Annual Portfolio Review--Feedback Wanted

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Topic Author
tr123
Posts: 35
Joined: Mon Mar 26, 2012 10:59 pm

Annual Portfolio Review--Feedback Wanted

Post by tr123 »

Greetings Bogleheads--

This is the third year I've asked you to review my portfolio. I am very grateful for the advice I've gotten in the past. I think I finally get how to do the accumulation phase--ironically just as I'm preparing to enter the distribution phase. So now I get to learn about that. My particulars:

Emergency funds: three to six months of expenses--yes, I have this
Debt: None--hooray!
Tax Filing Status: Single
Tax Rate: 15%
State of Residence: Washington (no income tax)
Age: 60
Desired Asset Allocation: This is one of my questions, but for now, 65% stocks, 35% bonds
Desired international allocation: 20% of stocks
Portfolio Size: just cracked 7 figures

Current retirement assets

Taxable
10.7% Vanguard Total International Stock Index Admiral Shares VTIAX
Less than .5% Individual Stocks

Traditional IRA
36.5% Vanguard Total Stock Market Index Admiral Shares VTSAX
32% Vanguard Total Bond Market Index Admiral Shares VBTLX

Roth IRA
20.3% Vanguard Total Stock Market Index Admiral Shares VTSAX

Contributions
$6500 annually to IRA (which IRA is a question)
$1000/month to taxable account--now going into Vanguard International

I've just had a major change in my work situation, and a change in what I can contribute. At my previous employer I had a higher salary and a 403b option which I maxed out. Now I have a significantly lower salary and no 403b option. I love the new job, so the lower pay and no 403b is worth it. Also, seems like a good way to ease into retirement, which I hope to do in two years.

I anticipate an inheritance of 2-3 million in the next five-ten years.

Questions:

1.) What should my asset allocation be? I've taken various risk assessments and they indicate I can withstand a lot of risk. In 2008-2009 I stayed the course. In fact, I was taking a year off from work when the crash hit. I cut short my leave so that I could pump the max into my 403b while the market was low. With my anticipated inheritance, I'm thinking I can continue at 65/35. On the other hand, there's a part of me that thinks I ought to start slowly shifting the ratio toward bonds, especially since I hope to retire in two years.

2.) Speaking of bonds--I'm a little nervous about the "bond bubble" and the much anticipated burst when interest rates go up. I get how to stick with stocks--don't try to time the market, etc. Is it the same with bonds?

3.) Should I take Social Security when I retire at 62? Or should I wait until 66? The downside to taking it later is I start drawing down more of my savings earlier. The upside is I get more if I wait. Not sure how to figure which would be the better route.

4..) All the money in my traditional IRA is rollover from various 403b plans I've had. My direct IRA contributions have all been to my Roth. This year I'm thinking I should make my IRA contribution to the traditional IRA in order to reduce my taxes. Yes, I know, I'll have much higher taxes in the future, especially after I get my inheritance. But I'll be able to afford higher taxes then. Again, not sure which way would be the most advantageous.

5.) Any other thoughts/suggestions about my portfolio?

Many many thanks for your thoughts and feedback.
deikel
Posts: 1616
Joined: Sat Jan 25, 2014 6:13 pm

Re: Annual Portfolio Review--Feedback Wanted

Post by deikel »

Given the current bond situation I think you are about right at 35% - I would certainly not increase it. The latest advice I have seen is not to buy bond funds - but to buy the actual (municipal) bond - thereby avoinding a price decline when rates will go up - and they will, its just a question when.

Your should probably not plan on your inheritance - it might happen later than targeted and maybe not at all if part (or all ?) of the money evaporates in a market crash and/or is needed for serious medical expenses).

SS: its an 'easy' calculation - do you anticipate to live beyond 75 years of age (I think I remember it right, check out SSA.gov for the details) ? If yes, than it makes sense to take SS later in life and have a guranteed money stream later on. If not, than drawing as early as possible gives you more benfit for the time you live. If you plan to leave money behind for relatives, it might also be smarter to take SS early (and not spent the money you could pass on) - but if that is not a concern it becomes a 'simple' question of when will you likely be dead. eg in my case its highly unlikely I will go above 70 (based on profession statistics and family history) - so I would draw as soon as possible.

I am not sure why you would have much higher taxes after you got your inheritance (after the potentially initial inheritance tax that is) ? Your inheritance could stay untouched (unrealized capital gains) and passed on to your heirs with no tax impact (assuming no dividend payments or such).

If you intend to retire early and can live off a taxable account for a while it might be worthwhile transferring all your TIRA into Roth in the first year of retirement (assuming a lower tax rate in that year, which might allow you to roll over with little or no tax implications) - maybe in more than one year if possible. Adding to TIRA seems to make sense to me.
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.
Topic Author
tr123
Posts: 35
Joined: Mon Mar 26, 2012 10:59 pm

Re: Annual Portfolio Review--Feedback Wanted

Post by tr123 »

Thank you, deikel. This is very helpful. I hadn't thought of buying bonds directly. Can that be done inside of a Vanguard IRA?
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