So I'd like to start building a bond tent in anticipation of RE 5 to 6 years. I'll be 50 at that point, so I won't be able to access the retirement accounts yet unless I wanted to go the SEPP route. Therefore I'm planning on my early years of retirement drawing only from my taxable brokerage account. So theoretically that's where my bond pool should be.
However, in order to do that would have to sell some of my stock now to start relocation, which would incur significant long-term capital gains taxes. So my question is whether or not taking the capital gains hits now, which knocks a percentage off my portfolio upfront is justifiable given the sequence of return risk. Or is SORR a small enough concern that it would be outweighed by the effects of knocking a couple percentage points off my portfolio now and I should continue to hold my equities?
Maybe I'm thinking about this wrong and you all have some suggestions to sidestep the issue. Thanks in advance!
Starting to reallocate towards bonds. Does the sequence of returns risk outweigh realizing capital gains taxes now in taxable accounts?
byu/DreyHI infinancialindependence
Posted by DreyHI
7 Comments
Why not buy most of your bonds in your retirement accounts? Then you don’t incur significant long term capitol gains taxes, selling equities at today’s record highs.
You don’t say anything about how diversified your asset is, ie whether there are other benefits with reallocation. IIRC, earlyretirementnow did study 100% stock effects on trinity study, perhaps something worth looking into
You don’t need to locate the bonds in taxable. You have one asset allocation across all accounts.
If you run FIRE calculators like FiCalc.app or cFireSim, you’ll find that your 95% equity portfolio will have better success rate than any bond tent.
Try to save the LTCG for the low income RE years where you can book some of it at 0% tax (max out the whole bracket if you have enough to do that for several years). You won’t need to live off the bonds until the taxable runs low. You’ll have dividends/bond interest coming in and plenty of free cash flow from the LTCG you book. Any cash from booking that much in gains you don’t need to spend, invest that in bonds or even right back into the same equity to raise your basis to current price.
Switch off dividend reinvestment now, put those into bonds as they come in, quarterly is fine. Same with any windfalls
Why are you so averse to using SEPP? It‘s a great tool to have. Especially if retiring at 50, the relative rigidity of SEPP becomes less of a downside.
Interesting, I wasn’t aware of SEPP 72t, several mentioned in this discussion. My question is though in a taxable account, shouldn’t your bonds be Treasury, municipal, tax efficient money markets? i had to research SEPP 72t. [https://rolloveryour401k.com/understanding-the-age-55-rule-and-72t-for-retiring-early/#more-5168](https://rolloveryour401k.com/understanding-the-age-55-rule-and-72t-for-retiring-early/#more-5168)