Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

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tj
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by tj »

If OP is in his mid 30s, he will get bored of traveling eventually, and odds are he will spend some of his time doing something that produces $$$$.
TPIR
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by TPIR »

OP has the ability to 'try out' retirement with confidence and freedom to pursue whatever productive activity s/he wants should s/he have a change of heart - all in or part in.

No one can know exactly how it will suit them until trying - and I say that less from the $$ aspect and more the lifestyle / interest aspect.

My advice - if you even have a hint of 'wondering what XX people in your life think' / or caring that they will look at you with more respect living a retired life...

Then say you're taking a break, life can change, might find something else of interest. That keeps you away from the mental trap of staying in a retirement that you might not like - and gives you more freedom.

Or just avoid the kind of people in your life who judge based on those things.
supalong52
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by supalong52 »

I quit Biglaw when I was 35 to travel the world. I was married with no kids and of course traveled with DW. We were abroad for 9 months, but by the fifth month we were suffering from travel fatigue. That was 5 years ago now and we've only been on one international (non Canada) trip since. Not really feeling the itch to do more travel. We also bought a house and have two kids and our spending profile is totally different than what it was before (e.g., spending 55k a year to spending 125-150k a year). So I would be curious to see how OP's journey progresses.
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siamond
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by siamond »

firefighter973 wrote: Mon Oct 25, 2021 10:16 amI have the YouTube channel started and a couple travel videos up now! :)
Jeremy Meets World
https://www.youtube.com/channel/UCQQoAg ... OSbGQkzXmQ
This is so cool. Love your enthusiasm mixed with a good sense of planning. You'll be fine... (and I subscribed to your channel!)
firefighter973 wrote: Mon Oct 25, 2021 10:16 am Quick update:
Portfolio has grown to $3.2m now and still on track to retire in January.
Sold almost everything in my house already and will be putting it on the market in January.
Full-time world traveling starting in February!

Portfolio will be:
48% USA Total Stock (VTSAX)
16% International Total Stock (VTIAX) (Giving a 75/25 split domestic/international)
26% Bonds/Cash (VBTLX)
10% Bitcoin
Next time stocks crash -30%, I'll decrease bonds to 15% and buy the dip.
Going down to 15% bonds would make a lot of sense for somebody like you with a loooong horizon. What matters is not the roller coaster of the portfolio balance, it's your purchasing power over more than 5 decades... Keeping a very solid engine of growth in your portfolio is critical. And you selected a solid (albeit volatile) withdrawal method, which will take care of mitigating sequence of return risks. You're good.

I would do the switch now though and be done with it (i.e. keep a constant asset allocation for life). You don't know when stocks will drop 30%. You don't know they ever will do it again. Forget about market timing, just settle on a simple financial plan for life and focus on your travels and adventures! I wish you the best of luck!
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cflannagan
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by cflannagan »

ponyboy wrote: Fri Jan 15, 2021 1:13 pm Keep working. You currently do not have enough.
Cringe.
international001
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by international001 »

firefighter973 wrote: Fri Jan 15, 2021 12:45 pm Current annual expense $30k. Plan to increase this to $50k-$95k in a bear/bull market, and travel the world. Willing to live in cheaper countries like Vietnam, Thailand, Mexico, Colombia for bear markets where $50k is still a ton of money.

The 2% cash in proposed plan would be 1 years of expenses.
Did you play with SWR (e.g. in portfolio charts)?
I think for such a long retirement 100% stocks is your best bet, and use a low SWR (<3%)

I'd be more concern trying to manage legal aspects of residence in another countries. Like, do they recognize your 401k?
There is also lots of uncertainty in how will the world look in 50 years
international001
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by international001 »

vineviz wrote: Wed Jan 20, 2021 9:05 am
klaus14 wrote: Wed Jan 20, 2021 1:03 am
This makes intuitive sense but first term in your formula doesn't look anything like average return, care to explain?
So, I'm not a mathematician so forgive me for this explanation.

Expected return (x̄) is an arithmetic mean.

The sustainable withdrawal rate is properly calculated as the harmonic mean of the cumulative compounded growth which, IIRC, is a quartic polynomial function involving both x̄ and n. Or something equally complex.

So the first two terms in the equation simply approximate the more complex (but complete) solution. I think those two terms represents the limit as n approaches infinity, but I don't actually recall for sure. It's a reasonable approximation over realistic values of n and x̄, IMHO, but in cases where n is very small (e.g. <10) and x̄ is very large (e.g. >10%) you'd want another approach.

klaus14 wrote: Wed Jan 20, 2021 1:03 am Also, for 100% US Stock portfolio, plugging in n=50 and return=2.9% (1/CAPE), std=15% gives (approximately)
SWR = 2.9% + 2% - 2.1% = 2.8% :(

With 60/40: return=2.9*60% (assume bond portion returns real zero), std=9%
SWR= 1.7% + 2% - 1.2 = 2.5% :( :(
It's a challenging return environment, no doubt.
That's an interesting formula

Should I use x̄ = 1.029

I didn't follow how you substitute it in x̄/2 + (x̄)**2 * sqrt(2)

Also:

- I guess you have to use an average of 6% or 7% if your retirement has to last that long (and you get all stocks with that historic average return)

- It's worth to note that a retirement with and I-bond over 30 years and 0% return just inflation, would give you 3.3% (1/30) SWR. Sometimes I think it makes me wonder that if the only think you really want is security in a normal retirement, perhaps you should not invest in stocks at all.
masonstone
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by masonstone »

firefighter973 wrote: Fri Jan 15, 2021 12:37 pm Windfall has me very heavy in cash right now. I'm mid 30s and want to retire in 12 months and live on a 2-4% withdrawal rate. I'll be selling my house then. I'm able to adjust spending down to 2% in bear markets and up to 4% in bull markets.

Does my planned allocation look ok? Too low on bonds? Should I just dump the cash in lump sum? DCA? I'm scared of buying in at record highs (But I also know you can't time the market etc)

Current Allocation
Cash 67.9% 1,660,000
Stocks USA 8% 196,000 VTSAX
Stocks International 4.7% 114,000 VTIAX
Bonds USA 3.3% 80,000 VBTLX
House Equity 11.1% 272,000
Crypto 5% 122,000
Total $2,450,000

Planned Allocation
Cash 2%
Stocks USA 53.3% VTSAX
Stocks International 26.7% VTIAX
Bonds USA 10% VBTLX
REIT 3% VGSLX - Because I won't own a personal home and feel VTSAX is underweighted in real estate
Crypto 5%
Total $2,450,000

Budget
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You don’t have enough to retire
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cflannagan
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by cflannagan »

masonstone wrote: Mon Oct 25, 2021 7:52 pm You don’t have enough to retire
You're kidding right? OP has at least 27x his "upper end" annual expenses in liquid assets.

Let me ask you, what do you think would be "enough" for someone who has $89k annual expenses?
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firefighter973
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by firefighter973 »

AnnetteLouisan wrote: Mon Oct 25, 2021 2:14 pm do you have experience traveling? I always suggest people take 3-6 week trips first just to be sure it’s really what they want. or do a year abroad.
14 countries. Longest was only 17 days though - but traveling has been my most favorite thing in the world.
Yeah, these are cool. How did you find people to take videos of you? Did you make any friends to keep traveling with?
12 out of 14 countries I traveled alone, and just ask a stranger to take my photo. Ask part of a family or an older person to avoid them stealing your phone lol.
You don’t have enough to retire
The original post is 10 months old when my NW was $2.45m.
Today it's grown to $3.2m
masonstone
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by masonstone »

cflannagan wrote: Mon Oct 25, 2021 7:59 pm
masonstone wrote: Mon Oct 25, 2021 7:52 pm You don’t have enough to retire
You're kidding right? OP has at least 27x his "upper end" annual expenses in liquid assets.

Let me ask you, what do you think would be "enough" for someone who has $89k annual expenses?
At his age 3.5MM
Da5id
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by Da5id »

firefighter973 wrote: Mon Oct 25, 2021 8:24 pm
AnnetteLouisan wrote: Mon Oct 25, 2021 2:14 pm do you have experience traveling? I always suggest people take 3-6 week trips first just to be sure it’s really what they want. or do a year abroad.
14 countries. Longest was only 17 days though - but traveling has been my most favorite thing in the world.
You don’t have enough to retire
The original post is 10 months old when my NW was $2.45m.
Today it's grown to $3.2m
You still don't have enough! Just kidding.

You have enough for most reasonable scenarios. There are bad ones where you might not have enough (say you are expensively disabled soon), but honestly covering all the worst cases isn't a great way to live. There are good scenarios where you *might* not have enough. e.g. get married (if you aren't already), have kids, life becomes more expensive than your current plan. But the thing is, you could always go back to work some day if that is needed. Or if you get bored. Or your budget somehow isn't very accurate -- health care for example could be rather more than you think.

Travelling is great, but you might find you need other goals at some point. But you can sort that out when the time comes.
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by Da5id »

masonstone wrote: Mon Oct 25, 2021 8:34 pm
cflannagan wrote: Mon Oct 25, 2021 7:59 pm
masonstone wrote: Mon Oct 25, 2021 7:52 pm You don’t have enough to retire
You're kidding right? OP has at least 27x his "upper end" annual expenses in liquid assets.

Let me ask you, what do you think would be "enough" for someone who has $89k annual expenses?
At his age 3.5MM
ERN table below suggests that rather higher has worked historically, though there obviously aren't lots of 60 year periods worth of data, and the periods we have overlap heavily, so who knows. But what is your specific reasoning for a 2.7% SWR rather than 3%, or 2%?

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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by fup »

Love it! Life is short, go travel and enjoy.
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cflannagan
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by cflannagan »

masonstone wrote: Mon Oct 25, 2021 8:34 pm At his age 3.5MM
Based on what formula? 2.7% SWR seems way too conservative, especially for someone who has no kids (no heir to leave money to)
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by masonstone »

cflannagan wrote: Mon Oct 25, 2021 8:54 pm
masonstone wrote: Mon Oct 25, 2021 8:34 pm At his age 3.5MM
Based on what formula? 2.7% SWR seems way too conservative, especially for someone who has no kids (no heir to leave money to)
He’s in his mid 30s. That can easily change with an accident at his age.
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cflannagan
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by cflannagan »

masonstone wrote: Mon Oct 25, 2021 9:08 pm
cflannagan wrote: Mon Oct 25, 2021 8:54 pm Based on what formula? 2.7% SWR seems way too conservative, especially for someone who has no kids (no heir to leave money to)
He’s in his mid 30s. That can easily change with an accident at his age.
So no formula? Just an arbitrary number that you "feel" is right, based on his age?
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firefighter973
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by firefighter973 »

masonstone wrote: Mon Oct 25, 2021 9:08 pm
cflannagan wrote: Mon Oct 25, 2021 8:54 pm
masonstone wrote: Mon Oct 25, 2021 8:34 pm At his age 3.5MM
Based on what formula? 2.7% SWR seems way too conservative, especially for someone who has no kids (no heir to leave money to)
He’s in his mid 30s. That can easily change with an accident at his age.
Had a vasectomy at age 20. Kids isn't happening :)

And before you say... "You might change your mind if you meet a girl..."
Nope! I'd leave the girl immediately in that case. That may sound cold, but it's my life too and I'm 100% certain on what I want.
masonstone
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by masonstone »

firefighter973 wrote: Mon Oct 25, 2021 10:10 pm
masonstone wrote: Mon Oct 25, 2021 9:08 pm
cflannagan wrote: Mon Oct 25, 2021 8:54 pm
masonstone wrote: Mon Oct 25, 2021 8:34 pm At his age 3.5MM
Based on what formula? 2.7% SWR seems way too conservative, especially for someone who has no kids (no heir to leave money to)
He’s in his mid 30s. That can easily change with an accident at his age.
Had a vasectomy at age 20. Kids isn't happening :)

And before you say... "You might change your mind if you meet a girl..."
Nope! I'd leave the girl immediately in that case. That may sound cold, but it's my life too and I'm 100% certain on what I want.
Interesting, most men I know didn’t want to have kids when they were in their 20s (me included) but had a change of heart when they were in their 30s and 40s. A vasectomy reversal is generally unsuccessful so you won’t be able to have kids even if you wanted to at this point.

But going back to the point, since kids and a family are no longer in your future, I believe you have sufficient funds to retire.
BW1985
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by BW1985 »

firefighter973 wrote: Mon Oct 25, 2021 10:10 pm
masonstone wrote: Mon Oct 25, 2021 9:08 pm
cflannagan wrote: Mon Oct 25, 2021 8:54 pm
masonstone wrote: Mon Oct 25, 2021 8:34 pm At his age 3.5MM
Based on what formula? 2.7% SWR seems way too conservative, especially for someone who has no kids (no heir to leave money to)
He’s in his mid 30s. That can easily change with an accident at his age.
Had a vasectomy at age 20. Kids isn't happening :)

And before you say... "You might change your mind if you meet a girl..."
Nope! I'd leave the girl immediately in that case. That may sound cold, but it's my life too and I'm 100% certain on what I want.
I’m curious OP, any decisions made yet?
Chase the good life my whole life long, look back on my life and my life gone...where did I go wrong?
BW1985
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by BW1985 »

To an extent I get the idea, but I believe by your mid 30’s you by and large know who you are and what you want. You’re not 22 anymore, those days are long gone.
Chase the good life my whole life long, look back on my life and my life gone...where did I go wrong?
kiwisun
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by kiwisun »

firefighter973 wrote: Fri Jan 15, 2021 1:21 pm My first 3-5 years of retirement will be around 45-50k annual expenses in low cost countries.

Afterwards, I'll increase to my upper budget of 90k and start living in higher cost countries (Amsterdam, Tokyo)

One quick note: 12 years ago I set to travel the world (definitely not with as much financial safety as you do but with enough that I did not have to worry too much about money). After the first 6 months I realized I could easily travel for 16 months more as expenses per month were super low. Twelve months into my trip, I was choosing more comfortable hotels so I could rest properly and have privacy (as opposed to hostels). Moreover, I was staying longer on each city. I was also going to more expensive restaurants so I could have healthy food.

Moving around takes a toll on you physically and emotionally. If you can make friends easily that helps but some places, due to language barrier or lack of foreigners that you connect with, you are pretty much with your own thoughts.

Long story short, 16 months into my trip, I decided to go back home. I was visiting Torres del Paine and the only thing I could think of was I miss my family (parents, siblings), I am done with travelling - got on a plane to Buenos Aires the next day and back home the following day.

Maybe, reevaluate your plans in 1 year time.

Also, maybe learn how to sail, buy a sail boat and travel the world that way - this will reduce the toll of moving around with all your belongings - if I had to do it again, I would do it on a sail boat:).

Happy and safe travels!

PS. Think of skills to learn while you travel. Maybe a language or some other skill. It is something that you can carry with you after your travels conclude.
international001
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by international001 »

BW1985 wrote: Thu Nov 11, 2021 8:59 pm
To an extent I get the idea, but I believe by your mid 30’s you by and large know who you are and what you want. You’re not 22 anymore, those days are long gone.
Lucky you... for most people the self in 20 years of the future will still be an alien for the self in 40 years

https://www.nytimes.com/2013/01/04/scie ... usion.html

I try to plan with flexibility because my needs/values in the future may be completely different. That's why I'm in BH.
Apathizer
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by Apathizer »

If it were me I'd have about 1-3 years cash and keep it simple with a 40% equities/60% bonds auto re-balance fund like VSCGX. It's a great all-weather, low-risk fund that should produce consistent returns. That's more money than I'll ever need so I would keep it simple, low-risk, and well diversified.
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
bmleaser
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Re: Retiring early from windfall, mid 30s, what is the correct asset allocation to use?

Post by bmleaser »

You have enough to retire. However, the 50-70 years you have left to live is a long time. Also, I think it isn't good for people to not have a reason to get up in the morning. As other people have noted extended travel, especially alone, gets old. I would suggest taking a long trip then going back to work doing something. Right now you have enough for a modest retirement. With a few more years of compounding interest you could have a great retirement.
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