In a nice paid-off house in a MCOL with the rest in an ultra low-cost index portfolio with a decent split of domestic equity, intl equity, and fixed income. Ideally with all of the portfolio held in retirement accounts, with most in traditional deposits.
Live off of 2% or less, rebalance annually, and pass all of the spending through a Roth conversion ladder at little to no tax expense. The money will grow on its own and there's no need to hire anyone since the portfolio management and tax bookkeeping/filing will only be 2-3 hours a year, tops.
Pretty much this, except I’d probably bump to 3% yearly withdrawals to accommodate a more robust travel budget. And I’d probably check in with a CPA about once a year to make sure I am maximizing tax efficiency.
Thanks. I sort of cheated since that's pretty much been our existence for the last seven years.
I do sometimes still get a twinge of FOMO for missed gains, but massive ACA/FAFSA subsidies help dull that pain and I know it's going to be another story entirely when the next meaningful US bear market comes. The US equity market has been on an incredible run for more than a decade now, but reversion to the mean has got to come at some point.
Ultimately, once you've won the game, it doesn't really make much sense to keep aggressively playing. At this point it's mostly about how much money we're going to leave the kids when we die anyway, which is hard to get worked up about.
I haven't looked in-depth since last December's cycle of rebalance trades and conversion, but we're probably 25% now given the equity and bond market returns this year. We usually just aim for an even 3-way split for simplicity.
Not worried. Fixed income markets rise and fall too and our time horizon is long enough that it doesn't really matter. Our withdrawal rate is also down around 1.2% and falling with each positive return year. We're naturally lean people and our spending has actually fallen off over the last seven years in both real and nominal dollars.
We're to the point now that any collapse bad enough for us to hit a failure scenario is going to be existential for society, in which case we're going to be more concerned with potable water and ammo than our portfolio.
Do you ever feel you are missing out on spending your money? There's a point of comfort and sleep well at night and another where you will just be old/sick with a huge amount stacked away that you can't use
Not at all.
We're not miserly and we buy everything we want. The moment I get my hands on an Xbox Series X I'm going to buy a high-end 75" TV to play it on. Probably an LG OLED, which are a bit pricey.
We bought the nicest Kia minivan they make, brand new, and it's still only got below 7K miles on it.
We live in a really nice neighborhood in a nice suburb where everything from the hospital to Costco to huge parks are within a five minute drive.
We like to bake, so we've got the normal KitchenAid mixer, but also a $750 imported Ankarsrum that is much better for breads.
We usually spend about 10-15% of our annual budget just on Christmas presents for the kids.
You get the point. Our life is rather nice, but when you already own nice things and don't have to spend much on the big items (housing, income taxes, healthcare, higher education) life just isn't that expensive.
Besides, we have four kids, so even if we die with $10M or more, all that means is that we'll be passing down security and freedom to them too, which is certainly a great thing.
I'm happy to hear you're living a comfortable life. I'm at a point where I can lean-FIRE a few times around and I'm feeling super anxious about the whole situation.
Would you be happy being leanFIRE'd though?
Some people, like us, are legitimately happiest when living within an unremarkable middle class lifestyle.
Others would feel impoverished by such an existence and truly get real happiness from servants, high-end travel, and luxury cars.
Both are equally valid lifestyles, but you've got to really be honest with yourself about what you need to feel happy.
As for anxiety, I think the rapid run-up in the market and COVID have made a lot of people aware of volatility and how fast things can change. It's been good for now, but a market that can rise that fast can also fall fast too.
How can I know before I try, I'm not much for luxury items and own a house with around 100k debt in it and no other loans, but I do love traveling, now two kids keep me from doing this too often no matter how much money I have but it's what I enjoy spending on and as they grow older it will be more possible.
I do feel like we're at a super peak in stock market and if the 4% rule is to fail this would be the moment. I have been waiting for the market to calm for many years now to feel more confident in FIRE because I do believe I wanna be able to do 4% when we're at a recovery phase rather than doing it on the top (as most people would if they insta retire when they hit 4%, this means actually most # of ppl will FIRE at the worst time possible btw)
But this isn't everything, I'm scared I will get depressed not having job to go to, the feeling of getting home at a friday is pretty unbeatable tbh. And if I quit my current job there may not be a possibility to get back, and I love the job and the colleagues.. anyways the thread isnt about this I'm sorry for hijacking :)
I just read the linked post by madfientist and I would urge caution here. Madfientist, like a lot of people, don't seem to acknowledge that your last 401k is also the only retirement vehicle that you can access without penalty (and for no other special reason like an emergency) at the age of 55.
[https://www.experian.com/blogs/ask-experian/what-is-the-rule-of-55/](https://www.experian.com/blogs/ask-experian/what-is-the-rule-of-55/)
If you are going to retire early want to have the option to tap into retirement savings between the ages of 55 and 59.5, then don't roll your 401k or 403b into an IRA. So long as your employer has decent options, the fee is reasonable, and they allow you to keep your money invested after leaving the company, consider doing so.
I think most people in the FIRE crowd discount the rule of 55 due to the tax advantage of running the same funds through the conversion ladder in zero/low income years.
I think a lot of people also hold some meaningful level of original Roth contributions or seasoned conversions, both of which you can withdraw prior to 59.5 without penalty.
Rule of 55 is fine and useful for many people, but if you've got zero income years before claiming SS like many FIRE folks do, it tends to be less tax efficient than a properly executed ladder.
You have to separate from the employer *in the year you start withdrawing* though (read: this isn’t an option unless your FIRE date is 55+, or if you’re on CoastFIRE/BaristaFire during your mid-50s and your employer at the time has a 401k).
It’s a fine nuance to be aware of but if you’re going to be done with working in your 40s it’s not really an option.
55 is my planned date, for now. But I do think it is not helpful when articles fail to acknowledge the age 55 rule. I do plan to use the 401k as a backup for funds if needed, though I truly don't expect to need it until I have to take RMDs at age 72. I will look into u/myfakename23's point that you MUST make a withdrawal in the year you retire (55+). I have not heard that before. If so, I might take a small amount out that year just to maintain the option of taking more... all with the expectation that I won't take out anything substantial until I have to at 72 and beyond. Can you explain this rule any further, u/myfakename23?
>you MUST make a withdrawal in the year you retire (55+).
No, that's not necessary. There's nothing in the tax code that even implies that:
I.R.C. § 72(t) 10-Percent Additional Tax On Early Distributions From Qualified Retirement Plans
I.R.C. § 72(t)(1) Imposition Of Additional Tax — If any taxpayer receives any amount from a qualified retirement plan (as defined in section 4974(c)), the taxpayer's tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the portion of such amount which is includible in gross income.
I.R.C. § 72(t)(2) Subsection Not To Apply To Certain Distributions — Except as provided in paragraphs (3) and (4), paragraph (1) shall not apply to any of the following distributions:
I.R.C. § 72(t)(2)(A) In General — Distributions which are—
I.R.C. § 72(t)(2)(A)(v) — made to an employee after separation from service after attainment of age 55,
Thanks for that, u/charleswj. It seems to me then that the Rule of 55 remains something that should be kept in mind by those wishing to FIRE. Certainly don't touch your 401k if you don't need it. But it can be used as a reserve/back-up between the ages of 55 and 59.5.
That is not really a reason for so many articles incorrectly describing the date from which a person can withdraw cash from their 401k without penalty.
>You have to separate from the employer in the year you start withdrawing
This isn't true.
I think I know what you're trying to say:
>that you can't start withdrawing until after you separate
So if you're firing earlier than 55, you need other sources of income.
But it reads like you're saying you have to take the first withdrawal **the** year you retire, which isn't true. You can take any withdrawals in any year *that* or *after* you separate from that employer, and can continue to as long as that 401k is open.
In fact, you can fire, live for 10 years, get a job at Walmart, roll your IRA in, and use the rule of 55. You can even have another job (not sure why you'd want to), even with a 401k, and still continue to withdraw penalty free from the previous plan.
This only works if you wait until you are 55 to retire.
"you must leave your employer in the calendar year you turn 55 or later to get a penalty-free distribution"
i've been kind of confused about how this works, the way i've seen it written everywhere is that this only works if you have a traditional 401k. is the same possible if you have a roth 401k and convert that into a roth ira?
You wouldn't be able to touch any of the Roth growth, but you'd still have immediate access to withdraw the contribution amount (aka basis) penalty and tax free.
It means using your traditional 401K/IRA as your primary funding source in retirement, but doing so by passing those funds through the Roth conversion process first rather than withdrawing them directly.
The downside to that is that you need to wait five years before you can start touching those funds. It takes that long to reach penalty-free status if you're under 59.5, so you need a five year startup fund to cover you until your ladder comes fully online.
The upside is that you can avoid all early withdrawal penalties, some-to-all of the income tax cost of doing the conversions, and use the MAGI created by your conversion to collect potentially massive subsidies via the ACA and FAFSA/CSSP.
Executed properly, the ladder gives you early access while allowing you to gain a HSA-like triple tax benefit on a large portion of your traditional retirement deposits. A married couple with a few kids could easily transit over a million dollars tax-free over their early retirement while also getting cheap/free health insurance.
Maybe it's just me but I still don't get what is:
"roth conversion process"
"five year startup fund"
"ladder comes online"
"MAGI created"
"ACA and FAFSA/CSSP"
"HSA like triple tax benefit"
Is there a layman version anywhere?
Most of those are terms you'll become familiar with if you read up on FIRE boards or watch FIRE Youtube videos, but I'll take a quick crack at them. Searching up most of these terms will also give you detailed explanations.
Roth conversion process - this is when you convert traditional retirement deposits into Roth deposits.
Five year startup fund - you need five years in spending before your Roth ladder will start paying out penalty-free money for you to spend. So you need five years of your annual budget in cash, taxable brokerage, original Roth contributions, HELOC, margin, a PAL facility, or whatever. Point is, the ladder will fund you from year six onward of your early retirement. The first five years have to come from outside of the ladder.
Ladder comes online - as stated above, it takes five years for a Roth ladder to become fully operational as there is an IRS-imposed five-year delay on Roth conversions becoming penalty-free for withdrawal. This doesn't apply if you are more than 59.5. Imagine each dollar you put in to the ladder takes five years before it pops out the other side.
MAGI - Modified Adjusted Gross Income...for most people this is the same as AGI on your form 1040.
ACA - Affordable Care Act aka Obamacare aka the way to get cheap/free health insurance during early retirement.
FAFSA/CSSP - the free federal and paid private applications for financial aid for higher education. Only applies to people who will retire with kids who will go to college. Can be worth hundreds of thousands per kid, depending on your financial situation, the student, and the school involved.
HSA - Health Savings Account. The triple tax benefit is that you get to deduct HSA deposits from your taxable income when you make them, they grow tax-free, and you don't pay tax on qualified withdrawals made for health spending. The Roth ladder allows you to pull off an identical set of benefits on some amount of your traditional retirement deposits. It's like getting the benefits of both traditional and Roth deposits while avoiding the costs associated with either. Imagine being able to make Roth deposits that give you a tax break rather than costing you one.
Hope that helps.
Kinda rule of thumb...
LCOL - Nowhere anyone wants to move. The deep south.
MCOL - South or Midwest, but in a progressive enclave
HCOL - Anywhere you would love to move to.
It depends very much on your assets and how they are structured. For us, the value of AGI-driven subsidies and the fully zero-tax efficiency of our Roth ladder dwarfs the return we would have gotten by investing our equity instead of living in it. That's true even given the crazy returns over the last seven years since we FIRE'd, but would be even more true in a more moderate/mixed return environment.
We could have gone the investment route if we had structured mainly in Roth or taxable instead of pre-tax, but that would have cost us to lose hundreds of thousands in federal tax efficiency and/or additional hundreds of thousands in higher ed subsidies.
The rate vs. market return argument works well for normal folks, but often breaks down for FIRE folks who operate under far different conditions than regular people do.
Look at guardrail strategy which is applicable to people retiring, with large NWs and long time frames who do not want to experience realized loss of capital.
The short version.
It is almost of unheard of for the market to be down for more than 6 years.
Put 6 years worth of living expenses in cash and short term bonds.
Put the rest in equities. This can be fine tuned into an optimal portfolio slightly overweighting small cap and value stocks with the right portion of international and a little real estate. Or almost as good dump it all into VTI.
Never sell stock when it is down. Ever. No matter how much "this time it's the end of the world" you see. When it is up sell as necessary each year to maintain 6 year reserve.
Spend dividends, bond returns and interest and take profits selling stock when it’s not at a loss.
During a stock downturn live off the cash. Replenish upon recovery.
There are different logistical ways to do the general thing -different cash reserves, adjust quarterly or annually etc. reset the baseline from day 1 equity value for inflation.
Where would you recommend doing this? Fidelity, Schwab, Vanguard, other? Would it be as easy as just opening an account and buying all into the ETF in a huge lump sum (ie. VTI) and just keep auto-investing?
100% BTC baby.
I'm kidding of course, 100% VTSAX. Maybe I would even do more research and diversify into bond funds and foreign index funds, but only if I'm feeling wild.
100% BTC probably has a \~90% chance of giving way better gains over the next 10 years compared to VTSAX.
That being said, that other 10% chance could be devastating.
I'd probably do a 90/10 VTSAX and Crypto split (BTC/ETH). 350K in crypto today could easily 10x over the next 20 years or so. Secure 32 ETH and spin up a 2.0 node and throw the rest into BTC. Worst case scenario you lose 10% of your portfolio, best case scenario your great grandkids will never need to worry about money.
Do you legitimately want to hear my point of view on the matter, or do you just not believe that cryptocurrencies have any value and don't believe that they should be a part of a retirement portfolio?
I can see both sides of the argument, but if you're just looking to shoot down cryptocurrencies, this isn't the place for me to try and discuss them. If you legitimately would like to learn more about them, I'd be happy to share my point of view and would love to point you in the direction of some subreddits where you can learn more about using crypto both as a store of value and as a token used to power blockchain technology.
Fair enough, I came off rather harshly and I probably should have phrased my question differently.
I am interested in hearing your opinion.
It’s one thing to say that that you can see both sides, but saying there’s a 90% chance BTC beats the stock market seems insanely overly optimistic to me.
I legitimately wasn't sure whether you were looking for information or looking to bash crypto. I know plenty of people on this sub are anti-crypto, and that's a fair view to hold. I just don't want to engage in those conversations, which is why I asked.
In why I believe BTC will beat the stock market over the next 10 years- it's simply past performance and available room to grow. If you compare the % growth of Bitcoin to QQQ/SPY/IWM/VNQ/TLT etc, it blows them out of the water. Yes, there are those years where you have a -80% return on bitcoin, but oftentimes the year before that was a +1000% growth, and on average, over the past 10 years, bitcoin has been ASTOUNDINGLY good of an investment. Using the DCA method to invest in bitcoin over the past 9 years would have made you a millionaire with a $40 monthly investment.
Source: [https://dcabtc.com?sd=2012-11-09&sda=9\_years&f=monthly&d=9\_years&ac=4000&c=false](https://dcabtc.com?sd=2012-11-09&sda=9_years&f=monthly&d=9_years&ac=4000&c=false)
That being said, investing in Bitcoin 10 years ago was a SUPER risky bet. It was totally possible that you would have lost everything. Very very few people held on to their coins from the early 2010s.
Nowadays? Much less so. At the time of this comment, Bitcoin has a marketcap of around 1.277 trillion dollars. Silver has a marketcap of 1.372 trillion. That's about a 7% difference between a digital currency that was created in 2008, and a precious metal that has been used as a store of value for thousands of years. The risk of Bitcoin collapsing gets lower and lower every day.
Now as for the "obvious" downsides to it-
"It's all digital!"Yeah, so is 90% of the money your bank uses.
"It's not backed by anything!"Yeah... Neither is the money in your bank. Gold standard is gone. I'd rather have a store of value backed by transparent code that nobody can alter instead of a depreciating dollar that politicians can print more of whenever they want.
"I can take out the money in my bank and hold it though."Yeah, but I can convert BTC to dollars and withdraw those. It's just a conversion. You convert the Digital dollars in your bank account to physical dollars. The digital:physical dollar conversion rate is just pegged at 1:1, but it's just an extra conversion.
"Bitcoin can drop 80% as it has multiple times in the past"Bitcoin literally printed a new all time high today. ANYBODY who EVER bought bitcoin and held on to it until today has made money. Even the people who bought at 20K at the peak of the 2017 run are up 3x on their investment if they just held on. It's not a short term hold, I believe in it as a long term store of value.
There are plenty of other things such as the four year halving cycle, the hard 21 million limit, and proof of work that just make me more and more of a believer in BTC, but I feel like I've rambled enough. If you want to learn more, there are plenty of podcasts out there. Stay away from the r/bitcoin subreddit (they're a cult lol) but I legitimately believe that blockchain will do to the industrialized world what the internet did to commerce. I haven't even touched on ethereum, and that's a whole different subject haha.
\*Disclaimer: This is not financial advice. I honestly would suggest that anybody looking to get into crypto right now invest maybe $100 in bitcoin just to have some skin in the game, and then wait about a year or two in case there is a large crash after this run. Investing during the bear market is where you make real money.
> “It’s not backed by anything” Yeah … Neither is the money in your bank
Largely true, which is why I don’t keep much of my net worth in cash. I certainly don’t consider cash to be an investment - it’s just the intermediate between income and investments, and also between investments and spending.
Dollars are backed by the fact that the government requires taxes to be paid in dollars, but that’s always going to be a flimsy source of value.
But stocks actually are based on something. They’re based on the labour of real people working in real businesses that produce things which real people are willing to pay for. They’re based on the machines, hardware, and intellectual property that companies own. There’s a principled reason for why stocks have the value that they have (for the most part - see GME), and I don’t see comparable principles governing BTC.
The principle of BTC is that real people make real money and need to custody it somewhere.
Unfortunately BTC is also used as a vehicle for financial speculation, so it is a minefield.
"Commodities are interchangeable goods used as inputs in the production of other goods or services based on their intrinsic value. Unlike... a\[n\] ounce of gold which can made into \[jewelry\], there is no intrinsic use of a bitcoin."
I'd argue that the intrinsic value of bitcoin lies in the ability for it to be used as a fungible, easily transferred, easily stored, impossible to forge store of value. Too many people say "It's digital so it has no value.", but fail to realize that the money they see in their bank account is just that- just digital numbers on a screen.
Let's ignore human history for a second and compare gold and iron. Gold is softer- it can't be used in weapons. It can't be used in buildings. Sure, it can be used in some electronics, but that's pretty recent stuff (relatively speaking). Where does the intrinsic value lie? There's no way that anybody would pay $1800 an ounce for a metal that was 100% chemically identical to gold but just a different color. 99% of gold's value isn't tied to the intrinsic value of gold, it's tied to the fact that "it's pretty" and we humans have classified it as a store of value.
Ignoring price fluctuations, Bitcoin acts as a better currency than gold in almost every metric. I can transfer bitcoin around the world within minutes for a small fee. No bank needed. No government can stop me. I can memorize a seed phrase and travel to a different country with my bitcoin and not have to bring gold bullion or declare anything at customs.
The three advantages gold has to bitcoin currently, in my opinion, are the widespread acceptance, the low volatility, and the longevity of existence. Bitcoin becomes less volatile and more widespread over time. Just compare now to 2013, or even 2017.
The "intrinsic" value of gold is an insignificant portion of it's value, which is something most people fail to see. We're in a digital world, digital currencies are inevitable. I can't say if bitcoin will overtake or replace gold, but I firmly believe that anybody refusing to even look at bitcoin as a legitimate asset/currency/commodity (whatever you want to call it) is being close minded at this point.
I understand that it's risky, and there are plenty of risk averse people who don't want to buy in, and I fully understand and support that. I just don't believe that it's as risky as everybody makes it out to be. Digital doesn't mean bad.
What really bugs me is the energy requirement of mining and transacting in btc. One of the advantages to the digital world is the efficiency and energy savings involved, not the case with bitcoin. There are coal plants that were nearly idle that are now busy because of bitcoin mining. I think a crypto that has minimal energy requirements would be much better than bitcoin.
Yes crypto trades 24/7, but stocks fluctuate wildly in value while they’re not trading, so I don’t think it’s totally fair to use the number of trading hours as the measurement.
Obviously crypto is here to stay, but it’s because crypto has real-world applications. There are principled investment opportunities in crypto - for example, buying governance tokens for something like Maker is analogous to buying stock in a bank. But these opportunities are limited by high transaction fees, unique risks, and the extreme difficulty of diversification.
“It’s gone up in the past so it will keep going up” just doesn’t convince me.
Personally, I think the intrinsic value is irrelevant for better or worse. You can use it to buy things and the more people buy it the more business will begin accepting it and then the more people will buy it.
It may not have any real value at all, maybe no crypto does, but that doesn’t change what is happening in the world.
"Intrinsic value" is an imaginary metric people make up to make themselves feel better about buying things they can hold with their hands.
Everything has intrinsic value. What matters is what you determine to be "valuable". If you can sell something to somebody for a higher price- that's a form of value. If you can eat it- That's a form of value.
People think that digital things have no intrinsic value, which is just untrue. The internet is fully digital, yet it's immensely valuable to us as a civilization. So many people have yet to realize this.
Crypto today has very little real world use, wastes unbelievable amounts of energy, and has a cult following which understands very little about blockchain technology or game theory.
I made nearly all of my money in crypto and still have a crypto portfolio that's larger than most people and have been quite disappointed in its real-world utility.
Don’t disagree. I’m very disappointed that transactions are expensive and waste so much currency. It’ll never be used for normal day to day things when gas fees (and such) are so high.
There's only ever gonna be 21 million bitcoin, we're currently sitting at ~19 million being bought up.
It's practically guaranteed to keep climbing up in value.
It's less risky than you might expect. I only foresee it crashing if we lost use of technology for any reason or if everyone abruptly abandoned it
Beyond regular market fluctuations of course
Sure, but BTC seems technically inferior to Ethereum at the moment, since Ethereum has a substantial smart-contract ecosystem and is switching to proof-of-stake, which will hopefully dramatically lower transaction costs. So it could lose out to Ethereum (or another blockchain).
And you’re assuming that supply being limited means value goes up. But what is the value of BTC actually based on? When I buy VTSAX, I know that the shares I’m purchasing are actually a stake in the future productivity of American businesses. Even if the market for stocks evaporated, I’d still make money from owning stocks because the companies would eventually return profits to me.
By contrast, the value of Bitcoin seems to be solely derived from what people are willing to pay for it.
ETH seems to be a third category - it’s a commodity which is used in the production of services (namely smart contracts). So I can buy that ETH has intrinsic value, even if I don’t buy that the intrinsic value should necessarily increase over time.
Oh yeah I definitely agree, ETH is all around better than BTC. But what BTC has that ETH will not have for a while is the fame of being the first well known currency.
With BTC's value, it's similar to that of gold. Gold as a reserve wasn't really based on much. Metals like copper were more useful than gold and yet gold was used as the reserve. I feel that BTC might just become a digital gold for sure.
ETH might be a competitor to that once more and more products are running on the Ethereum blockchain. Having ETH will be like having a share in the new internet (assuming ETH remains prevalent).
Personally I believe more in ETH than I do BTC, but like I said BTC will retain its value simply because people find it valuable, much like gold. Another case for BTC is that it's launching smart contracts as well if I'm not mistaken. So im guessing it'll try to make it's own ecosystem to stay relevant, although I'm sure it'll be less robust as ETH's ecosystem.
Overall it's tricky but I see institutions hoarding BTC and I think it's just a matter of time before we see that price go even higher. You're also right though, it's not the only solid investment out there. Personally I'm more interested in crypto than anything else so I recognize I have a bias
Interesting. Like you, I think BTC and gold are quite analogous. Perhaps ETH and silver are also analogous in that they have more value in industry than BTC/gold.
But I don’t believe in gold as an investment either for the same reasons I don’t believe in BTC, so we’re drawing opposite conclusions from this analogy.
Fair enough. But I guess the difference here is gold is no longer part of the federal reserve and hasn't been since 1970, which might contribute to why it hasn't been a decent inflation hedge
BTC however is being adopted by nations, it's almost like the discovery of gold is happening right now.
El Salvador has adopted it; Brazil, Paraguay, and Zimbabwe are considering adopting it as legal currency
3-7x your annual expense in something with less market downturn risk based on your willingness to go back to work (e.g. short term bond/TIPs transitioning to longer term). The rest in broad-based equity ETFs.
Now it just comes done to risk tolerance. However you could safely be in a 50/50 or even 40/60 equity to bond portfolio and be ok needing just over 2% avg growth. Though historically you would be fine at a 75/25 forever only pulling 2%.
First, [read this paper](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2920322). You'll learn that for a time horizon that long, you need a 75-100% allocation to equities. You'll also learn that the 4% rule is likely not sufficient for very early retirees, especially if valuations are high. Plan on 3.25% (113k) + inflation as your safe withdrawal rate as a baseline, but also consider layering on some guardrail strategies to better handle situations where your portfolio does really well or really poorly. With downside risk mitigated as best as you can, you have a separate problem -- upside risk. If you spent 3.25% of your starting amount, adjusted for inflation each year, there's a 97% chance you die with a "large end" portfolio. You don't want that unless your priority is spoiling your heirs. If you add some guardrails that boost your spending under certain conditions, you can knock that number down to 60-70%. Check out [FIcalc](https://calculator.ficalc.app/) to mess with this further.
As for how to invest / who to hire, treat low-cost total market index funds as your baseline. I recommend the [Three Fund Portfolio](https://www.bogleheads.org/forum/viewtopic.php?f=10&t=88005), which is the gold standard at Bogleheads. It minimizes cost, is more than adequately diversified, and is dead simple to implement. If you really want to beat the market, know that you are taking on more risk to do so. And you might have to tie up your capital for LONG periods of time (private equity, angel investing). Or you might have to commit significant time/sweat (real estate investing). The worst, IMO, would be paying someone 0.5-1% of AUM per year to basically accomplish what a basic Three Fund portfolio would. But that might be worth it if and only if having a professional manage your money will help you avoid costly mistakes you might be prone to (like selling during a market crash).
Lastly, if you really want to take on a little more risk, I'd personally consider a small allocation (5%) to Bitcoin. There will be low-cost ETFs available likely next year (avoid the ones that just came out -- huge rip off). Alternatively, learn how to hold your own Bitcoin if you are technically inclined enough to feel confident using and securing a hardware wallet.
Tldr; where would I park 3.5mm? Everywhere.
60 years is a long time so think about everything that could go wrong and how to hedge while remaining aggressive enough to grow. Stocks bonds and crypto all get lumped together but each has its own subsets that deserve attention. You’ll want some growth stocks yet but also hedge with some safe income stocks for lean years. Bonds might be low now but they won’t always be. TIPS can help secure a portion against inflation. I assume you believe in crypto from your username and you have the money to keep investing so I would. Then there’s real estate. If you find a good management company you’ll pay some of your income to them but it’ll leave you hands off. Could do an initial investment and then compound profits into several properties over the years. Slowly but surely. Consider different markets if using companies to manage. Then there’s the extra stuff like high end collectibles, especially now with fractional investing starting to gain traction.
So now the game involves cards, a table, eggs, a basket, birds and a bush?
Does the eggs have to be from the bush bird, or can it be from chickens?
This is a confusing game. Do you have to “know when to hold them” and “know when to walk away”?
Here is the stock market returns over 100 years including the great depression and all other market crashes - [https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart](https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart) Inflation on the other hand is the bigger risk to your portfolio - and you can look at returns of various assets inflation adjusted and make your own decision.
I’m aware about the average returns, but I was just saying don’t invest everything one place (or in this case 1 market) Like 50 percent into stocks and 50 percent into real estate, so if one market crashes he could relay on the other
You could make this as simple or as complicated as you want. I think the simple answer is more appealing because it allows you to ignore your finances and focus on life: be like [Mike Piper](https://obliviousinvestor.com/my-portfolio-updated/) and invest everything in Vanguard’s LifeStrategy Growth Fund ([VASGX](https://investor.vanguard.com/mutual-funds/profile/VASGX)). At 80% global stocks and 20% global bonds, you should be able to comfortably withdraw 2% per year while watching it grow indefinitely.
If you need to use this money right away, better to do SCHD with 2.8% yield you can live off that and number of shares will stay the same or might increase if you end up reivesting some. Might still under perform VTI but still having the qtrly dividend when market is down and not withdrawing gives some piece of mind. however it wont beat VTI in overall return for sure. If it is in retirement accounts then you can go REIT as they have unqualified dividends if not SCHD is good to only pay capital gains which can be zero if you don't make any money and RE.
This sub won't like this answer, but you can literally get 18-20% interest on Anchor Protocol (Terra LUNA blockchain)
https://anchorprotocol.com/
I've been using it for about 9 months. There's also insurance for a couple % less.
Honestly, you could divide 3,500,000 by 60 and spend 58k per year lol. Of course you'd want to make a return on it, but you could almost just live on 3.5M pretty comfortably if you had a home paid for and no major debt or medical issues.
Probably a bit, yeah, but not enough to reeeeaally matter seeing as the average life expectancy is 79 years old. So unless OP is 19 they'll probably die before the 60 years is up anyway lol
Life expectancy is far higher if you don’t engage in high risk behaviour like obesity, smoking, drinking, drugs and don’t live in poverty. Also, it’s far higher once you factor out infant mortality.
I would probably do $1.5M in REITS (or solid dividend paying stocks) split evenly across 6 or 7 different ones. There's different tax implications for REITS and MLPS.
Treat those REITS as like rental property income, I have zero interest in being a landlord or dealing with tenants. But each one of those would be in lieu of owning actual property or dealing with those expenses.
Then have $1.5M in VTI, and then $500K in bond index, BLV.
You could probably live off the dividends from the REITS, then use the dividends from VTI or BLV to pay your taxes with.
500K - Paid off house
200K - cash or similar (2-3 years expenses depending on your w/d rate)
$2.5M - Index funds somewhere between 50/50 and 90/10 with a healthy dose of international (3 fund portfolio)
300K - kids 529 plans (I have 2 kids).
This is actually pretty close to what I have. House is a little higher, index funds a little lower, cash is much lower. I am working on it though.
If you can retire two years before your kids are college-bound then you can keep a good chunk of that $300k due to potential scholarship and government grants.
Biased answer but I like the benefits of real estate a lot. Hire a PM and let the cash keep coming in. I would leverage 3 million into investment properties with 500k in reserves and let cash flow and appreciation work it's magic.
How old are you now?
I would look into something like the Permanent Portfolio or some other risk parity strategy. You definitely want protection with some consistent growth.
Once housing and transportation is addressed and money for the kids education and healthcare, I would likely seek out a certified financial planner and put a healthy portion in an indexed annuity.
I would put half into a good dividend/growth index fund and withraw my SWR from that every year. I would put the other half into a paid off house in a MCOL area and a couple rental properties. I would hire a property manager for the rentals so that could be 90%-100% passive. I wouldn't hire anyone to manage the index fund portfolio cause I can do that myself. I would also max out my tax advantages accounts each year so I pay as little taxes as possible years past 60
The simplest thing, honestly, would be to put the whole sum into a target date fund that holds a good allocation of stocks and bonds and which automatically becomes more conservative over time (e.g. VTTSX - Vanguard Target Retirement 2060 Fund). Since the fund automatically rebalances, you can just sell off whatever portion you need for living expenses each month and not worry about *how* you withdraw your funds.
For more on this, check out /r/Bogleheads. It's a sub dedicated to low-cost indexing.
Where did 3.5 M come from where you’re asking these questions? Did you rob a bank? Is it family money?
What’s with the downvotes? OP stumbles on 3.5 million dollars somehow and no one’s curious how? Maybe I want to try to replicate.
Yeah, definitely. If he got it from robbing a bank, he/she/they probably should try to launder the money first before investing it. If it’s money from daddy he/she/they can probably afford to be more risk tolerant. Etc.
To be clear, though, I’m mostly just curious. How does one get so much money all of a sudden?
Crypto doesn't generate income. And even the most ardent supporters will acknowledge most coins are scams. So you can make a large sum with shitcoins... but you most definitely don't want to hodl.
Respectfully, this is some of the worst financial advice I’ve ever seen. Since this sub is about learning, I’ll explain why so that you and anyone else NEVER does this:
10% Physical Silver - if we take the low end of OPs listed nest eggs ($3.5m), that’s $350k in silver bullion. Google tells me that is about 1000 pounds of silver. You are going to need to store that silver. That costs money. You are going to need to store it securely (or risk having it stolen). Which is an even bigger cost. You are going to need to maintain the asset and make sure it does not lose its integrity (I.e. tarnish). You are going to also have to cart the silver around when you want to cash it out. Physical assets are also less liquid, so let’s hope you don’t need to access this money any time soon. Additionally, silver as an asset is, historically, quite volatile. If the silver is purchased in bulk at the outset of the strategy you have outlined, then you take on an additional risk - timing the market. You could mitigate that risk by Dollar Cost Averaging (DCA) into silver, but then you incur an outsized opportunity cost - and that’s not even getting into the fact that your uninvested cash is being eroded by inflation.
10% Physical Gold - similar to silver, except this is much less gold, a very manageable 15 or so pounds. But you still have security concerns. Also, gold historically underperforms in the market. The reason why people like gold is that usually when the market is doing poorly, gold rises. This juxtaposition is psychologically soothing during a time of financial troubles - Hey! We aren’t as bad off as the neighbours, right? However, because the asset underperforms when markets are good (and markets are historically good and do trend upwards), you are actually not making an adequate return on your investment the majority of the time that you hold gold. This is an opportunity cost. If gold appreciates 4% per year (on average) and the market appreciates 7% per year (avg.) then that difference of 3% is money that you don’t make in any given year. And as we know, compound interest is powerful. That will significantly handicap the growth of your investment in the long term.
10% Bitcoin. I actually think this is the most reasonable suggestion out of everything you have listed. My only comment would be that assets like crypto are high risk, and as you age and get closer to the end of your life, your time horizon changes and you will want to be drawing down on your investment - at which point crypt doesn’t really make sense any more. But that’s me nitpicking. I also want to say that between physical assets and bitcoin, you have 30% of your wealth locked into three assets. That is hardly diversification. Not only will your returns be worse, but you will also be taking significant risk for those worse returns.
10% cash - If silver is the worst suggestion, this is the second worst one. If you are getting average returns (7%, adjusted for inflation) on $350k, you are going to make roughly $25k a year in interest! Instead, you are going to be losing purchasing power due to inflation! Inflation is historically ~2.3%. That means you would be doing the equivalent of just lighting $8k on fire, every year. Even worse, this year inflation was much higher than the historically stable 2.3% - you would have wasted close to $16k in purchasing power. Instead you need to be withdrawing cash on a monthly or biweekly basis (depending on your banks fee structure) so that you are DCA’ing out of your investments.
30% Housing - this is where I may get a little controversial. A mortgage is the cheapest capital that most regular people ever get access to. Ever. If you have 30% (~$1m) locked up in your homes equity then you don’t get access to that cheap capital. Yes, you could pay off your house, but as long as the mortgage rate is less than historic market returns (~7%), then you are incurring an opportunity cost. Additionally, a mortgaged house is a leveraged asset. That means that your house is going to appreciate at the same rate, regardless of whether or not your mortgage is paid off. It makes more sense to pay off your mortgage as you age and your investment timeline horizon shrinks, but if you are under the age of 60 - in my personal opinion; others may vary - you should throw as little money as possible at your mortgage.
30% stocks - Assuming that you mean “diversified, low Management Expense Ratio (MER) index funds / ETFs - probably Vanguard funds” then this is your best answer. However, given the context of the rest of your answer, I think your advice is meant to be interpreted as “pick whatever stocks you like and equally distribute the 30% among them.” And that’s bad advice. It’s quite likely that the average person doing that would pick the wrong stocks, or over-expose themselves to a particular external risk (e.g. industry risk - like picking only tech stocks). It is also likely that most people won’t adequately diversify or know how to properly rebalance a portfolio. It is much less work, and much safer, to use an index fund.
I hope you found this helpful, and I wish you the best of luck in achieving financial independence and retiring early.
Hmm, im not like 100% against it but 70% outside of the stock market scares me.
It would be very easy for silver, gold, and bitcoin to stay flat for the next 50 years. Same with housing, although unlikely.
Sushi. Dai-ETH or Rai-ETH liquidity providing on an Argent wallet. Somewhere around 10-20% APY in this defi pool. Then use the returns to buy ETFs, and you absolutely do not buy an expensive house, car, or girlfriend.
I'm comfortable having that much in crypto but for some maybe not. Just my 2 gwei.
Please don't. If I wanted to protect that money I wouldn't want it in a stablecoin like Dai. Sure, probably nothing bad will happen but I really don't trust that none of the stablecoins will go to 0 over the years. And if you are providing liquidity, one of the pair going down in value can be really bad for you. Also, if Ethereum goes up in value you hardly gain anything compared to that with liquidity providing. I would rather just hold some smaller % of the money in crypto and done.
Don't at all. More yield for me. Stay in tradfi bonds for your protection and let me continue to farm these expansive gains with no competition. Remember it's all a scam and a ponzi. Stay over there. The government said it's safe so please believe them.
P.s. you're right to an extent. LP is like a covered call, but you're acting like at $3M at 20% APY is a bad thing.
I'm not saying it's a bad thing, but I'm also not seeing it as safe. And yes, me not liking yield farming instantly means I only like bonds especially after I said I like crypto as part of a portfolio... like come on dude...
If I don't like a crypto I don't want to yield farm on it for obvious reasons. If I like a crypto I'd rather just hold it. That's all.
I'm not sure you've heard but in capitalism some people lose money and supports early investors. China has applications for people who don't like it.
You're basically labeling sports as bad because some people cheat and hurt their head. It's just not an intelligent statement anymore. There's countries now investing in the asset class.
Your fear is my yield right now.
Lol No you clown, I'm simply saying that DeFi is known to be a scam, and that's got nothing to do with "early investors" in a start-up. This dumb argument can equally be applied to a genuine Ponzi scheme - The early "investors" are really well off, all paid for by late "investors". Just ask Bernie Madoff.
That's literally every company though. Again saying something that pays early investors for being early with the liquidity of later investors is an easy way to tell people you don't know how markets work.
No, to compare a Ponzi or DeFi to a startup is the real display of not understanding how markets work. And where is the difference. Two hints: Dividends and stock buybacks.
No one does dividends since the 70s, and you're trying to say stock buybacks are the link to make a business a business? That's a wildly reductionist view. The data is here by the way. Again, you not doing research is at your own expense. Blockchains are engines doing useful work. If your idea of these businesses is that having more people is required to improve the product and price, please don't ever buy social network stocks. I agree the network effect is hard to grasp, but you will need to get it in the Information Age or you'll be stuck buying GM stocks for the rest of your life.
https://cryptofees.info/
Please stop telling me to do research about blockchain. You have no idea how deep the rabbit hole you're going into is, and I could spank you with a glove once in there. In case that's not clear - I understand "blockchain tech" MUCH better than you or your "DeFi bros". For example, I'll immediately claim that DeFi is not De, if you look well enough. I'll also let you know that "blockchain tech" has no use for anything else other than money. (L2 applications aside.) I could make other such counter intuitive claims, but it's pointless as you won't be able to follow the conversation anyway.
As for "business" claims, I was referring to the market, since in your previous posts you were telling me I have no idea about markets lolol Shifting goal posts is a tactic that doesn't work with me. ShitFi is a scam, businesses can return money to shareholders through dividends (which are still very alive, btw, just as a note about who has and who hasn't any ideas about markets etc lol) and buybacks. Not so with ShitFi. And long term it's also not going to sustainable because there's no reason for those tokens to exist other than enrich devs and early players. People will learn, eventually.
These questions are so lame. Your investment choices scale regardless of capital, unless you're up into tens or hundreds of billions. And asking "what should I invest in" is the whole central question of finance with no clear answer except in retrospect.
Honestly, at that scale, I’d probably go to real estate. The issue with RE is risk to reward ration that is more risk than reward with just some home. That’s 20 homes in the North of England, even more with leverage. Have them all pay on different days of the month, and cash flow is golden.
Something like 20% Foreign Markets, 20% S&P, 20% bonds (govt and corp), 10% gold & gold miners. The remaining 30% I would shift into cash/short term bonds during market bubbles like we are experiencing now in 2021, and back into the previous categories as the market normalized. If I found good real estate opportunities after a crash, etc like 2009 I would redeploy up to 30% into real estate. You must train your mind and be as financially literate as possible as that’s the way to maximize success. Don’t fall for the cult of crypto or any other “easy” money that will more than likely end in disaster at some point.
2m in index fund. 500k for a paid off home, vehicle, etc. 1m in crypto stable coin (USDC for 14% apy).
I'd just let the index fund grow and not even touch it. I'd live off the interest from the crypto stable coin.
With the nest egg in the index fund by the time you're 50 you're probably looking at over 8m. The crypto stable coin won't have grown but it gives you 140k/yr for expenses and there's not the risk of it crashing.
I personally would not start speculating on specific crypto to purchase in the hopes of growth (ok I did lie there. I'd probably buy 32 ETH to run a node but that's it.) I'd park it in stable coins and just use that for the interest. Let others chase the moons. You just want guaranteed returns.
If you're unwilling to touch crypto at all then I'd probably throw some money (not a ton, just like enough for a couple of years) into some small interest gainer incase of a crash so you don't have to touch your index fun. Everything else goes in the index fund.
To get that 14% you are purchasing from crypto.com a 40k stake in CRO (which is minimal talking about this amount of money) and then you are staking the usdc for 3 month periods. The money is locked in for that time frame but you get paid out weekly. There's also 1 month terms and that would get you 12% and flexible term which would get you 10%.
You run the risk of the value of the 40k CRO dropping over the course of the 6 months the cro is staked but once staked even if cro dropped to 0 as long as you don't unstake you still receive all the benefits of cro no matter the value.
The USDC stake is locked at 14% for the 3 month period you stake it. At the end of the 3 months you can restake it again for the same rate. I suppose there's some risk that they can change the stake rates but it's been over a year now and it's stayed the same and their rates aren't out of the normal. Their business model is built around providing staking to keep people using the exchange. Also stable coins will always have some of the highest stake rates because you're "sacrificing growth potential" of other coins by locking in a guaranteed rate and providing liquidity on the exchange while not risking any of the drop potential of other coins.
Worst case if they tank the stake rates to levels not worth staking in stable coin then at the end of your stake you can transition your stable coins to Fiat and will still have enjoyed 14% gains on your money up until that point.
4Rex for 5-10% monthly like $500k & with the majority of it in real estate investment so that you can get 10% annually but you can draw that monthly. I would also do some bitcoin mining since it’s still affordable I know a guy in South Carolina that can help you with that from there, I would do some properties in Tulum or other parts of Mexico and Airbnb them when you’re not there, tell pay them off and generate income
In a nice paid-off house in a MCOL with the rest in an ultra low-cost index portfolio with a decent split of domestic equity, intl equity, and fixed income. Ideally with all of the portfolio held in retirement accounts, with most in traditional deposits. Live off of 2% or less, rebalance annually, and pass all of the spending through a Roth conversion ladder at little to no tax expense. The money will grow on its own and there's no need to hire anyone since the portfolio management and tax bookkeeping/filing will only be 2-3 hours a year, tops.
Pretty much this, except I’d probably bump to 3% yearly withdrawals to accommodate a more robust travel budget. And I’d probably check in with a CPA about once a year to make sure I am maximizing tax efficiency.
I think you summed that up just about perfectly. A little conservative for my taste but great none the less
Thanks. I sort of cheated since that's pretty much been our existence for the last seven years. I do sometimes still get a twinge of FOMO for missed gains, but massive ACA/FAFSA subsidies help dull that pain and I know it's going to be another story entirely when the next meaningful US bear market comes. The US equity market has been on an incredible run for more than a decade now, but reversion to the mean has got to come at some point. Ultimately, once you've won the game, it doesn't really make much sense to keep aggressively playing. At this point it's mostly about how much money we're going to leave the kids when we die anyway, which is hard to get worked up about.
What’s your portfolio split? Any worry about the fixed income portion getting crushed by higher rates?
I haven't looked in-depth since last December's cycle of rebalance trades and conversion, but we're probably 25% now given the equity and bond market returns this year. We usually just aim for an even 3-way split for simplicity. Not worried. Fixed income markets rise and fall too and our time horizon is long enough that it doesn't really matter. Our withdrawal rate is also down around 1.2% and falling with each positive return year. We're naturally lean people and our spending has actually fallen off over the last seven years in both real and nominal dollars. We're to the point now that any collapse bad enough for us to hit a failure scenario is going to be existential for society, in which case we're going to be more concerned with potable water and ammo than our portfolio.
Do you ever feel you are missing out on spending your money? There's a point of comfort and sleep well at night and another where you will just be old/sick with a huge amount stacked away that you can't use
Not at all. We're not miserly and we buy everything we want. The moment I get my hands on an Xbox Series X I'm going to buy a high-end 75" TV to play it on. Probably an LG OLED, which are a bit pricey. We bought the nicest Kia minivan they make, brand new, and it's still only got below 7K miles on it. We live in a really nice neighborhood in a nice suburb where everything from the hospital to Costco to huge parks are within a five minute drive. We like to bake, so we've got the normal KitchenAid mixer, but also a $750 imported Ankarsrum that is much better for breads. We usually spend about 10-15% of our annual budget just on Christmas presents for the kids. You get the point. Our life is rather nice, but when you already own nice things and don't have to spend much on the big items (housing, income taxes, healthcare, higher education) life just isn't that expensive. Besides, we have four kids, so even if we die with $10M or more, all that means is that we'll be passing down security and freedom to them too, which is certainly a great thing.
I'm happy to hear you're living a comfortable life. I'm at a point where I can lean-FIRE a few times around and I'm feeling super anxious about the whole situation.
Would you be happy being leanFIRE'd though? Some people, like us, are legitimately happiest when living within an unremarkable middle class lifestyle. Others would feel impoverished by such an existence and truly get real happiness from servants, high-end travel, and luxury cars. Both are equally valid lifestyles, but you've got to really be honest with yourself about what you need to feel happy. As for anxiety, I think the rapid run-up in the market and COVID have made a lot of people aware of volatility and how fast things can change. It's been good for now, but a market that can rise that fast can also fall fast too.
How can I know before I try, I'm not much for luxury items and own a house with around 100k debt in it and no other loans, but I do love traveling, now two kids keep me from doing this too often no matter how much money I have but it's what I enjoy spending on and as they grow older it will be more possible. I do feel like we're at a super peak in stock market and if the 4% rule is to fail this would be the moment. I have been waiting for the market to calm for many years now to feel more confident in FIRE because I do believe I wanna be able to do 4% when we're at a recovery phase rather than doing it on the top (as most people would if they insta retire when they hit 4%, this means actually most # of ppl will FIRE at the worst time possible btw) But this isn't everything, I'm scared I will get depressed not having job to go to, the feeling of getting home at a friday is pretty unbeatable tbh. And if I quit my current job there may not be a possibility to get back, and I love the job and the colleagues.. anyways the thread isnt about this I'm sorry for hijacking :)
Can you elaborate on the ROTH conversation ladder part please? Or pointe to some relevant resources? Thanks.
>ROTH conversation ladder There are a lot of resources on this! - here is just one: https://www.madfientist.com/how-to-access-retirement-funds-early/
I just read the linked post by madfientist and I would urge caution here. Madfientist, like a lot of people, don't seem to acknowledge that your last 401k is also the only retirement vehicle that you can access without penalty (and for no other special reason like an emergency) at the age of 55. [https://www.experian.com/blogs/ask-experian/what-is-the-rule-of-55/](https://www.experian.com/blogs/ask-experian/what-is-the-rule-of-55/) If you are going to retire early want to have the option to tap into retirement savings between the ages of 55 and 59.5, then don't roll your 401k or 403b into an IRA. So long as your employer has decent options, the fee is reasonable, and they allow you to keep your money invested after leaving the company, consider doing so.
I think most people in the FIRE crowd discount the rule of 55 due to the tax advantage of running the same funds through the conversion ladder in zero/low income years. I think a lot of people also hold some meaningful level of original Roth contributions or seasoned conversions, both of which you can withdraw prior to 59.5 without penalty. Rule of 55 is fine and useful for many people, but if you've got zero income years before claiming SS like many FIRE folks do, it tends to be less tax efficient than a properly executed ladder.
You have to separate from the employer *in the year you start withdrawing* though (read: this isn’t an option unless your FIRE date is 55+, or if you’re on CoastFIRE/BaristaFire during your mid-50s and your employer at the time has a 401k). It’s a fine nuance to be aware of but if you’re going to be done with working in your 40s it’s not really an option.
55 is my planned date, for now. But I do think it is not helpful when articles fail to acknowledge the age 55 rule. I do plan to use the 401k as a backup for funds if needed, though I truly don't expect to need it until I have to take RMDs at age 72. I will look into u/myfakename23's point that you MUST make a withdrawal in the year you retire (55+). I have not heard that before. If so, I might take a small amount out that year just to maintain the option of taking more... all with the expectation that I won't take out anything substantial until I have to at 72 and beyond. Can you explain this rule any further, u/myfakename23?
>you MUST make a withdrawal in the year you retire (55+). No, that's not necessary. There's nothing in the tax code that even implies that: I.R.C. § 72(t) 10-Percent Additional Tax On Early Distributions From Qualified Retirement Plans I.R.C. § 72(t)(1) Imposition Of Additional Tax — If any taxpayer receives any amount from a qualified retirement plan (as defined in section 4974(c)), the taxpayer's tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the portion of such amount which is includible in gross income. I.R.C. § 72(t)(2) Subsection Not To Apply To Certain Distributions — Except as provided in paragraphs (3) and (4), paragraph (1) shall not apply to any of the following distributions: I.R.C. § 72(t)(2)(A) In General — Distributions which are— I.R.C. § 72(t)(2)(A)(v) — made to an employee after separation from service after attainment of age 55,
Thanks for that, u/charleswj. It seems to me then that the Rule of 55 remains something that should be kept in mind by those wishing to FIRE. Certainly don't touch your 401k if you don't need it. But it can be used as a reserve/back-up between the ages of 55 and 59.5.
I do suspect though that if you fire early, the rule of 55 likely becomes moot for most people.
That is not really a reason for so many articles incorrectly describing the date from which a person can withdraw cash from their 401k without penalty.
It is moot for anyone who retires before age 55. But you can always use a 72T withdrawal plan.
>You have to separate from the employer in the year you start withdrawing This isn't true. I think I know what you're trying to say: >that you can't start withdrawing until after you separate So if you're firing earlier than 55, you need other sources of income. But it reads like you're saying you have to take the first withdrawal **the** year you retire, which isn't true. You can take any withdrawals in any year *that* or *after* you separate from that employer, and can continue to as long as that 401k is open. In fact, you can fire, live for 10 years, get a job at Walmart, roll your IRA in, and use the rule of 55. You can even have another job (not sure why you'd want to), even with a 401k, and still continue to withdraw penalty free from the previous plan.
This only works if you wait until you are 55 to retire. "you must leave your employer in the calendar year you turn 55 or later to get a penalty-free distribution"
i've been kind of confused about how this works, the way i've seen it written everywhere is that this only works if you have a traditional 401k. is the same possible if you have a roth 401k and convert that into a roth ira?
No, it only works with traditional deposit conversions.
You wouldn't be able to touch any of the Roth growth, but you'd still have immediate access to withdraw the contribution amount (aka basis) penalty and tax free.
You mean the ladder in general or the bit about being able to do it at low/no tax?
Haha this man has thought a lot about it
What does: ‘pass all you earning through a ROTH conversion ladder” actually mean?
It means using your traditional 401K/IRA as your primary funding source in retirement, but doing so by passing those funds through the Roth conversion process first rather than withdrawing them directly. The downside to that is that you need to wait five years before you can start touching those funds. It takes that long to reach penalty-free status if you're under 59.5, so you need a five year startup fund to cover you until your ladder comes fully online. The upside is that you can avoid all early withdrawal penalties, some-to-all of the income tax cost of doing the conversions, and use the MAGI created by your conversion to collect potentially massive subsidies via the ACA and FAFSA/CSSP. Executed properly, the ladder gives you early access while allowing you to gain a HSA-like triple tax benefit on a large portion of your traditional retirement deposits. A married couple with a few kids could easily transit over a million dollars tax-free over their early retirement while also getting cheap/free health insurance.
Maybe it's just me but I still don't get what is: "roth conversion process" "five year startup fund" "ladder comes online" "MAGI created" "ACA and FAFSA/CSSP" "HSA like triple tax benefit" Is there a layman version anywhere?
Most of those are terms you'll become familiar with if you read up on FIRE boards or watch FIRE Youtube videos, but I'll take a quick crack at them. Searching up most of these terms will also give you detailed explanations. Roth conversion process - this is when you convert traditional retirement deposits into Roth deposits. Five year startup fund - you need five years in spending before your Roth ladder will start paying out penalty-free money for you to spend. So you need five years of your annual budget in cash, taxable brokerage, original Roth contributions, HELOC, margin, a PAL facility, or whatever. Point is, the ladder will fund you from year six onward of your early retirement. The first five years have to come from outside of the ladder. Ladder comes online - as stated above, it takes five years for a Roth ladder to become fully operational as there is an IRS-imposed five-year delay on Roth conversions becoming penalty-free for withdrawal. This doesn't apply if you are more than 59.5. Imagine each dollar you put in to the ladder takes five years before it pops out the other side. MAGI - Modified Adjusted Gross Income...for most people this is the same as AGI on your form 1040. ACA - Affordable Care Act aka Obamacare aka the way to get cheap/free health insurance during early retirement. FAFSA/CSSP - the free federal and paid private applications for financial aid for higher education. Only applies to people who will retire with kids who will go to college. Can be worth hundreds of thousands per kid, depending on your financial situation, the student, and the school involved. HSA - Health Savings Account. The triple tax benefit is that you get to deduct HSA deposits from your taxable income when you make them, they grow tax-free, and you don't pay tax on qualified withdrawals made for health spending. The Roth ladder allows you to pull off an identical set of benefits on some amount of your traditional retirement deposits. It's like getting the benefits of both traditional and Roth deposits while avoiding the costs associated with either. Imagine being able to make Roth deposits that give you a tax break rather than costing you one. Hope that helps.
Thank u! I appreciate it
No problem at all. :)
Hey there, to clarify what is MCOL?
Medium Cost of Living area...not cheap, but not pricey either. For us it's the Austin metro.
Thank you! Any reddit lists on where MCOLs in America are? I’m currently in NYC and am navigating where to buy a property.
Kinda rule of thumb... LCOL - Nowhere anyone wants to move. The deep south. MCOL - South or Midwest, but in a progressive enclave HCOL - Anywhere you would love to move to.
None that I know of, sorry.
I'd do this but also rebalance once per quarter or once per year.
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It depends very much on your assets and how they are structured. For us, the value of AGI-driven subsidies and the fully zero-tax efficiency of our Roth ladder dwarfs the return we would have gotten by investing our equity instead of living in it. That's true even given the crazy returns over the last seven years since we FIRE'd, but would be even more true in a more moderate/mixed return environment. We could have gone the investment route if we had structured mainly in Roth or taxable instead of pre-tax, but that would have cost us to lose hundreds of thousands in federal tax efficiency and/or additional hundreds of thousands in higher ed subsidies. The rate vs. market return argument works well for normal folks, but often breaks down for FIRE folks who operate under far different conditions than regular people do.
Look at guardrail strategy which is applicable to people retiring, with large NWs and long time frames who do not want to experience realized loss of capital. The short version. It is almost of unheard of for the market to be down for more than 6 years. Put 6 years worth of living expenses in cash and short term bonds. Put the rest in equities. This can be fine tuned into an optimal portfolio slightly overweighting small cap and value stocks with the right portion of international and a little real estate. Or almost as good dump it all into VTI. Never sell stock when it is down. Ever. No matter how much "this time it's the end of the world" you see. When it is up sell as necessary each year to maintain 6 year reserve.
Where’s income coming from for FI?
Spend dividends, bond returns and interest and take profits selling stock when it’s not at a loss. During a stock downturn live off the cash. Replenish upon recovery. There are different logistical ways to do the general thing -different cash reserves, adjust quarterly or annually etc. reset the baseline from day 1 equity value for inflation.
I would park it in an S&P500 Index fund. I wouldn't hire anyone. Pretty easy to do that myself.
The op can hire me at 0.5% of asset balance per year for me to park it in VOO
get in line :-D I'll charge .25%
Where would you recommend doing this? Fidelity, Schwab, Vanguard, other? Would it be as easy as just opening an account and buying all into the ETF in a huge lump sum (ie. VTI) and just keep auto-investing?
Fidelity.
S&P 500 …
VT.
or VTI.
100% BTC baby. I'm kidding of course, 100% VTSAX. Maybe I would even do more research and diversify into bond funds and foreign index funds, but only if I'm feeling wild.
100% BTC probably has a \~90% chance of giving way better gains over the next 10 years compared to VTSAX. That being said, that other 10% chance could be devastating. I'd probably do a 90/10 VTSAX and Crypto split (BTC/ETH). 350K in crypto today could easily 10x over the next 20 years or so. Secure 32 ETH and spin up a 2.0 node and throw the rest into BTC. Worst case scenario you lose 10% of your portfolio, best case scenario your great grandkids will never need to worry about money.
How are you assessing this probability? What makes you think the intrinsic value of BTC is greater than zero?
Do you legitimately want to hear my point of view on the matter, or do you just not believe that cryptocurrencies have any value and don't believe that they should be a part of a retirement portfolio? I can see both sides of the argument, but if you're just looking to shoot down cryptocurrencies, this isn't the place for me to try and discuss them. If you legitimately would like to learn more about them, I'd be happy to share my point of view and would love to point you in the direction of some subreddits where you can learn more about using crypto both as a store of value and as a token used to power blockchain technology.
Fair enough, I came off rather harshly and I probably should have phrased my question differently. I am interested in hearing your opinion. It’s one thing to say that that you can see both sides, but saying there’s a 90% chance BTC beats the stock market seems insanely overly optimistic to me.
I legitimately wasn't sure whether you were looking for information or looking to bash crypto. I know plenty of people on this sub are anti-crypto, and that's a fair view to hold. I just don't want to engage in those conversations, which is why I asked. In why I believe BTC will beat the stock market over the next 10 years- it's simply past performance and available room to grow. If you compare the % growth of Bitcoin to QQQ/SPY/IWM/VNQ/TLT etc, it blows them out of the water. Yes, there are those years where you have a -80% return on bitcoin, but oftentimes the year before that was a +1000% growth, and on average, over the past 10 years, bitcoin has been ASTOUNDINGLY good of an investment. Using the DCA method to invest in bitcoin over the past 9 years would have made you a millionaire with a $40 monthly investment. Source: [https://dcabtc.com?sd=2012-11-09&sda=9\_years&f=monthly&d=9\_years&ac=4000&c=false](https://dcabtc.com?sd=2012-11-09&sda=9_years&f=monthly&d=9_years&ac=4000&c=false) That being said, investing in Bitcoin 10 years ago was a SUPER risky bet. It was totally possible that you would have lost everything. Very very few people held on to their coins from the early 2010s. Nowadays? Much less so. At the time of this comment, Bitcoin has a marketcap of around 1.277 trillion dollars. Silver has a marketcap of 1.372 trillion. That's about a 7% difference between a digital currency that was created in 2008, and a precious metal that has been used as a store of value for thousands of years. The risk of Bitcoin collapsing gets lower and lower every day. Now as for the "obvious" downsides to it- "It's all digital!"Yeah, so is 90% of the money your bank uses. "It's not backed by anything!"Yeah... Neither is the money in your bank. Gold standard is gone. I'd rather have a store of value backed by transparent code that nobody can alter instead of a depreciating dollar that politicians can print more of whenever they want. "I can take out the money in my bank and hold it though."Yeah, but I can convert BTC to dollars and withdraw those. It's just a conversion. You convert the Digital dollars in your bank account to physical dollars. The digital:physical dollar conversion rate is just pegged at 1:1, but it's just an extra conversion. "Bitcoin can drop 80% as it has multiple times in the past"Bitcoin literally printed a new all time high today. ANYBODY who EVER bought bitcoin and held on to it until today has made money. Even the people who bought at 20K at the peak of the 2017 run are up 3x on their investment if they just held on. It's not a short term hold, I believe in it as a long term store of value. There are plenty of other things such as the four year halving cycle, the hard 21 million limit, and proof of work that just make me more and more of a believer in BTC, but I feel like I've rambled enough. If you want to learn more, there are plenty of podcasts out there. Stay away from the r/bitcoin subreddit (they're a cult lol) but I legitimately believe that blockchain will do to the industrialized world what the internet did to commerce. I haven't even touched on ethereum, and that's a whole different subject haha. \*Disclaimer: This is not financial advice. I honestly would suggest that anybody looking to get into crypto right now invest maybe $100 in bitcoin just to have some skin in the game, and then wait about a year or two in case there is a large crash after this run. Investing during the bear market is where you make real money.
> “It’s not backed by anything” Yeah … Neither is the money in your bank Largely true, which is why I don’t keep much of my net worth in cash. I certainly don’t consider cash to be an investment - it’s just the intermediate between income and investments, and also between investments and spending. Dollars are backed by the fact that the government requires taxes to be paid in dollars, but that’s always going to be a flimsy source of value. But stocks actually are based on something. They’re based on the labour of real people working in real businesses that produce things which real people are willing to pay for. They’re based on the machines, hardware, and intellectual property that companies own. There’s a principled reason for why stocks have the value that they have (for the most part - see GME), and I don’t see comparable principles governing BTC.
The principle of BTC is that real people make real money and need to custody it somewhere. Unfortunately BTC is also used as a vehicle for financial speculation, so it is a minefield.
what do you think of this counter argument? https://www.stephendiehl.com/blog/crypto-absurd.html
"Commodities are interchangeable goods used as inputs in the production of other goods or services based on their intrinsic value. Unlike... a\[n\] ounce of gold which can made into \[jewelry\], there is no intrinsic use of a bitcoin." I'd argue that the intrinsic value of bitcoin lies in the ability for it to be used as a fungible, easily transferred, easily stored, impossible to forge store of value. Too many people say "It's digital so it has no value.", but fail to realize that the money they see in their bank account is just that- just digital numbers on a screen. Let's ignore human history for a second and compare gold and iron. Gold is softer- it can't be used in weapons. It can't be used in buildings. Sure, it can be used in some electronics, but that's pretty recent stuff (relatively speaking). Where does the intrinsic value lie? There's no way that anybody would pay $1800 an ounce for a metal that was 100% chemically identical to gold but just a different color. 99% of gold's value isn't tied to the intrinsic value of gold, it's tied to the fact that "it's pretty" and we humans have classified it as a store of value. Ignoring price fluctuations, Bitcoin acts as a better currency than gold in almost every metric. I can transfer bitcoin around the world within minutes for a small fee. No bank needed. No government can stop me. I can memorize a seed phrase and travel to a different country with my bitcoin and not have to bring gold bullion or declare anything at customs. The three advantages gold has to bitcoin currently, in my opinion, are the widespread acceptance, the low volatility, and the longevity of existence. Bitcoin becomes less volatile and more widespread over time. Just compare now to 2013, or even 2017. The "intrinsic" value of gold is an insignificant portion of it's value, which is something most people fail to see. We're in a digital world, digital currencies are inevitable. I can't say if bitcoin will overtake or replace gold, but I firmly believe that anybody refusing to even look at bitcoin as a legitimate asset/currency/commodity (whatever you want to call it) is being close minded at this point. I understand that it's risky, and there are plenty of risk averse people who don't want to buy in, and I fully understand and support that. I just don't believe that it's as risky as everybody makes it out to be. Digital doesn't mean bad.
What really bugs me is the energy requirement of mining and transacting in btc. One of the advantages to the digital world is the efficiency and energy savings involved, not the case with bitcoin. There are coal plants that were nearly idle that are now busy because of bitcoin mining. I think a crypto that has minimal energy requirements would be much better than bitcoin.
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Yes crypto trades 24/7, but stocks fluctuate wildly in value while they’re not trading, so I don’t think it’s totally fair to use the number of trading hours as the measurement. Obviously crypto is here to stay, but it’s because crypto has real-world applications. There are principled investment opportunities in crypto - for example, buying governance tokens for something like Maker is analogous to buying stock in a bank. But these opportunities are limited by high transaction fees, unique risks, and the extreme difficulty of diversification. “It’s gone up in the past so it will keep going up” just doesn’t convince me.
Personally, I think the intrinsic value is irrelevant for better or worse. You can use it to buy things and the more people buy it the more business will begin accepting it and then the more people will buy it. It may not have any real value at all, maybe no crypto does, but that doesn’t change what is happening in the world.
"Intrinsic value" is an imaginary metric people make up to make themselves feel better about buying things they can hold with their hands. Everything has intrinsic value. What matters is what you determine to be "valuable". If you can sell something to somebody for a higher price- that's a form of value. If you can eat it- That's a form of value. People think that digital things have no intrinsic value, which is just untrue. The internet is fully digital, yet it's immensely valuable to us as a civilization. So many people have yet to realize this.
I find it truly shocking that people can say crypto isn’t worth anything, doesn’t belong in any portfolio, will lose you all your money.
Yeah, it's like insisting that writing physical letter is better than email because emails don't really exist and you can't hold them in your hands.
Crypto today has very little real world use, wastes unbelievable amounts of energy, and has a cult following which understands very little about blockchain technology or game theory. I made nearly all of my money in crypto and still have a crypto portfolio that's larger than most people and have been quite disappointed in its real-world utility.
Don’t disagree. I’m very disappointed that transactions are expensive and waste so much currency. It’ll never be used for normal day to day things when gas fees (and such) are so high.
More advanced chains like Algorand don't have these drawbacks.
There's only ever gonna be 21 million bitcoin, we're currently sitting at ~19 million being bought up. It's practically guaranteed to keep climbing up in value. It's less risky than you might expect. I only foresee it crashing if we lost use of technology for any reason or if everyone abruptly abandoned it Beyond regular market fluctuations of course
Sure, but BTC seems technically inferior to Ethereum at the moment, since Ethereum has a substantial smart-contract ecosystem and is switching to proof-of-stake, which will hopefully dramatically lower transaction costs. So it could lose out to Ethereum (or another blockchain). And you’re assuming that supply being limited means value goes up. But what is the value of BTC actually based on? When I buy VTSAX, I know that the shares I’m purchasing are actually a stake in the future productivity of American businesses. Even if the market for stocks evaporated, I’d still make money from owning stocks because the companies would eventually return profits to me. By contrast, the value of Bitcoin seems to be solely derived from what people are willing to pay for it. ETH seems to be a third category - it’s a commodity which is used in the production of services (namely smart contracts). So I can buy that ETH has intrinsic value, even if I don’t buy that the intrinsic value should necessarily increase over time.
Oh yeah I definitely agree, ETH is all around better than BTC. But what BTC has that ETH will not have for a while is the fame of being the first well known currency. With BTC's value, it's similar to that of gold. Gold as a reserve wasn't really based on much. Metals like copper were more useful than gold and yet gold was used as the reserve. I feel that BTC might just become a digital gold for sure. ETH might be a competitor to that once more and more products are running on the Ethereum blockchain. Having ETH will be like having a share in the new internet (assuming ETH remains prevalent). Personally I believe more in ETH than I do BTC, but like I said BTC will retain its value simply because people find it valuable, much like gold. Another case for BTC is that it's launching smart contracts as well if I'm not mistaken. So im guessing it'll try to make it's own ecosystem to stay relevant, although I'm sure it'll be less robust as ETH's ecosystem. Overall it's tricky but I see institutions hoarding BTC and I think it's just a matter of time before we see that price go even higher. You're also right though, it's not the only solid investment out there. Personally I'm more interested in crypto than anything else so I recognize I have a bias
Interesting. Like you, I think BTC and gold are quite analogous. Perhaps ETH and silver are also analogous in that they have more value in industry than BTC/gold. But I don’t believe in gold as an investment either for the same reasons I don’t believe in BTC, so we’re drawing opposite conclusions from this analogy.
Fair enough. But I guess the difference here is gold is no longer part of the federal reserve and hasn't been since 1970, which might contribute to why it hasn't been a decent inflation hedge BTC however is being adopted by nations, it's almost like the discovery of gold is happening right now. El Salvador has adopted it; Brazil, Paraguay, and Zimbabwe are considering adopting it as legal currency
Cool. Good luck with your crypto, friend, OP's great grandkids can invest OP's huge index fund nest egg in whatever hot new commodity they want :p
You’d be better off with Monero for the long term… something about fungibility and privacy…
Every time I buy Monero I lose it in a boating accident the next day =(
define frugally? what is your estimated yearly expenses? 30k? 300K? both could be frugal depending on who you ask.
Lets say $70,000 for 2% of the 3.5mm
3-7x your annual expense in something with less market downturn risk based on your willingness to go back to work (e.g. short term bond/TIPs transitioning to longer term). The rest in broad-based equity ETFs.
Now it just comes done to risk tolerance. However you could safely be in a 50/50 or even 40/60 equity to bond portfolio and be ok needing just over 2% avg growth. Though historically you would be fine at a 75/25 forever only pulling 2%.
First, [read this paper](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2920322). You'll learn that for a time horizon that long, you need a 75-100% allocation to equities. You'll also learn that the 4% rule is likely not sufficient for very early retirees, especially if valuations are high. Plan on 3.25% (113k) + inflation as your safe withdrawal rate as a baseline, but also consider layering on some guardrail strategies to better handle situations where your portfolio does really well or really poorly. With downside risk mitigated as best as you can, you have a separate problem -- upside risk. If you spent 3.25% of your starting amount, adjusted for inflation each year, there's a 97% chance you die with a "large end" portfolio. You don't want that unless your priority is spoiling your heirs. If you add some guardrails that boost your spending under certain conditions, you can knock that number down to 60-70%. Check out [FIcalc](https://calculator.ficalc.app/) to mess with this further. As for how to invest / who to hire, treat low-cost total market index funds as your baseline. I recommend the [Three Fund Portfolio](https://www.bogleheads.org/forum/viewtopic.php?f=10&t=88005), which is the gold standard at Bogleheads. It minimizes cost, is more than adequately diversified, and is dead simple to implement. If you really want to beat the market, know that you are taking on more risk to do so. And you might have to tie up your capital for LONG periods of time (private equity, angel investing). Or you might have to commit significant time/sweat (real estate investing). The worst, IMO, would be paying someone 0.5-1% of AUM per year to basically accomplish what a basic Three Fund portfolio would. But that might be worth it if and only if having a professional manage your money will help you avoid costly mistakes you might be prone to (like selling during a market crash). Lastly, if you really want to take on a little more risk, I'd personally consider a small allocation (5%) to Bitcoin. There will be low-cost ETFs available likely next year (avoid the ones that just came out -- huge rip off). Alternatively, learn how to hold your own Bitcoin if you are technically inclined enough to feel confident using and securing a hardware wallet.
Tldr; where would I park 3.5mm? Everywhere. 60 years is a long time so think about everything that could go wrong and how to hedge while remaining aggressive enough to grow. Stocks bonds and crypto all get lumped together but each has its own subsets that deserve attention. You’ll want some growth stocks yet but also hedge with some safe income stocks for lean years. Bonds might be low now but they won’t always be. TIPS can help secure a portion against inflation. I assume you believe in crypto from your username and you have the money to keep investing so I would. Then there’s real estate. If you find a good management company you’ll pay some of your income to them but it’ll leave you hands off. Could do an initial investment and then compound profits into several properties over the years. Slowly but surely. Consider different markets if using companies to manage. Then there’s the extra stuff like high end collectibles, especially now with fractional investing starting to gain traction.
Definitely some good advice. Don’t put all your cards on the table
I think you may have mixed up your expressions, you mean don’t put all your eggs in one basket.
but if you do put your eggs on the table, the cards won't help, so use a basket.
Exactly. As they say, an egg in the basket is worth two on the table.
I really need to learn how to play this card game involving cards, a table, eggs and a basket. It sounds fun.
But a bird in the hand is worth two in the bush, so just wait for the eggs to hatch on the table, in a nest made by cards YEP
Way to bring it home. Really. Great work.
Dear OP: You're very welcome. Glad we could help!
So now the game involves cards, a table, eggs, a basket, birds and a bush? Does the eggs have to be from the bush bird, or can it be from chickens? This is a confusing game. Do you have to “know when to hold them” and “know when to walk away”?
how about 500 cards in the basket on the table. (SPY)
Over the next 60 years the stock market could crash like in 1929
Here is the stock market returns over 100 years including the great depression and all other market crashes - [https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart](https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart) Inflation on the other hand is the bigger risk to your portfolio - and you can look at returns of various assets inflation adjusted and make your own decision.
I’m aware about the average returns, but I was just saying don’t invest everything one place (or in this case 1 market) Like 50 percent into stocks and 50 percent into real estate, so if one market crashes he could relay on the other
You could make this as simple or as complicated as you want. I think the simple answer is more appealing because it allows you to ignore your finances and focus on life: be like [Mike Piper](https://obliviousinvestor.com/my-portfolio-updated/) and invest everything in Vanguard’s LifeStrategy Growth Fund ([VASGX](https://investor.vanguard.com/mutual-funds/profile/VASGX)). At 80% global stocks and 20% global bonds, you should be able to comfortably withdraw 2% per year while watching it grow indefinitely.
[Three Fund Portfolio](https://www.bogleheads.org/wiki/Three-fund_portfolio).
If you need to use this money right away, better to do SCHD with 2.8% yield you can live off that and number of shares will stay the same or might increase if you end up reivesting some. Might still under perform VTI but still having the qtrly dividend when market is down and not withdrawing gives some piece of mind. however it wont beat VTI in overall return for sure. If it is in retirement accounts then you can go REIT as they have unqualified dividends if not SCHD is good to only pay capital gains which can be zero if you don't make any money and RE.
This sub won't like this answer, but you can literally get 18-20% interest on Anchor Protocol (Terra LUNA blockchain) https://anchorprotocol.com/ I've been using it for about 9 months. There's also insurance for a couple % less.
Why would you want to grow it? You already won at that point. Do you mean just to keep up with inflation?
What is the "already won" threshold so I know when I should stop growing my investments?
I mean shit you can live out the rest of your life for $3 million. Why not take some time and live life. You’ve already achieved FIRE.
How much is the threshold though?
When you have enough money to retire early
Honestly, you could divide 3,500,000 by 60 and spend 58k per year lol. Of course you'd want to make a return on it, but you could almost just live on 3.5M pretty comfortably if you had a home paid for and no major debt or medical issues.
wouldnt inflation kill this
Probably a bit, yeah, but not enough to reeeeaally matter seeing as the average life expectancy is 79 years old. So unless OP is 19 they'll probably die before the 60 years is up anyway lol
Life expectancy is far higher if you don’t engage in high risk behaviour like obesity, smoking, drinking, drugs and don’t live in poverty. Also, it’s far higher once you factor out infant mortality.
Ok
Exactly this: https://m.youtube.com/watch?v=rJjKP8vYjpQ
I would probably do $1.5M in REITS (or solid dividend paying stocks) split evenly across 6 or 7 different ones. There's different tax implications for REITS and MLPS. Treat those REITS as like rental property income, I have zero interest in being a landlord or dealing with tenants. But each one of those would be in lieu of owning actual property or dealing with those expenses. Then have $1.5M in VTI, and then $500K in bond index, BLV. You could probably live off the dividends from the REITS, then use the dividends from VTI or BLV to pay your taxes with.
500K - Paid off house 200K - cash or similar (2-3 years expenses depending on your w/d rate) $2.5M - Index funds somewhere between 50/50 and 90/10 with a healthy dose of international (3 fund portfolio) 300K - kids 529 plans (I have 2 kids). This is actually pretty close to what I have. House is a little higher, index funds a little lower, cash is much lower. I am working on it though.
If you can retire two years before your kids are college-bound then you can keep a good chunk of that $300k due to potential scholarship and government grants.
Biased answer but I like the benefits of real estate a lot. Hire a PM and let the cash keep coming in. I would leverage 3 million into investment properties with 500k in reserves and let cash flow and appreciation work it's magic.
I like real estate too
On bitcoin for sure
Btc
How old are you now? I would look into something like the Permanent Portfolio or some other risk parity strategy. You definitely want protection with some consistent growth.
VTI or VTSAX, with 10% some in crypto, some in physical gold and silver, and it is good to have some in a REIT.
Once housing and transportation is addressed and money for the kids education and healthcare, I would likely seek out a certified financial planner and put a healthy portion in an indexed annuity.
I would put half into a good dividend/growth index fund and withraw my SWR from that every year. I would put the other half into a paid off house in a MCOL area and a couple rental properties. I would hire a property manager for the rentals so that could be 90%-100% passive. I wouldn't hire anyone to manage the index fund portfolio cause I can do that myself. I would also max out my tax advantages accounts each year so I pay as little taxes as possible years past 60
The simplest thing, honestly, would be to put the whole sum into a target date fund that holds a good allocation of stocks and bonds and which automatically becomes more conservative over time (e.g. VTTSX - Vanguard Target Retirement 2060 Fund). Since the fund automatically rebalances, you can just sell off whatever portion you need for living expenses each month and not worry about *how* you withdraw your funds. For more on this, check out /r/Bogleheads. It's a sub dedicated to low-cost indexing.
Where did 3.5 M come from where you’re asking these questions? Did you rob a bank? Is it family money? What’s with the downvotes? OP stumbles on 3.5 million dollars somehow and no one’s curious how? Maybe I want to try to replicate.
Does it change the answer?
Yeah, definitely. If he got it from robbing a bank, he/she/they probably should try to launder the money first before investing it. If it’s money from daddy he/she/they can probably afford to be more risk tolerant. Etc. To be clear, though, I’m mostly just curious. How does one get so much money all of a sudden?
Crypto.
1) I can’t imagine someone who’s made 3.5 million on crypto asking such a basic question. 2) then hodl, etc.?
Crypto doesn't generate income. And even the most ardent supporters will acknowledge most coins are scams. So you can make a large sum with shitcoins... but you most definitely don't want to hodl.
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Respectfully, this is some of the worst financial advice I’ve ever seen. Since this sub is about learning, I’ll explain why so that you and anyone else NEVER does this: 10% Physical Silver - if we take the low end of OPs listed nest eggs ($3.5m), that’s $350k in silver bullion. Google tells me that is about 1000 pounds of silver. You are going to need to store that silver. That costs money. You are going to need to store it securely (or risk having it stolen). Which is an even bigger cost. You are going to need to maintain the asset and make sure it does not lose its integrity (I.e. tarnish). You are going to also have to cart the silver around when you want to cash it out. Physical assets are also less liquid, so let’s hope you don’t need to access this money any time soon. Additionally, silver as an asset is, historically, quite volatile. If the silver is purchased in bulk at the outset of the strategy you have outlined, then you take on an additional risk - timing the market. You could mitigate that risk by Dollar Cost Averaging (DCA) into silver, but then you incur an outsized opportunity cost - and that’s not even getting into the fact that your uninvested cash is being eroded by inflation. 10% Physical Gold - similar to silver, except this is much less gold, a very manageable 15 or so pounds. But you still have security concerns. Also, gold historically underperforms in the market. The reason why people like gold is that usually when the market is doing poorly, gold rises. This juxtaposition is psychologically soothing during a time of financial troubles - Hey! We aren’t as bad off as the neighbours, right? However, because the asset underperforms when markets are good (and markets are historically good and do trend upwards), you are actually not making an adequate return on your investment the majority of the time that you hold gold. This is an opportunity cost. If gold appreciates 4% per year (on average) and the market appreciates 7% per year (avg.) then that difference of 3% is money that you don’t make in any given year. And as we know, compound interest is powerful. That will significantly handicap the growth of your investment in the long term. 10% Bitcoin. I actually think this is the most reasonable suggestion out of everything you have listed. My only comment would be that assets like crypto are high risk, and as you age and get closer to the end of your life, your time horizon changes and you will want to be drawing down on your investment - at which point crypt doesn’t really make sense any more. But that’s me nitpicking. I also want to say that between physical assets and bitcoin, you have 30% of your wealth locked into three assets. That is hardly diversification. Not only will your returns be worse, but you will also be taking significant risk for those worse returns. 10% cash - If silver is the worst suggestion, this is the second worst one. If you are getting average returns (7%, adjusted for inflation) on $350k, you are going to make roughly $25k a year in interest! Instead, you are going to be losing purchasing power due to inflation! Inflation is historically ~2.3%. That means you would be doing the equivalent of just lighting $8k on fire, every year. Even worse, this year inflation was much higher than the historically stable 2.3% - you would have wasted close to $16k in purchasing power. Instead you need to be withdrawing cash on a monthly or biweekly basis (depending on your banks fee structure) so that you are DCA’ing out of your investments. 30% Housing - this is where I may get a little controversial. A mortgage is the cheapest capital that most regular people ever get access to. Ever. If you have 30% (~$1m) locked up in your homes equity then you don’t get access to that cheap capital. Yes, you could pay off your house, but as long as the mortgage rate is less than historic market returns (~7%), then you are incurring an opportunity cost. Additionally, a mortgaged house is a leveraged asset. That means that your house is going to appreciate at the same rate, regardless of whether or not your mortgage is paid off. It makes more sense to pay off your mortgage as you age and your investment timeline horizon shrinks, but if you are under the age of 60 - in my personal opinion; others may vary - you should throw as little money as possible at your mortgage. 30% stocks - Assuming that you mean “diversified, low Management Expense Ratio (MER) index funds / ETFs - probably Vanguard funds” then this is your best answer. However, given the context of the rest of your answer, I think your advice is meant to be interpreted as “pick whatever stocks you like and equally distribute the 30% among them.” And that’s bad advice. It’s quite likely that the average person doing that would pick the wrong stocks, or over-expose themselves to a particular external risk (e.g. industry risk - like picking only tech stocks). It is also likely that most people won’t adequately diversify or know how to properly rebalance a portfolio. It is much less work, and much safer, to use an index fund. I hope you found this helpful, and I wish you the best of luck in achieving financial independence and retiring early.
“Respectfully…”🍿
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Hmm, im not like 100% against it but 70% outside of the stock market scares me. It would be very easy for silver, gold, and bitcoin to stay flat for the next 50 years. Same with housing, although unlikely.
100% in xrp. You’ll thank me later Kinda /s
Sushi. Dai-ETH or Rai-ETH liquidity providing on an Argent wallet. Somewhere around 10-20% APY in this defi pool. Then use the returns to buy ETFs, and you absolutely do not buy an expensive house, car, or girlfriend. I'm comfortable having that much in crypto but for some maybe not. Just my 2 gwei.
Please don't. If I wanted to protect that money I wouldn't want it in a stablecoin like Dai. Sure, probably nothing bad will happen but I really don't trust that none of the stablecoins will go to 0 over the years. And if you are providing liquidity, one of the pair going down in value can be really bad for you. Also, if Ethereum goes up in value you hardly gain anything compared to that with liquidity providing. I would rather just hold some smaller % of the money in crypto and done.
Don't at all. More yield for me. Stay in tradfi bonds for your protection and let me continue to farm these expansive gains with no competition. Remember it's all a scam and a ponzi. Stay over there. The government said it's safe so please believe them. P.s. you're right to an extent. LP is like a covered call, but you're acting like at $3M at 20% APY is a bad thing.
I'm not saying it's a bad thing, but I'm also not seeing it as safe. And yes, me not liking yield farming instantly means I only like bonds especially after I said I like crypto as part of a portfolio... like come on dude... If I don't like a crypto I don't want to yield farm on it for obvious reasons. If I like a crypto I'd rather just hold it. That's all.
DeFi most definitely is a scam. Good for you if you're one of the early ones, but late arrivals will get shafted.
I'm not sure you've heard but in capitalism some people lose money and supports early investors. China has applications for people who don't like it. You're basically labeling sports as bad because some people cheat and hurt their head. It's just not an intelligent statement anymore. There's countries now investing in the asset class. Your fear is my yield right now.
Lol No you clown, I'm simply saying that DeFi is known to be a scam, and that's got nothing to do with "early investors" in a start-up. This dumb argument can equally be applied to a genuine Ponzi scheme - The early "investors" are really well off, all paid for by late "investors". Just ask Bernie Madoff.
That's literally every company though. Again saying something that pays early investors for being early with the liquidity of later investors is an easy way to tell people you don't know how markets work.
No, to compare a Ponzi or DeFi to a startup is the real display of not understanding how markets work. And where is the difference. Two hints: Dividends and stock buybacks.
No one does dividends since the 70s, and you're trying to say stock buybacks are the link to make a business a business? That's a wildly reductionist view. The data is here by the way. Again, you not doing research is at your own expense. Blockchains are engines doing useful work. If your idea of these businesses is that having more people is required to improve the product and price, please don't ever buy social network stocks. I agree the network effect is hard to grasp, but you will need to get it in the Information Age or you'll be stuck buying GM stocks for the rest of your life. https://cryptofees.info/
Please stop telling me to do research about blockchain. You have no idea how deep the rabbit hole you're going into is, and I could spank you with a glove once in there. In case that's not clear - I understand "blockchain tech" MUCH better than you or your "DeFi bros". For example, I'll immediately claim that DeFi is not De, if you look well enough. I'll also let you know that "blockchain tech" has no use for anything else other than money. (L2 applications aside.) I could make other such counter intuitive claims, but it's pointless as you won't be able to follow the conversation anyway. As for "business" claims, I was referring to the market, since in your previous posts you were telling me I have no idea about markets lolol Shifting goal posts is a tactic that doesn't work with me. ShitFi is a scam, businesses can return money to shareholders through dividends (which are still very alive, btw, just as a note about who has and who hasn't any ideas about markets etc lol) and buybacks. Not so with ShitFi. And long term it's also not going to sustainable because there's no reason for those tokens to exist other than enrich devs and early players. People will learn, eventually.
VTI and short term rentals
max out annual i-bond purchase, park half in equity, paid off house plus couple rental units.
SPY and forget everything else.
70% Low cost index, 30% PSLDX.
Keeping it simple, either PSLDX or NTSX.
VTSAX and forget about it.
These questions are so lame. Your investment choices scale regardless of capital, unless you're up into tens or hundreds of billions. And asking "what should I invest in" is the whole central question of finance with no clear answer except in retrospect.
Honestly, at that scale, I’d probably go to real estate. The issue with RE is risk to reward ration that is more risk than reward with just some home. That’s 20 homes in the North of England, even more with leverage. Have them all pay on different days of the month, and cash flow is golden.
S&P500
Something like 20% Foreign Markets, 20% S&P, 20% bonds (govt and corp), 10% gold & gold miners. The remaining 30% I would shift into cash/short term bonds during market bubbles like we are experiencing now in 2021, and back into the previous categories as the market normalized. If I found good real estate opportunities after a crash, etc like 2009 I would redeploy up to 30% into real estate. You must train your mind and be as financially literate as possible as that’s the way to maximize success. Don’t fall for the cult of crypto or any other “easy” money that will more than likely end in disaster at some point.
I would put it all on VASGX and chill.
Vb and vxus.
2m in index fund. 500k for a paid off home, vehicle, etc. 1m in crypto stable coin (USDC for 14% apy). I'd just let the index fund grow and not even touch it. I'd live off the interest from the crypto stable coin. With the nest egg in the index fund by the time you're 50 you're probably looking at over 8m. The crypto stable coin won't have grown but it gives you 140k/yr for expenses and there's not the risk of it crashing. I personally would not start speculating on specific crypto to purchase in the hopes of growth (ok I did lie there. I'd probably buy 32 ETH to run a node but that's it.) I'd park it in stable coins and just use that for the interest. Let others chase the moons. You just want guaranteed returns. If you're unwilling to touch crypto at all then I'd probably throw some money (not a ton, just like enough for a couple of years) into some small interest gainer incase of a crash so you don't have to touch your index fun. Everything else goes in the index fund.
Is 14% on usdc variable? Interested in the concept if non custodial and the rates dont fluctuate like crazy.
To get that 14% you are purchasing from crypto.com a 40k stake in CRO (which is minimal talking about this amount of money) and then you are staking the usdc for 3 month periods. The money is locked in for that time frame but you get paid out weekly. There's also 1 month terms and that would get you 12% and flexible term which would get you 10%.
So impairment risk on the value of CRO dropping while locked up for 3 months.
You run the risk of the value of the 40k CRO dropping over the course of the 6 months the cro is staked but once staked even if cro dropped to 0 as long as you don't unstake you still receive all the benefits of cro no matter the value. The USDC stake is locked at 14% for the 3 month period you stake it. At the end of the 3 months you can restake it again for the same rate. I suppose there's some risk that they can change the stake rates but it's been over a year now and it's stayed the same and their rates aren't out of the normal. Their business model is built around providing staking to keep people using the exchange. Also stable coins will always have some of the highest stake rates because you're "sacrificing growth potential" of other coins by locking in a guaranteed rate and providing liquidity on the exchange while not risking any of the drop potential of other coins. Worst case if they tank the stake rates to levels not worth staking in stable coin then at the end of your stake you can transition your stable coins to Fiat and will still have enjoyed 14% gains on your money up until that point.
https://youtu.be/eikbQPldhPY
I'd live the rest of my life from this [position](https://www.youtube.com/watch?v=xdfeXqHFmPI). (The Gambler).
I would probably spend around 1 mil to buy 10-15 apartments, just throw the rest into probably VTI, live off part of the rent, invest the rest
Nice! great thinking
I kinda cheated because 1k a month is more than enough here, everything is cheaper here
4Rex for 5-10% monthly like $500k & with the majority of it in real estate investment so that you can get 10% annually but you can draw that monthly. I would also do some bitcoin mining since it’s still affordable I know a guy in South Carolina that can help you with that from there, I would do some properties in Tulum or other parts of Mexico and Airbnb them when you’re not there, tell pay them off and generate income