Boglehead advice on portfolio - retiring Soldier

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Boglehead advice on portfolio - retiring Soldier

Postby Van-Guard23 » Wed May 01, 2013 10:10 pm

Asking for some guidance and advice from fellow Bogleheads…have been a longtime lurker and have asked for a financial health azimuth check about 4 or 5 years ago. I am an Army officer retiring from Active Duty later this summer after over 20 years of service to our nation and intend to retire here in Hawaii. My wife, who is also an Army officer, intends to continue serving for another 2 years and retire in HI as well. I started investing while still a Second Lieutenant many, many years ago…but that was before I’ve come to appreciate “Bogle wisdom” in investing. As such, I started with actively managed funds (front loaded at that) and added positions based on articles from such “respected” publications and websites as Money, Fortune, Kiplinger, Morningstar, etc. Before I knew it, it was getting more difficult to sell those shares due to having to pay associated taxes on capital gains. Well now that I am about to retire from the Army and start another phase of my life (My passion has been to volunteer and assist veterans and elderly in whatever capacity I can), I figure it is time to clean house and relook our portfolio.
After retirement, I would not be able to contribute to my TSP but would still be able to contribute to Roth IRA thru my wife. At retirement, I will begin collecting a monthly pension of over $4,100 a month. In another 2 years, with my wife’s planned retirement from the Army, she will collect a similar monthly pension.

Emergency funds: YES
Debt: Mortgage: 20-year fixed at 3.5% (still have over $460K balance but refinancing to 15-year at 2.5%)
Tax Filing Status: Married Filing Jointly
Marginal Tax Rate: 28% Federal; currently no state taxes due to active military based in HI (CA as home state) and HI doesn’t tax military pensions
State of Residence: Hawaii
Age: 44
Desired Asset allocation: 70% stocks / 30% bonds
Desired International allocation: 25% of stocks
Current portfolio in the low 7 figures
Savings Rate of just over 25%

Current retirement assets
Taxable
21% cash (for investing – does not include emergency funds)
4% Dodge and Cox Stock (DODGX) (Expense Ratio – 0.52)
2% Templeton Growth A (TEPLX) (ER - 1.11)
12% Templeton Global Bond (TPINX) (ER – 0.89)
5% Vanguard Total Stock Admiral (VTSAX) (ER – 0.05)
3% Vanguard Dividend Growth (VDIGX) (ER – 0.31)
2% Cisco (CSCO), Pfizer (PFE), and Applied Materials (AMAT) – Scottrade account

His TSP (No matching)
21% TSP Lifecycle 2030 (L2030) (ER – 0.027)
0.5% Roth TSP Lifecycle 2040 (L2040) (ER – 0.027)

His Roth IRA
1% CGM Focus (CGMFX) (ER – 1.10)
2% Oakmark Select (OAKLX) (ER – 1.05)
4% Dodge and Cox International (DODFX) (ER – 0.64)

Her TSP (No matching)
15% TSP Lifecycle 2030 (L2030) (ER – 0.027)
0.5% Roth TSP Lifecycle 2040 (L2040) (ER – 0.027)

Her Roth IRA
6% Vanguard SP 500 Admiral (VFIAX) (ER – 0.05)

Contributions
New annual Contributions
$17,500 his Roth TSP
$17,500 her Roth TSP
$5,500 his Roth IRA
$5,500 her Roth IRA
$18,000 taxable (for retirement, not short term goals)

Questions:
1. What is the best way to achieve my desired AA? I assume I would need to sell my Templeton taxable funds and put those in Vanguard's VTSAX (Total Stock) , VGTSX (Total Int'l Stock), and/or VBMFX (Total Bond) (or their ETF equivalents)…and possibly transfer the funds from tax-deferred CGMFX Roth and OAKLX Roth to a Vanguard Roth (again VTSMX, VGTSX, and/or VBMFX).

2. We do not anticipate a need to tap any of our tax-deferred accounts for another 20+ years…does it make sense to leave our TSP in Lifecycle 2030 and TSP Roth Lifecycle 2040 (Target Date TSP Funds)? Or should we be more aggressive? Should I consider the G Fund?

3. Where should we put the relatively high percentage of cash reserves or should we leave that where it is (mostly FDIC insured Ally online savings with under 1% interest)?

4. Will we have enough for a comfortable retirement if/when my wife and I decide to pursue our volunteering passion once she retires from the Army in a couple of years? We anticipate receiving a combined $100K annually on combined pensions alone. Medical and dental will be taken care off with low-cost Tricare and our projected monthly expenses (to include mortgage) are under $6,000 a month. My “financial advisor” suggested we should be good but he will know more when we come in for a $900 in depth consultation (by the way, he is not CFP nor CFA certified)…and I am balking at that.

Thank you in advance!
Last edited by Van-Guard23 on Fri May 03, 2013 4:49 am, edited 1 time in total.
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Re: Boglehead advice on portfolio - retiring Soldier

Postby Duckie » Wed May 01, 2013 11:23 pm

Van-Guard23, you have a desired AA of 70% stocks, 30% bonds (a little low for your age), with 25% of stocks in international. That breaks down to 52% US stocks, 18% international stocks, and 30% bonds. Here is a possible retirement portfolio:

Taxable at Vanguard -- 49%
31% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)
18% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.16%)

His Thrift Savings Plan -- 22%
6% C Fund (0.027%)
2% S Fund (0.027%) <-- Roughly 80% large caps (C Fund) plus 20% mid/small caps (S Fund) makes up the total US stock market.
4% F Fund (0.027%)
10
% G Fund (0.027%)

Her Thrift Savings Plan -- 16%
16% F Fund (0.027%)

His Roth IRA at Vanguard -- 7%
7% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)

Her Roth IRA at Vanguard -- 6%
7% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)

My comments:
-- This ignores the tax cost of selling in taxable. (And the cost could be major.)
-- This has TISM in taxable to take advantage of the 
Foreign tax credit and because it's a much better fund than the TSP I Fund.
-- I think the G Fund should be from 25% to 50% of the total bond AA. The above is 33%.
-- You wrote:
"Marginal Tax Rate: 28% Federal; currently no state taxes due to active military based in HI (CA as home state) and HI doesn’t tax military pensions".
You need to separate yourself from California before you retire. Driver's licenses, vehicle registrations, voter registrations, bank accounts, etc. need to be in Hawaii. CA is really nasty about trying to tax you after you've moved.

Your questions:
1. What is the best way to achieve my desired AA?
-- The above is the easiest way. It may not be the cheapest when considering tax costs. (And bonds don't belong in taxable as long as you have room in tax-sheltered.)

2. We do not anticipate a need to tap any of our tax-deferred accounts for another 20+ years…does it make sense to leave our TSP in Lifecycle 2030 and TSP Roth Lifecycle 2040 (Target Date TSP Funds)? Or should we be more aggressive? Should I consider the G Fund?
-- Once you have taxable accounts for retirement using balanced funds is not optimum (because you shouldn't use them in taxable). Place your money in individual funds instead. And yes, use the G Fund. It's practically a free lunch.

3. Where should we put the relatively high percentage of cash reserves or should we leave that where it is (mostly FDIC insured Ally online savings with under 1% interest)?
-- Are you writing about the 21% cash in taxable or something else? If it is for retirement purposes, it should be a part of your AA. If it is not for retirement, what is it for?

4. Will we have enough for a comfortable retirement if/when my wife and I decide to pursue our volunteering passion once she retires from the Army in a couple of years?
-- Can't help here.

Something to think about.
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Re: Boglehead advice on portfolio - retiring Soldier

Postby Van-Guard23 » Thu May 02, 2013 12:00 am

Duckie, thanks for the detailed breakdown...guess I would have to face the inevitable tax implications of the re-allocation.

Duckie wrote:Van-Guard23, you have a desired AA of 70% stocks, 30% bonds (a little low for your age), with 25% of stocks in international. That breaks down to 52% US stocks, 18% international stocks, and 30% bonds. Here is a possible retirement portfolio:

Taxable at Vanguard -- 49%
31% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)
18% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.16%)

His Thrift Savings Plan -- 22%
6% C Fund (0.027%)
2% S Fund (0.027%) <-- Roughly 80% large caps (C Fund) plus 20% mid/small caps (S Fund) makes up the total US stock market.
4% F Fund (0.027%)
10
% G Fund (0.027%)

Her Thrift Savings Plan -- 16%
16% F Fund (0.027%)

His Roth IRA at Vanguard -- 7%
7% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)

Her Roth IRA at Vanguard -- 6%
7% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)


If 70% in stocks is a little to conservative, do you suggest 80% or even 90% in stocks?

"Marginal Tax Rate: 28% Federal; currently no state taxes due to active military based in HI (CA as home state) and HI doesn’t tax military pensions".
You need to separate yourself from California before you retire. Driver's licenses, vehicle registrations, voter registrations, bank accounts, etc. need to be in Hawaii. CA is really nasty about trying to tax you after you've moved.


I still have voter registration and bank accounts in California (BofA)...guess I should look into closing those and transferring all the funds to another bank. I didn't think about that...my registration, licenses are from other states.

1. What is the best way to achieve my desired AA?
-- The above is the easiest way. It may not be the cheapest when considering tax costs. (And bonds don't belong in taxable as long as you have room in tax-sheltered.)

2. We do not anticipate a need to tap any of our tax-deferred accounts for another 20+ years…does it make sense to leave our TSP in Lifecycle 2030 and TSP Roth Lifecycle 2040 (Target Date TSP Funds)? Or should we be more aggressive? Should I consider the G Fund?
-- Once you have taxable accounts for retirement using balanced funds is not optimum (because you shouldn't use them in taxable). Place your money in individual funds instead. And yes, use the G Fund. It's practically a free lunch.

3. Where should we put the relatively high percentage of cash reserves or should we leave that where it is (mostly FDIC insured Ally online savings with under 1% interest)?
-- Are you writing about the 21% cash in taxable or something else? If it is for retirement purposes, it should be a part of your AA. If it is not for retirement, what is it for?


1. We have no more room in the tax-sheltered accounts as both TSP and Roth IRAs are maxed.

2. I agree...good thing that rebalancing within the TSP family of funds would incur no fees

3. Yes, that money is for retirement...been in the sidelines for a while so we will begin using that as part of the desired AA.

Thanks again!
Last edited by Van-Guard23 on Fri May 03, 2013 9:35 pm, edited 1 time in total.
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Re: Boglehead advice on portfolio - retiring Soldier

Postby patriciamgr2 » Thu May 02, 2013 7:42 pm

First, a sincere thank you to you and your wife for your service to our country & kudos on your desire to continue to serve by volunteering during retirement.

I am sure other Forum members will have comments on the investment proposals. I am just commenting on one part of your question: retirement planning. Before visiting an advisor, I'd suggest taking a look at an online calculator like Firecalc yourself (after doing a detailed, realistic budget using real spending records & including all "retirement wish list" cash expenditures) to determine whether your retirement plan works in all scenarios. You can adjust assumptions including inflation expectations and assumed rates of returns for various asset classes. (You have time until your wife's retirement to try living without her salary--bank the salary, while living on your projected retirement budget--it's a risk-free trial run). There have been a number of threads on this Forum on retirement calculators which you may want to review. [I used a different Monte Carlo scenario product, which isn't available at retail, but others on the Forum have used Firecalc] With your hard-earned pension & health benefits, if your expenses (including taxes) come in that far under your pension income, you would seem to be well-situated for an excellent new chapter in your lives.

In terms of the tax hit on getting rid of the high-expense funds, I'd suggest compiling your adjusted basis (for older funds, you may need to access the fund company's records to make sure you add distributions on which you've already paid tax to your basis) for each fund vs. its market value. I'd run tax numbers on when it makes sense to recognize those gains. Given your high levels of income even after your wife's retirement, postponing the recognition might not be justified.

Good Luck to you and your wife.
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Re: Boglehead advice on portfolio - retiring Soldier

Postby Duckie » Thu May 02, 2013 9:11 pm

Van-Guard23 wrote:
Duckie wrote:Van-Guard23, you have a desired AA of 70% stocks, 30% bonds (a little low for your age), with 25% of stocks in international.

If 70% in stocks is a little too conservative, do you suggest 80% or even 90% in stocks?

I meant your 30% of bonds is low for age 44. 35% to 40% may be better. But it all depends on your comfort level.

And bonds don't belong in taxable as long as you have room in tax-sheltered.

We have no more room in the tax-sheltered accounts as both TSP and Roth IRAs are maxed.

You have 51% of your retirement assets in tax-sheltered accounts (and they will grow faster than your taxable account) and your bond AA is only 30%. Since you have plenty of room in tax-sheltered you have no need for bonds in taxable at this time.
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Re: Boglehead advice on portfolio - retiring Soldier

Postby Van-Guard23 » Fri May 03, 2013 4:02 am

patriciamgr2 wrote:First, a sincere thank you to you and your wife for your service to our country & kudos on your desire to continue to serve by volunteering during retirement.

I am sure other Forum members will have comments on the investment proposals. I am just commenting on one part of your question: retirement planning. Before visiting an advisor, I'd suggest taking a look at an online calculator like Firecalc yourself (after doing a detailed, realistic budget using real spending records & including all "retirement wish list" cash expenditures) to determine whether your retirement plan works in all scenarios. You can adjust assumptions including inflation expectations and assumed rates of returns for various asset classes. (You have time until your wife's retirement to try living without her salary--bank the salary, while living on your projected retirement budget--it's a risk-free trial run). There have been a number of threads on this Forum on retirement calculators which you may want to review. [I used a different Monte Carlo scenario product, which isn't available at retail, but others on the Forum have used Firecalc] With your hard-earned pension & health benefits, if your expenses (including taxes) come in that far under your pension income, you would seem to be well-situated for an excellent new chapter in your lives.

In terms of the tax hit on getting rid of the high-expense funds, I'd suggest compiling your adjusted basis (for older funds, you may need to access the fund company's records to make sure you add distributions on which you've already paid tax to your basis) for each fund vs. its market value. I'd run tax numbers on when it makes sense to recognize those gains. Given your high levels of income even after your wife's retirement, postponing the recognition might not be justified.

Good Luck to you and your wife.


Patriciamgr2,
Thanks...I perused FireCalc and I might be able to use it. At first blush, it doesn't seem to have all the details I need but I will compile all my data and take it for a spin.

Good suggestion on the "trial run" but I might start by using my wife's projected pension vice current income to see how things would look when we are both retired.

Someone suggested the same thing to me as far as gathering up adjusted basis to account for taxed dividends...is it safe to assume that the fund company will have that on record and when I liquidate those to purchase Vanguard index funds they would "automatically" recognize the taxed dividends that were reinvested into the funds? Or will I have to dig up all that data (I knew I shouldn't have gotten rid of those monthly statements from 15 years ago)?

When you stated
I'd run tax numbers on when it makes sense to recognize those gains
, can you provide more details/specificity as to how exactly I would go about this?

Thanks again.
Last edited by Van-Guard23 on Fri May 03, 2013 9:37 pm, edited 2 times in total.
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Re: Boglehead advice on portfolio - retiring Soldier

Postby Van-Guard23 » Fri May 03, 2013 4:11 am

Duckie wrote:I meant your 30% of bonds is low for age 44. 35% to 40% may be better. But it all depends on your comfort level.


Thanks for clarifying...with all these talks about moving away from bonds due to the low yields, I assumed you were talking about increasing allocation towards equities. I feel comfortable with 30% in bonds at this time...might have to re-examine that at a later time.

You have 51% of your retirement assets in tax-sheltered accounts (and they will grow faster than your taxable account) and your bond AA is only 30%. Since you have plenty of room in tax-sheltered you have no need for bonds in taxable at this time.


Agree...will use our TSP to cover most, if not all, of the bond exposure.

Thanks again!
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