Starting Vanguard ending EJones

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Starting Vanguard ending EJones

Postby F4mandolin » Mon Apr 29, 2013 10:13 pm

In the process of moving all the Edward Jones account over to Vanguard, money should be available at Vanguard in the next day or two.
Currently coming up on 2 years retirement in June. Living outside Spokane WA with my UK wife. Possibility of moving back to N Yorkshire in 5-10 years, but funds would be pretty limited for doing that. Total money at this time is approx. $800K. About $365K ($53k of that is Roth) moving into Vanguard + $425K TSP Govt.

Money coming in
1. Pension from Govt, $962 a month after taxes, health insurance, spousal coverage taken out.
2. Approx $700 a month starting in August from a Social Security Supplement from 56 to 62.
3. Will likely take Social Security at 62. Approx $1350 a month. Wife would get spousal 50% when she gets to 62.
4. Wife will get a UK pension of approx. $600-650 a month at 66.
5. Wife will get a small pension of approx. $1600 a year at 60.
6. FireCalc gives me 100% or very close every time I use it.

Emergency funds:
1. $17,000 credit union checking
2. $19,500 soon from ending one EJones fund, plus another $18,000 in August.

Debt: Indicate if you have any debt
1. No debt. House paid off worth approx. $230K
Tax Filing Status: Married Filing Jointly
Tax Rate: 15% Federal, 0% State
State of Residence: WA
Age: 55, wife 52…next birthdays coming within 2 months.
Desired Asset allocation: 60% stocks / 40% bonds
Desired International allocation: 15%-20%

Please provide a hint as to the size of your current total portfolio
1. Approx $800K not including house (about $230K)

Current retirement assets

Taxable
Approx $260,000 Edward Jones carry over to Vanguard plus the following funds coming due over the next couple of years.
Wachovia Mortgage Due Maturity Date=08/15/2013 CD rate=5.050% $18,233
Hewlett Packard CO Global Note -corporate- Maturity Date 03/01/2014 rate=6.125% $18,824
Citigroup Inc Senior Note Unsecured- corporate- Maturity Date 03/02/2015 rate=2.650 % $18,542

Non-Taxable
401- TSP Govt Fund Approx $425K .027% expense ratio in 2012
55% C fund
15% S fund
30% F fund

Approx $53000 in Roth coming over from Edward Jones

Questions:
1. Looking for the safest way to spend (today's equivalent) $3500-$4,000 a month and hopefully keep the principle increasing. Typical month for us is $2000-$2500 unless something like property tax month etc.

2. Very much trying to keep this in 4 funds or less. Going back and forth on choices of Wellington and a little Total International, or a Total Stock/Total International/Total Bond (although leaning short term at this time).

3. Needing to pull $15,000-$20,000 yearly out of accounts in 3-4 years. What is the best way of planning for this?
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Re: Starting Vanguard ending EJones

Postby retiredjg » Tue Apr 30, 2013 2:49 pm

Lots of moving parts here. Some questions...

1) It sounds like you are not taking any money from the nest egg (TSP and soon to be Vanguard accounts) right now. Is that correct?

2) You are looking for a way to spend $3,500 to $4,000 a month. Do you mean now? Does that include the money going to taxes and health insurance? Does this include the pension or is all that money coming from the nest egg?

I'm just confused. But I don't think you are going to run out of money. :wink:
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Re: Starting Vanguard ending EJones

Postby F4mandolin » Tue Apr 30, 2013 3:52 pm

retiredjg wrote:Lots of moving parts here. Some questions...

1) It sounds like you are not taking any money from the nest egg (TSP and soon to be Vanguard accounts) right now. Is that correct?
*We haven't touched our nest egg yet...but VERY soon will.
*Total in Vanguard by the end of the week will be $370k.
*Total in TSP is $426k.
*Of the money in Vanguard... $19k we are cashing in now to pay for septic and to bump up our cash.
*Currently have $17k in our checking account.
*We have CD's etc coming due over the next 2.5 years. This will keep us in cash for the next 4 years. This money totals approx $55K.
*Probably spending an extra $1500 a month over what is coming in with pension and soon to be SS Supplement.


2) You are looking for a way to spend $3,500 to $4,000 a month. Do you mean now? Does that include the money going to taxes and health insurance? Does this include the pension or is all that money coming from the nest egg?

*$3500-$4000 a month is what we wish to be able to spend IF we wish....likely average less than that. This includes pension, SS supplement AND money pulled from nest egg. Health insurance/taxes already taken out of pension($962 is money in my pocket).


I'm just confused. But I don't think you are going to run out of money. :wink:


Sorry, just naturally confusing....it's a talent that I have unfortunately practiced more often than I should. My current total with Vanguard should be about $345k after I close one of my income funds to pay for the septic. $53k or so of that will be in a Roth (likely just put it in Wellington)....at this time I am likely to put the rest into Wellington as well with about $20k extra into the Total International. Quite simply...worrying about how much to put in Total Stock/Bond/International was driving me nuts.....even though it shouldn't. Analysis paralysis was killing me....and if I get run over on my bicycle or something it's just that much easier for my wife to deal with...especially with her being a UK citizen and it's weird enough for her here as it is. The Wellington has about the AA I want anyway....not as diversified as would be ideal...but...

-So.....starting in 2015 we will need to pull around $15,000 a year out of our Vanguard/TSP accounts.
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Re: Starting Vanguard ending EJones

Postby retiredjg » Tue Apr 30, 2013 4:40 pm

So.....starting in 2015 we will need to pull around $15,000 a year out of our Vanguard/TSP accounts.

This is the type of information I was looking for. However, it is still now clear what you plan to take for 2013 and 2014 and whether your balance is before or after you take the money for septic, etc.

Let's take another approach. Let's look at the money you have RIGHT NOW, before you take anything out for the septic, etc. I think there is some money at Vanguard that I don't know about yet. Tell me what I'm missing.

Taxable Assets not at Vanguard $55,599
$18,233 Wachovia Mortgage Due Maturity Date=08/15/2013 CD rate=5.050%
$18,824 Hewlett Packard CO Global Note -corporate- Maturity Date 03/01/2014 rate=6.125%
$18,542 Citigroup Inc Senior Note Unsecured- corporate- Maturity Date 03/02/2015 rate=2.650 %

Taxable at Vanguard $260,000 (coming from EJ)
Roth IRA at Vanguard $53,000 (coming from EJ)
But this adds to $313k, not to the $370 you say will be there by the end of the week

TSP $425k or $426?
55% C fund
15% S fund
30% F fund
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Re: Starting Vanguard ending EJones

Postby F4mandolin » Tue Apr 30, 2013 4:57 pm

If you take the $313k and add the money from the bonds coming due over the next couple of years......you are around $370k. My last EJones statement said I had $372k total....won't know EXACTLY what the total is to be carried over until the end of the week when it shows up in my Vanguard account. The bonds etc are all moved over from EJones.

TSP was $425k a day or so ago.....today it was $426k....Might hit $427 tomorrow since the market was up a hair today.

From now through about 2017 I will be using the money from the bonds/cd's/cash that you see. I include that in the $370k that I have at this time for a total.

Might just want to look at what I wrote earlier today and nothing else.....not sure where I am confusing you.
---------------------------------------------------
Lots of moving parts here. Some questions...

1) It sounds like you are not taking any money from the nest egg (TSP and soon to be Vanguard accounts) right now. Is that correct?
*We haven't touched our nest egg yet...but VERY soon will.
*Total in Vanguard by the end of the week will be $370k.
*Total in TSP is $426k.
*Of the money in Vanguard... $19k we are cashing in now to pay for septic and to bump up our cash.
*Currently have $17k in our checking account.
*We have CD's etc coming due over the next 2.5 years. This will keep us in cash for the next 4 years. This money totals approx $55K.
*Probably spending an extra $1500 a month over what is coming in with pension and soon to be SS Supplement.


2) You are looking for a way to spend $3,500 to $4,000 a month. Do you mean now? Does that include the money going to taxes and health insurance? Does this include the pension or is all that money coming from the nest egg?

*$3500-$4000 a month is what we wish to be able to spend IF we wish....likely average less than that. This includes pension, SS supplement AND money pulled from nest egg. Health insurance/taxes already taken out of pension($962 is money in my pocket).

I'm just confused. But I don't think you are going to run out of money. :wink:
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Re: Starting Vanguard ending EJones

Postby Calm Man » Tue Apr 30, 2013 5:05 pm

What is a social security supplement from age 55-62?
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Re: Starting Vanguard ending EJones

Postby retiredjg » Tue Apr 30, 2013 5:32 pm

F4mandolin wrote:If you take the $313k and add the money from the bonds coming due over the next couple of years......you are around $370k. My last EJones statement said I had $372k total....won't know EXACTLY what the total is to be carried over until the end of the week when it shows up in my Vanguard account. The bonds etc are all moved over from EJones.

Are you talking about these?

    $18,233 Wachovia Mortgage Due Maturity Date=08/15/2013 CD rate=5.050%
    $18,824 Hewlett Packard CO Global Note -corporate- Maturity Date 03/01/2014 rate=6.125%
    $18,542 Citigroup Inc Senior Note Unsecured- corporate- Maturity Date 03/02/2015 rate=2.650 %

If not, what bonds are you talking about?



From now through about 2017 I will be using the money from the bonds/cd's/cash that you see.

I understand that part. But this is part of your nest egg and you should include spending this money as withdrawals from your nest egg. I'm trying to figure out just how much you plan to withdraw each year. After 2015, it seems you will pull around $15k a year. For 2013 and 2014 I guess it will be more than that.

I think the disconnect is that I'm considering the $55k as part of your nest egg and you are just looking at what will be invested at Vanguard and in the TSP. If you would prefer to just discuss the $313k at Vanguard and the $426k in the TSP, I could do that (assuming I have the numbers right).
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Re: Starting Vanguard ending EJones

Postby retiredjg » Tue Apr 30, 2013 5:38 pm

Calm Man wrote:What is a social security supplement from age 55-62?

See this link. http://www.govexec.com/pay-benefits/ret ... ers/60735/

It is for people who must retire before SS starts (firefighters, law enforcement officers, air traffic controllers) or for people who have already met their age and time requirements, but are not yet 62.
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Re: Starting Vanguard ending EJones

Postby F4mandolin » Tue Apr 30, 2013 9:46 pm

Sent something earlier....must have done something wrong since it didn't show up.

SS Supplement- I took VERA(early retirement) from a Govt/military job teaching.....part of the deal is I get a ss supplement at 56 to age 62 (when I am eligible for regular SS). This is hopefully going to be $700+ for me for those 6 years after they take out taxes/stuff.

retiredjg- yes, those 3 funds are what are going to keep me in cash the next 4 years. I am in the process by the end of the week of selling off an income fund to help pay for the septic problem....plus just topping up our cash. The first of those other funds is coming due in August when it should give me another $18K+. This ladder should keep me in cash until about 2017.....at that time I will have to start pulling money out of the "regular" Vanguard fund (likely Wellington). **while the last of the bond funds come due in 2015.....they will give me enough cash to get through the next couple of years until about 2017**

Pulling $15K a year includes the funds that are coming due over the next four years. In another year or two I will need to consider setting up another couple of years of CD's to keep the cash coming in....or just pull out $15K a year out of what I have once a year. Those bonds/cd's are part of the $365K total that we have at this time. But....at the end of this week it will be closer to $345 once I cash out that one fund.
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Re: Starting Vanguard ending EJones

Postby retiredjg » Wed May 01, 2013 2:48 pm

There are several good ways to do this. I believe (you should check) you will move into the 25% tax bracket when the FERS supplement and SS start. For that reason, you might prefer to use tax-exempt bonds in your Vanguard taxable account rather than taxable bonds (such as total bond market or the bonds in Wellington). However, I'm not sure it will make a great deal of difference in the long run if you actually spend the dividends from the taxable bonds.

Total = $794,599

Option 1 -Here's sort of a standard Boglehead portfolio idea at 60/40 with 20% of stock (12% of portfolio) in international.

Bonds and CDs 7% ($55,599)
$18,233 Wachovia Mortgage Due Maturity Date=08/15/2013 CD rate=5.050%
$18,824 Hewlett Packard CO Global Note -corporate- Maturity Date 03/01/2014 rate=6.125%
$18,542 Citigroup Inc Senior Note Unsecured- corporate- Maturity Date 03/02/2015 rate=2.650 %

Taxable at Vanguard 32.7% ($260,000)
20.7% Vanguard Total Stock Market
12% Vanguard Total International Index

Roth IRA at Vanguard 6.7% ($53,000)
6.7% Vanguard Total Stock Market

TSP 53.6% ($426,000)
15.6% C Fund
5% S Fund
13% F Fund
20% G Fund

This is a basic market weight portfolio. It is tax efficient and low cost. As you spend the bonds and CDs, you would adjust your stock to bond ratio in the TSP.


Option 2

Bonds and CDs 7% ($55,599)
$18,233 Wachovia Mortgage Due Maturity Date=08/15/2013 CD rate=5.050%
$18,824 Hewlett Packard CO Global Note -corporate- Maturity Date 03/01/2014 rate=6.125%
$18,542 Citigroup Inc Senior Note Unsecured- corporate- Maturity Date 03/02/2015 rate=2.650 %

Taxable at Vanguard 32.7% ($260,000)
Target 2020 (63% stocks/36% bonds)

Roth IRA at Vanguard 6.7% ($53,000)
Target 2020 (63% stocks/36% bonds)

TSP 53.6% ($426,000)
53.6% L 2020 (53% stocks/47% bonds)

Quick math shows this is about 56% stock and 46% bonds and it would migrate to more bonds over time. This idea is easy, but not particularly tax-efficient. I'm not sure how much that matters if you are spending the dividends from the taxable account.

Option 3 - same as above except using LifeStrategy ModeratevGrowth (60/40) instead of the Target 2020. Quickie math = 52% stocks/48% bonds. Same pros and cons. Will migrate slower than option 2 toward more bonds.

Option 4 - use automatic funds for TSP and Roth IRA, individual funds for taxable.

Taxable total = $315,599

Bonds and CDs ($55,599)
$18,233 Wachovia Mortgage Due Maturity Date=08/15/2013 CD rate=5.050%
$18,824 Hewlett Packard CO Global Note -corporate- Maturity Date 03/01/2014 rate=6.125%
$18,542 Citigroup Inc Senior Note Unsecured- corporate- Maturity Date 03/02/2015 rate=2.650 %

Taxable at Vanguard ($260,000)
$156,489 Vanguard Total Stock Index
32,871 Vanguard Total International Index
$70,640 Intermediate term tax exempt bonds


Roth IRA at Vanguard 6.7% ($53,000)
LifeStrategy Moderate Growth (60/40)

TSP 53.6% ($426,000)
L 2020 (53/47) or mix about half and half with L2030 to get 60/40

Pros - this is easy - you'd only have to rebalance the taxable account and you could do that once a year. The Roth IRA and TSP would take care of themselves. The downside of this is that the international fund in the TSP is incomplete (missing emerging markets, Canada, and small caps). This is not a fatal flaw, just a shortcoming.

Obviously, there are other similar options that would use Wellington.
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Re: Starting Vanguard ending EJones

Postby retiredjg » Wed May 01, 2013 2:56 pm

As for how to access your money...again, there are several options and it depends on your personal preference. I have all of my money invested (TSP and Vanguard) and once a year, cash out about 1 year's worth of something at Vantuard and put it in money market.

As I need money, I just transfer it to my checking account (2 days). At the same time I "harvest" that year's worth of cash, I rebalance. In fact, I just sell whatever I have too much of and that usually rebalances my account. Or close enough.

Some people prefer to keep 1 or 2 or 3 or even more years' worth of cash on hand and invest the rest. The thinking is that that amount of cash will carry them through a crash. I used to think that, but later decided that just waters down my asset allocation. I'd rather sell a small bit of stocks and bonds, even in a crash, than water down the investments all the time.

About your withdrawal rate. If you take about $15k a year from your $800k, that is less than a 2% withdrawal rate. Up to a 4% withdrawal rate is generally considered safe (rule of thumb, not guaranteed), so I don't think you need to worry about running out of money unless you just get real stupid. No evidence of that so far. :D

I'm not entirely sure what I've done addresses your real questions. Hope so.
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Re: Starting Vanguard ending EJones

Postby F4mandolin » Wed May 01, 2013 6:54 pm

Thanks for the info....need to read through it again since I just got back from golfing.....having a beer is a priority at the moment. Just a point though....I shouldn't be in the 25% bracket since I file jointly with my wife. I think the limit on flipping from 15% to 25% is $72,500.....unless I am looking at that wrong.
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Re: Starting Vanguard ending EJones

Postby retiredjg » Wed May 01, 2013 7:35 pm

F4mandolin wrote:Thanks for the info....need to read through it again since I just got back from golfing.....having a beer is a priority at the moment. Just a point though....I shouldn't be in the 25% bracket since I file jointly with my wife. I think the limit on flipping from 15% to 25% is $72,500.....unless I am looking at that wrong.

I don't think you are in the 25% bracket now. But once the FERS Supplement and SS start, that could change. But you would have a better idea about that than I do.
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Re: Starting Vanguard ending EJones

Postby F4mandolin » Thu May 02, 2013 12:27 am

With $18k in pension.....and maybe $10k in supplement....don't think the $72K barrier will be broken.
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Re: Starting Vanguard ending EJones

Postby F4mandolin » Thu May 02, 2013 11:42 pm

retiredjg- Thanks....a bunch. I just don't have the skills to crank out a few easy to understand choices like you did. Leaning towards your option 4 at this time. Hopefully all the money will be there tomorrow so I can get it set up.
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Re: Starting Vanguard ending EJones

Postby retiredjg » Fri May 03, 2013 10:33 am

For the funds in your taxable account, I would suggest that you NOT automatically reinvest dividends. Send all the dividends to a money market account or your checking account (or to the tax-exempt bond fund). This will eliminate a lot of small purchase lots in the taxable account.

Since you are going to be taxed on dividends anyway, you might as well use the dividends as part of your annual withdrawal. Alternately, you could use the dividends to rebalance in the taxable account as you spend down the CDs/bonds. If you send all the dividends to the tax-exempt bond fund, that will tend to replace some of the CD/bonds that you are spending over the next few years.

Hope that made sense.
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