Portfolio Review Would Be Appreciated

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Topic Author
Jazz56
Posts: 52
Joined: Thu Jun 19, 2014 10:19 am

Portfolio Review Would Be Appreciated

Post by Jazz56 »

Personal Status – Federal govt retiree – retired for 4 years now.

Emergency funds: 4 months of expenses in emergency fund ($20k in savings account at 0.75%).
Debt: Only debt is partial mortgage - $825 at 3.75 for 8 more years
Tax Filing Status: Single
Tax Rate: 25% Federal, 5.75 % State
State of Residence: VA
Age: 57
Desired Asset allocation: 82% stocks /18% bonds
Desired International allocation: 15% of stocks

Size of portfolio
$220,00 (all in traditional and beneficiary traditional IRAs)
$168,000 – Federal TSP
Pension (fully adjustable CSRS fed pension) - $66k
Social Security benefits estimated at about $350/month starting age 65

Current retirement assets

Taxable
$8,000 cash (checking account)
$15,000 in brokerage acct - 85% in VTI (Total Stock ETF) and 15% in VMMXX (money market)

My Federal Thrift Savings Plan (403b substitute) ($168k)
40% - C Fund (indexed to S&P 500) ($68k)
29% - S Fund (Small Cap) ($49k)
32% - I Fund (International) ($51k)

My Traditional IRA at Vanguard ($88k)
53.3% VTSAX (Total Stock Index) (ER – 0.05)
35.3% - VSMAX (Small Cap Index) (ER - 0.09)
11.4% - VTIAX (Total International Index) (ER – 0.14)

My Beneficiary IRA at Vanguard ($92k)
35% VBTLX (Total Bond Index) (ER – 0.08)
20% VTSAX (Total Stock Index) (ER – 0.05)
14% VTIAX (Total International Index) (ER – 0.14)
11% VGSLX (REIT Index) (ER – 0.10)
10% VGHCX (Health Care Fund) (ER – 0.35)
10% VGENX (Energy Fund) (ER – 0.38)

My Beneficiary IRA at Schwab (38k)
This is a set of 8 stocks inherited from my Dad: (Humana (HUM), Merck (MRK), General Growth Properties (GGP), Simon Property Group (SPG), Verizon (VZ), McDonalds (McD), Alliance Bernstein (AB), Time Warner (TWX). I don't need a lot of help here since these will slowly be liquidated for RMD and moved into the taxable account as VTI ETF. I am likely to convert most of them to VTI ETF (Total Stock ETF) as they await RMD withdrawal, but have not yet taken that step.

Contributions
I contribute roughly $6500 to Traditional IRA using part time freelance income
I contribute $300 month ($3900 annually) to savings account
All mandatory RMD withdrawals from Beneficiary IRA go into taxable brokerage account and become Vanguard VTI ETF.

Notes
I live comfortably on my pension and do not anticipate needing to draw on IRA/TSP money for many years. I am a buy/hold and am definitely able to stand firm. I do rebalance a couple times a year.

LTC Policy - For purposes of assessing risk, I should add that I have the "Grandaddy" version of the federal long term care policy which I got at age 48. I now know it is more than anyone really needs but at $145/month, it is a level of coverage I couldn’t touch in the current market. Having made the investment, I plan to keep it though I may drop from unlimited coverage to a fixed # of years as premiums are inevitably adjusted.

I am doing a bit of freelance work so that I have earned income to feed the Traditional IRA and so I can earn my last few quarters to be eligible for social security. (The old CSRS retirement system did not feed social security). I expect to keep up the freelance work as long as I can put money into the IRA and then stop (age 70).

Questions:

1. People my age are typically advised to maintain a 40-60% Bond ratio in their allocations. My 18% is a big anomaly. I think my pension is stable and offsets the risks that bond investments are designed for. I am pushing harder for growth for charity work, but wonder if it is too hard.

2. I have three sector funds in my mix and those sectors are also represented amongst the stock funds at Schwab. By some standards I am probably overweighted in those – and small cap as well. They are performing well and I do rebalance them into VTSAX (Total Stock Index) when they creep over their allocation. I would be interested in opinions on whether I have gone too far in the sector interests.

3. Lastly, I have no Roth accounts of any sort. I am in the lower end of the 25% tax bracket now but don't ever expect to get completely under 25% unless brackets change. That said, I won't ever exceed the 28% bracket either. I think I need to be converting something to Roth for more prudent tax savings, but am not sure what/when.

Many thanks for all perspectives!
Last edited by Jazz56 on Sat Jul 05, 2014 4:27 pm, edited 1 time in total.
rayson
Posts: 210
Joined: Mon Dec 23, 2013 1:46 pm

Re: Portfolio Review Would Be Appreciated

Post by rayson »

My initial thought was that you had an aggressive AA @age 57. But, then your rationale makes sense if you don't intend to touch those dollars for a longer horizon.
User avatar
Peter Foley
Posts: 5533
Joined: Fri Nov 23, 2007 9:34 am
Location: Lake Wobegon

Re: Portfolio Review Would Be Appreciated

Post by Peter Foley »

I think you are well set and have thought this through. While I would be more comfortable with a 60/40 AA I can understand your reasoning.

So, what are you saving for, if not for retirement? It would seem to me that you are in a position to pursue some hobbies or goals you have not listed. On the other hand, if I read between the lines correctly, you seem to enjoy the freelance work.
Topic Author
Jazz56
Posts: 52
Joined: Thu Jun 19, 2014 10:19 am

Re: Portfolio Review Would Be Appreciated

Post by Jazz56 »

Thanks very much to Rayson and Peter Foley. To answer questions:

I do enjoy the freelance work but really do keep it limited to just the $6500 I need to fund the traditional IRA each year and qualify for a few more quarters of social security in my quest for 40 quarters (I will have it in 2015.) And I devote some significant attention to a couple of local charities through volunteer work and dollars. But right now I am enjoying travelling and have been making the rounds of the National Parks. I have loosened the purse strings a bit since inheriting assets from my Father and plan to start an annual tradition of plopping down for a month in a new area to explore. I love photography and these activities all feed each other. :happy

Thanks for sharing your perspectives!
johnny847
Posts: 423
Joined: Thu Apr 10, 2014 12:08 am

Re: Portfolio Review Would Be Appreciated

Post by johnny847 »

I agree that while your AA is an anomaly, your pension is comfortable. By the way, does the pension have an inflation adjustment?

You're probably aware of this but I'll mention it anyway - when you donate to charities, it is more advantageous to donate using assets with the lowest cost basis (using specific ID) vs donating straight up cash.
I think I need to be converting something to Roth for more prudent tax savings, but am not sure what/when.
For people without large pensions, converting traditional accounts to Roth is much easier because they can control how much income comes from which source. In your case, with your pension, you're already in a 25% bracket, and hence any Roth conversion would be taxed at 25%. Of course, having the pension is far better than being able to convert a Roth at a low tax rate :D I think for a Roth conversion to be worth it, you'd have to have an unexepectedly low tax year.
Topic Author
Jazz56
Posts: 52
Joined: Thu Jun 19, 2014 10:19 am

Re: Portfolio Review Would Be Appreciated

Post by Jazz56 »

Thanks very much Johnny847 - I had wondered if it was appropriate for someone in the 25% bracket before and after retirement. The peak years of those RMDs are going to be hefty but I have awhile to figure out that part. I appreciate your guidance! :happy Also - to answer your question, my pension is cola adjusted annually.
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