daheld wrote: Thu Nov 20, 2025 8:33 pm
1. We hope to retire at 55 (her) and 57 (me), which will be my minimum retirement age. We will both be covered by FEHB healthcare in retirement. Assuming we can make this happen, at what point should we start thinking about Roth conversions?
On “at what point should we start thinking about Roth conversions?” You’ll probably want to look at the Wiki topic on Roth Conversion: Whether, When, and How Much?. The common strategy I see for Roth Conversions is to delay collecting pensions & SocSec and only live off the Taxable account in early retirement when you execute the conversions. This means only incurring LTCG if your Taxable account is 100% stocks per Tax-Efficient Fund Placement, so your marginal Fed tax rate on ordinary income doesn’t apply and instead you’re only paying 0% on the first $97K and 15% for LTCG beyond that threshold, which very likely less less than the tax-rate you deferred at (probably 22%), and leaves head-room to execute Trad->Roth conversions up to the 22% bracket ($206.7K for MFJ) or whatever your “tax-pain threshold” is.
Ideally, you’d like all your conversions completed before she turns 63, because each annual conversion will increase your AGI and there’s a 2-year look-back on your tax return AGI when you apply for Medicare to determine which IRMAA Tier your premiums will cost (e.g., $185/mo if your AGI ≤ $212K; $259/mo for AGI up to $266K, etc.). If you will only every use FEHB and never intend to use Medicare, then the timing of when to start is not based on avoiding a jump in IRMAA Tier, but rather making sure you get all the conversions done before he turns 75 and RMDs first kick in (hers kick in a year later).
On “Assuming we can make this happen…” We can look at a Monte Carlo projection using the Const-$ strategy of the Trinity Study as a “gut check” on whether or not you’re on track to retire when she reaches 55. She’s 39 now, plans to retire at 55, and we’ll assume a life-expectancy to age 95, so 95-55 is a 40y withdrawal period. That’s higher than the Trinity Study’s 30y period so the 4% and 25X expenses guide from that study is lowered to 3.5% and the balance-at-retirement goal is increased to 28.6X expenses. Your current balance is $1,704K, your AA is 80/20 which is assumed to glide down to 70/30 in 5% steps (75/25 at her age 50 and 70/30 at her age 55). Expense ratios are assumed to be 0.10% and no advisor AUM fee on top of that. Initial withdrawal rate is 3.5% per the 40y period adjustment noted earlier. Contributions are $63.8Kk/y (includes employer match to TSP & 401k) and is assumed to increase by +3%/y for inflation/raises. That produces a range of outcomes for balance-at-retirement by percentile likelihood something like this (will fluctuate for each different set of 1,000 trials):
End-Bal Percentile
$5,235.7K 10th
$6,326.7K 20th
$9,614.1K 50th
$14,286.1K 80th
$17,986.3K 90th
That 10th percentile result represents a bad sequence of returns (SOR) and is good for planning purposes as there’s only a 10% chance you’d have a lower balance (90% chance it will be more than this), so plan for a bad outcome and rejoice when that does not happen. Planning for a 50th percentile result means a 50% chance of more, but also a 50% chance of less, so not a great planning number. The success threshold from the Trinity Study was 90% (i.e., only 10% chance of running out early or having less than planned). That 10th percentile value of $5.2M supports an initial 3.5% draw in year-1 of $183K, which in today’s dollars is $114K. So if your expected retirement expenses in today’s dollars (including taxes and post-retirement savings) is < $114K Portfolio + Pension + SocSec then yes, you can make this happen.
While the Trinity Study’s Const-$ strategy is a useful “gut check” on being on track or not, it’s much more likely that your FERS Pension + SocSec will mean that a decent portion of your portfolio draw is discretionary (say 1/3 or more). If that’s true than a Variable Percentage Withdrawal (VPW), or an Amortization Based Withdrawal (ABW) per the TPAW Planner, is a better withdrawal strategy to use in practice than Const-$. For example, the Trinity Study (adjusted for a 40y period) only suggests a 3.5% initial draw, while the VPW Table suggests a 55y old with a 70/30 portfolio can draw a much more generous 4.7%, in exchange for occasional pay cuts in down markets (absorbed by cutting discretionary spending) and spending more of your assets in your lifetime (smaller residual to heirs/charity, but you can make such gifts while you’re alive at a higher tax cost).
Table for 4% Rule Adjusted by Withdrawal Period (derivation link)
The balance projections above are from my Accumulation Monte Carlo which is linked below the image along with other models that don’t require Excel (GoogleSheets does not support macros to run the 1,000 trials). I’ll encourage you to try the TPAW Planner in particular because it’s pretty comprehensive and is reviewed by professors in finance/economics.
Data and Models I use for Monte Carlo:
NYU Data Set 1928-2017 with Model Fits
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),
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).
That 10th percentile result represents a bad SOR (e.g., multiple years with bad returns, perhaps as low as a -60% crash). The uncertainty in projected balance tends to grow exponentially with the duration of the accumulation/withdrawal period (the longer you’re saving or withdrawing the bigger the variance between the 10th and 90th percentiles). However, if some/most of your spending in retirement is discretionary then VPW or ABW withdrawal strategies largely mitigate the SOR risk (in exchange for a cut in spending which reduces inflation-adjusted purchasing power, but you’ll never run out of money early with VPW and it’s much less likely to run out with ABW vs Const-$).
Standard caveats about simulations apply (those using 30y rolling periods suffer from small sample size for estimating a binomial proportion as the success rate and those using a large sample size as random draws from a distribution assume the distribution is constant over the withdrawal period; all sims suffer from assuming the future looks like the past in one way or another).
“All models are wrong, some are useful.” – George E. P. Box
daheld wrote: Thu Nov 20, 2025 8:33 pm
2. I mentioned above that we are going to incur an unforeseen $100k expense. The reason is not really important to this conversation, but it was a stupid oversight I made that will cost us a hefty sum. Fortunately, we can cover it out of our emergency fund, which we’ve been stacking cash in for home renovations and vehicle purchases (that we put into overdrive when this expense became likely). All that said, should we think about a HELOC or car loans if we do make those purchases, or should we consider just tapping in to some of the taxable brokerage investments? I guess I kind of struggle with thinking about taking on debt, but I understand the consequences of taking money out of an investment…just looking for opinions/thoughts.2a. Any tips on how to get past this mistake? If I am being honest it has been a source of serious anxiety over the last two years and I have not dealt well with it.
If you have $130K in your Emergency Fund (EF) and are going to reduce that to $30K due to this emergency, then I would likely just use some portion of Taxable contributions to rebuild the EF back to 6-18 months of expenses (or whatever $ target you had if it’s over $30K, typically however many months you think it would take to find a replacement job if you were unexpectedly terminated). I would not resort to HELOC or car loans… you have a unique EF backup in the TSP since if you take a loan from your TSP for a “financial hardship” the interest paid on that loan goes 100% back into your TSP account! With a loan option like that, I would never take a HELOC or a car loan, as long as your application qualifies as one of the hardships for a TSP loan to be approved.
Even if you can’t get a TSP Loan (which I wouldn’t bother with unless you’re really uncomfortable about the potential for being fired; TSP Loans I think are only available while a Fed employee, not after separation/termination), I would just take perhaps 1/3 to 1/2 of your Taxable contribution and re-direct that towards rebuilding the EF, then go back to 100% into Taxable retirement portfolio once EF is re-established. An EF is there so you can manage an unexpected expenses without raiding your retirement accounts or taking a loan… just rebuild it, unless you feel there’s very high risk of a double-emergency (and then when that does happen is the time to look at a TSP loan or a temporary reduction in retirement contributions).
daheld wrote: Thu Nov 20, 2025 8:33 pm
3. Anything we could be doing better or that we’re not thinking of/are missing?
You’re missing that you have a potential Wash Sale issue with VTSAX/VTIAX in both Taxable and in Roth accounts (highlighted in red). You didn’t list a desired int’l exposure level as a % of all stocks, so I’m guessing you want the world weighting (currently around 37%, but floats between 35%-40%). You are sort of mirroring your stock holdings across every account, so you could simplify from 13 holdings down to 9 by viewing all accounts as a unified portfolio. It’s reasonable to mix C-Fund and S-Fund to replicate Total US Stock Market, but it’s unnecessary given that C-Fund is 85% of the market composition and nearly 100% of the performance (over the snapshot shown further down), so you can keep S-Fund, but at a 15% market weighting it’s not going to make a huge difference and if you overweight small, that’s a gamble that it will outperform large (we don’t typically recommend tilts/overweighting other than the US vs Int’l split). On the plus side, your Taxable and Roth accounts are 100% stocks, while all your bonds are in Trad Tax-Deferred accounts, so your current layout adheres to Tax-Efficient Fund Placement. The G-Fund is stable like a money-market fund, but it’s composition is T-Notes that are 4y duration or more, so it’s a better risk-adjusted return than any bond fund you can find in the retail space, and I’ve suggested the majority of bonds be held in this fund (you can find higher yield bonds funds, but they also have much higher risk than ZERO-volatility).
Below is a summary of your Current layout (again target of 80/20 with 37% of stocks in int’l, so the non-zero Deltas show where that’s a bit off) and a Proposed layout to simplify and exactly meet that target AA.
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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On Total US Stock and S&P-500 being interchangeable without mid/small caps…
10y period as of 17-Apr-2025
