Make my investments as "safe" as possible. Retiring 12/31/2019

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
ReadytoLearn
Posts: 20
Joined: Tue Oct 08, 2013 8:35 pm

Make my investments as "safe" as possible. Retiring 12/31/2019

Post by ReadytoLearn » Sat Aug 31, 2019 11:28 am

Hello Everyone,

I will be retiring Dec. 31st 2019 at 41yrs old (divorced, no kids) and I am worried about sequence of returns risk given high valuations, lower fixed income yields, and my young age. An additional concern is the large % of my wealth in taxable accounts, making it inefficient tax wise to put a lot of my wealth in “safe” bonds. I’m wondering what how you would invest my assets to be as conservative as possible for the next few years. Would you go into broad bond funds and take the tax hit on the “earned” income or let my taxable accounts ride in the stock market?

I will be domiciled in Florida with no state income tax, living a nomadic life traveling in a campervan in the US or overseas out of a backpack. I will own, nor rent any real estate. I am in the process of selling my studio apartment and will have no sticks & bricks home for the foreseeable future. I unsuccessfully tried to time the market, getting out when our president took office, and I’d like to stay as “safe” as possible with my investments these next few years. I’d like to get to an 80/20 Stock/Bonds ratio eventually (glide path?) and never try to time anything ever again. Thanks for any advice you can lend.

My Finances:
https://docs.google.com/spreadsheets/d/ ... sp=sharing

ThankYouJack
Posts: 3026
Joined: Wed Oct 08, 2014 7:27 pm

Re: Make my investments as "safe" as possible. Retiring 12/31/2019

Post by ThankYouJack » Sat Aug 31, 2019 11:57 am

Sounds like you still want to time things a bit. As you want to "safe" as possible now, but then get quite aggressive (80% stocks) when valuations are lower?

The good news is that if you can maintain a 2.53% or lower withdrawal rate, you don't need to be aggressive at all. Based on FireCalc, 30% equity / 70% fixed has a 100% success rate for lasting 50 years. How would you feel about 30/70 or 50/50 but for the long haul?

Congrats, have fun traveling!!

KyleAAA
Posts: 7598
Joined: Wed Jul 01, 2009 5:35 pm
Contact:

Re: Make my investments as "safe" as possible. Retiring 12/31/2019

Post by KyleAAA » Sat Aug 31, 2019 12:02 pm

An escalating glide path early in retirement is a time tested way of reducing SOR risk. So yes, go to 20/80 or 30/70 and increase your equity percentage by a fixed amount that will get you to 80/20 in 10 years. That’s a good plan so long as you don’t try to time things, set up a mechanical process for getting back to 80/20 and follow it no matter what, even if there’s another Great Depression.

livesoft
Posts: 68616
Joined: Thu Mar 01, 2007 8:00 pm

Re: Make my investments as "safe" as possible. Retiring 12/31/2019

Post by livesoft » Sat Aug 31, 2019 12:04 pm

Why don't you fill out a test or trial or "What if?" tax return for your new projected situation? I don't see why you cannot have bonds in your taxable account since you should not be paying any taxes anyways because you won't need the income. Knowledge is power, so don't guess or assume.

A question you can ask by doing this tax return: "How much bond and equity fund income can I have before I have to pay any taxes? 5% taxes? 10% taxes?"

Remember: Return of capital is tax-free.

5% taxes would be quite a lot in your situation. We pay less than 5% of our income towards income taxes nowadays and your needs will be much much less than ours. Also over 40% of households do not pay any federal income taxes.
Wiki This signature message sponsored by sscritic: Learn to fish.

Topic Author
ReadytoLearn
Posts: 20
Joined: Tue Oct 08, 2013 8:35 pm

Re: Make my investments as "safe" as possible. Retiring 12/31/2019

Post by ReadytoLearn » Sat Aug 31, 2019 1:13 pm

I have a ~want~ to time the market, but as we all know you have to time it twice... when to get out and when to get back in. I'm already failing haha. But I have to admit, I still worry that my spending needs may change one day (spouse, medical, etc.) and it'd sure be nice to get back into the market at least after the recession starts, not at the peak as we've been hitting for some many years. I can't help but look at the various FIRE calculators and want that "hockey stick" look to my net worth over time where it shoots up exponentially. I have lots of anxiety from work and impostor syndrome and peace of mind is very important to me.
ThankYouJack wrote:
Sat Aug 31, 2019 11:57 am
Sounds like you still want to time things a bit. As you want to "safe" as possible now, but then get quite aggressive (80% stocks) when valuations are lower?

The good news is that if you can maintain a 2.53% or lower withdrawal rate, you don't need to be aggressive at all. Based on FireCalc, 30% equity / 70% fixed has a 100% success rate for lasting 50 years. How would you feel about 30/70 or 50/50 but for the long haul?

Congrats, have fun traveling!!

Topic Author
ReadytoLearn
Posts: 20
Joined: Tue Oct 08, 2013 8:35 pm

Re: Make my investments as "safe" as possible. Retiring 12/31/2019

Post by ReadytoLearn » Sat Aug 31, 2019 1:32 pm

Speaking in all honesty, I really don't know that much about bond funds. I understand that generally have an inverse relationship to interest rates but that's about it.
I've also read bonds should be looked at to preserve wealth not increase it over time. If this is the case, if my bond funds are merely treading water, and then they are being hit with income taxes and withdrawals on top of that, I assume my net worth would be going down over time.

I guess maybe the reality is that if one thinks a recession is pending, having your net worth go down ~less~ than average is all you can hope for? It's just not very settling knowing that I am retiring and heading into this when I come from a place of such anxiety already about financial security.
livesoft wrote:
Sat Aug 31, 2019 12:04 pm
Why don't you fill out a test or trial or "What if?" tax return for your new projected situation? I don't see why you cannot have bonds in your taxable account since you should not be paying any taxes anyways because you won't need the income. Knowledge is power, so don't guess or assume.

A question you can ask by doing this tax return: "How much bond and equity fund income can I have before I have to pay any taxes? 5% taxes? 10% taxes?"

Remember: Return of capital is tax-free.

5% taxes would be quite a lot in your situation. We pay less than 5% of our income towards income taxes nowadays and your needs will be much much less than ours. Also over 40% of households do not pay any federal income taxes.

victw
Posts: 142
Joined: Sat Feb 20, 2016 4:07 pm

Re: Make my investments as "safe" as possible. Retiring 12/31/2019

Post by victw » Sat Aug 31, 2019 1:54 pm

Wow - your portfolio grew from 400k to almost 2 mil - with a divorce in the mean time.

You've asked this question about protecting the portfolio before - what has changed.

You are projecting a fairly low withdrawal rate - I'm not sure you need to worry about the portfolio much with that low a return.
Recommend Big ERN's work.
https://earlyretirementnow.com/safe-wit ... te-series/

Vic

User avatar
DanMahowny
Posts: 994
Joined: Sun Aug 06, 2017 8:25 pm

Re: Make my investments as "safe" as possible. Retiring 12/31/2019

Post by DanMahowny » Sat Aug 31, 2019 2:15 pm

nevermind
Funding secured

Topic Author
ReadytoLearn
Posts: 20
Joined: Tue Oct 08, 2013 8:35 pm

Re: Make my investments as "safe" as possible. Retiring 12/31/2019

Post by ReadytoLearn » Sat Aug 31, 2019 3:06 pm

Divorce was amicable thank God.

Yes I've just reread what I wrote awhile ago. Same fears.

What's different is that the work stress has finally gotten the best of me so I put in my resignation and finalized my exit.

I've read BIGERN's work and I agree I'm safe when compared to history. Some things that continue to mess with my head:
-Historically long bull
-Historically low interest rates going lower (has there been periods in US history with rates this low going lower?)
-Very long retirement to provide funding for.
-My dirty secret is that while I'd rather live on rice and beans than work, I'd love to have the ability to spend more, especially as I get older to account for more comfort and medical needs. Best of losing battle of trying to just tread water and time the market and get back in at lower valuations. I think I'll take an earlier posters advice and just look at what my taxes would look like with a high percentage of my those tax dollars in CDs or bonds.
victw wrote:
Sat Aug 31, 2019 1:54 pm
Wow - your portfolio grew from 400k to almost 2 mil - with a divorce in the mean time.

You've asked this question about protecting the portfolio before - what has changed.

You are projecting a fairly low withdrawal rate - I'm not sure you need to worry about the portfolio much with that low a return.
Recommend Big ERN's work.
https://earlyretirementnow.com/safe-wit ... te-series/

Vic

chem6022
Posts: 32
Joined: Sat May 11, 2019 9:19 pm

Re: Make my investments as "safe" as possible. Retiring 12/31/2019

Post by chem6022 » Sat Aug 31, 2019 4:35 pm

Congratulations, you're where I hope to be in 3-10 years! I envy the time you'll have to explore and relax. At first, I was going to suggest some more complicated thing that looks more like what I been considering for my own plans. On the other hand, you definitely have a nice buffer and the desire to be very conservative and sure from your posts.

So I would keep it simple using something like Vanguard Life-strategy funds. Holding out 3-5 years in CD/HYSA as your cash buffer to help you rest even easier. With the rest put 100% in LifeStrategy Income Fund (at 20/80) for now. After each year move 10% more of your investment portion to LifeStrategy Growth Fund (at 80/20). Very easy and you can spend the rest of your time not looking or worrying about your portfolio. Given how far you are ahead with you SWR I might even stop at 60/40 instead of your preference for 80/20. You could do that by swapping 10% per year to the Moderate Growth fund instead of the Growth LifeStrategy.

Topic Author
ReadytoLearn
Posts: 20
Joined: Tue Oct 08, 2013 8:35 pm

Re: Make my investments as "safe" as possible. Retiring 12/31/2019

Post by ReadytoLearn » Sat Aug 31, 2019 5:00 pm

Thank you. a few years ago I knew that with my high savings rate I could get to my goals with or without the market and I let me sleep well at night.

I think what I'm hearing from the forum is screw the taxes, do the glide path even if the bulk of your money is in your taxable accounts?
chem6022 wrote:
Sat Aug 31, 2019 4:35 pm
Congratulations, you're where I hope to be in 3-10 years! I envy the time you'll have to explore and relax. At first, I was going to suggest some more complicated thing that looks more like what I been considering for my own plans. On the other hand, you definitely have a nice buffer and the desire to be very conservative and sure from your posts.

So I would keep it simple using something like Vanguard Life-strategy funds. Holding out 3-5 years in CD/HYSA as your cash buffer to help you rest even easier. With the rest put 100% in LifeStrategy Income Fund (at 20/80) for now. After each year move 10% more of your investment portion to LifeStrategy Growth Fund (at 80/20). Very easy and you can spend the rest of your time not looking or worrying about your portfolio. Given how far you are ahead with you SWR I might even stop at 60/40 instead of your preference for 80/20. You could do that by swapping 10% per year to the Moderate Growth fund instead of the Growth LifeStrategy.

7eight9
Posts: 436
Joined: Fri May 17, 2019 7:11 pm

Re: Make my investments as "safe" as possible. Retiring 12/31/2019

Post by 7eight9 » Sat Aug 31, 2019 5:18 pm

ReadytoLearn wrote:
Sat Aug 31, 2019 11:28 am
Hello Everyone,

I will be retiring Dec. 31st 2019 at 41yrs old (divorced, no kids) and I am worried about sequence of returns risk given high valuations, lower fixed income yields, and my young age. An additional concern is the large % of my wealth in taxable accounts, making it inefficient tax wise to put a lot of my wealth in “safe” bonds. I’m wondering what how you would invest my assets to be as conservative as possible for the next few years. Would you go into broad bond funds and take the tax hit on the “earned” income or let my taxable accounts ride in the stock market?

I will be domiciled in Florida with no state income tax, living a nomadic life traveling in a campervan in the US or overseas out of a backpack. I will own, nor rent any real estate. I am in the process of selling my studio apartment and will have no sticks & bricks home for the foreseeable future. I unsuccessfully tried to time the market, getting out when our president took office, and I’d like to stay as “safe” as possible with my investments these next few years. I’d like to get to an 80/20 Stock/Bonds ratio eventually (glide path?) and never try to time anything ever again. Thanks for any advice you can lend.

My Finances:
https://docs.google.com/spreadsheets/d/ ... sp=sharing
You can likely get your knee replacement done for significantly less than the budgeted $50,000.

The high prices charged at American hospitals make it relatively easy to offer surgical bargains in Mexico: In the United States, knee replacement surgery costs an average of about $30,000 — sometimes double or triple that — but at Galenia, it is only $12,000, said Dr. Gabriela Flores Teón, medical director of the facility.

The standard charge for a night in the hospital is $300 at Galenia, Dr. Flores said, compared with $2,000 on average at United States hospitals.


New York Times article titled A Mexican Hospital, an American Surgeon, and a $5,000 Check (Yes, a Check) --- https://www.nytimes.com/2019/08/09/busi ... exico.html
I guess it all could be much worse. | They could be warming up my hearse.

chem6022
Posts: 32
Joined: Sat May 11, 2019 9:19 pm

Re: Make my investments as "safe" as possible. Retiring 12/31/2019

Post by chem6022 » Sat Aug 31, 2019 5:30 pm

ReadytoLearn wrote:
Sat Aug 31, 2019 5:00 pm
I think what I'm hearing from the forum is screw the taxes, do the glide path even if the bulk of your money is in your taxable accounts?
I definitely would not let the tax tail wag the dog here. Plus your taxes should go way down and with a conservative portfolio and low interest rates it likely won't be as much of a concern anyway. Using a combined bond/stock fund like the LifeStrategy funds or similar might even be able to make it more tax efficient. As a programmer I think of tax efficiency as an optimization, and in that context there is a quote that "Premature optimization is the root of all evil".

Topic Author
ReadytoLearn
Posts: 20
Joined: Tue Oct 08, 2013 8:35 pm

Re: Make my investments as "safe" as possible. Retiring 12/31/2019

Post by ReadytoLearn » Sun Sep 01, 2019 8:55 am

that's a great article, thanks for sharing. I had looked into medical tourism, but I wanted an American doctor and that might be a great option. of course if you look at my posts and very conservative, plus the $50000 I saved. Thanks for sharing. I'll look into it.
7eight9 wrote:
Sat Aug 31, 2019 5:18 pm
ReadytoLearn wrote:
Sat Aug 31, 2019 11:28 am
Hello Everyone,

I will be retiring Dec. 31st 2019 at 41yrs old (divorced, no kids) and I am worried about sequence of returns risk given high valuations, lower fixed income yields, and my young age. An additional concern is the large % of my wealth in taxable accounts, making it inefficient tax wise to put a lot of my wealth in “safe” bonds. I’m wondering what how you would invest my assets to be as conservative as possible for the next few years. Would you go into broad bond funds and take the tax hit on the “earned” income or let my taxable accounts ride in the stock market?

I will be domiciled in Florida with no state income tax, living a nomadic life traveling in a campervan in the US or overseas out of a backpack. I will own, nor rent any real estate. I am in the process of selling my studio apartment and will have no sticks & bricks home for the foreseeable future. I unsuccessfully tried to time the market, getting out when our president took office, and I’d like to stay as “safe” as possible with my investments these next few years. I’d like to get to an 80/20 Stock/Bonds ratio eventually (glide path?) and never try to time anything ever again. Thanks for any advice you can lend.

My Finances:
https://docs.google.com/spreadsheets/d/ ... sp=sharing
You can likely get your knee replacement done for significantly less than the budgeted $50,000.

The high prices charged at American hospitals make it relatively easy to offer surgical bargains in Mexico: In the United States, knee replacement surgery costs an average of about $30,000 — sometimes double or triple that — but at Galenia, it is only $12,000, said Dr. Gabriela Flores Teón, medical director of the facility.

The standard charge for a night in the hospital is $300 at Galenia, Dr. Flores said, compared with $2,000 on average at United States hospitals.


New York Times article titled A Mexican Hospital, an American Surgeon, and a $5,000 Check (Yes, a Check) --- https://www.nytimes.com/2019/08/09/busi ... exico.html

dbr
Posts: 30799
Joined: Sun Mar 04, 2007 9:50 am

Re: Make my investments as "safe" as possible. Retiring 12/31/2019

Post by dbr » Sun Sep 01, 2019 9:02 am

A low withdrawal rate is safe. There is no such thing as "safe" investments per se. More reliable investments (bonds) offer low returns that do not sustain income. Higher returning investments are less reliable. Most people compromise the two with 50/50 portfolios.

It is possible the greatest danger to your retirement is your ability to actually live on no more than $40k a year (real dollars) for the duration, but people manage in less.

fujiters
Posts: 283
Joined: Tue Mar 06, 2018 2:17 pm

Re: Make my investments as "safe" as possible. Retiring 12/31/2019

Post by fujiters » Sun Sep 01, 2019 12:06 pm

You might want to consider diverting $10k/year into I bonds, and maybe another $10k/year into EE bonds.

At present, I bonds are giving a 0.5% real return (above inflation). This is only guaranteed until the fixed rate resets on November 1. The expectation is that it will be lowered, in keeping with lowered bond yields all around.

EE bonds have the nice property that they double in value at the 20 year holding mark, which means a 3.54% nominal return over a 20 year holding period.

I bonds and EE bonds are exempt from state taxes, and are only taxed federally upon redemption (unless you choose to pay annually, which is rare). This means no tax hit until you redeem, and you can try to minimize other taxable income in the years in which you redeem ("I'm not going to do any Roth conversions this year and I'm going to wait to draw SS").
“The purpose of the margin of safety is to render the forecast unnecessary.” -Benjamin Graham

aristotelian
Posts: 6474
Joined: Wed Jan 11, 2017 8:05 pm

Re: Make my investments as "safe" as possible. Retiring 12/31/2019

Post by aristotelian » Sun Sep 01, 2019 5:02 pm

OP, for a long retirement, you are way more vulnerable to inflation risk than market risk. All the SWR studies show better success rates with stock heavy portfolios the further out you go. If you are unwilling to accept market risk, you will need a low withdrawal to compensate for the risk of inflation. If you go all bonds, how will you make them last likely earning near zero real return?

Northern Flicker
Posts: 4925
Joined: Fri Apr 10, 2015 12:29 am

Re: Make my investments as "safe" as possible. Retiring 12/31/2019

Post by Northern Flicker » Sun Sep 01, 2019 5:11 pm

10% cash
15% short-term TIPS (VTIP or STIP)
25% intermediate TIPS (FPIDX or VAIPX)
25% long-term TIPS (LTPZ)
15% US stock (VTI)
10% non-US stock (IXUS)
Index fund investor since 1987.

jtdavid
Posts: 112
Joined: Thu Mar 01, 2007 12:21 pm

Re: Make my investments as "safe" as possible. Retiring 12/31/2019

Post by jtdavid » Sun Sep 01, 2019 5:52 pm

OP: you’ve mentioned taxes a few times. It looks to me like income taxes will be a very minor factor in your planned lifestyle going forward.

User avatar
JoeRetire
Posts: 3913
Joined: Tue Jan 16, 2018 2:44 pm

Re: Make my investments as "safe" as possible. Retiring 12/31/2019

Post by JoeRetire » Sun Sep 01, 2019 6:25 pm

ReadytoLearn wrote:
Sat Aug 31, 2019 11:28 am
I unsuccessfully tried to time the market, getting out when our president took office, and I’d like to stay as “safe” as possible with my investments these next few years. I’d like to get to an 80/20 Stock/Bonds ratio eventually (glide path?) and never try to time anything ever again.
This is confusing.

You are completely out of the market now?
You think 80/20 is safe? Safer than being completely out of the market?
Don't be a lemming.

User avatar
Tyler Aspect
Posts: 1568
Joined: Mon Mar 20, 2017 10:27 pm
Location: California
Contact:

Re: Make my investments as "safe" as possible. Retiring 12/31/2019

Post by Tyler Aspect » Sun Sep 01, 2019 7:01 pm

I am showing you a 33% stock / 67% bond portfolio, with stock being 7/10 US, 3/10 international.

Taxable:
Cash 77286.00
VTIAX 171737.00
BND 792276.00 (this is the CD money with $200,000 taken out)
VTSAX 366670.00 (adding in $200,000 from CD money)

Roth:
VTSAX 89807.00

Fidelity 401k
FXNAX 407595.00

Cash% 4.06%
Bond% 62.97%
US Stock% 23.96%
INTL Stock% 9.01%
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

Post Reply