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Additional Posts in FIRE Financial Independence Retire Early
Thoughts on ARK’s new space exploration etf?
Visual Storyteller
Looking for advice to stop spending $$...
What do you want to do when you reach FI?
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I’m in year 5 of retirement. I bridged the first 3 years with a treasury ladder that I set up over the last couple of years at work. I use POIXX or PVOXX to hold short term $. Also use various Invesco BulletShares target date bond funds to ladder for the short to intermediate future. I have it set up so I won’t need my equity investment $ for 8-10 years in the future. I’m very conservative and over saved during my career, so take my input with that in mind.
BC1 - I was at about 3% annual withdrawal. Then I went and bought a project house that went over budget. It converted a big chunk of my net worth from interest/dividend bearing short-intermediate assets into illiquid, non-revenue producing residential real estate, probably worth a little less than I am sinking into it. Not recommended, but it’s not going to send me back to work. For healthcare, I use an HSA eligible plan, so lots of OOP that I don’t really track well. Premium is about $1300 per month for 2.
Apart from 6-12 months in cash/bank/CD or money market, i will hedge by allocating roughly 25–33% of your portfolio to dividend-heavy funds and/or real estate investments.
For a $4M FIRE portfolio, I would keep at least $1M in investments such as SCHD, rental properties, or just paying off my primary residence to meaningfully reduce recurring monthly expenses.
This portion of the portfolio could either generate approximately $50K in annual income or lower annual living expenses by a similar amount through the elimination of mortgage payments.
Saying “I’m right” is perfectly fine. The concern arises when it becomes “you’re wrong.”
That shifts the conversation from a constructive exchange of perspectives to a mist-win debate.
Coach
I'm retiring in a year, so this is very top of mind. I have 5+ years of spend locked away in CDs and Treasuries that ladder over the next 5 years. I also massively oversaved, and have probably 5-10 years of spend in my investment accounts, before we even get into my 401k and IRAs (which are larger, with several million already in Roth).
I plan to just manage the buckets based upon what the market is doing - massively down years, do large Roth conversions and live off of cash; massively up year, live off of investment accounts until those are exhausted.
Subject Expert
I am so glad to hear that you have a lot of assets and will be fine with almost any strategy. Congratulations. :)
Actually, having a lot of money in CDs isn't the market timing part. It's how you (might) use them. CDs can be laddered and consumed. They can be rebalanced as part of an allocation. They can be held as an emergency fund. None of those are market timing.
The market timing part is if you try to use them at particular times for advantage based on an appraisal of market conditions.
Still treat entire portfolio as one thing to rebalance, but worked to 60/40 at retirement with a floor of fixed costs in a large tips ladder.
Most of our spending is variable, things like travel/restaurants, so it would be very possible to cut back.
It’s a tips ladder that will pay minimal fixed costs. For me, that’s about $30k a year, for 30 years. All in retirement accounts.
We plan to create a near term bucket for spending and a long term bucket for investing (and eventually spending). Erin talks money on YT had an interesting video about it recently. https://youtu.be/60-sFFBTBbQ?si=Y4Z7W9PyNfMkv2u8
Try reading more about the bucket strategy. I do HYSA (bucket 1) for 3 years worth of expenses, then taxable investment accounts (bucket 2) with mostly growth ETFs with some dividends and then regular retirement accounts (bucket 3) with growth stocks. I replenish my HYSA once a year from bucket 2. I cant touch my retirement atm without getting penalty. Almost 2 years since I pulled the plug. One thing I prepared for is i had some cash stashed on top of my regular expenses to spend on unplanned items (quite common since I'm still on my Go-Go years)
Subject Expert
People believing something does not make it true. They can do whatever they like, but if their belief is wrong it won't help them.
I have a little over 50% of expenses coming from dividends and interest, have cash on hand in FDLXX to cover the difference/ emergencies/ unexpected expenses for a few years, and also have T-bills ladder and munis. Apart from expenses coverage, I also planned to minimize taxes.
Subject Expert
One of the main tools for this is withdrawal rates; low confers safety. Flexibility also confers safety.
What initial WR and what kind of withdrawal method are you planning?
Subject Expert
Nice, congratulations on your careful planning. Sounds like you are very likely to be fine. :)
I use the 3 bucket system. My current favorites are QQQI, QQQM, TLTW, SCHD and VOO
you don't really have to hedge if you put your assets in covered call etfs and just never sell and live off the dividends. they can go down sure and dividend income could go down because of the etf going down, but if you use some of the d=income to reinvest at the lower prices and the rest to pay bills it will essentially last forever as long as the stock market doesn't go to zero or near zero. the most the market has even gone down in a 12 month period is 43% which is a lot but not near zero and was up 75% over the following 12 months, so again as long as you don't sell no real issues other than anxiety
Subject Expert
Are you aware that covered call ETFs are a bad strategy that lower, not increase, safety relative to the underlying?