Portfolio Advice - Early Retirement

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
davidr-va
Posts: 16
Joined: Mon Jul 16, 2012 8:33 pm

Portfolio Advice - Early Retirement

Post by davidr-va »

First time poster. I've been blessed with a good job and a great wife. My father retired at 50 (he was actually "rightsized", if you remember those days) when I was in my early twenties and my goal has always been to emulate his early retirement. Since then it's been my wife and I's shared goal to make that happen. I would love some advice...

Emergency funds = 70K (50K true emergency, 8K waiting to be invested, and ~12K in checking)
Debt: None, credit cards paid off monthly, cars paid off, and paid the house off earlier this year (how liberating!)
Tax Filing Status: Married filing Jointly
Tax Rate: 33% Federal 5.75% State Virginia

Age: 47 & 46 (both birthdays coming up in September)
Family is two kids. One is a rising junior in high school and other is a rising sophomore in college. College is paid for both of them via VPEP and we have VEST accounts that should handle room, board, books, etc.

Desired Asset allocation: 50/50 (but nor sure that's right, see questions)
Intl allocation: ??% of stocks (one of my questions)

Quicken tells me my current asset allocation for taxable accounts is -
27% Domestic Bonds
50% Large Cap Stocks
8% International Stocks
15% "other"

Retirement accounts asset allocation is -
23% Large Cap Stocks
18% Small Cap Stocks
18% International Stocks
1% "other"
39% Cash

Total portfolio ($1.5M) asset allocation is -
16% Domestic Bonds
35% Large Cap Stocks
8% Small Cap Stocks
13% International Stocks
9% "other"
19% Cash

Taxable
17% cash
6% Freemont Bond Fund (MBDFX) (0.58%)
2% Icon Healthcare Fund (ICHCX) (1.36%)
2% Vanguard 500 Index (VFINX) (0.17%)
52% Permanent Portfolio Fund (PRPFX) (0.71%)
1% Intel (INTC)
3% Apple (AAPL)
16% Capital One Financial (COF)

Retirement Accounts
My Roth
1% CGM Focus Fund CGMFX 1.05%

My TIRA
3% Vanguard 500 Index VFINX 0.17%

Wife's Roth
2% Vanguard 500 Index VFINX 0.17%
3% Oakmark Equity and Income 1 OAKBX 0.77%

Wife's 401(k)
6% Harbor Small Cap Value HASCX 0.84%
2% Hotchkis and Wiley Large Cap Value HWLIX 1.05%

Wife's 403(b)
1% American Century Ultra TWCUX 0.99%

My 401(k)
1% Company stock fund
19% Dodge and Cox International Stock DODFX 0.64%
7% Fidelity Spartan 500 Index Fund FXAIX 0.03%
4% Goldman Sachs Large Cap Value Fund GSVTX 0.92%
14% Northern Small Cap Value NOSGX 1.00%
38% Stable Value Fund

New annual Contributions
$32,000 my 401k (I max this out)
$?? taxable (as much as possible, I haven't calculated our new total now that we've paid off the house)

Funds available in either 401(k)
1 Company Stock Fund 0.05%
2 Dodge & Cox Balanced DODBX 0.53%
3 Dodge & Cox Intl Stock DODFX 0.64%
4 Fidelity Capital Appreciation Fund FDCAX 0.91%
5 Goldman Sachs Large Cap Value Fund Class IR GSVTX 0.92%
6 Hartford Midcap Fund Class Y HMDYX 0.77%
7 Hartford Small Company HLS Fund Class IA HIASX 0.71%
8 Lazard Emerging Mkts Equity Instl CL LZEMX 1.12%
9 LifePath® Index 2015 Fund Q 0.12%
10 LifePath® Index 2020 Fund Q 0.12%
11 LifePath® Index 2025 Fund Q 0.12%
12 LifePath® Index 2030 Fund Q 0.12%
13 LifePath® Index 2035 Fund Q 0.12%
14 LifePath® Index 2040 Fund Q 0.12%
15 LifePath® Index 2045 Fund Q 0.12%
16 LifePath® Index 2050 Fund Q 0.12%
17 LifePath® Index 2055 Fund Q 0.12%
18 LifePath® Index Retirement Fund Q 0.12%
19 Northern Small Cap Value NOSGX 1.36%
20 PIMCO Total Return Inst CL PTTRX 0.46%
21 Spartan 500 Index Fund - Fidelity Advantage Institutional Class FXAIX 0.02%
22 Stable Value Fund 0.28%
23 Wells Fargo Capital Growth Instl CL WWCIX 0.79%

Funds available in her 403(b)
Right now it's at American Century but it can be moved.

Questions:
1. Several sites have suggested a 50/50 stock/bond split. Does that sound right?
2. I'm thinking that we'll need to live from our taxable accounts until 62. I'm not sure where I came up with that age as I believe you can withdraw from retirement accounts penalty free after 59 1/2. Any benefits to waiting?
3. What kind of exposure, if any, should I have to international stocks, REIT's, TIPS, etc.?
4. Given that I won't be touching retirement accounts for 9 1/2 to 12 years should I be more aggressive in their allocation?
5. Should I be looking at ETF's or mutual funds? What's the difference?
6. I've also been reading more about "tax efficient" investing but haven't done anything towards that. Any advice?
7. I have a good bit of cash to invest (it's showing up in Large Company Stock above as I haven't updated Quicken yet). By my calculations I need to make 6% on the portfolio, especially taxable, any ideas on the best place to put that cash?
Finally my biggest goal is to simplify my portfolio. I'd like to reduce the amount of time I spend managing the money and worrying whether I have it right. I realize early retirement adds complexity but any advice on doing that?

Thanks in advance!
Alex Frakt
Founder
Posts: 11589
Joined: Fri Feb 23, 2007 12:06 pm
Location: Chicago
Contact:

Re: Portfolio Advice - Early Retirement

Post by Alex Frakt »

bumping following delayed moderator approval
Bob's not my name
Posts: 7417
Joined: Sun Nov 15, 2009 8:24 am

Re: Portfolio Advice - Early Retirement

Post by Bob's not my name »

Your wife should be contributing back door to a Roth IRA. If you can roll your TIRA into your 401k you should be doing the same.
User avatar
BigFoot48
Posts: 3114
Joined: Tue Feb 20, 2007 9:47 am
Location: Arizona

Re: Portfolio Advice - Early Retirement

Post by BigFoot48 »

Welcome to the forum David. You will soon be flooded with a bunch of good advice addressing your situation and questions, but I thought I would give you mine on a few of your questions as a person that retired at 50 twelve years ago and faced some of the same issues you are.

Yes, you want to live off your taxable account for as long as possible to allow your tax-advantaged to grow. I ran my taxable down to $50,000 before starting IRA withdrawals. I started IRA withdrawals at 54 using the IRS SEPP method which allows penalty-free withdrawals before 59 1/2.

I started SS at age 62 which I thought, and still do, was appropriate for our situation, but it's a complex decision and you will have many years to investigate how best to claim it for you situation. You didn't mention a pension, which would play a factor in all these decisions.

I would be a little more stock orientated at 50 because you have many many, years ahead of you and inflation protection is critical. I would be more like 60%/40%, depending upon your overall financial situation and risk tolerance.

Good luck and you came to the right place for advice!
Retired | Two-time in top-10 in Bogleheads S&P500 contest; 18-time loser
livesoft
Posts: 86075
Joined: Thu Mar 01, 2007 7:00 pm

Re: Portfolio Advice - Early Retirement

Post by livesoft »

Questions:
1. Several sites have suggested a 50/50 stock/bond split. Does that sound right?
Right? There is no such thing as a "right" split. 50:50 does sound OK, but so does 60:40, 40:60, 70:30, ....
2. I'm thinking that we'll need to live from our taxable accounts until 62. I'm not sure where I came up with that age as I believe you can withdraw from retirement accounts penalty free after 59 1/2. Any benefits to waiting?
Although one may be able to withdraw from retirement accounts penalty-free before age 59.5, if one can use up taxable before that, then it is generally a good idea. In the meantime, one can be converting in a low tax bracket retirement accounts to Roth IRAs. Check out http://www.i-orp.com to see how to sequence withdrawals and conversions and please read the ZERO taxes in retirement thread ( http://www.bogleheads.org/forum/viewtop ... =2&t=87471 ) for some ideas on how to pay ZERO income taxes in retirement.
3. What kind of exposure, if any, should I have to international stocks, REIT's, TIPS, etc.?
Who can really say? We see lots of portfolios, so for int'l I'd say between 20% and 40% of all your equities; for REITs at least 10% of equities or just don't have 'em; for TIPS we see anywhere from 0% to 100% of fixed income in TIPS with lots of folks going 50:50.
4. Given that I won't be touching retirement accounts for 9 1/2 to 12 years should I be more aggressive in their allocation?
No.
5. Should I be looking at ETF's or mutual funds? What's the difference?
I own both and can say essentially there is no significant difference. See also: Wiki article link: ETFs vs Mutual Funds

6. I've also been reading more about "tax efficient" investing but haven't done anything towards that. Any advice?
Read this Wiki carefully and follow its advice: http://www.bogleheads.org/wiki/Principl ... _Placement
7. I have a good bit of cash to invest (it's showing up in Large Company Stock above as I haven't updated Quicken yet). By my calculations I need to make 6% on the portfolio, especially taxable, any ideas on the best place to put that cash?
Into your asset allocation as you have already posted in a tax-efficient way (see previous answer). There is no reason to do anything different with it.
Finally my biggest goal is to simplify my portfolio. I'd like to reduce the amount of time I spend managing the money and worrying whether I have it right. I realize early retirement adds complexity but any advice on doing that?
Start with 3 funds: Total US Stock Market Index , Total Int'l Stock Market Index, Total US Bond Index, add less than 4 funds to that. Commonly used funds for those 4 seem to be REIT index, TIPS, small-cap value index, foreign small cap index, short-term bond, emerging markets index and really depend on one's personality and current beliefs more than anything else (including recommendations from books, web sites, advisors, and strangers).
Wiki This signature message sponsored by sscritic: Learn to fish.
pkcrafter
Posts: 15461
Joined: Sun Mar 04, 2007 11:19 am
Location: CA
Contact:

Re: Portfolio Advice - Early Retirement

Post by pkcrafter »

david wrote:
By my calculations I need to make 6% on the portfolio, especially taxable, any ideas on the best place to put that cash?
Does this mean you are planning a 6% withdrawal?

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
Topic Author
davidr-va
Posts: 16
Joined: Mon Jul 16, 2012 8:33 pm

Re: Portfolio Advice - Early Retirement

Post by davidr-va »

Wow, thanks for all the good advice. I'll be digesting it and come back with more questions.

On the withdrawal rate I'm not planning on a 6% rate, more like 4%. I came up with 6% return needed by creating a couple of spreadsheets to figure out how far I would draw down my taxable nest egg at various standards of living (factoring in return and inflation). Basic stuff but I found it enlightening.
Post Reply