Advice on IRA CD Maturing in 01/2014, et al

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Joined: Fri Aug 10, 2012 5:01 pm

Advice on IRA CD Maturing in 01/2014, et al

Post by jamesdz » Wed Feb 06, 2013 11:03 am

Dear Bogleheads,
I am a VNG Flagship member & have gotten excellent advice over the past 12 months from my Flagship advisor as well as the Boglehead forum.
Primary question is where best place to invest funds from an IRA at PenFed CD (6.25%) that matures in January 2014;
also open to additional suggestions on my overall investment positions & "Grand Plan".

Basic Facts................
Married couple both 70 years old, retired & both in good health (I work part-time as a trainer at a local health club -
but consider income from this part time job as temporary).

Pensions (total): K$142/year - primarly taxable by Fed & NJ.

Cash: M$1.5....various FDIC insured MM with avg return of ~ 1.5%/year taxable.

Munibonds: M$1.8 (individual issues at Par) with avg annual return of ~ 4.5% Fed tax free; 28% Fed Tax bracket;
investment spread over many US states but ~ 40% NJ. Expect additional calls on these bonds in 2013.

401K/Employer: K$989......composed of K$785 VNG Stable Value (1.95%/year) & K$204 VNG funds (S&P 500 - K$64; Mid Cap Index - K$30; Small Cap Index - K$30; Life Strategy Growth - K$80).
note: Consider VNG Stable Value fund as a mid-term bond fund with essentially no down-side principal risk, although % return will fluctuate. Locked into Employer 401K unless I bail out completely...then lose ability to invest in VNG Stable Value which, I admit, is my security blanket.

VNG IRA: K$317....composed of 60% Wellsley Adm / 40 % Wellington Adm.

PenFed IRA: K$575....6.25% CD that matures in January, 2014.

I calculate our annual living expenses at ~ K$115 - including Federal & NJ State Income Tax, property tax, car & home insurance, Medicare, Dental Insurance, LTHC Insurance - also annual gifting to our son. Supplemental health insurance
& drug expense covered by Tricare for Life (Navy veteran).
We are currently in the 28% Federal Tax bracket.
No mortgage or debts......own home that I estimate we could sell & clear ~ K$200 after fees.

Additional income (& taxes) will begin in earnest this year (2013) when both my wife & I will begin taking RMDs from 401K
& IRAs.

Grand Plan is to escape NJ......currently negotiating with bank to purchase a short sale home in Northeast FL (moderately priced} that we will rent until wife is ready to pull the plug on NJ. Interest in moving is driven by warmer climate & desire to eliminate NJ State Estate Tax that my son would ultimately pay if we do not establish FL residency before we both pass.
Once I feel comfortable that FL deal is settled, will plan to reduce cash holdings & further invest in VNG funds.

On the horizon........ concern about where to invest the ~K575 that will be available when the PenFed CD IRA matures in January 2014. Obvious from my investments that I am not a bold investor in stocks & have never really had a formal asset allocation plan.....but have gradually been shifting into equities via VNG funds.
In the absence of any other information, would likely transfer funds to a VNG IRA & split investment between Wellington
& Wellsley funds 50/50 or 60/40. Still feel more comfortable with managed funds as long as fees are "reasonable"......
but understand the wisdom of very low cost VNG index funds.

Sorry for the large data dump above, I have tried to simplify for brevity.....
but would like to hear advice from seasoned investors in the Boglehead Forum.
I know that I am likely to get beat-up for my current large cash holdings.....but it was comforting during the 2008-2009 stock melt down.

Thank you.

Jim D

Posts: 44
Joined: Fri Aug 10, 2012 5:01 pm

Re: Advice on IRA CD Maturing in 01/2014, et al

Post by jamesdz » Sun Feb 10, 2013 6:57 am

No responses to date on my posting requesting advice on IRA CD maturing in 01/2014, et al.
Suppose asking for guidance this far in advance on an investment doesn't make much sense;
will try to post again in 4th QTR 2013 & see what feed back is received.
Still open to suggestions on my overall planning strategy !?!
Hope that all North-East Bogleheads made it through Nemo with minimal damage/disruption !
Jim D

Posts: 260
Joined: Tue Jun 21, 2011 9:30 am

Re: Advice on IRA CD Maturing in 01/2014, et al

Post by Userdc » Sun Feb 10, 2013 7:41 am

My advice would be to come up with a formal asset allocation plan for your estate,

It appears to me that, depending on taxes, you can come close to funding your retirement off your pensions alone. Set aside an additional amount to supplement any deficiency in the pensions (especially if they are not COLA or if there are survivorship concerns). Invest this conservatively in I bonds, TIPS, CD ladders, munis.

I suspect you will have a large amount of assets left over after doing this. I'd plan for this separately and come up with an asset allocation depending on the desired use: charity? pass along to children? grandchildren? Or blow it all in Vegas?

Once you have a comprehensive asset allocation plan, you may find that the question of what to do with any single investment will answer itself.

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Joined: Sun Mar 07, 2010 8:26 pm

Re: Advice on IRA CD Maturing in 01/2014, et al

Post by Carl53 » Sun Feb 10, 2013 9:18 am

You might just consider letting the PF IRA CD rollover. Go for the 10 year CD. Since you are past 59.5 I understand that you could make penalty free withdrawals in the future from it as long as you left $1000 in it should you need them.

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Joined: Fri Aug 10, 2012 5:01 pm

Re: Advice on IRA CD Maturing in 01/2014, et al

Post by jamesdz » Sun Mar 31, 2013 7:19 am

Dear Bogleheads,
Just an update on my original posting in February, 2013.
Took "user DC" advice & constructed an AA analysis using Excel spreadsheet that indicates 8.9% stock (incl stock portion of VNG balanced funds), 62% bonds & 29.1% cash (FDIC insured MMs); also segregated investments by Taxable & Tax Sheltered.
Agreed with VNG CFP that I should be increasing AA on stock closer to 20-25%. Much of this will be accomplised when I rollover PenFed IRA invested in 6.25% CDs when they mature in late 2013/early 2014. In the meantime, I will be investing
some cash into our Taxable account, but selecting VNG Tax Managed funds &/or VNG stock index funds to minimize taxes since I am now in the 33% Federal tax bracket due to 401K/IRA RMDs.
Although I am the most comfortable with Wellesley/Wellington balanced funds, from reading this forum I understand that they best fit Tax Sheltered accounts (IRAs). I am considering switching some of my Taxable holdings in these funds to VNG Index funds once all or a major part of these funds are classified as Long Term for Capital Gains purposes (have asked my Flagship Advisor for guidance on this approach).
I have also found that by using the Excel spread sheet I can easily play "what if" games with my investments to see the overall impact on any AA plan that I am considering.
Still working on securing a modest 2nd home in FL & eventually moving to FL for warmer weather & tax savings;
most important for my son's benefit to avoid crushing NJ State Estate Tax.
Although I received limited input on my original posting, the suggestion from "user DC" was excellent & very wise advice.
Thank you.
Jim Druz

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