- Is additional life insurance based on an assessment that current life insurance is inadequate if he should pass first?1.Does allocating the $758 into the following: $100 for additional life insurance on him, add $500 extra to savings (e.g. car replacement, possible vacation, etc.), and add an extra $150 to the brokerage account (total of $2400 added to investment brokerage account each month) make sense? What would you do with the leftover funds.
- As @Watty said, replacing cars eventually is a sure thing, so you need a "car replacement fund." It doesn't have to be a separate account, but it does need to be a line-item in your budget.
- I would put the last $150 into the emergency fund and plan to bring it to at least 6 months of expenses unless both of your jobs are with the Federal gov't/Military and incredibly stable (near-zero chance of layoff, income month-to-month is essentially zero fluctuation).
The problem with using a flat rate of return for future balance projections is that it's like finding a CD that pays that rate for 17 years (good luck finding that!2.Our goal is to retire in 17 years. Using calculators at Bankrate.com with a 6% rate of return, it seems that we could have $2.1 million, which we assume is in today’s dollars. Considering this amount along with her monthly pension and his social security, we want to know if this seems reasonable. He will have medical coverage via the VA, and her pension comes with a 78% HRA allowance.
). Typical retirement portfolios are invested in a mix of stocks and bonds, so there's a LOT of variability around the "average" return and the actual time-weighted return (compound annual growth rate or CAGR) lags the average by about 1.6% for a 20-year investing period. On top of that, as you say it's in "today's dollars" so typically a real rate of return is used when assuming a flat return (so 6% nominal - 3% inflation = real rate of return). It's better to account for the volatility directly by using a Monte Carlo simulation.I tried to total your assets and contributions but some clarification would help:
His Roth = $13.6K
His 401k (Schwab) = $44.3K
His 401k (Fidelity) = $59.9K
His & Her Roth = ??? (I would guess $7.5K for 2023 and $8.0K for 2024, but what's the current balance?)
Taxable = $3K (is this for retirement, new car/home repair, emergency fund for lost income, other?)
What is the dollar amount of your contributions?
His 401K is perhaps $23K/yr?
No 401k for her mentioned, is that right?
Roth IRAs being maxed, so $16K/yr?
Not sure taxable counts towards retirement, so not counting for now...
You also have a list of funds, but you didn't state your desired/target Asset Allocation. Do you have one, and if so what is it?
For a 70/30 Asset Allocation I see this range of outcomes in 17 years
End-BalPercentile
$1,327.3K 5th
$1,893.6K 25th
$2,435.8K 50th
$3,119.7K 75th
$4,552.0K 95th
If you plan for 5th percentile (bad sequence of returns), that $1.3M will generate $53.1K/yr, which is $32.1K/yr in today's dollars (assuming flat 3% inflation). The $2.1M projection you had for a flat 6% return year-after-year is at the 37th percentile, so 37% chance you'd have less and 63% chance you'd have more. If you're comfortable with a 37% chanced of less, then that's an OK number to plan on but it's more risk that I'd assume (typically I'd suggest a risk-level of 5% for conservative people and 20% for very aggressive people).
That result came from my own Monte Carlo, which is linked below the image along with other models you can try.
Accumulation Monte Carlo
Withdrawal Monte Carlo
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:
Portfolio Visualizer's Monte Carlo (with distribution modeling rather than the historical returns array),
FiCalc (easy interface, but only historical data array),
TPAW (historical data, but adjusted to avoid limitations of a random index into the historical array),
and many others here seem to like FireCalc (also historical data, but lots more inputs to tailor to your situation).
Determining your Asset Allocation is a critical blueprint for your investment plan. While we can make suggestions, the risk-tolerance part of an AA is very personal. Rather than take a blind recommendation, I'd recommend taking Vanguard Investor Questionnaire and see what AA it recommends based on your personal responses to the quiz.3.Since we will begin investing in our mid-40s, what ratio should we consider for our portfolio allocation? We've seen suggestions on the internet that it should be 50% foundational ETF (VOO or VTI), 25% growth ETF (VUG, QQQM, or SCHG), and 25% dividend ETF (SCHD or VYM).
The typical recommendation here is a 3-Fund Portfolio of total market funds (no growth or dividend tilts), but with optional diversification from US-only stocks into International stocks. An example AA would be 70/30 (70% stocks & 30% bonds) with 40% of stocks in international. That could be implemented something like:
42% VTI - Total US Stock Market (70% x 60%)
28% VXUS - Total Int'l Stock Market (70% x 40%)
30% BND - Total US Bond Market
The Trinity Study is the classic safe withdrawal rate study, but it uses a constant dollar withdrawal strategy. If you have no intent to leave a legacy to heirs/charity, an alternative strategy may suit you better, in particular take a look at Variable Percentage Withdrwal which aims to spend most of your money rather that leave a legacy.4.While we aim to maintain a comfortable lifestyle in retirement, and given that we don’t have any heirs, we're seeking a balance between enjoying our retirement years and being prudent with our current spending and saving habits. Do you have any suggestions?
Just on gut-feel with no analysis, I'll say no. What is your motivation for considering this (info that perhaps wasn't provided in your original post)?5.We have about $145,000 equity in our home and are willing to downsize/downgrade to capitalize on it. Do you think this is necessary?
Follow-up things for you to consider doing/answering:
1) Tally the balance of your retirement accounts and update that $146K assumption
2) Tally the contributions to retirement accounts and update that $39K/yr assumption
3) Try to get an estimate of what the $176K pension will provide in monthly income (typically a defined benefit doesn't let you cash out and invest it yourself, so you're working with an annual or monthly payout)
4) Each of you create an SSA Account and get a projection of your SocSec benefit at 63, 67, and 70. Use https://opensocialsecurity.com to optimize a claiming strategy (often seems to recommend the lower earner claim at 62 while the higher earner delays to 70). Maybe she has no SS if she has a pension and doesn't have deductions for FICA/OASDI.
Statistics: Posted by bonesly — Thu Apr 04, 2024 12:04 am — Replies 2 — Views 362