EMERGENCY FUNDS - Yes (14 months cash = $67K)
DEBT - None
HOUSING - Currently in rented accomodation. I don't own a house.
TAX FILING STATUS - Single
AGE - 44
RETIREMENT SCENARIO - I plan to semi-retire now (no future income expected in this scenario). I am eligible for US Social Security of $22,464/year if taken at age 67.
USA TAX RATE - 15% Federal / 0% State
DESIRED PORTFOLIO ALLOCATION - 65% Stocks / 35% Bonds
DESIRED INTERNATIONAL STOCKS ALLOCATION - 60% - My reasoning for this percentage is as follows (please comment if you disagree with the following logic). I live in UK and expect to spend my retirement mainly outside of the USA. Hence, I need to protect myself from currency fluctuations - particularly if the USD falls against GBP or the Euro - as I predict most of my retirement expenses over the next decades will be in these 2 currencies (GBP and Euro). My logic is that my high ratio of international stock vs. US stock will be hedge against such a depreciation of the USD vs GBP or Euro (might happen given USD's appreciation vs GBP and EUR since 11/2008).
ACCOUNT HOLDINGS (All in Cash - no capital gains to pay as I allocate my portfolio from cash)
- US Taxable Accounts: $910K
- US Tax-Deferred Accounts: $223K
- UK Tax-Deferred Accounts: $127K (held in GBP)
- TOTAL: $1,260,000
USA BROKERAGE ACCOUNTS - ETrade, Scottrade (Wide range of Mutual Funds and ETFs available.)
I prefer to invest using ETFs over Mutual Funds as ETFs are more tax-friendly for an overseas resident (in addition to the other advantages).
NET COST OF LIVING - $58K/YEAR (includes rent).
GROSS INCOME REQUIRED (ASSUMES 10% TAX DUE ON ALL) - $65K/YEAR
ESTIMATED INFLATION RATE - 3% per year
ESTIMATED ACCOUNTS WITHDRAWAL RATE - 4.3% ($54K) to 5.2% ($65K) per year.
(My intention is to take a fixed amount per year increased annually by the inflation rate.)
HOUSING - It's possible that I may purchase a home in the next few years rather than renting. In which case my intention would be to pay cash (no mortgage) and to keep the same portfolio asset allocation as below.
Here are my questions that I'd appreciate comments on:
1) Do the logic/assumptions above make sense?
2) Are the following asset allocations sensible? - will they meet my early retirement scenario and be likely to last through retirement etc.?
ASSET ALLOCATIONS
US TAXABLE ACCOUNTS:
15% VTI --- Total US Stock
39% VEU --- International Stock (Developed & Emerging Markets)
6% VBR --- US Small Value Stock
5% VNQ --- US REIT
7% BND --- Total US Bonds
US TAX-DEFERRED ACCOUNTS:
14% TIP --- US Inflation-Protected Bonds
4% BND --- Total US Bonds
UK TAX-DEFERRED ACCOUNTS (HELD IN GBP):
7% TIP equivalent = UK Gilts (held in GBP)
3% BND equivalent = Total UK Bonds (held in GBP)
GOALS:
Stocks 65% + Bonds 35% (60% of Bonds in US TIPS and UK Gilts)
Domestic US Stocks 40% + International Stocks 60%
3) Is this average 7.4% return rate realistic for planning purposes over the next 30 years given this asset allocation?
US TAXABLE ACCOUNTS------------------------------------------------------------------Actual RR
15% VTI --- Total US Stock------------------------------------------------------------------8.0%
39% VEU --- International Stock (Developed & Emerging Markets)--------------------9.0%
6% VBR --- US Small Value Stock------------------------------------------------------------9.0%
5% VNQ --- US REIT--------------------------------------------------------------------------8.0%
7% BND --- Total US Bonds-------------------------------------------------------------------6.0%
US TAX-DEFERRED ACCOUNTS:
14% TIP --- US Inflation-Protected Bonds-------------------------------------------------1.5%
4% BND --- Total US Bonds-------------------------------------------------------------------6.0%
UK TAX-DEFERRED ACCOUNTS (HELD IN GBP):
7% TIP equivalent = UK Gilts (held in GBP)-------------------------------------------------1.5%
3% BND equivalent = Total UK Bonds (held in GBP)---------------------------------------6.0%
*** TOTAL RETURN RATE (pre-tax)--------------------------------------------------------7.4%
*** REAL RETURN RATE - after 3% Inflation deducted--------------------------------4.4%
The ER is 0.26 for my portfolio which would need deducting from the Return Rates above.
Thanks for your help!
John
DEBT - None
HOUSING - Currently in rented accomodation. I don't own a house.
TAX FILING STATUS - Single
AGE - 44
RETIREMENT SCENARIO - I plan to semi-retire now (no future income expected in this scenario). I am eligible for US Social Security of $22,464/year if taken at age 67.
USA TAX RATE - 15% Federal / 0% State
DESIRED PORTFOLIO ALLOCATION - 65% Stocks / 35% Bonds
DESIRED INTERNATIONAL STOCKS ALLOCATION - 60% - My reasoning for this percentage is as follows (please comment if you disagree with the following logic). I live in UK and expect to spend my retirement mainly outside of the USA. Hence, I need to protect myself from currency fluctuations - particularly if the USD falls against GBP or the Euro - as I predict most of my retirement expenses over the next decades will be in these 2 currencies (GBP and Euro). My logic is that my high ratio of international stock vs. US stock will be hedge against such a depreciation of the USD vs GBP or Euro (might happen given USD's appreciation vs GBP and EUR since 11/2008).
ACCOUNT HOLDINGS (All in Cash - no capital gains to pay as I allocate my portfolio from cash)
- US Taxable Accounts: $910K
- US Tax-Deferred Accounts: $223K
- UK Tax-Deferred Accounts: $127K (held in GBP)
- TOTAL: $1,260,000
USA BROKERAGE ACCOUNTS - ETrade, Scottrade (Wide range of Mutual Funds and ETFs available.)
I prefer to invest using ETFs over Mutual Funds as ETFs are more tax-friendly for an overseas resident (in addition to the other advantages).
NET COST OF LIVING - $58K/YEAR (includes rent).
GROSS INCOME REQUIRED (ASSUMES 10% TAX DUE ON ALL) - $65K/YEAR
ESTIMATED INFLATION RATE - 3% per year
ESTIMATED ACCOUNTS WITHDRAWAL RATE - 4.3% ($54K) to 5.2% ($65K) per year.
(My intention is to take a fixed amount per year increased annually by the inflation rate.)
HOUSING - It's possible that I may purchase a home in the next few years rather than renting. In which case my intention would be to pay cash (no mortgage) and to keep the same portfolio asset allocation as below.
Here are my questions that I'd appreciate comments on:
1) Do the logic/assumptions above make sense?
2) Are the following asset allocations sensible? - will they meet my early retirement scenario and be likely to last through retirement etc.?
ASSET ALLOCATIONS
US TAXABLE ACCOUNTS:
15% VTI --- Total US Stock
39% VEU --- International Stock (Developed & Emerging Markets)
6% VBR --- US Small Value Stock
5% VNQ --- US REIT
7% BND --- Total US Bonds
US TAX-DEFERRED ACCOUNTS:
14% TIP --- US Inflation-Protected Bonds
4% BND --- Total US Bonds
UK TAX-DEFERRED ACCOUNTS (HELD IN GBP):
7% TIP equivalent = UK Gilts (held in GBP)
3% BND equivalent = Total UK Bonds (held in GBP)
GOALS:
Stocks 65% + Bonds 35% (60% of Bonds in US TIPS and UK Gilts)
Domestic US Stocks 40% + International Stocks 60%
3) Is this average 7.4% return rate realistic for planning purposes over the next 30 years given this asset allocation?
US TAXABLE ACCOUNTS------------------------------------------------------------------Actual RR
15% VTI --- Total US Stock------------------------------------------------------------------8.0%
39% VEU --- International Stock (Developed & Emerging Markets)--------------------9.0%
6% VBR --- US Small Value Stock------------------------------------------------------------9.0%
5% VNQ --- US REIT--------------------------------------------------------------------------8.0%
7% BND --- Total US Bonds-------------------------------------------------------------------6.0%
US TAX-DEFERRED ACCOUNTS:
14% TIP --- US Inflation-Protected Bonds-------------------------------------------------1.5%
4% BND --- Total US Bonds-------------------------------------------------------------------6.0%
UK TAX-DEFERRED ACCOUNTS (HELD IN GBP):
7% TIP equivalent = UK Gilts (held in GBP)-------------------------------------------------1.5%
3% BND equivalent = Total UK Bonds (held in GBP)---------------------------------------6.0%
*** TOTAL RETURN RATE (pre-tax)--------------------------------------------------------7.4%
*** REAL RETURN RATE - after 3% Inflation deducted--------------------------------4.4%
The ER is 0.26 for my portfolio which would need deducting from the Return Rates above.
Thanks for your help!
John