Portfolio review/ideas - Retire early - Large Taxable account

[Gonzo26]

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?

Yes, have the same issue. Trying to get over it. Going heavy in the MYGA market. Keeping under state insurance limit (or not much over it) and looking at companies A+. With a fairly high NW, but low IQ, these posts boggle my mind !

 

[pjigar]

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 Having equities in tax deferred converts tax preferenced qualified dividends and LTCG into ordinary income when withdrawn.

^ is optimal and OP recognized it as well. Money is fungible but a lot of people are susceptible to mental accounting and other behavioral pitfalls. If your brain can't accept the idea of fungibility then do what works for you. FWIW I have been tracking total net worth across all accounts (for years) which somewhat helps you thinking about money as being fungible: A one big pile of dough, it doesn't matter where it lives.

Another benefit of having bonds in tax-deferred is potential reduced RMD. Also, keeping equity in taxable accounts may help you manage the on-paper income better because part of the withdrawal would come from principle/tax-basis of your holding. Managing income is important for ACA subsidies.

 

[pjigar]

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?

I am not sure there is a term for this but a lot of people on this forum have reported this sickness! But seriously, it is a monumental task to switch from accumulation phase to deaccumulation phase so your concerns are valid. I think there were a few threads on the difficulties of spending in retirement. A few points I remind myself:
* I worked hard all my life so I can enjoy the nest egg I built.
* If I don't spend now then someone else will after I am gone.
* I am only spending the gains of the portfolio! This would be true for anyone with less than 3% WR.

We maintain an annual motivation thread as well for a group therapy:

Blow That Dough 2026

We bought a hospital-quality bed for a family member who is living with us and requires full-time care.

www.early-retirement.org

 

[pb4uski]

Perhaps one way to make it more comfortable is to look at balances. When you withdraw that $25k for spending is your total balance lower than it was 3 or 6 or 12 months earlier? If not, then don't sweat it... you are just withdrawing growth. Even if the balance is declining, you saved that money to use in retirement, so what's the problem?

Another way to feel more comfortable is to run FIRECalc as if you were retiring today and look at success rates or maximum safe spending using the Investigate tab.

 

[pb4uski]

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?

If you are not 100/0 then you are going to have bonds somewhere.

To make the calculations easier, let's say you have a 50/50 AA, have a 50/50 taxable/tax-deferred, equities earn 10% and bonds earn 5% and you are in the 12% tax bracket (0% preferenced income tax bracket).

If you have equities in taxable, that 10% return is subject to 0% tax and the 5% growth in tax deferred will eventually be subject to 12% tax. So the overall after tax return is 50% *10%*(1-0%) + 50%* 5% *(1-12%) or 7.2%.

If you have equities in tax deferred, that 10% return is subject to 12% tax and the 5% growth in tax deferred will eventually be subject to 12% tax. So after tax return is 50% *5%*(1-12%) + 50%* 10% *(1-12%) or 6.6%.

The 0.6% difference is because the 5% excess equity return is subject to 12% tax rather than 0% tax.

The same thing would happen if ordinary income was taxed at 22% but preferenced income was taxed at 15%. As long as equities are subject to preferenced rates it will be better to hold them in taxable rather than tax deferred.