bonesly wrote: Sat Oct 04, 2025 1:25 pm
jerseymd2010 wrote: Sat Oct 04, 2025 9:08 am
Home: We own a home with $750k remaining on the mortgage.
What’s the interest rate on your note? If it’s above the 3m T-Bill Rate, you should likely consider pre-paying the mortgage rather than investing, for at least some portion of your current savings rate. See Prioritizing Investments.
jerseymd2010 wrote: Sat Oct 04, 2025 9:08 am
Investment Property: We have a fully paid-off investment property worth $500k, generating around $22k annually in rental income.
I’ll reiterate @fireman’s observation that this seems like a bad investment using the 1% rule for Rental Property Profitability.
jerseymd2010 wrote: Sat Oct 04, 2025 9:08 am
Cash: We currently have about $200k in cash for liquidity and emergency purposes.
This is about 12 months expenses, IF your expenses are $200K/yr, and 12 months is in the typical 6-18 month range for an emergency fund (EF), so tentatively this seems fine.
It’s probably worth verifying your expenses. Start with @KlangFool’s formula to estimate your current expenses: Annual Expenses = Gross Income – Taxes (1040, Line 24) – Annual Savings. Then adjust that by what will change in retirement (retirement savings goes away, but savings for home repair/upgrade, new cars, gifts to children remain; principle & interest eventually go away when mortgage is paid off, but property tax & hazard insurance remain; commuting costs might go down but vacation spending might go up; term life insurance payments might go away but costs for long-term care in late retirement might go up).
The beauty of Klang’s formula is that if you take out taxes and known savings you are spending all the rest of it. We’ve seen posters that had a detailed budget in a spreadsheet or phone app and were surprised to see Klang’s formula show them as much as $50K of unaccounted spending!
jerseymd2010 wrote: Sat Oct 04, 2025 9:08 am
529 Accounts: have a total of about $100k in 529 accounts.Wife’s Retirement Accounts: My wife has around $600k across various retirement accounts, mostly invested in broad-market index funds.
– The 529 is for a different purpose & time-frame than retirement, so while it’s good you listed that, it won’t be counted in the analysis below.
– I’m going to assume that the wife’s $600K is all in S&P-500 Index funds (no target-date funds, or bond funds, or dedicated int’l stock funds) since
you didn’t include her account in your detailed breakdown.
Lastly you didn’t mention if any of these accounts are Roth, so I’ve assumed they’re all Traditional (Trad). You probably want some significant portion of your $3.2M in Roth accounts to avoid a tax-bomb when RMDs come due.
Portfolio Analysis
Your Current layout is 100% US stocks, which most here are going to say is not diversified due to the lack of int’l stocks and the heavy sector tilts towards technology (including individual stocks that are contrary to Boglehead Philosophy to only use a few broadly diversified index funds; no tilts or individual stocks, which are highlighted in blue). You also are exposed to Wash Sales because you have S&P-500 funds in Taxable and in other accounts (and they all track the same index so are likely considered “substantially identical” in IRS lingo); these highlighted in red.
The Proposed layout is more Boglehead-aligned with 20% of stocks in int’l and stock exposure reduced to 80% by adding 20% bonds (which might be important if you’re entering a Coast-FIRE stage). This is just an example because you didn’t list a desired AA (presumably 100/0 with 0% of stocks in int’l). However, this example eliminates the wash sales, sector bets, and individual stock bets, while also reducing your clutter of holdings from 15 down to 6. “Simplicity is the master key to financial success.” — John C. Bogle
Again, this is just an example of a simple 3-Fund Portfolio that avoids wash sales and adheres to Tax-Efficient Fund Placement, but: a) you really need to assess a desired AA; and b) such drastic changes to Taxable are likely to incur an unpalatable Tax Cost to Switch Funds.
A template spreadsheet (not your data) to help with asset allocation assessment and rebalance planning is linked below. Make a copy in your local GoogleSheets space to edit (or download to your local machine if you have Excel). It should only take about 10-20 minutes once a year to update your balances and plan a shuffle among funds if any deltas are off by more than ±5% (or whatever your personal rebalance threshold is).
Asset Allocation Sheet
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You need to figure out your AA going into Coast-FIRE, so consider one or both of the exercises below.
Control Your Risk
1) Read the Wiki article for Assessing Risk Tolerance, take the Vanguard Investor Questionnaire, then tailor the asset allocation (AA) that was recommended by the quiz based on your knowledge of your personal risk tolerance having read the Wiki article.
2) Alternatively (or in addition to), ask “How much of a drop in portfolio value as a % of total value can I handle?” cut that % in half to get standard deviation, then lookup that std. dev. on the X-Axis of the chart below, and finally scan up to see what AA that corresponds to. As an example, if you can only stomach a -24% drop in portfolio value, that’s a ±12% std. dev, which corresponds to an AA of 60/40. The return you get is an average and you’ll get what you get with your unique sequence of returns (there’s a lot of variance in outcomes due to the associated volatility of stocks so it probably will NOT be the average, but something more or less).
a. For a long time-frame (>10 years) AAs below 20% stock are dominated (red dots) by another AA with similar risk but higher reward (blue dots).
b. The dotted line represents a hypothetical linear risk-reward from 100% stocks down to 100% bonds; the historical risk-reward curve has an improvement for risk-adjusted return due to the lack of correlation between stocks & bonds.
———-
Rationale for why Bogleheads use 3-5 broad-based index funds without no individual stocks bets nor index tilts (no sector/size/valuation bets).
80% of Active Managers Fail to Beat the Market in 2021
94% of Active Managers Failed to Beat the Market for 20 Years
Wiliam F. Sharpe on Why Active Underperforms Passive
Don’t be that Dunning-Krueger person that thinks they are in the top 20% of financial geniuses, but is actually in the 80% of non-geniuses with the rest of us.
Berkeley Research Paper on Individual Traders Underperforming
Why Bother with Tilts (RE, Tech, HC, SCV)?
First of all, there’s recency bias often driving these tilt decisions. Uninformed people naturally think that just by looking at what’s performed well recently will continue to perform well in the future. There’s a warning required by law on pretty much every prospectus that “past performance is no guarantee of future results.” That warning is there to dispel that “natural thinking,” but people tend to believe they know better than the markets. Take a look at how the “top performers” in the S&P-500 have changed over 50 years and tell me that back in 1950 you could have predicted the top-10 companies that are now dominating the S&P-500.
The reasoning I’ve heard for Real Estate is that the underlying rental income is a steady dividends that those focused on income find desirable. However, Real Estate Investment Trusts (RETIs) behave like stock more than bonds, so for that added risk (standard deviation), you’d have been better off with a bond fund (or ladder) if you really wanted steady income and your risk-tolerance demanded lower volatility than stocks. Individual real estate properties come with high-effort management overhead (property taxes, repairs, bad tenants or long vacancies) and is similar to the risk of owning individual stocks compared to a broad-based index of 500+ companies; it might be fine for someone who’s career was in home construction and/or repair and wants to continue that job in retirement with their multiple rental properties.
The reasoning behind the Technology tilt is that those in favor of this tilt think it is the way of the future and of course will do better than all other sectors going forward. The problem is that everyone else already knows this so there is no advance-knowledge premium to exploit; the new wave of tech is already priced into this sector.
The reasoning I’ve heard for Health Care is based on an aging population of boomers that will need more and more services and products from this sector. The problem is that everyone else already knows this so there is no advance-knowledge premium to exploit; the aging boomer populace is already priced into this sector.
The reasoning I’ve heard for Small Cap Value is more based on credible research by Fama & French on the 3-Factor Model suggesting value outperforms growth and small outperforms large. However if that were 100% reliable, then nobody would invest in massive growth companies which have dominated the stock market for the last decade (Facebook, Apple, Amazon, Nvidia, Google, etc.) and small-value companies would be at the top of the leaderboard most, if not all, of the time, but that’s not been the case, thus my caution to “keep it simple”. The FINRA-required warning of “past performance is no guarantee of future results” seems to also apply to seemingly credible conclusions in research papers from PhDs in finance/economics.
In Bogle’s Common Sense on Mutual Funds he cites “The Carhart Study” (pp. 211-212, Ch. 9 On Selecting Superior Funds) with reference to “common factors in stock returns [value vs. growth, large cap vs. small cap, high beta vs. low beta] and investment expenses almost completely explain persistence in equity returns.” That sounds very much like the Fama French research leading to SCV tilts being recommended & pursued, but Bogle went on to say “Relying on past records to select funds that will provide superior performance in the future is a challenging task.” (my emphasis on superior & future) which was based on later discussions with Carhart and Malkiel (of “Random Walk” fame). I translate that as “sure, smart PhDs can fit the past data to a model that explains almost all the variance, but how well does the model hold up when new data is overlaid on the existing model fit (i.e., future data that the model was not trained on)?” Turns out that since 1999 when the Fama-French paper was published the result has been “not that great.”
jerseymd2010 wrote: Sat Oct 04, 2025 9:08 am
1. Are we at Coast FIRE?Given our current savings and investment trajectory, would you consider us to be at a point where our investments can grow on their own to support our retirement needs, assuming we continue saving at a moderate pace?
When I run a simple Accumulation Monte Carlo from age 42 to age 50, with an initial balance of $3,246K, zero contributions (the “coast” part), and an AA of 100/0 (your current AA if no changes over next 10y), and an initial draw of 3.4% (reduced from the Trinity Study’s 4% Rule to account for a 45y withdrawal period rather than the study’s assumption of only 30y), I see an initial draw of $94.5K in today’s dollars at the 10th percentile, which is far short of your FIRE goal of $200K. 10th percentile assumes a bad sequence of returns, so if your plan stands up to that you’re golden, but it does not, so your choices are to save more (best), work longer (2nd best), or assume more risk of reaching your goal by hoping that you get a better than 10th percentile result (worst). While there are certainly better withdrawal strategies than the const-$ approach the Trinity Study uses, Alternative Withdrawal Strategies can’t make up for an under-funded portfolio given a desired $200K/yr spend rate (in today’s $).
In my analysis you are NOT at Coast-FIRE.
Links for my models are given below the image along with other models that don’t require Excel.
Data and Models I use for Monte Carlo:
NYU Data Set 1928-2017 with Model Fits
Accumulation 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 ABW), <- Try this one!
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).
“All models are wrong, some are useful.” – George E. P. Box
jerseymd2010 wrote: Sat Oct 04, 2025 9:08 am
2. Should we make any changes to our strategy?Do you think our asset allocation or approach should be adjusted to better align with our early retirement goals? Specifically, are there any areas we should diversify more, or perhaps focus on?
Probably need to keep saving (and/or reduce your expected expenses and/or work longer).
On Aggressive AAs to Catch Up or Get Ahead
The best way to achieve your goal of retiring early or to catch up after a late start is to save more and/or work longer; an aggressive AA has guaranteed increase in volatility, but only the potential for higher returns as well as lower returns. Your AA has the least impact on your balance-at-retirement per the chart below, which was from an analysis of variance of those three factors in a designed statistical experiment. The purpose of choosing the “right” AA is to match your risk-tolerance so that you will not panic-sell during a steep market decline (the “sleep well at night” attribute).
Impact of 3 Investment Factors
Probably should diversify with a little bonds (20% of total portfolio) and a little int’l stocks (20% of all stocks) and eliminate all the technology sector bets.
On Greed & Fear…
You’re probably convinced that tech stocks are always going to outperform (AI will change the world, semi-conductors are the basis of all tech, etc.), but to me, any investment can go into bubble territory, much like Tulip Mania from 1634-1637, so I’d strongly consider just sticking to a broadly diversified stock & bond index funds rather than trying to ride the wave of “whatever is hot lately” after that wave has crested. That’s buying tech (and whatever’s “hot”) in the market proportion, rathe than tilting to something that’s already been bid up in price (buying high and likely selling low if a correction/bear/crash materializes).
Humans are greedy & fearful… try to keep your emotions out of your investment strategy and use simple rationale (stocks are valued based on cyclically adjusted price-earnings (CAPE) ratio; bonds are valued based on interest rate & credit-rating). If you use “total” market indexes you own the cheap stuff and the expensive stuff in market proportion and don’t have to guess which is going to crash & when.
jerseymd2010 wrote: Sat Oct 04, 2025 9:08 am
3. When could we realistically retire or semi-retire?With our goal of withdrawing $200k annually, when would it be realistic for us to consider retiring or semi-retiring? Based on our current savings, how much would we need to save to get there?
Even if you were to save 20% of your $450K income from 42-50, I still only see $125K spending in today’s dollars because your withdrawal period is soooo long. A corollary to the 4% rule is that you need 25X expenses (again for a 30y withdrawal period; 1/4% = 25). For periods other than 30y the initial draw in year-1 and the balance multiplier for your target portfolio size at year-1 look like this.
Table for 4% Rule Adjusted by Withdrawal Period (derivation link)
So if you live from 50 to 95, that’s a 45y withdrawal period, a 3.4% initial draw (down from 4.0%) and a balance multiplier over expenses of 29.4X (up from 25X). So to realistically retire at 50, you need a portfolio balance of $200K x 29.4 = $5,880K in today’s dollars (that’s almost $8M by 2035 assuming +3%/yr inflation). When I re-run the accumulation model to age 60, saving $90K/yr, the initial draw increases to 3.7% and that gets you to $211K in year-1 at the 10th percentile. You could save at 30% of salary instead of 20% of salary and maybe get there by age 56 (initial draw drops to 3.5% again).
jerseymd2010 wrote: Sat Oct 04, 2025 9:08 am
4. How much should we be saving yearly to hit early retirement around age 50?What’s a reasonable amount we should be saving annually to ensure we can retire or semi-retire by age 50? Are we saving enough already, or do we need to ramp up our contributions?
For only a 10y accumulation period I don’t think there’s a viable solution… I had to boost your savings to 80% of $450K ($360K/yr) to get to $196K draw in year-1 in today’s dollars. Can you live on 20% of your current salary? Do you want to FIRE at 50 so badly that you’re willing to sacrifice your lifestyle for the next 10y? I wouldn’t but that’s up to you (however, saving 30% of salary to age 56 might be a choice I’d make).
If the mortgage is a big part of your estimated $200K expenses but that will be paid off in 10y, that could change the projections in your favor, but it’s such a high spend rate over your current balance that growing that current balance to around $8M in 10y is just really difficult. Again, scrub your expenses (make sure it’s not even higher than you estimated!), look at delaying 5-10y to age 55 or 60 before you flip the switch, save everything you can without sacrificing your current lifestyle too much (but if you’re living over your means now, you need to identify that and correct it).
I just want to say THANK YOU for such a detailed response – my interest rate is currently 5.85% on my mortgage; so I’ll likely split any extra money into the market vs paying down principle.
