I followed a rather similar path. I had a 7 year gap between retirement at age 63 and SS at 70. My retirement package included enough deferred compensation to cover a year's expenses (spread out over 3 years), so I had to cover only 6 years worth of expenses. I took it all from Vanguard Total Bond Market ETF in taxable, selling shares once per year to supplement the dividends. I left the proceeds in my settlement fund, and transferred a fixed-size "paycheck" once a month to my checking account. I gave myself "raises" a couple of times to cover inflation and other increased expenses.I went into retirement needing to fund about an 8 year gap from retirement to maximum deferred SS. I was very non-BH and had about 7 years of US Treasuries in my taxable account for that purpose. I recognized this was not optimal from a tax perspective but it worked fine for me. I primarily spent from those funds and allowed the AA to drift substantially upward as a result of this spending source. I don't mind the AA drift, but in retrospect I would have been better off going all equities in my taxable and utilizing cap gains to my advantage.
My portfolio started out with about 58x annual expenses and 50% stock. Now, a few months after starting SS, my portfolio has about 58x expenses and 65% stock. I view the increased stock allocation as partly compensating for my wife's much more conservative portfolio. She started SS and RMDs five years ago. She has somewhat more than I do, but it's only about 20% stock. Our combined portfolio is now about 40% stock.
Our combined SS now more than covers our current normal expenses, so we expect to withdraw from our portfolios only for large one-off expenses like a new car, or increased medical expenses, or a move from our paid-off house to a CCRC or something similar. We're sensitive to the possibility of high end-of-life costs because her mother spent her last eight years in a nursing home. Fortunately she had enough money to cover it all without resorting to Medicaid, and even managed to leave some to my wife.
Our path was obviously not very tax-efficient, and I still have my own RMDs coming in three years. At that point I estimate we'll be in the vicinity of the top of the current 22% tax bracket. Nevertheless, we have enough that we can pay the taxes without impacting our lifestyle. We have no kids or other close relatives, so anything we have left will go to charity.
Statistics: Posted by 22twain — Wed May 15, 2024 10:49 pm — Replies 132 — Views 13167