Page 2 – The Money

Let’s get right to it. 

Asset Allocation 

I have chosen an 85/15 stock/bond allocation between VTSAX/VBTLX. It’s just part of a simple path to wealth. 

Simulations

Simulations have been made using cFIREsim and Vanguard’s Retirement Nest Egg Calculator.

Vanguard’s Monte Carlo Simulator inputs

50 Year Portfolio

$1,300,000 balance at retirement

$40,000 annual spend rate. 

85% stocks

15% bonds

monte_carlo_40k

 

cFIREsim inputs

 

50 year retirement

Retirement Year: 2017

Retirement End Year: 2077

Portfolio: $1,300,000

Equities: 85%

Bonds: 15%

Fees: .06%

No additional income.

cfiresim_cycles_40k

 

cfiresim_stats_40k

Zero historical fails even with a 60 year period. A bit rosier outlook than Vanguard’s sim.

That Dip Analysis is where it gets psychological. Shit’s gettin’ real.

Look at how often we live “below the line”. The line being the initial start value of the portfolio.

cfiresim_dip_40k

The data say my stash will be around:

 

$1,170,000 37 times

$1,040,000 26 times

$780,000 19 times

 

Looks like I’ll just have to “toughen up, cupcake” as Jim Collins says.

 

Risk Tolerance and Reality

It’s all smiles until the market tanks. Will I really be okay with 85% stocks? What about 100%? What happens if there is a market crash right after retirement?

With today’s high valuation the biggest risk to my early retirement plan is the Sequence of Return Riskor the intial 10-year real return. I’ll have to be flexible.

 

Fund Access and IRA Conversion

My money will be in four places.

  1. Checking & Savings (Capital One 360)
  2. Brokerage (Vanguard)
  3. Roth IRA (Vanguard)
  4. Traditional IRA (Vanguard)

After I leave my employer I’ll roll over my 401(k) to a traditional IRA within Vanguard, buying VBTLX and VTSAX at a ratio that gives my portfolio an 85/15 split.

Getting the money out is going to be fairly straightforward. Here’s how it will go:

Years 1-5

In April of 2017 I sold shares in order to pay for living expenses through March of 2018. Since I worked part of 2017, I’m not yet sure how much room I’ll have for a ROTH conversion. But, conversion events will happen within the last two weeks of the year to ensure I don’t convert too much/too little. That amount is examined in the next section.

As long as the market is up, I’ll sell shares. If it’s way down, I’ll spend dividends and get some kind of part time work to make up the difference.

Years 6-10

Year six is the beginning of Roth IRA withdrawals.

Years 6-10 will be paid for via dividends, Roth IRA conversion basis dollars and supplemented with share sales.

Cash Holding

Spending will be done on a rewards credit card as much as possible to earn points/miles.

After the first year I’ll hold very minimal cash. That will be something to get used to.

Next we’ve got Taxes and Insurance, on Page 3.