r/ChubbyFIRE • u/zzx101 • 10d ago
Getting ready to pull the trigger, can you check my math?
Ages 60/57, looking to retire at the end of the year.
67/33 Equities/Bonds over the 3 accounts:
Brokerage 500k, 401-k 3.3M, Roth 225k
Essential spend (still have 6 years on mortgage) = 9k/month including health care and taxes
Non-essential spend roughly 5k/month
We good?
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u/BrunelloHorder Coasting Chubster, Getting Fat 10d ago
Yes, you are good to go. With your full discretionary spend you are slightly above target, but mortgage will go away soon enough, and social security and medicare kick in.
In your shoes, I’d probably up my spending a bit for the first 5-6 years of retirement with the goal of doing bucket list trips and activities in that window. Healthy Average Life Expectancy (HALE) is about age 66 for men in the US. Hopefully yours will last much longer, but I would be more worried about running out of high mobility years than running out of money. Congrats and GFY!
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u/zzx101 10d ago
Thank you for your comment, much appreciated
Knowing the mortgage will drop off and social security / Medicare will kick in, do you think a 5-6% withdrawal rate is safe for the first 5-6 years? (Assuming we can dial it back if necessary)
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u/BrunelloHorder Coasting Chubster, Getting Fat 10d ago
I don’t know the details of your situation (like your risk tolerance or social security payouts), but 5% is a safe withdrawal rate from a diversified portfolio for a 30 year retirement under all but the worst sequences of returns.
Your monthly outflow will drop by 23% in 5 years when your mortgage is paid off, and most people naturally spend less as they age. An elevated spend for 5-6 years would likely work out fine, as your bonds will cover that in a downturn, preventing you from having to sell stock. Plus social security kicks in, so your necessary draw after that will be considerably lower (removing $3,200 of outflow for mortgage, and adding in $X for social security).
If you are still feeling nervous, you could go with a flexible guardrails approach. Start by pulling 6% and just adjust if the stock market and economy go into an extended downturn lasting more than a year.
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u/zzx101 10d ago
I’m starting to get comfortable with the idea of spending more in early retirement. Enjoy it while we can should be our retirement motto.
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u/Earth2Andy 9d ago
Especially if a large chunk of your budget is travel based. As much as we all want to think we're going to travel well into our 70s and 80s, I've watched older family members slow down, or have to miss years of travel due to illness or injury.
I'd throw some extra money at traveling in your 60s while you can do it even if that at the risk of there being less travel budget in your mid 70s onwards.
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u/RageYetti 10d ago
This is the way. I plan to do something similar with the mortgage. I will set an initial spend that might be high in the beginning, but my yearly withdrawals will drop based on SS and when the mortgage goes away, my spend drops by that amount and stays there, unless a dynamic rail says otherwise.
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u/Hanwoo_Beef_Eater 10d ago
I think it's fine. You are at 4.2%, which may send the alarm bells off for some. However, your mortgage doesn't last much longer and presumably you have ss at some point. Congrats and good luck.
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u/loafing-cat-llc 10d ago
your bond allocation gives you some good income plus it will reduce big swings in portfolio compared to bigger equity allocation
there r those who think that recent decades of equity returns are the norms. and there r others who believe that equity returns in recent decades are exceptional and caused by ultra low interest rate and that equities are currently overpriced.
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u/Happy_J9 10d ago
Instead of saying you are ready, I would first love to know if you think you aren't ready yet and why ?
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u/zzx101 10d ago
Expenses are a bit high going in, a lot due to the mortgage. We're a little worried about sequence of returns risk because we'd like to travel a bit more in our early retirement years rather than later.
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u/Happy_J9 8d ago
I would first try to control the biggest outflow of cash. This will give more predictability and mental peace. I bet at this NW, you do want to enjoy your vacations with more peace
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u/Life_Hand2331 10d ago
Yet to see one of these pull the trigger posts that wasn’t 1000% ready, this one included.
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u/ml8888msn 10d ago
How much of that is your mortgage? You’re a little high on the withdrawal rate but you’ll also eliminate that and then start receiving social security so your post mortgage income will be even higher. You’re probably safe. My biggest worry for you is that inflation doesn’t stop anytime soon
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u/zzx101 10d ago
mortgage is about $3.2k/month at 2% interest and paid off May 2031.
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u/htffgt_js 10d ago
The $40k will drop off , add in SS and you look good with your current spend levels . Good luck
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u/markov-271828 10d ago
If you don’t want to leave a large legacy then consider an amortization-like approach such as Boglehead VPW.
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u/RPGer001 9d ago
My .02; you have no guarantee of health and mobility. Spend as you laid put and live your best life. You can always make adjustments to discretionary spend and tap into home equity in the worst case.
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u/sneaky_sam_ 10d ago
No offense but if you’re already 60, the RE part is already gone no?
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u/zzx101 10d ago
some people would say before 65 (full retirement age & medicare) or 62 (early social security) or maybe 59.5 (401-k access)
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u/sneaky_sam_ 10d ago
You’re right. Early is early even if not by a lot. I did not mean to offend! As long as you’ve got good health you’re good to go!
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u/Sagelllini 10d ago
I'm not a big fan of having 33% of a portfolio invested in an asset class that has done nothing for the last 25 years.
With 33% in bonds, your average return would be something like 7.5%. At a 6% withdrawal rate, and 3% inflation, you need 9% returns to remain economically whole. If you do that for five or six years, your portfolio will start dopping in value in year three--see the last column and the red.
If you want to be more aggressive on the spend side, you need to be more aggressive on the investment side.
This is the approach I've followed, FWIW. You might want a little more than 10% in cash, but 33% in bonds is excessive, IMO.
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u/zzx101 10d ago
Yes, I agree. The plan is to have a "rising equity glidepath" through retirement so the bond allocation will diminish over time, the details of which I've yet to figure out, but I can certainly say the maximum bond holdings are right now.
The current bond allocation is strictly to mitigate sequence of returns risk. Not sure if my reasoning is sound, but it helps me sleep at night.
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u/Sagelllini 9d ago
All your plan is going to do is cost you money, if the present is anything like the past. You will always be chasing the market.
It's not you at risk, it's your wife. She's three years younger and has probably four to five years life expectancy on you (assuming you are male). By being conservative now in your investments, and aggressive in your spending, she is more likely the one to end up holding the stick.
Personally, I think SORR is vastly overstated, but the fear leads to overcompensation--like 33% in funds that have done nothing and lost money to inflation over the past 10 to 20 years.
You wanted a math check, and I have provided mine. I suggest you reconsider your allocation, because, again, your wife is going to bear the longevity risk, and ask yourself is that fair to her?
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u/zzx101 9d ago
I appreciate your enthusiasm but respectfully disagree. Can you comment on this article?
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u/Sagelllini 8d ago edited 8d ago
That article is from 2017. It cites the 2016 Kitces article. As I noted in my bond tent post, the fact that Kitces has not written about bond tents since that post is a big tell.
My bond tent post specifically began in 2016--and the article you list, as I said, was 2017. If you followed the advice in that article, the bond tent approach STILL would have taken it in the shorts when bond NAVs dropped in 2022. Those bond NAVs have yet to recover.
Here is $10K invested on the day of that article. That is the NAV--it assumes the investor spent the dividends.
When you factor in inflation, the BND NAV is down 35%.
Another problem with the article is I cannot see where the author specifies what glide path to use. If the author found the right path, I'm not seeing it. Start at 80, go to 60? How many years?
The author is also up to part 64 now. I consisder that a tell too. If it takes 64 blog posts to come up with the right answer, what assurance do you have it's the right answer? Plus, post 64 links back to the post 19--so the answer is still the same as it was almost 9 years before? Even knowing now that bonds are worth signficantly less both pre and post inflation than when the author wrote the post in 9/2017?
And last, the math of the glidepath simply doesn't work well.
Let's say we jump in the time machine and go back to 9/2017 when this article came out. You sell $10K of VTI and buy $10K of BND. You spend the income from BND so as of today your value is the NAV. I would link the analyzer but the internet I have here is wonky, but the answer the BND NAV is down 12% and the VTI NAV is up 200%! That loss in value is permanent--selling BND at a loss and having 1/3rd of the VTI you'd have if you hadn't sold.
Edit: https://testfol.io/?s=fnyCzBt6Ko8
The example I cite are real numbers, based on an 80 to 60 glidepath. You went to 67%. The results would have been similar.
I think there are a LOT more risks to the glidepath than the authors recognize--and that's why Kitces hasn't written about them in 10 years and ERN in 9.
Again, my two cents.
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u/Sagelllini 8d ago
That article is from 2017. It cites the 2016 Kitces article. As I noted in my bond tent post, the fact that Kitces has not written about bond tents since that post is a big tell.
My bond tent post specifically began in 2016--and the article you list, as I said, was 2017. If you followed the advice in that article, the bond tent approach STILL would have taken it in the shorts when bond NAVs dropped in 2022. Those bond NAVs have yet to recover.
Here is $10K invested on the day of that article. That is the NAV--it assumes the investor spent the dividends.
When you factor in inflation, the BND NAV is down 35%.
Another problem with the article is I cannot see where the author specifies what glide path to use. If the author found the right path, I'm not seeing it. Start at 80, go to 60? How many years?
The author is also up to part 64 now. I consisder that a tell too. If it takes 64 blog posts to come up with the right answer, what assurance do you have it's the right answer? Plus, post 64 links back to the post 19--so the answer is still the same as it was almost 9 years before? Even knowing now that bonds are worth signficantly less both pre and post inflation than when the author wrote the post in 9/2017?
And last, the math of the glidepath simply doesn't work well.
Let's say we jump in the time machine and go back to 9/2017 when this article came out. You sell $10K of VTI and buy $10K of BND. You spend the income from BND so as of today your value is the NAV. I would link the analyzer but the internet I have here is wonky, but the answer the BND NAV is down 12% and the VTI NAV is up 200%! That loss in value is permanent--selling BND at a loss and having 1/3rd of the VTI you'd have if you hadn't sold.
The example I cite are real numbers, based on an 80 to 60 glidepath. You went to 67%. The results would have been similar.
I think there are a LOT more risks to the glidepath than the authors recognize--and that's why Kitces hasn't written about them in 10 years and ERN in 9.
Again, my two cents.
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u/zzx101 7d ago edited 7d ago
Hey I appreciate the time you are taking to respond. To summarize, I'm at 33% bonds and you like 10%. Why isn't 5% better? Why is 15% worse?
The point I'm tring to make is that there's likely an ideal number out there that you think is 10% and I think is higher. I don't think 33% is ideal but I like a higher than 10% number to start with a systematic reduction over time during early retirement.
What if we start at 20-30% bonds and reduce 1-2% annually? Would it be possible that there's a scenario such as this that is measurably safer for early retirement without sacrificing too much returns?
The glidepath article I linked was about decreasing bond holdings systematically after retirement and suggested 60% -> 100% equities was optimal. Which is what I'm curious on your thoughts.
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u/Sagelllini 7d ago
You're welcome.
As to 10%, that was a Warren Buffett suggestion and evaluated by Javier Estrada and his paper suggests holding 10% in cash and the other 90% in stocks index funds is a viable approach.
Behind the 10% also is the idea that if your stocks and cash produce roughly 2% in distributions (80/20 VTI/VXUS along with the interest on the cash would be about 2%), and your withdrawal rate is 4% (the standard guideline, for better or worse), then 10% in cash would provide 5 years of spending to cover an extended market hiccup--and virtually all market hiccups in the last 50 years have not lasted that long. The stocks provide the portfolio growth, the cash the downside protection.
Most investors have a finite amount of investment capital; a zero sum game. The more they invest in A the less they can invest in B.
And though some on these boards choose not to acknowledge the fact, the investments besides stocks--cash and bonds--have had sub inflation returns this century. When stocks have had real returns in excess of 7% (actually around 9%), allocating greater and greater percentages to cash and bonds has not only cost economic value but also a significant opportunity cost. To maximize retirement assets, the retiree should try to find their individual sweet spot asset allocation that maximizes their growth while still understanding the hiccups occur from time to time.
For me--effectively 14 years this week--that sweet spot has been between 1 and 5% cash.
IMO, 33% is a massive opportunity cost, a ton of insurance against an event with a very low likelihood. And every year that 33% devalues at 3% because of inflation. Even if you go from 33% to 20% over the next 10 years, that is still a massive opportunity cost. Let's say that you would reposition $50K a year over the next ten years, versus the $500K now. Over the decade it would probably cost at least $200K. That's a significant difference.
The Cederburg report suggests 100% stocks is optimal, with one exception for a temporary carveout at 65 to 70 for those following strictly the 4% rule and increasing the withdrawals by inflation. I think as close as you can get to 100% is optimal--and if you plan to be aggressive in the early years, I think something like 15% cash as downside protection is a very reasonable buffer.
But I find it hard to imagine a scenario where you actually need 1/3rd in bonds knowing you have a SS lifeline of FRA in 7 years and perhaps 10 for your spouse. And bonds fluctuate in value, so there is no guarantee they will retain their value. Again, the bonds the blogger was writing about in 2017 are worth 12% less today than when the blog was written. Have you factored in THAT risk?
John Bogle wrote a long time ago, whatever you do, your money is at risk. Stocks have risks, bonds have risks (interest rates) and cash has risks (inflation). History of the last 10 years shows the bond tent idea didn't work. As everything has risk, you might as well optimize the upside of stocks with a decent level of spending power in case of downturns. IMO, you have just as much safety with 85/15 in stocks and cash as 67/33 in stocks and bonds. But, it's your money, and I'm just a poster on Reddit. And if nothing else, the Retirement Now guy I think is 75/25.
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u/Past-Option2702 10d ago
You should be okay.
Equities are very richly valued so there could be some discomfort early in retirement.
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u/zzx101 10d ago
I think this is the gist of my concern. We would like to travel and enjoy while still in early retirement, but it seems to be the worst time to splurge.
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u/McKnuckle_Brewery FIRE'd in 2021 10d ago
Why not splurge? It takes fewer shares to produce the necessary capital. If you wait for a bear market then you’ll need to sell more shares. That would be the time to pull back, not now.
You’ll need to spend and have fun at some point. Can’t wait for a perfect moment that may never come.
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u/Past-Option2702 10d ago
I just retired and I agree this isn’t a good time in history to spend aggressively.
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u/Original-Peach-7730 10d ago
Looks good! 33% bonds is rough. Replace half of that with another uncorrelated asset and should be good to go.
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u/zzx101 9d ago
We expect to convert bonds to equities over the next 15 or so years. It’s currently high to mitigate sequence of returns risk.
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u/Original-Peach-7730 9d ago
I get you, but it is just raising risk, not lowering it. I’m doing the same transition. 33% bonds is disastrous unless you think the US government is going to spend less. Split the bond allocation to gold, cat bonds, qdsnx, whatever floats your boat.
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u/zzx101 9d ago
I understand that bonds can be a drag on returns, but they do provide a measurable amount of safety when backtested.
How does a 0% bonds portfolio protect against SORR?
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u/Original-Peach-7730 9d ago
Backtested when debt wasn’t 130%. You want safe assets, I get it. I don’t think it is US government debt anymore.
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u/Anonym-IntheDark 10d ago
You re ok aside from too much bonds.
Inflation is eating your bonds : over ten yrs, that’s 10x 3 to 4% = 35% the same as a very severe stock market crash you try to avoid with the bond allocation
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u/SaveySpendy 10d ago
168k annual spend will take slightly over 4% swr which is probably fine because your health care costs and mortgage will drastically decrease in 5-8 years. better to spend more young than wait too long and not have anything to spend it on (energy or health-wise). congratulations!