I've been lurking on the forum for a while and have never posted. Finally got myself to write down an IPS and would appreciate feedback.
Background/assumptions
- My spouse and I are both 45 and working
- I am active duty Navy with 23 years of service and may retire in ~2.5 years or keep going; pension number below assumes 2027 retirement in 2024 dollars
- I get a bonus every June and use that to make a maximum backdoor Roth IRA contribution
- My Roth IRA asset allocation came out of my self-education the last several years and playing around with portfoliocharts.com and other backtest tools. I plan to keep it this way as a practical exercise in self-education. This account represents <5% of our total portfolio and is easy to maintain with a single deposit and rebalance each year.
- Minimum sustainable lifestyle budget assumptions in 2024 dollars: $10,000 monthly spending and $2,000 monthly taxes
Investment Objective: Financial independence before age 55 defined as being able to sustain lifestyle without having to work
- Minimum sustainable lifestyle expenses ($12,000/month) met by pension ($8,800/month) + 2% withdrawal rate from portfolio ($3,200/month = $1,920,000 portfolio)
Key Principles
- No debt except for house or car payments
- Savings rate of at least 15% of total gross income: Max 401k, then backdoor Roth, then taxable
- Automate as much as possible
- Stick to low cost index funds
- Keep it simple: as few funds in as few accounts as possible
- Nobody knows anything: Don’t try to time the market, don’t worry about what other people are doing
- Think total portfolio assets: Treat pension as a bond
- Minimize tax liability: limit trading, optimize asset location
Financial Risks and Mitigations
- Significant decline in equities markets: Enough T Bills to prevent forced sale for any reasonable exigency; sequence risk-aware withdrawal strategy
- Interest rate changes: Match duration to need
- Inflation: COLA adjusted pension; Delay one Social Security until latest age; TIPS if bonds needed
- Fraudulent withdrawals/Identity theft: Account alerts, two factor authentication, credit freezes
- Failure/bankruptcy of financial institution holding my assets: Assets in at least two institutions
- Injury or illness significantly reducing earning capability: High savings rate through peak earning years
- Early death: Term life insurance until portfolio large enough
- Longevity: COLA adjusted pension with SBP; Delay larger Social Security; Conservative withdrawal strategy that reduces spending when market drops
- Condition requiring long term care for any immediate family member: High savings rate through peak earning years and conservative withdrawal strategy
- Getting sued: Umbrella insurance
Target Allocation
- 401k/TSP/Traditional IRA: All new money to 2055 target date funds as long as they are low fee, otherwise use low fee funds to recreate VT US/ExUS distribution (65/35 as of 12/30/24)
- My Roth IRA: Rebalance annually during funding to 20% US TSM, 15% ExUS TSM, 15% SCV, 15% REIT, 15% LT Bond, 10% Int SCV, 10% Gold
- Taxable: 50% US TSM/20% SCV/30% ExUS; currently at 40% US TSM/30% SCV/30% ExUS; contribute new money at 80% US TSM/20% ExUS until target allocation met
- Safety (Bernstein’s Elixir of Equanimity to prevent ever being a forced seller of stocks): No less than $150,000 in T Bills/MM
Rebalancing
- Use new contributions or tax-loss harvesting to achieve target allocations
- Rebalance when >5% from target percentage
Withdrawal Strategy
- Floor and ceiling around 5% withdrawal rate: set floor at distribution needed to meet minimum sustainable lifestyle expenses from by pension + Social Security + portfolio distribution, set ceiling at 7.5%
Review Process
- Monthly review for tax-loss harvesting and investment of excess capital
- After any income changes and at end of year review for changes to future contributions
- When transitioning from accumulation to withdrawal consider asset allocation strategy change
- Age 50 (2029): Eligible for catch-up contributions
- Age 55 (2034): Eligible for post-separation 401k withdrawal
- Age 59.5 (2039): Eligible for 401k and IRA withdrawals
- Age 62 (2041): Social Security eligibility
- Age 65 (2044): Medicare eligibility
- Age 67 (2046): Social Security full eligibility
- Age 70 (2049): End of max delay benefit for Social Security
- Age 73 (2052): Required minimum distributions
Background/assumptions
- My spouse and I are both 45 and working
- I am active duty Navy with 23 years of service and may retire in ~2.5 years or keep going; pension number below assumes 2027 retirement in 2024 dollars
- I get a bonus every June and use that to make a maximum backdoor Roth IRA contribution
- My Roth IRA asset allocation came out of my self-education the last several years and playing around with portfoliocharts.com and other backtest tools. I plan to keep it this way as a practical exercise in self-education. This account represents <5% of our total portfolio and is easy to maintain with a single deposit and rebalance each year.
- Minimum sustainable lifestyle budget assumptions in 2024 dollars: $10,000 monthly spending and $2,000 monthly taxes
Investment Objective: Financial independence before age 55 defined as being able to sustain lifestyle without having to work
- Minimum sustainable lifestyle expenses ($12,000/month) met by pension ($8,800/month) + 2% withdrawal rate from portfolio ($3,200/month = $1,920,000 portfolio)
Key Principles
- No debt except for house or car payments
- Savings rate of at least 15% of total gross income: Max 401k, then backdoor Roth, then taxable
- Automate as much as possible
- Stick to low cost index funds
- Keep it simple: as few funds in as few accounts as possible
- Nobody knows anything: Don’t try to time the market, don’t worry about what other people are doing
- Think total portfolio assets: Treat pension as a bond
- Minimize tax liability: limit trading, optimize asset location
Financial Risks and Mitigations
- Significant decline in equities markets: Enough T Bills to prevent forced sale for any reasonable exigency; sequence risk-aware withdrawal strategy
- Interest rate changes: Match duration to need
- Inflation: COLA adjusted pension; Delay one Social Security until latest age; TIPS if bonds needed
- Fraudulent withdrawals/Identity theft: Account alerts, two factor authentication, credit freezes
- Failure/bankruptcy of financial institution holding my assets: Assets in at least two institutions
- Injury or illness significantly reducing earning capability: High savings rate through peak earning years
- Early death: Term life insurance until portfolio large enough
- Longevity: COLA adjusted pension with SBP; Delay larger Social Security; Conservative withdrawal strategy that reduces spending when market drops
- Condition requiring long term care for any immediate family member: High savings rate through peak earning years and conservative withdrawal strategy
- Getting sued: Umbrella insurance
Target Allocation
- 401k/TSP/Traditional IRA: All new money to 2055 target date funds as long as they are low fee, otherwise use low fee funds to recreate VT US/ExUS distribution (65/35 as of 12/30/24)
- My Roth IRA: Rebalance annually during funding to 20% US TSM, 15% ExUS TSM, 15% SCV, 15% REIT, 15% LT Bond, 10% Int SCV, 10% Gold
- Taxable: 50% US TSM/20% SCV/30% ExUS; currently at 40% US TSM/30% SCV/30% ExUS; contribute new money at 80% US TSM/20% ExUS until target allocation met
- Safety (Bernstein’s Elixir of Equanimity to prevent ever being a forced seller of stocks): No less than $150,000 in T Bills/MM
Rebalancing
- Use new contributions or tax-loss harvesting to achieve target allocations
- Rebalance when >5% from target percentage
Withdrawal Strategy
- Floor and ceiling around 5% withdrawal rate: set floor at distribution needed to meet minimum sustainable lifestyle expenses from by pension + Social Security + portfolio distribution, set ceiling at 7.5%
Review Process
- Monthly review for tax-loss harvesting and investment of excess capital
- After any income changes and at end of year review for changes to future contributions
- When transitioning from accumulation to withdrawal consider asset allocation strategy change
- Age 50 (2029): Eligible for catch-up contributions
- Age 55 (2034): Eligible for post-separation 401k withdrawal
- Age 59.5 (2039): Eligible for 401k and IRA withdrawals
- Age 62 (2041): Social Security eligibility
- Age 65 (2044): Medicare eligibility
- Age 67 (2046): Social Security full eligibility
- Age 70 (2049): End of max delay benefit for Social Security
- Age 73 (2052): Required minimum distributions
Statistics: Posted by Padvadtad — Tue Dec 31, 2024 11:41 am — Replies 0 — Views 31