Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby texasgal47 » Wed May 08, 2013 11:30 pm

Well, bogleheads, it was an interesting meeting in more ways than one. Here's a recap:
1. The CFP who was scheduled "couldn't make it" (no explanation given). I was given the option to reschedule with the original CFP or to meet with the CFP who was on the line. It was my decision to continue with the gentleman who was present. He had done his homework in reviewing my data, did an excellent job of answering my questions, and I was pleased with the meeting.

2. Regarding the 20% bond allocation in the initial VG portfolio plan, the explanation is that either I, or a computer error, had erroneously entered a response in the risk questionnaire that I had a time horizen or 15 or more years to work. That, plus my high level of risk tolerance, added up to the VG computer program (or CFP?) spitting out this crazy allocation for a 66 yr. old who is knocking on the door of retirement. The CFP today acknowledged that it was obvious, at a glance, that the recommended AA was inappropriate for my situation. His recommendation was 50% stocks/50% bonds which is interesting since that was my same conclusion.

General Impressions: Mixed reviews -- I'm pleased with the quality of the CFPers who have been assigned to me and their level of training. Obviously, that is the most important factor. What does disturb me is what may be a VG culture, most likely structured by upper level management, which does not seem to believe there is a problem with doing what is most convenient for the company (i.e, playing musical chairs with CFPs) rather than showing common curtesy to the client, such as contacting the client as soon as a scheduling problem appears. There also seems to be a lack of serious respect for the portfolio which is being entrusted to your care. In other words, how in the ### could a CFP present such a ridiculous portfolio proposal to me. I seriously study what is put in front of me but apparently a haphazard approach was used from their end. Everyone following this thread is probably tired of this topic, but I would really appreciate your feedback. Am I expecting too much or reading this the wrong way. It is possible the the initial CFP did have an unexpected occurance at the last minute. Even so, a personal call and belief apology would have been nice. At this time, it is my plan to speak with VG upper management regarding these concerns and to notify them of this post on the boglehead forum. I also plan to give them fair warning that a sudden fill in by a CFP#3 will send me into orbit where I will go further up the VG chain. :thumbsdown Anyway, thanks for the opportunity to rant.
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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby retiredjg » Thu May 09, 2013 9:36 am

Glad to hear it was a mistake of some kind and that you got a more realistic suggestion during your appointment.
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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby rick51 » Thu May 09, 2013 11:48 am

I think you may be expecting too much from a "free" service, scheduling conflicts/snafus will happen. As for a steady planner, I think you should be able to get one and stick with him/her. I went through 3 planners with VG and basically ended-up interviewing them. I settled on one with the credentials, experience and rapport that worked for me and I now request that individual, so don't feel like you have to settle for the next available planner. If you are pleased with this one, request him next time.
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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby grayfox » Thu May 09, 2013 11:56 am

staythecourse wrote:If you want the safest approach to investing in retirement it is pretty easy. Just divide your portfoio in 2 buckets. Bucket 1 should be the amount you need for 10 yrs. of living expenses. That should be in cash, MM, rolling CD's, annuities, SS, and pension income. Bucket 2 should be an asset allocation that you feel comfortable with. In its purest form should be 100% stocks.

Retirement planning does not have to be difficult. Folks make it MUCH more difficult trying to figure out the ultimate variable which is returns from different asset allocations. Just make it easy and make 2 separate portfolios. One for income for the next 10 yr. and the other for growth.

Good luck.


:thumbsup That's the way to do it. :thumbsup

Keep most funds in a risk/growth portfolio, which could very well be 80/20 or even 100% stocks, until about 10 years before you need the cash. Then move funds to safe/no-growth investments like CDs, Treasuries, STRIPS and/or TIPS. Keep a 10-year ladder of safe investments, with the withdraw amount maturing every year.

Now if a person were withdrawing the typical 4% per year, that might imply 40% in safe assets (at zero percent interest rates. Less than 40% if you got some positive return.)

But if you only need to withdraw $11.5K per year out of 1.8M, that is a miniscule withdrawal rate of only 0.63% and total withdrawals over the next 10 years would be $115K. Even at zero interest rates you would only need $115K in safe investments. 115/1800 = 6.3% needs to be in safe assets.

They recommended 20%, which is more than the necessary 6.3%. The only reason to have more in safe assets is for psychological reasons or if you plan to time the market by re-balancing the next time the market crashes -50%
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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby texasgal47 » Thu May 09, 2013 12:51 pm

Rick51, you have a good suggestion. I'll stay with the one I spoke with yesterday. Upon reflection, a complain to VG would be inappropriate on my part. I was pleased with the consult and that's what matters. Grayfox, I'm very close to retirement but have been struggling with the idea of increasing my stock ratio, perhaps another 5 - 10%. 2/3 of the portfolio is tax-deferred so RMDs coming up in 4 years is a consideration. I had thought also of starting at 50/50 and increasing the allocation to stocks over time by putting the excess RMDs not used for expenses into Tot Stk Mkt Index f. & VG Intnl Stk Index F. but keeping the amt. of bond f. constant. An increasingly volatile portfolio develops, but my I bonds come to maturity in my mid-80s which add income. Even after taxes, I bonds should be at least $200,000. Is this reasoning way off base? :confused I'm allowing AA to gradually drift riskier with increasing age as the IRA is drawn down by RMDs; a reverse of the usual strategy.
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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby FoolStreet » Thu May 09, 2013 6:17 pm

texasgal47 wrote:I just received my preliminary portfolio recommendations back from the Vanguard CFP on line last night. Even with a 1.8M portfolio, no debts and needing only 11,500/yr income stream within the next 1 to 4 yrs. from retirement at age 66, I never in my wildest dreams expected this AA from Vanguard. My questionnaire response showed that I'm a true Couch Potatoe Investor. My behavior has been to set it and forget it to an extreme fault. I can emotionallly handle an aggressive AA for my life stage. However, my idea of "aggressive" was 50/50 up to 40% stock/60% bonds. Anyway, my jaw dropped when I saw that. Otherwise, he is recommending a basic 3 index portfolio which is my basic strategy. I just had to share this with you bogleheads. The forum will be getting my full portfolio info, but I'm just trying to get back down from the shock of last night. :shock:



A 4℅ withdrawal would yield $72k/year. You say you only need 11,500/year.

So, 80/20 sounds fine to me if your goal is to leave some sort of bequest.

Personally, I think you should up your spending now or give more now. Enjoy life more.

But yeah, I'd ratchet the risk down personally just because.
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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby texasgal47 » Thu May 09, 2013 7:40 pm

Thank you for your responses but 50/50 feels like the sweet spot for my comfort level. The only issues on the table as far as I'm concerned are:
1. Should a small amount VG REIT index fund be included in the IRA?
2. Do I move the 401K while I am still working to VG or leave in place while I'm still working? The 401K has about $150,000 in a LgCap S&P500 Index fund with an ER=0.32%. That's the only fund with a low ER in my plan.
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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby retiredjg » Thu May 09, 2013 7:52 pm

1. Should a small amount VG REIT index fund be included in the IRA?

Personal preference. viewtopic.php?t=10413 Note that the suggestion for the international fund is now Vanguard's Total International Stock Index instead of the FTSE fund discussed.


2. Do I move the 401K while I am still working to VG or leave in place while I'm still working? The 401K has about $150,000 in a LgCap S&P500 Index fund with an ER=0.32%. That's the only fund with a low ER in my plan.

If you are over 59.5, your plan may allow this. If you are younger, you'll have to wait. If you are eligible, I don't see any reason not to move it myself.
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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby texasgal47 » Thu May 09, 2013 9:17 pm

I'm 66 and my plan allows my to move all of the 401K now. The issue is the additional $5000 RMD from the 401K added on top of the other $30,000 RMD taken at age 70 1/2 bumps me into the tax bracket where more is taxed on SS and increased payments into Medicare and part D (prescription insurance). :annoyed
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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby retiredjg » Thu May 09, 2013 10:18 pm

texasgal47 wrote:I'm 66 and my plan allows my to move all of the 401K now. The issue is the additional $5000 RMD from the 401K added on top of the other $30,000 RMD taken at age 70 1/2 bumps me into the tax bracket where more is taxed on SS and increased payments into Medicare and part D (prescription insurance). :annoyed

How does moving the money from 401k to IRA now make a difference?
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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby texasgal47 » Fri May 10, 2013 1:15 am

If one continues working at age 70 and beyond, and has savings in a 401K, RMDs do not have to be taken from the 401K plan until the year the individual stops working. However, for funds in an IRA, RMDs must be taken beginning at age 70 1/2 regardless of employment status.
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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby retiredjg » Fri May 10, 2013 8:39 am

But you said you are 66 years old and knocking on the door of retirement. Does that mean after 70.5 years old? And if the answer is yes, doesn't that just put off the inevitable for only a short while?
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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby Naikansha » Fri May 10, 2013 9:05 am

Regarding the extra 5K, if you make this a qualified charitable contribution when you begin your RMD (assuming this will be allowed that year, it may not be), the amount can be deducted from your RMD so will not be taxed.
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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby texasgal47 » Sat May 11, 2013 5:09 pm

Naikansha, VERY helpful response, thank you. -- I will probably take your suggestion as that is a fit with my budgeting yearly charitable contributions. How would this strategy factor into decreasing federal tax Gross Income and AGI? I ask because if I can avoid including the $5000 as income it would help prevent increased means testing bump up cost for high income retired earners paying Medicare premiums and having Soc. Sec. income. Anyway, great suggestion!!! :D I will discuss with the CFP. And yes, it would probably just be delaying the inevitable.
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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby retiredjg » Sat May 11, 2013 8:37 pm

I don't understand how this helps. Your RMD will still be the same ($5k higher). Your $5k (or thereabouts) charitable deduction will be the same as before you start RMDs. What am I missing?
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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby Naikansha » Sat May 11, 2013 10:05 pm

Whatever she will use for a qualified charitable distribution (say 5k in this case) can be deducted from the RMD amount so will not be taxable. WHen you call the retirement section of VG, they will take a list of the charities you want to give to and amounts for each, and can send you the checks directly so you can pass them on.
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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby retiredjg » Sat May 11, 2013 11:04 pm

Naikansha wrote:Whatever she will use for a qualified charitable distribution (say 5k in this case) can be deducted from the RMD amount so will not be taxable.

Isn't this the same thing as any charitable deduction from any other source? If the charitable deduction comes from the RMD, that just means it does not come from other income. Seems to me it's a wash.

I don't know much about RMDs, but I've read that the RMD comes out and then the deductions happen. Meaning you still have the same RMD no matter how much is given to charity or even if nothing is given to charity.

I think I'm missing something.
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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby Naikansha » Sat May 11, 2013 11:29 pm

No it is not the same because the qualified charitable distribution(s) will not be noted as charitable contributions on the IRS form when the (marginal) tax is taken out of the resulting RMD (by VG). If the distribution(s) are taken by check made out to the charity (ies) and then sent on to the investor to be forwarded to the charities, they are not treated later as charitable contributions on schedule A. The value is that the RMD is lower and thus you pay less tax. .
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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby retiredjg » Sat May 11, 2013 11:49 pm

Ok. I thought I had read that it did not work that way. However, you sound like you have done this, so I'll assume that I was mistaken. Thanks for the information. :happy
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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby texasgal47 » Sun May 12, 2013 1:53 am

I'm sorry, but really need to know if electing to have a portion of an RMD distributed directly to charity reduces the amount of Gross income, or Adjusted Gross Income (AGI), as a tool to reduce income for the purpose of means testing. Here is an example of what I am trying to ask. Say my yearly pension and SS combined are $50,000. My RMD for 2017 is $35,000. I elect to have Vanguard distribute $5000 of the RMD directly to my local church as a charitable contribution. Will turbo tax calculate my gross income as $85,000 or $80,000? What about calculation of the Adjusted Gross Income (AGI)?
I am now going to quote some information related by the Dallas financial columnist, Scott Burns, in one of his columns entitled, "Required minimum distributions can change tax bracket." As a single filer, using federal income tax rates in 2013, everything between $36,250 and $87,850, is taxed at 25% ($72,500 to $146,400 for joint filers). RMDs in the future will move my total income above $87,850 and into the higher marginal tax rate of 28%. So this is one of the reason for my questions posted above. Will the $5000 RMD charitable contribution move the tax bracket goal post back $5000 to give more breathing room before the $87,850 milestone is reached? Mr. Burns also presents another strategy to delay reaching that higher tax bracket -- "You can create some flexibility by making withdrawals from your qualified accounts up to the edge of the 28% tax bracket. You can do a Roth conversion with the withdrawals until you reach the age for required minimum distributions." -- That is another suggestion I plan to implement.
In that same newspaper column, Scott Burns also writes the following -- "The other milestone you want to watch for is the threshold rate for having to pay a surcharge on your Medicare insurance. This year the basic monthly premium for Medicare Part B for most people is $104.90. The Part B premium will rise to $146.90 for joint filers with taxable incomes of $170,000 ($85,000 for single taxpayers), and there will be a Medicare part D surcharge of an additional $11.60 a month. Required minimum distributions may drive your taxable income into this range, so some amount of Roth conversion will reduce the odds this will happen."
I read where the House Republican have presented a proposal to lower the threshold for the Medicare premium rise to around $80,000 for single taxpayers. (I've forgotten the proposed amount for joint filers.) So I'm getting back to that important question of where does the $5000 RMD charitable contribution put one's income for the purposes of federal income tax means testing in determining these additional charges, at $80,000 or $85,000? :?:
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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby Naikansha » Sun May 12, 2013 8:58 am

Please read my post on this topic:
viewtopic.php?f=2&t=110207
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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby retiredjg » Sun May 12, 2013 9:03 am

I don't know the answer, but here are some links you might find helpful.

http://www.irs.gov/uac/Special-Charitab ... IRA-Owners

http://www.irs.gov/Retirement-Plans/Cha ... 2-and-2013

http://www.irs.gov/publications/p590/ch ... 1000295917


Apparently this Qualified Charitable Donation thing must be extended by Congress each year (or every couple of years) so it may or may not apply when you get to RMD age.

Apparently it does not apply to RMD's from 401k plans.
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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby nedsaid » Sun May 12, 2013 5:45 pm

I wouldn't be too hard on Vanguard for the original recommendaton. Glad it was different when you talked to someone in person. There are limitations to free advice, there is probably a wide variation in the experience level of the advisors.

I suspect that since low costs are such an important part of the Vanguard culture, that the advisors they employ probably don't stick around forever and forever. There are probably better opportunities out there.

Any plan that you receive from a financial planner has to be tailored to your comfort level and personal situation. Even the best plans are not going to be perfect. In any case, I view this sort of planning as a process since your life situation will change over the years.

What these plans should do is educate you and stimulate your thinking. Ultimately the decisions made are yours and yours alone.
A fool and his money are good for business.
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Re: Yikes, Vanguard CFP rec. 20% bonds for retirement!!!

Postby MN Finance » Mon May 13, 2013 10:18 am

texasgal47 wrote:I'm sorry, but really need to know if electing to have a portion of an RMD distributed directly to charity reduces the amount of Gross income, or Adjusted Gross Income (AGI), as a tool to reduce income for the purpose of means testing. Here is an example of what I am trying to ask. Say my yearly pension and SS combined are $50,000. My RMD for 2017 is $35,000. I elect to have Vanguard distribute $5000 of the RMD directly to my local church as a charitable contribution. Will turbo tax calculate my gross income as $85,000 or $80,000? What about calculation of the Adjusted Gross Income (AGI)?
I am now going to quote some information related by the Dallas financial columnist, Scott Burns, in one of his columns entitled, "Required minimum distributions can change tax bracket." As a single filer, using federal income tax rates in 2013, everything between $36,250 and $87,850, is taxed at 25% ($72,500 to $146,400 for joint filers). RMDs in the future will move my total income above $87,850 and into the higher marginal tax rate of 28%. So this is one of the reason for my questions posted above. Will the $5000 RMD charitable contribution move the tax bracket goal post back $5000 to give more breathing room before the $87,850 milestone is reached? Mr. Burns also presents another strategy to delay reaching that higher tax bracket -- "You can create some flexibility by making withdrawals from your qualified accounts up to the edge of the 28% tax bracket. You can do a Roth conversion with the withdrawals until you reach the age for required minimum distributions." -- That is another suggestion I plan to implement.
In that same newspaper column, Scott Burns also writes the following -- "The other milestone you want to watch for is the threshold rate for having to pay a surcharge on your Medicare insurance. This year the basic monthly premium for Medicare Part B for most people is $104.90. The Part B premium will rise to $146.90 for joint filers with taxable incomes of $170,000 ($85,000 for single taxpayers), and there will be a Medicare part D surcharge of an additional $11.60 a month. Required minimum distributions may drive your taxable income into this range, so some amount of Roth conversion will reduce the odds this will happen."
I read where the House Republican have presented a proposal to lower the threshold for the Medicare premium rise to around $80,000 for single taxpayers. (I've forgotten the proposed amount for joint filers.) So I'm getting back to that important question of where does the $5000 RMD charitable contribution put one's income for the purposes of federal income tax means testing in determining these additional charges, at $80,000 or $85,000? :?:


The amount of the QCD does not show on your AGI. In your example your AGI would be $80,0000
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