Seeking retirement/investment advice

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frugalminded
Posts: 2
Joined: Sat Apr 14, 2018 12:45 pm
Location: California

Seeking retirement/investment advice

Post by frugalminded » Sun Apr 15, 2018 10:13 am

I appreciate you taking the time to read this and offering advice as we are hoping to retire in the next few months and have a lot of decisions to make.
We plan to see a local, very well-respected fee-based financial planner next month but thought I'd put this up and learn from a Boglehead too.
Here it is:
Husband age 67.5
Wife 63.3
Our Social Security potential is just over $ 2 K per month (each) assuming we apply this year
Our retirement expenses are around $ 30 K/year. I have included $7 K per year for max out of pocket co-pay (from HSA) of our HDHP
We expect there will be additional expenses as we age since we will begin to have to hire people for home repairs etc. (Husband is carpenter)
Would like to travel but doesn't need to be extravagant- would be happy travelling the USA in a modest motor home.
We have two adult children ages 33 and 26. College and weddings are paid for. No grandchildren yet.
We don't buy new cars.
We have NO debt.
We do need to reserve about $ 50 K for deferred maintenance on our home.

Current assets:
2 homes near each other worth $800K each. Would prefer to keep both homes to pass down to children.
Second home (new roof :-) is a rental generating net annual income of approx. $ 30 K
$1.8 M in online banks earning 1.4%
$ 145 K in local banks earning peanuts
$ 316 K Schwab stocks (inherited from parent - I haven't touched them)
Retirement accounts: total of both husband and wife (invested in same funds)
Sep: $ 326 K VFIJX (100% bond)
Traditional: $ 197 K VFIJX (100% bonds)
Roth: $ 7,800 VFIIX (100% bonds)
TSP (US gov't) $ 134 K invested in G fund (lowest risk) A couple times, I moved it to C fund to catch an up tick - has worked out each time
$ 28 K inherited IRA American Funds (growth fund)
HSA: $ 47 K Has investment options which I would like to explore - thinking I would leave $15 K and invest the balance

If we retire this year, and wait to collect Social Security, our income from the second home would cover our living expenses (staying home).
My "pension" from US gov't job will net $300/ month after deduction for health plan and spouse annuity.
Husband self-employed. No pension. Just SEP IRA.
Our liquid assets generate an additional $ 18 K in taxable interest income (use this for travel etc?)
I realize that we made a big mistake keeping our IRA's in such conservative investments all these years but now might be the wrong time to get risky.
We live in high state tax California.

Questions:
1. When should either of us begin collecting Social Security? Waiting until 70 looks advantageous especially since it is not taxed.
2. When I called Vanguard they offered me a telephone consultation with a CFP because of the potential for moving a large amount of money to them.
Any opinions about the Vanguard CFP's?
3. How should we "reallocate"? I will have more time to learn after retirement but not sure I would become any more hands-on, so simplicity is best for
us. Are you able to recommend specific funds?
4. What fund should I move a portion of the HSA to?
Here are the Schwab/Vanguard options:
Schwab Fundamental US Large Company Index Fund SFLNX 7.00 17.05 17.05 9.73 14.77 8.95 8.44 4/2/2007 0.25
Vanguard 500 Index Fund Admiral Shares VFIAX 6.64 21.79 21.79 11.38 15.75 8.49 6.12 11/13/2000 0.04
Vanguard Dividend Appreciation Fund Investor Shares VDAIX 8.08 22.12 22.12 10.15 13.62 8.42 8.41 4/27/2006 0.17
Vanguard Small‐Cap Index Fund Admiral Shares VSMAX 5.10 16.24 16.24 9.84 14.43 9.68 9.41 11/13/2000 0.06
Vanguard Developed Markets Index Fund Admiral Shares VTMGX 4.45 26.40 26.40 8.93 8.28 2.34 4.56 8/17/1999 0.07
Vanguard Emerging Markets Stock Index Fund Admiral Shares VEMAX 6.29 31.38 31.38 7.51 3.49 1.29 6.45 6/23/2006 0.14
Vanguard Short‐Term Investment Grade Fund Investor Shares VFSTX ‐0.07 2.02 2.02 1.92 1.70 2.85 6.04 10/29/1982 0.20
Vanguard Long‐Term Bond Index Fund Investor Shares VBLTX 2.84 10.76 10.76 4.39 4.36 7.17 7.44 3/1/1994 0.15

5. Should we get long term care insurance? I am inclined to self-insure and instead join the Hemlock Society :-)

Thank you so much for you help!

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nedsaid
Posts: 9393
Joined: Fri Nov 23, 2012 12:33 pm

Re: Seeking retirement/investment advice

Post by nedsaid » Sun Apr 15, 2018 11:12 am

frugalminded wrote:
Sun Apr 15, 2018 10:13 am
I appreciate you taking the time to read this and offering advice as we are hoping to retire in the next few months and have a lot of decisions to make.
We plan to see a local, very well-respected fee-based financial planner next month but thought I'd put this up and learn from a Boglehead too.
Here it is:
Husband age 67.5
Wife 63.3
Our Social Security potential is just over $ 2 K per month (each) assuming we apply this year
Our retirement expenses are around $ 30 K/year. I have included $7 K per year for max out of pocket co-pay (from HSA) of our HDHP
We expect there will be additional expenses as we age since we will begin to have to hire people for home repairs etc. (Husband is carpenter)
Would like to travel but doesn't need to be extravagant- would be happy travelling the USA in a modest motor home.
We have two adult children ages 33 and 26. College and weddings are paid for. No grandchildren yet.
We don't buy new cars.
We have NO debt.
We do need to reserve about $ 50 K for deferred maintenance on our home.

Current assets:
2 homes near each other worth $800K each. Would prefer to keep both homes to pass down to children.
Second home (new roof :-) is a rental generating net annual income of approx. $ 30 K
$1.8 M in online banks earning 1.4%
$ 145 K in local banks earning peanuts
$ 316 K Schwab stocks (inherited from parent - I haven't touched them)
Retirement accounts: total of both husband and wife (invested in same funds)
Sep: $ 326 K VFIJX (100% bond)
Traditional: $ 197 K VFIJX (100% bonds)
Roth: $ 7,800 VFIIX (100% bonds)
TSP (US gov't) $ 134 K invested in G fund (lowest risk) A couple times, I moved it to C fund to catch an up tick - has worked out each time
$ 28 K inherited IRA American Funds (growth fund)
HSA: $ 47 K Has investment options which I would like to explore - thinking I would leave $15 K and invest the balance

If we retire this year, and wait to collect Social Security, our income from the second home would cover our living expenses (staying home).
My "pension" from US gov't job will net $300/ month after deduction for health plan and spouse annuity.
Husband self-employed. No pension. Just SEP IRA.
Our liquid assets generate an additional $ 18 K in taxable interest income (use this for travel etc?)
I realize that we made a big mistake keeping our IRA's in such conservative investments all these years but now might be the wrong time to get risky.
We live in high state tax California.

Questions:
1. When should either of us begin collecting Social Security? Waiting until 70 looks advantageous especially since it is not taxed.

Nedsaid: Social Security IS taxed, depending upon other sources of income outside of Social Security. Check into this, you might hire a CPA to do a little tax planning for you. You have a lot of money, and if it generates very much income, you may well be taxed on a portion of your Social Security Income. Go to the IRS website and do some searching around to educate yourself.

2. When I called Vanguard they offered me a telephone consultation with a CFP because of the potential for moving a large amount of money to them.
Any opinions about the Vanguard CFP's?

Nedsaid: I would go for it. Obviously some Financial Planners are better than others, but you will get some good general advice from them.

3. How should we "reallocate"? I will have more time to learn after retirement but not sure I would become any more hands-on, so simplicity is best for
us. Are you able to recommend specific funds?
4. What fund should I move a portion of the HSA to?
Here are the Schwab/Vanguard options:
Schwab Fundamental US Large Company Index Fund SFLNX 7.00 17.05 17.05 9.73 14.77 8.95 8.44 4/2/2007 0.25
Vanguard 500 Index Fund Admiral Shares VFIAX 6.64 21.79 21.79 11.38 15.75 8.49 6.12 11/13/2000 0.04
Vanguard Dividend Appreciation Fund Investor Shares VDAIX 8.08 22.12 22.12 10.15 13.62 8.42 8.41 4/27/2006 0.17
Vanguard Small‐Cap Index Fund Admiral Shares VSMAX 5.10 16.24 16.24 9.84 14.43 9.68 9.41 11/13/2000 0.06
Vanguard Developed Markets Index Fund Admiral Shares VTMGX 4.45 26.40 26.40 8.93 8.28 2.34 4.56 8/17/1999 0.07
Vanguard Emerging Markets Stock Index Fund Admiral Shares VEMAX 6.29 31.38 31.38 7.51 3.49 1.29 6.45 6/23/2006 0.14
Vanguard Short‐Term Investment Grade Fund Investor Shares VFSTX ‐0.07 2.02 2.02 1.92 1.70 2.85 6.04 10/29/1982 0.20
Vanguard Long‐Term Bond Index Fund Investor Shares VBLTX 2.84 10.76 10.76 4.39 4.36 7.17 7.44 3/1/1994 0.15

5. Should we get long term care insurance? I am inclined to self-insure and instead join the Hemlock Society :-)

Nedsaid: This is a difficult question. Premiums on these policies have been going up, even for the people who thought they had premium costs locked in many years ago. There are many fewer companies that offer this insurance and that should tell you something. Met Life exited the business a few years ago. Genworth is a big provider and check out their stock price.


Thank you so much for you help!
A fool and his money are good for business.

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CyclingDuo
Posts: 1327
Joined: Fri Jan 06, 2017 9:07 am

Re: Seeking retirement/investment advice

Post by CyclingDuo » Sun Apr 15, 2018 11:14 am

Trying to organize things a bit better for viewing...

Husband: 67.5
Wife: 63.3

Social Security potential $4K per month = $48,000 annual
2nd Home Rental Income = $30,000 annual
$1.8M generates online banks should with interest income at 1.4% = $25,000 annual
Pension Income = $3600 annual
$145K in bank earning current going rate = $435 annual

Potential Annual Income from the above sources: $107,035

Expenses $30 K/year (best to develop a full list of monthly expenses with needs, wants, and variable to include everything)

Reserve about $50 K for home maintenance. (already exists in your online banking accounts and bank account)

Current Non Portfolio assets:
2 homes near each other worth $800K each.
Second home (new roof :-) is a rental generating net annual income of approx. $30 K

Liquid Assets Portfolio

$1.8 M in online banks
$145 K in local banks
$316 K Schwab stocks (what is this account producing per year in dividends?)
SEP IRA: $326 K VFIJX (100% bond)
Traditional IR: $197 K VFIJX (100% bonds)
Roth IRA: $7,800 VFIIX (100% bonds)
TSP: $134 K invested in G fund
inherited IRA BDA: $28K American Funds (growth fund)
HSA: $47 K

Total Liquid Assets: $3,000,800

I realize that we made a big mistake keeping our IRA's in such conservative investments all these years but now might be the wrong time to get risky. We live in high state tax California.

Not necessarily a mistake at all! Study the glide path at this link: https://www.kitces.com/blog/managing-po ... -red-zone/

You have plenty of time to adjust your asset allocation for the retirement years to capture some growth that outpaces inflation over the next 2-3 decades, and cement your current assets to cover all of your needs as well as pass on an inheritance to your heirs.

1. When should either of us begin collecting Social Security? Waiting until 70 looks advantageous especially since it is not taxed.

You certainly have enough in your online bank accounts alone to fill the gap years of waiting to collect SS at age 70. Plenty of assets in all of the tax-deferred vehicles as well if needed before age 70 1/2 when the RMD's kick in. Just because you wait until you are age 70 to start collecting doesn't mean you won't be taxed on SS. SS is taxed on Federal Income Tax returns, and I think 7 states in the US are the only one's that don't tax it at the state income tax level.

2. When I called Vanguard they offered me a telephone consultation with a CFP because of the potential for moving a large amount of money to them. Any opinions about the Vanguard CFP's?

I'm sure they are fine. AUM fees are less at Vanguard than Fidelity or other planners. Bogleheads would caution that plenty of asset money managers would love to manage your account as they typically ask for an annual 1% of your portfolio value (that's usually for the first million, then sliding rates beyond that). That could easily cost you $30K a year which at this point, and looking at your assets doesn't seem to be needed if you have the time to read, learn, and DIY. Vanguard/Fidelity will charge less than 1%, but either way - you have to decide if paying $12-30K+ a year is worth it or not for you. It doesn't hurt to meet with them, speak with them for an initial consultation without signing anything. They will, with your amount of assets, hound you with phone calls and follow up emails as they will want that commission from the AUM fee. :mrgreen:

3. How should we "reallocate"? I will have more time to learn after retirement but not sure I would become any more hands-on, so simplicity is best for us. Are you able to recommend specific funds?

You've got plenty of time to learn, so there is no rush. Begin by reading the Wiki pages here at Bogleheads: https://www.bogleheads.org/wiki/Main_Page

Keeping it simple - Bogleheads use a Lazy Portfolio structure built on the Three Fund Portfolio (Domestic Stock Index Fund, International Stock Index Fund, and a Total Bond Fund). It's amazingly simple, effective, and easy to implement using the DIY method. Read about it here: https://www.bogleheads.org/wiki/Three-fund_portfolio

We would suggest reading about all of that as you and your husband have already "won the game" and are in great shape with your current assets. Well done! :beer

Going into retirement, many prefer to be at an allocation in the 30/70, 40/60, or even 50/50 (equity/bond) allocation. It all depends on one's asset levels, expenses, goals, debt, etc... . You've won the game, but even so - most recommend not going below at least 25% in equities out of your overall portfolio to provide growth. With the income you will get from SS, pension, and home rental alone which will cover your expenses - only you can determine an asset allocation that you can sleep with going forward. The glide path link above suggests 30/70 for you as you go into retirement, and slowly adjust that back up to 60/40 over the next 14-15 years.

4. What fund should I move a portion of the HSA to?

Probably the least of any worry for you at the moment, but we'll let others suggest that as everything should be viewed from the top down, overall portfolio asset allocation.

5. Should we get long term care insurance? I am inclined to self-insure and instead join the Hemlock Society :-)

Your level of assets look to be plenty to self-insure. Getting some of your assets in equity index funds for growth over the years would be what most would advise to cover any potential LTC self-insuring needs. You have plenty of time to read up on the pros and cons of LTC premiums, but you may have already crossed the age barrier point where the premiums are past the point of no return. Self-insuring with your asset base should not be difficult.

frugalminded
Posts: 2
Joined: Sat Apr 14, 2018 12:45 pm
Location: California

Re: Seeking retirement/investment advice

Post by frugalminded » Sun Apr 15, 2018 3:53 pm

Thank you both very much.
Organizing our portfolio the way you did was very helpful.
Meant to say SS is not taxed (yet) in California.
It sounds like you both agree to hold out for the higher SS income at 70. Would that be true for both of us or only my husband?
I will follow your links and return seeking more advice, like whether (or when) to convert to Roth.
I'm not sure what funds to use up first in retirement but maybe that will be answered in the links.
Thanks again!

Sandi_k
Posts: 640
Joined: Sat May 16, 2015 11:55 am
Location: SF Bay Area

Re: Seeking retirement/investment advice

Post by Sandi_k » Sun Apr 15, 2018 6:24 pm

frugalminded wrote:
Sun Apr 15, 2018 3:53 pm

It sounds like you both agree to hold out for the higher SS income at 70. Would that be true for both of us or only my husband?

Thanks again!
The typical answer for this question is for the lower-lifetime-earnings spouse to file at any time from age 62-67, and the higher-income spouse to delay until 70.

In that way, your SS earnings are converted to cash now, and possibly maximizing the future SS income - instead of as some future bet that may never be paid out for the two of you. You can then stash the payments for travel, or gifts to kids/grandkids, etc.

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CyclingDuo
Posts: 1327
Joined: Fri Jan 06, 2017 9:07 am

Re: Seeking retirement/investment advice

Post by CyclingDuo » Sun Apr 15, 2018 7:41 pm

frugalminded wrote:
Sun Apr 15, 2018 3:53 pm
Thank you both very much.
Organizing our portfolio the way you did was very helpful.
Meant to say SS is not taxed (yet) in California.
It sounds like you both agree to hold out for the higher SS income at 70. Would that be true for both of us or only my husband?
I will follow your links and return seeking more advice, like whether (or when) to convert to Roth.
I'm not sure what funds to use up first in retirement but maybe that will be answered in the links.
Thanks again!
Yes, the Wiki will provide you with lots of information, and then Bogleheads can answer any questions you come up with after reading and studying.

You should also go visit i-ORP (Optimal Retirement Planner) to plug in all of your information. It does a great job of optimizing and suggesting the order to use your funds in retirement.

Optimizing your SS between the two of you when you take it (one early, one at 70), spousal benefits for the lower earner first, then switching to full at 70, or both at FRA, or however you work it to best benefit is well worth reading about and looking into for your situation. Appears, at this point, it will be gravy no matter how you optimize it.

delamer
Posts: 4160
Joined: Tue Feb 08, 2011 6:13 pm

Re: Seeking retirement/investment advice

Post by delamer » Sun Apr 15, 2018 8:16 pm

With $3 million in liquid assets and just $30,000 in annual expenses, you could keep everything is a CD ladder and not have to worry about running out of money. Especially with your Social Security covering a huge portion of your expenses. And not to mention the net income from your rental.

In fact, you could double your annual spending and still be fine with the CD ladder.

So your investment decisions should reflect the above. If you want to grow your assets for your kids’ eventual inheritance, then be aggressive. If you want to not take risks because of fear of the unknown future, then be conservative.

But neither choice — or somewhere in between — will have any impact on your ability to live comfortably today.

And I will suggest that now is the time to gift money to your kids up to the federal annual cap. Let them enjoy the money while they are young, and not have to wait until they are retirement age themselves before they get access to it.

Actually, since you want to leave it to them anyway, give them the income from the rental now.

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