Please review my de-risking/cash-out plan

[geerhardusvos]

Folks,

I know that I know nothing. I have a plan for if the stock market crashes. I do not have a plan for if the stock market goes up rapidly from now. This is my plan for if the market goes up rapidly.

KlangFool

Why are you trying to tinker and “derisk” if you are going to have Social Security in the next ~10 years? You are free and clear.

[nix4me]

Far too complicated and too much cash laying around. Complexity will lead to making poor decisions and running out of money. 60/40 with an emergency fund and normal yearly rebalancing is all that is needed.

[KlangFool]

1) I don't believe that mortgage equal to negative bond.

2) I borrow at 3.49% to invest at my 60/40 portfolio. I believe the return will exceed 3.49%.

3) The 1.5 million does not include home equity.

4) The additional cash increases the emergency fund.

KlangFool

1. Semantics. Not interested in going down that rabbit hole. Question is whether mortgage accomplishes your goals, especially the goal of de-risking.
2. Depends on how you look at it. I don't see the point of borrowing in order to loan money at a lower rate, or increasing your stock allocation when you are trying to de-risk. Sure your expected return is > 3.49% but if it were only about expected return you should be 100% stock or leveraged even more.
3. Don't see the relevance of home equity unless you plan to sell.
4. That is an important consideration but if your are financially independent should be less of a concern. If you eliminate mortgage expense you reduce your annual draw.

One more consideration is the mortgage expense could put you in a higher tax bracket but then again paying off the mortgage might cause a tax hit if you would be selling stocks. Would need to evaluate.

aristotelian,

Due to liquidity risk, it is safer to keep the 250K mortgage. Paying off the 250K mortgage only save 15K per year of expenses.

KlangFool

[KlangFool]

Folks,

I know that I know nothing. I have a plan for if the stock market crashes. I do not have a plan for if the stock market goes up rapidly from now. This is my plan for if the market goes up rapidly.

KlangFool

Why are you trying to tinker and “derisk” if you are going to have Social Security in the next ~10 years? You are free and clear.

geerhardusvos,

I need to survive in the next 10 years first.

KlangFool

[geerhardusvos]

Folks,

I know that I know nothing. I have a plan for if the stock market crashes. I do not have a plan for if the stock market goes up rapidly from now. This is my plan for if the market goes up rapidly.

KlangFool

Why are you trying to tinker and “derisk” if you are going to have Social Security in the next ~10 years? You are free and clear.

geerhardusvos,

I need to survive in the next 10 years first.

KlangFool

Even if we lived through the great depression, you would survive. Let that sink in. You have 25X expenses invested... Relax... Retire... Stop tinkering...

[goodenyou]

Klang,

You have mentioned in the past that you are in the real estate hotbed of Northern Virginia/Loudoun/Fairfax Counties. You may have a great opportunity to downsize your house and/ or move further west or even West Virginia for lower cost.

Have you contemplated this option?

[aristotelian]

aristotelian,

Due to liquidity risk, it is safer to keep the 250K mortgage. Paying off the 250K mortgage only save 15K per year of expenses.

KlangFool

15K is 25% of your annual expense. Paying off the mortgage would get your withdrawal rate down to 3.6%. That is close to failsafe and does not include SS. I think either way you will be fine.

The differential in interest rate vs bond yield is 2.4%, so keeping $250K mortgage is costing you extra $6K per year. Is that worth it for protection against "liquidity risk"? What liquidity risk would you have with $45k expense and $1.2M? You could always do HELOC or margin loan in the future if liquidity is needed.

[KlangFool]

Klang,

You have mentioned in the past that you are in the real estate hotbed of Northern Virginia/Loudoun/Fairfax Counties. You may have a great opportunity to downsize your house and/ or move further west or even West Virginia for lower cost.

Have you contemplated this option?

goodenyou,

I need to stay in this area because my wife needs to take care of her mother living close by.

KlangFool

[LthanP]

KlangFool,
This seems to be a short term cash out plan for specific returns in the market. If not short term, how many years would you want to do this? Your 60/40 portfolio with 1.5 million at a 3.8 percent withdrawal rate is 57K and close to your yearly expenses with no other sources of incomce. I get what you are doing. You have worked hard for the $$ and see some reasonable reason to get cash out of the market when the going is good. You have done well and will continue to do well.

At some point, will you just withdraw 60K from the portfolio once a year and be done with it. And let your fixed income portion of the 60/40 do its job while you enjoy whatever you have planned for the year - working or retired

LP

[Jack FFR1846]

Klang,

You have mentioned in the past that you are in the real estate hotbed of Northern Virginia/Loudoun/Fairfax Counties. You may have a great opportunity to downsize your house and/ or move further west or even West Virginia for lower cost.

Have you contemplated this option?

goodenyou,

I need to stay in this area because my wife needs to take care of her mother living close by.

KlangFool

Her mother can move to the low cost area you move to.

Aren't you receiving unemployment insurance payments?

[KlangFool]

aristotelian,

Due to liquidity risk, it is safer to keep the 250K mortgage. Paying off the 250K mortgage only save 15K per year of expenses.

KlangFool

15K is 25% of your annual expense. Paying off the mortgage would get your withdrawal rate down to 3.6%. That is close to failsafe and does not include SS. I think either way you will be fine.

The differential in interest rate vs bond yield is 2.4%, so keeping $250K mortgage is costing you extra $6K per year. Is that worth it for protection against "liquidity risk"? What liquidity risk would you have with $45k expense and $1.2M? You could always do HELOC or margin loan in the future if liquidity is needed.

aristotelian,

1) Paying off 250K mortgage saves 15K X 10 years = 150K of cash flow over the next 10 years. It is safer to keep the 250K mortgage.

<< You could always do HELOC or margin loan in the future if liquidity is needed.>>

2) Not in the worst case.

<<The differential in interest rate vs bond yield is 2.4%, so keeping $250K mortgage is costing you extra $6K per year.>>

3) What do you think is the average annual return of a 60/40 portfolio over the next 10 years? I assume that it is at least 5% per year. So, the 250K mortgage is not costing me 6K per year.

It is safer in the worst case to keep the 250K mortgage. If the market goes well, it is better to keep the 250K mortgage too.

KlangFool

[KlangFool]

Klang,

You have mentioned in the past that you are in the real estate hotbed of Northern Virginia/Loudoun/Fairfax Counties. You may have a great opportunity to downsize your house and/ or move further west or even West Virginia for lower cost.

Have you contemplated this option?

goodenyou,

I need to stay in this area because my wife needs to take care of her mother living close by.

KlangFool

Her mother can move to the low cost area you move to.

Aren't you receiving unemployment insurance payments?

Her mother lived with her brother. They are not moving.

<<Aren't you receiving unemployment insurance payments?>>

Yes.

KlangFool

[KlangFool]

KlangFool,
This seems to be a short term cash out plan for specific returns in the market. If not short term, how many years would you want to do this? Your 60/40 portfolio with 1.5 million at a 3.8 percent withdrawal rate is 57K and close to your yearly expenses with no other sources of incomce. I get what you are doing. You have worked hard for the $$ and see some reasonable reason to get cash out of the market when the going is good. You have done well and will continue to do well.

At some point, will you just withdraw 60K from the portfolio once a year and be done with it. And let your fixed income portion of the 60/40 do its job while you enjoy whatever you have planned for the year - working or retired

LP

Yes, it is a short-term plan if the market does too well.

KlangFool

[wackerdr]

So if I summarize your de-risking strategy:

1. Current portfolio is 1.5 M
2. Anytime the portfolio crosses a certain % growth. - say 5%, i bank 50% of the gains into cash or TIPS/ CDs

Overall AA will increasingly become more conservative.

I think it is a good plan to glide towards lower risk.

[dknightd]

Folks,

I know that I know nothing. I have a plan for if the stock market crashes. I do not have a plan for if the stock market goes up rapidly from now. This is my plan for if the market goes up rapidly.

KlangFool

smile and be happy

[KlangFool]

So if I summarize your de-risking strategy:

1. Current portfolio is 1.5 M
2. Anytime the portfolio crosses a certain % growth. - say 5%, i bank 50% of the gains into cash or TIPS/ CDs

Overall AA will increasingly become more conservative.

I think it is a good plan to glide towards lower risk.

Yes, that is the basic idea.

KlangFool

[aristotelian]

aristotelian,

1) Paying off 250K mortgage saves 15K X 10 years = 150K of cash flow over the next 10 years. It is safer to keep the 250K mortgage.

<< You could always do HELOC or margin loan in the future if liquidity is needed.>>

2) Not in the worst case.

<<The differential in interest rate vs bond yield is 2.4%, so keeping $250K mortgage is costing you extra $6K per year.>>

3) What do you think is the average annual return of a 60/40 portfolio over the next 10 years? I assume that it is at least 5% per year. So, the 250K mortgage is not costing me 6K per year.

It is safer in the worst case to keep the 250K mortgage. If the market goes well, it is better to keep the 250K mortgage too.

KlangFool

If you look at the whole portfolio including debt, you will be worse off when the market goes down due to more money at risk in stocks. You will do better with mortgage if you get average returns.

I think you are comparing 60/40 ($900K/$600K) with mortgage vs 60/40 without mortgage ($750k/$500K). The apples to apples comparison would be $900K/$600K with -$250K debt vs $900K/$350K and no debt. $900K/$350K will come out ahead by $6K annually due to mortgage drag on the leveraged portfolio. If you would reduce your stock allocation with $350K bonds and no mortgage, then IMO you are taking too much risk with $600K bonds and $250K mortgage.

Anyway, it seems you have your mind made up on this and you are set in either scenario.

[dknightd]

Yes, it is a short-term plan if the market does too well.

KlangFool

My short term plan, if the market does too well, is to take the money out while it is still there. I do not know what the future might hold. I plan to take out any gains I have up to my tax target. But my money is almost all in tax deferred, so, you might have a different plan.
I do not know what your plan is, but suspect it is a good one. Honestly unless you are not telling us something I think you have nothing to worry about.
Time to enjoy what you have spent years accumulating.

[KlangFool]

Yes, it is a short-term plan if the market does too well.

KlangFool

My short term plan, if the market does too well, is to take the money out while it is still there. I do not know what the future might hold. I plan to take out any gains I have up to my tax target. But my money is almost all in tax deferred, so, you might have a different plan.
I do not know what your plan is, but suspect it is a good one. Honestly unless you are not telling us something I think you have nothing to worry about.
Time to enjoy what you have spent years accumulating.

dknightd,


Only 40% to 50% of my portfolio is in the tax-deferred account. The rest is in the Roth and the taxable account.

KlangFool

[unclescrooge]

aristotelian,

1) Paying off 250K mortgage saves 15K X 10 years = 150K of cash flow over the next 10 years. It is safer to keep the 250K mortgage.

<< You could always do HELOC or margin loan in the future if liquidity is needed.>>

2) Not in the worst case.

<<The differential in interest rate vs bond yield is 2.4%, so keeping $250K mortgage is costing you extra $6K per year.>>

3) What do you think is the average annual return of a 60/40 portfolio over the next 10 years? I assume that it is at least 5% per year. So, the 250K mortgage is not costing me 6K per year.

It is safer in the worst case to keep the 250K mortgage. If the market goes well, it is better to keep the 250K mortgage too.

KlangFool

If you look at the whole portfolio including debt, you will be worse off when the market goes down due to more money at risk in stocks. You will do better with mortgage if you get average returns.

I think you are comparing 60/40 ($900K/$600K) with mortgage vs 60/40 without mortgage ($750k/$500K). The apples to apples comparison would be $900K/$600K with -$250K debt vs $900K/$350K and no debt. $900K/$350K will come out ahead by $6K annually due to mortgage drag on the leveraged portfolio. If you would reduce your stock allocation with $350K bonds and no mortgage, then IMO you are taking too much risk with $600K bonds and $250K mortgage.

Anyway, it seems you have your mind made up on this and you are set in either scenario.

+1

KlangFool, you may be overthinking the situation.

You want to derisk the upside, but want to keep a mortgage, but also 7 years worth of expenses. All of these things are at cross-purposes with each other.

If the market goes up 7% just rebalance into cash/bonds. There's nothing preventing your fixed income allocation to always have $120k in cash.

Personally, I would simply by keeping a 60/40 portfolio with only $60k in cash. Every month I would withdraw $5k from the portfolio. You should have more than enough money to last.

Your current portfolio is 50/50. It's safe enough. No need to do anything.

[JS-Elcano]

aristotelian,

Due to liquidity risk, it is safer to keep the 250K mortgage. Paying off the 250K mortgage only save 15K per year of expenses.

KlangFool

But the interest on a 250k mortgage, even at 3.49%, is nothing to sneeze at. Over a 30-year loan (don't know how much you still have left) that's well over 150k. Maybe in the grand scheme of things, when one has 1.5 million, that's not worth considering?

[dknightd]

Her mother lived with her brother. They are not moving.

<<Aren't you receiving unemployment insurance payments?>>

Yes.

KlangFool

So you are stuck where you are living until your mother and her brother die. You are getting unemployment payments. So where does that leave your backup plan of leaving the country? If your mother and your uncle are not moving, do you honestly think you will move and leave them behind? I suspect not.
IMO you should not compare your mortgage costs to your anticipated 60/40 portfolio returns. You should compare it to what your are earning on your cash. You are here for the long haul. There is no guarantee life will be cheaper back home, if and when you decide to move back. Compare mortgage interest to EF interest. I did that, and decided I could live just fine with a smaller emergency fund. Worse case, my investments become my emergency fund.
I consider a mortgage as a loan I have to pay back. In the short term 3.25% seems like a good deal. It is better than any savings account could provide. Where do you keep your emergency fund?

[KlangFool]

aristotelian,

Due to liquidity risk, it is safer to keep the 250K mortgage. Paying off the 250K mortgage only save 15K per year of expenses.

KlangFool

But the interest on a 250k mortgage, even at 3.49%, is nothing to sneeze at. Over a 30-year loan (don't know how much you still have left) that's well over 150k. Maybe in the grand scheme of things, when one has 1.5 million, that's not worth considering?

Do you believe that 60/40 portfolio will return less than 3.49% per year over the next 10 years?

KlangFool

[KlangFool]

Her mother lived with her brother. They are not moving.

<<Aren't you receiving unemployment insurance payments?>>

Yes.

KlangFool

So you are stuck where you are living until your mother and her brother die. You are getting unemployment payments. So where does that leave your backup plan of leaving the country? If your mother and your uncle are not moving, do you honestly think you will move and leave them behind? I suspect not.
IMO you should not compare your mortgage costs to your anticipated 60/40 portfolio returns. You should compare it to what your are earning on your cash. You are here for the long haul. There is no guarantee life will be cheaper back home, if and when you decide to move back. Compare mortgage interest to EF interest. I did that, and decided I could live just fine with a smaller emergency fund. Worse case, my investments become my emergency fund.
I consider a mortgage as a loan I have to pay back. In the short term 3.25% seems like a good deal. It is better than any savings account could provide. Where do you keep your emergency fund?

I don't share your point of view. I am borrowing at 3.49% to invest in my 60/40 portfolio.

KlangFool

[KlangFool]

Please take the mortgage question out of this thread.

KlangFool

[lakpr]

Her mother lived with her brother. They are not moving.

<<Aren't you receiving unemployment insurance payments?>>

Yes.

KlangFool

So you are stuck where you are living until your mother and her brother die. You are getting unemployment payments. So where does that leave your backup plan of leaving the country? If your mother and your uncle are not moving, do you honestly think you will move and leave them behind? I suspect not.
IMO you should not compare your mortgage costs to your anticipated 60/40 portfolio returns. You should compare it to what your are earning on your cash. You are here for the long haul. There is no guarantee life will be cheaper back home, if and when you decide to move back. Compare mortgage interest to EF interest. I did that, and decided I could live just fine with a smaller emergency fund. Worse case, my investments become my emergency fund.
I consider a mortgage as a loan I have to pay back. In the short term 3.25% seems like a good deal. It is better than any savings account could provide. Where do you keep your emergency fund?

I don't share your point of view. I am borrowing at 3.49% to invest in my 60/40 portfolio.

KlangFool

This is a fallacious argument. It's the exact same thing as someone saying they are paying only 17% tax, for example. Their last dollar is actually being taxed at 22% (or 24%), but they are simply dividing the total tax paid over the total income.

In your case, your last dollar is earning 1.4% (the bonds portion of your 60:40 portfolio; the 1.4% being the expected yield over the next 7 years). But your returns are juiced by the stock returns, and you think your overall portfolio is earning 5% or 6% or whatever it is. You are being oblivious to the fact that those earnings are from STOCKS, and no one has asked you to reduce your STOCKS. You are being told that the bonds you have in your portfolio are earning a quarter of what you are paying out in mortgage.

But you choose to ignore that.

[dknightd]

Do you believe that 60/40 portfolio will return less than 3.49% per year over the next 10 years?

KlangFool

Lets turn this around. If somebody would guarantee 3.49% over the next 10 years would you invest? I would seriously consider it.

[sandramjet]

I'm not sure what the point of all this is. You asked for a review of your plan, but so far your responses to any comments have been to explain why you can't or won't make changes. So just do what you have already apparently decided to do.

[JS-Elcano]

aristotelian,

Due to liquidity risk, it is safer to keep the 250K mortgage. Paying off the 250K mortgage only save 15K per year of expenses.

KlangFool

But the interest on a 250k mortgage, even at 3.49%, is nothing to sneeze at. Over a 30-year loan (don't know how much you still have left) that's well over 150k. Maybe in the grand scheme of things, when one has 1.5 million, that's not worth considering?

Do you believe that 60/40 portfolio will return less than 3.49% per year over the next 10 years?

KlangFool

It might, it might not. Who knows.

I am relatively new to investing, but would you go to a bank today and take out a 250k loan at 3.49% to invest in the market today, hoping/assuming/predicting that the market will return more? Isn't that what you are doing by not paying off your mortgage?

[KlangFool]

I'm not sure what the point of all this is. You asked for a review of your plan, but so far your responses to any comments have been to explain why you can't or won't make changes. So just do what you have already apparently decided to do.

I am asking for a review of my cash out plan. Not whether I should pay off my mortgage.

KlangFool

[KlangFool]

aristotelian,

Due to liquidity risk, it is safer to keep the 250K mortgage. Paying off the 250K mortgage only save 15K per year of expenses.

KlangFool

But the interest on a 250k mortgage, even at 3.49%, is nothing to sneeze at. Over a 30-year loan (don't know how much you still have left) that's well over 150k. Maybe in the grand scheme of things, when one has 1.5 million, that's not worth considering?

Do you believe that 60/40 portfolio will return less than 3.49% per year over the next 10 years?

KlangFool

It might, it might not. Who knows.

I am relatively new to investing, but would you go to a bank today and take out a 250k loan at 3.49% to invest in the market today, hoping/assuming/predicting that the market will return more? Isn't that what you are doing by not paying off your mortgage?

I would.

KlangFool

[ruralavalon]

If the job search is not successful in 1-2 years, then I suggest paying off the $250k 3.49% mortgage.

In my opinion a 60/40 asset allocation is within the range of what is reasonable.

[rich126]

My (maybe wrong) understanding is that currently (without social security) you are on the edge with needing a 4% SWR to maintain your living standard (i.e., 4% of $1.5M is 60K). And once social security kicks in, you should have a good safety margin.

Concerns would be if the market does poorly for the next 10 years along with any cuts in social security which would cut into your safety ranges.

Fortunately I'm not in your job search situation but nearing retirement I'm also worried about stock returns, bond returns, social security cuts, and other concerns once you turn off your income stream (voluntary or involuntary).

If interest rates were high, even though they may not be good, I would consider an annuity for part of my money since it relieves some of the stress of an extended period of bad returns in the market. We've been lucky where we haven't had that in a long time and I think people are too optimistic in terms of the stock market and particularly the US market. Right now with rates low, and even though I think inflation is a non-factor for a while, committing to an annuity is high risk since it is a permanent investment.

In your situation my concerns would be:
1. Health insurance - A huge unknown since you need it for over a decade. And w/o it, one medical event can destroy your savings.
2. Investment returns - A period of poor bond and stock returns. I can't imagine anyone is comfortable going into retirement and see poor returns in their early years of retirement unless that person already had a huge buffer amount. A few years of poor returns could take a 4% SWR and turn it into 6,7 or 8%+ and may require cutting expenses.
3. Cuts in social security - Who knows on this one.

I look at my numbers and think once I take social security I will be in very good shape but I'd like to retire by 60 (I do have health insurance covered at that point) but not take social security until 67 at the earliest but that means covering another $30K or more in withdrawals.

Most likely you'll be fine but "most likely" isn't something most of us want to bet our lives on, especially those of us with math, engineering, etc. backgrounds.

Good luck.

[Harry Livermore]

I would keep it simple. If 2 years EF doesn’t feel comfortable, add an additional year. Get the best insurance - health, umbrella, home , auto - to ensure your out of pocket expenses are predictable. May be a term life insurance for the remainder amount of mortgage , if you don’t have it already.

Then stay with AA you are comfortable with.

I am comfortable with 2 years of EF at 1.5 million. If the stock market goes up by 7% over the next few weeks, I am more comfortable by cashing out of 30K.

KlangFool

KF, I think you are a smart guy and have thought this through. And I think that the plan to have more EF/cash by taking a percentage of profits on the portfolio is as logical a plan as many others I have heard.
Do you have any ability to trim expenses? I know it's hard... work has been extremely slow for me since COVID, and we have cut back on a lot. But it's a challenge for sure!
Best of luck. Hopefully you find a job and can transition to retirement at a later date.
Cheers

[unclescrooge]

aristotelian,

Due to liquidity risk, it is safer to keep the 250K mortgage. Paying off the 250K mortgage only save 15K per year of expenses.

KlangFool

But the interest on a 250k mortgage, even at 3.49%, is nothing to sneeze at. Over a 30-year loan (don't know how much you still have left) that's well over 150k. Maybe in the grand scheme of things, when one has 1.5 million, that's not worth considering?

Do you believe that 60/40 portfolio will return less than 3.49% per year over the next 10 years?

KlangFool

If you are so sure the 60/40 will beat 3.5%, why do you have such a large cash position?

[dknightd]

I would.

KlangFool

You are a brave person.

[dknightd]

I am asking for a review of my cash out plan. Not whether I should pay off my mortgage.

KlangFool

You will need money every month to pay off your mortgage. So I'm not sure how you can separate your cash out plan from the mortgage payment. Not to mention taxes, health insurance, etc. You need to look at the whole picture

[KlangFool]

aristotelian,

Due to liquidity risk, it is safer to keep the 250K mortgage. Paying off the 250K mortgage only save 15K per year of expenses.

KlangFool

But the interest on a 250k mortgage, even at 3.49%, is nothing to sneeze at. Over a 30-year loan (don't know how much you still have left) that's well over 150k. Maybe in the grand scheme of things, when one has 1.5 million, that's not worth considering?

Do you believe that 60/40 portfolio will return less than 3.49% per year over the next 10 years?

KlangFool

If you are so sure the 60/40 will beat 3.5%, why do you have such a large cash position?

60/40 can beat average annual return of 3.49% over 10 years. I need CASH to buffer the year when it is not.

KlangFool

[KlangFool]

I am asking for a review of my cash out plan. Not whether I should pay off my mortgage.

KlangFool

You will need money every month to pay off your mortgage. So I'm not sure how you can separate your cash out plan from the mortgage payment. Not to mention taxes, health insurance, etc. You need to look at the whole picture

With CASH, I can qualify for ACA subsidy. Without CASH. I cannot. In summary, I did take that into account.

KlangFool

[dknightd]

FWIW I expect my balance to go down every year. I hope I am wrong.

[dknightd]

I am asking for a review of my cash out plan. Not whether I should pay off my mortgage.

KlangFool

You will need money every month to pay off your mortgage. So I'm not sure how you can separate your cash out plan from the mortgage payment. Not to mention taxes, health insurance, etc. You need to look at the whole picture

With CASH, I can qualify for ACA subsidy. Without CASH. I cannot. In summary, I did take that into account.

KlangFool

seems like you have figured it out :cheers:
No matter what we do there is a risk of doing better or worse. In the short term I compare 1% interest on cash, versus 3% interest on mortgage. So if I have extra cash I give it to the mortgage company. When things change, I'll adapt.

[dknightd]

One other thing to consider. If you are not working any more, but are still spending money, it is not unreasonable to expect you balance to go down. I'll be very very happy if I can spend money and not have my balance go down.

[000]

You have to show me why it is easier and simpler. I need example.

I do not think I will be able to do so. I am having trouble understanding your concerns/goals.

[rich126]

aristotelian,

Due to liquidity risk, it is safer to keep the 250K mortgage. Paying off the 250K mortgage only save 15K per year of expenses.

KlangFool

But the interest on a 250k mortgage, even at 3.49%, is nothing to sneeze at. Over a 30-year loan (don't know how much you still have left) that's well over 150k. Maybe in the grand scheme of things, when one has 1.5 million, that's not worth considering?

Do you believe that 60/40 portfolio will return less than 3.49% per year over the next 10 years?

KlangFool

If you are so sure the 60/40 will beat 3.5%, why do you have such a large cash position?

60/40 can beat average annual return of 3.49% over 10 years. I need CASH to buffer the year when it is not.

KlangFool

The trade off with the cash buffer is that it also is a drag on your returns during the good years. Instead of earning 7% or whatever in a good year on 100% of your money, you are earning it on a subset while the cash is earning near zero. And the larger the buffer is, the more of a drag it is. I understand why people do it but they are just playing with numbers if they truly believe the market will do well.

[unclescrooge]

I am asking for a review of my cash out plan. Not whether I should pay off my mortgage.

KlangFool

You will need money every month to pay off your mortgage. So I'm not sure how you can separate your cash out plan from the mortgage payment. Not to mention taxes, health insurance, etc. You need to look at the whole picture

With CASH, I can qualify for ACA subsidy. Without CASH. I cannot. In summary, I did take that into account.

KlangFool

Good point!
What is the difference?

[KlangFool]

One other thing to consider. If you are not working any more, but are still spending money, it is not unreasonable to expect you balance to go down. I'll be very very happy if I can spend money and not have my balance go down.

dknightd,

As long as the portfolio returns more than 60K (4%) per year, the balance will not go down.

KlangFool

[KlangFool]

I am asking for a review of my cash out plan. Not whether I should pay off my mortgage.

KlangFool

You will need money every month to pay off your mortgage. So I'm not sure how you can separate your cash out plan from the mortgage payment. Not to mention taxes, health insurance, etc. You need to look at the whole picture

With CASH, I can qualify for ACA subsidy. Without CASH. I cannot. In summary, I did take that into account.

KlangFool

Good point!
What is the difference?

MAGI. Spending CASH generates zero taxable income.

KlangFool

[unclescrooge]

I am asking for a review of my cash out plan. Not whether I should pay off my mortgage.

KlangFool

You will need money every month to pay off your mortgage. So I'm not sure how you can separate your cash out plan from the mortgage payment. Not to mention taxes, health insurance, etc. You need to look at the whole picture

With CASH, I can qualify for ACA subsidy. Without CASH. I cannot. In summary, I did take that into account.

KlangFool

Good point!
What is the difference?

MAGI. Spending CASH generates zero taxable income.

KlangFool

Sorry, I was not clear.

What's the difference in healthcare costs without the subsidy?

[Xrayman69]

Folks,

The background information

Age: Above 55

Status: unemployed. I am looking for a suitable and safe job. And, if that does not pan out, I may retire.

Annual expense: 60K per year including mortgage

Health insurance: 2 years of COBRA. Transition to ACA health insurance for coverage before medicare.

Emergency fund: 120K = 2 years of expense

Portfolio: 60/40 - 1.5 million

Earned Social Security if I stop working this year, $2,400 per month at age of 67. 50% of that for my wife.

Rebalancing rule, keep a minimum of 5 years of expense = 300K in fixed income.

I am missing a cash-out plan if the portfolio is doing well.

My current idea.

If the portfolio went up by 60K above 1.5 million, I would convert 30K of that 60K into cash.

For example,

At 1.56 million, I would withdraw 30K of cash from the portfolio. The portfolio would go down to 1.53 million. The next 60K increase would be at 1.59 million. At 1.59 million, I would withdraw another 30K of cash from the portfolio.

Please review my plan.

KlangFool

On paper this works fine. Then comes in emotion when the market changes to the positive or negative.

You have technically won. 60/40 is likely to work, and the plan of cashing out is OK. May or may not keep up with inflation despite portfolio total being relatively static or slightly increasing. Worst case scenario over long run is that with no continued income and contribution that inflation and draw down outpaces gains. However in your case with the portfolio size and your know defined expenses in today’s dollars you will be OK.

I’m looking forward to the time in which my risk tolerance is lower than my desire to see the portfolio increase. I’ve hopefully got 10 more “employable” earning years before definitive FU status.

In summary your plan is OK. Stick to it thick or thin and thus update your IP to reflect.

[clown]

What are you going to do if the market is down for 6 years? Does your plan address that? I'd like to have that answer if i was you before making a plan for the good years.

To nix4me - To assess the subject of market declines, may I recommend familiarizing yourself with work on this subject done by Sam Stovall and published at https://www.aaii.com/journal/article/st ... ecoveries. In case you are unfamiliar with Stovall, you will find his bio at https://www.aaii.com/authors/show/sam-stovall. With all due respect, I think it is fair to say that he knows more than you and I combined.