Category Archives: financial goals

Early Retirement Portfolio & Plan

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Thank you for reading part-4 in my series on asset allocation.  In my last post, I wrote about our current balanced-growth asset allocation.  That is the asset allocation that we plan on maintaining until we retire in 2028.

In this post, I will be considering the future.  This post is about how I foresee our assets being allocated at the time of retirement.  I use the word foresee because it is what I am anticipating.  As I stated in my previous post, I don’t have a crystal ball.  Nobody can predict the future, but this is what I am optimistically forecasting.

At the time of retirement, I will be age 52 and my wife will be age 60.  At age 60, my wife will draw a Pension equal to 70% of her last annual salary.  The Pension technically has a cost of living adjustment (COLA), but there has not been an adjustment in over 15 years.  Moving forward, we are not going to count on any COLA adjustments.

By 2028, we plan on having about 50 years of annual living expenses in investable assets.  To come up with that amount, I have run our figures on many different financial calculators including AARP, Charles Schwab, and Fidelity that take future projected growth of different asset allocations into account.  The 50 years of living expenses is based on what we currently have saved, the amount we plan on adding to our savings, as well as projected market performance.

The asset allocation that we plan on using at retirement will be 50% invested in stocks and 50% invested in bonds/cash:

S&P 500 Index Fund – 32%

Extended Market Index Fund – 8%

Total International Stock Market Index Fund – 10%

Intermediate Term Bond Fund – 32%

TIPS Fund – 10

Cash – 8%


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At retirement, we are planning on withdrawing only 1.8% per year from our portfolio.  Based on the Vanguard Monte Carlo Nest Egg Calculator, our success rate is projected to be 100%.  We also have a greater than 100% projected success rate on Firecalc.com and the Trinity study.

Between the pension and withdrawing 1.8% from our portfolio, we will have $112K per year to live on.  Just based on simple math, if we are taxed at 25%, we would have $7K per month to live on.  That would be more than double of what we live on now with less expenses.

For the first 10 years of retirement, we plan on withdrawing from our taxable account.  When my wife is age 70, we will be forced to withdraw from her Traditional IRA because of Required Minimum Distributions (RMD).  At that point, we will still be 8 years away from having to withdraw from my Traditional IRA.  We might never have to touch our Roth IRA accounts.  If we do use our Roth IRA accounts, it might just be to withdraw extra money without causing us to go into a higher tax bracket.

We are currently planning on being flexible when it comes to Social Security.  Our goal is to take it when my wife is 70 and I am 62.  We are, however, keeping the option open of taking it early based on retiring during a prolonged market correction. Otherwise, the amount that we will collect will compound 7% annually for every year my wife waits between age 62 and 70.

For some people, this plan might seem too conservative.  For me, being a little on the conservative side is important.  That is because I am retiring at a young age.  I have to plan on being able to fund a retirement of at least 35 years for both my wife and myself.

For me, I don’t see it as being overly conservative.  I see it more as being flexible.  By only planning on a 1.8% withdrawal rate, we have a great amount of flexibility.  If we had to increase it to 2.8%, our success rate only falls to 98% on the Vanguard Monte Carlo Nest Egg Calculator.  If my wife had to work two more additional years, her pension would jump to 80% of her last annual salary.  Also, I will most likely still work part-time because I want continue to take advantage of my catch-up contributions in my retirement accounts.

That is how our future plan looks.  It is over 11 years from now.  I don’t want to get too excited.  Between now and then, we will work hard, save, invest, take care of our health, and enjoy every day.

Also, please check out the following links from some of the top personal finance blogs to learn about the #Drawdown Strategy Chain:

Anchor: Physician On Fire: Our Drawdown Plan in Early Retirement

Link 1: The Retirement Manifesto: Our Retirement Investment Drawdown Strategy

Link 2: OthalaFehu: Retirement Master Plan

Link 3: Plan.Invest.Escape: Drawdown vs. Wealth Preservation in Early Retirement

Link 4: Freedom is Groovy: The Groovy Drawdown Strategy

Link 5: The Green Swan: The Nastiest, Hardest Problem in Finance

Link 6: My Curiosity Lab: Show Me The Money: My Retirement Drawdown Plan

Link 6:    My Curiosity Lab:  Show Me The Money: My Retirement Drawdown Plan

Link 7: Cracking Retirement: Our Drawdown Strategy

 

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Saving $100,000 by age 30


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Saving my first one hundred thousand dollars was the hardest.  When I started on the road to financial independence (FI), I was only 20 years old.  I wanted financial independence and reaching my first $100K was the first goal that I set.  I was aware that it was a lofty goal, but I embraced the challenge.  I wanted to reach this milestone by age 30.  On my way to reaching this goal, here is what I did:

Work

I had to land a job and start earning money.  When I looked for a job, my options were limited.  I did not have a college degree yet.  The economy where I lived was not great.  My options were a factory job, construction, or working in the food industry.  I selected working on an assembly line in a mattress factory.  There was nothing glamorous about the job.  It paid a decent hourly wage for unskilled labor.  It was a means to an end, so I was grateful to have it.

Learning to Save

To reach my goal of building a net worth of $100K by the age of 30, I had to save.  Saving came easy to me.  I was working hard for the paycheck and did not want to waste the money.  Every month, I would put at least $500 away towards my long-term goal.  I also put additional money away for vacations, car expenses, and costs associated with college.

Investing

I had to learn how to invest the money that I was saving.  It was the year 1997.  It seemed as if growth and technology stocks were soaring to new market highs daily.  There were often commercials on television advertising new day-trading platforms.  I was fortunate to have read a few books that taught me to stay away from such speculative approaches.  I learned to invest in mutual funds that tracked indexes such as the S&P 500.

I needed to earn 8% on my investments based on my savings and time horizon.  Historically, the stock market earned 10%.  I was confident in the information that I read.  I dollar cost averaged money into my investment account every month.  I ignored the market volatility and just kept moving forward.

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Education

Getting a good college education was important to me.  I knew going to college would help me to learn skills that would put me in a better position to earn a larger salary.  College was, however, a financial challenge to manage on my path to reaching $100K by age 30.  I did not want to incur a large student loan balance.  To avoid that, I took 60 credits at the local community college.  I paid cash for those credits.  That allowed me to incur only $18K in student loans for the additional 60 credits I needed to complete my BS degree.

Conclusion

Yes, I did reach the first goal on my journey to financial independence.  By age 30, I saved almost $120K.  The only debt I had was my student loan of $18K, so that left me with a net worth of over $100K.

Looking back, I did put a great deal of pressure on myself to reach this goal because my salary never exceeded $30K per year during this period.  It was, however, worth it.  It set me up with a solid foundation to build upon towards my next goal of a $1M net worth.

Yes, my 20s were productive, but I also had a great time.  I went on nice vacations, went out with my friends, and dated the girl who later became my wife.  I would not go back and change it if I could.

 

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