You mentioned that a 6% to 7% draw on your retirement portfolio would meet your income needs, so (for ease of calculation) I've translated that to a $1.5M portfolio and $100k income need (i.e. 6.67%).
You could meet your income needs by creating a portfolio that yields 6.67% today. That isn't as risky as it sounds, as the picture will improve significantly in a few years when Social Security kicks in. But you would need to substantially rework the portfolio to hit that number, and then potentially rework it further to derisk.
Based on the $100k income needs, I'm estimating $40k Social Security at age 67 and $28k at age 62. Your actual numbers (and proportions) might be different, but I'm guessing they are in the ballpark? The benefit for a single filer at age 62 is 70% of the benefit at age 67.
Your "bridge" could be as little as $56k, two years of Social Security benefit, which you could cash out up front and put into a savings account. The remaining $1.44M portfolio could then be invested at a 5% yield to generate $72k income. For the next two years you would take the $72k income and $28k from the savings account for the $100k income needs. After that you would take the $72k income and $28k from Social Security, for the $100k income needs.
Neither a 6.67% draw nor a 5.00% draw is what I would consider "sustainable" for a 30-year retirement. It isn't so much that the draw itself can't be sustained, but that there is no certainty that it will be able to increase with inflation. The risk is that inflation causes your income needs to rise faster than your income increases.
On the other hand, your situation improves once you downsize the house and/or get an inheritance. There is no meaningful risk over a 10-year period for a draw of this magnitude.
My preference would be to target the 5.00% yield rather than the 6.67% yield. Hitting that yield point requires fewer changes to your current portfolio, and gives you a much better chance of keeping up with inflation. But for me that is a preference for simplicity as much as anything else. I hate making large changes to my portfolio, especially ones that I know will need to be reversed in a couple years, so the idea of "build the income and then de-risk from there" doesn't feel right. I'm always afraid of the "friction" from making large changes at potentially the wrong time.
Many ways to skin the cat, of course, including scenarios where you keep the yield at a lower point and take trims as needed. So I don't mean the above to be a complete representation of all possibilities. |
