If someone could look over our rough FIRE plan on withdraw method and tax estimation, we would greatly appreciate it.
Background:My wife and I are 35/33 DINK and planning to pull the trigger with at least $2M in the spring next year. I would like to get some feedback on our FIRE plan.
Spending:Current Spending: ~$75K/yr
Essentials Spending: $60K/yr
Portfolio:$2M total with ~50/50 split between taxed and tax advantaged accounts.
US Equity Index Fund: 70%
International Equity Index Fund: 20%
Bond Index Fund: 5%
Cash: 5% (2-year cash buffer)
Simulation Input (I used cFIRESim but FiCal.app has similar results):Withdraw Method: Boglehead Variable Percentage Withdrawal (VPW)
Portfolio: $2M
Minimum Spending: $70K
Minimum Success Rate: 95%
Social Security: $10K/yr total (I don't have a lot of faith in SS)
Retirement Duration: 55 years (age 35-90)
Glidepath: Reduce cash buffer during the first 10 years (SORR)
Simulation Output:Success Rate: 95.9%
Median Spending (1st quarter): $106K/yr
Median Spending (2nd quarter): $126K/yr
Median Spending (3rd quarter): $140K/yr
Median Spending (4th quarter): $197K/yr
Simulation Link: https://www.cfiresim.com/42fdb796-d348-43d7-94d0-b5cc6263070aInstead of a Bond glidepath, we are planning to withdraw our cash buffer when there are more than a 20% drawdown on the market. We figured that most recessions will be shorter than 2 years. Though this cash buffer withdraw strategy wasn't included in the simulation. Using cFIRESim's glidepath feature, a bond glidepath always underperform compared to having high equity (i.e. 60/40 equity/bond split glide to a 100 equity portfolio in 10 years aka ERN method). If there are better tools to simulate this then please let me know.
Income Tax/ACA Calculations:We live in Texas so there's no State income tax to consider.
Plan A: First In, First Out. Spend the low cost basis brokerage investments first.Assuming ~50% cost basis for index funds.
Withdraw from brokerage: $85K
Long Term Capital Gains: $42K
Brokerage Dividends: $15K
Standard Deduction: $30K
Taxable Income = $0
MAGI for ACA = $42K (LTCG) + $15K (Dividends) = $57K
ACA Gold Plan = ~$125/month
Plan B: Focus on Roth Conversion.Assuming ~15% cost basis for index funds.
Withdraw from brokerage: $85K
Long Term Capital Gains: $13K
Brokerage Dividends: $15K
Roth Conversion: $30K
Standard Deduction: $30K
Taxable Income = $30K (Roth) - $30K (Deduction) = $0
MAGI for ACA = $13K (LTCG) + $15K (Dividends) + $30K (Roth) = $58K
ACA Gold Plan = ~$138/month
Questions:Should I use up low cost basis assets from my brokerage first or should I wait until I'm out of SORR (10 years) before touching them? I could cash out high cost basis assets first and focus on building a Roth Conversion Ladder until I'm out of the SORR period. Since my budget is based on market performance, I could wait until the market is doing really well to cash out the low cost basis funds when I have excess budget.
Overall are there any obvious holes in our plan that we need to consider before pulling the trigger? We picked VPW because we liked how it adjusts to the market and we are fine with the budget adjusting each year. I'm not a fan of the CAPE based withdrawal method since I think CAPE is flawed.
