Am I being realistic?

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Am I being realistic?

Post by kurajber » Wed Jun 12, 2019 7:46 pm

Hey people,

I am a long time reader, first time poster.

I am 37 live in a super expensive area work for a very strong employer, max my 401k (on which I get 50% match), backdoor, mega-backdoor and family HSA, my wife maximizes 401k and backdoor.
This is slightly under 100k of yearly contributions to tax advantaged accounts. We also invest in taxable accounts and have investment physical real estate on which we plan to expand on. We don't own our house (expensive area).
We are immigrants and plan to have an option to retire abroad (where healthcare and kids education is either free or very cheap) by 2030 on the cash flow from real estate and 3% of Investment withdrawals.

We originally started from 100% stocks, but after last December we realized that that is not for us, and now we are going towards 80/20.

When I put everything on paper contributions alone would get us to our goal by 2030, so I am wondering is it worth having even 80% in stocks in this case. But we don't know the future, and for how long will we be able to contribute like this.

I am kind of thorn on this, I don’t like losing money or watching paper losses for a long time, so therefore maybe very conservative investments would be right for me.
On the other hand we keep a large emergency fund (50k) and have two good w2 incomes, and smaller real estate check that comes in every month, and more then a decade to contribute still and in 2030 we could just easily decide to work longer (if things turn out bad), which would suggest that staying aggressive might not be a bad idea after all.
When I have spoken to a Vanguard planner they suggested 75/25.

I know that this is a personal decision, but I would like to hear some inputs about this.
Is my plan to retire so early too ambitious?
Should I switch to even less stocks since contributions alone should do the trick?

Help me by putting me in the better frame of mind.

Thanks everyone.

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Re: Am I being realistic?

Post by livesoft » Wed Jun 12, 2019 7:55 pm

I don't think being able to retire early in 2030 means that you have to retire early in 2030 if you reach your portfolio goal.
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Re: Am I being realistic?

Post by Wiggums » Wed Jun 12, 2019 8:14 pm

Your AA of 80/20 or 75/25 is reasonable. Have you looked at your projected retirement expenses and compared that to your estimated retirement savings?

I agree that you can have this goal but not implement it in 11 years.

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Re: Am I being realistic?

Post by cuendillar » Wed Jun 12, 2019 8:17 pm

Really you haven’t provided enough information; how much income do you expect in retirement? Any overhead (debt)? Do you get any additional support (e.g. social security)? How much do you plan to spend on average per year in retirement? I think once you answer these questions, you will be a lot closer to your answer.

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Re: Am I being realistic?

Post by longinvest » Wed Jun 12, 2019 8:53 pm

kurajber wrote:
Wed Jun 12, 2019 7:46 pm
Is my plan to retire so early too ambitious?
Should I switch to even less stocks since contributions alone should do the trick?

Help me by putting me in the better frame of mind.
Kurajber, welcome to the forum!

So that we can better help you, you might consider providing more information in the format suggested in this post.

To assess your early retirement plan with various asset allocations, you might want to play with this worksheet (online or download).

As you can see on this screenshot, you enter your age, salary, portfolio balance and allocation, and planned retirement age as well as information about your pensions (like Social Security, possibly delayed to 70), and the worksheet will suggest a retirement savings amount for the current year such that available income for taxes and expenses (e.g. salary minus retirement savings) equals projected retirement income (pensions plus portfolio withdrawals) available for taxes and expenses, when using our wiki's variable percentage withdrawal (VPW) method in retirement.

The worksheet also estimates the impact of a 50% stock crash on the plan. It calculates the additional required savings and resulting smaller retirement income.

Changing the asset allocation will change the amount of savings and the the impact of a crash. Reducing the stock allocation reduces the impact of a crash, but also reduces available income. It's a balancing act. The overall difference on available income is not as big as people often think.

I'm personally a big fan of using a globally-diversified balanced allocation for life, possibly with an all-in-one fund (like Vanguard's LifeStrategy Moderate Growth Fund). But, asset allocation is personal. The advantage of an all-in-one fund is to free the investor from many behavioral pitfalls related to looking stocks or bonds in isolation, and from the hassles of rebalancing the portfolio.

If you need help with figuring our your future Social Security pension, there is this convenient Social Security Estimator that I find useful.

Feel free to ask for help, if you need it, to properly use the VPW Accumulation worksheet or the Social Security Estimator.
Bogleheads investment philosophy | single-ETF balanced portfolio | VBAL

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Re: Am I being realistic?

Post by kurajber » Wed Jun 12, 2019 9:55 pm

Ok, lets add a bit more data:

Our combined w2 income is about 350k.
Our investments across all accounts are 300k.

We contribute about 100k a year into tax deferred and tax free accounts of different type.
We contribute about 40k into a brokerage account (no tax advantage).

From contributions alone by 2030 we should be at somewhere like 1.7 million (even without any investment return). Of course if we continue to save like we do now. (if nothing major unexpected happens).

3% of 1.7 million would be around 50k, which would be more than enough for what we need, if we live abroad (where health coverage is cheap).

Our jobs look pretty secure, I work in a super major tech company, and my wife has a secure job as well.
But things can always happen (anti-trust or something like that), who knows.

If i would know that things were stay the way are, and that I will continue to save and contribute the amount I do today, we should be good even with very modest returns (therefore a very conservative portfolio would suffice).

But since the future is unknown, we might not be able to continue to save so much, and then the more aggressive allocation would serve us better.

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Re: Am I being realistic?

Post by Grt2bOutdoors » Wed Jun 12, 2019 10:06 pm

At your ages and based on your lower threshold of risk tolerance, consider a 70/30 allocation as the high end of the range and 60/40 on the lower end. You can reevaluate where you stand at age 50 or sooner but IMO would not go below a 50/50 portfolio unless you substantially exceed your targeted amount.
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Re: Am I being realistic?

Post by msk » Wed Jun 12, 2019 11:20 pm

Your investment horizon is NOT a short 11 years. It is 11 years plus all the lifetime you may have in retirement. Inflation is the big worry, in the USA or in your chosen retirement country. Unfortunately it can be insanely unpredictable, e.g. in the early 1980s in the USA and almost in all developing countries at one time or another. Stocks are your friend when you have to cater for decades, as you do. Be wary of letting your AA get carried away into an ephemeral peaceful sleep in bonds. Finally, a lifestyle that looks OK for now may not look OK in 2030 when your family income might have shot up to >$1 million.

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Re: Am I being realistic?

Post by Katietsu » Thu Jun 13, 2019 2:40 am

You could use the allocation of the retirement target date 2030 funds from Vanguard and Fidelity which seems to be 70%-75% equities. Or you could go to a 60/40 allocation and just stay there as was often recommended for many years. But you could also reason that you are younger than the typical 2030 retiree so you should be at 80/20. The right answer is unknowable until after the fact.

It sounds like your current allocation, Vanguard’s recommendation, and your thoughts to go a bit more conservative are all within a reasonable range.

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Re: Am I being realistic?

Post by Dandy » Thu Jun 13, 2019 6:51 am

You may not have the Need to take high equity risk since you can save your way to your "number". A lot depends on your joint employment and health over the next couple of decades. So you can be aggressive if you want or not.

I tend to think those that are near their number to move from growth asset preservation. You may not be at that point yet but I'd say the Need to be aggressive is not obvious.

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