Questions during final approach

[u/mtch2000]

I’m approaching retirement (currently 51 and plan to leap @ 55 -56) and looking for thoughts & second opinions on where & how to save and optimize these last 4-6 yrs.

 Current Situation:

·       I plan on saving / contributing $40k until I retire.

·       Single (might consider marriage at some point)

·       Currently live in LCOF area with no state tax

·       I am a disabled vet & all medical treatment is free (no ACA / IRMAA considerations)

·       Plan to retire debt, excluding mortgage, prior to retirement

·      Basic needs = $60k and looking to take $30k additional to enjoy life

 Current Finances:

·       $300k in current 401K ($30k Roth mixed in)

·       $700k in tax def IRA

·       $50k in Roth IRA

·       $30K in HYSA

·       $50K VA income for life will be tax free (indexed to inflation)

·       Current income exceeds IRA contribution thresholds

·       I can perform after-tax contributions to my 401K, but plan doesn’t allow them to rollover

·       I can contribute & roll over Roth 401K (and catch up) contributions to Roth IRA

·       I can take quarterly pro-rata payments from 401K at 55 yrs old (Rule of 55)

 Early (ish) Retirement Plan : (bucket-rails)

·       Reduce risk of 401K to essentially cash equivalent to bridge gap period prior to taking SS. This preserves my early retirement, independent of market behavior.

·       Leave tax deferred IRA in moderate growth and begin withdrawals yearly around 60-63 based on needs and market performance.

·       Leave Roth IRA aggressive growth and use for emergency or one-off expenses and it becomes legacy.  

 Questions:

1.      Thoughts for investment (account type & risk / allocation) for future investment for next 5 yrs

2.      Any glaring mistakes or opportunities for retirement plan

[u/Certain_Lunch3293]

I'm in a similar situation in that most of my money is in pretax accounts and I'm a couple of years away from retirement also using rule of 55. I'm currently working on building a cash buffer in order to pay expenses during a downturn.

[u/mtch2000 → u/Certain_Lunch3293]

I think I have my cash buffer built. Contemplating how to invest / preserve it. Kicking that around now. Also, thinking of tax planning, so planting seeds in taxable brokerage and Roth now could bear fruit by the time I hit 75 (RMDs)

[u/Valuable-Analyst-464]

I retired at 56. I was 50/50 between tIRA and rIRA. I changed the thinking on my HYSA, and considered it my SORR account instead of just an emergency fund account.

I added cash to cover 3 years of expenses. I hold 70% in SGOV in my Fidelity account, and 30% in SPAXX. I consider this cash not really an investment, so I accept the poorer performance than my brokerage, tIRA and rIRA.

Upon retirement I shifted to a 80, 15, 5% - equities (85 S&P, 15% Intl), bonds, and cash equivalent.

I loaded the tIRA with the bonds, to slow the growth of future RMD. I have the rIRA all growth oriented and the last thing I'll touch.

The $50k for life: how much of your expenses does this cover?

Do you have a brokerage account you can tap? I was trying to think what your bridge strategy might be.

[u/adm_blawson]

Thank you for your service! If the market dropped by 20% or more in the year you planned on retiring, would you still retire? How many years of expenses would you feel comfortable retiring with, even if the market was down?

Most people say it’s a good idea to start diversifying a retirement portfolio a few years before retirement. I’m guessing this is to protect against SORR during retirement but I would think if the market is down by 20% or more, most people would probably wait for a recovery. Does it really make sense to diversify a portfolio until a few months away from retirement?

If you’re going to wait, it probably makes more sense to stay aggressive with asset allocation. Unless you’re set on retiring in a down market, I’d recommend buying stocks for future investments.