Financial review - early 80’s/late 70’s - $1.8m assets

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amandd
Posts: 1
Joined: Tue May 15, 2018 11:35 am

Financial review - early 80’s/late 70’s - $1.8m assets

Post by amandd » Tue May 15, 2018 11:41 am

Thanks in advance.
Over the last few years, as part of a move to be in a CCRC near their kids I’ve helped my parents move to a lower cost, fewer fund strategy. They had their assets spread across several brokerages, some with higher fees – they are still not fully consolidated yet.
Wanted to tell you where they are now, ask a few questions, and ask for any advice given their situation.

Emergency Fund, Debt and Income
Emergency funds: 12 months of cash in a brokerage account
Debt: none
Tax Filing Status: Married Filing Jointly
Income Tax Rate (2017): 28% Federal, 0% State
Effective Income Tax Rate (2017): 6.06% (strange year though, due to deductibility of CCRC buy in)
Ages: Him - Low 80’s / Her - High 70’s

Portfolio Review
Desired fund choice strategy: Three fund
Desired Asset allocation: 37.5/12.5/50 (US/INTL/BND)
Size of Portfolio (tax-advantaged, taxable and tax-free): 1.8m

Tax-advantaged assets (50.2%)
* His IRA(45%) at Vanguard
21.1% Vanguard Total Bond (VBTLX) (.05%)
19.1% Vanguard Total Stock (VTSAX) (.04%)
4.8% Vanguard Total International Stock (VGTSX) (.18%)
* Her IRA(3.5%) at Vanguard
1.6% Vanguard Total Bond (VBTLX) (.05%)
1.4% Vanguard Total Stock (VTSAX) (.04%)
0.3% Vanguard Total International Stock (VGTSX) (.18%)
* Her IRA(1.5%) at Ameriprise
Plan is to liquidate this account by focusing all her annual RMDs from this account until empty. Cash to be transferred to taxable, then invested per AA.

Tax-free assets (9.4%)
Funded these Roth IRAs with IRA dispersements the same tax year a large medical deduction for the CCRC buyin happened. Did reading, but didn’t ask specifically about this strategy ahead of time. Any comments?
* His Roth IRA(6.2%) at Vanguard
3.1% Vanguard Total Bond (VBTLX) (.05%)
2.5% Vanguard Total Stock (VTSAX) (.04%)
0.6% Vanguard Total International Stock (VGTSX) (.18%)
* Her Roth IRA(3.2%) at Vanguard
1.6% Vanguard Total Bond (VBTLX) (.05%)
1.3% Vanguard Total Stock (VTSAX) (.04%)
0.3% Vanguard Total International Stock (VGTSX) (.18%)

Taxable assets (22.7%)
* Her Taxable(18.6%) at Ameriprise
10.7% account 1 () (High%)
5.0% account 2 () (High%)
2.9% account 3 () (High%)
A series of misguided investments, with high fees. Across 3 different accounts. Fees hard to calculate.
Plan is to liquidate and transfer these to Vanguard joint taxable account – capital gains are not very much. Will just take the hit and pay taxes necessary – likely this calendar year.
* Joint Taxable(4.1%) at Vanguard
2.1% Vanguard Total Stock (VTSAX) (.04%)
1.6% Vanguard Total Bond (VBTLX) (.05%)
0.4% Vanguard Total International Stock (VGTSX) (.18%)

Taxable annuities (17.8%)
* Her Annuity(14.8%) at Vanguard
6.9% VVA - Total Bond Market Idx () (.44%)
6.4% VVA - Ttl Stock Market Idx () (.45%)
1.6% VVA - International () (.68%)
Transferred funds from from another firm’s annuity to Vanguard annuity during 2017. Current plan is to let that ride here…but would always listen to opinions.
* Her Annuity(1.6%) at Minnesota Life
1.6% WR Advisors Retirement Builder () (High%)
Would love advice on best step for this asset. Should we just transfer them to Vanguard, to lower fees, but stay in an annuity? Should we start a programmatic monthly withdrawal (her health is not great)? Should we withdraw the entire amount, and invest in taxable? (We believe the cost basis is $8K less than the contract value – so I believe that means we could take the entire amount, and pay taxes on about $8K of normal income)
* Her Annuity(1.4%) at Great American Insurance
1.4% Great American Insurance AssuranceSelect 7 Fixed-Indexed Annuity () (High%)
Would love advice on best step for this asset. Should we just transfer them to Vanguard, to lower fees, but stay in an annuity? Should we start a programmatic monthly withdrawal (her health is not great)? Should we withdraw the entire amount, and invest in taxable? (We believe the cost basis is $4K less than the contract value – so I believe that means we could take the entire amount, and pay taxes on about $4K of normal income)

Income via Social Security and Pension
His Social Security = ~$2,200
Her Social Security + Her Pension = ~$2,400
(Pension: No COLA. No rights of survivorship if she passes before him.)

Income needs from portfolio
Currently withdrawal rate is about 2% per year.
After one of them passes, they’ll likely need closer to 4% per year to make up for the lost income. (Assuming they don’t move into a smaller apartment at the CCRC)
Believe that would still be quite comfortable given their situation.

Long term care
They don’t have LTCI, but a few years ago they moved into a CCRC near family with a $600k buyin (0% refundable when deceased). In additional, monthly payment is ~$6k.
Additional costs for assisted living, skilled nursing or memory care – if needed in the future, are minimal.
About 35% of buyin was tax deductible as a medical expense.
>30% of monthly payment also is tax deductible as a medical expense each year (although that is calculated with a different formula by the CCRC)

Questions
  • Suggestions for Annuities
  • Asset allocation - any feedback on this, given their situation?
  • Any comments on Roth IRA funding that we did. (see above)
  • Balancing – currently I’ve just put all 3 funds in each account. Once I’ve consolidated all the funds, plan to make sure all bonds are in tax-advantaged, etc… Would love any comments about that. (This was just simpler during this transition)
  • Any other suggestions are welcome
Thank you.

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Duckie
Posts: 5792
Joined: Thu Mar 08, 2007 2:55 pm

Re: Financial review - early 80’s/late 70’s - $1.8m assets

Post by Duckie » Tue May 15, 2018 5:40 pm

amandd, welcome to the forum.
amandd wrote:Her IRA(1.5%) at Ameriprise
Plan is to liquidate this account by focusing all her annual RMDs from this account until empty. Cash to be transferred to taxable, then invested per AA.
How soon before this is empty? If longer than two years rolling to her TIRA at Vanguard would be better than leaving it at Ameriprise.
Her Annuity(1.6%) at Minnesota Life
1.6% WR Advisors Retirement Builder () (High%)
<snip>
Her Annuity(1.4%) at Great American Insurance
1.4% Great American Insurance AssuranceSelect 7 Fixed-Indexed Annuity () (High%)
Would love advice on best step for this asset. Should we just transfer them to Vanguard, to lower fees, but stay in an annuity?
I know very little about annuities, but if they choose to keep these two, transfer to Vanguard.
Balancing – currently I’ve just put all 3 funds in each account. Once I’ve consolidated all the funds, plan to make sure all bonds are in tax-advantaged, etc… Would love any comments about that. (This was just simpler during this transition)
Get the bonds out of taxable and the Roth IRAs. Her IRA, his Roth IRA, and her Roth IRA should hold only one fund. In fact, both his IRA and her IRA could be all VBTLX.

----------------------------

After shifting things around and moving to Vanguard, with an AA of 37/13/50 they could have:

Joint taxable at Vanguard -- 23%
19% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)
4% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)
0% (VWIUX) Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (0.09%) <-- Possible future use.

Her taxable annuity at Vanguard -- 18%
18% (N/A) VVA -- Total Stock Market Index Portfolio (0.45%)
0% (N/A) VVA - Total Bond Market Index Portfolio (0.44%) <-- Possible future use.

His Traditional IRA at Vanguard -- 45%
45% (VBTLX) Vanguard Total Bond Market Index Fund Admiral Shares (0.05%)

Her Traditional IRA at Vanguard -- 5%
5% (VBTLX) Vanguard Total Bond Market Index Fund Admiral Shares (0.05%)

His Roth IRA at Vanguard -- 6%
6% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)

Her Roth IRA at Vanguard -- 3%
3% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)

My comments:
  • Because the TIRAs have RMDs they are going to shrink, so they will need to put bonds somewhere else. I don't know whether it's better to put taxable bonds in the annuity or tax-exempt bonds in taxable, so I gave both options.
  • Avoid putting international in the annuity; it's too expensive.
Something to think about.

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