new money investment plan -- living expenses

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bettykayWAAZ
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Joined: Fri Jan 16, 2009 12:26 pm

new money investment plan -- living expenses

Post by bettykayWAAZ » Sun Jul 16, 2017 12:24 pm

I'm fairly happy with my current allocation, almost all tax-deferred. And would welcome some suggestions for improvement, please
Next month our portfolio will almost double on the closing of the 4-plex we just sold. This money will go to the Vanguard brokerage account, while we decide what to do with it. Our plan is to live on the new money for ten years, before dipping into our retirement funds (except for RMD).

Here are the answers to standard questions:

Emergency funds: 1 month in Synchrony Bank, 1 month in 3 savings accounts. We think of the existing brokerage account as possible emergency fund.

Debt:
house paid off, car paid off, credit cards paid off every month.

Tax Filing Status: Married Filing Jointly. No dependents.

Tax Rate: 10-15% Federal, 0% WA 2017
State of Residence: AZ in 2018.
Don’t know about taxes this year because of capital gains, and loss of tax-deduction from 4-plex.
Arizona does not tax Social Security retirement benefits. However, other types of retirement income, like from an IRA, are taxable.

Age: him 61, her 74

Vanguard Asset allocation: 41% stocks, 59% bonds; Vanguard+Fidelity 50% stocks, 50% bonds
Desired Asset allocation: 40% stocks / 60% bonds
Desired International allocation: now: 3% of total. Vanguard recommends 16-18% foreign in tock and in bond funds.

Size of your current total portfolio: mid six-figures this month, next month it will almost double with sale of 4-plex (high six-figures).

Split of assets: taxable 3% and tax-advantaged 97% accounts this month (see below).
48%/52% when sale closes (money will go to VFSTX in brokerage account).

Contributions: we both made Roth contributions this year. Not working, not eligible, in the future.

Current retirement assets

By Funds by Account:
% of acct % of total

Total brokerage, vanguard, 3%,
100%, 3.01%, Vanguard Short-Term Investment-Grade Fund Investor , VFSTX, 0.002

Total her IRA, vanguard, 34%,
34.6%, 11.9%, Vanguard Inflation-Protected Securities Fund Admiral , VAIPX, 0.001
16.4%, 5.65%, Vanguard Intermediate-Term Bond Index Fund Admiral , VBILX, 0.0007
11.2%, 3.85%, Vanguard Short-Term Investment-Grade Fund Investor , VFSTX, 0.002
37.6%, 12.9%, Vanguard Total Bond Market Index Fund Admiral , VBTLX, 0.0005

Total her roth, vanguard, 32%,
13.5%, 4.37%, Vanguard Capital Opportunity Fund Investor , VHCOX, 0.0045
8.51%, 2.75%, Vanguard Emerging Markets Stock Index Fund Admiral , VEMAX, 0.0014
8.01%, 2.59%, Vanguard Extended Market Index Fund Admiral , VEXAX, 0.0008
8.10%, 2.62%, Vanguard FTSE All-World ex-US Small-Cap Index Fund Investor , VFSVX, 0.0027
8.72%, 2.82%, Vanguard High-Yield Corporate Fund Investor , VWEHX, 0.0023
26.2%, 8.51%, Vanguard Intermediate-Term Bond Index Fund Admiral , VBILX, 0.0007
7.77%, 2.51%, Vanguard Small-Cap Value Index Fund Admiral , VSIAX, 0.0007
6.85%, 2.22%, Vanguard Total International Stock Index Fund Admiral , VTIAX, 0.0011
12.2%, 3.95%, Vanguard Total Stock Market Index Fund Admiral , VTSAX, 0.0004

Total his roth, vanguard, 14%,
24.6%, 3.49%, Vanguard Intermediate-Term Bond Index Fund Admiral , VBILX, 0.0007
25.7%, 3.64%, Vanguard Short-Term Investment-Grade Fund Investor , VFSTX, 0.002
24.5%, 3.48%, Vanguard Total Bond Market Index Fund Admiral , VBTLX, 0.0005
25.0%, 3.54%, Vanguard Total Stock Market Index Fund Admiral , VTSAX, 0.0004

Total his IRA, Fidelity Investments - SIMPLE IRA, 16%,
99.9%, 16.0%, Fidelity® Total Market Index Fund Premium Class, FSTVX, 0.0004

Same List by Fund:
% of July portfolio, name symbol, exp ratio,type
17.7%, Vanguard Intermediate-Term Bond Index Fund Admiral , VBILX, 0.0007, bonds
16.4%, Vanguard Total Bond Market Index Fund Admiral , VBTLX, 0.0005, bonds
11.9%, Vanguard Inflation-Protected Securities Fund Admiral , VAIPX, 0.001, bonds
10.5%, Vanguard Short-Term Investment-Grade Fund Investor, VFSTX, 0.002, bonds
16.0%, Fidelity® Total Market Index Fund Premium Class, FSTVX, 0.0004, tot stk
7.5%, Vanguard Total Stock Market Index Fund Admiral , VTSAX, 0.0004, tot stk
2.6%, Vanguard FTSE All-World ex-US Small-Cap Index Invst, VFSVX, 0.0027, foreign/tilt
2.2%, Vanguard Total International Stock Index Fund Admiral , VTIAX, 0.0011, foreign
4.4%, Vanguard Capital Opportunity Fund Investor , VHCOX, 0.0045,
2.8%, Vanguard High-Yield Corporate Fund Investor , VWEHX, 0.0023,
2.8%, Vanguard Emerging Markets Stock Index Fund Admiral , VEMAX, 0.0014, tilt
2.6%, Vanguard Extended Market Index Fund Admiral , VEXAX, 0.0008, tilt
2.5%, Vanguard Small-Cap Value Index Fund Admiral , VSIAX, 0.0007, tilt


If you want to give us a detailed breakdown within each asset class

Morningstar x-ray:

all funds as of 7/15/17: cash 2%, us 33%, foreign 6%, bonds 59%

top/largest 8 funds
valuation interest sensitivity
25 25 23 0 28 21
6 6 6 18 32 0
3 3 3 0 0 0

all 13 funds
valuation interest sesitivity
20 22 20 0 27 20
7 8 8 18 30 0
6 5 4 0 5 0

Contributions: no more.

Available funds: all Vanguard funds, his IRA at Fidelity can stay there or be moved to Vanguard.


Questions:
1. Where might we put the new money? We plan to live on this (plus her RMD and SS) for the next ten years. He will take SS at age 70. She is on Medicare and Plan F so her medical expenses are fixed. His medical expenses will be reduced by about $5,000/year (at today’s rates) when he turns 65.

2. Given the new money, how might we improve allocation of the current tax-deferred accounts?

3. Two possibilities (plus possibilities in between):

Plan A: new money in Bonds or Money Market or CDs. Current tax-deferred accounts reworked to 60% stock, 40% bonds.

Plan B: All money counts in allocation: 40% stock and 60% bonds/CD/MM etc.

4. I understand the concept of stock funds in taxable and bond funds in tax-deferred. I can handle re-balancing the allocations as needed (maybe with monthly withdrawal, maybe every six months).

Thank you.
Bettykay

moneyman11
Posts: 484
Joined: Tue Feb 19, 2008 10:09 am

Re: new money investment plan -- living expenses

Post by moneyman11 » Sun Jul 16, 2017 12:30 pm

13 funds makes my brain hurt, but looks like you're a "tilter" so, ok.

But I have to ask about this ....
bettykayWAAZ wrote: 17.7%, Vanguard Intermediate-Term Bond Index Fund Admiral , VBILX, 0.0007, bonds
16.4%, Vanguard Total Bond Market Index Fund Admiral , VBTLX, 0.0005, bonds
Why not just pick one or the other?

moneyman11
Posts: 484
Joined: Tue Feb 19, 2008 10:09 am

Re: new money investment plan -- living expenses

Post by moneyman11 » Sun Jul 16, 2017 12:43 pm

Following on to my previous post, I'd say my number one suggestion is to simplify and forget tilting.

Total Stock
Total International ex-US
One or the other of the bond index funds (Total Bond or Intermediate-Term Index)
TIPS fund to the extent that you think you need it (though I believe social security is already an excellent inflation protected source of income).

4 funds max, easy to annually rebalance.

Not to be harsh, but at your ages, any tilting premium that happens to show up (if at all) over the rest of your likely lifespan would indistinguishable from pure luck.
Last edited by moneyman11 on Sun Jul 16, 2017 12:49 pm, edited 4 times in total.

Carl53
Posts: 1417
Joined: Sun Mar 07, 2010 8:26 pm

Re: new money investment plan -- living expenses

Post by Carl53 » Sun Jul 16, 2017 12:43 pm

Given that he was born prior o 1/1/54, he can take a restricted spousal SS benefit equal to half of her FRA benefit until age 70 and then switch to his benefit assuming it is greater.

Q1/2 Consider converting TIRA assets upo the top of the 15% bracket. Use the new income to pay the taxes.

Q3 I like the idea of keeping a chunk of taxable funds in money market/ CDs.

Be sure to use enough of your funds for enjoying life. Once one of you passes, the tax rate on the remaining spouse will bump up. Roth conversions while your married bracket is low will reduce giving more to Uncle Sam down the road in this case.

Edit: note that restricted spousal SS is at FRA, age 66, for him.

User avatar
bettykayWAAZ
Posts: 126
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Re: new money investment plan -- living expenses

Post by bettykayWAAZ » Sun Jul 16, 2017 1:45 pm

hubby is too young for spousal SS, even at FRA. born in 1955.

good idea about converts TIRA to Roth. I've done small amounts a couple of times. will do that in 2018+, when taxable income will be less.

I agree, two big bond funds are very similar. Every time I decide to roll one into the other, my idea of "best" changes.

My bigger question is bond funds or CDs or money market. I've never done CDs, and am unsure.

aristotelian
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Joined: Wed Jan 11, 2017 8:05 pm

Re: new money investment plan -- living expenses

Post by aristotelian » Sun Jul 16, 2017 2:16 pm

I would suggest putting the new money in Total Stock Market Index, then sell off your stock holdings in your IRAs and convert to bonds so as to maintain your overall allocation.

Another possibility would be 40% Total Stock Market/60% Intermediate Tax Exempt, while keeping your tax deferred more or less as-is.

moneyman11
Posts: 484
Joined: Tue Feb 19, 2008 10:09 am

Re: new money investment plan -- living expenses

Post by moneyman11 » Sun Jul 16, 2017 3:26 pm

bettykayWAAZ wrote:My bigger question is bond funds or CDs or money market. I've never done CDs, and am unsure.
CDs and money market are quite different.

A money market is effectively a zero duration bond fund.

Buying CDs for the fixed income portion of your portfolio instead of a bond fund brings up many of the same issues as buying individual bonds vs using a bond fund. These issues are discussed quite well on the wiki:

https://www.bogleheads.org/wiki/Individ ... _bond_fund

MotoTrojan
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Joined: Wed Feb 01, 2017 8:39 pm

Re: new money investment plan -- living expenses

Post by MotoTrojan » Sun Jul 16, 2017 3:41 pm

I'd adjust to the traditional 3-fund, then pick 1-2 tilts and add those to their respective region.

US SCV
International Small Cap
Emerging Markets

Could hold tips and Total bond, but right now you have a ton of overlap with the extended markets, multiple bonds, etc. Could probably get 99% same exposure with 6 funds, but 4-5 should be plenty to get your intent.

Carl53
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Joined: Sun Mar 07, 2010 8:26 pm

Re: new money investment plan -- living expenses

Post by Carl53 » Sun Jul 16, 2017 4:38 pm

bettykayWAAZ wrote:hubby is too young for spousal SS, even at FRA. born in 1955.

good idea about converts TIRA to Roth. I've done small amounts a couple of times. will do that in 2018+, when taxable income will be less.

I agree, two big bond funds are very similar. Every time I decide to roll one into the other, my idea of "best" changes.

My bigger question is bond funds or CDs or money market. I've never done CDs, and am unsure.
My bad, misread 61 as 64.

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