Early retirement spending plan and glide path

[duckcalldan]

Hi. I also posted this in bogleheads but I want to give my friends at e-r a voice as well!

So my wife and I are gonna be retiring in a little over 6 months at age 53 (50 for her). Very very excited. A little scared but not very much. Around $2.5M total so I'm feeling confident. Here's my plan; I'd love your feedback.

Asset allocation right now 85/15/5. More aggressive than I'd like this close to retirement but I have no problem sleeping at night.

Taxable accounts at 1.4M, 401K at $800K, Roths at $300K.

Upon retirement, I'll rollover my 401K to an 3-fund IRA: 40% VCIT (Intermediate Corp Bond), 50% BSV (Short Term Bond), 10% VTI. Or something close. That will immediately put me at a 60/40 AA which I feel comfortable with. I plan to have about 100K in cash.

I'm confident I can make my taxable accounts (75% equities) last until I take SS at age 70. I'll sell equities as I need cash, which will glide me to a more bond-heavy AA as time goes by. Lots of LTCG which I will be careful with.

On top of that, I plan to do partial conversions of my rollover IRA into a Roth up to the maximum my 15% tax rate allows to minimize RMDs.

My back of the envelope math says that, on top of qualified dividends, I should be able to convert 40-50K to a Roth annually along with about 30K of LTCG and still stay within the 15% tax bracket. If I've done my math right, I should also qualify for some sort of ACA subsidy.

What do you think? Am I leaving something out?

 

[N02L84ER]

Unless you have children, the maximum 2 people can have as income and still qualify for ACA subsidies is less than $64K.

 

[Frankie1926]

What are your annual expenses? Did you account for new cars, home repairs, vacations, gifts, insurance, food, inflation, unplanned events etc etc?


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[duckcalldan]

I have two kids, aged 15 and 19. College is paid for and not included in my assets. So an ACA subsidy is possible until my oldest turns 26.

Planned expenses are around 70K. No mortgage. I plan to keep SWR at 3% or a bit lower.


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[MBAustin]

Have you run this through FIREcalc? You might also want to look at iORP to model your Roth conversions. Personally, I didn't follow what it said to do, but it was good to look at as part of the thought process.

 

[SecondCor521]

I have two kids, aged 15 and 19. College is paid for and not included in my assets. So an ACA subsidy is possible until my oldest turns 26.

Hopefully your plan doesn't hinge too heavily on the above bolded part; I think it is inaccurate.

As I understand it, ACA subsidies are based on (among other things) your taxable household size - basically the number of exemptions that you claim on line 6d of your 1040. Once your kids graduate from college, hopefully before 26, they are likely not to be your dependent, and thus not end up on line 6d, and thus adversely affect your ability to qualify for ACA subsidies.

To use my own family as an example, I have three kids, so originally I thought that my target ACA income was $47,700 - 200% of the FPL for a family size of 4. However, since my oldest son age 21 no longer qualifies as my dependent, my target ACA income is in fact $39,580 - 200% of the FPL for a family size of 3.

There is another part of the ACA which requires insurance companies to let kids stay on their parents' insurance until they turn 26, but I believe that rule is distinct from the ACA subsidy rules.

 

[walkinwood]

If it were me... With ER looming in 6 months and stock indexes hitting all time highs, I would move my allocation close to the final one right now.

What do you stand to gain? How much could you lose? Would that affect your ER timing?

Edit: It may not matter that much. Say you have 85 stock now, target is 60, so you're overweighted 25. If the stock market goes +10% or -10% your portfolio gain/loss on the overweighted portion is +2.5 or -2.5.. not that much in the big scheme of things. (Assuming the cash/bond portion holds steady, of course) Hope I got that math correct.

 

[duckcalldan]

Moved 90% of my 401k to bonds late last week. I'm not worried about a consistent AA across all accounts. Doing this changed my total AA to 56/39/5. Probably a overdue move but I'm glad I did it!


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