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Deleting. Sorry I couldn't figure out how to delete a post and didn't want anyone else to respond and waste their time I'll post a revised post when I think this though more.
Last edited by rando! on Mon Feb 11, 2019 9:00 pm, edited 3 times in total.
rando! wrote: ↑Mon Feb 11, 2019 4:23 pmQuestions:
I was thinking about setting up 3 buckets for my taxable accounts.
Bucket 1: 20K cash (1 year expenses)
Bucket 2: 40 in something fairly stable
Bucket 3: 200K in 100% equities
Bucket 4: 250K in retirement accounts not planning on touching
1. How should I set up bucket 1 and 2 and 3? Since this is a taxable account I really don't know what my best options are. So far my investing career has only been with my retirement accounts so the taxable account has many more variables regarding taxes that confuse me (TIPS, Tax Exempt, Munis, balanced funds and their tax issues).
edit:my comments/questions here are based on staying in the US
You seem to indicate bucket 1 and 2 need to be readily available for short term needs. Will your taxable income rise when you start the new business, if so what will your tax bracket be? If you stay in the 22% bracket, I would keep things simple and place buckets 1 and 2 in high yield savings. If you wanted a few more basis points of interest, bucket 2 might be in CDs. I don't think there is a need for TIPS, munis or other options for 1-3 years time horizon in the 22% bracket. I do not know the time horizon or purpose for bucket 3 so I am not sure what to recommend. Is bucket 3 for starting the business? Is it for short term living expenses? Retirement?
2. Let say buckets 1 and 2 starts dropping because we are spending more than we thought. What's the best way to replenish these bucket? Can I set it up that Bucket 3 will move to bucket to through dividends distributions? Or would it be better to sell for Long term capital gains if the market is up?
I'm not sure I understand. I thought buckets 1 and 2 were emergency funds? If so, most folks just replace these buckets with income as they deplete. I would not think it would ordinarily be necessary to liquidate long term investments to replenish emergency funds barring an economic catastrophe or very large unexpected expense. In any case, the desirability of realizing LTCG/QDI will depend upon your future tax bracket.
3. Another variable: we were going to try and see if an ACA subsidy would be possible but I haven't gotten that far. We are planning on moving out of the country and self pay most of our care. The Policy would be for something major like cancer or some other catastrophe. Any advice on how to manage this would be lovely!
Well you snuck the part about leaving the country in there...hmm...that sort of changes my answer to all of the above since you probably won't be using US brokerages or banks and all the tax laws will be different. Since ACA subsidy would not be applicable if you were not a resident, I assume you mean prior to leaving. If so, I would strongly encourage setting up a Simple IRA or Solo 401k once you get your business up and running as these contributions will reduce your MAGI for ACA subsidy. I am not familiar with expat health insurance so I can't offer much there.
4. What am I missing? Our end goal is to keep this up for the next 15-20 years when our pensions and SS will kick in. In that time hopefully our business went OK and we kept adding to our current nest egg, and then this nest egg will become a nice sizable amount. I've played with a few Monte Carlo models and they show that this plan has a really high probability of success.
You have introduced a multitude of risk factors all at once that would personally concern me (moving to foreign country, starting a business, etc). Only you can decide whether these are acceptable. Your annuity assets will likely be small in real terms given your short tenure. So you will be reliant on at least a moderate sized investment portfolio in retirement which will depend on your future income (business profits). However, your indicated expenses are very low so this may help you. The success of your business venture is the big unknown here and in my opinion will likely be the deciding factor in your future comfort in retirement. You appear to be accepting of this life change and the risks that come with it though. I encourage flexibility and having a plan B just in case.
I have never met a successful entrepreneur that wasn't totally willing to lose everything for his/her business. As long as you are accepting of the risks, there can be massive payoffs financial and lifestyle.
Thank you Megabad. I need to refine my questions I think, but you helped a lot. Again thanks
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