Portfolio review/ideas - Retire early - Large Taxable account

[Quattro73]

Hello,

Been here awhile but finally time to do this.
I need help. Looking to leave existing role in high stress financial services company.
I may very well find something else to do, but I need to structure my portfolio with the ability to be sustainable, should I decide to walk away.

Here is the setup:

Age - 52, Spouse - 52
Spouse is SAHM
Children - 1 launched, 1 in grad school (have separate funds outside of this set aside to complete)
Tax Status - MFJ
Tax Rate - 24% Fed, 3% state
LCOL area (we will look to move if we do this and anticipate some increase but will not be HCOL)

Debt:
Mortgage - Sub $250K balance at sub 2.5% rate with 16 years remaining
Car Notes - 1 car note sub-$23K. Just paid another one off.
Credit Cards – Paid in full monthly

Expenses/Assets:

We are at about 43x of annual actual spending saved based on monitoring last 2 years.
I am very conservative and risk averse (my current job function contributes to this).

Taxable portion is 34x.
Tax deferred is 9x
No meaningful Roth. Went from within the income limits but too tight and too ignorant to jumping just over the threshold the last few years.
50% is probably a maximum equity allocation.

Mentality-wise - I would love to “bucket” this and have all equity in tax deferred for long-term growth and have a bond/income heavy setup in taxable to generate steady income and keep me from touching principal for a while. I’d feel “safe” that way and less likely to become irrational from an equity drawdown.

I get this is not ideal for tax location/tax efficiency. Stating that to give insight into the behavioral struggles. I think that is important.

Health insurance is a huge issue. I am assuming ACA and trying to figure out if there is a way to structure to get subsidies but have a more conservative tilt to the taxable side.

The income/CEF threads resonate with me but they are not conducive to this goal of staying under the ACA threshold.

So any ideas?
How would you setup?

 

[pb4uski]

To start, tax deferred should be in bonds rather than equities. Having equities in tax deferred converts tax preferenced qualified dividends and LTCG into ordinary income when withdrawn.

Health insurance is hard with the ACA cliff returning in 2026 and you will need to manage income for 13 years until you are 65 and eligible for Medicare. What state are you in?

Some members who manage their income for ACA use multi-year guaranteed annuities aka MYGAs, the insurance company version of CDs because the yields are competitive with CDs for highly rated insurers, but income is not recognized until withdrawn and most contracts allow 10% penalty free withdrawals annually.

 

[COcheesehead]

You describe my situation. I have all equity investments in deferred. All our expenses are covered by a muni ladder in taxable. I sell nothing to fund our lifestyle. We live off cash flow. ACA is brain damage to try and stay under the cap. Muni income still counts. It’s hard to have your cake and eat it too. Is our investment approach the most optimized, no. Does it work, absolutely. I invest goal based and getting subsidies was never a goal.

 

[engineernerd]

My first reaction is you might need to give up on getting ACA premium subsidies. Your being in the 24% tax bracket suggests a big portfolio rather than a low spend rate. The income cutoff in 2026 for a household of two is $84,600. That's AGI plus tax-exempt interest plus a couple of things I don't think affect you. Only your 1040 Schedule 1 Adjustments to Income (HSA contributions and some not-so-common other things) shrink that number from total gross income.

You can figure out what your estimated 2026 subsidies would be if you look up the unsubsidized premiums for the plan you think you want as well as the SLCSP (second lowest cost silver plan) available to you.

Have you looked at the ACA plans available to you yet? Your expenses between now and Medicare will include those premiums. As a conservative assumption, if you include ACA premiums as well as your full tax costs in your spending rate for your entire retirement, how much does that change your 43x?

Even with a 33x portfolio, your withdrawal rate would still only be 3%. I think you are in very good shape for a 40-year retirement. In your shoes I would avoid putting less than 40% or more than 90% in stocks, but your portfolio is rich enough that you don't need to target the optimal asset allocation per FIRECalc analysis.

 

[RetiredHappy]

My first reaction is you might need to give up on getting ACA premium subsidies. Your being in the 24% tax bracket suggests a big portfolio rather than a low spend rate. The income cutoff in 2026 for a household of two is $84,600. That's AGI plus tax-exempt interest plus a couple of things I don't think affect you. Only your 1040 Schedule 1 Adjustments to Income (HSA contributions and some not-so-common other things) shrink that number from total gross income.

You can figure out what your estimated 2026 subsidies would be if you look up the unsubsidized premiums for the plan you think you want as well as the SLCSP (second lowest cost silver plan) available to you.

Have you looked at the ACA plans available to you yet? Your expenses between now and Medicare will include those premiums. As a conservative assumption, if you include ACA premiums as well as your full tax costs in your spending rate for your entire retirement, how much does that change your 43x?

Even with a 33x portfolio, your withdrawal rate would still only be 3%. I think you are in very good shape for a 40-year retirement. In your shoes I would avoid putting less than 40% or more than 90% in stocks, but your portfolio is rich enough that you don't need to target the optimal asset allocation per FIRECalc analysis.

I think OP is at 24% while he is working. We don't know what sort of income is the portfolio going to generate once he is retired.

 

[EastWest Gal]

My first reaction is you might need to give up on getting ACA premium subsidies. Your being in the 24% tax bracket suggests a big portfolio rather than a low spend rate. The income cutoff in 2026 for a household of two is $84,600. That's AGI plus tax-exempt interest plus a couple of things I don't think affect you. Only your 1040 Schedule 1 Adjustments to Income (HSA contributions and some not-so-common other things) shrink that number from total gross income.

You can figure out what your estimated 2026 subsidies would be if you look up the unsubsidized premiums for the plan you think you want as well as the SLCSP (second lowest cost silver plan) available to you.

Have you looked at the ACA plans available to you yet? Your expenses between now and Medicare will include those premiums. As a conservative assumption, if you include ACA premiums as well as your full tax costs in your spending rate for your entire retirement, how much does that change your 43x?

Even with a 33x portfolio, your withdrawal rate would still only be 3%. I think you are in very good shape for a 40-year retirement. In your shoes I would avoid putting less than 40% or more than 90% in stocks, but your portfolio is rich enough that you don't need to target the optimal asset allocation per FIRECalc analysis.

About 3/5 of our portfolio is in taxable, the rest in a tIRA and a smaller Roth. We've been living off of the taxable, which means selling some of the ETF shares. In spite of selling our stock ETFs for living expenses, along with using dividends, the asset allocation of the taxable keeps tilting more and more to stock funds, so selling those funds becomes both a source of $$ and serves to rebalance the taxable account. The bonds we keep in taxable are a Schwab muni bond fund.

About the ACA-if your grad school kid is on your insurance, your household has 3 members, and the 400% FPL amount is $106,600 MAGI, where the ACA cliff comes into play. If you sell some of your portfolio, for expenses that had a 100% gain, you could sell $100,000 worth of funds and only $50,000 would figure into your MAGI. That can make a difference in your health insurance expenses.

 

[TickTock]

Having a bond/income heavy setup in taxable to generate steady income is in conflict with managing ACA MAGI to stay under the cliff. From what you've posted here, it's not possible to determine if both of those goals can be met (and don't share anything you're uncomfortable with putting on the internet!!!).

You may have to determine which goal is more important to you: steady income and pay full freight on ACA, or manage ACA MAGI to stay under the cliff and accept the volatility that accompanies that strategy...

 

[Quattro73]

To start, tax deferred should be in bonds rather than equities. Having equities in tax deferred converts tax preferenced qualified dividends and LTCG into ordinary income when withdrawn.

Health insurance is hard with the ACA cliff returning in 2026 and you will need to manage income for 13 years until you are 65 and eligible for Medicare. What state are you in?

Some members who manage their income for ACA use multi-year guaranteed annuities aka MYGAs, the insurance company version of CDs because the yields are competitive with CDs for highly rated insurers, but income is not recognized until withdrawn and most contracts allow 10% penalty free withdrawals annually.

I have thought MYGA’s could help.

I also have played with buffer ETF’s as a replacement for some bonds but have not convinced myself that is wise.

 

[Quattro73]

You describe my situation. I have all equity investments in deferred. All our expenses are covered by a muni ladder in taxable. I sell nothing to fund our lifestyle. We live off cash flow. ACA is brain damage to try and stay under the cap. Muni income still counts. It’s hard to have your cake and eat it too. Is our investment approach the most optimized, no. Does it work, absolutely. I invest goal based and getting subsidies was never a goal.

Your point about goals based did resonate with me in a prior thread. I need to fully delineate and prioritize. A safer, more predictable income stream seems to trump the ACA everytime I “wargame” different scenarios and strategies.

 

[Quattro73]

I think OP is at 24% while he is working. We don't know what sort of income is the portfolio going to generate once he is retired.

Correct - while working based on current income.

 

[Quattro73]

About 3/5 of our portfolio is in taxable, the rest in a tIRA and a smaller Roth. We've been living off of the taxable, which means selling some of the ETF shares. In spite of selling our stock ETFs for living expenses, along with using dividends, the asset allocation of the taxable keeps tilting more and more to stock funds, so selling those funds becomes both a source of $$ and serves to rebalance the taxable account. The bonds we keep in taxable are a Schwab muni bond fund.

About the ACA-if your grad school kid is on your insurance, your household has 3 members, and the 400% FPL amount is $106,600 MAGI, where the ACA cliff comes into play. If you sell some of your portfolio, for expenses that had a 100% gain, you could sell $100,000 worth of funds and only $50,000 would figure into your MAGI. That can make a difference in your health insurance expenses.

Kid will be for at least 2 more years. So yes I am initially looking at the $106K line.

 

[COcheesehead]

I have thought MYGA’s could help.

I also have played with buffer ETF’s as a replacement for some bonds but have not convinced myself that is wise.

If you have a more equity based taxable account, you open yourself up to SORR big time, if that is the source of your income.

 

[Quattro73]

If you have a more equity based taxable account, you open yourself up to SORR big time, if that is the source of your income.

Yes sir, that is my struggle…….

 

[VanWinkle]

Yes sir, that is my struggle…….

Use your bonds in the tax deferred account to replace the stocks you sell in your taxable account if the market
is down. If the market is up, just sell the taxable stock funds to live on. That should solve for the SORR because you never actually sell when stocks are down.

 

[TickTock]

I have thought MYGA’s could help.

MYGAs will help with steady, tax-deferred income (that doesn't add to ACA MAGI if you don't withdraw the interest). With you and your DW at age 52, you would need to keep the accrued interest in the MYGAs until age 59.5 to avoid a 10% federal tax penalty.

My DW and I use this strategy. It's a viable one in certain circumstances - just be sure you do your due diligence and understand it before you employ it.

Best of luck to you!

 

[COcheesehead]

Use your bonds in the tax deferred account to replace the stocks you sell in your taxable account if the market
is down. If the market is up, just sell the taxable stock funds to live on. That should solve for the SORR because you never actually sell when stocks are down.

Determining these points is the question.

 

[Echard]

Your point about goals based did resonate with me in a prior thread. I need to fully delineate and prioritize. A safer, more predictable income stream seems to trump the ACA everytime I “wargame” different scenarios and strategies.

I have a similar situation in wanting a pretty high bond component but because so much of our accounts are in post-tax it pushes income up past ACA subsidies. So….full cost ACA it is. If the market drops 30-50%, I’ll move a bunch of after tax stuff that is currently in bonds and cash into stock, thus lowering the income for ACA, and also taking advantage of better stock market valuations.

 

[Retired Expat]

If you have a more equity based taxable account, you open yourself up to SORR big time, if that is the source of your income.

Can’t even understand a lot of what is said on here!!!! Abbreviations I have never heard of and usually they don’t even come up when ido a search.

Still being the dolt that i am have managed to amass 5million NW not counting primary and secondary home. About to start SS and between it and rental incomes we will be at about 12,500 a month before market dividends and interest or investment gains.

I ask my FA about this stuff and he laughs at me! We don’t draw a Dime from our savings and don’t spend our annual income! So why are we trying to learn all the lingo and follow the numbers? Fire calc shows a 100% chance of success even if we double our spending.

Not bragging but seriously interested why I am obsessed with my numbers? Took out $25k the other day from my investment account (was in cash already as I can’t bring myself to sell investments for spending.) for some unexpected but basically budgeted items and felt more than a little sick about it.

Is there a psychological term for what I have? Money dysmorphia might be it as Financial Anxiety seems too simple and common. I thought this article interesting What Is Money Dysmorphia, And Do You Have It?.

Anybody else feel this way?

 

[COcheesehead]

Can’t even understand a lot of what is said on here!!!! Abbreviations I have never heard of and usually they don’t even come up when ido a search.

Still being the dolt that i am have managed to amass 5million NW not counting primary and secondary home. About to start SS and between it and rental incomes we will be at about 12,500 a month before market dividends and interest or investment gains.

I ask my FA about this stuff and he laughs at me! We don’t draw a Dime from our savings and don’t spend our annual income! So why are we trying to learn all the lingo and follow the numbers? Fire calc shows a 100% chance of success even if we double our spending.

Not bragging but seriously interested why I am obsessed with my numbers? Took out $25k the other day from my investment account (was in cash already as I can’t bring myself to sell investments for spending.) for some unexpected but basically budgeted items and felt more than a little sick about it.

Is there a psychological term for what I have? Money dysmorphia might be it as Financial Anxiety seems too simple and common. I thought this article interesting What Is Money Dysmorphia, And Do You Have It?.

Anybody else feel this way?

SORR is common financial term which means sequence of return risk. It’s the first thing that pops up if you do a google search.

 

[indiajust]

Can’t even understand a lot of what is said on here!!!! Abbreviations I have never heard of and usually they don’t even come up when ido a search.

Still being the dolt that i am have managed to amass 5million NW not counting primary and secondary home. About to start SS and between it and rental incomes we will be at about 12,500 a month before market dividends and interest or investment gains.

I ask my FA about this stuff and he laughs at me! We don’t draw a Dime from our savings and don’t spend our annual income! So why are we trying to learn all the lingo and follow the numbers? Fire calc shows a 100% chance of success even if we double our spending.

Not bragging but seriously interested why I am obsessed with my numbers? Took out $25k the other day from my investment account (was in cash already as I can’t bring myself to sell investments for spending.) for some unexpected but basically budgeted items and felt more than a little sick about it.

Is there a psychological term for what I have? Money dysmorphia might be it as Financial Anxiety seems too simple and common. I thought this article interesting What Is Money Dysmorphia, And Do You Have It?.

Anybody else feel this way?

People focus on what is seen. And then they measure the obvious.
Learn to listen to the dog that did not bark in the night.

I have rough spending plans that can absorb anywhere between 20k and 2000k. How much I have determines how much goes out.

Be Seinfeld, quit on top. Don't wait for the sound of one hand clapping.

 

[vdesalvo]

The first thing that may help you or at least give you some thinking point to consider Quattro73 is give this information to two different AI programs and see what information they come up with. The bare minimum is it helps you think about where you stand with what you have. As someone once said, "at this point what different does it make".
For Retired Expat, it's never too late to learn about how your portfolio is setup because it is your money and retirement funds not your advisor. Great quote, here today and gone tomorrow, what happen while I was sleeping.

 

[OK EE]

Determining these points is the question.

Not that hard. Within 5% of peak on the indices is market high, sell equities. Bonds below that.

 

[sroby2020]

To start, tax deferred should be in bonds rather than equities. Having equities in tax deferred converts tax preferenced qualified dividends and LTCG into ordinary income when withdrawn.

OP still has 7+ years before can withdraw from tax-deferred without penalty, so equities are fine for now, and may give better returns than bonds. If withdrawals are counted as ordinary income, I'm not sure why it matters what is in the tax-deferred accounts. Maybe someone can politely enlighten me?

 

[flyingaway]

I think that the OP is in a very good position with most money being in taxable accounts.

 

[Koolau]

Can’t even understand a lot of what is said on here!!!! Abbreviations I have never heard of and usually they don’t even come up when ido a search.

Here is thread on commonly used acronyms and abbreviations. I hope this helps.

* Acronyms, abbreviations and Slang Frequently Used on the Forum *

Standard Acronyms and Abbreviations You May Find on the Forum This list will only grow if you submit acronyms you use or that need defining. I will up date this message, adding new acronyms as they are submitted to the list. It is always better to use the full words, but we know how much...

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