Cardiac Surgery Recovery Update

I’m on POD 47 so a little over 6 weeks. Immediately post op in the ICU My BP crashed and the Curly shuffle ensued. The surgeon walked in at 5 AM and asked me “how ya doing” I told him I need blood, and a few minutes later it hit the fan. They worked on me for 5 hours and finally the guy gave me blood and I stabilized. When he saw me later he said “I wish I had listened to you in the first place”. I find that hilarious. It’s a subtle anesthesiologist/surgeon kind of thing. And after standing toe to toe with these guys for 35 years it’s rare I’m wrong. I’m not knocking this guys skills, I consider him a minor god, but I was already doing anesthesia the same year he was going to his Prom

The ensuing Curly shuffle bought me an extra 35 lbs of edema. If you don’t think it’s a bitch getting out of bed or a chair post sternotomy with an extra 35 lbs strapped to you think again. My albumin dropped to 2 indicating I was under significant metabolic stress. The food was horrible mostly carbs, and healing is made out of protein so like Lynard Skynard: “I did what I could do” and 6 weeks out my albumin is over 4 with resolution of the metabolic component. at 16 days I was actually catabolic and loosing weight beyond the edema but at home I was finally able to get complete control of my diet and level off. I felt like a dive bomber diving into the ground and pulling up at the last minute, but the plane held together and pull up I did.

I managed to get an infection in the saphaneous canal where they harvest the vein. The C&S was unknown at that point. but likely staph so I started on Augmentin . It blew up over night literally. I was measuring the circumference of my leg and it grew an inch in a day. I DID NOT want to go back in the hospital. It would have been a week admission, so I called up my surgeon buddy who brought me to his office on a Sunday and Incised and Drained the saphenous canal. Got about 40 cc out, got a culture. I proceeded to drain more over the next 2 weeks. The bug was Proteus Mirabilis a gram neg rod so it had potential for very bad juju. I got on the right antibiotic and things have deffervesced nicely, but the infection made me quite ill. I’m also on a anti arrhythmic amiodarone for afib and I swear that stuff is rat poison. A-fib is common post op and the amio converted me but I’ve been in perfect sinus for a month so the pathway swelling has likely subsided so I’m starting a taper on the amio. Tapering is proof God loves me, I would hate to be on that stuff permanently. I’d probably opt for a pace maker instead.

6 weeks is the magic number for driving. The sternum can take 24 months to completely heal, and I can tell my manubrium is not well healed especially on the right (common) so I still have to watch my P’s and Q’s about things like lifting heavy weights, but “I’ll do what I can do”. My surgery included a LIMA to the LAD, so the right internal mammary is still in situ and should aid in healing.

I went to see my surgeon today and he discharged me 2 weeks early because of the progress I’ve made. I’ve been reviewing recovery times and this is going to be a 6 month deal at least. I’ve been doing twice a day workouts to total 40 minutes various activity prescribed by PT and have seen good progress. Yesterday I did 30 min. continuous aerobic exercise at a HR of 150 and had normalized my post workout BP in 3 minutes. Long way to go till I’m back in shape, this incident knocked it out of me, but it will come, totally worth it since I have a 55% EF and a normal echo. On the way home I took my wife out for lunch at a rib joint. We had a great time. The market is up and life goes on!

“Worldwide Retirees Slated to Run Out of Money!!!!!”

saw a Bloomberg story on retirees outliving their money, a quote:

” From the U.S. to Europe, Australia and Japan, retirement account balances aren’t increasing fast enough to cover rising life expectancy, the World Economic Forum warns in a report published Thursday. The result could be workers outliving their savings by as much as a decade or more. “

In the FI movement we make our plans and tend to our knitting better than most I think, but the statistics are not as dire as advertised once you work through the assumptions:

For US males the average post age 65 retirement is 18 years and for women 20.6 years, the average savings for men’s retirement covers only 46% of what is necessary, and for women there is a 47% hole to be filled. The assumption is withdrawal rate is 70% of accumulation wages and does not take SS into account

This means according to this article if you start at 500,000K, made 87K/yr and withdrew 70% (61K) your money would last 10 years. When I inflation adjusted the withdrawal and grew the funds at 4% above inflation my longevity was closer to 8 years not 18. I calculate a 18 year retirement would cost 1.4M. 900K is missing to live 18 years @ 61K/yr inflation adjusted

What about SS? I’m going to guess the average worker who paid into SS for 40 years will get about 25K/yr. It’s likely his income was not 87K for 40 yrs but some smaller number for some decades, so 25K is a FRA thin air estimate, but it will illustrate the argument.

If you add inflation adjusted SS income as described, it would account for an additional 571K of the missing 900K, leaving you 329K short. The short amount you would have to make up with portfolio leverage and Asset Allocation. I Monte Carlo’d a 50/50 stock bond portfolio and for a 20 year withdrawal (the closest to 18 the program would allow) Adding 500K plus SS, 50/50 asset allocation portfolio worked out 99.76% of the time

you’d still have a 3/4 million safety net left in the account in the 10% case.

I don’t know about other countries and their Social augmentations, but in the USA an age 65 SS and half a million in retirement money will get you way down the road. The longer you go into retirement past age 85 the more failures occur, but even at age 95, 95% of the portfolio’s still survive. If you save at least 1/2 million dollars your chances of running out of money for an age 65 retirement are small.

I found this report very misleading to say the least.

A Tail of Two Risks

I’m going to create 2 portfolios, one high risk and one low risk, and run them through the meat grinder called Monte Carlo. I’m using a simple 2 fund portfolio of US Stocks and Total US Bonds, such that both portfolios reside on the efficient frontier. One is an asset allocation of 40/60, a bond heavy allocation the other 70/30 a stock heavy allocation. There are plenty of people that run 70/30 or even worse.

I’m starting with 4M in each portfolio, and I’m taking the first 1M off the top and stuffing that in a Roth IRA in each instance. The Roth serves the purpose of a backup portfolio, which I don’t count in the day to day WR of the other 3M. In other words the Roth stays closed to withdrawal unless needed. A portfolio closed to withdrawal does not suffer SORR. It’s end value will simply be it’s start value plus interest, inflation adjusted. A portfolio open to WR is liable to SORR and inflation. This study will look at a 25 year ride (actually 10,000 25 year rides) and create a distribution of what the future might look like for each portfolio.

These are the efficient frontier data for each portfolio. You can read the risk and return and Sharpe ratio for each.

When I plug the 70/30 portfolio /into Monte Carlo I choose 3M and 110,000 as portfolio size and fixed withdrawal rate inflation adjusted. I choose historic inflation. 3M and 110,000 is a WR of 3.7% in either portfolio. Monte Carlo has a cool feature in that it dissects the internals of various statistics and each portfilio has a very different ride through its 10,000 simulations.

You can read off things like Max Drawdown, the percentage of drawdown the portfolio suffered according to centile, quite informative! in 10% of the cases the portfolio suffered a 95.71% drawdown and an ending balance of only $128,636 left in the bank after 25 years. It tells you safe withdrawal rate and perpetual withdrawal rate for 25 years, an important statistic The WR is tied to the term of withdrawal, so you don’t get to pull fuzzy numbers out of the air and try to apply them to other scenarios like assuming if 4% never fails over 30 years it won’t fail over 50 years. If you want to treat the portfolio as a perpetual source of money you have to reduce the WR from 3.7 to 2.94 or $88,500/yr.

Look at the difference between 10% and 25%! Inflation adjusted end value for the 25% cohort is 1.7M while its 65K for the 10% cohort. Here is the graph

In the 70/30 case at the 10% centile if you start with 3M you’ll end with just under 2M and your chances of success are 9887/10000 for 25 years.

Plugging in 40/60 all else the same

In the 40/60 case max drawdown is -40% (not 95%) but the end balance is 1.4M not 65K much safer. Both portfolios give you 25 years of 110,000 buying power inflation adjusted, but the 40/60 is a kinder gentler ride. The success is 9998/10000 only 2 failures. The graph

the inflation adjusted end balance of the 40/60 is 2.27M or 320K more than the 70/30. The reason of course is the drawdown. It takes a LONG time to recover a 95% drawdown. If it’s 95% down it’s 190% back up. Perpetual withdrawal in the 40/60 is a little bit better at 3.02% or $90,900/yr

So there ya go, a quantitative way to determine your post retirement risk profile through number crunching. Remember you also have that Roth over to the side which has been growing unencumbered by SORR. About the only thing that can derail you is if we actually switch to a bullet based economy where money is no good. No need for side gigs

So What About Cash?

In setting up for the next traunch of Roth conversion I converted some stock to cash to round out my living expense into my 73rd year. If SECURE passes 73 will be my RMD year. I store my cash in a high yield savings accounts paying 2.45%, so my interest is entirely predictable and government secured. My money market account only pays 1.75% so to me this seems a better deal. Cash at 2.45% is pretty safe. It grows and its growth beats inflation and I don’t have to put up with the variations in valuation of a bond fund like VBMFX. It’s basically as stable as a 3 month T-Bill but pays a lot more interest

Here is a 3 year chart of VBMFX and it has grown 2.13% where as my savings account is paying 2.45%. I also own bonds but I think this provides some diversity

I dont know how to model a savings account on the efficient frontier so I modeled VTI vs BIL which is the 3 month T bill etf and VTI and VBMFX fidelity total bond

You can see the VBMFX has an expected return of 3.83 with a SD of 3.32 vs the T Bill which has an expected return of 0.43 and a SD of 0.31. With a return of 2.45 I would expect the blue line to move up and more closely resemble the red line. My yield would be 2.45% but my SD probably less than .31% since the investment is fixed and government secured like a T bill.

Given bonds keep falling, meaning more volatility. I’ve concluded this is a pretty good investment. Essentially zero risk with a return only 36% less than the bond fund and it is perfectly liquid. It fits my need. I think cash is often ignored as an asset class because it’s paid so little compared to inflation but now that it pays more than inflation it seems both safe and efficient for risk free money, and I think provides some diversity which lowers overall risk in the portfolio. In the olden days before everybody moved out on the risk curve is was quite common for retiree’s to hold laddered CD’s as an income vehicle.

How to Create a Budget Spreadsheet

I down load my expenses from Mint in a CSV file and at the end of every month I cut and paste the months transactions into a spreadsheet from the CSV file. To down load the CSV look for this link at the bottom of the transaction page after everything has updated.

The CSV file looks something like this

This is a partial readout from May. Had a lot of Amazon activity this May because of supplies following my surgery

My spread sheet looks like this

It is simply month after month of the year out to Dec using the same format as the CVS file so I cant cut and paste each month’s data into its place in the spread sheet

I set it up so each year next to a month is linked to the $c$1 value which is the year. So “Spending Feb” has as it’s year as $c$1 Spending Mar has $c$1 etc. In other words wherever I want the year to show up I type =$C$1 in the cell (the = is important. The entire spreadsheet changes to whatever value I put in cell C1. By doing this I can create a new year simply by cutting and pasting

Here is spending year 2021. All I have to do is cut and paste and put the right number in C1 and the whole year changes. I have out to year 2022 created and each year has its own sheet

to populate a given month with data I cut and paste that data Here is a partial of the month from May

I just cut and paste from “date” on down to the bottom of the month. I have to do a slight data massage. Notice how most everything is a debit but there is one credit. On credits I change the sign of the value

Next I merely Autosum the column

and voila the partial sum of May 2019 spending. I can update the month as often as I like till the next month starts. It’s just cut paste change credits to a negative autosum, takes only a couple minutes to have an accurate readout of the month’s spending. I some times transfer money between accounts using command account which is my checkbook. Those transactions I simply set the transfer “value” to 0 in the data column and write the transfer amount out to the side under “notes” to track that transaction. I keep track of tax payments like this also since I consider taxes a transfer and not a monthly expense and it makes it easy to track. taxes paid for the year. My credit card gets paid off on the first of every month and results in a debit and credit of equal value being generated so I simply set credit to negative and that along with debit results in a 0 transaction but any given month I can easily spot my credit card bill and when it was paid.

A bit complicated to set up but EASY to use. I also can track yearly expenses and ask “what if” questions of the data. Since each month is accurate each year is accurate and a “whole year” is merely the sum of each month. Once I have a year’s data it’s trivial to understand how expenses are varying year to year and you can create your own personal inflation index if you like.

Here is a shot of multiple years I have created but not yet populated. I retired is 2017 so the first “year” is actually 17 mos long

I keep my spreadsheet auto-saved in the cloud so if my computer blows up my data doesn’t and I can access my data across computers on my network. Just before completing this post, my power glitched but I was auto-saved so I lost nothing. My wife pays her credit cards using command so I get a readout of her credit card expenses but I DO NOT track her specific spending. If you want to track multiple credit cards just set that up in Mint

Funny thing I thought May 2019 would stand out as an expensive month and it did, but I checked May 2018 and it was nearly as expensive since my kid graduated college in May 2018 which required a lot of plane trips and motel expense and celebration. Looking over May 2018 was a nice walk down memory lane

When and How To Take The Money OUT

Of course we all know market timing is a fools game. It’s the reason we own index mutual funds. We get diversity of a type and efficiency. You don’t make a killing and neither get killed. But your life is also plan-able and you can predict expenses quite a ways into the future. I seem to be in a never ending cycle of Roth conversion optimization. My initial plan was to convert over 4 years which I am 1.5 years into. To do that I made a 600K pile of cash to live on which was designed to cover living expenses and conversion taxes. I sold in 2017 near the top of the market. after a nice run up on my time table. But the congress has decided to alter my conversion schedule with the SECURE act and extending my conversion window by an extra 2 years.

I have most of my assets at Fidelity. Fidelity allows for a nice thing, they will transfer assets from a TIRA to a Roth without first turning them into cash. Quite convenient. All I generate is a tax bill. I went through the sequence of conversion and found it best to transfer the highest risk assets first, getting the volatility out of the TIRA and into the Roth. It proved to be a wise choice since the market has done so well. I merely transferred my “so well” part out of a tax deferred vehicle into a tax free vehicle and let the growth happen tax free. I also had also paid post tax money into my IRA since I always made too much money to qualify for the pretax write down. My IRA’s therefore have a component of pretax and a post tax basis. I kept track of the 8606 (actually my tax software kept track since I always used the same tax software) and my basis is 94 cents on the dollar so for every dollar I pull out I pay taxes on only 94 cents. My wife also had post tax money in her IRA’s at a much bigger %. She had to pay tax on something like 83 cents of every dollar converted. So first thing I did was Roth convert ALL of her IRA which allowed me to convert a bigger amount that the limit I set for myself and still Remain in the same tax bracket I set for my conversion. My 6 cent tax break will continue for as long as I own the TIRA. So in a year and a half I’ve managed to get about half of my Roth conversion done

The SECURE act has changed my timing since I have longer to convert I can convert smaller amounts and pay proportionally less tax. A nice windfall. In order to fund the extra 2 years I realized I needed another 2 years of living money. When to raise that money? I decided now is the time. The market has continued to run up and the rule is buy low sell high so I sold and locked in my profit. I took some money out based on my predicted need. My cash is stored in a high yield savings account paying 2.45% so it keeps up with inflation so far.

Just some examples of when to take the money out

Retirement and AA

PoF ran a recent article on asset location and tax efficiency in early retirement. Interesting article. As such he proposed the following AA in retirement:

I decided to model this portfolio on the Efficient Frontier plane

The efficient frontier plane looks at both risk and return for any given asset. You can look at this plane and see where your asset choices place you. For example owning Emerging Markets buys you a lot of risk for mediocre return compared to owning US Stocks. These are averages since 1995 so any one year EM could outperform but on the average it under performs decade after decade.

The stats

The correlations

Rank ordered Bonds provide most diversity about half as good are REITS. From a risk perspective Bonds are least risky and US stocks are next. In this portfolio you pay for your “diversity” with excessive risk, and you own way more risk than you need to own

For every 9 cents of return you pay with 12 cents of risk

The more efficient AA

Same return but under a dime of risk. The first portfolio is an AA of 80/20 the second an AA of 67/33. I find this important. owning 33% bonds is more stable than 20% and in retirement stability is more important to me than emerging markets. It means when the recession comes you drop less and recover sooner both very desirable. A portfolio isn’t open to SORR till you start withdrawing money. In time of accumulation you don’t really care because you live on a W2 income. If recession comes just work another year. In the above portfolio if the US market dropped in half (50%) you could expect the above portfolio to drop 40% If you owned the efficient portfolio a 50% drop in US would yield only a 33% drop in portfolio value. To get even in the 50% case you need to make 100%, in the 40% case you need to make 80% and in the efficient case only 66%. I can assure you 66% comes faster in recovery than 80 or 100. It means your recession is milder than the economy’s recession.

So I think AA makes a big difference. I think not owning risk makes a big difference once the portfolio is open to SORR. Like the article says optimize optimize optimize. I don’t really care what you own but you should understand the cost of owning it. A given portfolio may have made you wealthy and brought you to the retirement party but because of SOR it may not be the one to carry you into the future once you leave the retirement party. Do I hear 50/50?

Here is a 50/50 portfolio made of the top 3 diversifies from the previous example

It provides 8.5 cents of return at only 7.5% risk. At some point you may ask yourself how much return is enough a different question that how much is enough. The 80/20 paid 9.4 cents at 12 cents risk. This one pays 8.5 cents at 32% less net risk. Maybe 8.5 cents is good enough to sustain your retirement.

Financial Intermittent Fasting

I wrote a response to a blog post over on Crispy Docs site regarding disability insurance. Going out on disability is the equivalent of retiring. If you’re disabled your addition of human capital to your situation ceases. What you have is what you got.

In my working life I never budgeted. I had a vague idea of my expenses but my money mostly went into investing. I wasn’t frugal in the least but I was always parsimonious in my dealings. If I wanted a new car I bought a new car and I figured out the best deal at the time from available options.

When I retired I had no real clue about how to budget. At the point of retirement you move from accumulation to spend down. Numbers plucked from thin air are plucked from thin air and may or may not have a basis in the reality of your need. In my case I had 2 kids in college and a trip to Europe planned and I knew I would need a new air conditioner within a year. I also wanted to start retirement with a new car, so before I pulled the trigger I made sure all of those expenses were accounted for. All of that came off like clock work. I still have 1 kid in college but its completely funded and doesn’t affect my monthly expense. I also am Roth converting and needed to cover that seperately.

What I needed was a number to plan around that had some basis in reality. I could easily afford 10K/mo. If you believe FireCalc I could afford more like 14K/mo. I don’t put much stock in FireCalc but it gave me a place to start. So I chose 10K/mo and pulled the trigger. It’s like prunes is 6 enough? Is 12 too many? 10K turned out to be a good bet for a budget ceiling. To track my expenses I created a Mint account. My Mint account tracks my main credit card and my bank account. Bills get paid out of the bank some direct deposit and the credit card gets paid off each month out of the bank account. Mint allows a data export of a CVS file which I download and import to a spread sheet. The data therefore is down to “purchase specific” data. I effectively can track every cent. My wife pays her credit cards in the same way but I don’t track her purchases just her payments. I don’t care what she buys I just need some idea of how much over the course of a year.

The CVS file shows debits and credits so I take the list and anything that’s a debit is a positive. Everything that is a credit I set negative by hand. There are always some credits but debits overwhelm. I then Autosum the list and that’s how much I spend in a month. I can track partial months, and I can track averages. I can see what months are expensive months, typically when insurance or taxes come due. Once the system was devised it was all I needed. Over the course of 2 years my monthly settled down to 8500/mo on the average, with some months peaking as high as 12K no big deal. Some months are 6500 so I use the excess saved in the 6500 months to pay for the 12K months. I now know where my money goes 100% I track things like quarterly tax payments separately. My taxes are a function of my Roth conversions and can be quite variable but it’s always handy to know what’s been paid when it comes to calculating what will need to be paid.

In the first instance people retire on their number and have some notion they will tighten their belts if it hits the fan but unless you actually tighten your belt you don’t know how that feels. This system allows you to easily test what tighten your belt feels like. You simply cut back till it starts to hurt and live like that for a while. I ran that experiment with my wife’s permission. After a while we had a clear idea of subsistence spending as well. Subsistence for my lifestyle is about 7000/mo. That pays my obligations. I am thus far always below the 10K ceiling I imposed on myself so we have room to grow as necessary. Knowledge is power and this is real knowledge. It is from this real knowledge I’ve been able to project the future and build in the proper safety come rain or come shine.

Parsing Cash Flow Part 4

My analysis revealed some interesting things. In order to create the tables I needed specific RMD data

The graphs look like this

20 years of actual side by side yearly data for the 2 conditions looks like this

The side by side of the taxes was 338K vs 94K, so I paid myself about 225K across 20 years to optimize.

Here is a kicker

This is the above RMD schedule for the 2 versions according to WR. Notice how the WR increases every year forcing more to be extracted and greater taxes to be paid. You essentially loose control of the WR. The smaller account does the same thing but it’s a smaller % of the total monthly WR allowing you to actually control the WR for longer. If you planned around a 4% WR by year 5 you’re already at 4.1%. That’s how the extra taxes are generated. If you planned a 3% WR you already start at 3.5%.

You can see even to year 20 the 6% chart just starts to loose steam. You still have more money than when you started and you lived a good life off the proceeds. In the lower yield smaller IRA case you consumed 37% of the asset but still have 2/3 left. Volatility for the small TIRA is lower. All of this analysis therefore may be moot for you. If you have 1.5M to start you may just decide to let it RMD and pay the taxes. You die well off with more money than when you started at the mercy of the government RMD and progressive tax structure. What comes out will pay for you and partially for someone else, a kind of forced charitable giving. You will experience greater volatility in case #1 than case #2, but either way there is money to pass along. In case 2 the excess 1M stays in your control to be spent when and where and in an amount you like.

For many the hassle may outweigh the benefit. For me I’m getting paid to enjoy the hassle, paid by tax savings and freedom to control my income. I guess you could call this my side “frugality” gig. By setting up and following through the side gig pays me back year over year with no added work. By parsing out the future you gain a lot of insight into how to get there. You gain insight into the security you really possess because the plan is tailored to your resources. You can let go of the past and the W2 income and move into the future of passive income with confidence.

Parsing Income Part 1

Parsing income Part 2

Parsing income Part 3

Parsing Income Part 4

Parsing Cash Flow Part 3

So far we’ve seen a tail of 2 retirements . One with a small IRA and one with a big IRA. My feeling is the government will shave as much as they think they can get away with from your retirement. My feeling is also they will tend to leave the little guy who can barely fend for himself alone. There’s a bunch of those LG’s who have saved for retirement have something that will kick out an extra 20K/yr beside SS. The 12% bracket and cap gains law pretty well defines where the govt draws the line between middle and wealthy. Stay in the 12% your OK, 22% suddenly things start adding up. so my contention is to make myself look middle and stay in the 12% for a long time. The 22%’ers will fund those with less that average retirements through wealth transfer AKA soak the rich.

Spread-sheeting your projections year by year adds information. My 20 year projected retirement is slated to cost 2,672,711 dollars. In the small IRA scenario 1,129,845 will come from brokerage money apart from IRA. My total small IRA projected tax burden is projected to be 94,000. In the large 1.5M scenario I spend the same 2,672,711, all of it is covered by higher risk, I take nothing extra from the brokerage but nearly all the extra risk goes to pay extra taxes. My 1.5M tax bill is 338,016. So I need more risk to break even. The low risk portfolio winds up with a big ROTH on the side so part of the extra brokerage money goes to pay for the creation of a big IRA which grows unmolested. and can be used tax free as needed. It’s a legit way to move money from the brokerage as well as from the TIRA into the Roth at cheap tax consequence. (92k v 338K). I still have to pay some taxes on the Roth conversion but that tax bill is also reduced because the ordinary income comes out of the TIRA in smaller less costly but more frequent hunks. In addition since small IRA is lower risk market gyration has less effect and I can sell high when I need to sell by my choice not on a government mandated schedule.

This analysis represents what is called life cycle investing, where the details of the portfolio are quantitatively chosen for best outcome according to some criteria. The risk gets parsed along with the cash flow which to me is very desirable, and the slop in the system gets identified as well and is not lost opportunity.

Part of the driving force behind SECURE seems to be to force heirs to spend down the inheritance in something like 10 years so that’s when the government will pick the apple from your heirs but it won’t matter to you or your spouse since you both will be dead.

There is a rule of thumb that says the portfolio risk (SD) should equal the amount of money you can afford to loose in income any given year. If you’re pulling 100K and you are risked at 15% SD you need to be comfortable at 85K. 15% is an all stock AA . 10% SD means you have to be comfortable living on 90K in the bad times. If you own an efficient frontier portfolio you can simply pull the SD off the frontier line and get the AA associated with that risk.

Here is a 63/37 portfolio with roughly 10% SD, so to be comfortable to the 90% income level this is a measure of my risk tolerance. It ties risk tolerance to reality and not just some testosterone driven number plucked from air.

In my scheme 40% of my income comes from SS. My next asset is the 500K TIRA which provides a steady income of 17% for a total of 57%. I want that 17% to be as reliable as SS. The most reliable AA in terms of efficiency is the tangent portfolio. By definition it provides the most return at the least risk. So I want my TIRA in the tangent portfolio.

Being in the tangent means I can stand 4% variation in income and it’s as good as you can do. This means my 2 assets provide 57% income at very small and in fact optimized risk and low taxes. It means I have to come up with 43% of my income from another source, in my case my Brokerage account. In my case first year that would amount 47,000 which can come out at 0% cap gains tax because of the tax structure I manufactured. Each succeeding year I have to extract a little more to cover inflation and keep my income constant, but I have a long period essentially 2 decades to take brokerage money out tax free. If you had a 2M Brokerage to start 47K would be a 2.35% WR. If my AA is 50/50 my inflation adjusted withdrawal Monte Carlo’s to this

9999/10000 success and small SORR.

If I gin up 3 years of bad SOR first my predicted survival

9995/10000 success with a 50/50 AA and bad SOR.

In addition If I put a 1M Roth in 50/50 AA, and take out an additional/optional 25K/yr that Monte Carlo’s to

That multiplies my starting income from 110K/yr to 135K/yr with no tax consequence at only a 50/50 AA in a standard format 2 fund portfolio and plenty of leeway for years of self protection/expansion without upsetting the tax structure. It’s a very different approach to the usual bogglehead fare of 80/20AA max out your pretax. The government is ready for you to fill their coffers with your success.

The above plan allows me to live a pretty tax free self sustaining life. My real tax load comes from SS and my TIRA. I’m at about a 50/50 overall asset level which means the SD on the portfolio is 7.6%. I can pull out brokerage money tax free for a long time and I have a Roth to supplement my yearly income tax free. My overall WR is about 2.5% relieving a good deal of SOR stress.

Parsing Income Part 1

Parsing income Part 2

Parsing income Part 3

Parsing Income Part 4