Recent infusion of cash, now 4 years from early retirement.

1,513 Views | 9 Replies | Last: 28 days ago by YouBet
Stressboy
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AG
Okay, I posted this on stock market thread and got the advice to do a back door Roth and to post a separate thread as that was not the place to get good feedback. I've updated my original OP.

I'm new to this board and have never done anything but 401k mutual funds sitting and holding. Just received a decent chunk of cash and need to put it to work. Let's just say we went from 10% cash vs IRA/401 to now 70% cash

Wife and I, now plan on being retired by Jan 2030 and will need 5 year bridge until she is 62. I will be 62 in '31.

Only debt is mortgage that is at 2.75 and paid off in '33.

I feel like we will be buying into the market at a premium right now, and based on what little I've read here and in other places there is a decent chance for a bubble pop before retirement in four years.


Also, I'm thinking whatever I do there needs to be enough income post 4 years to cover living expenses without drawing on principle much if at all during the bridge years.

With that as background, I will put 15% of cash into gov money for emergency fund no matter which direction we go.

My wife currently has a sizable traditional IRA all on pre-tax dollar, and new 401 with her relatively new employer (moving forward she will be maxing this out).

After research on back door Roth, I will do this for me. We will begin conversion of her IRA to Roth after retirement, while I continue contributions of post tax dollars.

All of the above still leaves 80% of current cash for investment strategy now.

Recall, my fear of buying high into a coming bubble pop for the remaining part of this post and the need for income during bridge years.

Of the remaining cash I am thinking of this strategy: put 50% of the remaining in a fairly defensive portfolio with significant dividend potential to rollover for 4 years at probably 4-7% growth (gains plus rolled over dividends) but with a much lower crash dip at about 10-15%, the added positive of this strategy would be the ability to use the dividends post retirement for expenses during bridge years.

With the next 50% of the investable money, I was thinking of putting it in layered 1,2,3 year MGYAs at 5-6% to use post crash so we can buy low and during any bounce.

There are so many variables I'm kind of spinning my wheels at this point.

My questions:

1. What are the flaws in this strategy, what would you recommend to do different?

2. If a fund to buy post crash seems reasonable, are there better ways to keep it semi-liquid and get a better return than MYGAs or gov money (I'm assuming more rate cuts are coming).


Excited to have you guys pick this apart.
YouBet
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AG
I won't pick your strategy apart, per se, but will just add an option to consider. I'm 52 this week (and early retired) so having to bridge even more than you are. We have a good chunk of money in a muni bond ladder that spins off $50k per year. Will serve as a decent percentage of our bridge income after we burn through the 2 years of cash I've kept on hand for this.

Muni's are still yielding 5% right now so it's at least a more "guaranteed" option than possibly even your defensive strategy of stocks, but I obviously won't state that as a certainty.

However, it's probably not a good option if you are managing this yourself considering the churn with a bond ladder. My FA's team manages this for us. I wouldn't do it on my own but you could do it if you had the discipline and wherewithal to do it yourself.
Stressboy
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YouBet said:

I won't pick your strategy apart, per se, but will just add an option to consider. I'm 52 this week (and early retired) so having to bridge even more than you are. We have a good chunk of money in a muni bond ladder that spins off $50k per year. Will serve as a decent percentage of our bridge income after we burn through the 2 years of cash I've kept on hand for this.

Muni's are still yielding 5% right now so it's at least a more "guaranteed" option than possibly even your defensive strategy of stocks, but I obviously won't state that as a certainty.

However, it's probably not a good option if you are managing this yourself considering the churn with a bond ladder. My FA's team manages this for us. I wouldn't do it on my own but you could do it if you had the discipline and wherewithal to do it yourself.


That is a long time. Thanks for the advice. I will be discussing more with financial advisors. I'm not sure I would want to do that myself.
Holistic Planning
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Hello,
Congrats to you!

General thoughts here only. Please reach out if you'd like to discuss in more detail.
www.holisticplanning.com/intro

I'd say you for sure will want to have 3-5 years of spending money in something like SGVT. The entire goal for these funds is to provide you will an insurance policy effectively and liquidity. Ultimately this will be the money that makes you the least but it's a necessary evil.

I'd then look at having another 3-5 years of money (at least…you could have more) in things that aren't equities but hopefully will return more than 4%. Id look at private credit, infrastructure funds, data center investments, structured yield notes, private real estate funds (must be careful in your selection process). Most of these investments won't be totally liquid but should have quarterly liquidity. They aren't risk free of course but I think you can reasonably expect to earn close to 8-10% type returns with a 4-6% standard deviation. Compare that to a 17% standard deviation of the s&p 500. You also need to be an accredited investor or higher in many cases. Private credit has been in the news a lot lately, I would reiterate the importance of using high quality managers. Do your own research or talk with a financial planner and have them give you some examples of due diligence.

Once you've got the first two buckets filled up, you could then explore investing in longer term assets like public equities (etfs or individual stocks), private equity (invest in the next magnificent 7…spacex, openAI, anduril, etc if you are a qualified purchaser with net worth above 5mm per SEC regs.

On the tax side of things, you should definitely be looking carefully at the game plan for doing Roth conversions now or certainly in the years between retirement and social security years. Youll want to plan to try if possible to get the conversions done before age 63 as that's when youll start to get penalized by IRMAA Medicare premiums.

If your income is below 425k now I'd consider going ahead and starting to convert IRA accounts now. Of course that's without me really knowing much about the overall situation…just going off a gut feeling.

Hope this was helpful. Would love to chat more if you're open to it.
www.holisticplanning.com/intro
Remarkably personal financial advice for a fuller life.
Stressboy
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AG
Holistic Planning said:

Hello,
Congrats to you!

General thoughts here only. Please reach out if you'd like to discuss in more detail.
www.holisticplanning.com/intro

I'd say you for sure will want to have 3-5 years of spending money in something like SGVT. The entire goal for these funds is to provide you will an insurance policy effectively and liquidity. Ultimately this will be the money that makes you the least but it's a necessary evil.

I'd then look at having another 3-5 years of money (at least…you could have more) in things that aren't equities but hopefully will return more than 4%. Id look at private credit, infrastructure funds, data center investments, structured yield notes, private real estate funds (must be careful in your selection process). Most of these investments won't be totally liquid but should have quarterly liquidity. They aren't risk free of course but I think you can reasonably expect to earn close to 8-10% type returns with a 4-6% standard deviation. Compare that to a 17% standard deviation of the s&p 500. You also need to be an accredited investor or higher in many cases. Private credit has been in the news a lot lately, I would reiterate the importance of using high quality managers. Do your own research or talk with a financial planner and have them give you some examples of due diligence.

Once you've got the first two buckets filled up, you could then explore investing in longer term assets like public equities (etfs or individual stocks), private equity (invest in the next magnificent 7…spacex, openAI, anduril, etc if you are a qualified purchaser with net worth above 5mm per SEC regs.

On the tax side of things, you should definitely be looking carefully at the game plan for doing Roth conversions now or certainly in the years between retirement and social security years. Youll want to plan to try if possible to get the conversions done before age 63 as that's when youll start to get penalized by IRMAA Medicare premiums.

If your income is below 425k now I'd consider going ahead and starting to convert IRA accounts now. Of course that's without me really knowing much about the overall situation…just going off a gut feeling.

Hope this was helpful. Would love to chat more if you're open to it.


This is very helpful and we are NOT in those higher income/asset categories. So those investment options may be off the table, but i'll run the numbers at the conversion now vs after retirement in regards to IRMAA.
OldArmyCT
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AG
If I had a buck for every time I passed on equity investing because I thought the market was too high I'd be a lot richer today. That goes for single stocks or just plain index investing. Say it continues to go up, maybe 10%, then pulls back 5% so you get in, you're 5% behind. I'd DCA in big chunks myself, maybe dump it all in.
But that's just me.
AgOutsideAustin
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AG
You said you just received a decent chunk of cash and need to put it to work. I'll be different and say no you don't. Park it in a savings account at 3.75 percent and then take your time. You're concerned about buying high and a bubble bursting so just do nothing for a few months. Give yourself time to get comfortable with your next moves.
Stressboy
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AG
AgOutsideAustin said:

You said you just received a decent chunk of cash and need to put it to work. I'll be different and say no you don't. Park it in a savings account at 3.75 percent and then take your time. You're concerned about buying high and a bubble bursting so just do nothing for a few months. Give yourself time to get comfortable with your next moves.


Thanks, that's pretty much what we have done. I'm just learning a lot about stuff that I have ignored learning and I want to have at least an inkling of having a valid conversation about different aspects with our FA.
Stressboy
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AG
OldArmyCT said:

If I had a buck for every time I passed on equity investing because I thought the market was too high I'd be a lot richer today. That goes for single stocks or just plain index investing. Say it continues to go up, maybe 10%, then pulls back 5% so you get in, you're 5% behind. I'd DCA in big chunks myself, maybe dump it all in.
But that's just me.


I'm thinking something more akin to the dot com bust is coming. Rates might continue to fall which will allow the AI bubble to continue to expand on cheap money but what if they are slow. Normal market conditions say a lot of the AI companies are going to go bust, but then add in the fact that the fed seems antagonistic to the current admin, and you have a possible time bomb waiting to blow up our early retirement.

YouBet
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AG
Stressboy said:

AgOutsideAustin said:

You said you just received a decent chunk of cash and need to put it to work. I'll be different and say no you don't. Park it in a savings account at 3.75 percent and then take your time. You're concerned about buying high and a bubble bursting so just do nothing for a few months. Give yourself time to get comfortable with your next moves.


Thanks, that's pretty much what we have done. I'm just learning a lot about stuff that I have ignored learning and I want to have at least an inkling of having a valid conversation about different aspects with our FA.


Also you can get over 4% on that money in a high yield savings account if you do some brief research. Look at bankrate.com.
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