PhysicianOnFIRE, I enjoyed reading your IPS article and decided to borrow a few of your ideas to augment my IPS. Below is my current IPS, with question marks where I'm still ambivalent.
Previously I had put VTIAX in taxable for the foreign tax credits, but eliminated it from taxable via a tax loss harvest due to the amount of ordinary dividends it produced being greater than the tax credit. I didn't think to split VTIAX into its developed and emerging components to reap most of the tax credit and avoid most of the tax on dividends. That is something to look into.
INVESTMENT POLICY STATEMENT
Objective:
Reach financial independence and be able to retire, forecasted at 2024.
Investment Philosophy:
Invest in total market low expense Index Funds
Minimize current taxes to invest more now
Risk tolerance is high. Anticipated withdrawal rate of 4%. I can work to supplement passive income if needed.
Buy and hold long term - I buy shares of companies, I am not a speculator
Asset Allocation:
6 months living expenses (10-12k cash) in high yield accounts
Hold existing savings bonds (~20k) for emergency and possible education funding. A good option due to decent yields, tax-free growth, and potential tax-free interest if used for education.
Balance in equities, 75-80% domestic, 20-25% international
Other considerations:
Maximize tax deductions via 401(k), my and spouse IRAs, HSA.
Use HSA as retirement account, leaving balance to grow
Shelter tax-inefficient funds in tax-advantaged accounts to reduce tax drag. (VTIAX more inefficient than VTSAX, so only VTSAX in taxable?)
Tax loss-harvesting? Possible with only VTSAX in taxable?
Automate future contributions or manually buy when cash balance exceeds limit?
Rebalance 401k yearly.
Although I dont time the market, Ill try to buy more during a market correction with cash on hand.
Consider using Donor Advised Funds for charitable giving.
Pre-retirement Considerations:
Research health insurance options and ACA subsidies
Consider part time work as an option to transition to retirement.
Move to tax / FI friendly location.
Decide whether to buy a house or rent.
Drawdown Plan:
Setup ladder. Convert 401(k) / IRA to Roth as income / tax bracket allows. Use more conservative funds in RothIRA
For first 5 years until receiving funds from ladder, live off any spouse income, taxable account, savings bonds, previous RothIRA principle contributions, and possible part time income.
Receive dividends and capital gains as cash transfers to bank account.
When cash is needed, sell taxable assets and minimize / optimize capital gains.
Maintain low taxable income to avoid taxes on capital gains and for ACA subsidies.
At 59.5, evaluate IRA and estimate RMDs, which kick in age 70.5.
Anticipate delaying Social Security to get the maximum benefit, assuming good health.
I plan to contribute some money to childrens college, maximizing tax deductions and using savings bonds as applicable.