Help my parents

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Topic Author
neuro84
Posts: 66
Joined: Thu Jul 24, 2014 11:25 am

Help my parents

Post by neuro84 » Sat Aug 13, 2016 2:22 am

Hi Bogleheads,

I am posting on behalf of my parents, who taught me to read, be aware of my privilege, and thoughtful about my life choices from a young age. I owe them all I have and will become. They bought me a copy of The Little Book of Common Sense Investing, which itself sent me to this forum, and made me a Boglehead. My paternal grandfather influenced them in their investment choices and he was not an indexer (had individual stocks and did well) so their portfolio is a hodge-podge with mostly mutual funds (some high ERs as you'll see) and a minority of individual stocks, mostly inherited.

My dad is a family physician, age around 60, thinking about retirement in the next 5-10 years. My mom was a SAHM, currently volunteering with many organizations but not earning income. Their current AA is approximately 75/25, with some small holdings in the "other" category (1% in REIT, 1% in an annuity, and they have 5% in cash-like assets / MMA which I included in bond figures).

Few questions:
1. Is this too stock-heavy a portfolio for a couple nearing retirement? (my opinion is yes... they stayed the course in 2008 so they have good courage, but I don't think they need to take risk at this point; they're frugal and their annual expenses are probably equal to, or lower than, the 4% SWR for their portfolio)
2. I think their portfolio is over-complex. How can they best consolidate and save some $ on the high-ER portions of the portfolio?
3. How are they doing? I think they are probably set for retirement, aside from the asset allocation.


Emergency funds: Yes
Debt: None to speak of. Own home, no mortgage, own two cars, all 3 kids through college.
Tax Filing Status: MFJ
Tax Rate: 28% Federal, 6% State
State of Residence: GA
Age: 59
Overall portfolio size: Low 7-figures

Desired Asset allocation: Not sure what they want, I think 50/50 is probably appropriate. Currently approx 80/20
Desired International allocation: Not sure what they want, I think 20% is probably about right

Had some trouble getting the tabulation to line up for legibility. Sorry.

His & Her taxable account at Fidelity: % ER
FUSVX Fidelity 500 Index Fund- Premium Class 10.06% 0.045
FSIVX Fidelity International Index Premium Class 0.75% 0.08
FTEXX Fidelity Municipal Money Market 0.23% 0.40
total 11.04%
ABBVIE (ABBV) 300 shares 0.82% (n/a)
ABBOT LABORATORIES (ABBT) 300 shares 0.55% (n/a)
Berkshire Hathaway (BRKA) 1 share 9.06% (n/a)
Walmart (WMT) 100 shares 0.30% (n/a)
Exxon (XOM) 160 shares 0.57% (n/a)
total 11.31%

His & Her taxable account at Vanguard: % ER
VWIAX Vanguard Wellesley Income Fund Admiral Shares 13.89% 0.16
VPADX Vanguard Pacific Stock Index Fund Admiral Shares 0.74% 0.12
VMFXX Vanguard Federal Money Market Fund 0.27% 0.11
total 14.90%

Her traditional IRA at Vanguard: % ER
VWESX Vanguard Long-Term Investment-Grade Fund Investor 1.35% 0.21
VUSTX Vanguard Long-Term Treasury Fund Investor Shares 0.28% 0.20
VBTLX Vanguard Total Bond Market Index Fund Admiral 0.27% 0.06
total 1.90%

Her Roth IRA at Vanguard: % ER
VFIIX Vanguard GNMA Fund Investor Shares 0.35% 0.21
VBILX Vanguard Intermediate-Term Bond Index Fund Admiral 0.46% 0.09
VGTSX Vanguard Total International Stock Index Fund Investor 0.34% 0.19
total 1.14%

Her traditional IRA at T Rowe Price - she's moving this to Fidelity, in cash for now, to get $500/yr switching bonus % ER
PRGFX T. Rowe Price Growth Stock 5.12% 0.67

His TIAA cref 403(b): % ER
QCSPX TIAA-CREF Social Choice R2 17.66% 0.43*
TIAA Traditional Annuity 1.63% unknown
QCSTPX TIAA-CREF Stock R2 3.89% 0.49
TRVRX TIAA-CREF Mid-Cap Value Fund - Premier Class 2.08% 0.64
TRIPX TIAA-CREF International Equity Index Fund - Premier Class 1.36% 0.21
TISBX TIAA-CREF Small-Cap Blend Index Fund - Institutional Class 1.15% 0.06
QREARX TIAA Real Estate 1.42% 0.92
QCBMPX CREF Bond Market R2 1.16% 0.46
QCILPX CREF Inflation-Linked Bond R2 1.10% 0.39
TCWPX TIAA-CREF Lifecycle 2020 Fund - Premier Class 7.73% 0.66*
total 39.18%

*TCWPX is approximately 55/45, stocks/fixed income, with a 70/30 US/int'l split in the equities
Their equity holdings in this fund represent about 9.71% of the overall portfolio.
Their fixed income holdings in this fund represent about 7.94% of the overall portfolio.

*QCSPX is approximately 60/40 stocks/bonds, with a 70/30 US/int'l split in the equities
Their equity holdings in this fund represent about 4.64% of the overall portfolio.
Their fixed income holdings in this fund represent about 3.09% of the overall portfolio.

His Roth IRA with Fidelity % ER
FBNDX Fidelity investment grade 0.67% 0.45
JASBX Janus short term bond fund class t 0.53% 0.74
total 1.20%
His traditional IRA with Fidelity % ER
FDRXX Fidelity gov't cash reserves 1.14% 0.26
AKREX AKRE focus fund retail 0.27% 1.34
FAGIX Fidelity Capital & Income 0.17% 0.74
FDGRX Fidelity Growth Company 2.78% 0.87
FOCPX Fidelity OTC Port 2.80% 0.83
FSCHX Fidelity select chemicals 0.14% 0.79
FSIVX Fidelity International Index Premium 0.96% 0.12
FSTVX Fidelity Total Market Index Premium 1.39% 0.05
VFIIX Vanguard GNMA Investor Cl 0.44% 0.21
BAC Bank of America corp 0.37% n/a
CSCO Cisco Sys Inc Com 0.19% n/a
FDX Fedex corp com 0.49% n/a
GE General Electric Co 0.29% n/a
total 11.4%

Total equity positions: 74.8%
Total bond positions: 18.7%
Cash-like / MMA holdings: 5.6%
Annuity: 1.6%
REIT: 1.4%


My math might be slightly off, as this sums to 102%

These are the options available in my father's 403(b):

Ticker / Fund name / Expense Ratio (TIAA reports an "estimated expense charge" for bond funds)

QCBMPX / CREF Bond Market Account (R2) / 0.46
QCEQPX / CREF Equity Index Account (R2) / 0.37
QCGLPX / CREF Global Equities Account (R2) / 0.48
QCGRPX / CREF Growth Account (R2) / 0.42
QCILPX / CREF Inflation-Linked Bond Account (R2) / 0.39
QCMMPX / CREF Money Market Account (R2) / 0.38
QCSCPX / CREF Social Choice Account (R2) / 0.43
QCSTPX / CREF Stock Account (R2) / 0.49
QREARX / TIAA Real Estate Account / 0.89
TRIPX / TIAA-CREF International Equity Index Fund (Premier) / 0.21
TILVX / TIAA-CREF Large-Cap Value Index Fund (Institutional) / 0.06
TPILX / TIAA-CREF Lifecycle Retirement Income Fund (Premier) / 0.66
TRGPX / TIAA-CREF Mid-Cap Growth Fund (Premier) / 0.62
TRVPX / TIAA-CREF Mid-Cap Value Fund (Premier) / 0.57
TISBX / TIAA-CREF Small-Cap Blend Index Fund (Institutional) / 0.06

Fixed Annuity Investments
TIAA Traditional Annuity - Retirement Annuity / Current contractually-specified interest rate is 3.75%


Thanks in advance for any advice.

Will
Last edited by neuro84 on Sun Aug 14, 2016 2:55 pm, edited 5 times in total.

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Garco
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Re: Help my parents

Post by Garco » Sat Aug 13, 2016 2:58 am

I agree you could simplify, and also reduce equity share. But it would help if you (they) clarified the likely date and ages at retirement. Also, in order to estimate needed income in retirement, it would help if you specified when they intend to file for Social Security. As a general recommendation, they should wait til age 70 to maximize monthly payments. Also, you should be able to get an estimate of SS income.

Grt2bOutdoors
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Re: Help my parents

Post by Grt2bOutdoors » Sat Aug 13, 2016 4:03 am

Likely those inherited individual equities have low to extremely low cost basis, May not want to liquidate if you get pushed into another tax bracket.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Peter Foley
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Re: Help my parents

Post by Peter Foley » Sat Aug 13, 2016 8:51 pm

I also agree that simplification is needed. Anything in taxable that could be sold for a loss would be a good starting point.

They next step would be to sell the relatively small positions that don't have any significant tax consequences.

Topic Author
neuro84
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Joined: Thu Jul 24, 2014 11:25 am

Re: Help my parents

Post by neuro84 » Sat Aug 13, 2016 9:20 pm

Thanks for the helpful posts!
Garco wrote:I agree you could simplify, and also reduce equity share. But it would help if you (they) clarified the likely date and ages at retirement. Also, in order to estimate needed income in retirement, it would help if you specified when they intend to file for Social Security. As a general recommendation, they should wait til age 70 to maximize monthly payments. Also, you should be able to get an estimate of SS income.
My father will most likely retire at age 65, but he may choose to keep working after that (he likes his job).

His SS benefit, if he retires at 65, is about $2.8k/mo. This goes up to about $3.6k/mo if he pushes it off until 70. My mother's benefit is significantly smaller, about $400/mo at 65. I do not know exactly what their home economics are but I believe they spend less than this amount plus the 4% safe withdrawal rate for their assets. So, in my opinion, they have already "won the game."

They haven't made a firm decision when to file for SS, but they are leaning towards waiting until 70 (both are in good health right now).
Grt2bOutdoors wrote:Likely those inherited individual equities have low to extremely low cost basis, May not want to liquidate if you get pushed into another tax bracket.
Good insight, and I agree.
Peter Foley wrote:I also agree that simplification is needed. Anything in taxable that could be sold for a loss would be a good starting point.

They next step would be to sell the relatively small positions that don't have any significant tax consequences.
For better or worse, I'm not sure any of their individual stock holdings has lost value since they bought it. I can ask them. Honestly I doubt they'd be interested in tax loss harvesting, though. Historically, they've focused more on making regular contributions than they have managing their assets. For example, they didn't know their AA before I asked. So the preference will be to make slow changes.

Regarding AA, I've linked them the wiki article on AA here. They're familiar with "age in bonds" as a theory and they feel this is too conservative for them, but I think they agree that 80/20 is a little too aggressive for a couple five years from retirement. They likely need an AA somewhere between 80/20 and 40/60.

My recommendation to them is to shift equities over to bonds in all the tax-advantaged accounts. Overall, they hold about 43% in taxable and 56.9% in IRAs and the 403(b). So they could significantly increase their bond holdings without triggering any taxable events. This would allow them to leave things relatively untouched in the taxable accounts.

In looking at the bond fund options in my dad's 403(b), they all have expense ratios around 0.4%. Would this be a case where they might consider putting more into that annuity offering, which pays 3.75% right now? My kneejerk reaction on annuities is that they are a bad idea, but those bond funds are pretty pricey. What's their best option for holding fixed income in his 403(b)?
Last edited by neuro84 on Sat Aug 13, 2016 10:18 pm, edited 1 time in total.

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dodecahedron
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Re: Help my parents

Post by dodecahedron » Sat Aug 13, 2016 9:47 pm

His SS benefit, if he retires at 65, is about $2.8k/mo. This goes up to about $3.6k/mo if he pushes it off until 70. My mother's benefit is significantly smaller, about $400/mo at 65.
Your mother will be eligible for a spousal benefit of half your father's PIA if she applies at her FRA, which is either 66 and 4 months (if she was born in 1956) or 66 and 6 months (if she was born in 1957).

If your father's benefit age at 65 is about $2.8K/month, then his PIA is probably around $3K, which means your mother can collect her maximum $1500/month starting at her FRA (or reduced if she wants to collect before then). Of course, she won't be able to collect her spousal benefits until he files for his retirement benefit. He may well want to wait until he is 70 to file for his $3.6K benefits and she can start collecting her $1500/month benefit at that time (i.e., as soon as he files.)

Topic Author
neuro84
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Re: Help my parents

Post by neuro84 » Sat Aug 13, 2016 10:14 pm

dodecahedron wrote:
His SS benefit, if he retires at 65, is about $2.8k/mo. This goes up to about $3.6k/mo if he pushes it off until 70. My mother's benefit is significantly smaller, about $400/mo at 65.
Your mother will be eligible for a spousal benefit of half your father's PIA if she applies at her FRA, which is either 66 and 4 months (if she was born in 1956) or 66 and 6 months (if she was born in 1957).

If your father's benefit age at 65 is about $2.8K/month, then his PIA is probably around $3K, which means your mother can collect her maximum $1500/month starting at her FRA (or reduced if she wants to collect before then). Of course, she won't be able to collect her spousal benefits until he files for his retirement benefit. He may well want to wait until he is 70 to file for his $3.6K benefits and she can start collecting her $1500/month benefit at that time (i.e., as soon as he files.)
Excellent to know - thank you very much!

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Watty
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Re: Help my parents

Post by Watty » Sat Aug 13, 2016 10:22 pm

neuro84 wrote:Regarding AA, I've linked them the wiki article on AA here. They're familiar with "age in bonds" as a theory and they feel this is too conservative for them, but I think they agree that 80/20 is a little too aggressive for a couple five years from retirement. They likely need an AA somewhere between 80/20 and 40/60.
It sounds like by the time your dad eventually retires the portfolio will have likely grown for a another 5+ years and he will have made 5+ more years of retirement account contributions.

If I understand it correctly they retirement expenses will likely not be high enough for them to come anywhere near spending down their retirement nest egg. In fact it could grow considerably.

If that is correct then in effect they are investing the money for whoever will inherit it some day so they would use an asset allocation that would be more appropriate for that person or charity.

It might help to look at the asset allocation that the Vanguard Life Strategy funds use for different purposes and how it explains which asset allocation would be appropriate for which investors.

https://investor.vanguard.com/mutual-fu ... estrategy/#/

They can also look at the Vanguard 2020 Target Retirement fund to see what asset allocation it has.

https://personal.vanguard.com/us/funds/ ... IntExt=INT

It uses 60% stocks and 40% bonds. There isn't a magic "right" number but that would sound reasonable to me.

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Watty
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Re: Help my parents

Post by Watty » Sat Aug 13, 2016 10:27 pm

dodecahedron wrote:
His SS benefit, if he retires at 65, is about $2.8k/mo. This goes up to about $3.6k/mo if he pushes it off until 70. My mother's benefit is significantly smaller, about $400/mo at 65.
Your mother will be eligible for a spousal benefit of half your father's PIA if she applies at her FRA, which is either 66 and 4 months (if she was born in 1956) or 66 and 6 months (if she was born in 1957).

If your father's benefit age at 65 is about $2.8K/month, then his PIA is probably around $3K, which means your mother can collect her maximum $1500/month starting at her FRA (or reduced if she wants to collect before then). Of course, she won't be able to collect her spousal benefits until he files for his retirement benefit. He may well want to wait until he is 70 to file for his $3.6K benefits and she can start collecting her $1500/month benefit at that time (i.e., as soon as he files.)
Would it make sense for her to file for her benefit at 62 on her account? It would only be a couple of hundred dollars per month but then she could get the spousal benefit whenever the dad starts his social security.

Topic Author
neuro84
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Re: Help my parents

Post by neuro84 » Sat Aug 13, 2016 10:30 pm

Watty wrote:
neuro84 wrote:Regarding AA, I've linked them the wiki article on AA here. They're familiar with "age in bonds" as a theory and they feel this is too conservative for them, but I think they agree that 80/20 is a little too aggressive for a couple five years from retirement. They likely need an AA somewhere between 80/20 and 40/60.
It sounds like by the time your dad eventually retires the portfolio will have likely grown for a another 5+ years and he will have made 5+ more years of retirement account contributions.

If I understand it correctly they retirement expenses will likely not be high enough for them to come anywhere near spending down their retirement nest egg.
Yes, I believe this will most likely be the case. They currently have about 25 times expenses and they have at least five more years of earning.
Watty wrote:If that is correct then in effect they are investing the money for whoever will inherit it some day so they would use an asset allocation that would be more appropriate for that person or charity.

It might help to look at the asset allocation that the Vanguard Life Strategy funds use for different purposes and how it explains which asset allocation would be appropriate for which investors.

https://investor.vanguard.com/mutual-fu ... estrategy/#/

They can also look at the Vanguard 2020 Target Retirement fund to see what asset allocation it has.

https://personal.vanguard.com/us/funds/ ... IntExt=INT

It uses 60% stocks and 40% bonds. There isn't a magic "right" number but that would sound reasonable to me.
Thanks; this is good insight. We'll look over Vanguard's explanations for each tier of Lifestrategy funds.

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dodecahedron
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Re: Help my parents

Post by dodecahedron » Sat Aug 13, 2016 11:24 pm

Watty wrote:
dodecahedron wrote:
His SS benefit, if he retires at 65, is about $2.8k/mo. This goes up to about $3.6k/mo if he pushes it off until 70. My mother's benefit is significantly smaller, about $400/mo at 65.
Your mother will be eligible for a spousal benefit of half your father's PIA if she applies at her FRA, which is either 66 and 4 months (if she was born in 1956) or 66 and 6 months (if she was born in 1957).

If your father's benefit age at 65 is about $2.8K/month, then his PIA is probably around $3K, which means your mother can collect her maximum $1500/month starting at her FRA (or reduced if she wants to collect before then). Of course, she won't be able to collect her spousal benefits until he files for his retirement benefit. He may well want to wait until he is 70 to file for his $3.6K benefits and she can start collecting her $1500/month benefit at that time (i.e., as soon as he files.)
Would it make sense for her to file for her benefit at 62 on her account? It would only be a couple of hundred dollars per month but then she could get the spousal benefit whenever the dad starts his social security.
It might be worth doing that. Because of the way spousal is calculated (as difference between half of his PIA minus her PIA, then added to her own retirement benefit, which would be reduced if she claims it at 62), her total benefit once HE files would be a bit less than $1500 in that case. But either way, the surviving spouse will get his higher benefit.

Emilyjane
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Re: Help my parents

Post by Emilyjane » Sun Aug 14, 2016 10:17 am

This may not be right, but I think, depending on your moms age, new SS rules would mean your mom can only collect spousal if your dad is already collecting. I believe she could collect her own at 62 yo or later, then switch to spousal when he files. (Oops, Edited to add I see that was already stated)

I am 60 yo, was planning to do the spousal at 66 and defer my own till 70 yo, but the recent SS changes eliminated that option. So I know the rules for me and my slightly older husband, but don't feel expert enough to say for sure for you.

Anyhow OP, congrats to your dad for liking medicine enough to keep going! I am a family doc, and still enjoy medicine and my patients, but quality metrics and the idea that I am responsible for my patients behavior made me decide an earlier exit is desirable. Of course, Bogleheads advice on investing made this decision possible.
"Real knowledge is to know the extent of one's ignorance", Confucius

Topic Author
neuro84
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Re: Help my parents

Post by neuro84 » Sun Aug 14, 2016 12:08 pm

Emilyjane wrote:Anyhow OP, congrats to your dad for liking medicine enough to keep going! I am a family doc, and still enjoy medicine and my patients, but quality metrics and the idea that I am responsible for my patients behavior made me decide an earlier exit is desirable. Of course, Bogleheads advice on investing made this decision possible.
Well, he made a career move to academic medicine about 20 years ago, and now he does about 50% clinical medicine and 50% teaching. A significant portion of his job satisfaction comes from the educational side, and a significant portion of his frustration comes from the clinical side (not the patients themselves, but all the new administrative burdens you mention). Thanks for choosing a specialty that really helps people. In my experience, the idealists go into FM. We need more people like you and my dad.


To the community - any insights on the fixed income options in his 403(b)? I think we are leaning towards moving a large portion of equities to bonds (or bond-like, ie the annuity) in that account. Do bond funds usually have higher ERs than the stock index funds? 0.4% makes me sad, but maybe it's better than paying all those unseen annuity fees.

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Garco
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Re: Help my parents

Post by Garco » Sun Aug 14, 2016 1:09 pm

Take a look at the specific fixed income options in your Dad's 403b. In mine, even though it's managed by TIAA, I have available excellent bond fund options with very low expense ratios. For example, VG Total Bond at 0.05% ER -- VBTIX. Hard to beat. Whether to put money into "the annuity," which I assume would be TIAA Traditional, deserves a careful weighing of advantages ("guaranteed" minimum of 3%, typically higher actual) and disadvantages (liquidity restrictions on trading). Of course once your Dad reaches age 70.5 he will have to start taking required minimum distributions, and some of that can come from the Traditional annuity.

delamer
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Re: Help my parents

Post by delamer » Sun Aug 14, 2016 1:51 pm

I only have skimmed the comments, so apologies if any of this is redundant:

1. A minor point, but it isn't worth the hassle for your mother to make $500 and end up with a small IRA at Fidelity. Have her move it to Vanguard with the rest of her IRA (even though she can't mingle them).

2. Sell the individual stocks in your father's IRA. Reduce their overall number of holdings. You could start by just deciding to eliminate any position with an ER of over .75%. The bond fund ERs in the TIAA-CREF isn't great, but they aren't egregious. If you decide that is a good place to hold bonds, I wouldn't let the ERs stop me. Sometimes it is relative to your options in other accounts.

3. To me, it is just confusing to own balanced funds (split between stocks and bonds) in an account where you also own stock-only and bonds-only funds, like the TIAA-CREF. Balanced funds are designed to be one stop shopping, so use one for that purpose or not. (Adding international exposure might be an exception).

4. Talk to your parents about their goals for the money. If they want to donate to charity or establish a family trust in their wills, then they should consider investing more aggressively to benefit their heirs. If they are more focused on their current peace-of-mind, then they should invest in just enough stocks to make sure they don't run out if money.

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