My wife and I will be turning 35 this year, with the goal to RE at 46. My spreadsheet forecast has us with a total portfolio value of ~$5M at the time of retirement (in today's dollars). That portfolio is forecasted to be split 45/45/10 between taxable brokerage, traditional 401k, Roth IRA. Currently, we're 80/20 VTI/VXUS in the taxable brokerage and Roth IRA's, and 70/20/10 in the 401k's domestic/international/bond.
My fear is SORR, or retiring into a bear market, where those first few years are really critical for the long term success of retirement. The solution to hedge against this risk seems to be increasing your cash and bond positions as you approach retirement/in early retirement so you're not forced to sell equities at a massive loss, which becomes a drag on your portfolio in the future years.
My question is, for implementing a strategy like this, where should those funds be allocated? Below are my thoughts/what my current plan is, but I encourage the community to critique and correct my assumptions.
For the taxable brokerage:
Does that sound right? Is that the general gist of it, or have I overlooked something? Like I said, I encourage those who are more knowledgeable about this than I am to critique my plan, I'm definitely looking to learn what to do (and what not to do) when it comes to switching from a purely accumulation mode (where we are now), to beginning to plan for what retirement will actually look like, and where your income will be coming from (particularly in those early retirement years).
Thank you in advance.
My fear is SORR, or retiring into a bear market, where those first few years are really critical for the long term success of retirement. The solution to hedge against this risk seems to be increasing your cash and bond positions as you approach retirement/in early retirement so you're not forced to sell equities at a massive loss, which becomes a drag on your portfolio in the future years.
My question is, for implementing a strategy like this, where should those funds be allocated? Below are my thoughts/what my current plan is, but I encourage the community to critique and correct my assumptions.
For the taxable brokerage:
- About 3-5 years before retirement, look in to selling some equities and setting up a bond ladder, so that as each bond ends that amount would be our annual income in retirement and could be rolled over into a HYSA/MMF or CD to cover the first ~3-4 years of retirement.
- If done 5 years before retirement, this could be done by buying a 5-year T-Note to cover 2 years of expenses, and a 7-year T-Note to cover another 1-2 years of expenses, which would get us through the first 3-4 years of retirement without needing to touch equities.
- Keep the all-equity position, since the plan is not to touch these funds for a while, while simultaneously doing Roth conversions from our traditional 401k's (which will be rolled over into a traditional IRA upon retirement).
- 5 years before retirement, convert 100% of the funds in to a 2035 target date fund (we plan on retiring in 2035), so that we increase our bond position to help protect the funds that exist in those accounts (which will be used for Roth conversions once retired).
- Once retired, roll both 401k's into a combined traditional IRA with a 60/40 of equities/bonds, where the bonds could be a rolling T-Note ladder until we reach a point where we want to begin increasing the equity position in the account, and as the T-Notes mature, use those funds to buy the desired equity ETF.
Does that sound right? Is that the general gist of it, or have I overlooked something? Like I said, I encourage those who are more knowledgeable about this than I am to critique my plan, I'm definitely looking to learn what to do (and what not to do) when it comes to switching from a purely accumulation mode (where we are now), to beginning to plan for what retirement will actually look like, and where your income will be coming from (particularly in those early retirement years).
Thank you in advance.