With respect to finances, all my mental energy these days is spent trying to optimize our stash drawdown and thinking about various associated challenges over our lifetime. I'm not quite 40 yet so we have potentially quite a long runway. I'm a big fan of our stash having the most utility at any given time in our future lives, and we're young so there are certain restraints when it comes to retirement funds. We've reached the point where our stash is larger than it needs to be and, I suspect, if we stuck to generating no more income than we needed it would likely run away from us by the time we're truly old.
Our base spending is about 45k per year (we missed the 3% mortgage gravy train) and I could imagine total spending rising as high as 60k per year if we decide to spend multiple months per year in Airbnbs for the foreseeable future. I have done extensive modeling that shows we could generate a taxable income right at the 400% FPL threshold (so as to not go over the ACA subsidy cliff) and have spending be even higher than that without running out of money, and the model is conservative compared to the historical average return. I can't imagine spending that much money (92k+ for a family of 3) but it may be better long term to generate a higher income over a longer period of time and deposit those funds being transitioned out of retirement accounts via the Roth IRA conversion pipeline into a brokerage account.
Of course there's a tax cost to choosing a higher income and if we don't plan to spend it I question whether it's worth doing. There's certainly utility in having more of our dollars available to us, but it's hypothetical utility. If our annual spending needs are already covered by a much lower amount we're essentially covering against unforeseen situations, good or bad, that would require larger amounts. Is paying more in taxes worth having access to a larger pile of money in an emergency or to take advantage of a deal?
Does anyone else who is already RE and drawing down their stash consider how this will play out over their lifetime? Do you just make the minimum income moves you need to to cover annual expenses? This is a subject that I feel like I haven't seen discussed a whole lot. I was hoping maybe this was a thing that other people have different approaches to and it would be enlightening.
@Mr. Green, not reading whole thread rn but considered your question previously; thoughts below, sorry if they duplicate others'.
1. Extra money is good for donations!
2. Donations in small amounts can be done any time, so look for high value opportunities. Respond/ seize them as they come. Don't wait until you're old.
3. For maximum tax efficiency in giving, start a donor fund. Give an amount well above the standard deduction, then itemize that year; your overall tax efficiency will be as good as always, but this will enable you to efficiently give amounts smaller than the standard deduction. Of course the drawback is you're obligated to distribute at least 5% of fund annually, so this is only worth doing if you're ready to give at least annually.
4. When RMDs appear (age 70? now 72?) remember RMDs can be directly donated to charity. Thus, donations can be very tax efficient.
5. Strictly speaking, 4 implies that there's no rush. The reason to do 2 and 3 is to do good ASAP since you can, and to maximize impact per dollar given.
6. If you want some of your money to go to charity when you die, establish a will that will accomplish this. You can die tomorrow, so regardless of what you desire, make the will match your goals. You can revise when older.
7. Also bear in mind that your financial accounts may not be covered by will. If they're payable on death, they may evade the will and go to named beneficiary. I think in some states the best way to direct the financial accounts to charity is to create a trust for that purpose and name a beneficiary but I haven't done the details on that yet.
8. I recognize that marriage and children may put charity in second or third place re disposal of assets, but since you've determined that you're likely to have extra, you and your spouse can arrange your documents to produce the asset distribution you desire. Might be worth consulting an estate lawyer to verify your plan if you go this route.
One good thing about giving is you can start with small experiments and expand later. You could try it for a while, then decide whether to do the bigger pieces such as establishing donor funds or a trust.
Separately from the donation aspect, did you already set up a financial trustee in case you and spouse die prior to child's coming of age? Sorry if that's off topic, it's just prior in the assumed task stack.
