@bonesly
I can’t thank you enough for the valuable insights you provided previously as well as in this response. Further comments and questions in this color
bonesly wrote: Mon Sep 08, 2025 2:00 pm
fin-by-me wrote: Fri Sep 05, 2025 4:36 pm
One of the advisors at work told us to reorganize portfolio as follows:Taxable: 40%
Move cash to VT/VTI.
401K: 60%
Move from FDRXX to 50% BND and 50% VTIP
For expenses they suggested withdrawing from Taxable until we run out of it. For later years withdraw from 401K. In their mind there was no need to generate an income stream separately.
This doesn’t seem like an unreasonable suggestion from the advisor at work if your Taxable / 401k balance split is already 40/60. I would not suggest VT in a Taxable account since you’ll lose access to the Foreign Tax Credit (FTC) for the foreign stock holdings within VT… better to use VTI and VXUS instead as VXUS qualifies for claiming the FTC to recover some double-taxation on foreign stocks held in a Taxable account (VT is fine for Trad & Roth accounts, just not Taxable). I also concur there’s no need to generate “an income stream” from your portfolio (which implies never touching the principal and only spending the distributions)… typically we talk about a safe withdrawal rate of the entire portfolio (e.g., 4% initial then adjusted for inflation in successive years, or 4% constant of whatever the balance is at the start of every year, or a variable-percentage withdrawal if you are of the “die-with-zero” mindset).
Thanks for validating the recommendation I got from the advisor at work. My takeaway:
Taxable: VTI + VXUS — aim to consolidate portfolio to this
Safe withdrawal of 3-4% of the entire portfolio
fin-by-me wrote: Fri Sep 05, 2025 4:36 pm
1. In a prior portfolio review in this forum I was advised something similar, sell Taxable funds for regular expenses and rebalance within 401k i.e. move equivalent funds from bond to equity ETF within 401K.Is it possible to generate $150K from taxable accounts without having to touch 401k? What suggestion (ETF) would you offer to reconstitute the portfolio to generate $150K from Taxable accounts?
You can certainly withdraw $150K/yr from Taxable for some time without touching the 401k, but that’s a pretty high initial rate of 8.12% so even at 15 years of inflation-adjusted withdrawals, that’s only around a 66% chance that Taxable would not run out of money before that 15 year period was up; when it runs out early you might have to tap the 401k to make ends meet; this doesn’t account for SocSec kicking in at 67 for each of you respectively.
However, if your wife is retiring around age 52 and lives to 95 that’s a 43-year withdrawal period, so to never touch the 401k, you’d have to limit Taxable withdrawals to $63.7K (or 3.45% initial draw; the 4% rule from the Trinity Study is for a 30-year period) to have around a 90% chance of not running out of money early. I’m not sure why you’d do that unless you’re planning to leave the entire Trad 401k as an estate to your heirs, but that’s the worst kind of account to leave to heirs since they have to empty it within 10 years, and it would likely jump their own tax-bracket up a bracket (perhaps even two) because $2.8M is going to keep growing for 40 or so years if you neve touch it so I’d probably spend to convert Trad to Roth if your intent is to leave a tax-friendly gift to heirs. Again, this doesn’t account for SocSec kicking in at 67 which could maybe make $150K to start a viable plan (that $150K draw would drop to $54K once SocSec of $96K/yr kicks in, but I still don’t think Taxable would last 43 years given the high initial draw; my quick Monte Carlo of that says only 38% chance of not running out early with an $96K offset that is inflation-adjusted to $149.6K 15 years from now, which is far below 90%).
I should have been more clearer. During the “golden years of Roth Conversion” i.e. early retirement until SSI (age 57-67), I wanted to live off of the Taxable without generating additional taxes from 401K withdrawals. I don’t mean to not touch 401K forever and I don’t intend to leave a significant 401K balance to my heirs. I am more concerned with the tax bracket jump if I withdraw from both Taxable and 401K (to get $150K) during the early years until SSI, while doing Roth conversions also. My objective is to draw $150K until age 67 (next 10 years) with minimal tax impact. Would appreciate your suggestion on how best to accomplish this.
fin-by-me wrote: Fri Sep 05, 2025 4:36 pm
2. I would like to declutter and move towards a 3-fund portfolio (VTI,BND, VXUS)next year onwards. Should I prioritize eliminating stock concentration risk by selling MSFT entirely next year? With one less income the MAGI will be lesser next year and hopefully should help reduce tax drag. Or should I wait until both of us retire and sell? So many things could happen to MSFT by then.
I would likely prioritize first by getting rid of moderate-to-high cost mutual funds ranked from largest to smallest by the $ balance multiplied by the expense ratio (i.e., ranked by $-cost). Then I might prioritize unwinding individual stocks ranked from largest balance to smallest balance until the total $ value of all individual stocks is < 10% of the total portfolio value. If the clutter really bothers you, then keep unwinding individual stocks until they’re eliminated, but there’s an objective and quantifiable value-over-time in paying a cost to reduce expense ratio, the value of reducing zero-cost clutter is subjective (and it costs nothing to hold individual stocks, it’s just higher risk than a broadly diversified index fund).
An example unwinding priority for another poster looked like this (hopefully you can use this as an example to apply to your own portfolio holdings).
Great points. The concern is just with MSFT which is about 40% of one of my Taxable accounts. Would like to minimize the risk as early as next year as I don’t want to risk a 50% drop in MSFT value (my own unfounded fear). Your table is is a great reference.
fin-by-me wrote: Fri Sep 05, 2025 4:36 pm
3. If wealth preservation is the goal, is there a way to generate $150K in the 401K corresponding to match the corresponding withdrawal from Taxable account? I am not sure whether 401K Fidelity Brokeragelink allows TIPS ladder, Treasury purchases directly.
If wealth preservation is a goal to maximize the estate gift to heirs, then taking all your portfolio draw to support annual expenses from the Trad 401k is best. If you can further afford the taxes for Trad->Roth conversions, that’s even better for heirs than leaving them a Trad account to inherit.
You don’t need a TIPS ladder, you could simply buy a TIPS fund like VTIP. Vanguard’s Target Retirement Funds don’t add TIPS until pretty late in the cycle. As an alternative you could consider a Single Premium Immediate Annuity (SPIA) or Multi-Year Guaranteed Annuity (MYGA) to convert some portion of assets to a true fixed income stream, but typically that’s not recommended until one of you reaches age 85 or thereabouts (certainly not in “early” retirement before age 70). You can handle volatility in retirement until you start getting down to a remaining life-expectancy of around 20 years (give or take 10 years depending on risk-tolerance / jitters) and that’s when you want to use a bond ladder that’s duration-matched to your remaining life-expectancy, or a “good” annuity if that’s somehow cheaper than a self-managed bond ladder (which at that age you hopefully still have the cognitive ability to manage, which is why the annuity is sort of “insurance against cognitive decline”).
You should probably play with the taxes now vs taxes to heirs question, as well as portfolio survivability if you only draw from once source but will have SocSec kick in at 67, within the TPAW Planner as that’s likely one of the most comprehensive, free planners out there, and it’s reviewed by professors in economics/finance.
Again I am absolutely comfortable withdrawing from 401K distributions even during the early years of retirement. By wealth preservation I meant living off of both taxable and tax-deferred distributions vs touching capital. Given that would it make sense to reallocate my 401k from FDRXX to BND and VTIP in 50-50 split until I hit the age when SPIA makes sense? Will play with the TPAW planner for sure. Immensely grateful for your feedback.
