The “I want to retire soon” thread (1 Viewer)

[Peggy]

I'm enjoying the posts in here about asset allocation. My wife and I followed a boring strategy for wealth accumulation: we just invested the same amount every month into an S&P 500 index fund and spent the next 30 years not worrying about it. That worked out pretty much exactly the way the math said it was supposed to, so no complaints there. When were in our 40s, we didn't worry about being 100% in equities -- that's fine IMO. But now that we're both in our 50s and looking to retire before age 60, we should really start moving some funds into bonds or similar securities.

Nothing about this is especially mysterious, but it involves a lot a money so I feel like I should really be doing some homework here. Is there a particular book or website people recommend that might point me to things I need to be thinking about that I might be overlooking? What I mean is, I don't need anybody to explain to me the difference between a 30-year Treasury bond and a municipal bond. But I am kind of interested in how a reasonable person might structure two Roths plus a taxable account as they get on the retirement glide path. I've been focusing entirely on asset accumulation, and I've never given all that much thought to what happens when I need to draw on those assets for income, or when I need to spend them down.

I meet with a financial advisor 4 times a year and have read a dozen or so books. For asset allocation I like; All About Asset Allocation by Richard Ferri. For drawdown and spend during retirement I haven't found the perfect if this, then do that, flowchart that guides you through all the scenarios. Just a bunch of different strategies from all over the place. I mean it's so situational we can't even come to a consensus whether it's better to draw SS as soon as you can or wait. But if I had to sum up cash flow during retirement in two words it would be "tax avoidance". I'm going to retire a few years before 59 1/2 too and my rough drawdown plan is:

1 - Live off cash and taxable investment accounts first at a minimum bridging the gap to 59 1/2.
2 - Because of #1 we will have zero to low income, just paying some capital gains. So, during those years roll chunks for 401k and IRA into Roth by paying the lowest taxable income then and can then grow tax free thereafter.
3 - When it comes time to start drawing from retirement accounts - drawdown any regular 401k and IRA remaining that counts as income first, but, balancing it with non-taxable if it makes sense to stay in a lower tax bracket.
4 - If I get smart enough maybe there is fixed income each month from bond ladders and dividends.
5 - Required mandatory withdrawals (RMDs) for 401K and IRA (and SEP) start at age 70.
6 - Start collecting wife's SS early and postpone mine to age 70. That way she get's my highest possible payout if I die before she does.
7 -HSA accounts are second to last because no RMDs and can leave to wife tax free. Other heirs would pay tax as income.
8 - Roth very last accounts to take from, no RMDs and can leave to heirs tax free.

I'm 100% sure I'm screwed up in some of that planning. I'd appreciate any recommendations for books and websites too particularly management of cashflow during retirement and fixed income strategies.

A couple notes - before 65 one can try to use taxable monies to control their income so that they qualify for ACA subsidies. Also an HSA can be used for Medicare premiums - that's what I plan for most of my monies in that account to go to.

Yes, the ACA subsidies is a good one for me to add. Thanks!

For the HSA I keep thinking it's one of the last things to touch since it's triple tax leveraged. But, once you're retired and no longer making contributions, and you have a file cabinet full of receipts...........the balance isn't any different than a Roth. If you have cash or a RMD wouldn't you be better off using that instead of anything inside Roth growth protection?

 

[-OZ-]

Do you mind sharing your current asset allocation, and what you want it to be at retirement? Just curious what others like you are doing.

FWIW:

My Roth IRA:

M1 Finance - Free Automated Investing

Get the most from your money.

m1.finance

My traditional IRA:

M1 Finance - Free Automated Investing

Get the most from your money.

m1.finance

Wife’s Roth IRA:

M1 Finance - Free Automated Investing

Get the most from your money.

m1.finance

My TSP: 50/50 large cap US / small cap US

 

[Sand]

@Al Czervik
In your hypothetical you had 3 million spread out at 60s, 70s, 80s.

If you thought about it as a 70-30 stocks to bonds in your 60s and 60-40 for your 70s and 50-50 for your 80s that averages out to 60-40 right?

The bigger question for me is what is the percentage of fixed income in today's market. My financial advisor made the comment in our last meeting that he thought the traditional 60-40 split is dead.

Eh - I disagree with this. 60/40 is nowhere near dead. Interest rate risk and their effect on bond funds has been a shock to a lot of folks (me included); that's likely where a lot of the angst is coming from. I have been moving monies into CD ladders, treasuries, and some AA corporate bonds with the intention of holding to maturity. Goal is to get about half of my bond allocation to fixed rate returns instead of being rate change sensitive like funds are. If I had a pot of money dropped on me now that's where I'd put it - lock in those 5% returns going out a while. That's a good return.

Returning to this discussion of 60/40. This is a very nice article in Morningstar. If you look at the last graph that shows Sharpe ratio over time with all stocks as the baseline.

Given the three choices 60/40 with it's pretty consistent outperformance and much more stable response than completely diversified makes it incredibly compelling. It is underperforming at the moment, but that's rare. It's a good bet (though nothing is certain) that in the future it will resume this benevolent behavior.

 

[Mr.Pack]

Just gave my notice to my boss that I will be retiring in July.

Congrats!