Hello Mustachians,
I am semi FIRE’d but have some questions on what an optimal draw down/withdrawal strategy would be for my situation.
Thank you in advance for reading through my case study and feel free to ask any questions as I’ll be monitoring any responses coming through.
Life Situation:
Single, never married, no children, no pets, 45 years old, living in the Tucson area of AZ. Have been “semi” FIRE’d for the last 3.5 years (will explain further in “Questions” section).
Gross Salary/Wages:
$0
Other Ordinary Income:
My side hustle has been consistently generating $25,000 - $28,000 per year for the past 4 years.
Adjusted Gross Income: N/A
Taxes: N/A
Current monthly expenses:
Mortgage: Total monthly payment including principal, interest, and escrow is $1,113. Remaining balance due is $14,104. Rate is 2.875% on a 15-year fixed rate mortgage which I obtained via refinancing in September, 2012. I have 15 payments remaining and will make my last payment in December, 2025. It is a 3-bedroom, 2-bath home valued at approximately $408,000 although I have no intention of selling.
Electricity: $36 (this is a legitimate number despite being in the Tucson area because I leave town during the summer months)
Water and waste removal: $59
Internet: $50
Netflix: $13
Groceries: $66
Gas for car: $60
Costco: $109
Restaurants/Entertainment: $138
Travel: $405 (2-3 international trips per year)
Car insurance: $52
Home insurance: $97
HOA fee: $146
Haircut: $36
Gym membership: $10
Other recurring expenses (home improvement supplies, charitable contributions, gifts, Target, etc.): $197
Total monthly expenses: $2,587
All of these figures are accurate as I have been keeping a detailed spreadsheet of all my expenses since 2014.
Assets:
Fidelity 401k: $499,337
Vanguard Roth IRA: $183,405
Vanguard traditional IRA: $139,716
Vanguard brokerage account: $250,701
E*Trade account (for individual stocks): $38,109
HSA: $29,772
Checking (not earning interest): $1,620
Savings: $1022
High-yield savings: $3,587
Car is a 2003 Ford, paid in full, with only 96,000 miles.
All investments are allocated towards index funds for large cap firms (such as VOO) or a total market index (such as VTI) with the exception of the E*Trade acccount which holds individual stocks.
Liabilities:
I don’t have any aside from the mortgage, which carries a remaining balance of $14,104.
Specific Question(s):
What would be an optimum draw down/withdrawal strategy? I understand that it would be ideal to withdraw from the Roth IRA last, however I am somewhat confused which accounts to draw down/withdraw from until I reach the age of 59 1/2 or begin to take on social security.
Is there an ideal draw down/withdrawal strategy to limit my tax liability as much as possible? For instance, draw down from the Vanguard brokerage account first. Then once I turn 59 1/2 years old, begin tapping from the Vanguard traditional IRA and the Fidelity 401k while taking advantage of Roth conversions? I’m essentially looking for step-by-step guidance on which accounts to draw down/withdraw from first, second, third, etc. with any further guidance on what to do differently once I reach age milestones such as reaching 59 1/2 years old.
I have primarily been living off of the $25,000 - $28,000 I’m able to generate from my side hustle in addition to some cash reserves, but there will come a time when the cash reserves will dry up. I’ve automated the side hustle to where it is almost considered passive income and I foresee it to be consistent for the foreseeable future. I have no interest in spending more time with the side hustle to earn more, nor do I have any immediate interest in returning to work unless absolutely necessary.
I’d like to think that I keep my expenses relatively low with the exception of the international travel I’ve been doing since becoming FIRE’d. as mentioned previously, my expenses will go down even further once the final mortgage payment is made in December, 2025. I do not expect any lifestyle creep or increase in expenses once the mortgage is paid off.
Thank you in advance for any insight provided and I’d be happy to answer any questions or provide calcification as needed.
