Steady Saver,
You’re asking some great questions. About 3 years before we RE’d, we had an equity portfolio heavily invested in growth stocks. Generally excellent returns but also very volatile and didn’t produce income. We had almost no bonds in our taxable accounts because we didn’t need or want the income in the accumulation phase.
We worked with an FA to transition our taxable portfolio to 75% equities and 25% fixed income. It’s still mostly in individual securities (stocks & bonds) but now generates around $80K/year of income. We’ve been ER’d about 14 months and so far, we’ve been able to reinvest most of the income because some tax deferred monies from my previous employer provided most of our cash flow needs. I’ve considered simplifying this portfolio by moving to funds/ETF’s, but have substantial capital gains that would become taxable if I do that.
I did roll my entire 401K over to my tIRA because I have my tIRA invested in hard money loans and that investment is not an option through my previous employer’s plan. Depending on the size of your employer’s plan, it may be cost advantageous for you to roll it over into your own IRA, or to leave it with your employer. Depends on what they charge for fees.
We are still transitioning into retirement and haven’t yet worked out a permanent “system” for how we’ll get our cash flow, but we do have a general idea. In our case, we can fund our needs via:
- The interest/dividend income on our taxable portfolio
- Tax deferred plan payouts from previous employer plan
- Pension from former employer (haven’t started it yet but could start anytime)
- Cashout of annuity provided by previous employer
- SS for each of us (not sure when we’ll start; still in our 50’s)
- Selling securities in taxable portfolio and withdrawing principal
- After age 59.5, we can also use earnings from our hard money loans instead of reinvesting them if we so choose
I do think advice from a CPA or FA with a tax background is helpful in deciding when to tap into each of these various options. It’s nice to have options, but on the other hand, tapping into the “wrong” one at the wrong time can have very undesirable tax consequences. There are also opportunities to be considered such as Roth conversions where you could benefit from some professional advice.
As for LTC, my thought is that perhaps you don’t need an LTC policy as long as you maintain two properties. If one of you needed LTC, wouldn’t you likely want to cut down to one property anyway, in which case the proceeds from selling it would fund your LTC? And if you don’t have heirs you want to leave a property to, the spouse that doesn’t need LTC could continue to live in one of the properties and borrow against it. We chose to self-insure for LTC, figuring that either we will have enough in our portfolio when the time comes, or if we don’t, the property we own can be tapped into to pay for LTC. Frankly, the LTC landscape is changing so much, I’d be afraid that any policy I purchased now could potentially be irrelevant 20 or 30 years from now.
Congratulations on your success; it sounds like you are financially ready for ER but just need some help transitioning into a portfolio that provides a source of steady cash flow. There are many ways to accomplish that and perhaps a CPA or FA would be the best resource to show you specific options relative to your situation.
