道学実

Retirement plan

5 min read

note type
general
date
2024-10-06 09:28
tags
evergreen

History

Tracking via /dashboard, only includes Dario’s stuff.

DateProgress
2025-01-06$563,800

Tracking via YNAB, includes everything (including savings account etc).

DateProgress
2025-04-21$847,940

Goals

  • Retirement age: 45-50
  • Retirement amount: $4m

Analysis

YNAB 2024 yearly spending

Excluding retirement contributions, calculated from November 2023 - October 2024.

  • Including mortgage
    • $13,729 / month
    • $164,748 / year
  • Excluding mortgage (paid off in 2052)
    • $9,229 / month
    • $110,748 / year

Minimum retirement amounts

The actual number should include an expectation of paying off mortgage at 60.

Annual withdrawalSWRMinimum total fund
$175,0003.5%$5m
$175,0004%$4.3m
$150,0003.5%$4.3m
$150,0004%$3.75m
$120,0003.5%$3.4m
$120,0004%$3m

Time to retirement

Using $4m as our target for now.

Yearly contributions (2024 limits)

  • 401k
    • 23k (K: Regular) = $92k
  • HSA
    • $8.3k
  • Backdoor Roth
    • 2x 14k

Aggregate numbers:

  • Total tax-advantaged contributions: $114k
  • Additional taxable contributions: Roughly 50k
  • Starting value: $500k
Yearly contributionRate of returnYears until target (starting from 2024)
$114k4%19 years
$114k7%15 years
$164k4%15 years
$164k7%12 years

Asset allocations and risk tolerance

Asset allocation is tricky. I don’t really know how to decide. It is entirely based on risk tolerance, but how do you know your risk tolerance until you have experience a downturn?

This is a guess for what our ratios could look like.

AgeStock / bond ratio
3090 / 10
45 (optimistic retirement)80 / 20
50 (realistic retirement)70 / 30

Potential glide path:

  • Year 0 (starting in 2024): 90 / 10
  • Year 10: Begin gliding down to 70 / 30
  • Year 20: Stabilize at 70 / 30

2-fund portfolio:

  • VT (0.07% expense ratio)
  • BNDW (0.05% expense ratio)

Contribution policy

Tax-advantaged accounts

Dario:

  • Max MBDR
  • Max HSA (joint)
  • Max Backdoor Roth

Kristina:

  • Max 401k
  • Max Backdoor Roth

Taxable accounts

  1. Using YNAB, fund a full year in advance.

Our income is heavily RSU-based, and RSUs vest every 6 months. Taking a highly conservative approach, we can consider our total income stream to be biannual. This means that “living paycheck to paycheck” means being funded for 6 months after RSU’s are vested.

Next, we want a job loss fund. YNAB already accounts for unplanned expenses via sinking funds (e.g. our auto service fund, health and wellness fund, home maintenance fund), but YNAB does not account for job loss.

We can simulate a job loss fund by funding YNAB 6 months into the future, for a total of 12 months of funding at any given time.

  1. If our cash accounts ever have more than a full year of funding at any given time, invest the overflow into taxable accounts.

Note: If we have any high-interest loans, the overflow should go to those first instead of brokerage accounts.

Withdrawal policy

How to Access Retirement Funds Early

  • SEPP (deciding upfront how much money we want per year, then taking a fixed yearly withdrawal until 59.5) feels like the simplest option.
  • Building a Roth ladder is another option, but that has a 5-year lead time and seemingly worse tax performance than the SEPP.
  • Withdrawing Roth contributions directly is always an option, and we should have a significant pool for that.
  • Our taxable brokerage accounts should be reasonably large by the time we retire.

Backtesting setup

Ficalc share link

Basic setup:

  • Set the portfolio value, duration, asset allocation, as desired.
  • Set the withdrawal strategy to Constant Dollar at desired withdrawal amount with Adjusted for inflation box checked.

SS offset:

Mortgage:

  • Same as SS offset, starting in 2062 with a $4500 / month income.
  • Use the more expensive withdrawal rate that includes the mortgage ($175k). Adding income will cause that to effectively decrease later.

(I don’t know if the offsets here do what I want them to do…)
seems so? https://guide.ficalc.app/configuration/income/

Income reduces your total withdrawal for the year.
This is best shown with an example: consider a year where you planned to spend 1,000,000 portfolio. Without any income, you would up with $960,000 remaining in your portfolio (before gains, fees, and so on).

If you have an income of 970,000. This is equivalent to spending 40,000.

401k account notes

Dario (Fidelity)

Funds of note available:

  • Vanguard Institutional 500 Index Trust
  • Vanguard Extended Market Index Fund
  • Vanguard Institutional Total International Stock Market Index Trust
  • Vanguard Institutional Total Bond Market Index Trust

From https://www.bogleheads.org/wiki/Approximating_total_stock_market, to approximate VTSAX (total domestic stocks):

  • 85% Vanguard 500 Index Fund (VFIAX)
  • 15% Vanguard Extended Market Index Fund (VEXAX)

From https://investor.vanguard.com/investment-products/etfs/profile/vt#portfolio-composition, VT is weighted at 62% US, 38% international.

This gives the following weighting:

  • 90% Stock (aka VT)
    • 62% Domestic
      • 85% Vanguard Institutional 500 Index Trust
      • 15% Vanguard Extended Market Index Fund
    • 38% International
      • 100% Vanguard Institutional Total International Stock Market Index Trust
  • 10% Bond (aka BND / BNDW)
    • 100% Vanguard Institutional Total Bond Market Index Trust

Or for flattened numbers:

  • 47.43% Vanguard Institutional 500 Index Trust
  • 8.37% Vanguard Extended Market Index Fund
  • 34.2% Vanguard Institutional Total International Stock Market Index Trust
  • 10% Vanguard Institutional Total Bond Market Index Trust

Future TODO:

Kristina (Empower)

  • Fill in with available stocks

Brokerage

  • VXUS (VTIAX)
  • VTI (VTSAX)
  • BND

Probably?

Graph View