Rebalancing Anxiety - Nearing Retirement, appreciate input

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
LuigiLikesPizza
Posts: 287
Joined: Tue Jan 05, 2016 7:54 am

Rebalancing Anxiety - Nearing Retirement, appreciate input

Post by LuigiLikesPizza » Sat Jan 13, 2018 8:12 am

Expecting to retire from the federal government next year. I am concerned about sequence risk. I have been rebalancing aggressively inside my TSP, no tax implications thus far. Now eyeing my taxable accounts for rebalancing, ***concerned now more about losing than accumulating*** starting to keep me up at night. Need to do this efficiently, concerned about tax implications. Much of the gains would be considered long term.

Seeking suggestions....**considering how much I have tied up in the G Fund, what other fixed instruments should I be looking at?** none of us are crazy about just leaving more and more cash in a bank account. Specifically now eyeing a sale of a portion of my international stock fund and total market funds.

**All suggestions are appreciated**

Current Portfolio Review

Emergency Funds - lots, got it covered

Debt: none, no mortgage, currently a renter.

Tax Filing Status: Single, Divorced

Tax Rate: 28% Federal, 5.75% State (need to adjust for 2018)

State of Residence: Virginia

Age: 57

Desired Asset allocation? considering 30-40% stocks/60-70% bonds & fixed income??

Size of current total portfolio - $1.5M +/-

Current retirement assets

TAXABLE

cash - $80K
I-Bonds - $145K
CDs - $60K
International Stock Market Index - $215K
VTSAX (Total Market) - $80K

NON TAXABLE/TAX DEFERRED

Federal Govt TSP Plan:

G Fund (bonds)- $700K
C Fund (broad index) $25K
S Fund (small caps) $25K

Roth IRA - Total Market Index - $75K
REIT Index - $75K

HSA Account - Total Market Index - $20K

westrichj312
Posts: 77
Joined: Wed Jul 05, 2017 4:25 pm

Re: Rebalancing Anxiety - Nearing Retirement, appreciate input

Post by westrichj312 » Sat Jan 13, 2018 9:31 am

just retire and enjoy yourself you are fine.

The Wizard
Posts: 11228
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Rebalancing Anxiety - Nearing Retirement, appreciate input

Post by The Wizard » Sat Jan 13, 2018 9:32 am

You look fine, lots of bonds. Too many for my tastes, actually.

I think we need to talk income streams now, along with withdrawal sequencing and Roth conversion plans prior to age 70...
Attempted new signature...

dbr
Posts: 24793
Joined: Sun Mar 04, 2007 9:50 am

Re: Rebalancing Anxiety - Nearing Retirement, appreciate input

Post by dbr » Sat Jan 13, 2018 10:19 am

The Wizard wrote:
Sat Jan 13, 2018 9:32 am
You look fine, lots of bonds. Too many for my tastes, actually.

I think we need to talk income streams now, along with withdrawal sequencing and Roth conversion plans prior to age 70...
Exactly. Without information regarding what you want/need to withdraw from your portfolio it doesn't make sense to talk about asset allocation.

indexonlyplease
Posts: 826
Joined: Thu Apr 30, 2015 12:30 pm
Location: Pembroke Pines, FL

Re: Rebalancing Anxiety - Nearing Retirement, appreciate input

Post by indexonlyplease » Sat Jan 13, 2018 11:13 am

Big question

Will your pension cover your monthly expenses?

I retired last yr from the government. My high risk pension covers all monthly expenses. This allowed me to be more conservative with my AA. Meaning no need from large gains/risk and no income taking from investments monthly. I just let the investments grow. One day I wil need money for large purchase (ie car) then I will then take some investment money. But I will have to use up my large emergency fund and cd.

Also, my AA is the simple 3 fund portfolio. Had it for three yrs now. Just rebalance every January if need. Simple.

LuigiLikesPizza
Posts: 287
Joined: Tue Jan 05, 2016 7:54 am

Re: Rebalancing Anxiety - Nearing Retirement, appreciate input

Post by LuigiLikesPizza » Sat Jan 13, 2018 11:31 am

Thanks to all.

I see now I left out some key information.


Will your pension cover your monthly expenses?
- No.
I am retiring after only 10 years of service at the MRA (to get the health insurance), so with the 20% discount for retiring before age 62, my annual federal pension will be only about $12K a year.

I am eligible, but have not yet begun to draw, another private sector pension, currently worth about $800/month and rising every year until I reach 65. That pension is well funded, secure.

Social Security currently calculated to be about $1,850 when I reach 62 and of course, more if I take it later.

Hope to hold annual expenses at $50Kyear, willing to spend more if it fits....no need to leave a legacy.

Thanks

User avatar
Watty
Posts: 12138
Joined: Wed Oct 10, 2007 3:55 pm

Re: Rebalancing Anxiety - Nearing Retirement, appreciate input

Post by Watty » Sat Jan 13, 2018 8:45 pm

LuigiLikesPizza wrote:
Sat Jan 13, 2018 8:12 am
**All suggestions are appreciated**
.....
Debt: none, no mortgage, currently a renter.
....
Hope to hold annual expenses at $50Kyear, willing to spend more if it fits....no need to leave a legacy.
If you are not likely to move in retirement you could consider buying a house or condo for cash if they are reasonable where you live.

That could reduce your money expenses and that would reduce your sequence of returns risk since you would not be spending down money as fast.

I didn't crunch the numbers but once all your pensions and Social Security are started then those would cover most of your expenses.

User avatar
celia
Posts: 7303
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Rebalancing Anxiety - Nearing Retirement, appreciate input

Post by celia » Sat Jan 13, 2018 10:27 pm

LuigiLikesPizza wrote:
Sat Jan 13, 2018 11:31 am
..., my annual federal pension will be only about $12K a year.

I am eligible, but have not yet begun to draw, another private sector pension, currently worth about $800/month and rising every year until I reach 65. That pension is well funded, secure.

Social Security currently calculated to be about $1,850 when I reach 62 and of course, more if I take it later.

Hope to hold annual expenses at $50Kyear, willing to spend more if it fits....no need to leave a legacy.
Then, the next step is:
* federal pension starts at 59 for $12K/yr
* other pension starts at 65 for $12K/yr
* SS starts at 62 for $22K/yr **OR** at age 67 for $29K/yr **OR** at age 70 for $36K/yr (all have cost-of-living, which is not included here)

I assume you turn 58 this year and will work for the whole year.
That brings us to my proposed spend-down starting next January of:
age 59: 12K fed pension + 40K Total St Mkt (account for taxes on LTCG)
age 60: 12K fed pension + 40K Total St Mkt (account for taxes on LTCG)
age 61: 12K fed pension + 40K (TSP withdrawal)
age 62: 12K fed pension + 40K (TSP withdrawal)
age 63: 12K fed pension + 40K (TSP withdrawal)
age 64: 12K fed pension + 40K (TSP withdrawal)
age 65: 12K fed pension + 12K other pension + 28K (TSP withdrawal)
age 66: 12K fed pension + 12K other pension + 28K (TSP withdrawal)
age 67: 12K fed pension + 12K other pension + 28K (TSP withdrawal)
age 68: 12K fed pension + 12K other pension + 28K (TSP withdrawal)
age 69: 12K fed pension + 12K other pension + 28K (TSP withdrawal)
age 70: 12K fed pension + 12K other pension + 36K SS + RMD?
age 71: 12K fed pension + 12K other pension + 36K SS + RMD
This covers your living expenses, but you need to calculate the taxes for each year. Also look at past tax returns to see what you have in dividends, interest and any other entries for obtaining more accurate estimates.

Then note that $380K has been withdrawn from the TSP for living expenses. Do you include income taxes as part of your living expenses? If not, you need to consider the source for how they will be paid. You can withhold some taxes from each pension and your SS benefit (you won't miss it after a couple of months) and/or pay them out of your TSP withdrawals.

After you are comfortable with these numbers and somewhat familiar with the new income tax brackets, you can use the remaining space in your current tax bracket or the next higher tax bracket to do Roth conversions. Since you can no longer recharacterize conversions if you convert too much, for the first few years, you might want to do half of the expected conversion early in the year, then do the other half near the end of the year, after you have run that year's numbers through tax software to estimate how much space is left for conversions.

The biggest challenge for this math problem is estimating the value of the TSP since:
* you will still be contributing this year, I assume
* you will withdraw for living expenses starting in the year you turn 61
* you will withdraw for Roth conversions, I assume
* the value of the account (rollover tIRA) will fluctuate as the stock markets fluctuate. But after the markets drop, that is an excellent time to do your Roth conversions, since you can convert more shares for the same tax bill. :D :D :D If the stock market drops significantly just before you need to withdraw from the TSP for living expenses, you can live off some taxable funds and just do bigger Roth conversions for those years! PLAN TO TAKE ADVANTAGE OF STOCK MARKET DROPS. Instead of being scared of them, we can use them to save on Roth conversion taxes!

You are lucky to have a math problem like this. Your actual numbers will be different than this, of course, but this shows you the logic behind the proposed draw-down. Feel free to ask questions or propose a variation.


You might also consider getting Long Term Care Insurance starting now, if you are eligible and it is a reasonable cost. I would start by seeing if it is offered through work.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

Post Reply