Retirement on the horizon - cash sitting - what to do?

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Topic Author
Kraken
Posts: 2
Joined: Sun Aug 07, 2016 4:09 pm

Retirement on the horizon - cash sitting - what to do?

Post by Kraken »

Hello all: First, thank you to all the forum members who have helped us stay the course over the years. I am a long-time reader here but have never posted. My wife and I need some expert advice on our portfolio. We are in good financial shape and very grateful about that - thanks to some hard work, saving, LBOM, and good fortune. We have invested with Vanguard since the early 90s. That thanks to my dear departed father in law, who, in response to my question about how to invest, said succinctly, "Vanguard, because they are the least expensive way to invest." And this sage advice came from a man who held all his assets with TRP. We have held money in various Vanguard funds over the years, but have settled in to a 3-fund style for some time now, with exceptions because of inheritance you'll see below. We have held money in MM accounts and bank savings while the dust settled on taxes from wife's inheritance. We are now ready to put that money to better use.

I am 60 and she is 62, both in good health.
We plan to retire at 66.
We file jointly: Fed is 28%, state 7.15%.
State of residence: ME
No kids, no debt, and own our home outright.
Emergency fund: 6 months
We predict we will be comfortable living on $70,000 a year
Our combined income from social security and state retirement will be about $2400 per month.

Our low 7-figure portfolio looks like this:

His:
Vanguard Total Bond Market-VBTLX 3.75 (trad IRA)
Vanguard Total Bond Market-VBTLX 21.87 (Sepp IRA)
Vanguard Total Bond Market-VBTLX 3.01 (Roth IRA)

Hers:
Vanguard Total Bond Market-VBTLX 3.6 (trad IRA)
Vanguard Prime Money Market-VMMX 8.3 (inherited IRA)
Vanguard Total Bond Market-VBTLX 6.73 (Roth IRA)
Vanguard Total American Stock Market-VTSAX 1.78 (Roth IRA)

Shared:
Vanguard Total International Stock Market-VTIAX 11.59
Vanguard Total American Stock Market-VTSAX 34.48
Vanguard Treasury Money Market-VUSXX 0.031

Bank Savings Account 4.85

Questions:

1. Where should we put the money in her inherited IRA (VMMX 8.3), the shared bank savings account (4.85) and the few hundred we have in the money market account (VUSSX 0.031)? I'd keep at least a dollar in the money market account just to maintain it in case we wish to use it again. We had significantly more money in it at one time to save for the house. That might not have been the smartest way to go, but that is done and the place is ours now.
2. My wife must do the yearly RMD of $3500 from the inherited IRA. We would like to reinvest it, but where should we put that money?
3. How do you think our portfolio looks overall, and would you make any significant changes to it other than the above?
4. Helpful answers to questions I have not thought to ask are welcome.

Added information in response to replies:

Asset allocation: We are comfortable with 50/50 stocks/bonds, but obviously the inherited IRA has that out of whack.

We expect to keep the 50/50 allocation into retirement

Stock allocation US/international: We are leery about too much international and would like to set no more than 20% of the stock allocation to international.

We plan to invest the maximum allowable into our IRAs up to retirement - 13,000 total yearly

The SS and state pension figure is, as far as I know, pretty accurate, but I will inquire about that. ME is one of the states that has an offset for combined SS and state teacher retirement contributions. I honestly don't know how that works.

With gratitude to the Bogleheads forum

Kraken
Last edited by Kraken on Thu Aug 11, 2016 6:16 pm, edited 2 times in total.
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Watty
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Re: Retirement on the horizon - cash sitting - what to do?

Post by Watty »

if you could give some more information that would help.

What is your current asset allocation?

What will be your target asset allocation once you retire?

What are your expected retirement contributions until you retire?
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Peter Foley
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Location: Lake Wobegon

Re: Retirement on the horizon - cash sitting - what to do?

Post by Peter Foley »

Are you sure your combined SS and pension will be about $28,000/year when you retire at age 66? For as much as you have saved that seems low for a couple.

Most individuals who post here would advise holding stocks, not bonds, in a Roth.

Looking for more details before commenting further.
Topic Author
Kraken
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Joined: Sun Aug 07, 2016 4:09 pm

Re: Retirement on the horizon - cash sitting - what to do?

Post by Kraken »

Original post amended
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Peter Foley
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Re: Retirement on the horizon - cash sitting - what to do?

Post by Peter Foley »

If one of you is a teacher to you have access to a 403b plan? Even if such a plan does not have the best low cost funds it would be worth using to be able to defer more money. Expenses are important because they compound over time. A few years of a broad based stock fund with expenses around 1% would not be bad if it allowed you to defer more money. I was actually thinking that you could put the inherited IRA money there. Note that the withdrawals from the inherited IRA are minimums. You could take out more to fund a 403b plan.

An alternative would be to increase contributions to the Sep Plan. Either way this would make the inherited IRA withdrawals tax neutral while you are still working.
mickroark
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Re: Retirement on the horizon - cash sitting - what to do?

Post by mickroark »

Hire a certified financial planner. And hire an estate planning attorney. Sooner rather than later.
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Peter Foley
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Location: Lake Wobegon

Re: Retirement on the horizon - cash sitting - what to do?

Post by Peter Foley »

mickroark wrote:
Hire a certified financial planner. And hire an estate planning attorney. Sooner rather than later.
I respectfully disagree. Managing this level of assets should not be difficult. If you are looking at needing $70,000 in income per year you have no real tax issues. Even if you make it $80,000 to set aside funds to pay taxes each year. Your mutual fund choices and AA are fine.

While you should have beneficiaries and contingent beneficiaries designated on all your accounts you have no need for an estate plan. You have not presented information that would lead one to believe that you need to control assets after death, nor is your estate large enough to warrant an estate plan to mitigate estate taxes.
SGM
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Re: Retirement on the horizon - cash sitting - what to do?

Post by SGM »

Interest rates are low so putting bond funds into taxable would not increase taxable income much. You might also put some Vanguard muni tax funds in taxable. I like to have some stock funds in IRAs for the growth potential. The higher earner of the two of you might consider delaying SS until 70. I see IRAs but no 401k or 403b accounts. I always maxed tax deferred accounts and later converted to Roth accounts. You need to look closely at pre and post retirement tax rates.

Jane Bryant Quinn's new book How to Make Your Money Last is very clearly written and is a good overview of retirement investing.
VinhoVerde
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Re: Retirement on the horizon - cash sitting - what to do?

Post by VinhoVerde »

Kraken:
I am in a very similar situation as you. Wife and I are 62 and 63 and just received $650,000 inheritance. After much debate, including posts on this board, I finally decided to build a CD ladder, 1-5 years, with the 66% of the total and put the rest in Total Stock and FTSE World ex US.
I know this smacks of market timing but with interest rates so low there is some downside risk in any intermediate or long term bond fund. With a CD ladder you collect your 2%( I use Sychrony Bank) and protect the principal. FDIC insured with little risk.
VinhoVerde
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Watty
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Re: Retirement on the horizon - cash sitting - what to do?

Post by Watty »

Peter Foley wrote:mickroark wrote:
Hire a certified financial planner. And hire an estate planning attorney. Sooner rather than later.
I respectfully disagree. Managing this level of assets should not be difficult. If you are looking at needing $70,000 in income per year you have no real tax issues. Even if you make it $80,000 to set aside funds to pay taxes each year. Your mutual fund choices and AA are fine.

While you should have beneficiaries and contingent beneficiaries designated on all your accounts you have no need for an estate plan. You have not presented information that would lead one to believe that you need to control assets after death, nor is your estate large enough to warrant an estate plan to mitigate estate taxes.
+1

You would need to learn enough to know if the advisor was trying to pull anything over on you, but by the time you know that much you would know enough to invest the money by yourself.

Kraken wrote:We predict we will be comfortable living on $70,000 a year
If you have last years tax software it would be good to do a dummy tax return as if you were retired to see how much income you would need to have $70,000 left after paying state and federal taxes. You can make a copy of last years returns and just change the numbers as needed.

You would want to do that three ways, as a couple and as if either of you survives the other.

When you have the numbers entered then try adding $100 to the taxable income to see how much that will increase your taxes. That will tell you your true marginal tax bracket. This is not always obvious because you may be in an income range where tax credits are being phased out, you are exceeding the 15% long term 0% capital gains tax rate, or you in in the income range where each extra dollar of income caused more of your Social Security to be taxed.

https://www.bogleheads.org/wiki/Taxatio ... y_benefits

https://www.bogleheads.org/wiki/Social_ ... calculator
Kraken wrote:The SS and state pension figure is, as far as I know, pretty accurate, but I will inquire about that. ME is one of the states that has an offset for combined SS and state teacher retirement contributions. I honestly don't know how that works.
It is time for the teacher to go back to the classroom and learn. :D

There is likely good documentation to read and an 800 number you can call with questions. Be aggressive about learning about this since this will impact your decision of when to start Social Security which is one of the big choices you need to deal with.
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