Getting closer to retirement portfolio review

Have a question about your personal investments? No matter how simple or complex, you can ask it here.

Getting closer to retirement portfolio review

Postby 2muchfun » Wed Jan 02, 2013 3:13 pm

Thank you in advance for reviewing my portfolio and making recommendations. In 2010, you had made some suggestions and I modified my portfolio. Today, I have a lot fewer funds. I am looking for some advice on how I look now and whether I need to tweak anything.

Again, thank you for looking at this and sharing your knowledge.

Below is a summary of my holdings.

Emergency funds: Included in what is listed below
Debt: None
Tax Filing Status: Married Filing Jointly
Tax Rate: 28% Federal, 0% State
State of Residence: Florida
Age: 53
Desired Asset allocation: 50% stocks / 50% bonds
Desired International allocation: 33% of stocks

Total portfolio: low seven figures

Current retirement assets

Percentage Stocks/Bonds Fund
Taxable
6.3% STB Vanguard Short-Term Investment-Grade Fund
12.3% I Vanguard Total International Stock Index Fund (VGTSX)
2.8% C Vanguard Tax-Exempt Money Market Fund
23.8% S Vanguard Total Stock Market Index Fund Admiral Shares
1.9% S Schwab Employee Stock Purchase Plan
0.2% S NVDA (Stock)
0.2% S TINY (Stock)
0.2% S RVBD (Stock)

Rollover IRA
16.3% B Vanguard Total Bond Market Index Fund Investor Shares
0.0% C Vanguard Money Market Fund
7.4% S Vanguard Total Stock Market Index Fund Admiral Shares
8.2% T Vanguard Inflation-Protected Securities Fund Admiral Shares

Husband Roth IRA
1.7% B Vanguard Total Bond Market Index Fund Admiral Shares

Wife Roth IRA
3.0% B Vanguard Total Bond Market Index Fund Investor Shares

Roth 401K (Charles Schwab)
0.5% R Nuveen Real Estate Secs
1.6% B Vanguard Long-Term Investment-Grade

Annuity
Fidelity VIP FundsManager 70
6.4% S Stock
2.8% B Bonds

Cash
0.7% C Fidelity Money Market
1.1% C Bank Savings
1.3% C Bank Checking
1.1% C ING Savings

New annual Contributions:
$23,000 his 401k
$6,500 his IRA/Roth IRA
$5,500 her IRA/Roth IRA
$50,000 taxable (for retirement, not short term goals)

Questions:
1. Given that I am 53 years old and plan to retire in 2 ½ years, do you have suggestions on balancing my portfolio?

2. Am I too conservative?

Legend above - C is Cash, STB is Short Term Bonds, B is Bonds, S is Stock, I is International Stock, T is TIPs, R is Real Estate
2muchfun
 
Posts: 25
Joined: Wed Feb 10, 2010 11:59 am
Location: Florida

Re: Getting closer to retirement portfolio review

Postby pkcrafter » Wed Jan 02, 2013 4:11 pm

Critical number in the mix - Now much are you planning to withdraw the first year?

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.
pkcrafter
 
Posts: 8060
Joined: Sun Mar 04, 2007 1:19 pm
Location: CA

Re: Getting closer to retirement portfolio review

Postby 2muchfun » Wed Jan 02, 2013 4:28 pm

I plan to pull $36K the first full year of retirement.
2muchfun
 
Posts: 25
Joined: Wed Feb 10, 2010 11:59 am
Location: Florida

Re: Getting closer to retirement portfolio review

Postby Wagnerjb » Wed Jan 02, 2013 7:17 pm

Overall, I am very comfortable with your asset allocation. My personal preference is to have 50% of my fixed income in inflation bonds, with the other 50% in regular bonds. Thus, if I were in your shoes I would have a bit more in inflation bonds (in your rollover IRA). I don't think your 0.5% in REIT is enough to matter, so I might up that to 5%.

Your desire to withdraw $36,000 is probably safe. At your age, you should probably begin your withdrawals at less than 4% of the portfolio. But if your portfolio is over $1 million at retirement I would think your risk is quite low.

Best wishes.
Andy
Wagnerjb
 
Posts: 5993
Joined: Mon Feb 19, 2007 9:44 pm
Location: Houston, Texas

Re: Getting closer to retirement portfolio review

Postby retiredjg » Wed Jan 02, 2013 7:51 pm

I don't think you are too conservative. You don't have any need to take more risk. In fact, you could probably take less.

1) How did you end up with taxable bonds in your taxable account? Can you get rid of those without taking a tax hit? In the 28% tax bracket, you should not buy any more taxable bonds in that account.

2) In the 28% tax bracket, you should probably be using traditional 401k instead of Roth 401k.

3) Annuities (other than SPIAs) are not well loved around here. Fees are often quite high. You might not want to purchase any more.

4) I think there is a good possibility you make too much money to contribute directly to Roth IRA. But the person with the Rollover IRA is not a good candidate to use the back door. What are your plans in that area?
retiredjg
 
Posts: 17434
Joined: Thu Jan 10, 2008 1:56 pm

Re: Getting closer to retirement portfolio review

Postby 2muchfun » Wed Jan 02, 2013 11:15 pm

Thank you for your response.

1) How did you end up with taxable bonds in your taxable account? I had read on this site that someone used the short term bond fund for an emergency fund, as the interest was generally higher than CDs and Money Markets. That was what I had used this for. I don't really need it now that I have built up more cash.

Can you get rid of those without taking a tax hit? Not sure. Perhaps someone else could help answer this.

In the 28% tax bracket, you should not buy any more taxable bonds in that account. Understood.

2) In the 28% tax bracket, you should probably be using traditional 401k instead of Roth 401k. I can change the future investments to a traditional 401K.

3) Annuities (other than SPIAs) are not well loved around here. Fees are often quite high. You might not want to purchase any more. Understood.

4) I think there is a good possibility you make too much money to contribute directly to Roth IRA. But the person with the Rollover IRA is not a good candidate to use the back door. What are your plans in that area? I do make too much to contribute to a Roth IRA and have no plans to convert the Rollover IRA.
2muchfun
 
Posts: 25
Joined: Wed Feb 10, 2010 11:59 am
Location: Florida

Re: Getting closer to retirement portfolio review

Postby retiredjg » Thu Jan 03, 2013 9:51 am

2muchfun wrote:Can you get rid of those without taking a tax hit? Not sure. Perhaps someone else could help answer this.

Do you have much of a capital gain in this fund? If yes, you might want to keep it so you don't have to pay capital gains taxes triggered if you sell it. If you have little or no gain, you might want to sell it and use a tax-exempt bond instead.
retiredjg
 
Posts: 17434
Joined: Thu Jan 10, 2008 1:56 pm

Re: Getting closer to retirement portfolio review

Postby 2muchfun » Thu Jan 03, 2013 7:25 pm

I have about a $1500 capital gain with this.
2muchfun
 
Posts: 25
Joined: Wed Feb 10, 2010 11:59 am
Location: Florida

Re: Getting closer to retirement portfolio review

Postby Peter Foley » Thu Jan 03, 2013 7:46 pm

Other than the bond fund in your taxable, which has been addressed, I think you are doing fine. Once you do retire you should take a look at your overall marginal tax bracket. In your years of retirement prior to drawing SS you might consider doing Roth conversions at least up to the top of the 15% bracket. If you are withdrawing from taxable in the early years of retirement you might be in a very low tax bracket.
User avatar
Peter Foley
 
Posts: 2228
Joined: Fri Nov 23, 2007 11:34 am
Location: Lake Wobegon

Re: Getting closer to retirement portfolio review

Postby 2muchfun » Thu Jan 03, 2013 8:02 pm

Thanks, Peter. Good tip!
2muchfun
 
Posts: 25
Joined: Wed Feb 10, 2010 11:59 am
Location: Florida

Re: Getting closer to retirement portfolio review

Postby retiredjg » Thu Jan 03, 2013 8:20 pm

If none of those gains have been taxed so far (some probably have in the form of dividends) and if the gains are long term, it will cost you $225 in federal taxes to get rid of that fund. This would eliminate the dividends you pay tax on (but don't actually spend) each year. You could replace that fund with a tax-exempt bond fund which won't cost you much (or anything) in taxes each year. If your state has a tax-exempt fund, you would get out of state taxes too.

You've got a lot of little extras that people here would probably not suggest (individual stocks, annuities, Nuveen Real Estate, long term bonds), but all in all, they are small portions and the bulk of your portfolio is just the basics.

If you want to list the things available in your new 401k, it is possible something better could be chosen there.
retiredjg
 
Posts: 17434
Joined: Thu Jan 10, 2008 1:56 pm

Re: Getting closer to retirement portfolio review

Postby 2muchfun » Sat Jan 05, 2013 7:19 am

Thank you. Here are the 401K options. Please let me know your thoughts.
[list=]Asset Allocation
Vanguard Target Retirement 2010 Inv
Vanguard Target Retirement 2015 Inv
Vanguard Target Retirement 2020 Inv
Vanguard Target Retirement 2025 Inv
Vanguard Target Retirement 2030 Inv
Vanguard Target Retirement 2035 Inv
Vanguard Target Retirement 2040 Inv
Vanguard Target Retirement 2045 Inv
Vanguard Target Retirement 2050 Inv
Vanguard Target Retirement 2055 Inv
Vanguard Target Retirement Income Fund Investor Shares
Stocks
Large Company
DFA U.S. Large Cap Value Portfolio Institutional Class
T. Rowe Price Growth Stock Fund
Vanguard 500 Index Signal
Vanguard FTSE Social Index Inv
Small/Mid Co.
Allianz NFJ Small Cap Value Instl
Goldman Sachs Mid Cap Value Instl
T. Rowe Price Mid-Cap Growth
Vanguard Mid Cap Index Signal
Vanguard Small Cap Index Signal
Wasatch Small Cap Growth
Intl/Global
DFA Emerging Markets Value I
Harbor International Instl
Scout International
Templeton Ins Foreign Smaller Co Se
Specialty
Allianz RCM Technology Instl
Nuveen Real Estate Secs I
T. Rowe Price Health Sciences
Balanced
Vanguard Wellington Adm
Bonds
American Century Infl-Adj Bond Inv
Harbor Bond Instl
PIMCO Low Duration Instl
Vanguard Long-Term Investment-Grade
Capital Preservation
Morley Stable Value Fund 50[/list]
2muchfun
 
Posts: 25
Joined: Wed Feb 10, 2010 11:59 am
Location: Florida

Re: Getting closer to retirement portfolio review

Postby livesoft » Sat Jan 05, 2013 10:24 am

2muchfun wrote:I plan to pull $36K the first full year of retirement.

This is rather incongruent to the marginal income tax bracket of 28%, the annual investment contributions of $85,000, and the low-7-figure size of the portfolio. It doesn't make sense to me unless there is a pension or sugardaddy or severe austerity program involved. Would you care to explain?
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
livesoft
 
Posts: 33332
Joined: Thu Mar 01, 2007 9:00 pm

Re: Getting closer to retirement portfolio review

Postby retiredjg » Sat Jan 05, 2013 11:15 am

Thank you for the list of things available in your 401k.

I don't believe the Nuveen Real Estate fund is your best choice. You didn't list the expense ratio, but for retail customers, it is high - 1.04% A better choice for a stock fund in your 401k would be 80% Vanguard 500 Index Signal combined with 20% Vanguard Small Cap Index Signal to give you something near total Stock Market. The expense ratios of those two funds should be significantly lower.

For the bond fund, ordinarily we don't suggest long term bonds much. But if it is the lowest expense ratio fund in the pack, it might be your best choice. Or possibly combining it with the PIMCO Low Duration fund. But you'd need to give us the expense ratios of these funds to really know for sure. Not knowing any other info, I'd use half Vanguard long term and half PIMCO low duration to give you something similar to an intermediate bond fund.

    Bonds
    American Century Infl-Adj Bond Inv
    Harbor Bond Instl
    PIMCO Low Duration Instl
    Vanguard Long-Term Investment-Grade

If you want some real estate holdings, above what is in the total stock market, you might consider Vanguard's REIT fund (VGSLX at .10% expense ratio.) in one of the IRAs.
retiredjg
 
Posts: 17434
Joined: Thu Jan 10, 2008 1:56 pm

Re: Getting closer to retirement portfolio review

Postby 2muchfun » Sun Jan 06, 2013 1:13 pm

Please find below the expense ratios on the 401K options. Looking at a fresh start in 2013, what funds would you suggest? I don't need Real Estate among these.

Asset Allocation
Vanguard Target Retirement 2010 Inv 0.17
Vanguard Target Retirement 2015 Inv 0.17
Vanguard Target Retirement 2020 Inv 0.17
Vanguard Target Retirement 2025 Inv 0.18
Vanguard Target Retirement 2030 Inv 0.18
Vanguard Target Retirement 2035 Inv 0.19
Vanguard Target Retirement 2040 Inv 0.19
Vanguard Target Retirement 2045 Inv 0.19
Vanguard Target Retirement 2050 Inv 0.19
Vanguard Target Retirement 2055 Inv 0.19
Vanguard Target Retirement Income Fund Investor Shares 0.17

Stocks
Large Company
DFA U.S. Large Cap Value Portfolio Institutional Class 0.28
T. Rowe Price Growth Stock Fund 0.7
Vanguard 500 Index Signal 0.05
Vanguard FTSE Social Index Inv 0.29
Small/Mid Co.
Allianz NFJ Small Cap Value Instl 0.79
Goldman Sachs Mid Cap Value Instl 0.75
T. Rowe Price Mid-Cap Growth 0.8
Vanguard Mid Cap Index Signal 0.1
Vanguard Small Cap Index Signal 0.16
Wasatch Small Cap Growth 1.24
Intl/Global
DFA Emerging Markets Value I 0.61
Harbor International Instl 0.78
Scout International 1
Templeton Ins Foreign Smaller Co Se 0.95
Specialty
Allianz RCM Technology Instl 1.25
Nuveen Real Estate Secs I 1.04
T. Rowe Price Health Sciences 0.82
Balanced
Vanguard Wellington Adm 0.19
Bonds
American Century Infl-Adj Bond Inv 0.48
Harbor Bond Instl 0.55
PIMCO Low Duration Instl 0.46
Vanguard Long-Term Investment-Grade 0.22
Capital Preservation
Morley Stable Value Fund 50 0.8
2muchfun
 
Posts: 25
Joined: Wed Feb 10, 2010 11:59 am
Location: Florida

Re: Getting closer to retirement portfolio review

Postby retiredjg » Sun Jan 06, 2013 2:11 pm

All of these are very good choices.

    Vanguard 500 Index Signal 0.05
    Vanguard Mid Cap Index Signal 0.1
    Vanguard Small Cap Index Signal 0.16

    American Century Infl-Adj Bond Inv 0.48
    PIMCO Low Duration Instl 0.46
    Vanguard Long-Term Investment-Grade 0.22

Which ones and how many you use is pretty much personal preference. Do you want to use 2 funds (500 and Small cap) or 3 funds (500 and mid and small cap) to get something close to total stock market? Ignore this - when I got to the contributions, I found that all of your 401k needs to go to bonds.

For the bonds, the VG long term is the best cost, but I'm not fond of long term bonds, so I'd temper that by mixing it half and half with the PIMCO Low Duration bond.

I moved things around to the order I'm accustomed to (so I can find things easily) and this is what you currently have (other than I exchanged the Nuveen Real Estate into the Vanguard long term bonds in the 401k).

Taxable
23.8% S Vanguard Total Stock Market Index Fund Admiral Shares
12.3% I Vanguard Total International Stock Index Fund (VGTSX)
6.3% STB Vanguard Short-Term Investment-Grade Fund <--could be exchanged into a tax-exempt bond fund
1.9% S Schwab Employee Stock Purchase Plan
8.2% S Individual Stocks
2.8% C Vanguard Tax-Exempt Money Market Fund
4.2% cash in various places

401K 2.1% (Charles Schwab)
0% PIMCO Low Duration Bond Fund
2.1% B Vanguard Long-Term Investment-Grade

Husband Roth IRA
1.7% B Vanguard Total Bond Market Index Fund Admiral Shares

Wife Roth IRA
3.0% B Vanguard Total Bond Market Index Fund Investor Shares

Rollover IRA
7.4% S Vanguard Total Stock Market Index Fund Admiral Shares <---some or all of this will need to be exchanged to a bond fund by the end of 2013 to keep your bond allocation high enough
16.3% B Vanguard Total Bond Market Index Fund Investor Shares
8.2% T Vanguard Inflation-Protected Securities Fund Admiral Shares
0.0% C Vanguard Money Market Fund

Annuity
Fidelity VIP FundsManager 70
6.4% S Stock
2.8% B Bonds


New annual Contributions = $85,000
$23,000 his 401k <---all to bonds, however you want to split it
$6,500 his IRA/Roth IRA <--all to bonds
$5,500 her IRA/Roth IRA <-all to bonds
$50,000 taxable (for retirement, not short term goals) <---$14k to Total International, $36k to Total Stock Market although some of this might have to go into a muni bond fund to keep your bond ratio up to target

Next year (2014) you will almost certainly have to put some of the $50k going into the taxable account into a muni (tax-exempt) bond fund.

Does that help?
retiredjg
 
Posts: 17434
Joined: Thu Jan 10, 2008 1:56 pm

Re: Getting closer to retirement portfolio review

Postby 2muchfun » Sun Jan 06, 2013 3:17 pm

I really appreciate the time spent on this. It is very helpful and I will follow this schedule.
2muchfun
 
Posts: 25
Joined: Wed Feb 10, 2010 11:59 am
Location: Florida

Re: Getting closer to retirement portfolio review

Postby 2muchfun » Tue Jan 08, 2013 11:51 am

I would like to ask why you are not fond of long term bonds. At a cursory glance, the expenses seem to be lower and the returns higher than the PIMCO bond fund.
2muchfun
 
Posts: 25
Joined: Wed Feb 10, 2010 11:59 am
Location: Florida

Re: Getting closer to retirement portfolio review

Postby retiredjg » Tue Jan 08, 2013 1:22 pm

2muchfun wrote:I would like to ask why you are not fond of long term bonds. At a cursory glance, the expenses seem to be lower and the returns higher than the PIMCO bond fund.

When/if interest rates go up, long term bond funds will lose more value (per share) than intermediate term and short term bonds. It is just the way bonds work. But eventually, part of that will be made up by the fact that what the bonds pay will go up along with the interest rates.

For that reason (greater loss in value), it is generally suggested to keep your bond funds in the intermediate range for long term investing rather than in the long term range. Some money in long term bond funds is not a problem, but I would not hold a significant portion of my bonds in a long term fund. That's why I suggested "tempering" the long term fund with the PIMCO fund.

Example: the "duration" of Vanguard's Long Term bond fund is about 15 years. If interest rates go up 1%, the value of the bond holding will go down 15% (say, from $100k to $85k). If interest rates go up another 1%, the value of the bond holding will go down another 15%. Those are pretty big drops for a bond fund- which is why many people here avoid putting a lot of money there.

On the other hand, it appears you may retire before interest rates go up significantly, so it might be OK to use the long term bond fund for a couple of years - you might "get away" with it.

I suppose this is one reason why the long term bond fund is rated at a 3 on their risk scale, while the intermediate term bonds seem to be rated at about 2. You want to be taking your risk on the stock side of the portfolio, not the bond side.

Another option would be to use some shorter term bonds in another account.
retiredjg
 
Posts: 17434
Joined: Thu Jan 10, 2008 1:56 pm

Re: Getting closer to retirement portfolio review

Postby 2muchfun » Tue Jan 08, 2013 1:48 pm

Thanks retiredjg. I understand now and can move forward.
2muchfun
 
Posts: 25
Joined: Wed Feb 10, 2010 11:59 am
Location: Florida

Re: Getting closer to retirement portfolio review

Postby 2muchfun » Thu Jul 18, 2013 2:49 pm

I am with a new employer and their 401K bond selection expense ratios seem high. Do you have a suggested fund(s) below that I should invest in, or am I better off investing through Vanguard outside of the 401K, given the costs?

SSgA U.S. Inflation Protected Bond Index Non-Lending Series Fund - Class G 0.72
SSgA Cash Series U.S. Government Fund - Class L 0.75
Thornburg Limited Term U.S. Government Fund - Class R3 0.99
Prudential Short-Term Corporate Bond Fund - Class R 1.03
PIMCO Total Return Fund - Class R 1.1
Prudential High Yield Fund - Class R 1.12
Putnam American Government Income Fund - Class R 1.13
AllianceBernstein Global Bond Fund - Class R 1.25
Putnam Convertible Securities Fund - Class R 1.36
2muchfun
 
Posts: 25
Joined: Wed Feb 10, 2010 11:59 am
Location: Florida

Re: Getting closer to retirement portfolio review

Postby retiredjg » Fri Jul 19, 2013 9:22 am

I'd use the 401k - probably the inflation protected bond.
retiredjg
 
Posts: 17434
Joined: Thu Jan 10, 2008 1:56 pm

Re: Getting closer to retirement portfolio review

Postby Default User BR » Fri Jul 19, 2013 4:40 pm

What other tax-advantaged accounts do you have?


Brian
Default User BR
 
Posts: 7503
Joined: Mon Dec 17, 2007 8:32 pm

Re: Getting closer to retirement portfolio review

Postby 2muchfun » Fri Jul 19, 2013 4:49 pm

My wife and I each have a Roth IRA and Traditional IRAs. I also have a 401K from my previous employer that I have not rolled over to my IRA.
2muchfun
 
Posts: 25
Joined: Wed Feb 10, 2010 11:59 am
Location: Florida


Return to Investing - Help with Personal Investments

Who is online

Users browsing this forum: FAST Enterprise [Crawler], seeshells and 25 guests