Adjustments for The FIRE Plan

Your line of thinking seems solid, but let’s evaluate it critically and highlight potential risks or adjustments for your FIRE plan. Here's a breakdown:

Strengths in Your Plan

  1. Conservative Withdrawal Rates: A withdrawal rate of 3.6% ($48K annually from $1.33M) is within the commonly recommended 4% rule and accounts for inflation.

  2. Roth Strategy: Leaving your Roth untouched and allowing it to grow until age 59.5 maximizes tax-free growth for your long-term needs.

  3. Scenario Testing: Using a tool like ficalc.app to simulate worst-case scenarios is a prudent approach. The 100% success rate gives confidence in your plan.

  4. Diverse Tax Buckets: Having funds in taxable (brokerage), tax-deferred (IRA/401k), and tax-free (Roth) accounts provides flexibility in managing taxes and withdrawals.

Potential Risks or Holes

  1. Health Insurance Assumptions: The assumption that ACA remains affordable and available is reasonable but not guaranteed. Premiums could increase, or subsidies might change. Ensure your budget allows for variability in health insurance costs.

  2. Market Volatility: While the 100% success rate is reassuring, bear markets, especially early in retirement, could significantly reduce your portfolio value (sequence of returns risk). It's good to have a cash cushion or consider lower equity exposure initially.

  3. Inflation Sensitivity: Future inflation rates could exceed historical averages, especially for specific categories like healthcare. Ensure your model assumes at least 2.5-3% inflation annually.

  4. Unplanned Expenses: Unexpected costs (e.g., major home repairs, healthcare emergencies, family support needs) could strain your budget. Your $26K in cash might be too low for these contingencies.

  5. Tax Legislation Risks: Tax laws can change, potentially affecting Roth conversion strategies or capital gains rates. Diversification of tax buckets helps, but you may want to stay updated on legislative developments.

Suggestions to Improve Your Plan

  1. Increase Cash Reserves: Boost your cash buffer to 6-12 months of expenses ($24K-$48K) to handle emergencies or market downturns without needing to sell assets at a loss.

  2. Consider a Bond Ladder or Stable Investments: Allocate a portion of your $1.33M to safer assets (e.g., bonds, CDs, or TIPS) to cover the first 5-10 years of withdrawals. This can mitigate sequence of returns risk.

  3. Explore Partial Roth Conversions Now: If you're in a lower tax bracket this year, consider converting more of your Traditional IRA/401k to Roth before retiring to reduce future taxes on withdrawals.

  4. Model Healthcare Costs: Use tools or projections to estimate healthcare costs in retirement (premiums, out-of-pocket expenses). Revisit your ACA assumptions periodically.

  5. Keep Updating Projections: Regularly revisit your spending, portfolio performance, and tax strategies. A dynamic approach ensures you're adjusting for real-life variables.

Stress-Test Scenarios

Your plan is well-structured and thoughtful, but these additional considerations can further safeguard your FIRE strategy. If ACA or tax law changes are significant, having flexibility in your approach (e.g., cutting discretionary expenses or working part-time) could provide a helpful safety net.