[Topic is now in Personal Finance (Not Investing) - mod mkc]
42 yo here with $2M in investable assets plus another 400K in equity in primary real estate. Assets are 80% tax deferred, 20% taxable. Only debt is mortgage for $400K at 2.5%. Annual spending has been steady at $120K the last few years.
I am getting fed up with my current line of work and feel like we should be able to downshift with the amount of money we have been able to save. Corporate BS is getting old really quick and slaving away in a cubicle farm longer than necessary seems like a waste of precious time. I dont want to retire early but also have no idea what an ideal role would be for me the make some extra money. Wife already makes about 20K a year and I should be able to make just as much doing gig work if necessary.
I have been reading about decumulation which has a lot more nuances and a lot less literature than the accumulation phase.
There is the 4% rule which is a good back of the envelope calculation. I get it the study was done for a 30 year retirement but with a few caveats could be a perpetual withdrawal amount. It doesn't really match how people spend down their money in real life examples. I get the argument people say that 4% was only intended for somebody with a 30 year retirement an as a 42 year old and I would need my nest egg to last 50 years.
There is the VPW which I like a lot. It increases the initial withdrawal rate for me to 4.3%. It is easy to implement. The only issue is possible decreases in spending depending on portfolio performance.
There is McClung's prime harvesting. Interesting approach to spend down bonds and re-balance once stock portion goes to inflation adjusted 120% of initial value. Initial withdrawal rate goes up. More complicated to implement. Benefits are questionable.
There is guardrails approach like Guyton Kiplinger. Could be a better approach. Again not sure if it is better than VPW.
There is also asset allocation. 3 fund portfolio could be good enough but then you have Risk Parity portfolios like the golden butterfly that allows higher withdrawals (closer to 5%). These portfolios are more accessible to individual investors now then every before. When Bengen was first doing his research, the 4% rule could have been the 5% if all these different asset classes were available and cheap for individual investors. I know Bengen is coming out with a new book where his famous 4% rule will be higher and I believe he will introduce new asset classes to the portfolio to achieve that. You also have Small Cap Value tilt Merriman recommends that results in higher initial withdrawal.
As you can tell I have done a good amount reading on decumulation but find that there are so many different theories on what is the right approach. I feel like I dont really know how to create cash flow from a nest egg of 2 Million dollars in the market. I feel like I could retire today if I had a real estate portfolio of $2M. Why is it so hard to do with money accumulated in equities. Am I overcomplicating this?
42 yo here with $2M in investable assets plus another 400K in equity in primary real estate. Assets are 80% tax deferred, 20% taxable. Only debt is mortgage for $400K at 2.5%. Annual spending has been steady at $120K the last few years.
I am getting fed up with my current line of work and feel like we should be able to downshift with the amount of money we have been able to save. Corporate BS is getting old really quick and slaving away in a cubicle farm longer than necessary seems like a waste of precious time. I dont want to retire early but also have no idea what an ideal role would be for me the make some extra money. Wife already makes about 20K a year and I should be able to make just as much doing gig work if necessary.
I have been reading about decumulation which has a lot more nuances and a lot less literature than the accumulation phase.
There is the 4% rule which is a good back of the envelope calculation. I get it the study was done for a 30 year retirement but with a few caveats could be a perpetual withdrawal amount. It doesn't really match how people spend down their money in real life examples. I get the argument people say that 4% was only intended for somebody with a 30 year retirement an as a 42 year old and I would need my nest egg to last 50 years.
There is the VPW which I like a lot. It increases the initial withdrawal rate for me to 4.3%. It is easy to implement. The only issue is possible decreases in spending depending on portfolio performance.
There is McClung's prime harvesting. Interesting approach to spend down bonds and re-balance once stock portion goes to inflation adjusted 120% of initial value. Initial withdrawal rate goes up. More complicated to implement. Benefits are questionable.
There is guardrails approach like Guyton Kiplinger. Could be a better approach. Again not sure if it is better than VPW.
There is also asset allocation. 3 fund portfolio could be good enough but then you have Risk Parity portfolios like the golden butterfly that allows higher withdrawals (closer to 5%). These portfolios are more accessible to individual investors now then every before. When Bengen was first doing his research, the 4% rule could have been the 5% if all these different asset classes were available and cheap for individual investors. I know Bengen is coming out with a new book where his famous 4% rule will be higher and I believe he will introduce new asset classes to the portfolio to achieve that. You also have Small Cap Value tilt Merriman recommends that results in higher initial withdrawal.
As you can tell I have done a good amount reading on decumulation but find that there are so many different theories on what is the right approach. I feel like I dont really know how to create cash flow from a nest egg of 2 Million dollars in the market. I feel like I could retire today if I had a real estate portfolio of $2M. Why is it so hard to do with money accumulated in equities. Am I overcomplicating this?
Statistics: Posted by eg1 — Mon Dec 09, 2024 7:56 am — Replies 5 — Views 326