Portfolio review - FIRE 2020?

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Topic Author
Retirecarefree
Posts: 23
Joined: Wed Apr 04, 2018 1:32 pm

Portfolio review - FIRE 2020?

Post by Retirecarefree »

Emergency Funds: Yes
Debt: none
Tax Filing Status: MFJ (no children)
Tax rate: 24% Federal 4.95% State
Note: using 2019 tax rates but DW stopped working at end of 2019 and I am planning to stop working end of 2020
State of Residence: IL.
Age: 49 / 48

Desired Asset Allocation: 75% stocks / 25% bonds
Current Asset Allocation: 79% stocks / 21% bonds

Low 7 figure portfolio ($2.8M)

Taxable:
$200k Ally savings
23.8% Vanguard Total Stock Market Index Fund (VTSAX) (0.04%)
9.4% Vanguard Total Bond Market Index Fund (VBTLX) (0.05%)
6.7% 5/3 managed account, 16 funds (1.2%), currently a 60/40 AA

His 401k at Fidelity:
2.2% Fidelity 500 Index Fund (FXAIX) (0.015%)

His Roth IRA at Vanguard:
0.9% Vanguard Total Stock Market Index Fund (VTSAX) (0.04%)

His Rollover IRA at Fidelity
20.7% Fidelity Total Market Index Fund (FSKAX) (0.015%)

His Traditional IRA at Vanguard:
6.0% Vanguard Total Bond Market Index Fund (VBTLX) (0.05%)

Her Rollover IRA at Fidelity
26.3% Fidelity Total Market Index Fund (FSKAX) (0.015%)

Her Traditional IRA at Vanguard:
2.7% Vanguard Total Bond Market Index Fund (VBTLX) (0.05%)

Her HSA at Fidelity
1.2% Fidelity Total Market Index Fund (FSKAX) (0.015%)

Summary

Taxable: 40% of total (AA = 70/30)
23.8% Vanguard Total Stock Market Index Fund (VTSAX) (0.04%)
9.4% Vanguard Total Bond Market Index Fund (VBTLX) (0.05%)
6.7% 5/3 managed account, 16 funds (1.2%)

Tax deferred: 57.9% of total (AA = 85/15)
47.1% Fidelity Total Market Index Fund (FSKAX) (0.015%)
2.2% Fidelity 500 Index Fund (FXAIX) (0.015%) --> only low cost index option in 401k plan
8.7% Vanguard Total Bond Market Index Fund (VBTLX) (0.05%)

Tax free: 2.1% of total (AA = 100/0)
1.2% Fidelity Total Market Index Fund (FSKAX) (0.015%)
0.9% Vanguard Total Stock Market Index Fund (VTSAX) (0.04%)

Contributions: $19,500 for 2020, $0 afterwards assuming FIRE end 2020

Future Income:
No pensions or other sources of W2 income until SS begins.
SS of $20k/yr estimated starting 62 (her)
SS of $38k/yr estimated starting 70 (him)

Expenses:
Normal living (minus discretionary travel budget): $60k/yr (approximately 2.1% withdrawal rate)
Full (with travel budget): $75k/yr (approximately 2.7% withdrawal rate)
Assuming ACA availability with possible low income subsidies. Debating COBRA for the short term (12mo max).

Questions:
1. Confirmation that RE is possible by end 2020.
2. Ideas on pulling the funds tax efficiently, planning taxable to float us to 59.5+
3. Is SEPP/72T a good option to optimize the pull of funds?
--> What if RE is not for us, say in 3yrs for example, and we return to work? SEPP will hang over us until 59.5.
4. What options are recommended for the 5/3 managed account (1.2%)? We like the advisor but $2k per year is steep for 1 meeting per year.

Jim
Last edited by Retirecarefree on Tue Sep 15, 2020 8:01 pm, edited 9 times in total.
BernardShakey
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Location: CA

Re: Portfolio review - FIRE 2020?

Post by BernardShakey »

Any pensions for either of you ?
An important key to investing is having a well-calibrated sense of your future regret.
Normchad
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Joined: Thu Mar 03, 2011 7:20 am

Re: Portfolio review - FIRE 2020?

Post by Normchad »

I am in a very similar position, in terms of age and portfolio. I think I’m close....

But my expenses are about 2x of yours.

So I’d say you are good to go.

Make sure you have healthcare figured out.....
flyingaway
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Re: Portfolio review - FIRE 2020?

Post by flyingaway »

How will you handle the health insurance?
BernardShakey
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Joined: Tue Jun 25, 2019 10:52 pm
Location: CA

Re: Portfolio review - FIRE 2020?

Post by BernardShakey »

Just a few comments...

1. You really look to be in great shape, nice job!
2. For such an early retirement, and potentially 40 year time horizon, your SWR is probably more like 3% instead of the usual 4%. That may make things a little tight if there are no future pensions.
3. For me, if I were getting this close to retirement, I would dial back on the equities some. I would not want to pull the ripcord in the face of a potential bear market with that kind of equity exposure.
4. I'm not knowledgeable enough to advise on 72t.

Good luck!
An important key to investing is having a well-calibrated sense of your future regret.
Raffert
Posts: 2
Joined: Tue Jun 02, 2020 10:36 am

Re: Portfolio review - FIRE 2020?

Post by Raffert »

Hey,

I'm a longtime lurker, 1st time poster... hopefully folks that are more knowledgable than me also chime in. DW and I retired about 5 yrs ago in our 40s with similar circumstances to you so I figured that I'd try to share my 2 cents.

1) You're talking about flexible expenses in the 2-3% range so yes, you're in pretty good shape imo. Just be sure that you have a good handle on healthcare costs and taxes (we're finding that both are lower than expected, but your mileage may vary). Understand the ACA and the subsidy cliff if that's the route you plan on going for healthcare.

2) Once your W2 income is gone and you're pulling from taxable you'll be able to take advantage of 0% LTCG rates, and you should tax gain harvest and/or do roth conversion as much as makes sense in your circumstances. DW and I are focused on LTCG harvesting now and will do roth conversions in the future - that's what made sense for us, anyway, after spending a bit of time playing with different tax scenarios. Also, you'll probably see that Bonds in taxable aren't particularly tax efficient during accumulation, but once you're retired and in a low tax bracket they look a lot more reasonable. From personal experience, they also help you sleep well at night :)

3) It seems like you have enough in taxable to float you past 59 1/2 if I do the math right (($2.8 MM * 40%) / $75K = ~15yrs of expenses. ), so it doesn't seem like the SEPP would be necessary? We're not using SEPP for the same reason you highlight - once you start it, you're stuck with it. You can always wait a year or 3 and then decide. You might want to investigate a roth conversion ladder instead, if you want some more flexibility but again I don't see it being necessary.

4) Agreed - 2K/yr for that managed account doesn't make sense. I'd recommend ditching it and investing as per your IPS. The rest of your portfolio is very reasonable.

Overall you are in great shape - congratulations!
Raffert
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Rowan Oak
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Re: Portfolio review - FIRE 2020?

Post by Rowan Oak »

Retirecarefree wrote: Sun Sep 06, 2020 10:38 am approximately 2.1% withdrawal rate
Are you asking if a 2.1% withdrawal rate is safe? You must know that it is.

Have you tried the Vanguard Retirement Nest Egg Calculator with your numbers?

https://retirementplans.vanguard.com/VG ... ggCalc.jsf
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger
Topic Author
Retirecarefree
Posts: 23
Joined: Wed Apr 04, 2018 1:32 pm

Re: Portfolio review - FIRE 2020?

Post by Retirecarefree »

BernardShakey wrote: Sun Sep 06, 2020 12:11 pm Any pensions for either of you ?
No pensions for us.
Topic Author
Retirecarefree
Posts: 23
Joined: Wed Apr 04, 2018 1:32 pm

Re: Portfolio review - FIRE 2020?

Post by Retirecarefree »

flyingaway wrote: Sun Sep 06, 2020 12:22 pm How will you handle the health insurance?
The plan is to utilize the ACA with subsidies.
Topic Author
Retirecarefree
Posts: 23
Joined: Wed Apr 04, 2018 1:32 pm

Re: Portfolio review - FIRE 2020?

Post by Retirecarefree »

Rowan Oak wrote: Sun Sep 06, 2020 1:02 pm
Retirecarefree wrote: Sun Sep 06, 2020 10:38 am approximately 2.1% withdrawal rate
Are you asking if a 2.1% withdrawal rate is safe? You must know that it is.

Have you tried the Vanguard Retirement Nest Egg Calculator with your numbers?

https://retirementplans.vanguard.com/VG ... ggCalc.jsf
Yes, we agree on the 2.1% WR being low but that is just a survival rate, the "if we need to dial it back" rate. All the calculators say "go", like Fidelity showing 94% success. Just looking to see if the approach looks good before we leap. Any pitfalls we might not be considering, including any practical experiences if you have RE.
HomeStretch
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Re: Portfolio review - FIRE 2020?

Post by HomeStretch »

Will you and/or spouse be eligible for Social Security?
BernardShakey
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Location: CA

Re: Portfolio review - FIRE 2020?

Post by BernardShakey »

Your 60k of expenses includes fed/state taxes owed ? Or 60k (5k per month) is what you need to pay your bills (after tax spendable) ? And your healthcare costs are included in the 60k ?
An important key to investing is having a well-calibrated sense of your future regret.
retired@50
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Location: Living in the U.S.A.

Re: Portfolio review - FIRE 2020?

Post by retired@50 »

If I'm reading your portfolio positions correctly, you have over 40% of your portfolio value in a taxable account. This should certainly be enough to get you to 59.5, shouldn't it?

ETA, I also noticed the "His Roth IRA" is invested in bonds. Seems odd to me. I'd suspect that you'd hold stocks in the Roth IRA, and use 401k space or traditional IRA space for bonds. Further, I didn't notice a "Her Roth IRA". Any reason why not? The Roth IRA can be a great tool for nearly all investors.


Regards,
Last edited by retired@50 on Sun Sep 06, 2020 1:52 pm, edited 1 time in total.
This is one person's opinion. Nothing more.
unbiased
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Re: Portfolio review - FIRE 2020?

Post by unbiased »

In a similar boat of trying to retire early, just a couple years away. I had a friend who is a financial planner do an overview and strongly recommend you do the same, even if it's fee based. I'm not advocating you turn your assets over, just that you get a professional opinion on your plan and answer some detailed questions on your personal financial situation and goals.

It's not just what you showed us that will matter for your retirement, but other personal questions that shouldn't be discussed on an open message board.

I'm very thorough but learned some things. He also had access to more sophisticated drawdown simulations and options that were very useful. With potentially 40-50 years for the assets to last, I'm glad I did it -- even just for the piece of mind.
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Rowan Oak
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Re: Portfolio review - FIRE 2020?

Post by Rowan Oak »

Retirecarefree wrote: Sun Sep 06, 2020 1:30 pm
Rowan Oak wrote: Sun Sep 06, 2020 1:02 pm
Retirecarefree wrote: Sun Sep 06, 2020 10:38 am approximately 2.1% withdrawal rate
Are you asking if a 2.1% withdrawal rate is safe? You must know that it is.

Have you tried the Vanguard Retirement Nest Egg Calculator with your numbers?

https://retirementplans.vanguard.com/VG ... ggCalc.jsf
Yes, we agree on the 2.1% WR being low but that is just a survival rate, the "if we need to dial it back" rate. All the calculators say "go", like Fidelity showing 94% success. Just looking to see if the approach looks good before we leap. Any pitfalls we might not be considering, including any practical experiences if you have RE.
If 2.1% is your floor then I think that's a very good position to be in. In years when your portfolio returns are 0% or better you may consider withdrawing more than 2.1%. Being flexible with your spending is key and with 2.1% covering the essentials I would feel very confident about the next 30 or so years.

You may find this helpful from a recent interview with Boglehead Jim Dahle (The White Coat Investor):
Benz: Speaking of low yields, spending from a portfolio in retirement has gotten more complicated because of that. How would you suggest a DIY White Coat Investor who is about to retire approached-retirement decumulation? How would you counsel them to think about it?

Dahle: It's interesting. You see all these safe withdrawal-rate studies out there that assume somebody takes their portfolio, takes out 4% that first year, adjusts it up to with inflation each year for 30 years and never looks at the balance. I think, practically speaking, nobody, or nearly nobody, actually does it that way. I think we all naturally do the same thing we did throughout our careers--when there was more money around, we spent a little bit more; when there was less money around, we tightened our belts a little bit and spent a little bit less. And I think that same philosophy is wisely carried into retirement. I like to call this the Taylor Larimore method of decumulation spending because this is what this prominent Boglehead says he's done over the years since he retired in something like 1980: he looked at his balance every year and got a general sense of how his portfolio had done recently and spent accordingly. Essentially, he adjusted as he went.

I think it's OK to start in the same place that these safe-withdrawal studies are suggesting you start at 3% or 4% of the portfolio and then adjust as you go along. If the sequence-of-returns risk shows up--meaning you have terrible returns your first few years of retirement--you know that you're going to need to dial things back a little bit and spend a little bit less money and be a little bit more frugal. Maybe give a little bit less, travel a little bit less, etc. On the other hand, if that risk doesn't show up, you can adjust your spending upward somewhat and be able to take advantage of that fact. Even looking at the historical data, if you followed the 4% rule, on average, you died with 2.7 times what you retired with. So, bear in mind that the safe withdrawal rules are really set up to make it through the worst-case scenarios that we've seen historically. Even if this is one of those relatively bad cases going forward, those who retire right now, you should still be OK in that direction, especially if you keep an eye on and adjust as you go.

Now, if you are on the line with your spending, if you barely have enough or maybe even a less than enough, that's when I think it can behoove you to maybe get a little bit more creative. For example, a lot of people like to put a floor under their retirement spending and Social Security puts one portion of that floor in place. But you can essentially buy a pension by buying a single premium immediate annuity and essentially, in this case, you give a lump sum of money to an insurance company and they give you back a certain payment each month, guaranteed until the day you die. It essentially functions as longevity insurance for you. If you live a long time, you know this will work out well for you. They will be paying you until the last month of your life. And the benefit of that is you can cover your fixed expenses with fixed-income sources such as that single premium immediate annuity and Social Security, and then your variable expenses can come from your portfolio with its higher volatility.
https://www.whitecoatinvestor.com/about/

https://www.morningstar.com/podcasts/the-long-view/72
Last edited by Rowan Oak on Sun Sep 06, 2020 3:46 pm, edited 1 time in total.
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger
Outer Marker
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Re: Portfolio review - FIRE 2020?

Post by Outer Marker »

Welcome to the forum.
Your assets should comfortably support an early retirement. A few obeservations -

1. 85/15 seems unnecessarily risky going into retirement. Consider dialing it back to 70/30 - which is still plenty aggressive for most.
2. You've got a lot of funds and duplication going on. Consider consolidating the multiple S&P 500 and Total Market Funds into just total market, at least in tax-advantaged accounts where it can be done without realizing capital gains.
3. International is notably absent from your portfolio. Assume this is by design, but you are giving up potential diversification benefits.
4. Locate your bonds in tax-advantaged accounts for greater tax efficiency.
5. Ditch the high priced advisor and roll the managed account funds into your streamlined 2 or 3 fund portfolio.

Congrats on being well set up for retirement.
Topic Author
Retirecarefree
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Re: Portfolio review - FIRE 2020?

Post by Retirecarefree »

HomeStretch wrote: Sun Sep 06, 2020 1:31 pm Will you and/or spouse be eligible for Social Security?
Yes, we estimate SS estimate of $40k combined if taken at 62.
Topic Author
Retirecarefree
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Joined: Wed Apr 04, 2018 1:32 pm

Re: Portfolio review - FIRE 2020?

Post by Retirecarefree »

BernardShakey wrote: Sun Sep 06, 2020 1:33 pm Your 60k of expenses includes fed/state taxes owed ? Or 60k (5k per month) is what you need to pay your bills (after tax spendable) ? And your healthcare costs are included in the 60k ?
$60k includes ACA estimate for healthcare and includes estimate for what we expect to be low fed/state taxes based on no W2 income.

Also, IL. has high property taxes and we have included those in our estimates but will move out of state at some point in the future.
HomeStretch
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Re: Portfolio review - FIRE 2020?

Post by HomeStretch »

Retirecarefree wrote: Sun Sep 06, 2020 3:03 pm
HomeStretch wrote: Sun Sep 06, 2020 1:31 pm Will you and/or spouse be eligible for Social Security?
Yes, we estimate SS estimate of $40k combined if taken at 62.
Once you claim SS, your withdrawal rate likely drops < 2%.

For best SS claiming strategy, consider checking out opensocialsecurity.com. As SS receives cost-of-living adjustments, you may find it makes sense financially to have the higher earner claim SS at age 70 and the spouse claim sometime between age 62 and full retirement age 67.
Topic Author
Retirecarefree
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Re: Portfolio review - FIRE 2020?

Post by Retirecarefree »

retired@50 wrote: Sun Sep 06, 2020 1:39 pm If I'm reading your portfolio positions correctly, you have over 40% of your portfolio value in a taxable account. This should certainly be enough to get you to 59.5, shouldn't it?

ETA, I also noticed the "His Roth IRA" is invested in bonds. Seems odd to me. I'd suspect that you'd hold stocks in the Roth IRA, and use 401k space or traditional IRA space for bonds. Further, I didn't notice a "Her Roth IRA". Any reason why not? The Roth IRA can be a great tool for nearly all investors.

Regards,
Yes, we agree the taxable should carry us to 59.5 and beyond.
Why would I want to hold bonds in the traditional IRA vs. Roth IRA? I am unclear and ready to learn.
Her Roth IRA was not possible when we reached MFJ income limits that disallowed it. With W2 income ending soon, she could then open one. Do I have the correct understanding about the MFJ limits?
Topic Author
Retirecarefree
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Re: Portfolio review - FIRE 2020?

Post by Retirecarefree »

unbiased wrote: Sun Sep 06, 2020 1:49 pm In a similar boat of trying to retire early, just a couple years away. I had a friend who is a financial planner do an overview and strongly recommend you do the same, even if it's fee based. I'm not advocating you turn your assets over, just that you get a professional opinion on your plan and answer some detailed questions on your personal financial situation and goals.

It's not just what you showed us that will matter for your retirement, but other personal questions that shouldn't be discussed on an open message board.

I'm very thorough but learned some things. He also had access to more sophisticated drawdown simulations and options that were very useful. With potentially 40-50 years for the assets to last, I'm glad I did it -- even just for the piece of mind.
Thank you. That is what the advisor I mentioned in my original post has done for us AND we spoke to another and they think we are "good" but the details of retiring early are clearly not commonplace for them so I wanted more ideas / thoughts/ opinions.
Topic Author
Retirecarefree
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Re: Portfolio review - FIRE 2020?

Post by Retirecarefree »

Rowan Oak wrote: Sun Sep 06, 2020 1:58 pm
Retirecarefree wrote: Sun Sep 06, 2020 1:30 pm
Rowan Oak wrote: Sun Sep 06, 2020 1:02 pm
Retirecarefree wrote: Sun Sep 06, 2020 10:38 am approximately 2.1% withdrawal rate
Are you asking if a 2.1% withdrawal rate is safe? You must know that it is.

Have you tried the Vanguard Retirement Nest Egg Calculator with your numbers?

https://retirementplans.vanguard.com/VG ... ggCalc.jsf
Yes, we agree on the 2.1% WR being low but that is just a survival rate, the "if we need to dial it back" rate. All the calculators say "go", like Fidelity showing 94% success. Just looking to see if the approach looks good before we leap. Any pitfalls we might not be considering, including any practical experiences if you have RE.
If 2.1% is your floor then I think that's a very good position to be in. In years when your portfolio returns are good you may consider withdrawing more than 2.1%. Being flexible with your spending is key and with 2.1% covering the essentials I would feel very confident about the next 30 or so years.

You may find this helpful from a recent interview with Boglehead Jim Dahle (The White Coat Investor):
Benz: Speaking of low yields, spending from a portfolio in retirement has gotten more complicated because of that. How would you suggest a DIY White Coat Investor who is about to retire approached-retirement decumulation? How would you counsel them to think about it?

Dahle: It's interesting. You see all these safe withdrawal-rate studies out there that assume somebody takes their portfolio, takes out 4% that first year, adjusts it up to with inflation each year for 30 years and never looks at the balance. I think, practically speaking, nobody, or nearly nobody, actually does it that way. I think we all naturally do the same thing we did throughout our careers--when there was more money around, we spent a little bit more; when there was less money around, we tightened our belts a little bit and spent a little bit less. And I think that same philosophy is wisely carried into retirement. I like to call this the Taylor Larimore method of decumulation spending because this is what this prominent Boglehead says he's done over the years since he retired in something like 1980: he looked at his balance every year and got a general sense of how his portfolio had done recently and spent accordingly. Essentially, he adjusted as he went.

I think it's OK to start in the same place that these safe-withdrawal studies are suggesting you start at 3% or 4% of the portfolio and then adjust as you go along. If the sequence-of-returns risk shows up--meaning you have terrible returns your first few years of retirement--you know that you're going to need to dial things back a little bit and spend a little bit less money and be a little bit more frugal. Maybe give a little bit less, travel a little bit less, etc. On the other hand, if that risk doesn't show up, you can adjust your spending upward somewhat and be able to take advantage of that fact. Even looking at the historical data, if you followed the 4% rule, on average, you died with 2.7 times what you retired with. So, bear in mind that the safe withdrawal rules are really set up to make it through the worst-case scenarios that we've seen historically. Even if this is one of those relatively bad cases going forward, those who retire right now, you should still be OK in that direction, especially if you keep an eye on and adjust as you go.

Now, if you are on the line with your spending, if you barely have enough or maybe even a less than enough, that's when I think it can behoove you to maybe get a little bit more creative. For example, a lot of people like to put a floor under their retirement spending and Social Security puts one portion of that floor in place. But you can essentially buy a pension by buying a single premium immediate annuity and essentially, in this case, you give a lump sum of money to an insurance company and they give you back a certain payment each month, guaranteed until the day you die. It essentially functions as longevity insurance for you. If you live a long time, you know this will work out well for you. They will be paying you until the last month of your life. And the benefit of that is you can cover your fixed expenses with fixed-income sources such as that single premium immediate annuity and Social Security, and then your variable expenses can come from your portfolio with its higher volatility.
https://www.whitecoatinvestor.com/about/

https://www.morningstar.com/podcasts/the-long-view/72
Thank you for your review and the extra info.
Topic Author
Retirecarefree
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Re: Portfolio review - FIRE 2020?

Post by Retirecarefree »

HomeStretch wrote: Sun Sep 06, 2020 3:17 pm
Retirecarefree wrote: Sun Sep 06, 2020 3:03 pm
HomeStretch wrote: Sun Sep 06, 2020 1:31 pm Will you and/or spouse be eligible for Social Security?
Yes, we estimate SS estimate of $40k combined if taken at 62.
Once you claim SS, your withdrawal rate likely drops < 2%.

For best SS claiming strategy, consider checking out opensocialsecurity.com. As SS receives cost-of-living adjustments, you may find it makes sense financially to have the higher earner claim SS at age 70 and the spouse claim sometime between age 62 and full retirement age 67.
Ok and thank you. We will check out the link.
prd1982
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Re: Portfolio review - FIRE 2020?

Post by prd1982 »

Personally, I would not FIRE in 2020:

* COVID-19 is not under control in most of the world. I'd want it resolved before I retired.

* You appear to be counting on ACA subsidy. I would wait for the court to announce their decision early next year. Otherwise, you should make sure your retirement plan can handle paying full-freight for insurance.
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geerhardusvos
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Re: Portfolio review - FIRE 2020?

Post by geerhardusvos »

Retirecarefree wrote: Sun Sep 06, 2020 1:30 pm
Rowan Oak wrote: Sun Sep 06, 2020 1:02 pm
Retirecarefree wrote: Sun Sep 06, 2020 10:38 am approximately 2.1% withdrawal rate
Are you asking if a 2.1% withdrawal rate is safe? You must know that it is.

Have you tried the Vanguard Retirement Nest Egg Calculator with your numbers?

https://retirementplans.vanguard.com/VG ... ggCalc.jsf
Yes, we agree on the 2.1% WR being low but that is just a survival rate, the "if we need to dial it back" rate. All the calculators say "go", like Fidelity showing 94% success. Just looking to see if the approach looks good before we leap. Any pitfalls we might not be considering, including any practical experiences if you have RE.
You will not need to have a withdrawal rate any lower than 3-3.5% in order to be perpetually successful (you can probably even increase your wr over time depending on your returns). SS is gravy for you. Congratulations! Have a wonderful time in your next ventures! You are financially independent :beer
VTSAX and chill
retired@50
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Re: Portfolio review - FIRE 2020?

Post by retired@50 »

Retirecarefree wrote: Sun Sep 06, 2020 3:28 pm
retired@50 wrote: Sun Sep 06, 2020 1:39 pm If I'm reading your portfolio positions correctly, you have over 40% of your portfolio value in a taxable account. This should certainly be enough to get you to 59.5, shouldn't it?

ETA, I also noticed the "His Roth IRA" is invested in bonds. Seems odd to me. I'd suspect that you'd hold stocks in the Roth IRA, and use 401k space or traditional IRA space for bonds. Further, I didn't notice a "Her Roth IRA". Any reason why not? The Roth IRA can be a great tool for nearly all investors.

Regards,
Yes, we agree the taxable should carry us to 59.5 and beyond.
Why would I want to hold bonds in the traditional IRA vs. Roth IRA? I am unclear and ready to learn.
Her Roth IRA was not possible when we reached MFJ income limits that disallowed it. With W2 income ending soon, she could then open one. Do I have the correct understanding about the MFJ limits?
Typically, since the Roth IRA money won't be taxed upon withdrawal (assuming current law holds), many investors choose to locate their highest growth potential assets (stock index funds) inside a Roth IRA account. Putting bonds in 401k/traditional IRA accounts is better than holding them in a taxable account, since bond interest is taxed as regular income.
See wiki link for full discussion of tax-efficient fund placement: https://www.bogleheads.org/wiki/Tax-eff ... _placement

As far as the income limits for Roth IRA contributions go, you are allowed to "work around" those limits by using a process called the back-door Roth IRA. Since you (and she) have traditional IRA assets already, this is a complicating factor that makes the back-door Roth IRA process more challenging (and possibly undesirable) at tax time.

Keep in mind that contributing to a Roth IRA does require "earned income" as per IRS rules. Many retirees don't meet this threshold so making a contribution isn't allowed, however, converting money from a Traditional IRA to a Roth IRA would likely be allowed, regardless of income level or source.
See links related to Roth IRA: https://www.bogleheads.org/wiki/Roth_IRA

Backdoor: https://www.bogleheads.org/wiki/Backdoor_Roth

Conversion: https://www.bogleheads.org/wiki/Roth_IRA_conversion

Regards,
This is one person's opinion. Nothing more.
marcopolo
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Re: Portfolio review - FIRE 2020?

Post by marcopolo »

At a high level, at your age a WR of <3% would be a great place to be, especially with SS coming on top of that later in life.

At $75k expenses a year and a $2.8M portfolio, you are at ~2.7% WR rate, so i think you are in great shape.

With 40% of the $2.8M in your taxable accounts, i don't see why you would need to tap the tax-advantaged accounts prior to age 59.5.
But, if did need to do that for some reason, a Roth Conversion ladder would be a better way to do that than a 72T plan.

Ditch the manged account, you have doe a great job with the rest of portfolio, no reason to waste the $2k/yr here.

Having a bond fund in a Roth IRA seems a waste of tax-free growth space. It is a small portion of your portfolio, so not a big deal, but putting equities with higher growth prospects there would be more efficient.

Good luck, you are in great shape. Enjoy your retirement.
Once in a while you get shown the light, in the strangest of places if you look at it right.
marcopolo
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Re: Portfolio review - FIRE 2020?

Post by marcopolo »

BernardShakey wrote: Sun Sep 06, 2020 12:26 pm Just a few comments...

1. You really look to be in great shape, nice job!
2. For such an early retirement, and potentially 40 year time horizon, your SWR is probably more like 3% instead of the usual 4%. That may make things a little tight if there are no future pensions.
3. For me, if I were getting this close to retirement, I would dial back on the equities some. I would not want to pull the ripcord in the face of a potential bear market with that kind of equity exposure.
4. I'm not knowledgeable enough to advise on 72t.

Good luck!
Did you see his expenses and portfolio size numbers? His WR would be ~2.7%, plus SS someday
Once in a while you get shown the light, in the strangest of places if you look at it right.
unbiased
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Re: Portfolio review - FIRE 2020?

Post by unbiased »

[/quote]

Thank you. That is what the advisor I mentioned in my original post has done for us AND we spoke to another and they think we are "good" but the details of retiring early are clearly not commonplace for them so I wanted more ideas / thoughts/ opinions.
[/quote]

Sorry I missed that -- let me give you one other piece to consider and if you go down this road let's talk some more. I've ensured that I have 10 years of anticipated expenses saved in cash and bonds. This might be extreme, but it's what makes me sleep at night.

Maybe your 15% is enough + your emergency account, but I wanted to make sure I have 10 years to recover from a long-term market rout. My AA is closer to 50/50 for that reason. Now my bond portfolio is much more than low growth U.S. treasuries and includes convertibles, preferred stock, and other bond-like instruments that could potentially offer at least some income/growth in a low/no growth equity environment. I'm not convinced an equity rout will happen, but the whole system is built upon the premise that stocks "only go up" which history shows is not always true. We ignore that risk at our retirement peril.
marcopolo
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Re: Portfolio review - FIRE 2020?

Post by marcopolo »

Raffert wrote: Sun Sep 06, 2020 12:49 pm Hey,



1) You're talking about flexible expenses in the 2-3% range so yes, you're in pretty good shape imo. Just be sure that you have a good handle on healthcare costs and taxes (we're finding that both are lower than expected, but your mileage may vary). Understand the ACA and the subsidy cliff if that's the route you plan on going for healthcare.

2) Once your W2 income is gone and you're pulling from taxable you'll be able to take advantage of 0% LTCG rates, and you should tax gain harvest and/or do roth conversion as much as makes sense in your circumstances. DW and I are focused on LTCG harvesting now and will do roth conversions in the future - that's what made sense for us, anyway, after spending a bit of time playing with different tax scenarios. Also, you'll probably see that Bonds in taxable aren't particularly tax efficient during accumulation, but once you're retired and in a low tax bracket they look a lot more reasonable. From personal experience, they also help you sleep well at night :)

Raffert
Welcome to the forum!

It seems you are getting ACA tax credits and doing LTCG harvesting. Just want to make sure you realize that those LTCG are most likely NOT happening at 0% rate. While no capital gains taxes are due, under the ACA cliff, in most cases, each dollar of income (including LTCGs) reduces your ACA tax credit by roughly 9.8%. So, you are effectively paying that tax rate for your LTCG. Still may be worth doing, you would have to model that, but it is unlikely to be as beneficial a it would have been at 0%.
Last edited by marcopolo on Sun Sep 06, 2020 6:50 pm, edited 1 time in total.
Once in a while you get shown the light, in the strangest of places if you look at it right.
marcopolo
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Re: Portfolio review - FIRE 2020?

Post by marcopolo »

prd1982 wrote: Sun Sep 06, 2020 3:48 pm Personally, I would not FIRE in 2020:

* COVID-19 is not under control in most of the world. I'd want it resolved before I retired.

* You appear to be counting on ACA subsidy. I would wait for the court to announce their decision early next year. Otherwise, you should make sure your retirement plan can handle paying full-freight for insurance.
The world is a scary place.
There is ALWAYS some reason one can find to delay retirement. It is a scary decision.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Raffert
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Re: Portfolio review - FIRE 2020?

Post by Raffert »

marcopolo wrote: Sun Sep 06, 2020 6:40 pm
Welcome to the forum!

It seems you are getting ACA tax credits and doing LTCG harvesting. Just want to make sure you realize that those LTCG are most likely NOT happening at 0% rate. While no capital gains taxes are due, under the ACA cliff, in most cases, each dollar of income (including LTCGs) reduces your ACA tax credit by roughly 9.8%. So, you are effectively paying that tax rate for your LTCG. Still may be worth doing, you would have to model that, but it is unlikely to be as beneficial a it would have been at 0%.

Yes, thank you for flagging that - I should have mentioned it. My DW describes it as "reducing our negative tax rate (the subsidies) by 10%" .

For our circumstances it makes sense, but everyone should do their own calculations and make decisions accordingly.
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Unchained
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Re: Portfolio review - FIRE 2020?

Post by Unchained »

[/quote]

The world is a scary place.
There is ALWAYS some reason one can find to delay retirement. It is a scary decision.
[/quote]

It’s less scary with a $2.8MM portfolio, (I presume) a paid off house and a healthy social security benefit to boot. Congratulations OP!

I am similarly situated and retired in 2017. Watch the ACA cliff! There’s not a lot of flexibility once your investment income approaches the edge.
raiderjkwong
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Re: Portfolio review - FIRE 2020?

Post by raiderjkwong »

We are in a similar position but our investments are quite conservative since we lived through the lost decade when S&P 500 was flat from 1999 to 2011 and made no gains in 11 years. We plan to retire in three years and both of us have pensions paying us 13,000 a month. We are 53 years old and own our 1.2 M home and 3 cars with no mortgage or loans. We are debt free.

Our portfolio is 2.5 M currently. Possibly 3M in 2023 when we actually retire.

1M treasuries
1M AGG bond market
500,000 in stocks (REITS, S&P 500, Tech stocks and Oil/Gas pipelines) paying us 32,000 a year in dividends.
We plan to invest in another 200, 000 in S&P and growth tech stocks before we retire in 2023.
Our retirement income will be roughly 21,666 a month (13,000-pension, 2666 dividends from stocks, 6000 from treasuries/bonds assuming 3% annual return).

I don't know if we are overly conservative but we hate to lose money, esp when we don't need to to take any risks but it look us 30 years to reach this point and with the economy and currents events uncertain we are very risk averse. During the lost decade, we were afraid we would never be able to reach this point in our portfolio. We want a portfolio that we can forget about it forever notwithstanding any black swan events. Of course, we would like to make more money in the market but we simply don't need it and don't need or want any stress during our retirement. Any thoughts...
marcopolo
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Re: Portfolio review - FIRE 2020?

Post by marcopolo »

Unchained wrote: Mon Sep 07, 2020 1:34 pm

It’s less scary with a $2.8MM portfolio, (I presume) a paid off house and a healthy social security benefit to boot. Congratulations OP!

I am similarly situated and retired in 2017. Watch the ACA cliff! There’s not a lot of flexibility once your investment income approaches the edge.
I was being a bit facetious with the poster above who had listed several reason why the OP should not retire at this moment in history.

I agree with you that the OP is in great shape and should go enjoy retirement. FWIW, I retired in 2018 at 51 with similar ratios.
Once in a while you get shown the light, in the strangest of places if you look at it right.
medt
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Re: Portfolio review - FIRE 2020?

Post by medt »

Personally, I would divide my portfolio into 3 different AAs.

Taxable: 60-70% equities and 30-40% fixed assets. You will need a 3-5 years cushion if significant market correction (not just COVID - unfortunately political situation is not that good either) until age 59.5.

Ideally, you would be able to postpone withdrawing assets from your tax deferred accounts to a later date (after SS income kicks in).

IRAs: 90% equities 10% fixed to start and then adjust toward more conservative AA gradually until age 60-62.

Roth IRA: 100% equities, the most aggressive (growth) index fund instead of the current Bond fund.

With up to 3% withdrawal rate you should be fine.

And another thing you'll have to figure out is managing taxes and ACA subsidies, for which, using one time fee financial adviser might be a good approach.

Also, check under which circumstances you could withdraw from tax deferred accounts penalty free (unemployed, 55 yo).
marcopolo
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Re: Portfolio review - FIRE 2020?

Post by marcopolo »

medt wrote: Mon Sep 07, 2020 3:50 pm Personally, I would divide my portfolio into 3 different AAs.

Taxable: 60-70% equities and 30-40% fixed assets. You will need a 3-5 years cushion if significant market correction (not just COVID - unfortunately political situation is not that good either) until age 59.5.

Ideally, you would be able to postpone withdrawing assets from your tax deferred accounts to a later date (after SS income kicks in).

IRAs: 90% equities 10% fixed to start and then adjust toward more conservative AA gradually until age 60-62.

Roth IRA: 100% equities, the most aggressive (growth) index fund instead of the current Bond fund.

With up to 3% withdrawal rate you should be fine.

And another thing you'll have to figure out is managing taxes and ACA subsidies, for which, using one time fee financial adviser might be a good approach.

Also, check under which circumstances you could withdraw from tax deferred accounts penalty free (unemployed, 55 yo).
no need to keep fixed income assets in taxable account.
Put them in the tax deferred IRA. This will slow the growth of of the IRA in most scenarios (reduce RMD, need for Roth conversion). In the event equities drop and you wish to sell fixed income to ride out the down turn, sell equities in taxable as needed, and move an equivalent amount from fixed income to equities in the tax deferred account. This effectively avoids selling equities when they are down (provides "cushion" you were looking for), but in a more tax efficient manner (in most cases).
Last edited by marcopolo on Mon Sep 07, 2020 4:06 pm, edited 1 time in total.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Topic Author
Retirecarefree
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Re: Portfolio review - FIRE 2020?

Post by Retirecarefree »

medt wrote: Mon Sep 07, 2020 3:50 pm Personally, I would divide my portfolio into 3 different AAs.

Taxable: 60-70% equities and 30-40% fixed assets. You will need a 3-5 years cushion if significant market correction (not just COVID - unfortunately political situation is not that good either) until age 59.5.

Ideally, you would be able to postpone withdrawing assets from your tax deferred accounts to a later date (after SS income kicks in).

IRAs: 90% equities 10% fixed to start and then adjust toward more conservative AA gradually until age 60-62.

Roth IRA: 100% equities, the most aggressive (growth) index fund instead of the current Bond fund.

With up to 3% withdrawal rate you should be fine.

And another thing you'll have to figure out is managing taxes and ACA subsidies, for which, using one time fee financial adviser might be a good approach.

Also, check under which circumstances you could withdraw from tax deferred accounts penalty free (unemployed, 55 yo).
Ok, perfect. AA across taxable/tax-deferred is what I was struggling with recently. I see the 3 AAs as a logical step. Thanks!
I already put in the order to exchange VBTLX for VTSAX in the Roth IRA.
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Retirecarefree
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Re: Portfolio review - FIRE 2020?

Post by Retirecarefree »

marcopolo wrote: Mon Sep 07, 2020 3:04 pm
Unchained wrote: Mon Sep 07, 2020 1:34 pm

It’s less scary with a $2.8MM portfolio, (I presume) a paid off house and a healthy social security benefit to boot. Congratulations OP!

I am similarly situated and retired in 2017. Watch the ACA cliff! There’s not a lot of flexibility once your investment income approaches the edge.
I was being a bit facetious with the poster above who had listed several reason why the OP should not retire at this moment in history.

I agree with you that the OP is in great shape and should go enjoy retirement. FWIW, I retired in 2018 at 51 with similar ratios.
Thank you for the support. It is always tempting to do OMY but life is finite so we have reconciled that it is time and we will adjust as needed.
fuddbogle
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Re: Portfolio review - FIRE 2020?

Post by fuddbogle »

Retirecarefree wrote: Sun Sep 06, 2020 3:06 pm
BernardShakey wrote: Sun Sep 06, 2020 1:33 pm Your 60k of expenses includes fed/state taxes owed ? Or 60k (5k per month) is what you need to pay your bills (after tax spendable) ? And your healthcare costs are included in the 60k ?
$60k includes ACA estimate for healthcare and includes estimate for what we expect to be low fed/state taxes based on no W2 income.

Also, IL. has high property taxes and we have included those in our estimates but will move out of state at some point in the future.
You're probably aware but Illinois doesn't tax retirement income. One of the few tax benefits w/in Illinois.
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Retirecarefree
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Re: Portfolio review - FIRE 2020?

Post by Retirecarefree »

unbiased wrote: Sun Sep 06, 2020 6:38 pm
Thank you. That is what the advisor I mentioned in my original post has done for us AND we spoke to another and they think we are "good" but the details of retiring early are clearly not commonplace for them so I wanted more ideas / thoughts/ opinions.
[/quote]

Sorry I missed that -- let me give you one other piece to consider and if you go down this road let's talk some more. I've ensured that I have 10 years of anticipated expenses saved in cash and bonds. This might be extreme, but it's what makes me sleep at night.

Maybe your 15% is enough + your emergency account, but I wanted to make sure I have 10 years to recover from a long-term market rout. My AA is closer to 50/50 for that reason. Now my bond portfolio is much more than low growth U.S. treasuries and includes convertibles, preferred stock, and other bond-like instruments that could potentially offer at least some income/growth in a low/no growth equity environment. I'm not convinced an equity rout will happen, but the whole system is built upon the premise that stocks "only go up" which history shows is not always true. We ignore that risk at our retirement peril.
[/quote]

I think we are actually structured similar to you: Our cash plus taxable VBTLX plus the 40% of the 60/40 AA split of the 5/3 taxable account, gives us about 9 years of 60k living expenses from low risk assets.
Wanderingwheelz
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Re: Portfolio review - FIRE 2020?

Post by Wanderingwheelz »

I’m similar age with a similar net worth and similar cost of living. I say you’re good to go, but there’s no way I’d want to be 85/15 going into retirement. Hell, I’m 67/33 now and we’ve got substantial earned income for at least the next 4 years. Plus we have a nice side gig internet business that we can run for however long we wish. It’s work, but very flexible.

When we retire I’ll make sure to be no more aggressive than 60/40.
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Retirecarefree
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Re: Portfolio review - FIRE 2020?

Post by Retirecarefree »

fuddbogle wrote: Mon Sep 07, 2020 4:21 pm
Retirecarefree wrote: Sun Sep 06, 2020 3:06 pm
BernardShakey wrote: Sun Sep 06, 2020 1:33 pm Your 60k of expenses includes fed/state taxes owed ? Or 60k (5k per month) is what you need to pay your bills (after tax spendable) ? And your healthcare costs are included in the 60k ?
$60k includes ACA estimate for healthcare and includes estimate for what we expect to be low fed/state taxes based on no W2 income.

Also, IL. has high property taxes and we have included those in our estimates but will move out of state at some point in the future.
You're probably aware but Illinois doesn't tax retirement income. One of the few tax benefits w/in Illinois.
Yes, that is one benefit but because IL. has some of the highest property tax rates and sales tax rates in the country, we plan to move out of state in the near future.
fundtalk
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Re: Portfolio review - FIRE 2020?

Post by fundtalk »

Congrats OP, you have enough to make it work. I think a stock heavy portfolio makes a lot of sense for an early retiree and likely is necessary for portfolio survival. I'm wondering about managing the swings in portfolio value though with no money coming in. Based on a 90/10 portfolio I'm estimating your portfolio dropped to around 1.9M in March. That would be a pretty terrifying drop with no future money coming into the account. 90/10 (or 85/15) wouldn't be my comfort zone in retirement, unless the 10% was so large there was little risk (such as Warren Buffet's wife when he passes).
Wannaretireearly
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Re: Portfolio review - FIRE 2020?

Post by Wannaretireearly »

Nice work OP. Your where I want to be in 5/6 years.
What's your plan in retirement? Not that you necessarily need a plan 8-)
Buy Low, Sell High
Wrench
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Re: Portfolio review - FIRE 2020?

Post by Wrench »

My quick and dirty answer to these questions is to find out what an annuity would pay for your entire portfolio based on your spouse and your ages. If the payout meets or exceeds your expenses, then you should be good to go. Not that I would purchase an annuity with any or all of it especially at your age, but it does give some sense of what professional actuaries expect. In your case from blueprintincome.com, 49 yo male, 48 yo female, an income annuity without inflation protection will pay 3.8%. With 2% annual increases, about ~2.6%. Since the former well exceeds your annual expenses, and the latter about covers them, then you should be fine to RE. The details of HOW you manage the money is a different kettle of fish and I leave that to wiser BHs than me.

Wrench
medt
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Re: Portfolio review - FIRE 2020?

Post by medt »

marcopolo wrote: Mon Sep 07, 2020 4:00 pm

no need to keep fixed income assets in taxable account.
Put them in the tax deferred IRA. This will slow the growth of of the IRA in most scenarios (reduce RMD, need for Roth conversion). In the event equities drop and you wish to sell fixed income to ride out the down turn, sell equities in taxable as needed, and move an equivalent amount from fixed income to equities in the tax deferred account. This effectively avoids selling equities when they are down (provides "cushion" you were looking for), but in a more tax efficient manner (in most cases).
I would disagree (just my personal opinion) as OP's fixed assets in the taxable account will be around $400k and his total annual taxable income (Interest, LTCG, Dividends) will be in 30-50K range.

IMO, It would be easier to manage those 3 buckets independently.

P.S. Speaking of tax deferred accounts - I would prefer that my RMDs are higher than lower, but it is just me.

I base my recommendation on the fact that they will stop working (no income) and that they plan to spend $65-75k annually.
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Retirecarefree
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Re: Portfolio review - FIRE 2020?

Post by Retirecarefree »

fundtalk wrote: Mon Sep 07, 2020 4:58 pm Congrats OP, you have enough to make it work. I think a stock heavy portfolio makes a lot of sense for an early retiree and likely is necessary for portfolio survival. I'm wondering about managing the swings in portfolio value though with no money coming in. Based on a 90/10 portfolio I'm estimating your portfolio dropped to around 1.9M in March. That would be a pretty terrifying drop with no future money coming into the account. 90/10 (or 85/15) wouldn't be my comfort zone in retirement, unless the 10% was so large there was little risk (such as Warren Buffet's wife when he passes).
Re: market ups/downs we are concerned about wild swings and long-term stagnation as much anyone but in terrible markets we learned that we can scale back our expenses to 3k per month as evidenced by actual COVID period data (Apr-Jul). We did see a 16% drop in the total portfolio value 1/1 vs. 4/1 but while short-term concerning, we recognize the need to stick to our plan and ride the waves.
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Retirecarefree
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Re: Portfolio review - FIRE 2020?

Post by Retirecarefree »

Wannaretireearly wrote: Mon Sep 07, 2020 5:19 pm Nice work OP. Your where I want to be in 5/6 years.
What's your plan in retirement? Not that you necessarily need a plan 8-)
Our plan is to own our time and do with it as we please. Hobbies, health and family are my priorities. I will also always remain open to employment so that if an opportunity crosses any of these priorities I would consider it.
marcopolo
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Re: Portfolio review - FIRE 2020?

Post by marcopolo »

medt wrote: Tue Sep 08, 2020 8:50 am
marcopolo wrote: Mon Sep 07, 2020 4:00 pm

no need to keep fixed income assets in taxable account.
Put them in the tax deferred IRA. This will slow the growth of of the IRA in most scenarios (reduce RMD, need for Roth conversion). In the event equities drop and you wish to sell fixed income to ride out the down turn, sell equities in taxable as needed, and move an equivalent amount from fixed income to equities in the tax deferred account. This effectively avoids selling equities when they are down (provides "cushion" you were looking for), but in a more tax efficient manner (in most cases).
I would disagree (just my personal opinion) as OP's fixed assets in the taxable account will be around $400k and his total annual taxable income (Interest, LTCG, Dividends) will be in 30-50K range.

IMO, It would be easier to manage those 3 buckets independently.

P.S. Speaking of tax deferred accounts - I would prefer that my RMDs are higher than lower, but it is just me.

I base my recommendation on the fact that they will stop working (no income) and that they plan to spend $65-75k annually.

You can certainly choose to do that if you want.

But, your approach, in most cases, will result in higher taxes, and less money for the OP to spend over their lifetimes.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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