How to invest funds for retirement?

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Woodthrush
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How to invest funds for retirement?

Post by Woodthrush » Sat Jan 20, 2018 5:48 pm

I am a married 60-year-old federal employee under the FERS retirement system (have 33 years in, but I hope and plan to work to around age 70). I am new to this forum and am grateful for the wisdom and help offered here.

Here is our current situation:
Emergency Funds: 8 months living expenses in Ally Bank money market and CD’s

Debt: 30-yr fixed Mortgage; 3.5% interest, $276K principal balance (~$150K equity in the house). No other debt.

Filing status: Married filing jointly. No children.

Combined household income: ~$160K, My federal employee income is $149k. I’m at the top of my pay scale for the position I’m in, so am not eligible for salary increases. But I do receive annual cost of living adjustments (usually 1 to 2%). My federal pension at age 70 would be approximately 42% of the average of my salary level for the prior 3 years. However, the pension for a surviving spouse is only half that (21%), so we would like to have enough savings to make sure my wife is provided for (especially as I am ~7 years older than her). I also plan to delay taking Social Security until age 70 to maximize spousal survivor benefits.

Tax Rate (2018): 22% Federal, 5% State
State of Residence: Maryland
Age: 60, spouse is 53.

Desired Asset allocation: We are deciding between a 65/35 or a 60/40 stocks/bonds allocation - see question below.
Desired International allocation: 20% of stocks? We’d like some advice on how much to hold in this asset class. We currently have ~14% in International funds.

Current assets:
Total current retirement savings (Federal Employee Thrift Savings Plan (TSP) and two Roth IRAs at Vanguard) ~ $1.2M, allocated as follows (percentages are based on the total portfolio). Our current asset allocation is 70/30 (the 30% includes 5% in money market funds that we would like to invest in something else – see question below).

Thrift Savings Plan (TSP--tax deferred)
28% - C Fund (Stocks of large and medium-sized U.S. companies; 0.038% expense)
17% - G Fund (Government Securities; 0.038% expense)
12% - S Fund (Stocks of small to medium-sized U.S. companies; 0.038% expense)
12% - I Fund (International stocks of more than 20 developed countries; 0.039% expense)
7% - F Fund (Government, corporate, and mortgage-backed bonds; 0.038% expense)

Roth IRA funds (all Vanguard)
9% - Total Stock Mkt Index Fund (Admiral shares) – VTSAX (0.04% expense)
4% - Mid-cap Index Fund (Admiral shares) – VIMAX (0.06% expense)
2% - REIT Index Fund (Admiral shares) – VGSLX (0.12% expense)
2% - Inflation Protected Securities (Investor shares) VIPSX (0.20% expense)
2% - Emerging Market Stock Index Fund (Admiral shares) VEMAX (0.14% expense)
5% - Prime Money Market Fund VMMXX (0.16% expense)

No taxable retirement accounts at this time.

New annual Contributions
$31,900 TSP ($18,500 + $6,000 catch-up + $7,400 employer match)
35% in C Fund
30% in G Fund
20% in I Fund
15% in S Fund
$6,500 his Roth IRA (currently going into Vanguard Prime money market fund)
$6,500 her Roth IRA (currently going into Vanguard Prime money market fund)
$15,000 taxable to Ally money market (for planned home improvements and other large expenses)

Questions:
1.How would you recommend investing the 5% ($60k) that is currently in our two Roth IRA money market funds? We would like to take advantage of the tax-free earnings capability in the Roth IRA’s and earn a decent return, since we won’t need the money in these funds for 10 to 20 years. However, we are currently over-allocated in equities (70/30) and the stock market is high, so it may not be a good time to buy stock funds unless there is a market correction this year. We are uneasy about putting the money in a bond fund, since interest rates are going up. The TSP’s G fund supposedly rises along with interest rates, and we are open to moving more money into the G fund in order to invest the Roth money market funds in something that’s earning a higher return. We prefer Vanguard funds, but are open to other options.

2.Should we change our stocks/bonds allocation in our retirement accounts to 60%/40% or 65%/35%, given that we have 10 years to retirement? And what percentage of our stock holdings should be allocated to international funds?

3.Can you recommend a good retirement calculator that will allow us to include our federal TSP fund assets and our Roth IRA holdings? We tried to use the Vanguard calculator and add our TSP assets (using the symbols for Vanguard’s Institutional funds that are equivalents), but the website wouldn’t work.

Thank you so much for any advice you have to offer.

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nedsaid
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Re: How to invest funds for retirement?

Post by nedsaid » Sat Jan 20, 2018 8:03 pm

Woodthrush wrote:
Sat Jan 20, 2018 5:48 pm
I am a married 60-year-old federal employee under the FERS retirement system (have 33 years in, but I hope and plan to work to around age 70). I am new to this forum and am grateful for the wisdom and help offered here.

Here is our current situation:
Emergency Funds: 8 months living expenses in Ally Bank money market and CD’s

Debt: 30-yr fixed Mortgage; 3.5% interest, $276K principal balance (~$150K equity in the house). No other debt.

Filing status: Married filing jointly. No children.

Combined household income: ~$160K, My federal employee income is $149k. I’m at the top of my pay scale for the position I’m in, so am not eligible for salary increases. But I do receive annual cost of living adjustments (usually 1 to 2%). My federal pension at age 70 would be approximately 42% of the average of my salary level for the prior 3 years. However, the pension for a surviving spouse is only half that (21%), so we would like to have enough savings to make sure my wife is provided for (especially as I am ~7 years older than her). I also plan to delay taking Social Security until age 70 to maximize spousal survivor benefits.

Tax Rate (2018): 22% Federal, 5% State
State of Residence: Maryland
Age: 60, spouse is 53.

Desired Asset allocation: We are deciding between a 65/35 or a 60/40 stocks/bonds allocation - see question below.

Nedsaid: John Bogle, the founder of Vanguard and the fellow for whom the forum is named after, says that a 65% stock and 35% bond portfolio is good for most investors. Keep in mind you will have both a Federal Pension and Social Security, so you can be a bit more aggressive. You also have a stable job.


Desired International allocation: 20% of stocks? We’d like some advice on how much to hold in this asset class. We currently have ~14% in International funds.

Nedsaid: Take your pick. My personal recommendation is that International be between 20% and 50% of your stocks. Personally, I am at 29%. Vanguard recommends 40%. I think 30% is probably about right. John Bogle says International is not necessary (I don't agree with this) but he recommends a maximum of 20% if you want International. As you can see, recommendations from people I respect are anywhere from zero to 50%. My belief is that you should have as a minimum 20%, 30% seems optimal. Anything above that doesn't seem to make much difference.

Current assets:
Total current retirement savings (Federal Employee Thrift Savings Plan (TSP) and two Roth IRAs at Vanguard) ~ $1.2M, allocated as follows (percentages are based on the total portfolio). Our current asset allocation is 70/30 (the 30% includes 5% in money market funds that we would like to invest in something else – see question below).

Thrift Savings Plan (TSP--tax deferred)
28% - C Fund (Stocks of large and medium-sized U.S. companies; 0.038% expense)
17% - G Fund (Government Securities; 0.038% expense)
12% - S Fund (Stocks of small to medium-sized U.S. companies; 0.038% expense)
12% - I Fund (International stocks of more than 20 developed countries; 0.039% expense)
7% - F Fund (Government, corporate, and mortgage-backed bonds; 0.038% expense)

Roth IRA funds (all Vanguard)
9% - Total Stock Mkt Index Fund (Admiral shares) – VTSAX (0.04% expense)
4% - Mid-cap Index Fund (Admiral shares) – VIMAX (0.06% expense)
2% - REIT Index Fund (Admiral shares) – VGSLX (0.12% expense)
2% - Inflation Protected Securities (Investor shares) VIPSX (0.20% expense)
2% - Emerging Market Stock Index Fund (Admiral shares) VEMAX (0.14% expense)
5% - Prime Money Market Fund VMMXX (0.16% expense)

No taxable retirement accounts at this time.

New annual Contributions
$31,900 TSP ($18,500 + $6,000 catch-up + $7,400 employer match)
35% in C Fund
30% in G Fund
20% in I Fund
15% in S Fund
$6,500 his Roth IRA (currently going into Vanguard Prime money market fund)
$6,500 her Roth IRA (currently going into Vanguard Prime money market fund)
$15,000 taxable to Ally money market (for planned home improvements and other large expenses)

Questions:
1.How would you recommend investing the 5% ($60k) that is currently in our two Roth IRA money market funds? We would like to take advantage of the tax-free earnings capability in the Roth IRA’s and earn a decent return, since we won’t need the money in these funds for 10 to 20 years. However, we are currently over-allocated in equities (70/30) and the stock market is high, so it may not be a good time to buy stock funds unless there is a market correction this year. We are uneasy about putting the money in a bond fund, since interest rates are going up. The TSP’s G fund supposedly rises along with interest rates, and we are open to moving more money into the G fund in order to invest the Roth money market funds in something that’s earning a higher return. We prefer Vanguard funds, but are open to other options.

Nedsaid: Interest rates are going up but at a slow rate. I am buying bonds even though I am not excited about them and interest rates are still relatively low. The key is to reinvest your interest. Your G fund does not fluctuate in Value but you get competitive interest rates. That is where I would put my bond money.

2.Should we change our stocks/bonds allocation in our retirement accounts to 60%/40% or 65%/35%, given that we have 10 years to retirement? And what percentage of our stock holdings should be allocated to international funds?

Nedsaid: 65/35 is a good mix. If you feel conservative, you can go to 60/40. As I said, you have a stable job and a pension with Social Security. The actuarial value of your Social Security is probably at least $350,000 to $400,000. My guess is that the actuarial value of your Pension is at least $500,000. So you have in effect a shadow bond portfolio getting closer to a million dollars.

3.Can you recommend a good retirement calculator that will allow us to include our federal TSP fund assets and our Roth IRA holdings? We tried to use the Vanguard calculator and add our TSP assets (using the symbols for Vanguard’s Institutional funds that are equivalents), but the website wouldn’t work.

Nedsaid: I subscribe to Morningstar and use their service to monitor my portfolios. Of course I have to manually change the share balances of my investments, but it isn't much work. I like using the portfolio X-Ray tool there. You can use the X-Ray for free but you can't save your portfolio unless you are a subscriber, so you have to re-enter everything each time you use it.

Thank you so much for any advice you have to offer.
A fool and his money are good for business.

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Peter Foley
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Re: How to invest funds for retirement?

Post by Peter Foley » Sat Jan 20, 2018 8:25 pm

While Nedsaid mentioned this, I would like to emphasize that with access to the G fund you do not need to hold bond funds in your Roth. I would add that 7% to the total stock market fund.

My personal opinion is that it is prudent to be a little more conservative around your retirement date. I would hold at 65% equities for now but would gradually reduce by 5% to 10% in the few years before you retire. A couple years after you retire you can reassess. This approach has been called a "Rising Equity Glide Path". Authors include Wade Pfau and Michael Kitces - both highly respected for their contributions to this forum.

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Duckie
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Re: How to invest funds for retirement?

Post by Duckie » Sat Jan 20, 2018 8:50 pm

Woodthrush wrote:How would you recommend investing the 5% ($60k) that is currently in our two Roth IRA money market funds? We would like to take advantage of the tax-free earnings capability in the Roth IRA’s and earn a decent return, since we won’t need the money in these funds for 10 to 20 years. However, we are currently over-allocated in equities (70/30) and the stock market is high, so it may not be a good time to buy stock funds unless there is a market correction this year. We are uneasy about putting the money in a bond fund, since interest rates are going up. The TSP’s G fund supposedly rises along with interest rates, and we are open to moving more money into the G fund in order to invest the Roth money market funds in something that’s earning a higher return. We prefer Vanguard funds, but are open to other options.
I would change your holdings to simplify and to get bonds out of the Roth IRAs. See below.
Should we change our stocks/bonds allocation in our retirement accounts to 60%/40% or 65%/35%, given that we have 10 years to retirement?
I think 60/40 is reasonable at this point. Later you may want to move to 50/50.
And what percentage of our stock holdings should be allocated to international funds?
Vanguard has found between 20% and 40% of stocks in international to be the "sweet spot". See the Vanguard paper link and the discussion. I usually split the difference and recommend 30% of stocks.

The following example has an AA of 60% stocks, 40% bonds, with 30% of stocks in international. That breaks down to 42% US stocks, 18% international stocks, and 40% bonds. You could have:

His Thrift Savings Plan -- 76%
28% (N/A) C Fund (0.038%)
8% (N/A) S Fund (0.038%)
40% (N/A) G Fund (0.038%)

His and her Roth IRAs at Vanguard -- 24%
6% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)
18% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)

My comments:
  • This puts all the bonds in the TSP. Generally it's better to put assets with lower expected growth (bonds) in pre-tax accounts and assets with higher expected growth (stocks) in Roth accounts.
  • This puts all the international stocks in the Roth IRAs (at least for now) because the I Fund is the only weak link in the TSP, being only developed markets.
  • This consolidates all the small percentage funds in the Roth IRAs into just two funds.
Just some possibilities.

retiredjg
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Re: How to invest funds for retirement?

Post by retiredjg » Sun Jan 21, 2018 9:32 am

Well, here's a post I never thought I'd make. :happy

I'm going to suggest that you consider (at least run some numbers) using Roth TSP for at least the next 7 years - while tax rates are lower than they might be later. I'm also going to suggest that you consider retiring earlier.

Here's the deal. You already have near $1 million dollars in tax-deferred money in the TSP and at the rate you are contributing, it will be over $1 million in a few years. When you hit 70.5, your first RMD will be close to 4% of that - let's just call it $40k. Let's say your pension will be $60k (which is probably conservative). And let's say your SS is $30k.

Even if these numbers are not terribly correct, it appears you will never drop into what is now the 12% tax bracket (which might revert to the 15% tax bracket in 7 years).

The biggest reason to use tax-deferral is that you may pay taxes in retirement at a lower rate than while working. I can't see how that will happen for you. Paying 22% now may be the lowest tax rate you will experience. If that turns out to be correct, there is no point in deferring taxes now. You might as well put it all into Roth TSP. There is no benefit to paying 22% later if you can pay the same 22% now and get the money into Roth.

Another thing to consider is that when one of you dies, the other is very likely to jump into a higher bracket simply because that person is single. The survivor may well move into the 24% bracket (which may revert to the 28% tax bracket).

About retiring earlier. Many people want to avoid or reduce their RMDs because the RMDs may be large enough to push them into a higher tax bracket even if they are not spending the money. They do it by doing Roth conversions of their pre-tax money usually up to the top of their current tax bracket (or IRMAA limit). Over time, this reduces the amount of pre-tax money subject to RMDs. The best time to do that is early retirement and before SS starts.

If you work till 70, you will not be able to do early Roth conversions to reduce your RMDs and you will also be getting the double tax torpedo of RMD and SS starting at the same time (in addition to your pension). Put bluntly, your income over 71 may just be too darn high. In addition to paying higher taxes, you will also be paying higher Medicare premiums. :(

I'm not sure I have this thought out completely for your situation (or any situation for that matter), but I'm suggesting these are things you need to look at and consider.

Here's one link that suggests that people who have a pension should consider using Roth TSP/401k instead of traditional. Be sure you read the links referred to in this article for the other side of the story (people without pensions).

https://thefinancebuff.com/most-tsp-par ... h-tsp.html

Here's a link that discusses Roth conversions in early retirement.

viewtopic.php?t=170477

At age 60, you have probably given little thought to RMDs or to Medicare premiums or anything else that happens after age 65. Now is a good time to get familiar - It could change your plans greatly.

The Wizard
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Re: How to invest funds for retirement?

Post by The Wizard » Sun Jan 21, 2018 10:35 am

retiredjg wrote:
Sun Jan 21, 2018 9:32 am
Well, here's a post I never thought I'd make. :happy
...
This is an excellent post.
OP is considering working for ten more years.
OP should start modelling their combined retirement income at some point. Normally I recommend doing this around five years prior to retirement, when certain numbers become realistic.
Use a spreadsheet that projects monthly income year by year.

There's nothing wrong with having higher taxable income in retirement compared to working years, together with higher Medicare IRMAA tiers.
But it's good to be aware of what's coming, not blindsided...
Attempted new signature...

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Peter Foley
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Re: How to invest funds for retirement?

Post by Peter Foley » Sun Jan 21, 2018 11:09 am

I agree with retiredjg's assessment.

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Watty
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Re: How to invest funds for retirement?

Post by Watty » Sun Jan 21, 2018 11:39 am

Woodthrush wrote:
Sat Jan 20, 2018 5:48 pm
2.Should we change our stocks/bonds allocation in our retirement accounts to 60%/40% or 65%/35%, given that we have 10 years to retirement? And what percentage of our stock holdings should be allocated to international funds?
Since you don't have a lot of retirement money in taxable accounts I think that you should really consider using Target Date 2025 fund in the Roth and the TSP equivalent of a Target Date 2025 fund. You would be 67 in 2025 and there is no guarantee that you will actually be able to work until you are 70 so I suggested that instead of a 2030 fund. This would be much easier to manage when you are older and might not be as financially capable or if a less financially knowledgeable spouse or kid had to manage it someday.

The main reasons not to use a target date fund are if you have to worry about tax efficiency because you also have retirement money in taxable accounts or if you don't have a good one in your 401k. In the right situation they are an excelent choice and not some dumbed down "investing for dummies" option that needs to be improved on. When I retired I moved almost all my investments into a target date fund.

One thing to watch out for is that the TSP has much less favorable inheritance rules than an IRA so you should look into the details of that. There was a post once where the poster had run into this situation.(the terminology may be a bit off)

1) Father had a large TSP.
2) He died and left it to his wife who left it as some sort of beneficiary participant account.
3) She died a few years later and left it to their kid.

The problem was that the beneficiary participant account could not be inherited as any sort of TSP or inherited IRA which forced the kid to withdraw all the money in a high tax bracket.

While either the Mom or Dad were living either of them could have rolled the money over into an IRA which the kid could have received as an inherited IRA and not only saved a lot of taxes but also had decades of taxed advantaged investing.

I don't know if that changed with the recent updates to the TSP but if not you may want to plan on rolling it out to an IRA at some point.

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nedsaid
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Re: How to invest funds for retirement?

Post by nedsaid » Sun Jan 21, 2018 2:48 pm

For your education, I would suggest reading through the various threads that discuss "Social Security as a bond". John Bogle has made come comments about this as well. The idea is that you could consider the actuarial value of your guaranteed income like Social Security and Pensions as a shadow bond and take this into account when you evaluate your asset allocation. I am saying this, not so that you will go out and invest very aggressively, but that you will feel better about your asset allocation. When you take into account the actuarial value of your guaranteed income, you are invested at more like 40% or 45% stocks rather than your current 70%. I think 65% stocks or 60% stocks in your investment portfolio (without taking into account your SS and pension) would be just fine because in reality you are invested more conservatively than that.

My understanding is that you have the option of annuitizing part or all of your Thrift Savings Plan upon retirement. What this means is that you can buy a pension with a portion of your Thrift Savings Plan. You will get a better deal here than going out into the insurance market to buy an annuity. Research shows that annuitizing a portion of your nest egg reduces the chances of running out of money in retirement.

Age 60 would be a good time to start considering your income streams in retirement. Run scenarios of retiring at different ages: maybe age 62, age 65, age 67, and age 70. Chances are pretty good you will be able to keep working until age 70 but odd things happen in life. I was laid off from a job at age 55 that I thought I would retire from. It sounds like that whatever happens, you and your spouse should be in good shape. Right now is a good time to do some planning.
A fool and his money are good for business.

retiredjg
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Re: How to invest funds for retirement?

Post by retiredjg » Sun Jan 21, 2018 3:18 pm

nedsaid wrote:
Sun Jan 21, 2018 2:48 pm
My understanding is that you have the option of annuitizing part or all of your Thrift Savings Plan upon retirement. What this means is that you can buy a pension with a portion of your Thrift Savings Plan. You will get a better deal here than going out into the insurance market to buy an annuity. Research shows that annuitizing a portion of your nest egg reduces the chances of running out of money in retirement.
I rarely disagree with something that nedsaid says, but this caught my eye. :happy

I've heard it said that you can get a better payout on a SPIA than by annuitizing your TSP. I don't know which is true so you would have to really check it out carefully, being sure you are comparing apples to apples.

But I also don't think it is necessary to even do this because there are already two annuity-like income streams anyway - the pension and SS. Anything you need over and above those could easily be taken out of the TSP or an IRA each month. There is no need to trade any of the TSP for an annuity that may or may not get used.

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nedsaid
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Re: How to invest funds for retirement?

Post by nedsaid » Sun Jan 21, 2018 3:31 pm

retiredjg wrote:
Sun Jan 21, 2018 3:18 pm
nedsaid wrote:
Sun Jan 21, 2018 2:48 pm
My understanding is that you have the option of annuitizing part or all of your Thrift Savings Plan upon retirement. What this means is that you can buy a pension with a portion of your Thrift Savings Plan. You will get a better deal here than going out into the insurance market to buy an annuity. Research shows that annuitizing a portion of your nest egg reduces the chances of running out of money in retirement.
I rarely disagree with something that nedsaid says, but this caught my eye. :happy

I've heard it said that you can get a better payout on a SPIA than by annuitizing your TSP. I don't know which is true so you would have to really check it out carefully, being sure you are comparing apples to apples.

But I also don't think it is necessary to even do this because there are already two annuity-like income streams anyway - the pension and SS. Anything you need over and above those could easily be taken out of the TSP or an IRA each month. There is no need to trade any of the TSP for an annuity that may or may not get used.
I am putting an option out there for the original poster. The point is that age 60 is a good time to think some things through in advance. It might be that he will have enough income from Social Security and Pension that annuitizing part of the TSP might not make sense. I did read about this option somewhere, I would think that the Federal Government has shopped around for immediate annuities and would get a better deal than what a retiree could get on his own. What I am thinking about is perhaps annuitizing 20% to 30% of the TSP if this makes sense. It is also a way of purchasing an additional survivor's benefit for his spouse.

In the final analysis, what we all want is retirement income. The original poster needs to calculate his pension and Social Security income he could get at various ages. He wants to retire at age 70 but it might not work out that way for him.

As far as the annuity, you can get an idea of the costs buy going to www.immediateannuities.com and seeing how much income you can purchase for a certain amount of money. I doubt he could find a better deal than the annuity option on the TSP.

Another possible reason for a partial annuitization is the issue of cognitive decline. It is also an issue of simplicity, many of us might not want to manage portfolios into our eighties. My parents are still living, they still have their marbles but certainly are not at their peak either physically or mentally.
A fool and his money are good for business.

retiredjg
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Re: How to invest funds for retirement?

Post by retiredjg » Sun Jan 21, 2018 3:43 pm

nedsaid wrote:
Sun Jan 21, 2018 3:31 pm
I would think that the Federal Government has shopped around for immediate annuities and would get a better deal than what a retiree could get on his own.
I thought that too. I'm a retired fed and I did look at annuitizing the TSP, but I never did any comparisons with other providers. However, I have read here that it was not the best deal available. I remember being surprised at that. Again,I have no idea if that statement was correct or not.

It is also a way of purchasing an additional survivor's benefit for his spouse.
Well yes and no. What I do remember from when I looked at this is that every benefit costs more. You have to pay for survivor's benefits (you pay by getting less a month for your annuity purchase). You have to pay for "if you die in 10 years, your heirs get the rest". Etc.

In the end, I decided to just take money as needed from an IRA (part of my TSP money) for a few years and decide later if I wanted to annuitize. In the end, I decided against it. It is too easy to get money from the IRA whenever I want it and my spending has been fairly different from year to year.

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nedsaid
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Re: How to invest funds for retirement?

Post by nedsaid » Sun Jan 21, 2018 3:56 pm

retiredjg wrote:
Sun Jan 21, 2018 3:43 pm
nedsaid wrote:
Sun Jan 21, 2018 3:31 pm
I would think that the Federal Government has shopped around for immediate annuities and would get a better deal than what a retiree could get on his own.
I thought that too. I'm a retired fed and I did look at annuitizing the TSP, but I never did any comparisons with other providers. However, I have read here that it was not the best deal available. I remember being surprised at that. Again,I have no idea if that statement was correct or not.

It is also a way of purchasing an additional survivor's benefit for his spouse.
Well yes and no. What I do remember from when I looked at this is that every benefit costs more. You have to pay for survivor's benefits (you pay by getting less a month for your annuity purchase). You have to pay for "if you die in 10 years, your heirs get the rest". Etc.

In the end, I decided to just take money as needed from an IRA (part of my TSP money) for a few years and decide later if I wanted to annuitize. In the end, I decided against it. It is too easy to get money from the IRA whenever I want it and my spending has been fairly different from year to year.
These type of decisions need to be thought through carefully. I hope people aren't rushing out to annuitize 20% to 30% of their nest eggs because I made a comment on an internet forum. Everyone's situation is different and there is not a one size fits all solution. As you said, the Original Poster should have good guaranteed income from Social Security and Pension. Many factors to consider. I just see this as one tool in the toolbox.

The problem is that Bogleheads are not representative of the population as a whole. We are a pretty financially savvy group here but a surprising number of people are amazingly clueless about personal finances. It is amazing how fast one can blow through a large nest egg, I have seen it happen particularly with inheritances.

One reason I bring this up is because I am considering this for myself, that is annuitizing 20% or so of my nest egg. I will get Social Security and a small pension. I have a cash balance pension that can be annuitized or rolled over into an IRA. I also have a small variable annuity that I might turn into a small pension. I may wind up just taking 4% withdrawals from the nest egg and forgo annuitizing anything.
A fool and his money are good for business.

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ps56k
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Re: How to invest funds for retirement?

Post by ps56k » Mon Jan 22, 2018 3:43 pm

interesting thread....
is there any kind of online tool or sample spreadsheets to work thru the retirement questions...

ie
- Income --> part time teacher W2 - teacher pension, Divs, Cap Gains, Interest, etc
- Expense - Medicare, real estate taxes, Fed taxes, State taxes, etc

[EDIT] ---> just ran across these Vanguard tools & links from another thread - will take a look -
https://personal.vanguard.com/us/insigh ... ment-tools
Last edited by ps56k on Mon Jan 22, 2018 4:30 pm, edited 2 times in total.

Woodthrush
Posts: 5
Joined: Thu Dec 28, 2017 10:44 pm

Re: How to invest funds for retirement?

Post by Woodthrush » Mon Jan 22, 2018 3:53 pm

Thank you so much for everyone's thoughtful suggestions! It's been most helpful. There's a lot of good information here that we are in the process of digesting. We will be replying with some follow-up questions and comments as soon as we can.

Thanks again!

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nedsaid
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Re: How to invest funds for retirement?

Post by nedsaid » Mon Jan 22, 2018 9:05 pm

Another factor to consider in your planning is the taxability of Social Security. You will be receiving good income in retirement, almost certainly 85% of your Social Security will be taxed on your Federal Return. My state does not tax Social Security income, not sure if this is true for other states as well.

While Bogleheads are a do-it-yourself forum, it might be worthwhile for you to pay a financial planner to run some numbers for you. There are some complex decisions made as you transition to retirement and most of these decisions are difficult if not impossible to reverse once made. You want to get it right the first time.

Tax planning is a little trickier. The tax cuts for individuals are not permanent. Hopefully Congress will make them permanent at some point but we don't know. You could run a couple of scenarios, one with current tax brackets just passed into law and another scenario with 2017 tax brackets.

You have picked a great time to start thinking about these things. Years ago, I remember a Physician remarking at a Rotary Club meeting that he needed to start planning for retirement. He was probably in his early fifties. I didn't say anything but I wondered why he waited so long before doing any planning for retirement. You are in good shape, you have time to run numbers and make course corrections before you retire.
A fool and his money are good for business.

Woodthrush
Posts: 5
Joined: Thu Dec 28, 2017 10:44 pm

Re: How to invest funds for retirement?

Post by Woodthrush » Sun Feb 04, 2018 3:20 pm

Nedsaid: 65/35 is a good mix. If you feel conservative, you can go to 60/40. As I said, you have a stable job and a pension with Social Security. The actuarial value of your Social Security is probably at least $350,000 to $400,000. My guess is that the actuarial value of your Pension is at least $500,000. So you have in effect a shadow bond portfolio getting closer to a million dollars
We greatly appreciated this insight and are interested in calculating the total value of my federal pension (under different expected lifespans, so we can see how my wife would fare with just a survivor benefit). We're assuming that you mean the present value of the pension? Can you or anyone else please recommend a good website/calculator for determining the present value of a federal pension, which would include estimated COLA adjustments? We'd like to get as accurate an estimate as possible.

Thanks very much

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