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Early Retirement Portfolio Questions

Bogleheads • View forum - Investing - Help with Personal Investments - www.bogleheads.org
I've been lucky to have experienced a windfall event and have retired early. I exited my employer a little more than a year ago and am living off of less than 3% of my current portfolio value per year. I've been lurking in these forums for a long time and just want to say how grateful I am to the many Bogleheads here that taught me what to do when a windfall happens. And it did. Thank you Bogleheads!

My intention is to withdraw from my taxable Vanguard account according to my asset allocation and IPS to live off of for the remainder of my life. If the taxable account depletes, I would then begin withdrawing from the Traditional IRA, followed by the Roth IRA. I am currently 37 years old and plan to live to 100.

My questions are:

(a) 100% of my tax advantaged space is currently filled with bonds. During an extended market downturn, say 10+ consecutive years of low or negative market returns on stocks I could exhaust 100% of my bond holdings in taxable space. This would require me to withdraw from my tax advantaged space in order to draw from bonds rather than stocks. Should I move 100% of my bond holdings into taxable space as to avoid having to dip into tax-advantaged space during an extended market downturn? In that case I'd change my tax-advantaged holdings to something like Vanguard Total World Stock ETF (VT).

(b) I am a simplicity diehard and would love to never need and rebalance again. How might I estimate the longterm cost of me switching to simply holding Vanguard LifeStrategy Growth (VASGX) in all three accounts? I can think of:

(i) There would be taxes paid on the gain in the taxable account to make the switch. This cost only effects the year of the switch.

(ii) My effective ER is 0.06 so I'd also take the hit of raising my ER by 0.09. This cost I pay over the long term (my entire lifetime).

(iii) And further without municipals in my taxable account I'd be paying taxes on the bonds now held in taxable. Since my income is nonexistent in retirement I believe this cost will be lower than during my income generating years.

(iv) What else? Also not sure how to estimate the $ amounts for the above.

(c) I am a fan of simplicity through automation. For retired persons with the majority of holdings held at Vanguard, how do you manage the mechanics of withdrawing your budget? Currently I have my tax-advantaged Vanguard accounts to auto-reinvest, but my taxable holdings dividends go to a sweep account. My monthly budget that I live off of is setup as a monthly transfer out of Vanguard's sweep account and into my checking account with my bank for a fixed amount. Every once in awhile I have to login to Vanguard and either manually invest excess funds out of my sweep into whichever asset is undervalued according to my IPS, or if my withdrawal rate currently outpaces market returns sell the overvalued asset according to my asset allocation to buffer the sweep account.

(d) Any other thoughts? Anything else I should be thinking about?

Thank you for your time! And wisdom.

Investment Policy Statement

Goal: Don’t be forced to work again while living the most prosperous lifestyle possible

Asset Allocation: 80% Equity, 20% Fixed Income

International Allocation: 40% of Equity

AA: 48% Domestic Stock, 32% International Stock, 20% Bonds

Reevaluate IPS in August

Maintain emergency buffer ($10K checking, $20K savings)

Rebalance when noticed using 20% bands to 10% off target

Tax loss harvest opportunistically (or don't)

Current Situation

Emergency Funds: Yes

Debt: None

Tax Filing Status: Single

Tax Rate: 25% Federal, 6% California

Age: 37

Desired Asset Allocation: 80% Equity, 20% Fixed Income

International Allocation: 40% of Equity

Target: 48% Domestic Stock, 32% International Stock, 20% Bonds

Actual: 53% Domestic Stock, 23% International Stock, 24% Bonds

Current Portfolio: Mid seven figures. Carry umbrella policy that covers the entire amount.

Brokerage

53% Vanguard Total Stock Market Admiral (VTSAX) (ER 0.04)

23% Vanguard Total International Stock Market Admiral (VTIAX) (ER 0.11)

14% Vanguard California Intermediate-Term Tax-Exempt Admiral (VCADX) (ER 0.09)

0% Vanguard Federal Money Market

Roth IRA

6% Vanguard Total Bond Market Admiral (VBTLX) (ER 0.05)

Traditional IRA

4% Vanguard Total Bond Market Admiral (VBTLX) (ER 0.05)
Date: Aug 19, 2017   


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