The Simple Path to Wealth: Your Road Map to Financial Independence and a Rich, Free Life

by J.L. Collins

Principles Next, let’s look at some of the guiding principles behind the approach we use. First, notice that in constructing our 75/25 allocation, we look at all of our funds combined, regardless of where they are held. Second, we have all our dividends, interest and capital gains distributions in our tax-advantaged accounts reinvested. I am not captivated by the idea of “living only off the income” (that is, dividends and interest) as many are. Rather, I look toward drawing the ~4% the research has shown a portfolio like mine can support. Third, we have the dividend and capital gains distributions from VTSAX in our taxable account sent directly to our checking account. Since the payment of these is a taxable event, it makes no sense to reinvest them only to turn around and withdraw the equivalent amount of money shortly thereafter. Fourth, I want to let my tax-advantaged investments grow tax-deferred as long as possible. Fifth, as I am within ten years of age 70 1/2, I want to move as much as I can from our regular IRAs to our Roths, consistent with remaining in the 15% tax bracket. You’ll recall this strategy from our discussion on RMDs (required minimum distributions) in Chapter 20. Sixth, once we hit age 70 1/2 and are faced with RMDs, these withdrawals will replace those we had been taking from our taxable account. The taxable account will then be left to grow again.