I am confused about some aspects of the "withdrawal" phase of establishing an FIRE plan. When the withdrawal phase begins, I will need secure income from my investments in order to pay for monthly expenses. I believe that at the point of retiring, my asset allocation will need to shift, and the majority of my investments will need to be in bonds. For example, I believe 30 years treasury bonds are currently yielding, on average, 4.48 percent. Say I need approximately $60,000 in annual income. That would mean I would need $1,339,285.00 invested in 30 year treasury securities (or something with a similar risk/return profile) in order to generate the annual income that I would need from my investments. But if all of my investments were in bonds, then my asset allocation would not be optimal and I would probably suffer from the consequence of inflation.
I know that I am leaving Social Security and a small defined benefit pension (for which I am eligible) amount out of this analysis. But I may want to retire early enough that Social Security and a defined benefit pension payment would not kick into effect for a long time (say 20 years for SS and 15 years for pension).
When I use FIREcalc, I get the impression that I could retire with less than the $1,339,285.00 amount. I guess my question/concern is, how do I allocate my investments as I approach my early retirement age, in an effort to ensure both that I have enough put into fixed securities in order to meet my monthly expenses, but also factoring in the effect of inflation and the need for stock investments to address that? If you do keep a portion of your investment in stocks, and the income from your bond portion is not meeting your monthly expenses, do you just sell (on an annual basis) a portion of the stock investment that has done particularly well in the last year and use that amount to make up the difference?
If that number, $1,339,285 (or higher), is what I would need to have in order to achieve my early retirement goal, I feel like I am a very long way off from achieving that goal!
Thank you for your advice.
I know that I am leaving Social Security and a small defined benefit pension (for which I am eligible) amount out of this analysis. But I may want to retire early enough that Social Security and a defined benefit pension payment would not kick into effect for a long time (say 20 years for SS and 15 years for pension).
When I use FIREcalc, I get the impression that I could retire with less than the $1,339,285.00 amount. I guess my question/concern is, how do I allocate my investments as I approach my early retirement age, in an effort to ensure both that I have enough put into fixed securities in order to meet my monthly expenses, but also factoring in the effect of inflation and the need for stock investments to address that? If you do keep a portion of your investment in stocks, and the income from your bond portion is not meeting your monthly expenses, do you just sell (on an annual basis) a portion of the stock investment that has done particularly well in the last year and use that amount to make up the difference?
If that number, $1,339,285 (or higher), is what I would need to have in order to achieve my early retirement goal, I feel like I am a very long way off from achieving that goal!
Thank you for your advice.