Can you help with 60's portfolio...appreciate it!

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Can you help with 60's portfolio...appreciate it!

Postby Latecomer » Wed Apr 03, 2013 12:12 pm

First, I must say that I deeply appreciate all the thought, energy, and well-wishes that go into your posts.
We need some feedback regarding our portfolio...here 'goes....

We own two houses on 10 acres each, and live in one that is newly built. Both are free and clear, and any investments are in addition to the real estate. One of the houses will be a base for our business, which is related to online sales. We are now getting the second house ready to rent, so our cash flow is reduced until that time.

The business is incorporated, and the S-corp will rent space in our present home.
My husband receives a small inheritance quarterly.
By 2018, when we both receive Social Security, we will be adding $33,800 yearly to our income.

We plan to work until around 2015, and here is our yearly projected income until 2018:

Rental house on 10 acres: $18,000
Corporation salary: $24,000
Inheritance: $4,000
Total until 2018: $46,000 per year

After 2018 yearly income (with Social Security): $79,800 per year

Re: Laura's questions:

We are comfortable with 40/60 stock/bond ratio
We have long term health care insurance
We have health insurance
We have emergency funds, enough for one year
We have no debt
Tax filing: married, filing jointly
Right now, I think our tax bracket is 15%
Ages: him--65 her--67

Current portfolio (besides 2 houses and cash): low 6 figures

Taxable (equities)
Vanguard Total Stock Market - 22%
Vanguard FTSE all world ex-US- 12%

His Roth IRA
Vanguard Intermed. Treasuries fund: 27%
Vanguard Total Stock Market: 2%
Vanguard FTSE ex US Small (VFSVX): 2%

Her Roth
Vanguard TIPS Fund: 31%
Vanguard Total Stock Market: 2%
Vanguard FTSE ex US Small (VFSVX): 2%

Questions:
I am wondering about the treasury funds, because there has been so much negative information lately. This year, I would like to transfer money from the taxable stock funds to the Roth IRA accounts. Since right now we are in the "stretching every dollar" time of our retirement - before drawing Social Security.
1. Should we just let the intermediate treasury fund and the TIPS fund alone? - or?
2. As we get older, would it make sense to gradually put everything into the Vanguard Wellsley fund - for simplicity for our heirs. What do you think?

Gratitude:
For my post, I need to add a special gratitude component - for all the many hours volunteers have given so that people like us can survive financially, and hopefully thrive. Thank you! :beer (iced tea!)
Last edited by Latecomer on Wed Apr 03, 2013 10:48 pm, edited 2 times in total.
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Re: Tips and Treasuries still safe?...or?

Postby Latecomer » Wed Apr 03, 2013 1:09 pm

I think many of us may be concerned about the bond market, and what are the best choices.
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Re: Investment Advice for near-retirement

Postby Chan_va » Wed Apr 03, 2013 1:58 pm

Hi there,

There are a number of factors to consider, but first - what are your monthly expenses now and after SS kicks in?
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Re: Investment Advice for near-retirement

Postby Latecomer » Wed Apr 03, 2013 2:20 pm

Right now, our monthly expenses are approx. $3,200.
After Medicare kicks in for both of us (in July), our health insurance should drop.
Right now it is $1,552 for us both per mo.
After July it will drop to about $904 for both of us per mo. That's a savings of $648 per mo.

We can take Social Security, of course, now - but if we can wait it would be better in the long run.
Thank you for your time :happy
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Re: Can you help with 60's portfolio...appreciate it!

Postby Latecomer » Wed Apr 03, 2013 10:51 pm

I would be very grateful for feedback :happy
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Re: Can you help with 60's portfolio...appreciate it!

Postby rickmerrill » Thu Apr 04, 2013 2:59 am

I think one of your questions is should you convert money to your Roth while your income is still low. Looking at your current income, at least until the oldest starts SS I think you should. It will depend on your marginal tax rate now and then and how much the first SS benefit is worth but I think you have at least 3 more years where this makes sense to do and maybe 5 more years. You seem to be in the 15% marginal rate now and if nothing changes you will be in the 25% once SS starts. Not many people see their tax rate increase in retirement but as long as you have the online business and the rental income you look like the exception!
If I am stupid I will pay.
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Re: Can you help with 60's portfolio...appreciate it!

Postby YDNAL » Thu Apr 04, 2013 3:52 pm

Latecomer wrote:We plan to work until around 2015, and here is our yearly projected income until 2018:

Rental house on 10 acres: $18,000
Corporation salary: $24,000
Inheritance: $4,000
Total until 2018: $46,000 per year

After 2018 yearly income (with Social Security): $79,800 per year

Questions:
I am wondering about the treasury funds, because there has been so much negative information lately. This year, I would like to transfer money from the taxable stock funds to the Roth IRA accounts. Since right now we are in the "stretching every dollar" time of our retirement - before drawing Social Security.
1. Should we just let the intermediate treasury fund and the TIPS fund alone? - or?
2. As we get older, would it make sense to gradually put everything into the Vanguard Wellsley fund - for simplicity for our heirs. What do you think?
Latecomer wrote:Right now, our monthly expenses are approx. $3,200.

Latecomer,

A few observations:
  1. Your expected income through 2018 of $46K covers $38.4K in expenses - meaning that you should continue saving until then.
  2. If this income continues after SS, your tax bracket will change for the worse. But, we don't know if this income continues (you don't say).
  3. Vanguard Intermediate-Term Treasury Fund Admiral Shares (VFIUX) has a 5.2 year duration - meaning that "so much negative information lately" shouldn't concern you for the most part.
  4. Wellesley is a good fund, but it is concentrated in US Large Caps (no Mid/Small Caps) and Corporate Bonds (little/no Treasuries, no mortgage-backed, no TIPS, etc.).
    • If you wanted one fund, Lifestrategy Conservative VSCGX (40/60) or Target Retirement 2010 VTENX (42/58) are more diversified Core holdings.
    • Note that VTENX will shift to 30/70 Stock/Bond and finally be converted to Target Income VTINX in likely 2017.
    • Currently in a 15% tax bracket, is not concerning to hold VSCGX of VTENX in Taxable (32% of portfolio).
That said, your current holdings and Asset Allocation seem reasonable.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
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Re: Can you help with 60's portfolio...appreciate it!

Postby Latecomer » Fri Apr 05, 2013 8:39 am

YDNAL,

I extend a special thank you for reviewing and commenting on my post.

I have decided, for 2012, to put our Roth IRA money into CD's; that seems to address my concerns with the rising interest rate issue. The rest of the portfolio can stay put for now.

Your idea regarding the one fund approach - Lifestrategy Conservative VSCGX (40/60) is appealing, especially as we transition into our 70's and beyond.

Cheers :D
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Re: Can you help with 60's portfolio...appreciate it!

Postby jwa » Fri Apr 05, 2013 10:44 am

I'm not 65 yet but closing in on it fast. I've done some research on medicare and supplements and it seems from what I've read that $904 per month for health insurance seems high. How was this number derived?
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Re: Can you help with 60's portfolio...appreciate it!

Postby YDNAL » Fri Apr 05, 2013 11:01 am

jwa wrote:I'm not 65 yet but closing in on it fast. I've done some research on medicare and supplements and it seems from what I've read that $904 per month for health insurance seems high. How was this number derived?

That's for 2 people.
Latecomer (OP) wrote:Right now it is $1,552 for us both per mo.
After July it will drop to about $904 for both of us per mo. That's a savings of $648 per mo.

I really haven't researched, but here is something I found.
Link - http://www.medicare.gov/Pubs/pdf/11579.pdf

Latecomer wrote:YDNAL,

I extend a special thank you for reviewing and commenting on my post.

I hope it helped! :beer
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
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Re: Can you help with 60's portfolio...appreciate it!

Postby Latecomer » Fri Apr 05, 2013 11:38 am

The Medicare.gov link was helpful. After DH turns 65, we will have Medicare A & B plus a Medicare supplement and drug policy from Blue Cross and Humana respectively. I was surprised that the extra insurance pays only for what Medicare approves. Thus, when I received a thyroid panel test in 2011, neither Medicare nor Blue Cross would pay for it. And, I have been taking levothyroxine (for low thyroid function) for years. When I had an individual policy with Blue Cross, they always paid for any lab tests.

It will be of interest what the future cuts to Medicare benefits will look like. Of course, most people that I talk to say that medical costs are the wild card in retirement. :?
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Re: Can you help with 60's portfolio...appreciate it!

Postby jwa » Fri Apr 05, 2013 12:22 pm

The healh insurance premium of $906 per month might be for two people but still seems high. Medicare Part A is free (not really as we all have paid payroll taxes for years) and Part B is something like $110 per month per person. Prescription drug coverage Part D is something I don't know the cost on but I gather it is around $20 to $30 a month. Maybe health care costs are higher where you are?

Now comes the supplements. I am looking at the rates in Illinois for Blue Cross/Blue Shield and depending upon age one the monthly charge for Plan F, the most comprehensive one and the most expensive runs about $150 a month. So all together I am looking at about $300 per person total for everything. Now here is a critical thing. All plans are the same from company to company. A Humana Plan F is exactly the same as a Blue Cross/Blue Shield plan from a coverage standpoint but each company is free to charge what they want so it pays to shop around. I am also a little confused as I read the first post where he is 65 and she is 67 and I wonder if there is a reason why you aren't on medicare now? At the age of 65 and for the next six months anyone can buy a supplement without underwriting so there is no messing around with coverage of or a "surcharged" premium for a health or disability additional premium charge.

I'm not addressing medicare advantage plans as I don't care for them so much.
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Re: Can you help with 60's portfolio...appreciate it!

Postby Latecomer » Fri Apr 05, 2013 12:36 pm

I (she) has been on Medicare since 2011. He will go on Medicare in July, 2013. We live in California, so maybe that's why the premiums are high. I am not impressed with the "supplement" coverage because Blue Cross doesn't cover what Medicare declines to pay. It is the same way with Humana ($42.00 per person per mo.) in that they don't cover the drugs that Medicare declines to pay.

I am going to check out the AARP Advantage plan....
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Re: Can you help with 60's portfolio...appreciate it!

Postby tuckeverlasting » Fri Apr 05, 2013 12:49 pm

Latecomer,

When deciding if I needed a Medicare supplement I found previous threads on the BH forum to be enlightening. Good luck on your quest.
It's Good To Be A Boglehead.
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Re: Can you help with 60's portfolio...appreciate it!

Postby Latecomer » Fri Apr 05, 2013 1:14 pm

Thank you Tuckeverlasting...I'll check out the threads on supplemental insurance.
By the way, your avatar is a "crack-up"! :)
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Re: Can you help with 60's portfolio...appreciate it!

Postby btenny » Fri Apr 05, 2013 2:02 pm

Can you please tell us what your SS benefits will be if you draw them today? I say this because it looks to me like you should start taking SS now based on your earnings and then maybe transition to taking spousal benefits later. This way you will ease your money needs in the short term until you medicals bills and second home rental income are stabalized. This would also give you enough money to easily do the Roth conversion for the next few years while you have low income as SS income does not count as taxable income for the federal return and California state return.

I would also evaluate taking Medicare Suppliment Type F High Deductable instead of a regular Type F policy if you are healthy. The cost for HD Type F is much lower per month (we pay about $38 each) and is a much better deal if you are reasonably healthy. My total medical insurance costs are $160 per month for each of us ($104 for medicare, $38 for HD Type F, and $15 for Humana drugs). But I also expect to pay around $100 per month for each of us for various deductables and disalloweds. So net net my cost are around $260 per month or $520 for both of us. Even if my extra costs go up to $200 per month each my total costs would only be $720. A lot less than $900 you are forecasting.

As far as converting to Wellesley I would not do that with all your funds. If you had maybe a seven figure portfolio I might do that with say 10% but not the whole thing. Yes a slice and dice portfolio is more complex but the risk is lower. As far as the Treasury fund you might consider converting some or most of it to Total Bond Market to improve the diversification and return. But that has other risks so it is your call.

Good Luck
Bill
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Re: Can you help with 60's portfolio...appreciate it!

Postby pingo » Fri Apr 05, 2013 2:57 pm

Roth IRA contributions from 2012 to 2018 = $39,000, during which time I suppose you'd either have zero taxation on capital gains when you sell the taxable assets in order to fund Roth contributions (you're well inside the 15% tax bracket), or you might even harvest losses. I don't know if doing so comes close to emptying your taxable account by the time you hit the 25% bracket. I do like Landy's suggestion of putting one fund in each account, but what you have is reasonable as well.
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Re: Can you help with 60's portfolio...appreciate it!

Postby Latecomer » Sat Apr 06, 2013 11:18 am

Thanks so much for your input...lots to mull over. Here is some more info:

Her Social Security facts:
Take it at 67 1/2 - about $879 per month
Take it at 70 - about 1,256 per month

His Social Security facts:
Take it at 66 years old - about $1,257 per month
Take it at 70 years old - about 1,660 per month

If there is something I am not seeing, I'd certainly appreciate your thoughts!

Our tentative plan:
2014
Her: apply for Social Security in 2014 - when she is 68 yrs, 7 mos. old - and suspend it
Him: apply for spousal benefit in 2014 - when he is 66 yrs old - that will give us $439.00 per mo.

2018
Her: apply for Social Security in 2016 at 70 - that will give her $1,256 per mo.
Him: apply for Social Security in 2018 at 70 - that will give him $1,660 per mo.

Regarding our stock funds, starting this year, we will gradually transfer the full allowable amounts into our Roth IRA's. This year, we are putting it into CD's at the bank. I cashed out $12,000 from our taxable stock accounts on Thursday.

The following years, I am considering simply transferring the taxable money into comparable Roth Vanguard accounts. Or, I could create two Lifestrategy Conservative VSCGS (his and hers) and gradually transfer everything into those Roth accounts as we get older. This is to keep things simple, and easier for heirs. One consideration is fund management fees - or, anything I am not seeing right now.

I am going to research supplemental Medicare plans more thoroughly...we are both healthy, and it makes no sense to have a "Cadillac" plan when a "Chevy" plan will do :)
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Re: Can you help with 60's portfolio...appreciate it!

Postby dbr » Sat Apr 06, 2013 11:55 am

When forecasting income from an inflation indexed source, SS, you need to forecast the inflation increases that will have become effective at different times (ages 67 vs ages 70). I don't think there is any official forecasting tool that does this as estimating future inflation involves arbitrary guesses, but you still have to do it.

Basing medical insurance decisions on the fact that you are healthy now ignores exactly the point of insuring -- the fact that you may not be healthy at some time in the future. That said, one can apply judgement to how much to insure and make a personal decision.
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Re: Can you help with 60's portfolio...appreciate it!

Postby YDNAL » Sun Apr 07, 2013 8:34 am

Latecomer wrote:Regarding our stock funds, starting this year, we will gradually transfer the full allowable amounts into our Roth IRA's. This year, we are putting it into CD's at the bank. I cashed out $12,000 from our taxable stock accounts on Thursday.

The following years, I am considering simply transferring the taxable money into comparable Roth Vanguard accounts. Or, I could create two Lifestrategy Conservative VSCGS (his and hers) and gradually transfer everything into those Roth accounts as we get older. This is to keep things simple, and easier for heirs. One consideration is fund management fees - or, anything I am not seeing right now.

Before SS, it seems a no brainer to drain the Taxable account into Roth IRAs. In the 15% tax bracket, capital gains come with $0 tax, plus you may also have some individual purchases in Taxable that have loss that you can harvest.

I believe Lifestrategy VSCGX is a good choice with one caveat... LS Funds don't offer Inflation Protection in the form of Vanguard Inflation-Protected Securities Fund Investor Shares (soon to be short term) as does Target Retirement Income VTINX, for instance.
Link to VTINX - https://personal.vanguard.com/us/funds/ ... =INT#tab=2
Link to VSCGX - https://personal.vanguard.com/us/funds/ ... =INT#tab=2
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