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Nice! I plan on doing the same thing eventually. I haven't looked too much but I was liking Vanguard Tax-Managed Balanced Fund. Not too conservative and tax efficient for use who plan on withdrawing from a taxable account early.
there is no study because most who draw an income want money in good and bad except for some with pensions who use it as fun money . but we have had a few non retirees who want the extra cash flow but are willing to only take it when things are up because they are still working at their jobs. op did say "semi retire"
i did that myself while working just before i retired . i pulled extra income in up years and we used it for extra things we would not have typically done that year .
Fair enough. That's not what he described, though...
Quote:
Originally Posted by bmw335xi
The goal is to be able to withdraw 3% per year, which would give me a healthy living income.
3% withdrawal rate is considered very safe so you're fine there. That's $45K/year starting year 1 based on $1.5MM.
You need enough equity allocation so your portfolio can generate enough returns, on average, to fully meet (and hopefully beat) that 3% after inflation. So you'll need an average yearly return in the 5.5% to 6% range.
An equity allocation of 50% would allow you to have the best of both worlds -- decent upside and limited downside. You don't have to have a huge equity allocation to make $$$, but you do need to have enough equity exposure. If you're comfortable with more than 50% equity allocation then go for it.
ETA: Since you're only 30 you have a loooong runway and you will be able to withstand any market drop and have lots of time. You can certainly do well at high equity levels. Keep in mind even people retiring at age 60 still have a couple decades of runway, on average, so monies you do not expect to spend in the next 20 years can certainly be in the highest risk/volatility funds.
Last edited by lottamoxie; 08-15-2018 at 04:37 PM..
Build a corporate bond ladder. I can get you 5% + right now with a less than 8 year duration. Fidelity has great tools to help you research, build and manage a ladder. They'll even do it for you, if you call them. Investment grade bonds aren't exciting or sexy, but they can supply a nice, consistent, predictable cash flow. They will also likely provide a bit of inflation protection.
Location: Formerly Pleasanton Ca, now in Marietta Ga
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Curious to see everyone's solutions. Retiring at 30, I personally only know 3 people who have done this and it was with real estate. I want to see what plans you guys come up with for him.
Thank you everyone, please feel free to continue the discussion. I’m in the process of doing a complete remodel of one property as we speak, so I’ve been out all day (still out), once I can spend time to sit in front of my computer I will read everything and respond where I can. Just wanted to give a heads up that I’m not the type to post a thread and never look back or respond. Thanks again to everyone responding, I really appreciate it.
Hey OP. I just picked up some FUTY in a hunt for some slower safer type assets. I don't buy funds often, but I'll give it a shot. It's a utility fund. Utilities did pretty well in the last recession, but got hit in the one before that, so I'm not certain how they trade yet. I'd probably opt for bonds over preferred shares, but a good mix should get you the income you want.
I believe we both have appreciated California real estate and of course the problem is the tax on the gains. Curious if you're just paying the tax or if you've got a strategy to move it forward. I have some property interests I'd like to explore in other markets, but the Price/Rent ratio locally really should have me selling as well.
For such long periods of drawing out money I think one should accept some income volatility. One simple approach is to just take a set percentage of the account balance on Jan 1 of every year. I took the time to do a little modeling of this. The period of consideration is from Jan 1973 through Jan 2009. This starts at a market top and ends at a bottom, so it is a pretty severe test.
I looked at three allocations... 60/40, 80/20, 100/0 (stocks/bonds), and two withdrawal rates... 3% and 4%.
After taking withdrawals for 36 years, here are the inflation-adjusted account balances at the beginning of 2009, using $1 as the starting balance in 1973.
60/40 with 3% draw - $1.64
80/20 with 3% draw - $1.67
100/0 with 3% draw - $1.60
60/40 with 4% draw - $1.13
80/20 with 4% draw - $1.15
100/0 with 4% draw - $1.10
After 36 years of drawing money, all of these accounts grew enough to outpace inflation. Notice that the account size is pretty insensitive to allocation when noting the balance at an inopportune time (2009). Of course the all-stock account would be nicely ahead today, after the bull run we've enjoyed. So you could have less account volatility, or a higher bull-market balance. It's a tradeoff.
hiker, the flaw is by starting in 1973 is you skipped every time frame a safe withdrawal rate is based on . what you have is just a withdrawal rate but not a "safe" withdrawal rate since all the worst periods a safe withdrawal rate is based on happened before 1967.
so the trinity and safe max start in 1926 while firecalc goes back as far as records do and that is 1871 . 1907 was an additional worst case that firecalc accounts for that the trinity and safemax do not .
at 4% 36 years 60/40 failed to many times to be considered a safe withdrawal rate . it failed 13 of the 112 rolling 36 periods to date for only a 88.40% success rate . you went broke to many times at 4% since anything below 90% is not considered a safe withdrawal rate .
FIRECalc looked at the 112 possible 36 year periods in the available data, starting with a portfolio of $1,000,000 and spending your specified amounts each year thereafter.
Here is how your portfolio would have fared in each of the 112 cycles. The lowest and highest portfolio balance at the end of your retirement was $-695,570 to $6,337,263, with an average at the end of $1,511,361. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
For our purposes, failure means the portfolio was depleted before the end of the 36 years. FIRECalc found that 13 cycles failed, for a success rate of 88.4%.
60/40 at 3.75% 36 years . did just fine . it failed only 4x
FIRECalc looked at the 112 possible 36 year periods in the available data, starting with a portfolio of $1,000,000 and spending your specified amounts each year thereafter.
Here is how your portfolio would have fared in each of the 112 cycles. The lowest and highest portfolio balance at the end of your retirement was $-358,693 to $6,656,455, with an average at the end of $1,764,554. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
For our purposes, failure means the portfolio was depleted before the end of the 36 years. FIRECalc found that 4 cycles failed, for a success rate of 96.4%.
Last edited by mathjak107; 08-17-2018 at 03:41 AM..
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