come back to roost so to speak. Is there any value in doing a DCA with the pay out? Say buy in 2mil at a time every 4 months? Or is that ridiculous market timing think?

maybe, maybe not. If you had gone in 9 months ago, you would have an increased value today. No way to know what happens 9 months after today

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