Personal Investments • Request for review of retirement portfolio plan

I should have been more clearer. During the "golden years of Roth Conversion" i.e. early retirement until SSI (age 57-67), I wanted to live off of the Taxable without generating additional taxes from 401K withdrawals. I don't mean to not touch 401K forever and I don't intend to leave a significant 401K balance to my heirs. I am more concerned with the tax bracket jump if I withdraw from both Taxable and 401K (to get $150K) during the early years until SSI, while doing Roth conversions also. My objective is to draw $150K until age 67 (next 10 years) with minimal tax impact. Would appreciate your suggestion on how best to accomplish this.

Ok, that's much more viable... 57-67 is a 10y period, so drawing $150K at 57 and increasing the draw by inflation (e.g., +3%/yr) has a 88.2±1.0% chance of survival (not running out early), so it's a bit risky (Taxable is 100% stocks so pretty volatile which is why <90% success rate), but viable to draw $150K initial and then adjust for inflation in years 2-10 (i.e., a constant-$ strategy per the Trinity Study), all solely from Taxable in the 10y period. That will minimize your taxes so that you can execute Trad->Roth conversion to the top of your "tax pain threshold" (e.g., top of the 22% or 24% bracket), each year in that.

As an example in Engaging Data: Tax Visualization, if $150K draw is $75K net long-term capital gain (LTCG) and $75K is returned principal, then your $75K LTCG - $30K standard deduction for MFJ = $45K taxable LTCG, which is less than $48,350 taxable income so none of it is taxed (0% LTCG bracket). You're probably not going to have more than $533,400 taxable LTCG in a single year of your 10y conversion period, so you pick your "tax pain threshold" based on some $ amount x 15%, less $3,350 (the remaining space in the 0% LTCG bracket).

You'll need to modify that example to determine your actual realized gain on $150K draw ($75K LTCG is just an example to illustrate the concept), which is likely shown in your online account holdings somewhere. You might choose Specific Identification as the cost basis method when selling so you can pair lots with gains against lots with losses and further reduce the net taxable LTCG.

If you are not concerned with leaving a significant balance to heirs, then I would consider the constant-$ strategy of the Trinity Study as a "gut check" for your withdrawal strategy, but actually employ a different strategy such as constant-%, Variable Percentage Withdrawal (VPW), or the TPAW's Amortization-Based Withdrawal (ABW).

This is the result from my Withdrawal Monte Carlo showing that 88.2±1.0% success rate for $150K initial for a 10y period. Links to my model and others that don't require Excel are below.


Data and Models I use for Monte Carlo:
NYU Data Set 1928-2017 with Model Fits
Accumulation Monte Carlo
Withdrawal Monte Carlo <- image above

You'll need a MS Excel license; download to your local machine and enable macros (required for the 1,000 random trials and results aggregation).

I'm using my own model as I like to know what's under the hood, but there are other models I like that have public facing website interfaces:
TPAW Planner (probably most comprehensive, supports VPW),
Portfolio Visualizer's Monte Carlo (also their Financial Goals model is nice),
Engaging Data: Rich, Broke, or Dead, (uses historical returns in a cycle for your retirement duration), and
FireCalc (also historical data, but lots more inputs to tailor to your situation).

Paid models sometimes cited here include Boldin (formerly NewRetirement) and Pralana Gold as well as many others (just citing these not recommending for or against on any of these).

The concern is just with MSFT which is about 40% of one of my Taxable accounts. Would like to minimize the risk as early as next year as I don't want to risk a 50% drop in MSFT value (my own unfounded fear).

So take the $150K/yr straight from MSFT each year over the 10 years. If that still feels like too much concentration risk over time, then you could skip the Roth conversion in year-1 and convert MSFT to VTI up to your "tax pain threshold" and if that gets MSFT < 5% of the total portfolio value (not just Taxable, but all of it), then you can stop and focus on Roth conversions, otherwise convert more MSFT->VTI in year-2, year-3, etc. until it's <5% of total portfolio (about $232K).

By wealth preservation I meant living off of both taxable and tax-deferred distributions vs touching capital. Given that would it make sense to reallocate my 401k from FDRXX to BND and VTIP in 50-50 split until I hit the age when SPIA makes sense? Will play with the TPAW planner for sure.

In the statement immediately above you imply living off 401k distributions and not touching principal. To reiterate, I think that's hand-cuffing your withdrawal strategy given that you said you do not need wealth preservation to leave a legacy to heirs (e.g., they get what they get, but there is no minimum legacy you're targeting to leave to the estate). If you truly "don't intend to leave a significant 401K balance to my heirs", then you should not focus on distributions-only, you should consider a more holistic withdrawal strategy that accounts for return of principal and taking earnings (capital appreciation + dividends); that's exactly what happens when you buy an annuity (the insurance company's inflate the "rate of return" for false-marketing of how good the rate is by including the returned principal, but they are returning principal + earnings). The methods suggested above were VPW or ABW (used by the TPAW) rather than distributions-only.

It's your hard-earned money, you don't have a priority to leave a legacy to heirs, so you should plan to spend what you need for mandatory expenses and what you want for discretionary expenses (and that includes principal).

Statistics: Posted by bonesly — Tue Sep 09, 2025 11:26 am — Replies 9 — Views 1422

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