Retired Traditional IRA advice
Retired Traditional IRA advice
Glad I found this site. Have been reading and trying to absorb but I think I am over complicating a simple situation so asking for a little advice.
Emergency funds: Yes
Debt: None
Tax Filing Status: Married Filing Jointly
Tax Rate: 25% Federal, 5% State (I think)
State of Residence: Virginia
Age: I'm 65 and wife is 62
Desired Asset allocation: 40% stocks / 60% bonds (also looking for advice)
Desired International allocation: Also looking for advice
I receive a military pension, house paid off and have plenty of cash and CD's to cover anything that might come up. We both have small Roth's (about 30K each) and will start receiving social security in the near future. The only other investments and the subject of my request are our traditional IRA's. Both are at Vanguard and in TR 2020 accounts (84K and 580K). I've been looking at options and trying to decide what to do. Leave them alone, split them into admiral accounts (for the lower fees) or move them to a different TR account or Lifestyle Income or conservative growth. I am very risk averse and am worried about a big drop in the market. I will have to start taking distributions in a few years and since they are traditional IRA's I shouldn't have to worry about having too much in bonds. I would like to keep things simple.
Appreciate any advice or guidance.
Emergency funds: Yes
Debt: None
Tax Filing Status: Married Filing Jointly
Tax Rate: 25% Federal, 5% State (I think)
State of Residence: Virginia
Age: I'm 65 and wife is 62
Desired Asset allocation: 40% stocks / 60% bonds (also looking for advice)
Desired International allocation: Also looking for advice
I receive a military pension, house paid off and have plenty of cash and CD's to cover anything that might come up. We both have small Roth's (about 30K each) and will start receiving social security in the near future. The only other investments and the subject of my request are our traditional IRA's. Both are at Vanguard and in TR 2020 accounts (84K and 580K). I've been looking at options and trying to decide what to do. Leave them alone, split them into admiral accounts (for the lower fees) or move them to a different TR account or Lifestyle Income or conservative growth. I am very risk averse and am worried about a big drop in the market. I will have to start taking distributions in a few years and since they are traditional IRA's I shouldn't have to worry about having too much in bonds. I would like to keep things simple.
Appreciate any advice or guidance.
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- Posts: 11647
- Joined: Sat Oct 04, 2008 11:42 am
Re: Retired Traditional IRA advice
Do you still have a TSP account open? If yes, you can get lower expenses by transferring the Traditional IRA into your TSP.
If you seek 40/60 stock/bond allocation, you can consider Vanguard LifeStrategy Conservative Growth VSCGX er=0.13%. This would be the simplest solution if you're not willing to rollover assets into TSP. You can hold this fund in each of your IRAs. While expenses will be a little lower with separate funds, it will be more complex to maintain your asset allocation across 4 IRA accounts. The Lifestrategy fund can be held in all 4 IRA accounts and the fund will maintain the asset allocation for you. If you ever decide to change your AA, simply exchange to another life strategy or target retirement fund that matches your desired asset allocation. There are no tax consequences for exchanging funds in IRA accounts.
If you seek 40/60 stock/bond allocation, you can consider Vanguard LifeStrategy Conservative Growth VSCGX er=0.13%. This would be the simplest solution if you're not willing to rollover assets into TSP. You can hold this fund in each of your IRAs. While expenses will be a little lower with separate funds, it will be more complex to maintain your asset allocation across 4 IRA accounts. The Lifestrategy fund can be held in all 4 IRA accounts and the fund will maintain the asset allocation for you. If you ever decide to change your AA, simply exchange to another life strategy or target retirement fund that matches your desired asset allocation. There are no tax consequences for exchanging funds in IRA accounts.
Last edited by DSInvestor on Mon Jun 26, 2017 11:04 am, edited 1 time in total.
Re: Retired Traditional IRA advice
No TSP. I retired from the military about the time they started. My IRA was mostly a 401K rollover from my post military job when I retired from that. Thanks for the advice.
Re: Retired Traditional IRA advice
Do you have concerns about the rmds putting you in a higher tax bracket? Do you have heirs that would be better off receiving Roth investments? If so, you might consider doing some Roth conversions. Use this site to calculate their affect.
https://www.i-orp.com/ORPparms.html
https://www.i-orp.com/ORPparms.html
Re: Retired Traditional IRA advice
Thanks for the link. Still trying to figure out all of the inputs but so far no issues with tax brackets.
Re: Retired Traditional IRA advice
You are risk averse and you want things simple - both of those argue for using a balanced fund, even if the fees are a bit higher. The increase in fees is very little, in my opinion, compared to the benefits you get.
I'd move the IRAs to the Target 2015 fund which is near your desired 40/60. It is currently at 44% stock and 56% bonds. The other choice is LifeStrategy Conservative Growth which is right at 40/60 and will not migrate to a higher bond percentage.
Advice on your chosen 40% stocks and 60% bonds - I think it is a good choice for both your ages and your desire for lower risk.
I'd move the IRAs to the Target 2015 fund which is near your desired 40/60. It is currently at 44% stock and 56% bonds. The other choice is LifeStrategy Conservative Growth which is right at 40/60 and will not migrate to a higher bond percentage.
Advice on your chosen 40% stocks and 60% bonds - I think it is a good choice for both your ages and your desire for lower risk.
Link to Asking Portfolio Questions
Re: Retired Traditional IRA advice
Another thing to consider -- there is an advantage to having separate funds for each sector when you withdrawing from your accounts. If you need to take a RMD right after the stock market drops, you can withdraw from your bond fund and avoid "selling low."
From Kiplinger:
"Even though I love target-date funds for accumulators,” says Christine Benz, director of personal finance at Morningstar, “most all-in-one funds are suboptimal when it comes to retirement withdrawals because the investor doesn’t have discretion over where those withdrawals come from.”
From Kiplinger:
"Even though I love target-date funds for accumulators,” says Christine Benz, director of personal finance at Morningstar, “most all-in-one funds are suboptimal when it comes to retirement withdrawals because the investor doesn’t have discretion over where those withdrawals come from.”
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Re: Retired Traditional IRA advice
Good point about taking disbursements against a single fund. I've considered that too but figure I could make that switch in a few years. I like both TR 2015 and LS conservative growth. Does having TIPS included make much of a difference?
Re: Retired Traditional IRA advice
I'm loathe to disagree with Christine Benz, whose opinion I respect above most others. But if you are taking out such a tiny portion of the portfolio (4% in a whole year), I don't think it matters much if it comes from stocks or bonds or both.
Think about it - if you are in a retirement portfolio - say 30% stocks - and you take out 4% of the portfolio.....how much of that withdrawal is from stocks? A big whopping 1.2%
Maybe I'm missing something, but I don't think that is worth worrying about. Maybe someone will educate me though.
Think about it - if you are in a retirement portfolio - say 30% stocks - and you take out 4% of the portfolio.....how much of that withdrawal is from stocks? A big whopping 1.2%
Maybe I'm missing something, but I don't think that is worth worrying about. Maybe someone will educate me though.
Link to Asking Portfolio Questions
Re: Retired Traditional IRA advice
You make a legitimate point regarding the minimal effect of small withdrawals. But I think your reasoning is off; you are still taking out 4% of the money invested in stocks out of the fund. Say the fund has $100,000 in it, with $30,000 in stocks and $70,000 in bonds, and you take out $4,000. The new balance is $96,000, with $28,800 in stocks and $67,200. So the stock portion is down 4% (1200/30000) as is the bond portion (67200/70000). The withdrawal from both segments is 4%.retiredjg wrote:I'm loathe to disagree with Christine Benz, whose opinion I respect above most others. But if you are taking out such a tiny portion of the portfolio (4% in a whole year), I don't think it matters much if it comes from stocks or bonds or both.
Think about it - if you are in a retirement portfolio - say 30% stocks - and you take out 4% of the portfolio.....how much of that withdrawal is from stocks? A big whopping 1.2%
Maybe I'm missing something, but I don't think that is worth worrying about. Maybe someone will educate me though.
Clearly though, the larger withdrawal you make, the more important the ability to select which part of your allocation you take it from. And if you know that you will be sticking to just RMDs, the ease of using just one fund may outweigh the ability to determine the source of the withdrawal.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Re: Retired Traditional IRA advice
Yes, it it is 4% of the bond portion. It would have to be. But it is not 4% of the portfolio. The $1,200 is only 1.2% of the portfolio.delamer wrote:You make a legitimate point regarding the minimal effect of small withdrawals. But I think your reasoning is off; you are still taking out 4% of the money invested in stocks out of the fund. Say the fund has $100,000 in it, with $30,000 in stocks and $70,000 in bonds, and you take out $4,000. The new balance is $96,000, with $28,800 in stocks and $67,200. So the stock portion is down 4% (1200/30000) as is the bond portion (67200/70000). The withdrawal from both segments is 4%.retiredjg wrote:I'm loathe to disagree with Christine Benz, whose opinion I respect above most others. But if you are taking out such a tiny portion of the portfolio (4% in a whole year), I don't think it matters much if it comes from stocks or bonds or both.
Think about it - if you are in a retirement portfolio - say 30% stocks - and you take out 4% of the portfolio.....how much of that withdrawal is from stocks? A big whopping 1.2%
Maybe I'm missing something, but I don't think that is worth worrying about. Maybe someone will educate me though.
Link to Asking Portfolio Questions
Re: Retired Traditional IRA advice
Yes, the stock dollar withdrawal is $1200 which is 1.2% of the total portfolio.retiredjg wrote:Yes, it it is 4% of the bond portion. It would have to be. But it is not 4% of the portfolio. The $1,200 is only 1.2% of the portfolio.delamer wrote:You make a legitimate point regarding the minimal effect of small withdrawals. But I think your reasoning is off; you are still taking out 4% of the money invested in stocks out of the fund. Say the fund has $100,000 in it, with $30,000 in stocks and $70,000 in bonds, and you take out $4,000. The new balance is $96,000, with $28,800 in stocks and $67,200. So the stock portion is down 4% (1200/30000) as is the bond portion (67200/70000). The withdrawal from both segments is 4%.retiredjg wrote:I'm loathe to disagree with Christine Benz, whose opinion I respect above most others. But if you are taking out such a tiny portion of the portfolio (4% in a whole year), I don't think it matters much if it comes from stocks or bonds or both.
Think about it - if you are in a retirement portfolio - say 30% stocks - and you take out 4% of the portfolio.....how much of that withdrawal is from stocks? A big whopping 1.2%
Maybe I'm missing something, but I don't think that is worth worrying about. Maybe someone will educate me though.
But that is different than stock percentage withdrawal. Your original comment was "how much of that withdrawal is from stocks? A big whopping 1.2%". My point is that the withdrawal from stocks is 4% of stocks, just like the withdrawal from bonds is 4% of bonds.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Re: Retired Traditional IRA advice
I think if you go back and read it again, my meaning clearly was "how much of the portfolio is being withdrawn from stocks?" If you didn't read it that way, just call it the errors that occur when more than one mind is attempting to communicate.
People are afraid of "selling at a loss" and I'm saying that if....in a year, you sell 1.2% of your portfolio at a loss, it probably is not important enough to matter.
If it does matter, that's not really your primary problem.
People are afraid of "selling at a loss" and I'm saying that if....in a year, you sell 1.2% of your portfolio at a loss, it probably is not important enough to matter.
If it does matter, that's not really your primary problem.
Link to Asking Portfolio Questions
- patrick013
- Posts: 3301
- Joined: Mon Jul 13, 2015 7:49 pm
Re: Retired Traditional IRA advice
Well I would want to know my final tax bracket when 70.
This would include all pensions, SS, dividends, interest,
and annuities, just all incomes before IRA transactions.
Between now and 70 conversions to Roth could be made
limited by that marginal tax bracket. After that, well
even RMD taxation can be determined, as well as some
lesser but regular long term conversions to Roth positioning
the IRA to Roth to take advantage of Roth compounding and
other features of a Roth account.
Many higher income retirees not needing IRA income convert to
Roth a little at a time to better position that account for future
compounding and transfer to heirs.
Others like me would spend RMD's and enjoy life. You, I think,
can withdraw some extra for Roth conversions.
This would include all pensions, SS, dividends, interest,
and annuities, just all incomes before IRA transactions.
Between now and 70 conversions to Roth could be made
limited by that marginal tax bracket. After that, well
even RMD taxation can be determined, as well as some
lesser but regular long term conversions to Roth positioning
the IRA to Roth to take advantage of Roth compounding and
other features of a Roth account.
Many higher income retirees not needing IRA income convert to
Roth a little at a time to better position that account for future
compounding and transfer to heirs.
Others like me would spend RMD's and enjoy life. You, I think,
can withdraw some extra for Roth conversions.
age in bonds, buy-and-hold, 10 year business cycle
Re: Retired Traditional IRA advice
Agree that converting some to my Roth each year makes sense. I don't think my tax bracket will change after 70 but might as well convert some anyway. Thanks all for the advice.