preparing for ER: pretend you're my financial advisor

[mrfeh]

My suggestion would be add about $30k to taxable accounts each of the next 3 years. This would increase bond exposure of portfolio from about 30% to 35-40% in same timeframe without selling or rebalancing rest of portfolio.

The 100k added could yield 4-6% and generate $6000 of the needed $45k in income without cashing any investment out. It would lower the risk of the portfolio as well.

Understood. I thought you were suggestion we might be able to live off taxable dividends without touching the principle.

So, if you look at my previous post, you'll see my plan is to add about $120K in fixed income to the taxable account over 3 years. Is that the kind of plan you were envisioning?

 

[FinanceGeek]

This may not be true. If you sell whatever amount of equities in taxable you want (take a loss even) then sell bonds in taxadvantaged but use the proceeds to buy similar (not exactly the same to avoid wash sale) you have in fact accessed the same amount of money as selling the bonds, but moved the equity position into the tax advantaged space.

You did say to be careful of the wash sale rule, but I'll re-emphasize that it indeed applies even though the purchasing was being done in a tax-free account, many don't know that!

 

[pb4uski]

...

• wife and I both 47
• I plan on retiring in 3 years, at 50
• wife will retire in 5 years, at 52
• annual expenses: $40-45K
• tax bracket in retirement: 15%

My wife's salary doesn't quite cover our expenses, so we'll need to start partially living off of savings for a couple years. In five years, we'd be living completely off of our taxable account until we have access to IRAs, 8 years later.
.....

• taxable account: $625K (100% equities)

...My primary concern is getting from 52 to 60. What would your advice be?
....

Seems to me that you are in good shape as your existing taxable account balances will cover over 14 years of your living expenses ($625/$45 ~ 14 years), which gets you from 52 to 60 with room to spare.

You should model it out but I suspect your tax rate will be much less than 15%. Mine went from over 28% to 0%. You can get a good idea by taking last year's tax return and zero out your earnings and make any other appropriate adjustments.

I don't understand the advice to favor taxable savings over tax deferred at this point in your journey. Your marginal tax rate today while you are both working is probably much higher than it will be between 52-60 so defer taxes today and do Roth conversions later to take advantage of your low tax rate in retirement.

 

[daylatedollarshort]

IYour marginal tax rate today while you are both working is probably much higher than it will be between 52-60 so defer taxes today

+1.

 

[jIMOh]

I don't understand the advice to favor taxable savings over tax deferred at this point in your journey. Your marginal tax rate today while you are both working is probably much higher than it will be between 52-60 so defer taxes today and do Roth conversions later to take advantage of your low tax rate in retirement.

The advice I gave to boost taxable accounts is because 100% of those accounts are in equities now, and if the plan is to live off 100% equities for 8 years, I think we all could agree that asset class is too volatile for such plan.

The goal of add to taxable accounts is based on diversifying the asset class which can be sold to supply income from age 52-60. The tax consequences over the next 3 years would not be that high, IMO.