Investment Options When You are 5 Years Away

[hitnuggs]

So, The good news is that both me and DW feel comfortable about pulling the plug in 5 years. I am 42 and she is 39. We are pretty well set up financially but will be saving heavily to be comfortably to FIRE in 5 years. The question I have is where is the best place to put the next 5 years of savings knowing that we will need this to live off of for 12 years. Below is where we stand today:

• House paid for and no other debts
• $550,000 in my 401K - going to continue contributing 4% with 4% match (11,000) into 401K
• $250 in DW's 457 - going to continue contributing max $18,000/yr with no match
• $90,000 in Vanguard total market, and various other funds - going to contribute $100,000 to $120,000/yr to Vanguard investments.
• Living expenses are $60,000 - based on $40,000 for the last 5 years and an additional 20,000 for health insurance.
  

I am curious as to how the group thinks the best way to invest 500,000 - 600,000 over the next 5 years knowing that it will be withdrawn soon. My concerns are short term volatility and also taxes. I wonder if a Vanguard fund like VWALX would be the simplest? All withdraws would not be taxed and thus our tax bracket would be very low.

Thoughts

 

[cooch96]

I'd keep about $300k in cash (TIPS and CD ladders) to fund the first 5+ years. And the rest in the vanguard total market fund. I'd allocate nothing to cash or bonds in any of your other retirement accounts.

I'm more aggressive than most here. You should make sure you are comfortable with your choices and asset allocation.

Congratulations, by the way. You and your SO should be proud of your accomplishment and management for getting this far.

 

[Animorph]

I think you should do one of two things.

#1 Invest aggressively and retire whenever your portfolio value will support it. This gives you a shot at retiring earlier, but at the risk of having to work longer if the market screws up. That's pretty much what I did, though we're still 100% stocks and retired.

#2 In retirement you will always have the coming years' expenses to worry about. Nearly the same problem you face now, only worse. What is your strategy going to be during retirement? Will you hold 5 years of cash, a sizable bond allocation, a more conservative AA than currently? If you transition into your retirement AA now or over the next few years your retirement date might be a little more certain.

I would only do something special outside my retirement AA if I was going to have extra one-time expenses at the start.

 

[Markola]

In our case, we should be able to FIRE in 7 years when DW hits 59.5, which also happens to be the year we can probably have enough saved to pay off the house. Sweet Freedom! So, I too am wondering where to park some money for a few years, not forever. I know it is heresy for some investors to have bonds in the taxable account, and I do not myself currently. However, I trust Vanguard a lot and they recommend picking the right Vanguard LifeStrategy Fund for a goal that is 5 years or so out. These do have some bonds in them. I am weighing whether paying some taxes is worth it to allow the money to both grow a bit and actually be there when I need it in just 7 years.

See: https://investor.vanguard.com/mutual-funds/lifestrategy/#/

 

[Lucantes]

The question I have is where is the best place to put the next 5 years of savings knowing that we will need this to live off of for 12 years. I am curious as to how the group thinks the best way to invest 500,000 - 600,000 over the next 5 years knowing that it will be withdrawn soon.

I don't understand why you feel that all of the $500K-$600K would have to be "withdrawn soon"?
You have 5 years left before you plan to retire, and then you plan to use it for the next 12 years.....isn't that a timeline of 17 years overall for the money? How is that soon?

 

[youbet]

I don't understand why you feel that all of the $500K-$600K would have to be "withdrawn soon"?
You have 5 years left before you plan to retire, and then you plan to use it for the next 12 years.....isn't that a timeline of 17 years overall for the money? How is that soon?

+1

IMHO, OP needs to determine an AA for his entire FIRE portfolio (to include supporting near term withdrawals) and apply savings from the next five years to support that AA.

 

[Lucantes]

+1