44% is in Tax Advantaged
56% is in Taxable
I used the x-ray Tool and came up with these percentages for both holdings:
44% Cash
40% Us Stocks
9% Foreign Stocks
7% Bonds
This doesn't include $66000 in I Bonds or 529 Funds for my kids College.
I would like to use some of the cash holdings (currently in cd's @ 5.25% due to mature soon) and buy into the market in the next few months.
A few comments to summarize-
age 53 was listed as current age? Retiring in 4 years puts you at age 57.
As another poster pointed out, 72(t) could be used to get penalty free access to money at age 57. You would need to withdraw the same amount for 5 straight years.
The question is whether you
a) let tax deferred monies grow
b) 72(t) the tax deferred monies to start drawing down early
c) cash out/draw down the taxable investments
d) what is the withdraw rate -relative to
- total portfolio value
- taxable accounts
- tax deferred accounts
- tax brackets
I would use 4) (tax brackets) to determine short term allocation and plan.
For example, if the amount of the withdraw (72t) is less than 65,100 (married filing jointly) or 32,550 (single) you are in 15% tax bracket. I would do everything I could to stay inside that bracket, even if the total amount needed was higher.
If you need 80k to live on, I would consider using 72(t) to get access to 65,100 (cap of 15% tax bracket) then cash out only enough from taxable accounts (15k) because these would be taxed at 5%.
If you withdrew 65101 or more in this situation 2 things happen.
1) any dollar over 65100 is taxed at 25%
2) the taxes on the taxable account jump from 5% to 15%
If you need less than 65100 to live on, then I would modify the plan above. I would 72(t) enough to be in 10% tax bracket ($8025 single or $16050 married filing jointly), then cash out the taxable accounts. I would also convert a portion of the IRA/401k monies to a Roth, paying either 10% or 15% taxes on the money, then never pay taxes on it again.
Once you figure out the answer to above, I would then look to take new money which needed to be invested and look for 3 things.
1) dividend income. Dividend income is taxed at 5% if in 15% bracket or lower, 15% if in 25% bracket or higher. I would build a dividend portfolio to supplement any income need, especially if using the second plan, but would probably use it for both plans.
2) bond allocation. You have 51% in stocks and bonds. If you are building a dividend stream above, you will need to buy some bonds in tax deferred accounts.
3) Overall withdraw rate. Make sure the plan did not change the withdraw rate from initial calculations. I am suggesting more of a bucket approach. Mostly because you have the ability to get taxed very little on the income, provided you keep the right amounts in the right buckets.