Investing at retirement

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Professor Emeritus
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Investing at retirement

Post by Professor Emeritus »

It's finally happening DW is retiring this year. I have the basics covered. We both have DB pensions and it is clear that deferring Social Security to 70 makes sense (with the file and suspend item) I have the money in Wellesley to substitute income during deferral and to complement the Pensions /SS for 5 years of LTC. The question is investing/spending the rest. These are "discretionary funds" used for things like taking the children and grandchild on vacations. My Current approach keeps 3 years "extra" consumption in Wellesley and the rest in the wall street casino. I have looked at every option from annuities to a pure Stock index approach. I like to keep it simple. We are flagship customers at Vanguard and get Admiral shares on everything. One approach is to put it in a long "target date" fund. But I'm open to ideas. I have not yet called Vanguard, since I find the folks here to give better advice. :beer
dbr
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Re: Investing at retirement

Post by dbr »

Why not keep it all in Wellesley as you seem satisfied with that investment? Note that Wellesley is most definitely an offering of the "Wall Street Casino" as much as anything else you might consider.
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cheese_breath
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Re: Investing at retirement

Post by cheese_breath »

When I see the term "wall street casino" it makes me wonder which insurance salesmen you might have been listening to.
The surest way to know the future is when it becomes the past.
Erwin
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Re: Investing at retirement

Post by Erwin »

dbr wrote:Why not keep it all in Wellesley as you seem satisfied with that investment? Note that Wellesley is most definitely an offering of the "Wall Street Casino" as much as anything else you might consider.
Assuming we are talking about Vanguard Wellesley, if I may ask, why are you saying that?
Erwin
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BruceM
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Re: Investing at retirement

Post by BruceM »

professor
What are your primary objectives for this money? I can kind of infer them, but if you make them clear, this would drive your ultimate investment choices.

Examples of investment goals might include:

1. Safety of principal....if you will need these dollars in the future and you do not want the risk of a decline in nominal value. This will necessarily limit you to short maturity high quality bonds, CDs or money market funds, and will probably lose real purchasing power over time, depending on future inflation rates.

2. Full liquidity...if you need to be able to convert it to cash quickly. Emergency funds typically have this requirement.

3. Growth in real value....to maintain future purchasing power, but will involve market risk

4. Ongoing income while maintaining portfolio value....how much income required determines the income risk and thus how much risk to portfolio value.

5. Reliable income over retirement years where maintaining portfolio value is not a priority....an SPIA will do this (expensive), as well as holding a basket of income paying stocks or ETFs.

6. Ease of management.....this may be important for surviving spouses to be able to continue what you've begun

7. Taxes....most retirees aren't in a high enough tax bracket for this to be a high priority, but it is certainly possible.

BruceM
dbr
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Re: Investing at retirement

Post by dbr »

mpt follower wrote:
dbr wrote:Why not keep it all in Wellesley as you seem satisfied with that investment? Note that Wellesley is most definitely an offering of the "Wall Street Casino" as much as anything else you might consider.
Assuming we are talking about Vanguard Wellesley, if I may ask, why are you saying that?
Assuming the "Wall Street Casino" is stocks and bonds, that is what Wellesley is.
Erwin
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Re: Investing at retirement

Post by Erwin »

dbr wrote:
mpt follower wrote:
dbr wrote:Why not keep it all in Wellesley as you seem satisfied with that investment? Note that Wellesley is most definitely an offering of the "Wall Street Casino" as much as anything else you might consider.
Assuming we are talking about Vanguard Wellesley, if I may ask, why are you saying that?
Assuming the "Wall Street Casino" is stocks and bonds, that is what Wellesley is.

That's insightful!
Erwin
Topic Author
Professor Emeritus
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Re: Investing at retirement

Post by Professor Emeritus »

cheese_breath wrote:When I see the term "wall street casino" it makes me wonder which insurance salesmen you might have been listening to.
I got the phrase 30 years ago from Mancur Olsen http://en.wikipedia.org/wiki/Mancur_Olson

He said the only way to reliably make money at a casino was to own it. He did approve of indexing as a way to "own" the casino.
Topic Author
Professor Emeritus
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Re: Investing at retirement

Post by Professor Emeritus »

mpt follower wrote:
dbr wrote:
mpt follower wrote:
dbr wrote:Why not keep it all in Wellesley as you seem satisfied with that investment? Note that Wellesley is most definitely an offering of the "Wall Street Casino" as much as anything else you might consider.
Assuming we are talking about Vanguard Wellesley, if I may ask, why are you saying that?
Assuming the "Wall Street Casino" is stocks and bonds, that is what Wellesley is.

That's insightful!
Fair enough
The idea of the Wall Street Casino is that trying to "beat the house" is a fool's game. There is nothing wrong as such with stocks and bonds.
What you want to do , one way or another is to own the house.
I am a firm believer in stock index funds and have about 60% of the pot in broad based index funds. The Wellesley money I expect to spend over the next 8 years (in effect
buying SS annuities by deferment.) I am very comfortable in putting money in Wellesley for that purpose.
I'm not sure in the case of a longer time horizon, but I ma willing to tolerate more risk.
Topic Author
Professor Emeritus
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Re: Investing at retirement

Post by Professor Emeritus »

BruceM wrote:professor
What are your primary objectives for this money? I can kind of infer them, but if you make them clear, this would drive your ultimate investment choices.

Examples of investment goals might include:

1. Safety of principal....if you will need these dollars in the future and you do not want the risk of a decline in nominal value. This will necessarily limit you to short maturity high quality bonds, CDs or money market funds, and will probably lose real purchasing power over time, depending on future inflation rates.

2. Full liquidity...if you need to be able to convert it to cash quickly. Emergency funds typically have this requirement.

3. Growth in real value....to maintain future purchasing power, but will involve market risk

4. Ongoing income while maintaining portfolio value....how much income required determines the income risk and thus how much risk to portfolio value.

5. Reliable income over retirement years where maintaining portfolio value is not a priority....an SPIA will do this (expensive), as well as holding a basket of income paying stocks or ETFs.

6. Ease of management.....this may be important for surviving spouses to be able to continue what you've begun

7. Taxes....most retirees aren't in a high enough tax bracket for this to be a high priority, but it is certainly possible.

BruceM
I like the list. Like jack Benny "I'm thinking I'm thinking "
Its all in tax sheltered retirement funds so the Required minimum distribution is also an issue.
dbr
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Re: Investing at retirement

Post by dbr »

Professor Emeritus wrote: Fair enough
The idea of the Wall Street Casino is that trying to "beat the house" is a fool's game. There is nothing wrong as such with stocks and bonds.
What you want to do , one way or another is to own the house.
I am a firm believer in stock index funds and have about 60% of the pot in broad based index funds. The Wellesley money I expect to spend over the next 8 years (in effect
buying SS annuities by deferment.) I am very comfortable in putting money in Wellesley for that purpose.
I'm not sure in the case of a longer time horizon, but I ma willing to tolerate more risk.
In that case you want to decide what allocation you want to make to stocks and bonds and select funds accordingly. The three fund portfolio of total US stock, total international stock, and total bond market at maybe 50/50 (compared to Wellesley 40/60) might fit your answer to that. If that is the case you might just as well go with the three funds right off.

Some good reading might be Larry Swedroe's books on investing which include among other things discussion of risk and how much to take. A person with income needs largely met by pensions and SS would not likely want additional annuities. If your pensions are not COLA'd to inflation, life becomes more complicated. Is that an issue?
Erwin
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Re: Investing at retirement

Post by Erwin »

dbr wrote:
Professor Emeritus wrote: Fair enough
The idea of the Wall Street Casino is that trying to "beat the house" is a fool's game. There is nothing wrong as such with stocks and bonds.
What you want to do , one way or another is to own the house.
I am a firm believer in stock index funds and have about 60% of the pot in broad based index funds. The Wellesley money I expect to spend over the next 8 years (in effect
buying SS annuities by deferment.) I am very comfortable in putting money in Wellesley for that purpose.
I'm not sure in the case of a longer time horizon, but I ma willing to tolerate more risk.
In that case you want to decide what allocation you want to make to stocks and bonds and select funds accordingly. The three fund portfolio of total US stock, total international stock, and total bond market at maybe 50/50 (compared to Wellesley 40/60) might fit your answer to that. If that is the case you might just as well go with the three funds right off.

Some good reading might be Larry Swedroe's books on investing which include among other things discussion of risk and how much to take. A person with income needs largely met by pensions and SS would not likely want additional annuities. If your pensions are not COLA'd to inflation, life becomes more complicated. Is that an issue?

Vanguard Wellesley has been a highly disciplined and well run fund since its inception in 1970, and along with its sister Wellington also highly liked by many Bogleheads. I would not be surprised if there are more than a few Bogleheads tha own it.
I would not throw it away so fast!
Erwin
dbr
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Re: Investing at retirement

Post by dbr »

mpt follower wrote:

Vanguard Wellesley has been a highly disciplined and well run fund since its inception in 1970, and along with its sister Wellington also highly liked by many Bogleheads. I would not be surprised if there are more than a few Bogleheads tha own it.
I would not throw it away so fast!
Yes, that was the first comment I made on this entire thread. The OP has since demurred and suggested he wants to think about possibly a more aggressive asset allocation in the long run. He also values simplicity. The three fund approach is simple; Wellesley is simple; holding Wellesley and some addition to increase risk and expected return starts to get less simple. Perhaps even the simplest is to give up holding the Wellesley at all in the short run as well and just go with 50/50 in the three fund.

So the issue is what is most wanted:

1. Wellesley only.

2. A somewhat more aggressive asset allocation.

3. Simplicity.

4. Any two of the above.

5. All of the above.

6. Something else.
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BruceM
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Re: Investing at retirement

Post by BruceM »

Professor Emeritus wrote:
I like the list. Like jack Benny "I'm thinking I'm thinking "
Its all in tax sheltered retirement funds so the Required minimum distribution is also an issue.
Professor
While you're thinking......

That your investments are all in a tax deferred account(s) that will be subject to RMDs really should have no bearing on your asset allocation that is based on your goals. A RMD is really ONLY a taxable event, and the tax created will be only from ordinary income, so asset allocation and buying/selling will not affect it. Remember, an RMD does NOT require the RMD amount to be withdrawn and consumed....it only requires the RMD amount to be removed from the retirement account. Thus, an investment you hold in the retirement account that equals the amount of that year's RMD can simply be moved (transferred in-kind) from the retirement account to a taxable account. Nothing has changed in regards to your investment objective...except perhaps the dividends and capital gains from that point on from the transferred amount may receive a better tax rate than the ordinary income they would have created (when withdrawn) from the retirement account.

BruceM
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Professor Emeritus
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Re: Investing at retirement

Post by Professor Emeritus »

BruceM wrote:
Professor Emeritus wrote:
I like the list. Like jack Benny "I'm thinking I'm thinking "
Its all in tax sheltered retirement funds so the Required minimum distribution is also an issue.
Professor
While you're thinking......

That your investments are all in a tax deferred account(s) that will be subject to RMDs really should have no bearing on your asset allocation that is based on your goals. A RMD is really ONLY a taxable event, and the tax created will be only from ordinary income, so asset allocation and buying/selling will not affect it. Remember, an RMD does NOT require the RMD amount to be withdrawn and consumed....it only requires the RMD amount to be removed from the retirement account. Thus, an investment you hold in the retirement account that equals the amount of that year's RMD can simply be moved (transferred in-kind) from the retirement account to a taxable account. Nothing has changed in regards to your investment objective...except perhaps the dividends and capital gains from that point on from the transferred amount may receive a better tax rate than the ordinary income they would have created (when withdrawn) from the retirement account.

BruceM
Sorry about not giving full info, the RMD is an issue for other reasons relating to DWs separate money.
Topic Author
Professor Emeritus
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Re: Investing at retirement

Post by Professor Emeritus »

In that case you want to decide what allocation you want to make to stocks and bonds and select funds accordingly. The three fund portfolio of total US stock, total international stock, and total bond market at maybe 50/50 (compared to Wellesley 40/60) might fit your answer to that. If that is the case you might just as well go with the three funds right off.

Some good reading might be Larry Swedroe's books on investing which include among other things discussion of risk and how much to take. A person with income needs largely met by pensions and SS would not likely want additional annuities. If your pensions are not COLA'd to inflation, life becomes more complicated. Is that an issue?[/quote]


thank you
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Peter Foley
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Re: Investing at retirement

Post by Peter Foley »

It is not entirely clear to me where you are holding the discretionary funds that you expect to draw from over the next few years. If everything is in tax deferred it doesn't make much difference, but if you are holding Wellesley in taxable, there is probably a more tax efficient approach available by using another combination of Vanguard funds, or modifying the funds placement to get all your bonds in tax deferred accounts.

If you are by chance in the 15% bracket you might have the opportunity to take some long term capital gains in taxable and pay no taxes. If your withdrawals are coming from tax deferred and this increases your tax rate to 25%, that raises other issues - i.e., your withdrawal strategy.

My approach was to make up a 5 year plan and map out from where withdrawals would be taken for maximum tax efficiency. Included in this analysis is a Roth conversion strategy and a capital gains strategy. In a couple years of those years I want to be in the 15% bracket so as to take capital gains for annual expenses. In a couple other years I will push myself into the 25% bracket via Roth conversions.

What you are doing may be fine - I'm just tossing out a couple things to think about.
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