Here's my semi-random 9-bullet financial background:
- I got A's in Calculus, and love pivot tables. I 'get' the time-value of money.<Not going to help you here, but it's good you know time value of money.Right, you need one with a portfolio this complex.
- I'm comfortable with equities… indexes/individual stocks/ mutual funds.<--Just so you know, we do not recommend individual stocks.
I work for a tech company and annual get RSUs, Options, and ESPP shares. But my Dad got burned hard in retirement by the dirt-bag scum Bernie Ebbers , so I limit my exposure to individual equities, but still dabble a wee bit.<--Don't. It won't make much difference, but it's another iron in the fire. You've got to work on getting efficient.
- I don't really truly get Bonds and Interest Rates (except CDs and Bonds held to maturity.)
- We did this and that IRAs and Roths and his/hers Annuities way back when. Well-intentioned but mostly clueless. I call those my Dogs and Cats accounts.
Recently converted most of my 401k to a 2035 Target Fund 'cause I knew enough to diversify but did spend the time to learn what to do.<--OK, but we don't usually recommend using a fund-of-funds with individual funds because it makes rebalancing difficult. What you need to do, and I don't know if you already do this, is to view your entire portfolio as one, and in that way you can optimize placement and increase portfolio efficiency.
- My pay has gone up plenty in the past couple years. Handy, given how freaking expensive college is.
- I've started a Deferred Comp account this year.
- I haven't read the How-To books… but I can feel the Force guiding me toward some Boglehead recommendations this summer.<--Check the Boglehead's Wiki for Bond recommendations. Also check Tayor's Gems to get a good idea of what's in the books.
- I've got "My Spreadsheet." Going on 15+ years with the same one. OK, full disclosure, it's got more than 30 tabs of tables and charts and reference info, and best-laid plans.
So, without further ado.
I see my remaining life in 4 financial phases. I'm not counting the after-life as a phase.
Roughly (+/- a few years) here is my game plan...
0. 50-55: Still working. Paying like crazy for college. Saving like crazy. Paying down mortgage before(?) retirement.<--I'm sure someone will counter this, but with your tax rate and the low interest rate, I'd probably think twice about paying off the mortgage. Your effective rate is less than 3%. I think you will be able to do better than that by adding to investments and earning more than 3%. How many years left?
1. 55-59.5: Early retirement. Using taxable account and Deferred Comp account. Probably deplete Taxable account by XX%.<--Drawing from taxable would be the most efficient way to do it.
2. 60-70: Spend from our 401k's and IRAs.
3. 70+: SS kicks in, and 401k RMDs. Maybe SS will cover 40% of expenses.<This is a good plan, and if needed you could always take SS a little earlier.
Emergency funds: Yes.<--Don't count this as part of retirement portfolio.
Debt: only the mortgage.
Credit Cards - pay off monthly.
Mortgage - $115k, 3.75%.<--good rate, even less with tax deduction.
Tax Filing Status: Married filing jointly. 3 kids: 15-19 (11 more kid-years of tuition, yikes)
Tax Rate: Has been: AMT and 33% (I think) Federal, 9% State. Maybe lower going forward with spouse not working as of this month, and Deferred Comp kicking in this year.
State of Residence: I'd rather not say.
Age: 49.91 years<--I always get a little nervous when I see posters breaking things down to this degree. Nothing you do, figure, calculate, etc., will be anywhere close to this kind of accuracy.
Desired Asset allocation: Probably 50/50 for "Age 55-59" money and 70/30 for "Age 60+" money. But don't really know. (PE10 recently feels kinda high.)<--Forget PE for now. You need a solid plan that will weather all conditions. A 50/50 AA might be fine, but it would be good to know what your withdrawal rate will be the first year in retirement. Why would you want to go to 70/30 after 60? How much risk to take is always controversial. On one hand you may have the emotional tolerance to handle high risk, and you might also have the financial capacity for it too, but on the other hand you may not need to take higher risk, so why do it?
Desired International allocation: Comfortable with the high side. (30%?)<--Recommended allocation for international ranges from 20-40% of equity. Current retirement assets
Roughly Portfolio size
• 1200k in Tax Deferred
• 275k in Taxable eqities
• 100k in 529s for college, 70k in cash for college<--don't count his as part of retirement assets.
• 100k in cash<--Count everything that goes to retirement. Is this cash part of that or is it an emergency fund?Taxable
10% Cash - Earning (0.7%). ($70k for College 2013-2014, $100k unassigned.)<--Redo holdings to only show retirement.
2% Schwab International Index SWISX (0.17%)
4% Schwab Small Cap Index SWSSX (0.19%)
1% AMD - AMD
1% AAPL - Apple
3% xxxx - My Company Stock held outright, Vested RSUs/Options (Net after cost and taxes)
5% xxxx - My Company - Unvested RSUs/Options (Net after cost and taxes)Your individual stocks in taxabe don't amount to much, but they do add complexity that you don't need. His 401k at Fidelity
34% Target 2030 - (1.07%) - Target 2030 (30% Intl, 30% Alternative, 25%, Lg Cap, 10% Glob Bond, 3% Sm Cap)<--Are these Fidelity funds? My opinion is Fidelity Target funds are not very good, and then there is the problem of holding them with individual funds, which makes rebalancing more complicated.
4% Lazard Emerging Markets - LZEMX (0.83%)Do you have access to any Spartan Index funds? His Profit Sharing at Fidelity
15% Global Diversified Fund - 1.25% - Global Diversified (35% Other, 22% Intl, 6% Cash, 20% US Stock, 12% US Bond, 3% Intl Bond)
(I have no control in the Profit Sharing account asset allocation)His Deferred Comp Account at Fidelity
2% Target 2035 - (1.07%) - Target 2035 (30% other, 30% Intl Stock, 5% cash, 23% US Stock, 7% US Bond, 2% Intl Bond)His IRA at Schwab
0% Schwab S&P 500 Index - SWPPX (0.09%)<--Better choice is Total Stock market. His Roth IRA at Schwab
1% Schwab S&P 500 Index - SWPPX (0.09%)His & Her Annuities at Madison
0% MADISON LARGE CAP GROWTH FUND CLASS A - MCAAX (1.20%)
1% MADISON INTERNATIONAL STOCK FUND CLASS A - MINAX (1.60%)That's not all of the fees. Very small amount of total, but you might consider using a 1035 exchange to Vanguard.Her 457
10% ???? (~.9%) 3 Mutual Funds's she's not around to get the details for me.
She is leaving her job this month in any case.
Assume we'll do a Rollover IRA to Schwab/Fidelity and make Lazy portfolio.Her Traditional IRA at Schwab
2% Schwab Small Cap Equit - SWSCX (1.12%)<--1.12% Her Roth IRA at Schwab
1% Schwab S&P 500 Index - SWPPX (0.09%)Upcoming Expenses
College #1: 3x30k (2013-2015)
College #2: 4x30k to 4x60k (2014-2017)
College #3: 4x30k (2016-2019)
We expect to pay for this using : $100k in 529s, $50k of current cash, and the rest out paychecks, bonuses and upcoming stock grants. I made a 7-year table that looks manageable.
But I mention all this because it's such huge financial event. I feel I need to think somewhat about the potential for smaller bonuses or the stock dropping in half, etc.<--Good. Social Security Estimate
If I did the 35-years-of-contributions math correctly with marginal 90%, 32%, 15% values, I estimate:
Him: $2900/mon at Age 70 (2033), if working thru 2017. Today's dollars.
Her: $1700/mon at Age 70 (2033), if working thru 2016. Today's dollars.Salary
$170k. I'm hoping (thinking?/planning?) to keep putting $60k/y into Deferred Comp.
Bonus: Range $30-60k. Nominally 50k before taxes
Stock grants/options: $20-$40k. Net after taxes, costs, etc.
Hers: Let's assume 0 going fwd.Contributions
New annual Contributions
$60k his deferred comp. Mega-corp default risk.
$15k his company-contributed profit sharing.
$0 his 401k
$0 her 457. (Was 20k/yr… but as of next month she's not working. But for important reasons I wholeheartedly support Maybe she'll go back to work next year.)Available funds Funds available in his 401(k) & Deferred Comp
I can open a Fidelity "Brokerage Link" account and get to everything they've got. I believe.<--Spartan.Funds available in her 457
Expecting to do a Rollover IRA from her 457 when she leaves her job.
Probably to Schwab to Fidelity for simplicity.Funds in Annuity
Don't know. We looked into closing it some years back, but there was going to be fee, so just forgot about it.Objectives
0. Simplify. In any dimension possible.
1. Pay for college.
2. Get my head around Bonds & Fixed Income: Laddering, and SPIA, and Yield Curves... Oh My!!
3. Don't work longer than I need to. Retirement at Age 55-56 seems plausible. (I've got a spreadsheet.
4. Figure out how to enjoy life, and "give back" while I can, since everyone should be as happy as I am.,<--Excellent attitude.Questions
: (I feel very needy and greedy asking soooo many questions)
0. Am I being sensible in thinking in terms of these "phases"? e.g. wrt AA, contributions, cash flow.<--It's better to plan than not plan, although it's likely things will not always fit your plan.
1. College: best place for allocation of $70k taxable cash for next 1-18months. Now it's earning 0.7%.<--No other reasonable choice.
2. College: is there a better allocation of the 529 money vs Lazy Age-based? Most of it will be spent in 4 yrs.<--I don't know what the allocation is for lazy age-based.
3. Is Deferred Comp the best option for super-sizing my "Age 55-59" money? vs Roth401k, RothIRA, 401k, etc<--I'm not sure. Focus on this question in another post in this thread.
4. How best to allocate our 55-59 Taxable money?<--You want to be tax efficient and do rebalancing in tax deferred.
4a. What bonds/bond funds for Taxable account: Our tax rate is very High now. I'll gladly pick a few individual bonds and hold them.<--You can use tax exempt bonds, munis, but you can also keep bonds in tax-deferred account. That is one of the advantages of viewing the whole portfolio as one.
5. How best to allocate my 55-59 Deferred Comp money?<--Spartan funds, if available. But this brings up another issue. When you separate retirement into different time periods you create portfolio for each (also called buckets), but you really still have only one portfolio. Separating time periods is pretty much just mental accounting.
6. How best to allocate our 60-70 money?<--See previous answer.
7. Any 'gotchas' out there in converting my 401k Fidelity Target Year fund to a self-managed Lazy Portflio? (it remains a 401k).<--As noted, I don't think too much of the Fidelity Target funds and they are too expensive. When you say lazy portfolio what do you mean? I would suggest you don't make your portfolio too complex--it isn't necessary.
8. Should REIT fit here somewhere?<--Maybe, but not critical.
9. Am I crazy to consider drawing down some principle from my Taxable accounts for Early Retirement before age 59.5?<--No.
10. Paying down (or nearly) the 3.875% mortgage by Age55 'feels' important psychologically, and like "not a bad idea" with today's market valuations and interests rates. Without re-starting the entirety of the Mortgage pay-down threads, is there anything particular about our situation that I should think about.<--As mentioned, I'm not convinced it's the best use of assets.
11. The general topic of Tax avoidance (asset allocation, annually selling the highest basis company stock vs. LTCapital Gains, etc). We wonder and wonder about this… but don't have a coherent plan. How important is this in the near term or long-term? I'd love to hear someone tell me not to overthink it.<--Tax management is extremely important. Search the Bogleheads Wiki for taxes and any other questions you might have.
12. Should I buy a duplex? (only half joking)<--Probably not (only half serious). Take up unanswered questions one at a time in this thread.
• Global AA isn't terrible. Given the attention I've paid to it. Mostly thanks to the recent switch to a Target Year fund.
• Lots of Dogs and Cats (small value) accounts
• Taxable: Cash% is high. Bonds are low . Int'l stock is low. Individual stocks are high when not looking at total portfolio value.
• Taxable: Individual stocks (holding and future) at 44% is too high for the 5-10yr money. Even at 28% in 5yrs. Yet 1/3rd of this is unvested options and RSUs. Have already sold $65k of company stock this year, will plan on a similar amount next year, market-gods willing.<--?? Did I overlook this, or is it not clearly stated somewhere?
• Every $120k of college spending in Present Value needs to produce $10k/yr of extra income for 20yrs to be "worth it." Actions I'm thinking about:
1. Aside from College, get a clear grip on "Emergency Funds" needs. Especially since my wife just left the work force.<--Depending your own stability, usual recommendations are for 6-9 months of income.
2. $70k college cash for 2013-14. Just live with it in an FDIC 0.7% account.
3. Keep the 529 in the age funds on auto-pilot. Try to spend it in ~3 years, not 7 years.
4. Absolute maximum I'm comfortable with on my Deferred comp. The Fed tax deferral is a likely 15% winner.
5. Taxable: Migrate Cash and Stocks toward 40/10/50 (US_Idx /Intl_Idx/Muni Bonds). e.g. 12-months of rebalancing. Also, get rid of the small cap fund.
6. Deferred Comp: Move from Target Year fund to 40/10/50 (US Idx/Intl Idx/IntermedBond fund)
7. 401k/457/etc: Move from Target Year fund to (50/20/30 (US Idx/Intl Idx/IntermedBond fund). Adjust risk down each year.
8. REIT: Maybe 5% in our 401k
9. Don't retire if PE's are sky high. If they aren't then ensure 100% FireCalc success with 30% principal remaining thru age 59.5.<--maybe more discussion on this.
10. Mortgage: We'll try to pay it down while bond yields are low and PE10 is in the 20's and PE is >15.
11. Taxes: Throw up my hands.
12. Duplex: Make another spreadsheet tab.
13. Get her IRA out of the 1.1% ER fund.
14. Re-check for Bogle-friendly options for the Madison annuity.
Thanks a ton
for reading this far.
For my time and current knowledge, this whole thing has a lot of moving parts. But I'll definitely say that preparing for this post was an excellent exercise in and of itself.<--Yes, lots of posters make similar comments on the usefulness of doing the exercise.
If I get any help here, it'll be better than I got from a recommended-to-us CFP we talked to recently. Had one pre-meeting and then she called us to say "it's not going to be a good fit." Huh? You can't reject us! In hindsight, I think she knew she didn't want someone with a 30-tab spreadsheet of their own but who doesn't really know what he's doing. Or maybe the AUM she'd get vs complexity was too high. Or maybe she saw my inner Boglehead before I did.<--She knew you would be questioning every move she made. You are getting overloaded with details right now. As much as you would like to have it all laid out, it won't be.
Let's focus on the big rocks first.