Ready to RE in 2024. Is my plan reasonable?

[danceswETFs]

First - Happy New Year.
Long time lurker - Ive been reading all the OGs (JL Collins, MMM, Mad Fientist, White Coat Investor, Physician on FIre) voraciously since my husband passed, to ramp up so I can steward our family's money to meet the goals we had set as a family (my husband was the de facto money guy in our family). I have had a financial advisor because I didnt want to make any mistakes, but am feeling confident enough now to try it myself and am planning to slowly move the money over to my care after RE. Thank you taking the time to give me feedback. I really appreciate it.

Life Situation: 52 F, IRS filing status - single, 2 kids - 24 and 22 - older has a job and lives out of state. younger is a senior in college.

Gross Salary/Wages: $200K including RSU and bonus, Take home after pre tax deductions - 9K/m

Dividends: 50-75K incl syndicate income

RE date: Q1 2024
 

Retirement expenses: 120K/year (110K todays + 10K health insurance/health expenses) + mortgage (40K)
Mortgage - 40K on year 2 of 5 year ARM. About 800K debt left. 1.2M equity in VHCOL area
Fixed costs incl insurance, property tax, subscriptions (internet etc), utilities - 36K
Travel - 15K
discretionary/fluctuating expenses - groceries, entertainment, services, eating out, gas, auto maintenance, healthcare - 50K
Misc - 10K
healthcare (ACA) - 10K additional

Assets: 7 ish M
Vanguard brokerage - 2.3M allocation 70/30
Fidelity brokerage - 2.9M allocation 80/20
cash - 200K
IRAs + 401Ks - 600K
RSUs - 1M ~15% of total assets
syndicate RE - 200K - locked till 2025

Liabilities: no other loans. Cars paid off. College tuition from 529

Specific Question(s):
My SWR is between 2.6 and 2.9% so Im theoretically ready to RE. My plan is as follows -
1. Move 900K into a "mortgage" account and allocate it as 50/25/25 (ETF/Bonds/Cash) and the idea is to generate at least 5% annually which will pay the annual mortgage. In 2027 when the ARM rate resets, I will evaluate whether to refinance or sell and buy another property (this is not my final home) or  decide to stay on and if the rates are too high, use this brokerage account to pay off the loan. (Havent figured out yet, how I would liquidate the holdings in a tax efficient way)
2. I have 200K in cash and will use this in case of emergencies - roof replacement, car buying etc. I will also direct all dividends here. So I will effectively have about 2 years in this account.
3. I plan to get a HELOC as an additional source of emergency funds before I resign from my job.
4. I plan to move my Fidelity to 70/30. As I do this, I will move my year1 funds into checking. My 401K/IRAs are also at 70/30. My Vanguard is 70/30 already, and if I combine my mortgage account with my RSUs and my cash, that is also about 70/30. so overall, the allocation is 70/30.
5. I plan to withdraw once a year. Im undecided whether a 70/30 allocation seems too conservative or too aggressive  given that  I would like to maintain the principal and even grow it, to set up a DAF and create legacy. I'm also not sure about how to withdraw-
a. use bucket strategy - meaning, when the market is down, to draw down from my cash and not rebalance (and when the market is up, replenish the cash and checking accounts from long term gains) OR
b. rebalance every year - if the market is up, sell stocks, if it is down, sell bonds and get back to 70/30
What would you do recommend if you were in my shoes?

Another item Im not sure about - I would like to spend on the kids grad schools so they can be debt free from education. That would be an outlay of  perhaps 100K each year for 4 years perhaps starting 2025. How should I plan to fund this? Give the RSUs to the child and have them sell them at a lower tax rate for their grad school? or harvest losses in brokerage account? or something else Im not even seeing?

When would it make sense to leverage the HELOC?

[RWTL]

If you haven't already, check out Karsten at https://earlyretirementnow.com/safe-withdrawal-rate-series/

I consider him graduate level information once you have the OGs down.

You seem more than ready to retire to me based on your net worth.  I don't really understand the need to leverage a HELOC.  This seems like you are over complicating it and adding additional expense.  Why not just leverage your brokerage accounts if you need additional funds for emergencies?

Also, consider just making monthly withdrawals rather than annual.  You likely can setup an automatic deposit from your accounts.  This keeps the funds in their proper allocation until they are needed.  Remember that money is fungible so just take out the funds from the account that is most advantaged (taxes or otherwise) and rebalance periodically across all your accounts.

I think Early Retirement Now is going to give you a lot to think about once you review the Safe Withdrawal Series.

[danceswETFs]

Thank you RWTL for your input.
I think it was on a retirement checklist to set up the HELOC. I wasn't sure what would be the best use for it, but I figured it would be better to set it up and not need it, rather than not be able to should I need it in the future for any reason.

You make a good point about the fungibility of money specially the ability to use the cash part of it as needed-i think psychologically, treating it as separate specially given that the mortgage rate resets in 2027 and will be a decision point on whether to pay it off, is the reason I was considering keeping that money in a more conservative allocation.

I forgot to mention ERN, I've started reading his series and I'm trying to understand how the CAPE number can be applied to optimize withdrawal. In fact my dilemma of which withdrawal strategy to use came from the podcast I heard with Karlsen and F. Gilbert from the retirement Manifesto pitting the bucket strategy with the regular rebalancing. The bucket strategy is easier to understand for me, but ERNs seems like it can be automated- set it forget it - and it will work as well, if not better.

My other question, and I'll update my original post to reflect it, is whether a 70/30 allocation seems too conservative or too aggressive  given that  I would like to maintain the principal and even grow it, to set up a DAF and create legacy.

[RWTL]

In fact my dilemma of which withdrawal strategy to use came from the podcast I heard with Karlsen and F. Gilbert from the retirement Manifesto pitting the bucket strategy with the regular rebalancing. The bucket strategy is easier to understand for me, but ERNs seems like it can be automated- set it forget it - and it will work as well, if not better.

My other question, and I'll update my original post to reflect it, is whether a 70/30 allocation seems too conservative or too aggressive  given that  I would like to maintain the principal and even grow it, to set up a DAF and create legacy.

Couple thoughts:

1. The bucket strategy is just a different way to think about your allocation.  If you hold cash, you just need to decide on the percent of your portfolio.  If you are trying to time taking cash when the market is high, you're really just timing the market and won't likely succeed in the long run.  It's fine if you want to hold cash though - just create a rule for it 70/25/5 (cash) and rebalance as needed.

2. 70/30 (or 60/40 or 90/10) ERN has a post on this with success rates.  I was 100% equities most of my life and switched to 60/40 a few years before retirement.  It helps me sleep better by smoothing out the volatility.  My plan is to gradually shift back towards a 90/10 portfolio as certain annuities come online for me (pension, social security).  In the long run, you'll have better returns as you get past the first few years of withdrawals and sequence of return risk.

All this said, I'm highly supportive of ERNs research and there are other models out there.  You have to pick one that you feel comfortable with at the risk level that they provide. 

[MDM]

Life Situation: 52 F, IRS filing status - single, 2 kids - 24 and 22 - older has a job and lives out of state. younger is a senior in college.

Why not file HOH based on the 22 year old?

[danceswETFs]

Life Situation: 52 F, IRS filing status - single, 2 kids - 24 and 22 - older has a job and lives out of state. younger is a senior in college.

Why not file HOH based on the 22 year old?

2022 was the first year I didn't file as HOH, since collectively we paid less tax if they filed separately (earned income from internships). I'll need to reassess when I file for 2023.

[danceswETFs]

RWTL 1. The bucket strategy is just a different way to think about your allocation.  If you hold cash, you just need to decide on the percent of your portfolio.  If you are trying to time taking cash when the market is high, you're really just timing the market and won't likely succeed in the long run.  It's fine if you want to hold cash though - just create a rule for it 70/25/5 (cash) and rebalance as needed.

Dances: Got it. Yes, I think a 70/25/5 feels like the right level for me. Specially with imminent decisions around ARM reset and kids grad school, some cash feels right. As for the 25% - I see a lot of people, incl ERN, recommend 10 year treasure as opposed to Collins' BND. With CD rates at 5% currently, does it make sense to buy those and keep flipping them until the rates are lower than treasury and then buy those? When would it make sense to buy into BND?

RWTL 2. 70/30 (or 60/40 or 90/10) ERN has a post on this with success rates.  I was 100% equities most of my life and switched to 60/40 a few years before retirement.  It helps me sleep better by smoothing out the volatility.  My plan is to gradually shift back towards a 90/10 portfolio as certain annuities come online for me (pension, social security).  In the long run, you'll have better returns as you get past the first few years of withdrawals and sequence of return risk.

Dances - at 30%, I have 10 years in fixed income as a hedge against SORR. Without pension, the levers I have at my disposal will be lowering expenses (very possible - the budget is squishy), equity in my home (hence the HELOC?), getting a side gig (30K ish).  Moving to a less expensive  area (prefer not to) or geoarbitrage  if I have to. No pension, but SS in 10 years possible, depending on how the market has done, as a hedge against inflation?
btw - Ive chanced upon ERNs blog on monthly v annual withdrawal. Im sold. But how would that work in real terms - every month rebalance? or use the money market account (5% return currently) to hold quarterly sum and automate transfer?

[RWTL]

Well, I personally wouldn't buy bonds directly, but you certainly could.  I buy VBTLX for my bond allocation and over the last few years it has served its purpose well.  This total bond index gives me exposure to a lot of different maturity dates which I believe decreases my risk with any one bond.  I don't expect much from it other than a monthly distribution which is about 1/4 of my monthly costs.  With the fed projected to cut rates, bond prices should go up as rates come down.  Some of that is already priced in.   I don't know much about how to trade actual bonds via auction or the secondary market - so I keep it simple with the mutual fund.  I can get out easily as well. 

For monthly vs annual distributions, you can likely setup monthly automatic withdrawals.  I have a set amount coming in each month right now while I spend down some cash on hand.  That amount comes in on the 3rd of each month and the administrator automatically cashes in the right amounts to maintain the current allocation.  I don't have to do anything other than check it.

[former player]

I'm sorry for the loss of your husband.

Is there any reason you are keeping your current home for another three years if it is not your final home? 2M (equity plus debt) is a lot to have tied up in a financially unproductive asset (I'm with RWTL on not really seeing the point of a HELOC?) if there are no emotional reasons for keeping it. 

How does keeping it for the first three years of your retirement fit in with your retirement plans?  Does it delay what you really want to do in retirement?

Otherwise good job, well done.

[Zamboni]

I understand why you may want to keep your current home for at least a little longer until you are sure your youngest is fully self-supporting. It can be nice to have a familiar and stable place for younger adults to come "home" for the holidays.

My suggestion would be to start researching both your current real estate situation and your next potential home. It can take awhile to become very familiar with the real estate landscape and make sure your next move is the right one. Track whether prices are going up or down year-over-year (not month-to-month because real estate is so seasonal) in the location/price range you currently own and in the location/price-range you think you will go. Perhaps even go look at a few places in person to see what is available in terms of condition/neighborhood, etc?

As far as the HELOC: with your assets it seems unlikely you will ever need to tap into it. Personally I'd skip that step, especially if there are any fees at all associated with setting it up. I think that HELOC advice is more for people who have a much bigger chunk of their assets tied up in their primary home (and this is most people: you are in an unusually good place in terms of your liquidity.) Some people have no cash and only home equity and social security, but they don't want to move: a HELOC pre-retirement probably is a good idea for them. You have lots of money outside of your home equity and can envision moving, so the odds you will need to tap into that HELOC seem near zero to me. I hope that makes sense.

[danceswETFs]

@former player: Thank you for your sympathy and encouragement.  I want to keep my current home as a familiar, stable place for my kids till they are settled. Im still exploring what I want to do in retirement and when. But first I want to take a few months to decompress and set a routine of selfcare for physical, mental, emotional wellness.

@Zamboni: Thank your for your explanation of why HELOC may not be pertinent to my situation. I came across this recommendation and was worried that it was something I had completely overlooked (and therefore, what else was I not seeing).

@TWDL: I hear you on the Treasury bonds - I look at bonds as the source of my income during bear years. The dividend would also be helpful in reducing the bond/stock ETFs I would need to sell each year. Thanks for the monthly distribution tip - I will look into how to set it up. Do you do equal distribution each month or fluctuate based on expense heavy months?

My concern is that bond ETFs are not very uncorrelated with the stock ETFs, and I was looking at how to maximize uncorrelation - syndicate real estate, REITs.. what should i be considering?

I was sure people would weigh in on the syndicate investment I listed in my assets - my advisor recommended it and so I did it, but now my reading is showing it to be controversial. Its been doing well for me so far, but the high dividends I get quarterly, is making me reconsider it, given that its considered income and Im hoping to do Roth conversions over the next few years. Any thoughts?

[RWTL]

I do an even distribution on automatic, but it's way lower than 4% - like 1.4%, because I'm spending down some cash I received when leaving my company. 

I think once that is done in the next few months, I'll keep the current distribution and then manually distribute enough from the other funds to cover the next months planned expenses.  I'm keeping 90 days cash on hand right now with the assumption that I can get access to my accounts fairly quickly. 

[former player]

@former player: Thank you for your sympathy and encouragement.  I want to keep my current home as a familiar, stable place for my kids till they are settled. Im still exploring what I want to do in retirement and when. But first I want to take a few months to decompress and set a routine of selfcare for physical, mental, emotional wellness.

That seems very reasonable, knowing that there is the stability of a familiar family house in the background can provide the runway that enables young adults to take to the skies, as I hope yours do.

[mistymoney]

@former player: Thank you for your sympathy and encouragement.  I want to keep my current home as a familiar, stable place for my kids till they are settled. Im still exploring what I want to do in retirement and when. But first I want to take a few months to decompress and set a routine of selfcare for physical, mental, emotional wellness.

@Zamboni: Thank your for your explanation of why HELOC may not be pertinent to my situation. I came across this recommendation and was worried that it was something I had completely overlooked (and therefore, what else was I not seeing).

@TWDL: I hear you on the Treasury bonds - I look at bonds as the source of my income during bear years. The dividend would also be helpful in reducing the bond/stock ETFs I would need to sell each year. Thanks for the monthly distribution tip - I will look into how to set it up. Do you do equal distribution each month or fluctuate based on expense heavy months?

My concern is that bond ETFs are not very uncorrelated with the stock ETFs, and I was looking at how to maximize uncorrelation - syndicate real estate, REITs.. what should i be considering?

I was sure people would weigh in on the syndicate investment I listed in my assets - my advisor recommended it and so I did it, but now my reading is showing it to be controversial. Its been doing well for me so far, but the high dividends I get quarterly, is making me reconsider it, given that its considered income and Im hoping to do Roth conversions over the next few years. Any thoughts?

re: bond funds - i think it is different if you may sell out of the bond fund vs just wanting the interest. If it is the interest then I think treasurydirect and LT bonds would be an option to consider.

[Turtle]

First off, my condolences on the loss of your husband.  It's rough in so many ways.

As someone who has also lost their spouse, I wanted to bring up an additional topic I don't see listed yet.

As a widow, you have the option to start drawing your husband's social security when you turn 60.  If you visit your local SS Office, they should be able to print you out an Excel style chart showing amounts per month based on when benefits are initiated based on your SS and his SS as separate columns.  You'll be able to run the math from there.

When I looked further into my own case, it's going to work best for me to draw my spouse's benefits from when I'm 60-70 and then switch to my own benefits at 70 for a bump of several hundred more per month. 

It may work out similarly for you.  Worth taking a look.

If you haven't already, check your HR handbook / RSU paperwork for their exact rules around vesting/bonus timing/etc.  It may be that there is a specific time of the calendar year which works out more optimally with regards to leaving/giving notice.  (For example, my company has an annual bonus where only employees still there on the 31st of December are eligible.  It's a big part of compensation there, so people who are leaving voluntarily usually do it early in the year.)

Overall, it looks like you are set.  With as much as you have outside of retirement accounts, it doesn't look like waiting until Rule of 55 would be a factor for you at all.  If you enjoy your work and want to cash flow grad school for the kids/keep existing health insurance on the youngest &/or are benefitting from the structure of the work week, it's totally your choice; but if the job is giving you any hassle you look ready to push back on it or give notice or whatever you chose.