To op:Asking for a general portfolio review of my safety net strategy.
Is a 50% bond/50% rental property safety net a good idea for fixed income until SSI begins in 20 years?
Is a conversion of the safety net to immediate annuities at age 70 an optimal choice to replace any bond allocation (Pfau concept)?
49 years old, married filing jointly status, only debt is 30 year mortgage with 10 years left ($90k remaining, 2.9% APR), low expenses ($3100/month drops to $2k/month after house is paid off). Not paying off mortgage because high yield savings/bonds are paying more than 2.9%
$110k after tax/after expense income, 12% marginal bracket federal, Florida = no state income tax. Lean FIRE retired (2 hours/week), because of residual income from business book of clients. We both spend all of our time with volunteer work.
Emergency fund: 5k checking, $10k savings = 5 months expenses. We live Lean at $36k/year expenses reducing to $24k/year when mortgage is paid.
Desired asset allocation: Working on safety net of fixed income for monthly expenses, to be made of 50% US Treasury Bonds/50% Rental Property. Planning 33% stock/33% bond/33% real estate at five year mark. See strategy below for more details.
Total E Trade Portfolio: $600k. 17% Retirement account/83% Taxable accounts
His Simple Traditional IRA: 3.7% of total portfolio
72% in 20 Year US Treasury Bond @4.75% APR
18% in Vanguard S&P 500 (VOO)
His Roth IRA: 7% of total portfolio
58% in Vanguard Extended Duration Treasury Index (EDV)
42% in 20 Year US Treasury Bond @4.75% APR
Her Roth IRA: 4.7% of total portfolio
58% in Vanguard Extended Duration Treasury Index (EDV)
42% in 20 Year US Treasury Bond @4.75% APR
Taxable Accounts: 83% of total portfolio
65% in 20 Year US Treasury Bond @3.625% APR
35% in High Yield Savings (5% APY). Saving for rental property opportunity
Contributions
His Simple Traditional IRA: $20,700/year in Vanguard S&P ETF (VOO)
His Roth IRA: $8000/year in Vanguard S&P ETF (VOO)
Her Roth IRA: $8000/year (turns 50 in 2026) in Vanguard S&P ETF (VOO)
High Yield Savings: $65k/year, saving to pay off rental property ($350k planned investment)
Strategy/ background
My passive business has an unknown lifespan/attrition (finance industry book of business). We are very averse to returning to the workforce, so our first goal is a safety net of fixed income for our monthly expenses, projected to be complete in 5 years. The bonds in place already cover 50% of monthly expenses, and the rental property is projected to cover the other 50% once it is bought/paid for. If passive business income continues after 5 years, all safety net income ($36k/year) will be invested in taxable account of 80% Vanguard S&P ETF (VOO) / 20% Avantis Small Cap Value ETF (AVUV). As passive business income diminishes, Simple IRA will be converted from Traditional to Roth. This means that the 33% stock/33% bond/33% real estate will begin to change into a heavier stock allocation because our monthly needs are cared for, greatly increasing our risk tolerance. IRA and taxable account contributions will continue as long as passive business income permits.
At 70 years of age, the Treasury Bonds will mature. Combined with the sale of the rental property, we plan to convert this capital into immediate annuities. Together with our SSI, the immediate annuities will be more than double our monthly expenses. The Roth IRA will be 100% stocks and used for discretionary or emergency/long term needs. My SSI combined with the income from the after-tax annuities will be below the standard deduction, meaning no/super low taxes.
We have no children or dependents, so no estate planning is required. We are using direct beneficiaries.
Final Thoughts
I know I made a mistake in buying the bonds this year in my taxable account. I should have kept these in the Roth and held stocks (VOO) in my taxable account. It is much more difficult than I expected to sell individual treasury bonds to undo this error. As the next 20 years pass, I will probably try to sell off the taxable account bonds and shift them into the Roth IRAs, taking advantage of different rate changes. The taxable account will then have stocks and I will take advantage of tax loss harvesting shifting between VOO to VTI.
I do not like international exposure, and I would prefer to substitute the Small Cap Value (AVUV) for this piece.
I would really, really appreciate any feedback on this financial plan. Specifically any holes I'm not seeing.
(rental property and R/E residential rental income (business?) perspective)
1
Do you own rental properties now? What? How much? Net income? Mortgage and liabilities?
2
Please describe what "rental property" you have in mind as the "33 percent" of your fixed allocation?
Is this physically held solely managed residential income rental property?
"350k" allotted for this is the "33 percent of your "fixed" allocation of your portfolio. Is this correct?
Are you planning to put a down payment on or pay cash....350k for an apartment, condo, single family home SFH, duplex, what?
Are you planning to self manage or use a property management company/agent?
How will you purchase it?
3
How do you differentiate, or do you, between the 33 percent "bond or bond like" and 33 percent R/E as "safety nets".33% stock/33% bond/33% real estate
(really curious about this perspective on a practical substantive basis)
I hope this is helpful
Looking forward to your input.
j
Statistics: Posted by Sandtrap — Fri Sep 06, 2024 9:26 am