24/7 Wall St. Key Takeaways

• Understanding your expenses is essential when deciding how much money you need for retirement.
• A diverse portfolio helps protect your investment from market fluctuations.

Deciding when to retire is the question for older Americans. A Reddit user, 52M, is contemplating early retirement with a diverse portfolio and a few concerns about long-term market trends.

This poster has built a solid foundation with $7.7 million spread across different investing vehicles. However, they still need to pay for many expenses, including college costs – all while navigating potential market downturns.

We’ll break down their situation and explore key takeaways anyone can learn from their financial plan.

Why We’re Covering This

Learning from others’ situations is an easy way to increase your financial knowledge, even if you aren’t in the exact same situation yourself.

1. Diversify Your Portfolio

This Reddit poster has a well-rounded approach to investment: 70% stocks, 20% bonds, and 10% cash. According to the post, their allocations are across domestic, tech, small-cap, and value stocks, which could be diversified a bit better.

However, chasing perfect diversification is impossible, especially since your investments are always changing. (That’s a bit of the point, after all!)

2. Plan for College Costs

This family has 549 plans, but there’s still a shortfall of $120K that’ll need to be paid over the next couple of years. Even with substantial savings, planning for these education costs is vital to avoid derailing retirement plans.

3. Consider Market Conditions

The poster is concerned about market valuations. Most of their investments are outside of standard S&P 500 trackers. They focus on small/mid-cap stocks, which could bring more risk in the future. While this has led to short-term gain, it doesn’t necessarily lead to long-term stability.

4. Retirement Spending Awareness

With a monthly spending rate of $15K (excluding medical insurance), the user understands their retirement expenses well. However, these expenses will likely go up in the future with inflation. When you retire pretty early, inflation can have an even bigger impact! It’s important to plan appropriately.

5. Leverage Deferred Compensation

Their $2M in deferred compensation pays out from age 53 to 65, providing steady income during early retirement. Structuring income streams like this can help bridge the gap if you plan on retiring early.

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