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 the future projected growth of different asset allocations into account. The 50 years of living expenses are 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%
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 fewer 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 to 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 to 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 #DrawdownStrategy 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 7: Cracking Retirement: Our Drawdown Strategy
Link 8: The Financial Journeyman: Early Retirement Portfolio & Plan
Link 9: Retire by 40: Our Unusual Early Retirement Withdrawal Strategy
Link 10: Early Retirement Now: The ERN Family Early Retirement Captial Preservation Plan
Link 11: 39 Months: Mr. 39 Months Drawdown Plan
Link 12: 7 Circles: Drawdown Strategy – Joining The Chain Gang
Link 13: Retirement Starts Today: What’s Your Retirement Withdrawal Strategy?
Link 14: Ms. Liz Money Matters: How I’ll Fund My Retirement
Link 15: Penny & Rich: Rich’s Retirement Plan
Link 16: Atypical Life: Our Retirement Drawdown Strategy
Link 17: New Retirement: 5 Steps for Defining your Retirement Drawdown Strategy
Link 18: Maximize Your Money: Practical Retirement Withdrawal Strategies Are Important
Link 19: ChooseFI: The Retirement Manifesto – Drawdown Strategy Podcast
Please remember to check with a financial professional before you ever buy an investment and to read my Disclaimer page.