bonesly wrote: Wed Sep 24, 2025 1:26 pm
There’s some information about tax rates (now and expected in retirement) that’s missing from the template for Asking Portfolio Questions, but assumptions can be made to provide initial answers to your questions…
Thank you so much for detailed response, and providing so many hints, and reference. I have edited the original post and added pre- and post-retirement federal and state income tax rates (marginal rates).
bonesly wrote: Wed Sep 24, 2025 1:26 pm
Age 110 seems excessive… when I look at the Trinity Study’s 4% initial const-$ draw for 30y, extended to 55y, the rate drops to 3.15%, which would be $236.3K on a balance of $7.5M (so around the $250K/yr you got from other tools, but for 55y rather than 60y). Your BHAG goal of $300K/yr is a 4% draw, which for a 55y period drops the success rate of not running out early from around 90% to 77% (so not viable/sustainable without accepting some increased risk of failure).
Agree, 110 is extreme … it’s the MAX available in Wealthfront’s PATH modeling, and somehow that has stuck in my mind. More realistic is 95.
Of course, longevity for me and wife has a HUGE uncertainty — parents on both sides barely made it to 80, but that was in a developing country (The mean life expectancy in that country is about 10-12 years less than the mean life expectancy in the US). I can find conditional life expectancy in the US (at 58, my conditional life expectancy is around 80; at 54, my wife’s conditional life expectancy is about 83). Any data source for percentiles on these conditional life expectancies? That would be cool to have, so we can model a 90th percentile.
bonesly wrote: Wed Sep 24, 2025 1:26 pm
If most of your portfolio draw (≥50%) is discretionary rather than mandatory, you could perhaps have some banner market-performance years where a $300K inflation-adjusted draw is possible using a Variable Percentage Withdrawal (VPW) strategy rather than the Trinity Study’s Const-$ strategy, but probably not every year. Still, I would highly encourage looking into a VPW strategy for drawing down your portfolio rather than a Const-$ strategy.
The $200K/year includes all basic expenses including, taxes and $36K for medical costs (no-subsidy health insurance + out of pocket), and a “minimum-level” of fun. $250K/year includes some giving and plenty of travel/fun. $300K/year includes paying tuition for nephew/nieces, etc. This level will be only for a few years. Also, I am NOT counting on SS income (about $60K/year for the two of us, starting at my age 70); if/when it comes, it would be additional charity, and “give” money …
My gut feeling says $200K/year can be supported at “perpetual” level of withdrawal rate. Trying to figure out if $250K/year can be supported at perpetual level of withdrawal rate.
bicoastal_engineer wrote: Wed Sep 24, 2025 1:08 am
2. General recommendation is to use: taxable, then tax-deferred, and then tax free. However, because of the rigid payments from NQDC, I will have to use a portion of tax-deferred first, effectively treating the NQDC like pension from age 59 to 79 (actually, more like 10 separate pensions, each paying over 4 to 15 years, and each having a variable pay). So, does the “part-of-tax-deferred (NQDC) then Taxable then rest of tax-deferred then Roth” order make sense? Heuristically, how do I optimize this?
What’s your optimization criteria? Are you concerned about doing Trad->Roth conversions in early retirement or are you just trying to minimize taxes? Do you understand the rationale behind the general recommendation order and did you tailor it to your specific situation?
Trying to optimize the lifetime consumption + legacy. Don’t mind paying more taxes, if earnings/gains are more
As an example, I am not planning to execute Trad->Roth conversions (my Trad balance doesn’t present a tax time-bomb concern at RMD age), so I’m simply drawing from Trad first, then Taxable, then Roth, so the order of the first two accounts is swapped for my situation. That’s the kind of tailoring I’m asking whether you’ve thought about or if you just adopted the general recommendation without any such consideration of your tax goals, spending goals, and estate legacy goals to heirs/charity?
My biggest confusion is coming from what to do with NQDC.
One thought is that since the NQDC will be the main source for retirement income for the first 15 years, I have all (cash + bond) allocation here (i.e., 30% of all funds), and only the remining in stocks. This would make NQDC about 35% stocks, 60 bond and 5% cash). Then let the (Roth IRA + Rollover tax-deferred IRA + Hedge) (combined 3.5M) be 100% stocks, as I would need very little to nothing from this part of the portfolio for the next 10 years, and likely next 15 years.
Unless the MegaCorp goes caput and the notional NQDC worth goes to zero
Have you tried the TPAW Planner? That’s likely comprehensive enough to accommodate your optimization criteria.
I tried using TPAW, but don’t see a way to model Roth conversions. Currently also using a promo version (free for 90 days) Right Capital, that does allow modeling of Roth conversion strategy, etc.
bicoastal_engineer wrote: Wed Sep 24, 2025 1:08 am
4. Complexity of the holdings and varying rules for various accounts is a bit intimidating … where do I start the simplification? Taxable? Tax deferred?
Trad Tax-Deferred and Roth Tax-Free accounts can be simplified to 2-3 holdings each (e.g., part of a 3-Fund Portfolio) with no immediate tax consequences, so clean that up first. Then think about a priority order for cleaning up Taxable to: a) eliminate wash sales, improve tax-efficient placement, and reduce cost of ownership; b) reduce any single-company risk; and c) reduce clutter.
I keep cashing company RSUs as soon as they vest, so have avoided that kind of single company risk. The Wealthfront Direct investing has 100s of stocks, as it tries to mimic S&P500….
You don’t want cash/bonds in Taxable. I’d also ditch all the AUM fees and start moving this into Vanguard Total US Stock (VTI), then move appropriate $ amounts in a Trad account from stocks into bonds & cash to maintain your desired AA of 70/25/5. There shouldn’t be a huge tax-bill to swap the cash/bonds into VTI, but unwinding the direct-indexing and the hedge fund would likely incur a tax bill. Still “direct indexing” is likely no advantage over an S&P-500 index or a TSM index over a decades time-frame, so I’d probably come up with a plan to transition these AUM accounts to self-managed at Van, Fido, or Schwab and then unwind these up to a tax-pain threshold each year if single-company risk & clutter bothers you. Individual stocks cost you nothing to keep, but they have a higher risk than a broadly diversified index with 500+ holdings and they’re clutter (that could be addressed by just treating them all as a single-line item in your AA Assessment & Rebalance sheet). Up to you and your personal drivers/preferences.
Thank you, will mull over this and try to implement it, as I understand, digest and convince myself.
The hedge fund might have had some contract clause that you must liquidate all 20 holdings if you leave their service (i.e., the underlying stocks are not transferrable in-kind to Fido, for example, because of a rule you signed up to)… worth looking into any restrictions on exiting since that’s your highest cost-of-ownership at 1.5% AUM.
Hedge fund only allows withdrawals, not transfer of assets directly. It’s also pretty boutique, only about <20 investors, so I am thinking of getting out. The hedge fund manager is getting old like me
bicoastal_engineer wrote: Wed Sep 24, 2025 1:08 am
5. I met 3 different financial planners: two wanted ~ 1% of AUM, for managing the $3.7M of the portfolio, i.e., 37K annual – entirely too much (The rest $3.8M of the assets, the NQDC portion, will have to remain with employer’s plan).One fee-only financial planner wanted 1-time fee of $25K, and annual $5K. Is this reasonable for managing 3.7M?
$30K for the first year is still a 0.8% AUM, which is high, but $5K thereafter is a 0.14% AUM, which is pretty cheap. Vangaurd, known for low costs, is going to charge you 0.30% for an managed solution or 0.15% for a robo-advisor, so the guy that wanted $25K one-time and $5K/yr is in the ball-park of a robo-advisor (but Van’s Digital Advisor won’t charge the $25K one-time fee… just the 0.15% annual fee).
Actually the the ongoing fee is $5K/QUARTER, not annual. So, $30K up front, and then $20K annual; effectively, about 0.6% AUM. But they will “work with my CPA, not directly provide tax planning in that fee.”
If you’re here asking this detailed list of questions, you probably have time to self-manage a 3-Fund portfolio, which once established, would likely only take 10-30 minutes once a year to assess & rebalance. If you’re balking at a 0.14% AUM, then you’re probably better off going the DIY route.
I also, generally, like (feel happy) being a DYI for many things, but of course risk of having tunnel vision is there…
bicoastal_engineer wrote: Wed Sep 24, 2025 1:08 am
6. I had invested in the Hedge fund as “risk capital”, ~5%. It has good CAGR of 13%, but vol is more than 50%! Should I totally avoid it in retirement?
13% CAGR may sound “good” but how does it compare to S&P-500 or TSM over the same holding period? Van 500 Index (VOO) returned 14.8% over the last 15 years and probably beat the hedge fund because it only costs 0.03% rather than 1.5%.
The hedge fund CAGR of 13% was over the past 5 years, not 15 years. Anyway, it’s a small risk capital, and I am thinking about closing it (though not yet fully convinced).
bicoastal_engineer wrote: Wed Sep 24, 2025 1:08 am
7. How do I even begin to optimize for any Roth conversion, given the highly variable nature of the NQDC distributions?
I think the TPAW Planner can consider separate income streams (e.g., SocSec or NQDC) while calculating outcomes for Trad->Roth conversions.
I think I need to spend some time, and put the NQDC as 10 separate sub-accounts (corresponding to separate deferral year). Then each sub account will have a different start year and end year for distribution, and the distribution amount would be “fixed” (ignoring growth).
bicoastal_engineer wrote: Wed Sep 24, 2025 1:08 am
8. Right Capital is saying that the optimal choice would be to Roth conversion all the way to 35% bracket! But, psychologically, I feel fearful to convert any amount beyond the 24% tax bracket.
It depends… would converting at 35% avoid being taxed on RMDs at 37%? Could you de-fuse the Trad RMD tax-bomb down to 24% by doing conversions at 22% for X years (where your not yet age 75 after X years)? Can you live off Taxable stock LTCG at 15% and drive your ordinary tax-rate down to 12% for those conversions?
One fear of conversion is based on “rumor” that, someday, Congress/IRS may start taxing Roth IRA over a certain amount (tax the rich). Then you end up paying taxes twice.
I think you’re right to question whether conversions up to the top of the 35% tax-bracket are in fact “optimal” (I doubt it for a $3.7M balance under your control, but I haven’t run the math). You need to know what your estimated RMD & associated tax-bracket that will jump you to, is if you do nothing. Then you need to estimate how RMDs/tax-bracket change if you do conversions of varying amounts (say $100K, $500K, $1M, $5M). Then you can assess if the do-nothing case is a tax-bomb that going to explode at age 75 or if you don’t even have a particularly big issue. If you do have an issue, then you can assess how much needs to be converted to de-fuse the bomb, and that probably dictates how many years of conversions you need to do if trying to stay under 24% during those conversion years.
Will try to do this over the coming month. Currently, have been trying to defuse another tax bomb — the ENTIRE NQDC amount would be summarily paid lump sum, if, for any reason, my employment ends before I complete 10 years at the company. I am within 1-2 quarters of it, but being paranoid… as that would make my 2026 taxable income 4M, resulting in huge taxes. This will, for sure, cause delay in starting retirement.
bicoastal_engineer wrote: Wed Sep 24, 2025 1:08 am
9. Should I “Just Forget” about trying to minimize IRMAA?
Not necessarily, but having high portfolio balances, high draw rates (to support $200-300K/yr spending), and planning on conversions in the early years is pretty much going to put you in the Tier-5 IRMAA bracket ($591.90/m) for Medicare premiums unless you can reduces your income to the Tier-1 level (<$106K AGI for $185/m) by age 62 (there’s a 3-year lookback on determining your IMRA tier at 65 when you get signed up for Medicare). Given your goal of spending at least $200K (including taxes) then you’re at Tier-5 (unless you spend $500K or more which puts you at Tier-6).
Intuitively, it seems like I should do traditional to Roth conversion to fill the 24% bracket, at age 58 and 59 (these two years state tax would be at 6.37%); then only do it for 22% bracket from age 60 through 62 (state tax would be 9.3%). Then onwards do conversion only for IRMAA level 1 or 2.
bicoastal_engineer wrote: Wed Sep 24, 2025 1:08 am
10. Medicare is a long way off — 6.5 years wait for me; 11 years for spouse. So, during this time, is there any scope of structuring income to minimize ACA premium?
Again, if you’re wanting to spend $200-300K/yr that’s in opposition to the goal of “minimizing ACA premiums.” Even if you live of LTCG from stock sales in Taxable, that doesn’t bump your ordinary tax-rate, but it does increase your reportable AGI and I’m pretty sure that’s what ACA premiums will base your cost from.
Is there ever a case where withdrawing from Roth IRA, to keep reportable income low, and get ACA subsidies, would make sense? Seems like not, but don’t know how to model this.
Overall, I am planning to use the HSA funds for pre-65 health insurance premiums.
