LongestLurker
Confused about dryer sheets
- Joined
- Aug 23, 2020
- Messages
- 8
I am a very long time lurker, having first found this website in 2004 or so. It has simultaneously been inspiring (so many people accomplishing incredible financial goals at a very young age) and, at times, depressing (will I ever be able to realistically accomplish what so many others have done). In 2004 I set a goal of saving $1 million by 40 and $2 million at 45, with the hope that I would be able to FIRE at 45. At the time, I thought these goals were incredibly optimistic but was determined to try. I did better than expected, hitting my first goal at 38 and my second at 41, but also quickly realized I needed much more than $2M to FIRE. I am now 45 and have $4,350,000 saved, and feel I am getting very close, but I have doubts and concerns.
Of my investments, about $2M are pre-tax investments (401Ks, IRAs) and the rest (about $2.35M) are after tax investments/cash and make up my “bridge” fund. The overall investment breakdown is as follows:
50% Large Cap
20% International/Emerging Markets
10% Medium/Small Cap
10% Cash
10% Bonds
My two largest expenses are my mortgage (about $40K annually, not including taxes and insurance) and private school tuition until my kids reach college, which will total about $160 over the next 6 years (I already have college pretty well covered, with about $360K in 529 plans). My spouse has a low-impact job and can continue to work until the kids get to college to cover our health insurance. If I set aside $200K to cover tuition and other school-related expenses for the next 6 years, I will need to withdraw about $145K annually from my remaining portfolio to cover my estimated expenses and taxes. Once the kids are in college, we plan to use our home equity (currently about $600K) to downsize, which will eliminate my mortgage expenses but by then I will also be paying for health insurance, so it will probably be a wash.
When I use the “couch potato” setting of FIRECALC with a .7 expense ratio based on a portfolio of $4,150,000 for a 45 year retirement, I get a success rate of 91.4 percent. When I try using my actual investment percentages (which is hard since there is no international stock entry), I get 100 percent. My mutual fund company also ran their Monte Carlo analysis, and they get 86 percent. So it seems I am not quite there yet. My mutual fund company tells me that I can get to 90 percent in their analysis if I have a 60/40 ratio of stocks and bonds, but I have concerns with the durability of a 60/40 portfolio for a 45 year retirement. My current percentages seem more in line with my age and timeline.
So do I need to wait a few more years and get my portfolio closer to $5M to be safe? Also, for those of you who have retired before 50, what is your asset allocation and what is your approach for withdrawing money each year? Based on the past few years, my after tax investments will probably only return dividends of $50K or so annually, so I will need to sell some mutual funds to cover the bulk of my expenses. And I can only make asset allocation adjustments to my pre-tax investments. Otherwise, I would incur massive tax bills. But because these are pre-tax investments that I do not plan on touching for another 14 years or so, it seems to me that making them more conservative now would be a wasted opportunity for growth.
I have enough cash for about 3+ years of expenses, so I could live off of cash with the hope the market will climb higher, but that seems like a risky strategy. I would rather use the cash as a hedge against future market crashes to hopefully weather future downturns and avoid the need to sell investments when they are low. But it is nice to have the option to possibly pull the FIRE trigger now and return to work in a few years if needed.
Sorry for the long post, but I wanted to provide a full picture. Any and all thoughts/comments are welcome. Thanks!
Of my investments, about $2M are pre-tax investments (401Ks, IRAs) and the rest (about $2.35M) are after tax investments/cash and make up my “bridge” fund. The overall investment breakdown is as follows:
50% Large Cap
20% International/Emerging Markets
10% Medium/Small Cap
10% Cash
10% Bonds
My two largest expenses are my mortgage (about $40K annually, not including taxes and insurance) and private school tuition until my kids reach college, which will total about $160 over the next 6 years (I already have college pretty well covered, with about $360K in 529 plans). My spouse has a low-impact job and can continue to work until the kids get to college to cover our health insurance. If I set aside $200K to cover tuition and other school-related expenses for the next 6 years, I will need to withdraw about $145K annually from my remaining portfolio to cover my estimated expenses and taxes. Once the kids are in college, we plan to use our home equity (currently about $600K) to downsize, which will eliminate my mortgage expenses but by then I will also be paying for health insurance, so it will probably be a wash.
When I use the “couch potato” setting of FIRECALC with a .7 expense ratio based on a portfolio of $4,150,000 for a 45 year retirement, I get a success rate of 91.4 percent. When I try using my actual investment percentages (which is hard since there is no international stock entry), I get 100 percent. My mutual fund company also ran their Monte Carlo analysis, and they get 86 percent. So it seems I am not quite there yet. My mutual fund company tells me that I can get to 90 percent in their analysis if I have a 60/40 ratio of stocks and bonds, but I have concerns with the durability of a 60/40 portfolio for a 45 year retirement. My current percentages seem more in line with my age and timeline.
So do I need to wait a few more years and get my portfolio closer to $5M to be safe? Also, for those of you who have retired before 50, what is your asset allocation and what is your approach for withdrawing money each year? Based on the past few years, my after tax investments will probably only return dividends of $50K or so annually, so I will need to sell some mutual funds to cover the bulk of my expenses. And I can only make asset allocation adjustments to my pre-tax investments. Otherwise, I would incur massive tax bills. But because these are pre-tax investments that I do not plan on touching for another 14 years or so, it seems to me that making them more conservative now would be a wasted opportunity for growth.
I have enough cash for about 3+ years of expenses, so I could live off of cash with the hope the market will climb higher, but that seems like a risky strategy. I would rather use the cash as a hedge against future market crashes to hopefully weather future downturns and avoid the need to sell investments when they are low. But it is nice to have the option to possibly pull the FIRE trigger now and return to work in a few years if needed.
Sorry for the long post, but I wanted to provide a full picture. Any and all thoughts/comments are welcome. Thanks!