bonesly wrote: Mon Oct 06, 2025 8:08 pm
WestCoastLiving1 wrote: Mon Oct 06, 2025 5:52 pm
I am currently not withdrawing anything from the $2,730,000. I am actually reinvesting/adding to my savings. It is currently rising by about $10,000 a month which is what I am saving right now.
My apologies! You did say in your first post:
a) My total passive income from all my sources of income is $20,000 per month after taxes; and
b) I am currently saving $10,000 per month.
I mistakenly focused only on a) meaning a spend-rate of $20K/mo, when in fact you’re spending the dividends (part of total return, so it counts as spending) at a rate of $10K/mo. To have ZERO spending, you’d be re-investing the entire amount of the dividends every month and over time that dividends should be increasing in $ amount due to capital appreciation. So Total Return = Capital Appreciation + Dividends. If you spend either capital gains or dividends (or a mix of both), then you are still spending.
However, your spend rate is half of what I thought it was at only $120K/yr rather than $240K/yr. $120K on $2,740K is still a 4.38% initial draw, so that might last 30y (per the original Trinity Study), but it’s unlikely to last 55y (to age 90). Let’s revisit Cases 1 & 2 with 100% cash vs 40/42/18.
Case 1 – AA = 0/0/100, Withdrawal of 4.38% ($120K/yr or $10K/mo), 0% Chance of Lasting 55y to age 90
Case 2 – AA = 40/42/18, Withdrawal of 4.38% ($120K/yr or $10K/mo), 48.5±1.6% Chance of Lasting 55y to age 90
The threshold for success in the Trinity Study was 90%, so even though 48.5% is a big improvement, it’s still not enough to say your plan is sound & sustainable. Case 2, as modeled, also assumes you lump-sum into your 40% stock and 42% bond allocation, rather than only putting in $100K and then $10K/mo (as noted that’s way longer than 12 months, so it creates a cash drag and is not productive).
It might also seem counter-intuitive but taking more volatility risk when you have a long, long time-frame is actually a higher chance of success. Your baseline was around 40% stocks + 60% “fixed income” (where fixed income = bonds + cash, and cash is 2y of spending in year-1). Let’s just show the end-result for 50/50, 60/40, and 70/30.
50/50 Technically 50/32/18 has a success rate of 60.3±1.5%
60/40 Technically 60/22/18 has a success rate of 63.7±1.5%
70/30 Technically 70/12/18 has a success rate of 65.1±1.5%
While those improve with increase stock percentage of the allocation, none of them are anywhere close to 90%. An initial draw of $120K is still just too high to last until age 90 (if that’s your intent). A 4.4% draw rate is going to last maybe 25-30y (remember the original “4% Rule” is for a 30y withdrawal period). There are certainly alternatives to the Const-$ strategy such as Variable Percentage Withdrawal (VPW) and Amortization-Based Withdrawal (ABW), which the TPAW Planner. I’d highly suggest playing with TPAW for your scenario so you have an independent verification of my analysis that your spend rate (even at $120K) is too high to last 55y.
Table for 4% Rule Adjusted by Withdrawal Period (derivation link)
So if you want this pot of money to last 55+ years, you need to get spending down to around 3.15% (around $86K in year-1, which is then inflation-adjusted thereafter… Case 3) that I showed in my earlier post).
On the topic of what your “actual expenses” are, start with @KlangFool’s formula to estimate your current expenses: Annual Expenses = Gross Income – Taxes (1040, Line 24) – Annual Savings.
Gross Income = $240K in cash interest ($20K/mo)
Taxes = $48.8K (per Engaging Data: Tax Visualization)
Savings = $120K ($10K/mo)
Expenses = $71.2K
You’re not really saving though… savings is setting aside earned income, not investment income. What you are doing is moving $10K/mo from cash to stocks & bonds. However, it seems that if you’re really only spending $71.2K/yr then you are, in fact, at a spend rate of 2.60% on $2,740K and that’s below 3.15%.
Given the misunderstanding about spending & savings, and your real spending being < 3.15%, I’ve changed my conclusion: You’ll be just fine; this spend rate is sustainable and a plan to get to get your stock & bond balance to $1,637K while the remaining $493K is in cash (expenses for the next 2y) is fine too as that’s a DCA over 13.6 months (a little over 12, so you could step it up to be done in 12 months, but 13.6 isn’t going to cause a failure to appear out of 90% success rate).
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As an aside you might want to use Van Tax-Exempt Bonds (VTEB) instead of Van Total US Bond Index (BND) for your bonds, because $240 cash interest is putting you in a 32% Fed tax bracket and nominal bonds in Taxable are probably a bad choice compared to Federally tax-exempt bonds. The more you have in stocks, the more you will lower your tax-rate as the tax on long-term capital gains (LTCG) is only 15% which is less than half of your Fed marginal rate. You didn’t mention if these assets are all in Taxable (what I assumed) or if there’s some split among Taxable, Traditional Tax-Deferred, and Roth Tax-Free, which will make a difference about using tax-exempt bonds in Taxable (if you can, all your bonds should be in Trad Tax-Deferred per Tax-Efficient Fund Placement).
Oh my. My sincere apologies for not making myself more clear. I believe there is a misunderstanding, although I do apprecate your posts very much. They are super informative.
I am not withdrawing anything at all from the $2,740,000. So there is no withdrawal rate. The percentage is 0%. I am reinvesting everything I make on it which is about 4% right now and in addition to that a little more. It will only go up as I am adding a total of $10,000 per month to it.
So $2,730,000
1 month passes
It’s $2,740,000
Another month passes
It’s $2,750,000
Again, the withdrawal rate is 0%.
Also, the $20,000 per month is after tax. So before taxes it’s somewhere closer to $30,000 per month.
I hope I have clarified everything.
