Do I need to change anything before I retire?

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Do I need to change anything before I retire?

Postby Statch » Mon Jul 15, 2013 9:05 am

I'll retire at the end of the year, and my husband and I will live off my federal pension, plus SS when he's eligible. (I'm 55, he's 60.) We're moving to a different state when I retire, and figure it will take us the first year to figure out exactly what our expenses/lifestyle wil be, so we don't want to make any major changes in our investment portfolio for that first year. I'm also thinking that I'll have more time then to do research (which is good, because I'm finding switching from accumulation to withdrawal very confusing!). We have cash set aside to cushion the first 5 years in case we turn out to have miscalculated anything so shouldn't need to take anything from the portfolio during that time. (After that, I'm planning on no more than a 2% withdrawal rate, and preferably not even that, to let it -- hopefully -- continue to grow for a while.)

Because I don't plan to make any investing changes right away, I'd really appreciate it if anyone would look at how our portfolio is set up right now, and help me think about if there is anything I have to do before I retire (that is, because I'm retiring), or if there are any inherent dangers in the way it's set up now that I should be thinking of. I plan to leave my Thrift Savings Plan money in the TSP.

Here's what we have and how it's invested. The total is just under $1 million. (This doesn't include the cash.) It's kind of a mess because I stopped paying attention to it a few years ago (though kept contributing).

Tax Filing Status: Married Filing Jointly
Expected federal tax bracket in retirement: 25%
Expected state tax (GA) in retirement: 6% (will be able to exclude $35,000 of most types of retirement income when reaching 62, $65,000 at 65)
Stocks vs. bonds allocation: Stocks 50.4% / Bonds 49.6%

Taxable 40.1%
23.4% VG Tax-Managed Growth & Income Admiral (VTGLX)
16.7% VG Tax-Managed Small-Cap Fund Admiral (VTMSX)

Tax-advantaged (of various flavors): 59.9%

Her Roth IRA 7.0%
7.0% VG Target Retirement 2015 (VTXVX)

Her Traditional IRA 0.5% (old one, just never got around to rolling it over)
0.5% VG Small-Cap Value Index (VISVX)

His Traditional IRA 10.0%
9.0% VG Target Retirement 2015 (VTXVX)
1.0% VG Prime Money Market (VMMXX)

Her Thrift Savings Plan (TSP) 27%
25.7% G Fund Government Securities
1.3% L 2020 (Target Retirement-like fund)

I-Bonds 15.4%
15.4% I-Bonds (most paying 4.79-5.19%)

Is there anything obvious that's overly risky right now and can't wait a year to be changed? Anything I have to do before I retire to avoid tax consequences, etc? Also, anything that jumps out at you that would help me in doing my adjusting later on would be appreciated. I know I'm low in international...just a minor exposure through the target retirement funds.

Statch
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Re: Do I need to change anything before I retire?

Postby YDNAL » Mon Jul 15, 2013 9:38 am

Statch wrote:I'll retire at the end of the year, and my husband and I will live off my federal pension, plus SS when he's eligible. (I'm 55, he's 60.)...

Is there anything obvious that's overly risky right now and can't wait a year to be changed? Anything I have to do before I retire to avoid tax consequences, etc? Also, anything that jumps out at you that would help me in doing my adjusting later on would be appreciated. I know I'm low in international...just a minor exposure through the target retirement funds.

Statch,

Investing is a marathon, not a sprint to rush into anything, and that includes the withdrawal phase. Most important in this process are diversification and low costs (including taxes). There is nothing wrong with your allocation, but I would tweak a couple of things.
Statch wrote:Taxable 40.1%
23.4% VG Tax-Managed Growth & Income Admiral (VTGLX)
16.7% VG Tax-Managed Small-Cap Fund Admiral (VTMSX)

Tax-advantaged (of various flavors): 59.9%

Her Roth IRA 7.0%
7.0% VG Target Retirement 2015 (VTXVX)
Holding Vanguard Total International (VGTSX, VTIAX) gives you added International - an improvement for me.

Her Traditional IRA 0.5% (old one, just never got around to rolling it over)
0.5% VG Small-Cap Value Index (VISVX)
Perhaps later on, considering tax implications, you can convert Her t-IRA to Her Roth and get rid of one meaningless (0.5%) account.

His Traditional IRA 10.0%
9.0% VG Target Retirement 2015 (VTXVX)
1.0% VG Prime Money Market (VMMXX)
Hold a Bond fund - my choice would be Vanguard Bond Index (VBILX).
Link: https://personal.vanguard.com/us/funds/ ... IntExt=INT


Her Thrift Savings Plan (TSP) 27%
25.7% G Fund Government Securities
1.3% L 2020 (Target Retirement-like fund)
In today's interest rate environment, the G Fund is a great option to have. Get rid of L Fund because 1%, 2% allocation are meaningless and it doesn't cost anything to do it.

I-Bonds 15.4%
15.4% I-Bonds (most paying 4.79-5.19%)
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
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Re: Do I need to change anything before I retire?

Postby Statch » Mon Jul 15, 2013 2:39 pm

Thanks, Landy. In the IRA, did you mean you would move the Target Retirement 2015 to the bond fund, or hold both?
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Re: Do I need to change anything before I retire?

Postby YDNAL » Mon Jul 15, 2013 2:52 pm

Statch wrote:Thanks, Landy. In the IRA, did you mean you would move the Target Retirement 2015 to the bond fund, or hold both?

Her IRA - get rid of it and convert to Roth IRA (after evaluating taxes).

Her Roth - get rid of TR 2015 and use Total International.

His IRA - get rid of TR 2015 and Prime MM, and replace with Bonds to get up near 50% that you want.

Once again, these can be considered minor tweaks, if you will. I hope that helps.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
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Re: Do I need to change anything before I retire?

Postby Statch » Mon Jul 15, 2013 8:50 pm

Are you thinking I should get out of TR 2015 because of the timing (2015 is coming up) or is it the TR funds in general?
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Re: Do I need to change anything before I retire?

Postby FNK » Mon Jul 15, 2013 9:07 pm

Some suggestions for you to mull over:
  • Decide your Asset Allocation. For example, 40% stocks/60% bonds, half of the stocks being international and half of the bonds being inflation-protected.
  • Stop reinvesting dividends in the taxable account and send them to your cash pile.
  • Get rid of target retirement funds; you already hold separate asset classes so these funds only make things more complicated.
  • Plan your social security strategy. Generally, it's most advantageous to delay it to 70 and live off pension/savings until then. One of you can also get spousal benefits from 66 till 70.
  • After you retire and before you start collecting full SS benefits, convert traditional IRAs and TSP to Roth, using up your tax bracket for each year. You'll have to figure out how much income you're actually expecting in a year to optimize this.
  • Consume the taxable account first. Buy Total Stock Market/Total International Stock Market funds in the IRA to maintain AA.
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Re: Do I need to change anything before I retire?

Postby Statch » Tue Jul 16, 2013 9:14 pm

Thanks very much for the suggestions, FNK! I've added them all to my list of things to think about over the next year.
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