The plan is to live in LCOL destinations where we know we can live a comfortable life at a 1K per month basis for the first 3-5 years. Basically food, housing and utilities. We'll contribute anything extra we make over the estimated 1.5K earnings to our 401 tIRA and use the cash in savings as an oh shit fund.
I know it's a lot of cash to have on hand but I want to know that if we want to come back home this will give us a soft landing. Also I have bag lady worries and this makes me feel better psychologically.
I think my main worry is the 140K in the brokerage account. The hope is to let it grow in the next 6 years then draw it down for the following 10 years then tap into the 401K. After the 5 years is done what should I do with the account? I don't want to incur a massive tax burden by cashing it out. Letting it sit, there's the worry of a market drop & we'll be out of luck.
What do you all think?
thanks!
I think you're going to have a great time!
Since portofolio allocation is your big question, some details (mostly from reading...FIREd, not FT traveler):
1) Like 2Birds implied, keep most of your cash somewhere where it earns interest. Currently, there are accounts that give 2% or so and allow instant no-penalty withdrawal, hence most users would classify them as cash. At least do those.
2) I don't have any problem whatever having that "high" cash amount, as long as at least 50% to 70% of overall portfolio is stock. Meaning, it's your portfolio, but I agree you'll get enough appreciation from the "low" 50% to 70% stock allocation. I personally like 70% stock as a default "forever" allocation. You don't specify what type of assets are in your non-cash accounts (or if you did I missed it), but you should.
3) There is a real question re cash vs bonds though. Cash can drop to zero percent interest at the drop of a hat. Bonds maintain their interest throughout the term of the bond. In fact, if general interest rates drop during your travels, it could easily happen that existing bonds go up in value, yielding positive income if you sell them, at the exact moment that cash loses its earning capacity (or, considering inflation, suddenly becomes a money loser in real terms). For that reason, my suggestion would be at least 2 units of bonds per 1 unit of "cash".
4) An example of 3, taking a very low-short-term-risk approach, would be a total portfolio allocation of 55% stock, 30% intermediate term bonds, 15% cash. The $75,000 cash is obviously a little less than 15%, so I'm not opposing cash, just trying to ensure that if you have more than 3% to 5% in this vulnerable category, you have some countervailing bonds to balance it out.
5) Me personally, in your shoes I'd go with 70% stock, 20% bonds and 10% cash. (Actually I'd go 70-25-5, but that's me. You want cash; if 70-20-10 is comfortable, go with that). Remember, you don't have to buy bonds directly. Vanguard has perfectly fine bond funds. I hear about VBTLX a lot, but there are others.
6) Re capital gains, my suggestion is to calibrate your taxes year by year. I don't think that having 140k in brokerage accounts is a problem. I think it's great. As economic circumstances change, having substantial money in diverse investment types and accounts allows you to use different fund sources at will to maximize your tax situation as well as efficiently balancing your portfolio allocation. I think you're going to be very much in the driver's seat here.
7) Along the lines of 6, consider reading the "Never Pay Taxes Again" series on Go Curry Cracker, and also his article on the Foreign Earned Income Exclusion. FEIE is perfect for your earning-while-traveling situation, I think.
https://www.gocurrycracker.com/never-pay-taxes-again/https://www.gocurrycracker.com/never-pay-taxes-by-moving-abroad/https://www.gocurrycracker.com/to-feie-or-not-to-feie/https://www.gocurrycracker.com/passing-physical-presence-test/https://www.gocurrycracker.com/feie-and-capital-gain-harvesting/https://www.gocurrycracker.com/6-years-of-nearly-income-tax-free-living/https://www.gocurrycracker.com/never-pay-taxes-again-overseas-corp/