Final Prep & Plans for FIRE at 46

[Much Fishing to Do]

I am 46, married to SAHM with 3 children (16,12,8) and am currently winding down my business and am planning to take on a half-time consulting role with my largest past client, greatly reducing my number of hours on the clock & risk while still working from home.  I hope the consulting role works out well (that it does leave me with all the time I want to now be spending with the family and on other things, and that the stress will be much less than with the business), and if it does it will provide me with enough income to cover our spending plus for the next few years I may do it. But I know this is my last rodeo in the corporate world, so if it doesn’t turn out to be the good position I’m hoping for I’ll be pulling the trigger to FIRE, so want to be sure I’m prepared as of today.

Here is the breakdown of what I have:
Taxable accounts - $2M (cost basis around $1.5M)
Traditional IRA/401ks  - $450k
Roth IRAs/Roth 401ks - $350k
Total Investments to draw from - $2.8M
Paid for Home – $300k
DAF - $110k – Created during two abnormally high income years, will use this in FIRE for charitable donations
529s for 3 kids - $380k – I consider this fully funded for all and plan is in one way or another give the kids any leftover money they are able to not spend on college while still getting a degree.

We’ll likely grow old in the current home.  After we finished paying it off and the business grew we did a couple remodels that gave it the outdoor living space that made it great.

My current investment breakdown is 90% VASGX (VG LifeStrategy 80/20 fund) and 10% VMMXX (Vanguard Prime Money Market), giving me basically a 72 equity/18 bond/10 cash portfolio. I always thought I’d end up with less cash as I’d move this business profit into investments, but given the money market is starting to return more than 2% now, bonds still seem they are bound to fall, and I’m getting close to FIRE so the cash buffer seems nice, and back testing doesn’t seem to show it having much difference on overall return, it is just where I have naturally fallen to.

The plan is to draw $25k/quarter out of the taxable portfolio for spending.  This would be only about a 3.6% SWR but I consider it to be more like 4% after considering about $10k/year of spending I will not be regularly withdrawing but will eventually need to go to car replacement/roof/etc type spending over time (basically the big expenditures that are ‘regular’ but occur less frequently than annually).

I kinda like looking at my current investments as 2 pots for 2 very different time periods.  The $2M taxable will need to cover about the next 20 years.  Over those years I’ll be getting about $40k in taxable dividends and maybe another $20k in gains recognized each year, so that’ll still give me room to be rolling over significant traditional retirement funds to roth funds over those years without incurring federal tax.  Over a period of 20 years I’d think I could easily get it all over into Roth IRAs.  I then see that $800k in retirement accounts as a different pot of money to be used for age 67 and after, a very different looking spending period given kids all grown, SS avail, & medicare.  Using FIrecalc and considering the $800k as its own entity (eventually tax free as all moved to ROths), along with approx. $36k/year in SS for me and spouse, and now with the help of Medicare (health insurance is a huge expense for me currently), even if the taxable money is exhausted by then through poor markets the same spending should be covered by what those retirement accounts will grow to. 

Any advice/observations/concerns welcomed.

[reeshau]

Two comments:

1) anything we respond to now follows your assumptions on spending; that is, that $100k is enough.  You have not provided any earnings or spending detail to give input on; so as far as what you get here, that's still a blind spot.

The plan is to draw $25k/quarter out of the taxable portfolio for spending.  This would be only about a 3.6% SWR but I consider it to be more like 4% after considering about $10k/year of spending I will not be regularly withdrawing but will eventually need to go to car replacement/roof/etc type spending over time (basically the big expenditures that are ‘regular’ but occur less frequently than annually).

I kinda like looking at my current investments as 2 pots for 2 very different time periods.

2) Following your method of bracketing your FIRE into buckets, this is actually a 5% withdrawal rate from your taxable account, plus the extras you mention.  The Trinity study gave a 5% withdrawal rate an 88% chance of success over 20 years, at a 75% stock portfolio.  (closest option in the study to your situation)  6% was given only a 75% chance.  While this isn't a level to panic about as it's not the whole story, you may want to consider / be prepared to adjust your switch over to tax-advantaged accounts.  This is especially true if you believe that reverting to the mean from current market levels will mean reduced returns in the near future.

For more info, see: https://retirementresearcher.com/trinity-study-updates/

[MDM]

Over those years I’ll be getting about $40k in taxable dividends and maybe another $20k in gains recognized each year, so that’ll still give me room to be rolling over significant traditional retirement funds to roth funds over those years without incurring federal tax.  Over a period of 20 years I’d think I could easily get it all over into Roth IRAs.

Good plan!

[Much Fishing to Do]

Two comments:

1) anything we respond to now follows your assumptions on spending; that is, that $100k is enough.  You have not provided any earnings or spending detail to give input on; so as far as what you get here, that's still a blind spot.

The plan is to draw $25k/quarter out of the taxable portfolio for spending.  This would be only about a 3.6% SWR but I consider it to be more like 4% after considering about $10k/year of spending I will not be regularly withdrawing but will eventually need to go to car replacement/roof/etc type spending over time (basically the big expenditures that are ‘regular’ but occur less frequently than annually).

I kinda like looking at my current investments as 2 pots for 2 very different time periods.

2) Following your method of bracketing your FIRE into buckets, this is actually a 5% withdrawal rate from your taxable account, plus the extras you mention.  The Trinity study gave a 5% withdrawal rate an 88% chance of success over 20 years, at a 75% stock portfolio.  (closest option in the study to your situation)  6% was given only a 75% chance.  While this isn't a level to panic about as it's not the whole story, you may want to consider / be prepared to adjust your switch over to tax-advantaged accounts.  This is especially true if you believe that reverting to the mean from current market levels will mean reduced returns in the near future.

For more info, see: https://retirementresearcher.com/trinity-study-updates/

Thanks reeshau.  As for #1 & #2 it probably helps to know that my original FIRE plan was a 5% SWR and a spending of about $70k/year.  My business had a couple of years success beyond what I ever planned for and as soon as we started hitting on our FIRE number I also knew the business (the people) wasn't at a good place for me to just quit and leave them behind, so I kept going and did allow our spending to increase at that point along with doing the house improvements, creating the DAF, increasing the 529s greatly, in addition to adding to our investments.  In the end I know $70k/year would be fine, but we also, unlike many I read in this forum, have no problem spending more ;-) (love to travel abroad and with a family of 5 airfare and lodging alone can get pretty expensive, and there is something to be said for buying a nice new car you don't have to worry about for some time, though luckily if its a good car it can be driven a decade).  So this background kinda gives you my answers which is 1) 100k should theoretically be no problem 2) we can limit spending if and when it looks like we need to to not spend down that taxable money in the first 20 year period and 3) given my original plan for a 5% SWR its probably evident I don't mind a little risk, which again is really knowing that we could adapt to whatever we have to.  What I suspect I'll end up doing is in down markets go ahead and limit my withdraws to some x% of whatever the current balance is and so we just have to cut out some of the extras, which, hey, we'll miss but not exactly gonna cry over it given I'm not talking about a roof over our head, food in our bellies, clothing on our backs but crazy stuff like trips to Europe that no one 'needs'.  I just don;t want to cut them out before I have to given I'll finally have the time to do this stuff and the kids are gonna be grown and gone before i know it....

[Dragonswan]

I think your plan is solid.  At 2M taxable, you could move it all to CDs and have 100% risk free success at withdrawing 100K/year for 20 years.  Your money would just loose value to inflation (although if you pick the right banks you mitigate this some).  My point is, with a finite period (you don't need it to last to some unknown and hopefully long long way off death) for the money to last, you can use various lower risk investment strategies and the 5% withdrawal rate you planned on.  In the mean time your retirement accounts can be more aggressive because you know you have a 20 year horizon before you need them.  You're solid; go enjoy your retirement, shiny new vehicle and world travel!