FIRE at 50 - Optimizing liquidity, risks and taxes

[Your_Full_Name]

Hrm, ok.

As your average investor, I’d still pursure the plan @Cortana pursues.

Are you suggesting anything different?

[Cortana]

Can a mod or @Bojack delete hajes29a posts any everything related to it?

This thread isn’t about optimizing investments and cash allocation right now, it’s about the 5 years before early retirement and the plan afterwards.

[1742]

A bit late to the party, and very little to add. Just to emphasize some inputs others made already (especially @PhilMongoose, @xerox5003 and @Your_Full_Name), specifically to your questions:

@Cortana

What do you think about the cashflow rebalancing? Selling equities/bonds for expenses to stay within the target band.

Not a bad idea, but I’d suggest investing the 7% cash in equities instead and overall skew your equity portfolio to achieve a decent dividend yield (covering basic needs). This addresses the sequence of return risk better I believe, also from a psychological point of view.

@Cortana

Does it make sense to keep retirement accounts (2nd/3rd pillar) mostly in equities and low in bonds? In terms of flexibility and tax optimization.

Go for high(er) bond allocation in pillar 2/3, which will long-term have higher taxable return vs equities. The great benefit in Switzerland is that capital gains are always tax free, so make use of a high equity allocation in free assets. Also: Do you have access to a pillar 1e and already today the possibility of a high equity allocation in your pillar 2? If yes, what if that changes? If no, how do you plan to completely restructure your portfolio upon retirement? The answers to those questions are again an argument to keep a decently high bond allocation throughout in retirement assets.

@Cortana

Is mental bucketing actually better than just treating everything as one portfolio with a simple glidepath? Would it be easier and more efficient to keep all 3 portfolios (free assets, 2nd and 3rd pillar) the same?

You need a global view of your portfolio. And as said before, if you keep a high bond allocation in pillar 2, you should be able to always easily balance to target allocation through your free assets. Keeping all parts of the portfolio at the same allocation is a nice thought, but doesn’t work in reality.

@Cortana

Any other ideas for reducing the sequence of return risk other than cash + bond-first withdrawals for such scenarios?

Dividends. We all know this isn’t ideal long-term and technically slightly lowering expected returns, but the lower volatility and regular cash returns aren’t to be underestimated. Having reached my FIRE target a few months ago (without RE), I went through the phase of securing my FI and reducing my sequence of return risk in the last three years as getting FI became a tangible, real outlook, and believe me: FIRE is as much a psychological exercise as it is a financial one. So again: Dividends (and bond interest) to cover your basic needs.

@Cortana

What do you think about the approach as a whole? Things I missed? Things you would do differently?

Great plan, very similar to my own. I am sure you will get there.

[PhilMongoose]

@1742

FIRE is as much a psychological exercise as it is a financial one.

I think maybe FIRE is more a psychological exercise than it is a financial one.