Nearing retirement and looking for allocation/general advice

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LilyGator
Posts: 4
Joined: Mon Jan 16, 2017 9:43 pm

Nearing retirement and looking for allocation/general advice

Post by LilyGator » Mon Jan 16, 2017 9:56 pm

Emergency funds: Yes. One year's worth in Ally savings account
Debt: We have a mortgage (3.5%) that will be paid off in about 10 years
Tax Filing Status: Married
Tax Rate: 25% Federal, 0% State
State of Residence: FL
Age: Her: 38 / Him: 31
Desired Asset allocation: 60% stocks / 40% bonds
Desired International allocation: 20% of stocks
Expenses: 35k to 40k
Retirement Funds: about 1.2 million

Current retirement assets in their planned allocations


Taxable at Vanguard

35% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (.05%)
11% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) (.12%)

Her 401k at Fidelity (this actually has a portion of it in a Roth 401k)
7% US Stocks
35% Bonds (see below)

Her Roth IRA at Vanguard
2% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (.05%)

His 401k at Fidelity
2% Bonds (see below)

His Roth IRA at Vanguard

3% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (.05%)

His Rollover IRA at Vanguard
5% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (.05%)

401k options
I only have a handful of funds to choose from, including several lifecycle funds. I’ll list a few that stood out along with their expense ratio.
S&P Fund (.03%)
Wilshire 4500 Index (.07%)
Intermediate-Term Bond fund (.05%)
I don’t know if these would replicate the Vanguard fund performance. I can list more of the funds if needed. Many of them have high expense ratios. Fidelity offers BrokerageLink, but we can only put a small percentage of the money into that.

Contributions
We are maxing out our 401k and Roth IRA contributions. I don’t have numbers on the rest of our retirement savings, but we’re probably around 60%-70% savings.

I plan to retire after this year, and my husband will retire soon after. Looking for feedback on our allocations. This page was very helpful in setting this up(https://www.bogleheads.org/wiki/Asset_a ... e_accounts), I put as much of my bond allocation in my tax-efficient accounts.

Questions:

- Need some advice on how to allocate the 401k, until we're able to rollover.
- Does a 60/40 allocation make sense for us, given the long timeframe ahead of us.
- Does the account allocation look good? Any other funds/buckets we should be considering?
- I’ve been reading about TIPS lately on the forums, and am trying to understand how/if that should fit into our allocations. Should I include a TIPS fund as a % of our bond allocation? It’s looking like yes, I should
- My plan is to pay minimal taxes in retirement, by staying under the 15% tax bracket. Is this realistic, given our situation?
- And any other advice is very welcomed

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Phineas J. Whoopee
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Re: Nearing retirement and looking for allocation/general advice

Post by Phineas J. Whoopee » Tue Jan 17, 2017 8:59 pm

Bump.
PJW

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Duckie
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Joined: Thu Mar 08, 2007 2:55 pm

Re: Nearing retirement and looking for allocation/general advice

Post by Duckie » Tue Jan 17, 2017 9:13 pm

LilyGator, welcome to the forum.
LilyGator wrote:401k options
I only have a handful of funds to choose from, including several lifecycle funds. I’ll list a few that stood out along with their expense ratio.
S&P Fund (.03%)
Wilshire 4500 Index (.07%)
Intermediate-Term Bond fund (.05%)
I don’t know if these would replicate the Vanguard fund performance.
80% S&P 500 Index plus 20% Wilshire 4500 Index mimics Total Stock Market. Intermediate-Term Bond is very similar to Total Bond Market.
I plan to retire after this year, and my husband will retire soon after.
How can you retire so soon, especially with a mortgage? $1.2 million is unlikely to last the two of you 40 to 50 years. What are you going to do if you don't work?
Need some advice on how to allocate the 401k, until we're able to rollover.
Since your bond AA is 40% putting all bonds in her 401k would be fine.
Does a 60/40 allocation make sense for us, given the long timeframe ahead of us.
It's conservative for your ages. I'd be more inclined toward 70/30, but whatever lets you sleep at night.
Does the account allocation look good? Any other funds/buckets we should be considering?
The allocation is fine if you want 60/40. With Total Stock, Total International Stock, and US bonds you've got things covered.
I’ve been reading about TIPS lately on the forums, and am trying to understand how/if that should fit into our allocations. Should I include a TIPS fund as a % of our bond allocation? It’s looking like yes, I should
I'd say no on TIPS but then I'm not a fan of them.
My plan is to pay minimal taxes in retirement, by staying under the 15% tax bracket. Is this realistic, given our situation?
Probably.

radiowave
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Re: Nearing retirement and looking for allocation/general advice

Post by radiowave » Tue Jan 17, 2017 9:27 pm

I agree with Duckie, you'll probably run out of money by the time you reach your 60's or earlier. The other consideration is you are not putting in enough into social security so by the time you are eligible, you won't be able to live on the monthly $. Reconsider your plan. Your investments are pretty solid except for the individual stock. Keep plugging away and maximize your tax-deferred savings, pay off the mortgage, live below your means and save a good nest egg. One last consideration is healthcare, if you have to fund this on your own, it could be very expensive on top of your other living expenses, especially if one of your should have an illness or injury.
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page

btenny
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Re: Nearing retirement and looking for allocation/general advice

Post by btenny » Tue Jan 17, 2017 9:42 pm

Your planned budget is too small. I do not think you can retire this soon. I do not see how you can live on this little money and pay taxes and buy medical insurance and pay a mortgage. Please tell us how you are going to live on $40K and pay for all the necessary things for modern life? I think you need more like $60K as a bare minimum but more likely $80K to enjoy and retire. So you need to work longer.

So I suggest you ask more questions about "retirement jobs" that are more fun than your current job but pay a salary. Maybe this will increase your available budget $$ so you can let your investments grow for a few more years.

Good Luck.

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Taylor Larimore
Advisory Board
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Location: Miami FL

Re: Nearing retirement and looking for allocation/general advice

Post by Taylor Larimore » Tue Jan 17, 2017 9:44 pm

LillyGator:

Welcome to the Bogleheads Forum!

I think you have a very acceptable portfolio based on the information you have provided. I will try to answer your questions:

- Need some advice on how to allocate the 401k, until we're able to rollover.
Bogleheads consider all accounts as one portfolio. The available S&P 500 Index Fund and the Intermediate-Term bond fund are both indexed and low cost. Use the fund that meets your overall desired stock/bond allocation.

- Does a 60/40 allocation make sense for us, given the long timeframe ahead of us?
60/40 appears reasonable. Use this Vanguard Investor Questionnaire for reassurance.

- Does the account allocation look good? Any other funds/buckets we should be considering?
The account allocations do not matter (if you plan to stay together). It is your overall portfolio which is now about 60% stocks and 40% bonds--your desired asset allocation. Strive for simplicity -- not complexity. Read my Simplicity link at the bottom.

- I’ve been reading about TIPS lately on the forums, and am trying to understand how/if that should fit into our allocations. Should I include a TIPS fund as a % of our bond allocation? It’s looking like yes, I should.
There will always be funds that you will want to add. Your existing bond funds provide safety. , I think the advantages of simplicity are greater than the perceived advantage of adding more small funds. Personally, I would not bother with TIPS.

- My plan is to pay minimal taxes in retirement, by staying under the 15% tax bracket. Is this realistic, given our situation?
Nice plan. Sorry, I am unable to answer.

And any other advice is very welcomed.
The enemy of a good plan is the dream of perfect plan. -- Jack Bogle

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

LilyGator
Posts: 4
Joined: Mon Jan 16, 2017 9:43 pm

Re: Nearing retirement and looking for allocation/general advice

Post by LilyGator » Wed Jan 18, 2017 8:27 am

Thank you all for the feedback.
Duckie wrote:LilyGator
How can you retire so soon, especially with a mortgage? $1.2 million is unlikely to last the two of you 40 to 50 years. What are you going to do if you don't work?
35-40k includes the mortgage, so expenses will drop off even further once that is paid off. If I pad out my expected expenses to 45k to allow for more wiggle room, and assume a 3% swr, 45000x33 is still about 1.5 million, which we are getting close to. I understand it's just a rule of thumb, and we're dealing with a much longer than 30 year timeframe, so I totally get that we need to be doing some extra padding on this.
Duckie wrote:
Does a 60/40 allocation make sense for us, given the long timeframe ahead of us.
It's conservative for your ages. I'd be more inclined toward 70/30, but whatever lets you sleep at night.
Thank you, I would prefer not to be too conservative, so I will consider that.
btenny wrote: Please tell us how you are going to live on $40K and pay for all the necessary things for modern life? I think you need more like $60K as a bare minimum but more likely $80K to enjoy and retire. So you need to work longer.
We're living on that little money now, including mortgage and travel and entertainment, etc. We have no interest in doubling our lifestyle in retirement.

student
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Re: Nearing retirement and looking for allocation/general advice

Post by student » Wed Jan 18, 2017 9:12 am

LilyGator wrote: We're living on that little money now, including mortgage and travel and entertainment, etc. We have no interest in doubling our lifestyle in retirement.
I also feel that it is going to be very tight but FIRECalc http://firecalc.com/ gave you a good chance (over 90%) of success. I would hesitate to retire.

LilyGator
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Joined: Mon Jan 16, 2017 9:43 pm

Re: Nearing retirement and looking for allocation/general advice

Post by LilyGator » Wed Jan 18, 2017 3:56 pm

student wrote:
LilyGator wrote: We're living on that little money now, including mortgage and travel and entertainment, etc. We have no interest in doubling our lifestyle in retirement.
I also feel that it is going to be very tight but FIRECalc http://firecalc.com/ gave you a good chance (over 90%) of success. I would hesitate to retire.
I'm curious, given my details, in your opinion what number would you feel more comfortable retiring at?

student
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Joined: Fri Apr 03, 2015 6:58 am

Re: Nearing retirement and looking for allocation/general advice

Post by student » Wed Jan 18, 2017 4:13 pm

LilyGator wrote:
student wrote:
LilyGator wrote: We're living on that little money now, including mortgage and travel and entertainment, etc. We have no interest in doubling our lifestyle in retirement.
I also feel that it is going to be very tight but FIRECalc http://firecalc.com/ gave you a good chance (over 90%) of success. I would hesitate to retire.
I'm curious, given my details, in your opinion what number would you feel more comfortable retiring at?
I feel that for a 55-year retirement, there are no enough instances to draw a confident conclusion. When a put in 55 years (1.2 million and $40k annual expenses), it gives 100% success rate but for 50 years, it gives 97.5% success rate. This worries me. If I change the annual expense to $45K and 45 years, the success rate drops to 93.1%. For 50k and 45 years, the success rate drops to 75.2%. To me, this means your $40k expense assumption better be very accurate.

kaprecht
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Joined: Thu Dec 15, 2016 11:19 pm

Re: Nearing retirement and looking for allocation/general advice

Post by kaprecht » Wed Jan 18, 2017 4:25 pm

Hi LilyGator,

My wife and I are also thinking about FIRE. I believe the primary reason retiring early shows lower percentages of "success" is the sequence of return risk. In general, you are trying to live off returns only, so if the market takes a nose-dive early in retirement, this will impact your principal greatly.

With respect to FIRE, one thing that is often overlooked is a young retiree's ability to rejoin the workforce in these early years. If the market takes a dramatic hit, it will not be that difficult to find a job to cover ~$40k of annual expenses, maintaining our principal until the market recovers.

I do agree with others that medical premiums are a concern, especially with the uncertainty surrounding ObamaCare. Make sure you research this thoroughly and get comfortable with it.

-Kaprecht

btenny
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Joined: Sun Oct 07, 2007 6:47 pm

Re: Nearing retirement and looking for allocation/general advice

Post by btenny » Wed Jan 18, 2017 4:33 pm

If you retire soon what will you do all day to keep busy? Will you travel? Will you volunteer at a thrift shop? Work for your church? My reasons for asking is witnessing people I know who retired with too little. They thought they could live on a few $$. Now many have gone back to work mostly for money and medical insurance.

These retirees had some cash savings and maybe a paid for home. When they retired at 50ish they thought they had enough money. So they start enjoying life and goofing off most days. They start traveling and going to events. They fix up the house some. They need a new car so they buy one. The cost of living goes up and things are more expensive so their budget goes up. They are 62 now and need more money monthly. The cost of living has gone up. Ten years or more has passed and they have spent a lot of their cash. So then they have to take early SS to make ends meet. Plus now medical insurance has gone way up. One of them might be sick. And even when they get to Medicare they are not sure they will have enough cash to live OK. So they go back to work to pay for medical insurance. Then they keep working at 65 for money to live on. So they all are working a lot at 65ish.

And in your case at age 38 you have decades of retirement to fund before SS and Medicare. And I am not sure you have paid enough to get SS or Medicare. And who knows what age and benefits will be available in 25 years. How will you pay for everything? Are you sure?

Just saying. Good Luck.

LilyGator
Posts: 4
Joined: Mon Jan 16, 2017 9:43 pm

Re: Nearing retirement and looking for allocation/general advice

Post by LilyGator » Wed Jan 18, 2017 4:40 pm

student wrote:I feel that for a 55-year retirement, there are no enough instances to draw a confident conclusion. When a put in 55 years (1.2 million and $40k annual expenses), it gives 100% success rate but for 50 years, it gives 97.5% success rate. This worries me. If I change the annual expense to $45K and 45 years, the success rate drops to 93.1%. For 50k and 45 years, the success rate drops to 75.2%. To me, this means your $40k expense assumption better be very accurate.
I do want to make sure to build in lots of padding to these estimates. I should clarify that the 1.2 million is only my current assets. The plan was for my husband to continue working after I retire to help finish it off and get it to a good spot. We're thinking about 1.5 million. I will continue playing with the numbers in firecalc. Thank you for your help in this. It's a long timeframe to plan for, so we want to think everything through.

MI_bogle
Posts: 340
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Re: Nearing retirement and looking for allocation/general advice

Post by MI_bogle » Wed Jan 18, 2017 7:13 pm

kaprecht wrote:Hi LilyGator,

My wife and I are also thinking about FIRE. I believe the primary reason retiring early shows lower percentages of "success" is the sequence of return risk. In general, you are trying to live off returns only, so if the market takes a nose-dive early in retirement, this will impact your principal greatly.

With respect to FIRE, one thing that is often overlooked is a young retiree's ability to rejoin the workforce in these early years. If the market takes a dramatic hit, it will not be that difficult to find a job to cover ~$40k of annual expenses, maintaining our principal until the market recovers.

I do agree with others that medical premiums are a concern, especially with the uncertainty surrounding ObamaCare. Make sure you research this thoroughly and get comfortable with it.

-Kaprecht
+1

Young and can always do part-time work to earn some living expenses in case of issues with sequence of returns. Health care would be my primary concern. I would, at bare minimum, assume that health care expenses would take the place of the mortgage once house is paid off

This board skews fairly conservative, I say if you have 25x expenses and don't mind returning to some sort of work in the future, why not chase early retirement if that's what you want

Good Listener
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Re: Nearing retirement and looking for allocation/general advice

Post by Good Listener » Wed Jan 18, 2017 7:27 pm

My initial response is one word... no. But seriously, how much are you estimating for medical and dental insurance and then payments for deductibles and copays during the 30 years or possibly more until Medicare.? Also what if your 60% stock allocation goes down in half and never recovers?

You have far more guts than I do.

kaprecht
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Re: Nearing retirement and looking for allocation/general advice

Post by kaprecht » Thu Jan 19, 2017 1:14 pm

Good Listener wrote:Also what if your 60% stock allocation goes down in half and never recovers?
A thought on protecting your income/assets from a market crash - One thing often discussed with FIRE is to diversify your income streams by picking up a rental property. While this does take a bit of work on your end, it will provide an income stream outside the stock market, and will put a fair chunk of your assets into something less correlated with the stock market.

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patriciamgr2
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Re: Nearing retirement and looking for allocation/general advice

Post by patriciamgr2 » Fri Jan 20, 2017 4:14 am

LilyGator: Welcome to the Forum. As someone who took early retirement myself, I understand the appeal of becoming financially independent early in life.

I want to add to the cautious comments by other posters. When I ran my numbers for early retirement at age 42, I used a SafeWithdrawalRate of less than 2% because I needed my money to last for over 50 years. That was at a time of higher returns on debt investments & higher expectations of stock returns than exist currently; I also got lucky with a favorable Sequence of Returns (the markets moved my way in my early retirement years, so my principal amount grew). I budgeted for recurring expenses (new cars every 10 years or so, home & auto maintenance, etc.) as well as for routine monthly expenses. The only category where I routinely underestimated cost has been health insurance (despite having been blessed with good health)--the increases have been stratospheric. A single accident (as a pedestrian hit by an uninsured motorist, for example) can wipe out one's entire savings unless good health insurance is in effect, so I consider insurance a necessity.

Are you purchasing coverage through an ACA marketplace now? Even if you do not plan to have children, it's crucial that the two of you have adequate insurance. I can't stress enough that buying individual health insurance is totally different from group coverage provided by an employer. The private marketplace is going to be in turmoil for a few years IMO. Don't even think about retiring until you have specific quotes from an insurance provider who will be around for the long term & you've done enough research on the plan to know that you're willing to stay in-network for care and you're able to pay co-pays, deductibles, etc.

Early retirement was the best decision I ever made. I enjoy every day of freedom. Good Luck on your plans.

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