66 year old needs assistance

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merrymonk19530
Posts: 11
Joined: Tue Feb 24, 2015 8:02 am

66 year old needs assistance

Post by merrymonk19530 »

Thank you in advance for your assistance!!!
Last edited by merrymonk19530 on Tue Mar 03, 2015 11:13 am, edited 1 time in total.
Stan Dup
Posts: 775
Joined: Fri May 10, 2013 10:25 am

Re: 66 year old needs assistance

Post by Stan Dup »

Hmmmm, you both have a lot of money in annuities. Most people here are not fans of variable annuities. It makes it harder to make recommendations on your portfolio as a whole.

First, stay away from those free dinners and paid financial advisers.

Avoid Thrivent. They prey on people and sell them high cost products.

Do you know what your asset allocation is for your portfolio? If not, learn what it is from the wiki here and calculate it. Then ask yourself: should I have this allocation or should I change it to something more comfortable for my situation?

You can get better returns but not without taking some added risk. You can use a mixture of bonds, TIPS, and CDs. None of these are going to have high returns but then there is a lower chance of losing a lot of money too.

Do some reading:
http://www.bogleheads.org/forum/viewtop ... f=1&t=6211
https://www.bogleheads.org/wiki/Main_Page
"The tyranny of compounding expenses is the eighth deadly sin." - George Sisti
Anon1234
Posts: 798
Joined: Sat Feb 26, 2011 9:32 pm

Re: 66 year old needs assistance

Post by Anon1234 »

Hi MerryMonk -

I'm going to post in 3 parts. This first post is questions. The 2nd one will be analysis, and the 3rd one will be guidance.

Questions for you
1) Income. You listed your current income: Net $4000. You also listed "Her Retirement" with "$3800 per month" and " Social Security $2000" Is it correct that you have $4000 + $3800 + $2000 income per month = $9800 income per month total? Are all of those values Net, after tax values?
2) Expenses. You listed $5500/month. Does that include all expenses for you and your wife?
3) Under "Taxable" you listed PPL $10,000. What is that?
4) Under "Her Variable Annuity - Metlife" you listed "Pioneer Mid Cap Value VCT Portfolio VPIMV2V" Can you confirm that is the right symbol? I found a Pioneer Mid-Cap Value Fund, but the symbol is PCGRX.
Last edited by Anon1234 on Tue Mar 03, 2015 1:39 am, edited 1 time in total.
Anon1234
Posts: 798
Joined: Sat Feb 26, 2011 9:32 pm

Re: 66 year old needs assistance

Post by Anon1234 »

Post 2 : Analysis

I Summarized your portfolio like this:
Image
I summarized by Annuity status like this
Image
I summarized tax status like this
Image
I broke down each account using the morningstar instant x-ray tool http://portfolio.morningstar.com/NewPor ... Mode=MSTAR
like this (shown below is the instant x-ray INput tab for the "Her Metlife VA" I ran this analysis but didn't use it for anything.)
Image
resulting in this (shown below is the instant x-ray OUTput tab for the "Her Metlife VA" I ran this analysis but didn't use it for anything.)
Image
Then I summarized the instant x-ray asset allocation data in a table, like this
Image
I summarized asset classes like this, and I added a simplified column for what I think are "risky" and "safe" assets.
Image
Image
And finally a summary to show your current level of risk.
Image
Anon1234
Posts: 798
Joined: Sat Feb 26, 2011 9:32 pm

Re: 66 year old needs assistance

Post by Anon1234 »

Post 3 : Guidance

The first recommendation
I have for you is a no-brainer that will reduce your future taxes and increase your after tax earnings.
1A) If you had at least $13,000 in earned, taxable income in 2014 (I think you had over $60,000), you should open 2 Roth IRAs at Vanguard, one each for you and your wife. Contribute $6500 into your wife's account and $6500 into your account. Buy VMMXX until you decide how to invest it. Do this before April 15th. Take this money from the $75,000 taxable account. If your wife already contributed to a Roth IRA for 2014 do not make a second 2014 contribution for her. Sign up for electronic statement delivery to avoid the $20 annual fee (annual cost is zero with electronic delivery).
1B) If you will have at least $13,000 in earned, taxable income in 2015, (I think you will have over $60,000), you should contribute $6500 into your wife's Vanguard Roth IRA account and $6500 into your Vanguard Roth IRA account. Buy VMMXX until you decide how to invest it. Take this money from the $75,000 taxable account. If your wife already contributed to a Roth IRA for 2015 do not make a second 2015 contribution for her. You can contribute anytime between now and April 15, 2016.
If you do this, you will change your tax status to this, with no change to your risk profile.
Image
1C) Continue contributing the maximum amount into your Roth accounts for each year in the future that you have earned income greater than $13,000.

The second recommendation is to shelter even more money in your 401k to allow for tax deferred growth.
2) Currently you are contributing $4200/yr to your 401k. But you can contribute $24,000 to your 401k. Instead of paying 28% tax on $19,800, increase your 401k contributions to $24000/yr. This will reduce your paycheck by about $14,256 this year. Since there are 10 months left, it will cost you $1,425.6 per month. Replace that reduced paycheck with money from your $75,000 taxable account. In this way you can tax shelter an extra $19,800, and it's likely you will be in a lower tax bracket when you take that money out of the 401k and pay tax on it. So you will get tax deferred growth and income tax savings.
If you do this for 2015 your tax status will look like this. Put the extra money in VTXVX.
Image

The 3rd recommendation is to consider delaying the start of your social security until as late as possible, or age 70, whichever is sooner. Social security is the best, and the cheapest annuity that is available to you. For every year that you delay social security, your monthly payment goes up by 8%. And that 8% is inflation adjusted, and guaranteed by the US gov't until the day you leave earth (even longer if your wife collects a widow's benefit). Depending on the answers to your income and expenses from post 1, this could by far be the most important recommendation for you. ie. if you can afford to delay taking social security to age 70 you will lock in the maximum, safe, inflation adjusted, lifetime benefit possible.

The fourth recommendation is a portfolio simplification, and investment cost reduction idea.
3) Your 401k has 8 holdings in it, with an overall asset allocation of 56% stocks and 44% bonds and cash. You can put it all in VTXVX (Vanguard target retirement 2015), which has an asset allocation of 50% stocks and 50% bonds. It has an excellent expense ratio and you don't have to bother holding 8 different funds. This makes your portfolio easier to understand. This will slightly reduce your risk profile.

The fifth recommendation is also a simplification and investment cost reduction idea.
4) Call vanguard and start the process to move your wife's existing Roth IRA to Vanguard. Invest in VTXVX. You will reduce that account's cost from $147 per year to $23 per year. It will also make it easier to understand your portfolio. This will slightly reduce your risk profile.

The 6th recommendation
I have for you is to start including your emergency funds in your asset allocation. I'm not saying to invest it, but I am saying that I included in in your risk profile and asset allocation. Why? Because most people save emergency funds for either a)cash to pay an unplanned expense, or b)cash to pay for loss of income. Retirement is elective loss of income, so there is no need to keep a special allotment of cash for emergencies, that's what your whole portfolio is for! Also, in retirement you are living off your savings, so you need to account for all the savings you have.

The 7th recommendation I have for you is to determine your desired asset allocation. Before any of us can give you recommendations on where to invest the remaining $39,200 of the current $75,000 cash account we need to know how much risk you want to take. ie, we need to know how much cash, how much bonds, how much stocks you want to hold at the portfolio level. Your current risk profile is extremely low risk at the portfolio level -- low risk means losses due to market downturns is 5% or less at the portfolio level. However because you have so much cash the risk of inflation eroding your purchasing power is high, because cash is earning very little these days. Given that you have 47% of your portfolio in annuities, which I presume have a minimum guaranteed return of 0% (ie no losses), I think you could put substantially more of your portfolio in stocks. Maybe 30% or 40%. However, you need to decide for yourself if you can emotionally handle that amount of risk -- generally speaking a portfolio of 40% stocks would have lost 20% in a recession like 2007/2008. I recommend these two books to help you get some perspective on asset allocation. I'm trying to highlight here that you need to think about investing at the portfolio level. It's unwise to have every single holding be safe even if you are scared of stocks. You need some safe holdings and some risky holdings. The safe ones keep you from losing too much money in a down turn, and the risky ones help you keep pace with inflation in the long term.
http://www.amazon.com/All-About-Asset-A ... allocation
http://www.amazon.com/Only-Guide-Youll- ... ncial+plan
dolphinsaremammals
Posts: 2094
Joined: Tue Jul 22, 2014 4:18 pm

Re: 66 year old needs assistance

Post by dolphinsaremammals »

Stan Dup wrote: First, stay away from those free dinners and paid financial advisers.

Avoid Thrivent. They prey on people and sell them high cost products.
Definitely don't go to any more of those free dinners.

Thrivent does not "prey on people," they just generally aren't all that great financially. For example, you can get 2 or 3 times the interest rate on CDs most anywhere else. However, I see that TCAAX has not done badly over the last several years, considering that it is a conservative fund.
IPer
Posts: 1639
Joined: Sun Jul 28, 2013 8:51 pm

Re: 66 year old needs assistance

Post by IPer »

Hi and welcome to the forum!
Glad you didn't get scammed.
Make sure you take your time to decide, no sense in rushing now, if the action you are contemplating isn't
completely clear, wait, give it more time before executing.
Read the Wiki on this site a few times and keep referring back to it with your internal questions as well as
searching the site when those questions arise, you will (as I have been) pleasantly surprised at the extent
that many questions that plague us have been discussed on the board.
Pay good attention to Anon1234's analysis and recommendations, guess you got a freebie there, glad of it, but
make sure you do your own research and are confident when you pull that action trigger, except of course
the Roth recommendation to put in MM funds until you decide! Best to you!
Read the Wiki Wiki !
Stan Dup
Posts: 775
Joined: Fri May 10, 2013 10:25 am

Re: 66 year old needs assistance

Post by Stan Dup »

dolphinsaremammals wrote: Thrivent does not "prey on people," they just generally aren't all that great financially.

I disagree. By the number of annuities this person has I can tell that their adviser was a pretty good salesman. Also, I know someone who had a Thrivent salesperson. He locked up a lot of their money into a variable annuity; at very high cost and very low returns.

If you do a search of Thrivent on this forum you will not find a lot of positive comments.
"The tyranny of compounding expenses is the eighth deadly sin." - George Sisti
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: 66 year old needs assistance

Post by dbr »

I wonder if the posting by Anon1234 suggests a sticky on how to post advice as a follow on to the sticky on how to post a request for advice :happy
Anon1234
Posts: 798
Joined: Sat Feb 26, 2011 9:32 pm

Re: 66 year old needs assistance

Post by Anon1234 »

dbr wrote:I wonder if the posting by Anon1234 suggests a sticky on how to post advice as a follow on to the sticky on how to post a request for advice :happy
Thanks for the compliment. Any idea why OP deleted the OP? I normally don't put in this much effort, but he has clearly paid his fair share of commissions. I thought he would appreciate the feedback. Here's to hoping he comes back
:sharebeer
Stan Dup
Posts: 775
Joined: Fri May 10, 2013 10:25 am

Re: 66 year old needs assistance

Post by Stan Dup »

I offer my compliments as well, Anon1234; that was a very thorough answer. I hope the OP studies it and puts it into practice.

I hope he did not listen to some adviser saying to avoid us. But from what he listed previously it would not surprise me.
"The tyranny of compounding expenses is the eighth deadly sin." - George Sisti
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