Can I Retire Yet? A Case study with Early Retirement Now

Alright, everyone is very excited about this downsizing

case

study

. We didn't announce this to you on Monday because, to be honest, we didn't know if we could fix it fast enough, but one of our most requested guests is big

early

retire

ment iron right now and I think the reason for this is well justified in that big urn . I have probably written one of the most comprehensive guides, I would say the definitive guide. I try not to use it too lightly, but the ultimate guide to the turnaround and drawdown strategy sequence really looking at it from probably the most comprehensive angle imaginable and I think our thinking was that as we started getting more and more

case

studies of people who are getting close to tapering, we can apply your framework to basically say: This work with different variables, so yeah, to help me with this, I have my Coast Brad here with me today, how do you know, buddy?

Hi Jonathan, I'm doing pretty good, yeah, I agreed to this episode 152 with Becky, hep dig and she talked about her financial life. with her and her husband Steven and the interesting thing is that they are at this point where reductions are realistic for them when it comes time to withdraw that money, it's like stabbing herself in the heart, but I think about that a lot. it just comes from a lack of being comfortable with that and I think the beautiful thing about what the big iron, aka Carsten, does is provide this level of understanding and Carson, I'm very curious and I'm very interested and excited that we help you move forward. this amazing case

study

from Becky and Steven, yeah, thanks for having me, thanks, so let's talk about some practicalities here and this is one of the brilliant pieces that you did when you were starting to write the series on safe withdrawal rates. was that buildup is relatively easy, there may be some nuances, some people may have different ways of approaching it, but in reality simplicity is your best friend when it comes to buildup, well the counterpoint is that reduction is not reduction, There are many nuances and there are a lot of factors you need to think about when coming up with a realistic downsizing strategy.

Yes, that is correct. When you accumulate assets, we have all these rules of thumb, like automating your savings and not thinking too much about stock market volatility. and I can tell you that once you are in the phase where you withdraw money from your portfolio, you are definitely much more worried about the volatility of the stock market and you are much more worried about digging into your capital and it is a lot of

retire

es have this fear to touch your capital and in part it is justified, but there is also a part that is unjustified, because unless you have a restriction on maintaining your capital and because you want to leave a large legacy, it is okay to withdraw your capital at a measured pace and slowly , so don't deprive yourself, don't have this scarcity mentality and you should make your withdrawals with confidence because that's what your

retirement

should be. the right thing should be fun it should be confident it should be comfortable I don't have that Garcetti mentality where you live like a miser in

retirement

because you're afraid to touch your capital I think one of the most important things when you talk about you have to consider and that is the return risk sequence and this is an idea that you actually presented to me and it's one that I think for our audience is important to keep in mind and at the heart of this is that at the point of retirement, the first five years really matter. , right, I said it again, this is a rule of thumb, it could also be longer, because there were some cases where people who retired in the mid-60s to late 60s had very low returns. until basically 1982 and that's when the recovery started again, so five years is probably a good estimate, but there were some cases where the drawdown period was even much longer, so yeah, I mean what It sank you in the middle of the year.

The '60s weren't just the first five years, they were actually the first 15 to 17 or 18 years and that's one of the things that makes this interesting when you're a mathematician or a statistician and you're trying to figure out well what number would work well, then you're faced with all these timing variables, so what worked in this decade wouldn't have worked here and what worked in the last decade may not work in this decade. so you're trying to have a number one reduction number to rule them all in reality, that doesn't really reflect life because there are other variables at play, so I think taking the framework and the variables you know are these. big multipliers, the ones that cause the biggest change in the outcome, taking that and applying it to a real case study is very valuable to the community, all right, so let's take a look at Becky.

Last week we spoke with her and Becky. husband and basically started out with virtually no net worth at the age of 50 and then through incredible savings and intensity over the next 13+ years they got to a point where they are ready to start contemplating or they are ready. to retire and now, in fact, this is the first year that they're really going to take advantage of Brad's analogy of feeling like you're stabbing yourself in the heart. We hooked them both up with Becky just to basically take a look at our numbers. You're going to make a post that will go live the same day where people can follow it and I hope they actually go see it, but I'm curious to know since you talked to Becky to find out where she is.

What were the questions she asked and what is her evaluation? Well, I mean, you basically want to take stock of what you have, what your assets and liabilities are, what your spending restrictions are, and then what you'll notice when you look at some real-world examples, it's not the academic exercise, it's not the numerical examples. like the Trinity study or the 4% rule calculations, since life is much more complicated than that, so many times your retirement is basically a multiplicity. -The phase withdrawal strategy is correct and there are several phases, so right now in their

early

60s they plan to take social security as late as possible, so they will wait until Steven is 70 and Becky is 69 to maximize Social Security benefits.

They have a very large demand for cash flow right now, but once Social Security kicks in, they can reduce their withdrawals and then rely primarily on Social Security, so Becky and Steven have the advantage that many of us in the early retirement community for For example, we are not entitled, so for us Social Security is almost like an afterthought. We have to pretty much fund our entire retirement from our savings and then, yeah, toward the end we get a little bit of supplemental income from Social Security for them. It's almost the other way around, they have to cover their cash flow needs for about the first six years until Social Security kicks in and then they have much lower withdrawals until basically the end of their life, well, then there was another restriction, well, what's going on?

If late in your life you have a health problem and have to move into an assisted living facility or nursing home, that would be the final phase of the post draw strategy, meaning withdrawals are not fixed over time, so you can't just say well, I have a retirement horizon of thirty, thirty-five or forty years. Look what my safe withdrawal rate is. I look for it in some table in some academic article or in the Trinity study, so that just doesn't work. to work in the real world you have to look at your real numbers what are your assets what are your liabilities what do you link cash flows over time there is also a tax planning element to this for example Becky and her husband I want to do Roth conversions over time during the first few years before Social Security kicks in, so there are so many different bells and whistles that this isn't really something you can study just from the Trinity study.

This is something that you have to do on a case by case basis, okay, Carson, so let's slow down a little bit here, let's go over your case study and what's really fascinating, like you said, this is a Dual Phase Retirement, In essence, I assume that Becky is now 63 years old. Steven 64. They have to come when Steven is 70 and it looks like they are going to receive a significant amount of Social Security and I would love for you to talk to us. I guess first what you expect them to get through Social Security and what that means to me, and then let's bridge that first six or seven year period, so in about six years Steven will be receiving $3,500 a month in Social .

The security is that he is close to the absolute maximum that he can get, so the good news is that he has had 75 years of very high income at or near the maximum of Social Security that he receives text messages every year. and then Becky had a slightly lower income, so she would actually be better off taking the spousal benefit, so that's a huge benefit, by the way, for married couples, if one spouse has a lower income from Insurance Social, you can choose to take either. her own income or half of her spouse's income a Social Security benefit, so she would receive about $1,600 because her husband would have received about $3,200 if he had retired at age 69, so in six years, She receives 1,600 and the husband receives 3,500.

So that's $50,100 or sixty-one thousand dollars a year that Social Security comes into play and their budget is about $80 thousand a year. Actually, after I went back and forth with her a few times, she asked me, Well, can we increase it? about 90k a year and yes, then if your budget is $80,000 a year that means you have to fund only the gap between your $61,000 in Social Security income and your $80,000 budget once Social Security kicks in , then there is this two-phase problem. where at first you have very high withdrawals and then luckily they will be much lower once your benefits kick in.

This is very interesting because we started talking about return risk secrets and the first five years really matter. The first five years is when they really need the money the most and you know they're starting with a portfolio of just over a million dollars and they have this budget that at age 70, about six. In years the vast majority more than 50% of their needs will be covered by the Social Security that they have delayed, but in the intervening five years they need this money now, so I know they said they were really inspired by Fritz. from his retirement manifesto and bucket strategy and we're using a portion of that.

I'm curious because you take this kind of dual-phase strategy that you're talking about and think about it in terms of one glide path and two. in terms of some kind of bucket strategy system where you know the volatility, you know we're at or near the top of the market and we don't know what's coming next year, how can someone with that kind of mindset know what the plan is? ? for making this as easy and experienced as possible by retiring confidently, so again my recommendation to them is that they shouldn't be afraid to reduce their portfolio slightly for the first six years, because even if they reduce their portfolios correctly now I think that is about one point three five million dollars and they cut it in half for the first six years or maybe even up to $500,000, that would still seem like a viable plan because once social security kicks in and you need let's say just $20 000 in withdrawals and you'll have a $500,000 portfolio, you actually still can, especially, I mean we're going to have a bad recession and a bad bear market over the next six years and you'll end up with just a $500 corner quote. 000. a Social Security kicks in and at that point you start withdrawing $20,000 from a $500,000 portfolio, which would be a 4% withdrawal rate, but it would be a 4% withdrawal rate at the bottom of the recession , at the bottom of the bear market, so even at $500,000, it still looks like it's a viable portfolio.

So what do we want to get away from this? From this mindset, we can delve into the correct principle. That's why he built his wallet to $1.3 million to spend. money at some point, so it's really you, you can afford to withdraw something like eighty thousand dollars, plus you have to pay a little bit of taxes because you want to do the Roth conversions along the way, which creates a little bit of income subject to tax. Let's round that up, let's say your withdrawals are ninety thousand dollars a year, so now you're withdrawing about six point seven percent every year and you and you have done that and we're so far into the bull market at another all-time high in right now, so it sounds really scary to withdraw almost seven percent of your portfolio, but again, it's only for a very short period of time and even if you withdraw your portfolio, you'll make it in the end. because then social security comes ininto action and then you almost became homeless Kirsten.

I have a question about taxes, actually, assuming you plan to live on around $80,000 and let's even leave out Roth conversions for a second, right? have an idea of ​​what they areThe federal and state tax liability is, I guess, put another way, the eighty thousand dollars that they plan to live on is some component of those taxes or we have to raise funds for their royal dramas, so we should collect that, so we should consider In order to net $80,000 each year, I would have to withdraw a little bit more because I have to pay taxes on that, and my rule of thumb was and obviously they will max out your standard deduction, which is about twenty-four thousand eight hundred dollars and I think it increases once the spouses are over sixty-five, another thirteen hundred and fifty dollars are added a year, so you could assume that your standard deduction, um, yeah, it's almost thirty thousand dollars. that's completely tax-free and then the nice thing is that everything you earn above that ordinary income is initially taxed at a 10% federal tax and then goes into the second taxpayer at a twelve percent federal Colorado, I think it's one four point six three. flat tax rate percent but there is also some exemption for retirement income and since they have it they have to confirm it with their tax account but I don't think Colorado Texas Social Security benefits so they are good news once Social Security goes into effect.

Yes, then you'll probably have to pay upfront for the first six years while you do Roth conversions. You're going to have to budget probably nine ten thousand dollars a year to pay taxes because you try. Maximize your Roth conversions each year to reduce that relatively large amount you have in a traditional IRA. Now the good news for Becky and Stephen is that they actually have most of their assets already in a taxable account. and then they have a little bit of a Roth and a health savings account and then they can basically use that health savings account as a quasi-Roth IRA and I think they have about a little less than five hundred thousand dollars in a 401k and so on. that's less than 50 percent of your portfolio.

Often with retirees you see that they have the overwhelming majority of their assets in a 401k plan and then they will go into required minimum distributions later, so Becky and Steve's case was actually one of the easiest core cases where it's relatively easy to roll that load of money in the traditional 401k/IRA into a Roth account and you'll never get into this trouble. have required minimum distributions and of course it's a good problem to have, if you have such a huge 401k and required minimum distributions come into play it's a good problem to have, but again I would still avoid having to pay the normal amount.

Income taxes on all of that later when the portfolio has grown so it's best to roll it over to a Roth and so I did. I did some calculations and a simple spreadsheet where I discovered that it is actually easy to completely convert the entirety. portfolio in a Roth, so all the retirement accounts will be in a Roth or health savings accounts or quasi-Roth and then they would have lived off the taxable accounts at the beginning, so they will eventually have essentially one hundred percent Roth IRA and then they will live completely tax-free in the future, except for Social Security, which will be taxed on their federal return, but only 85 percent of their Social Security benefits will be taxed on their federal return, so You'll still have a few thousand dollars in tax liability on your federal return for virtually your entire retirement, even once you complete the Roth conversions, and that's due to Social Security benefits, but again keep in mind that the first nearly thirty thousand dollars will be tax free and then the first, I think, seventeen or eighteen thousand dollars will be taxed at only ten percent, so the tax obligations later in retirement you can probably handle and they will be very less, but yes, you have all the reason when you do your safe withdrawal analysis, you also want to factor in your taxes, so from the looks of it, they have a significant amount of their net worth, you said more than half in taxable accounts, so we're in this six-year period where they need to withdraw about eighty thousand dollars a year, you know, let's not even talk about inflation, let's just say eighty thousand a year, yeah, that can come out of their taxable accounts, which for everyone , that's just a fancy way of saying that your savings is basically money that's already been taxed, so there's no taxable event, like when you get out of a 401K and it's ordinary income, there can be capital gains on the sale stocks and such, but there are so taxes will be minimal to get them to this point where they will receive Social Security benefits in six years, so it seems like most of the heavy lifting has already been done for them.

I'm curious to know when you did your analysis. with the Roth IRA conversion, then they can really only access that penalty-free monetary penalty five years after they actually convert. It's that exact. I think you should double check with your accountant, but I think five. -The year limit is for us early retirees, and since they are already over fifty-nine and a half, if they roll over a traditional IRA to a Roth, it should be accessible immediately, so I think those five. annual window and the ladder which is something for early retirees that would be a limitation for early retirees probably not for Becky and Steven and even then because they actually have so much money in the taxable account that they can live off of The time they actually have to access to Roth IRAs will be so deep in their retirement that I think they probably won't have to access their Roth IRAs until they are around seventy years old or as late in their retirement because of Social Security.

Gosh, yeah, so when you were calculating the amounts that they needed to convert through this Roth IRA conversion, are you basing it on their 80,000, are you just basing it on that they're really only going to need 20,000 a year? The rates are essentially fine, so you have six years to convert your traditional IRA, so the traditional IRA is now about four hundred and ninety thousand dollars and then how long does it take to convert that? So I talk about, first of all, every year, what you want to do. Do you want to see your tax brackets correctly and want to see how much of your taxable income you have already used?

Because because there is this, there is this drum from a 12% marginal tax rate to a twenty-two percent marginal tax. interest rate, so you don't want to convert so much of your traditional IRA in a given year that it puts you in the twenty-two percent tax bracket because the analysis I did was that later in retirement they'll be pretty squarely in the tax bracket. twelve percent federal and this of course is always subject to the restrictions, well, the text loss could change, right? They're going to expire and I think in 2025 or 2026, but they'll always come up with some kind of last minute compromise to make them permanent, so that's my working assumption, but anyway, what was I trying to get at?

Here is that, in your particular case, it would seem optimal to do Roth conversions to maximize your first two tax brackets on the federal return, so look at what your ordinary income is plus all other income. they have some interest and dividend income that will be included on their federal tax return and if you add up their standard deduction, which is about twenty-five thousand dollars plus the first two tax brackets, which I think is somewhere a little over seventy and five thousand dollars, so you can make about a hundred thousand dollars in total income and that will still keep you in the twelve percent range, so you basically look at probably every year in December how much money you've made. so far, how much money and you again should give your brokerage account, should give you the data, how much interest income has it generated so far, how much dividend income has it generated, how much capital gains and then just look at what is the In the part top of my twelve percent range, did you subtract your year to date income and that's what you're going to convert and that could be as high as eighty thousand dollars a year or maybe a little bit more could be a little bit? less depending on what the taxable income is like that year, so it can definitely put a good dent in your traditional IRAs and now I can't guarantee that they will convert all traditional IRAs by that time. social security kicks in because remember that by the time Social Security kicks in, you have this huge, relatively huge, taxable income on your federal return, which is 61 thousand dollars.

Social Security, well, eighty-five percent of that, but that's still over, it's still somewhere around. fifty thousand dollars, so now your space on your tax return brackets is much less for Roth conversions, but cross your fingers by then you should have converted all or the overwhelming majority and then you can really decide. What do you want to do now? Do you want to continue doing Roth conversions if you still have enough money in your taxable account to fund your expenses? Remember that your withdrawals won't be much smaller because Social Security has kicked in. If you still have enough money in your taxable account, be sure to use it to fund your expenses and then contain it with your Roth conversions.

If you still have money in the traditional IRA, even a Social Security has kicked in, but it will be very limited. it might just be ten twenty thirty thousand dollars no longer the eighty thousand dollars a year so for me just to recap and I feel like I got most of that and it's really helpful so if you have about half a minute like in this case. In this particular case study, we have about half a million dollars in pre-tax deposits and we're just retired, so we're basically controlling what our income is, we're really controlling it, getting to the reduction or not, we're getting the reduction. we have room to transfer over eighty thousand dollars a year from these pre-tax pools to this Roth and what we're doing when we choose that number, how much we're reinvesting, we're looking at the tax brackets and we're saying we really don't want to pay more than twelve percent in federal taxes, so we'll shift as much as we can up to the upper ends of that twelve percent marginal tax bracket and then as we start building up to twenty. marginal tax bracket of two percent or twenty-five twenty-two or twenty-five that is getting too expensive for our tastes and we will just reduce it again and stay in that range, we can do it as long as we can control our income, which increases until we start claiming Insurance Social Security at the age of seventy, once we start claiming Social Security, now suddenly we will have sixteen thousand dollars of income that will appear in our federal tax bracket, so now we lose the ability. crush it with those Roth conversions, but it's really nice if you can lock in a twelve percent marginal tax bracket because you chose that right, you chose that tax bracket that I want to be right why and then and then something else, so if I go up from three hundred dollars, between and into the twenty-two percent range, don't beat yourself up because it's really a marginal tax rate, so twenty-two percent is really only on the amount that's over that limit. everything else is still in the 12 percent break.

I mean, some people might say, hey, I'd like to go over it a little bit more just to make sure I'm not leaving money on the table in the twelve percent range, so there you go. it's, it's after, it's your personal preference, how you want to make sure you don't get into the twenty-two percent group or make sure you're safe and maximize that 12 percent group by yelling us. I can't reiterate this enough. I think a lot of people get confused about how our tax system works and worry, oh, if I'm in the next tax bracket, it's like all my previous dollars are now taxed at a higher rate so that you so eloquently said that if you have $300 too much, that means that $300 is taxed at 22% in this arbitrary case instead of 12%, so we're literally talking about 30 $30 difference in your additional tax, so don't punish yourself clearly you want. to get the most dollars on those 10 and 12 percent without going into 22, but you don't have to get the dollar right, so I just wanted to ask a real quick question since we glossed over this a little bit. but it's essential and I just don't know enough about it, so these spousal benefits for Social Security and now obviously notI want to get into the political viability of Social Security, that's not what I'm getting. here, but talk to me about the feasibility of how this spousal benefit works, assuming that you have to assume that one of them will predecease the other at some point, so we're talking about getting this roughly $50,100 a month. but what happens if and when one of them pre-deceased and the other in a way if Stephen is the survivor then it's very simple so he just keeps his benefits and Becky will lose her benefits because she passed away now if it's the other way around then Becky wins only $1,600 and Stephen $3,500 if Stephen dies, then Becky has the option, not Of course, in her case, it is a no-brainer that she has the option to take over Stephens benefits and that is called a survivor benefit and it is a benefit Huge for married couples and it's especially helpful for couples where having a very high income and a very low income because that means that basically Stephen can bequeath his high Social Security benefits to his wife and then there's a huge benefit to that.

Becky can take over Stephen's benefit, so it's like if she had done that, she would have gotten full Social Security benefits, especially when you have a two-spouse situation where one of the spouses is much younger and the spouse The younger person has a lower income, so the useful life of the benefits of the higher-income person can be extended because the lower-income person and the younger person will take on these high benefits, so there is a great benefit, so this is actually one of the reasons why you are a problematic couple when you are in that situation where one of the spouses is younger and has a longer life expectancy and also has a lower income , the higher earner definitely wants to wait as long as possible to claim benefits because they can, they can bequeath this Social Security income to their younger spouse, that's fantastic, yeah, thanks for breaking this down for us and then I'm curious if we really think in people who are listening to this program and in particular, they are leaning towards this because they foresee a near future where this reflects that they have a significant amount of net income.

It's worth making Social Security a reality as you think about this dual phase and are preparing for their first year of reduction. I'd like to spend some time talking. You know, Becky again. I feel like I'm stabbing myself in the. heart with this front row and appreciate the fact that retreating on principle is not the end of the world, but I literally mean a goal, from a glide path perspective, from a bucket strategy perspective, from an already You know, protecting against volatility, what are the kind of guardrails that you had set up for this scenario in terms of mechanically, from hey, I need to have this checking account, I withdraw everything next year, etc., what kind of framework Would they think with Becky and her? scenario, so I'm actually a little bit cautious with these bucket strategies of course, I mean you have to have a checking account, you probably have a money market account where you have a little bit of cash reserve, so my preference personal would be that. in retirement you do exactly the same thing you saved for retirement, you automate your savings properly, you make regular contributions to your 401K and regular savings into your other taxable accounts, you do everything first and I think it's the same approach. it also works very well on exiting when you withdraw money, so you automate it because you are doing outside of this deposit strategy and depositing cash sounds a little bit like correct market timing and market timing.

I used to be a market timer in my real job, so I should be understanding of that, but I think it sounds like work and too often, when only individual investors like us, with all our behavioral biases, start to do that, it's kind of a recipe for disaster, so I just I just want to give you an example, so imagine you're sitting in this bucket of cash and you're withdrawing money from the cash pocket and you see the value of your stocks go down. and you say, well, great, I have this bucket of cash and I can First I touch the bucket of cash and I can sit until the market recovers well.

Unfortunately, the market sometimes takes much longer to recover in the naked market, it may only be a year, a year and a half or two, but for the bear market to fully recover. Not only would it start, not only would it end the bear market, but it would go back up and hit the old all-time high and hit, let's say, the old all-time high plus an inflation adjustment that may be a matter of not one or two years, but which can be five seven years ten years or more, so I've seen some examples where I think it took 13 or 15 years to recover back to the old all-time high, so the whole cash bucket business sounds a bit like timing the market when I say well, I have this bucket of cash and I don't have to touch my stocks when the stocks are going down, so you could even have a very counterproductive example where if you had taken money out of your stock portfolio from the beginning, at the less I still would have withdrawn money when stocks were high but when stocks keep going down and down and down and down and first you have to withdraw money from a cash bucket and then towards the end that's when everything you withdraw comes out of your bucket of actions and that's how it is. around the bottom of the bear market, it can actually be counterproductive to have that cash deposit because remember at some point you have to replenish that cash deposit again and if you replenish it when stocks are down and potentially all the way to the bottom of the bear market, then you may have gotten hurt, which is why I'd probably prefer to set up some kind of automated withdrawal plan, just like the money coming in, you can automate that setup. set up your withdrawals as well on an automated plan, certainly for your basic expenses, suitable for your base budget, for your property taxes and insurance, and your credit card bills, and there may be four main expenses again that you can't really automate . that, but again, I'm a fan of staying away from this time in the market where you say, well, I've got a pocket of cash so I don't have to cash out when stocks are down, that seems like sometimes it works, sometimes it doesn't and it's Everything, it's a success or a failure, right?

I can show you examples where this would have worked very well and I can show you examples where this would have backfired, so the point is: because I, your point, did you say that really well taken was the fact that you know that in Worst case scenario, you exhaust your time to refill your bucket and you're still at the bottom, you're sniffing now and now you have to take all of your money out of the market at these depressed prices. I guess the counterpoint would be what regular market withdrawals look like and then what asset allocation looks like to reflect that because you can't tolerate the same level of volatility that you could tolerate when you're in the asset accumulation phase, so which I think a good start would be, for example, you have your taxable account and that taxable account pays you dividends and potentially interest, although I would say that's what comes back to the asset allocation question, so I would try to avoid hold bonds in the taxable account, but that's a different question, so certainly the income that that taxable account brings out, I mean, you might as well consume it because, for example, that income is probably going to be less than what your cash flow needs anyway, because I think in your taxable account that you've had you have about 700, just over $700,000, so that forces you to take a 2% dividend yield of what we're talking about, maybe. $14,000 a year is not enough to pay the $80,000 or $90,000 in your budget, so the income that is wasted is something that is taxable anyway, you can also consume that and there is practically no need to make dividends. reinvestment, so that's something you would do if I were to switch when you retired, you would turn off dividend reinvestment in your taxable account so that the dividend payments and the interest payments that I receive go into my checking account. account and that is used for consumption and then you have to decide, obviously, how to cover the rest properly, so you could have about $14,000 a year in dividend income, but my total cash flow needs are between 80 and 90 thousand. dollars basically the rest has to be taken out of capital so I would recommend that they start pulling out of the higher cost tax laws so that they start taking money out of assets that have a high cost basis so that would reduce their income taxable, so it would reduce your I want to pause there, first thing is this is great, but I think some people are probably saying what does that mean and I know that when you log into a platform. like Fidelity or Vanguard, there are several ways to withdraw your money, you can do it just cost averaging, you can do it first in, first out and the other is you can specify an ID for specific lots of money, run and run and you You say, hey. when I bought a couple of years ago 20 or 30 or 100 shares at this price that is in this state that has an identification like a lot number is correct, so I urge everyone and you, in fact, you probably have to do it. do that when you set up your account so you want to have this lot id set up and yeah and then when you withdraw you can specify again what you want to withdraw what you want to do I mean obviously you want to withdraw only long capital gains term, not short-term capital gains, that's probably not a problem because for most retirees, they've had these lots for 10, 15, 20 years once they retire and take the money out, so it's very It's likely that these are going to be long-term capital gains, but again, the most tax-efficient way is to start withdrawing over and over again, so there may be some examples where it's not, but As a general rule, I would start with the tax lots that have That would generate the lowest long-term capital gains, yes, and Carson, just to clarify, that demarcation line between the short and long term is actually just one year , so for people who think, oh no, long term, it has to be twelve and one. half a year, it's only a year, so yes, that's when it's very well taken, but yes, you don't want to sell short and be subject to short-term compounding gains because that's at ordinary income tax rates, so you don't get the favorable taxes from the long run, and there's only one exception, so the rule is if you have a tax law that's short run or short run or long run and it's underwater, then you could sell it and generate what is called tax. loss harvesting so it could result in a tax loss and that could be deducted from your other capital gains or it could even be offset against your ordinary income which would be great so this is why a lot of people like to that, but there are some, there are some limits to that, but this is not something that Becky and Stephen probably have to worry about, so Becky and Stephen are now doing this reduction and let's assume that they are following, they are following your advice.

I want to go back to how it looks mechanically. I also wanted to ask you about the glide path. I know some advice you talk about often is good, maybe in the wrestling community we have this debate about paying your mortgage or not. I like that the answer is that there's a little more clarity when it actually comes to retirement and I'm curious what you think about paying your mortgage would that decision to pay off your mortgage affect the planning trajectory oh yeah so Becky and Stephen I have a single family home and there is no mortgage on it so I really like not having a mortgage when I am retired and although when I was still working I certainly enjoyed having a mortgage.

It was the old days, I could still cancel it. mortgage interest and there was some tax advantage and there was some advantage because of leverage, so when you have very few assets you want to start the stock portfolio as quickly as possible, so we talked about this. in episode 35, if you remember, you almost want to have leverage from the beginning because your portfolio is very small and in that case a mortgage is not a bad way to get leverage, so don't pay off your mortgage if you're just starting out. Pay your mortgage at the rate specified by your average 30-year mortgage, but don't accelerate your mortgage payment, so you want to use leverage and start accumulating assets as quickly as possible, but then when you retire, I think All this.

The equation changes, so I would say that the optimal thing in retirement is to no longer have amortgage and the way I look at a mortgage is that a mortgage is almost like a short bond, right, you've shorted a bond and it's a bond addition maybe. minimum three and a quarter percent probably up to four four and a half percent and especially for retirees who have a portfolio that is not one hundred percent stocks and I think a 100% stock portfolio seems a little risky I, like most Retirees, we're going to have a portfolio that's going to be around, say, 60% stocks and 40% bonds, so why would you have a bond portfolio, a bond share in your portfolio with a 40% share and at At the same time you would have a mortgage and the mortgage interest is higher than what you would earn on your bond portfolio, so I think if you look at Brad, you are an accountant, you have an asset and a liability, and the asset and the liability are both. the same and your liability has a higher interest rate than your asset, it is probably ideal to use that bond put to pay the mortgage, unless you are really crazy and almost risk seeking, not risk averse, but risk seeking, a 100 percent retiree with a 100 percent stock portfolio and you say, well, you know the 100 percent stock cushion is still not enough.

I also want to have that short bond that is the mortgage in my portfolio, that is one of the reasons why I think it is ideal not to have any mortgage during retirement. Now there may be some exceptions, for example you still have three years of five years or seven years left on your mortgage. and to pay it all at once, you would have some tax consequences, why would you have to liquidate a stock portfolio and pay a lot of money in capital gains taxes to get rid of the mortgage? Yes, I mean that. There would be some limitations where I see that yes, I mean, okay, keeping the mortgage fair or the mortgage payment is not really very large relative to your retirement budget, yes, but again, I would prefer not to have a mortgage, so one is. that asset allocation aspect and the other aspect is also the sequence of return risk, as we said, there is a time window and it can be as short as five years, it can be as long as fifteen years, your first five to ten, maybe fifteen. years into your retirement is when you worry the most about sequence of return risk, why do you want to have this albatross around your neck, which is that big mortgage payment every month, exactly during the time when sequence of return risk Does it matter so much, every now and then?

I look at a different aspect. I would prefer not to have a mortgage when I retire. For example, we bought a house last year and paid cash for it. We don't have a mortgage. You might consider getting a home equity line. of credit set up that we don't really use and that we would use as an absolute last minute emergency, just as a cash flow just to smooth out the cash flows, but I certainly wouldn't want to have a I wouldn't want to have a 30 year mortgage on my home. I don't even want to have a 30-year mortgage with ten more years to pay for this house.

I just want to be mortgage free, it makes life so much more relaxed and comfortable. retirement, I can tell you yes, so if we were to take this now, I'm moving away from Becky a little bit, but taking this person who enjoyed Becky's episode because they are in a more similar stage of life and maybe their goal is that they have a $1 million portfolio that they have been working their way into after recognizing that after paying off their mortgage they will have a 60/40 stock to bond split and are now preparing for this first. year the market drops, I don't know, 30 percent and they're automating their numbers correctly and I'm just thinking about what you said earlier about bonds not being taxable, where are bonds kept? and what's the strategy going to be like for them when they get to the end of that first year, so they've been removing taxes and then now that they're getting to the end of that first year, the markets are down 30 percent? getting ready for year two so these are the two aspects we have to cover here one is portfolio rebalancing and the other is asset allocation so first of all imagine you start with a 60 portfolio /40 and taking actions. a really hard beating and bonds are stable or like they have been in the last few recessions, it's actually when stocks go down, bonds go up because interest rates are lower, that's good for existing bondholders, so if you do your exit, so it's not even a particularly planning route, but even if you want to maintain a 60/40 portfolio and you want to rebalance that 60/40 portfolio, I would already avoid potentially taking money out of stocks because it would take taking it out of the asset that has now appreciated relatively not only in absolute terms but also in relative terms, so if we are in these periods of stock market decline, you would naturally already take money out of your bond portfolio to cover your expenses, so that even with a constant 60/40 portfolio allocation, you have something that almost looks like a glide path because stocks are down, so you take money out of your bond portfolio, so it's not really a glide path because you still rebalance your 60/40 at the end of the first year, so there's a good chance you'll get most of your cash flow needs out of bonds;

He could even withdraw more money than O'Neill needs from bonds and put the rest into stocks. If stocks are really down after a year, it's even conceivable that you rebalance from bonds to stocks and therefore just by rebalancing your portfolio you already have something, it's almost a valuation approach, right? beaten assets in the hope that underperforming assets will rebound again, which has actually happened in many recessions. You had the recession of two thousand eight nine and you had a very steep decline and then a very steep recovery again, so with this with this rebalancing approach, yeah, I mean, it sounds a little bit like market timing, but even doing something so passive like a 60/40 portfolio, there is an element of tactical asset allocation based on valuation that is almost close to, well, it's not.

It's not really a tactical asset because the weights do stay at 60/40, but it has the same flavor, so you sell the expensive assets and buy the cheap ones in the hope of a reversion to the mean again. Bigger people are watching this on YouTube and they're like well bigger, the bigger guy on the one hand and we have to get bigger, he's got a real frown on the other side, but I think everyone's wondering what the verdict is. with Becky, can you leave? however, yes, the verdict is that yes, they can retire and I would almost say that their initial budget of $80,000 is too conservative, so I would potentially raise it to maybe $85,000 $90,000 now that you get it, you're pushing it a little bit. a little bit, but there is certainly an annual budget of $80,000 $85,000.

Not only will they make it, but they will most likely have plenty of money left over even after 30 to 35 years and therefore even during the worst recessions possibilities that we have seen in bear markets. In the markets that we've seen in the past, your retirement pattern would have survived, it would have survived for more than thirty-five years and that assumes that you actually survive to be ninety-eight or a hundred years old, so if you die before that there is still a Lots of money you can leave to your kids and grandkids, so yeah, absolutely, it's great.

Thank you very much, okay to our audience, you are listening to this, you wanted more details, you really want to see the numbers that the great Arne was relying on, he actually wrote a case study that is published on early retirement now.com, which is a website you should visit just because, but if you want to see the specific study he created. We'll have it linked in the show notes and two. We have set up a shortcode for you. You can go choose fi com slash Becky. I know Brad is going to correct me. That's Becky B EC KY.

She is a fighter. You're welcome, so let's go. and bring MK into this conversation, okay, I know you had to mobilize quickly for that episode to make big profits and to be able to give it enough time to analyze it and present it to the audience and I just want to say on behalf of the community, all the people with the ones that that episode was shared and they really wanted to know, first of all, they said thank you and then pretty much I know I need more information about the reduction on behalf of, although I want to thank you for setting this up.

You're welcome, I mean really everything was great, he's the expert and Becky was so great at sharing her information so quickly that she said here you go, I'll write it all down, so it was great that she was so willing to share. your journey and it's really not exactly the same, but it's similar to what so many people have been asking in our community and saying, you know, it's too late for me and our answer was no, it's not too late, but then let's understand, it's well then. What are the exact steps I need to take to have a large urn come back and share their experience on our survey we did over the summer?

People said: I want more big urn. It was very specific what we can do to improve the work. and we're like, okay, we'll get you something big, so luckily he was coming back and I really know that this content is going to help a lot of people as they plan those very specific steps. I have the great concepts, what do I do? Follow what are the small steps to welcome everyone and if you have more questions, please continue to send them and we will continue to publish more content like this, so if you are looking for more information from us, make sure to subscribe not only to the podcast but to our newsletter, so if you're someone who thinks okay, I listened to the podcast but I'm in the car, I can't take notes or I also want to read more about it if you process the information that way, of course, you can subscribe to our newsletter now.

One great thing is that when you subscribe now you can get a free ebook that breaks down these great concepts so pick five com/fi - guide choose by com/fi - guide and that will subscribe you to our email so you get all this information as we release it and will also give you this free ebook where you can see financial independence made simple, yes, it's a beautiful series of infographics that talk. about the big tenants of financial independence and I'm really excited about how it came about and I hope you'll access it personally and share it with a friend.

Now we have a big announcement and we recorded a segment that we'll go ahead and play for you. Right now, okay, everyone, so if you've been listening to the show, you know that we put out a call to action for the community to tell us if they're stuck why that is and to look for patterns to see how we can better serve the community. community, one of the things that came up was that I feel like there's no one talking to me where I am. I feel like one of the things I'm dealing with is that all of this stuff is cool.

I just don't, I don't have time for these long, extended hour long podcasts. I barely have five five minutes that I can put together and I mean, I would really love some content that has me in mind and like us. As we looked at our community, we realized that there is more than a single individual who represents a large spectrum of our audience and as we sought to see what it would look like to better serve this part of our community, we began to engage in conversations. with Jillian, who writes at Montana Money Adventures, calm and if you remember, we've had her on the show at least twice and her story is absolutely incredible and I think she brings a level of empathy and understanding and compassion to the conversation.

Frankly, of all the people we've interviewed she's incomparable and when I think about some of the content she's produced and also some of the conversations we've had behind the scenes, I'm very excited about the future. brings and Brad. I know we both started having this idea in the summer. What if we could make a podcast with her? What if we could help produce something to put out something that takes these amazing characteristics that she has and at the same time takes that? energy and apply it back to these people who are really looking for this type of content yeah, no, I completely agree and yeah, I mean, jillian is just one of those people that you feel instantly comfortable with, she, just like you said , empathy, it just oozes out of her, she's someone you want to spend time with, she's someone you want to get to know and I mean, we've said privately that Jillian is just a superstar, there's something special about her and yeah, we started talking about how would be I have another podcast and Jillian's name was at the top of that list and yeah we have something really exciting brewing today so Gillian in the studio today was actually our first entry no no our second guest in person , I think Edie and take that minnow. first, but you are only half a step behind them, our second guest in person,Welcome to picking up my podcast again and I'm so excited for you to join us on this adventure.

I'm so excited to be in Richmond, this is amazing. the Midwest from the East Coast oh, it's a lot hotter here yeah, yeah, you said it was zero degrees in Montana, zero degrees, yeah, well, you had this wonderful retreat, that, I think you had decent weather, actually quite well, but the next day. after everyone left a little bit of a cold temperature drop so we just said we were going to make this announcement and hinted at it but we are definitely partnering on a podcast that will be launching later this year in early 2020 and the title will be everyday courage and I tell you I had the opportunity to let that title simmer and it just warms my soul, but for our audience, why does this podcast exist?

I think as women we have reached this point. where there is a lot of pressure to do all the things and have all the things, but the problem is that all the things have become so much bigger, like my mom crushed them at a birthday party with a cake in the 80s and so on It was a win if you invite your friends over and let everyone know we're going to spend an afternoon, you're crushing it like you're an amazing mom and now it's like Pinterest unicorn and rainbow cakes and there's so much pressure to be all things to all people.

The reality is that we don't support ourselves in doing the things that really matter to us in our finances, in our careers, and in our life. We are so spread out that we are tired, discouraged, and sometimes overwhelmed, so the idea behind everyday courage is that we can have a little more courage every day to set boundaries, to say no, to have difficult conversations to prioritize. What matters to us is to be clear about that and then go out into the world and not be everything, but be too much for the things that really are us, that are true to us, that are true to our goals and our values. and our purpose for being here in the world and that's what I hope is in a very small container in very short episodes because we don't have a lot of time.

In fact, I was going to ask you about that and one of the things when we were talking behind the scenes like you said so many podcasts and I guess we're guilty of some indication, so one podcast or so much time as a mother with so many different responsibilities that I don't I have time for a two-hour episode I just don't do it, in fact, if I give someone 15 minutes and they still haven't gotten to the point, I'm viscerally angry, so it's like walking around, explaining that to our audience and why it's kind. . to define your goals for the cadence of the program, yes, especially for me, who has five small children.

I get interrupted all the time as if I simply don't have long stretches of free, luxurious, quiet time in my day. I probably have like 10 minutes. and I love being able to finish things. I love marking things. I love crossing things off the list. I love feeling like I'm on top of things, so when I look at it it's like, oh, I'm twenty hours in. episodes behind I feel overwhelmed and like there's one more thing I'm failing at in life, but if I like getting to school for pickup and I'm 10 minutes early and I'm sweet, I'd like to finish an episode. and just having that little bite of encouragement and positivity and inspiration and maybe it's something heartwarming that will propel me through the day and get through the day without little humans interrupting me, yeah, I know I would really appreciate that, so yeah, Jillian.

Totally agree, there's something about the stress of having all those podcasts backed up and you know for me, I listen at 1.5 It's typical Stephanie. with a solution, yeah, yeah, yeah, so you have a little more wiggle room, but I love this concept because we look at financial independence as an umbrella to living a better life and I love when you talk about, you know , just getting a little bit better in different aspects and what it means to you personally and I think people are looking for inspiration, they really are, and they're looking for just little tips to live a genuinely better life, so yeah, I mean, Personally, I'm incredibly excited to see what you've put together here.

Oh, okay, let's talk about a big announcement, that's a pretty exciting one. I was very excited when it was first mentioned to me as an idea. I felt so dizzy hearing that. kid like, I'm really excited, so anyone who's watching on YouTube can see that excited dance, but if you're just listening you're missing out, but I'm really excited for the content that Gillian is going to bring, she always brings her a game or she a Plus game and she is just one of my favorite people in this community the company present excluded you guys are great but Jillian but Jillian you know she just brings it she really posts the best content and she is very genuine and wants . to support people and I think that's where I want to support her and I hope that other people feel the same way that because of who she is and the genuine nature of her, they'll just fall in love with her as much as we all do, yeah.

It's incredibly incredibly exciting. I mean, the Choose F5 family is getting bigger here. I mean, that's amazing. This is Choose Fi's second podcast and we couldn't be more excited to have Joey as part of the team here. So yes, we certainly are. I'll be giving the audience a lot more information over the next six to eight weeks on exactly when this is going to be released, but yeah, stay tuned every day, courage with Jillian, you realize I don't know if we've mentioned this, but 2020 is a new decade like a new decade that's wild and you know it's funny when you think about the 1900s, you think about the '20s, '30s, '50s, I mean we got close to that in the 2000s, these are the '20s of the 2000, it's It's a little mind-blowing when you think about it like that, living in the future, my friend, and living in the future, okay, I bring voices and comments from the community, what you got from us, what do you have for us?

Well, today we have ZB wanted to shout it from the rooftops, so ZB said today we paid off our one hundred and sixteen thousand mortgage in 22 months and at the same time maxed out his 401k. The feeling is amazing, we are truly debt free and looking forward to next year. all the goals we hit we are 34 and 32 next year we will contribute to maxing out the 401k while also maxing out HSA URIs and adding extra money to our brokerage account so CB we are here to shout it out with you awesome congratulations long before close I just want to spend a minute and get an update on our local groups.

Well, we have a new local group to welcome you to Vancouver Washington. Welcome to the Choose Fi family. We're excited to have you here and we have some events coming up, so take your pick. A good abrasca will get together on November 12 to do unconventional life hacks, so it will be exciting to see what comes out of that meeting. All the different life hacks people can do. Our a5 Frankfurt election group is having a meeting. in Germany on November 13th, so for everyone listening internationally who is in the Frankfurt, Germany area, I can't wait to see you there and on November 17th elect a vice president.

Stanford will be having a friends potluck, continuing our trend of spreading the pot and everyone coming together for delicious food that is amazing and if you're listening to this and want to get involved in your local group to do so, you can choose a Viacom location with more of 300 local groups around the world and you will find a local group in your area find a community and participate today unfortunately that will close this episode, but as you know, we like to end each episode by doing a drawing to get a copy of a book that we has been helpful and I'm doing our book right now, pick a file, your blueprint for financial independence, but I also thought we could throw a little curveball here.

I'm looking at a new book on the backsplash of this screen in front of me, okay, I think I just released a new book and I'm thinking, if anyone in the audience knows that you've read all five personal finance books but you want to get a book of 5 fiction, you want to get a fiction book by the fire, so maybe We could, we could add the infinite infinite and just take a second, tell us about the release of your new book. Yeah, well, infinite infinity is science fiction as in science fiction, so it's a science fiction adventure.

Then Nina wakes up in a parallel universe. and at first she sees that things seem better, better house, better job, but then she realizes that she will be trapped in this parallel universe potentially with the person who kidnapped her there if she doesn't find a way in 24 hours and it's not a physics , so she has to get the help of friends to help her travel through the multiverse and encounters different realities where different stories happen, so if you liked the man in the high castle or the adventure stories of the park timeless jurassic or michael crichton.

Well, then you'll love Infinite Infinite, it's a fun and mysterious adventure that awaits anyone who wants to travel the multiverse, that's really cool, where would people find the book if they wanted to buy it anywhere good books are sold? Amazon Barnes and Noble Nook Apple all the places and obviously you can search infinite infinite but you can search your name is Mk Williams Mary Kay Williams what are we looking at haha ​​it's MK Williams so MK Williams the infinite infinite and from there you can also navigate to my book of five fiction in which Jonathan alluded to the enemies each, if you really only want to keep five, you know, I appreciate it, okay, if you want to enter the drawing to win a copy, you can also choose fi comm. iTunes bar, follow the instructions and leave us a short written review, then email us at Mac and Cheese Fi Comm to let us know you left your review and what screen name you left it under.

We give away a book for every 5 reviews written. that we get and announce the winner in the Friday round and MK, how many winners do we have today? We have a winner and that's Joe, so Joe took our idea of ​​word and time efficiency very seriously and says it's a great resource. always an interesting listen with a variety of guests covering useful topics thanks Joe awesome okay my friends like to comment subscribe you're here on YouTube you made it to the end want more of this content see you next time time as we continue. to go the road less traveled