getting ready

[ER_Hopeful]

Anything i should start doing now investment wise? Would like to retire by Jan 2028.

Age now: 53. Age in Jan 2028: 55.

Assets:
Total: 3mil
Taxable: 700k
Two Roth IRAs combined: 750k. About 170K is contribution (so tax free distribution), rest is CG.
old 401k: 550k, current 401k: 650K. Checked with admin, I can do rule of 55 but needs to be in annual equal amount.
HSA: 300k

Asset Allocations:
110k cash, the rest mostly SP500 index or aggressive growth like VUG, QQQ and some tech stocks. No bonds.

Kids college: paid for

Location: Calif

Expenses: Would like to have 90k but can cut back some discretionary if needed. Will need ACA, so need to keep MAGI under 84k. Wife has chronic illness, will probably go with some Silver PPO plan. ACA premium is included in 90K, but medical expenses such as deductibles can come from HSA.

So 1.5 yr away from retirement, want to get a sense for what others would do in a transition period like this. Would you start moving aggressive growth ETF into safer assets now or let them ride for a little longer? What should I buy? Some rough draft idea in my head: 1.5 mil for income stream, split among 3 things: 1. SCHD, 2. covered call ETF like JEPQ 3. bonds/CDs. Remaining 1.5 mil stay in index and growth ETF.

any comments/suggestions are welcomed. Thanks.

 

[Koolau]

I always ask if you haver run FIRECalc with your numbers?

FIRECalc: A different kind of retirement calculator

www.firecalc.com

Also, I don't know where in California you live, but 90K sounds kinda bare-bones though I've never lived there (I assume my living in Hawaii is similar). Spending 90K and needing to use ACA would be iffy at best in Honolulu. Just thinking out loud here, so YMMV.

If you have access to lots of cash tucked away, you can spend that without increasing AGI.

 

[ER_Hopeful]

I always ask if you haver run FIRECalc with your numbers?

just did it. It said I have 100% success rate, lowest outcome=$619,781. Highest=$31,561,047, average=$9,011,814. For its calculation, I bumped expense up to 100K.

I think I can get by with 90K, not fabulous but okay. I think I'll owe very little to fed income tax since LTCG is 0% up to 99k, CA income tax is very little for my income level. So main fixed expense is ACA premium and out of pocket medical (max=8k, coming out of HSA tax free.)

Mortgage free, all debt free.

 

[RxMan]

It looks like you are financially ready to retire. Good luck with your decision.

 

[Patience]

I would have 2-3 years of living expenses and taxes in cash equivalents to reduce SORR.

Great saving! Looking forward to retiring around the same time, late 2028.

 

[pb4uski]

just did it. It said I have 100% success rate, lowest outcome=$619,781. Highest=$31,561,047, average=$9,011,814. For its calculation, I bumped expense up to 100K.

I think I can get by with 90K, not fabulous but okay. I think I'll owe very little to fed income tax since LTCG is 0% up to 99k, CA income tax is very little for my income level. So main fixed expense is ACA premium and out of pocket medical (max=8k, coming out of HSA tax free.)

Mortgage free, all debt free.

One neat option in FIRECalc is to go to the Investigate tab and select the option at the bottom to provide the safe spending amount at your chosen degree of success (default is 95% success) and then submit.


On your original question, I would think that it would be prudent to reduce your stock exposure and put the proceeds in fixed income.
From a tax efficient placement perspective you want bonds to be in tax-deferred accounts rather than taxable or tax-free accounts.

Since you won't be able to use the rule of 55 for your old 401k, I would consider rolling that over into an IRA and investing it in a rolling ladder of target maturity bond ETFs... probably 8-10 years and a mix of investment-grade corporate bonds, TIPS and a little high-yield corporate bonds for a little spice.

Does your current 401k that you will use for rule of 55 withdrwals offer any attractive bond funds?

Also, are you aware that you can to penalty-free withdrawals from your other tax-deferred accounts prior to being 59-1/2 using a SEPP/72t plan?

Do you have a pile of past health care expense receipts that you can withdraw from your HSA after you stop working and use the proceeds for living expenses?

 

[OK EE]

I would set your asset allocation to something like 70/30. Use your pretax accounts to achieve that, maximize growth in your brokerage and Roth. It sounds like you're heavy in US large caps. It's been a party the last few years but I would diversify some to get more international and small cap stuff. Probably switch your Roths to something like VT to diversify your exposure. You're kinda stuck with what you have in brokerage. Hopefully your tech stocks are not there because changing the makeup of your brokerage is hard without incurring taxes. Don't love individual stocks though, especially this close to retirement.

You're going to be living off your brokerage until 59.5 and possibly beyond that. This will help get subsidies for ACA until Medicare and keep you in a lower tax bracket. You might look at Roth conversions for your 401K at this point but it looks like the benefits would be marginal, especially if you use those accounts for getting your asset allocation closer to your target, which will slow growth there.

Your cash holdings seem a little high but only a little. Usually like to see 6-9 months of budget there. Maybe once you start the withdrawal phase maybe more, then do either biannual or annual withdrawals and rebalance AA to your target.

As for investments, I don't love SCHD for income, especially in brokerage. It's a tax drag. Best to stick with index funds and pay LTCG on that instead.

 

[engineernerd]

I think you are good to retire, since you only need a 3% initial withdrawal and that should provide for a retirement that is longer than 30 years.

FIRECalc has a feature in the Investigate tab called "Investigate changing my allocation." You could consider using it to figure out if history would have been kind to your 96% stock allocation.

I think you probably should continue contributing to your Roths to increase that $170k basis if you can. I'm dubious about conversions, accessing conversion money before age 59.5 looks like a trap for the unwary, with complicated rules.

If you have any holdings in taxable with small/no gains, those could generate cash with minimal impact to MAGI. It might even be worth recognizing some capital gains now to reset your basis.

It might make sense to choose an HSA-eligible ACA plan at least for yourself, since HSA contributions go on 1040 Line 10 and reduce MAGI. It might also make sense to pay HSA-eligible expenses out of taxable assets/income for now, and save the receipts so you can pay yourself back when you need cash.

It can be stressful to not know what your taxable-account-generated dividends will be until very late in the year, you'd hate for those last-minute dividends to raise your MAGI to 400.01% of the FPL, so you'd want to be conservative about your Rule of 55 withdrawals. Is it possible to get a written copy of your 401(k) plan documents so you can check for yourself if admin was correct that the withdrawals have to be the same every year?

And one last thought: if you get tired of living within the constraints of ACA subsidy limits, it could make sense to blow the limit by a big margin in a given year (sacrificing the subsidies that year) so you can spend the money over the next several years. If you use capital gain income you'd only pay 15% tax (0% on some of it).

 

[LakeRat1]

By $300k of CHPY ..... You will be fine

 

[WhenIsItTime]

Congrat’s on being FI or dang close. I used Firecalc about everyday for a year before I pulled the trigger. Was helpful to see how changes in expenses affected outcome. My healthcare costs have ~doubled in 7 years retired. Family of 4 (kids on my plan for several more years yet) and I have too much income for any discounts. I’m about 2% WR and keep 3+ years in MM or FI maturities so stock sales are purely discretionary.

 

[rmcelwee]

What the hell do I know? We moved $1M into a fixed fund when the Dow was 19,000 because we were going to retire sometime and DW wanted some safe money. It is still there at Dow 52,000.

 

[Koolau]

just did it. It said I have 100% success rate, lowest outcome=$619,781. Highest=$31,561,047, average=$9,011,814. For its calculation, I bumped expense up to 100K.

I think I can get by with 90K, not fabulous but okay. I think I'll owe very little to fed income tax since LTCG is 0% up to 99k, CA income tax is very little for my income level. So main fixed expense is ACA premium and out of pocket medical (max=8k, coming out of HSA tax free.)

Mortgage free, all debt free.

Sounds golden to me! Enjoy