Please help with RMDs and asset allocation

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jhgeorgia
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Joined: Sat Jun 16, 2018 4:18 pm

Please help with RMDs and asset allocation

Post by jhgeorgia » Sun Jun 17, 2018 8:11 am

Thank you in advance for looking at my portfolio. I am a single female and will be 71 in July and will have to take RMD before the year's end. My RMD for this year will be about $12,500. My problem is I don't know which funds to take them from. Five years ago when I was going through a very difficult time I partnered with Vanguard PAS. MY first advisor was extremely helpful, but after a year he was promoted and I could never establish any kind of rapport with the new one. Every conversation with him ended with me feeling frustrated, so I ended that relationship and have been letting things ride for the past year.
My house ($240,000) and car (2012 Ford Fusion) are paid for. I receive $906.per month in SS which goes into a separate online account to pay taxes and insurance. I withdraw $1500. per month from Money Market A/C for expenses. Could I safely take more? All funds except laddered CD's and savings a/c are at Vanguard.

Taxable Accounts:
$100,000. Money Market and laddered CD's
$256,590 VTSAX (Total Stock Market)
$74,900 VTIAX (Total International Stock)

Traditional IRA:
$ 62,829 VFIDX (Intermediate Term Investment Grade Bonds)
$102,448 VBTLX (Total Bond Market Index)
$92,302 VTABX (Total International Bond Fund)
$19,197 VTIAX (Total International Stock)

Rollover IRA:
$42,704 VFSUX (Short Term Investment Grade Bonds)
$9,724 VTIAX (Total International Stock )

I also have 442 shares ($44,000.)of Microsoft (left over from a previous life). Should I sell it?
I hope I have provided enough information for you to offer some assistance. Thank you.

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ruralavalon
Posts: 13707
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Please help with RMDs and asset allocation

Post by ruralavalon » Sun Jun 17, 2018 12:17 pm

Welcome to the forum :) .

jhgeorgia wrote:
Sun Jun 17, 2018 8:11 am
Thank you in advance for looking at my portfolio. I am a single female and will be 71 in July and will have to take RMD before the year's end. My RMD for this year will be about $12,500. My problem is I don't know which funds to take them from. Five years ago when I was going through a very difficult time I partnered with Vanguard PAS. MY first advisor was extremely helpful, but after a year he was promoted and I could never establish any kind of rapport with the new one. Every conversation with him ended with me feeling frustrated, so I ended that relationship and have been letting things ride for the past year.
My house ($240,000) and car (2012 Ford Fusion) are paid for. I receive $906.per month in SS which goes into a separate online account to pay taxes and insurance. I withdraw $1500. per month from Money Market A/C for expenses. Could I safely take more? All funds except laddered CD's and savings a/c are at Vanguard.

Taxable Accounts:
$100,000. Money Market and laddered CD's
$256,590 VTSAX (Total Stock Market)
$74,900 VTIAX (Total International Stock)

Traditional IRA:
$ 62,829 VFIDX (Intermediate Term Investment Grade Bonds)
$102,448 VBTLX (Total Bond Market Index)
$92,302 VTABX (Total International Bond Fund)
$19,197 VTIAX (Total International Stock)

Rollover IRA:
$42,704 VFSUX (Short Term Investment Grade Bonds)
$9,724 VTIAX (Total International Stock )

I also have 442 shares ($44,000.)of Microsoft (left over from a previous life). Should I sell it?
I hope I have provided enough information for you to offer some assistance. Thank you.
Total portfolio = $805k
Fixed income = $400k = 49% of portfolio

Total stocks = $ 405k
International stocks = $104k = 26% of stocks

We take our Required Minimum Distribution automatically every month, and proportionately from each fund in my rollover IRA.

I believe that you can set up your Required Minimum Distributions ($12,500/year this year) to be taken automatically and proportionately from each fund in your traditional and rollover IRAs.

I believe you can set that up online, but our first year I felt more comfortable calling Vanguard to set up my Required Minimum Distributions.

The difficulty I see is that you have no domestic stocks in your traditional and rollover IRAs, so taking proportionately from each fund in the IRAs will throw off your domestic/international stock allocation leaving your domestic stock allocation higher.

In order to keep your desired domestic/international asset allocation take part of your $1,500/month ($18,000/year) withdrawal for expenses from Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) in your taxable account rather than all from the money market fund. (I haven't calculated how much to take from Vanguard Total Stock Market Index Fund in order to keep the asset allocation you have. I don't do spreadsheets.)


jhgeorgia wrote:
Sun Jun 17, 2018 8:11 am
My RMD for this year will be about $12,500. . . . .

. . . . I withdraw $1500. per month from Money Market A/C for expenses. Could I safely take more? . . . .
That is a total withdrawal of $30,500 per year.

If a safe withdrawal rate is 4%, then you could withdraw $32,200 per year total.

Wiki article, "Safe withdrawal rates".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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

Re: Please help with RMDs and asset allocation

Post by dbr » Sun Jun 17, 2018 3:20 pm

A general idea about withdrawing from investments is to use the withdrawal to point the asset allocation back to target. That does require looking at where things are and calculating how much to withdraw from what.

jhgeorgia
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Joined: Sat Jun 16, 2018 4:18 pm

Re: Please help with RMDs and asset allocation

Post by jhgeorgia » Sun Jun 17, 2018 5:50 pm

Thank you for your thoughtful responses. I will follow the given suggestions. When I asked about taking more than $18,000 per year I was not including the RMD. It's good to know that I do have some leeway. I just wondered if my asset allocation looks ok in general - especially the Tax Deferred accounts. It's hard to see bonds decline in value when they are supposed to be a safety net. Thanks again.

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: Please help with RMDs and asset allocation

Post by dbr » Sun Jun 17, 2018 8:07 pm

jhgeorgia wrote:
Sun Jun 17, 2018 5:50 pm
Thank you for your thoughtful responses. I will follow the given suggestions. When I asked about taking more than $18,000 per year I was not including the RMD. It's good to know that I do have some leeway. I just wondered if my asset allocation looks ok in general - especially the Tax Deferred accounts. It's hard to see bonds decline in value when they are supposed to be a safety net. Thanks again.
Don't worry about the bonds. The idea is for the portfolio as a whole to not have more ups and downs than you can accept. Bond ups and downs are much smaller than stock ups and downs (notice both still have downs along with the ups), so the more bonds and the less stocks the less agitation. There is no such thing as a usual investment portfolio that does not have ups and downs. A person might have a reason to put money where he can be absolutely sure of the value at all times, but that is not you or me in this case. Those people have to take special measures, but they know who they are and what to do.

Your portfolio seems fine in general. People can suggest hundreds of this change, that change that can be made to any portfolio, and it is not important. The only thing a little odd to my eye is so much in the money market. Also, you can sell the Microsoft if it doesn't cost a lot in taxes to do it, but keeping it is no big deal

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ruralavalon
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Location: Illinois

Re: Please help with RMDs and asset allocation

Post by ruralavalon » Sun Jun 17, 2018 9:23 pm

jhgeorgia wrote:
Sun Jun 17, 2018 5:50 pm
Thank you for your thoughtful responses. I will follow the given suggestions. When I asked about taking more than $18,000 per year I was not including the RMD. It's good to know that I do have some leeway. I just wondered if my asset allocation looks ok in general - especially the Tax Deferred accounts. It's hard to see bonds decline in value when they are supposed to be a safety net. Thanks again.
Yes, your asset allocation looks OK. In my opinion an asset allocation of 51/49 stocks/fixed income, with 26% of stocks in international stocks is fine at age 71.

Also the funds you have elected to use are reasonable, well diversified and with very low expense ratios.

For what it's worth, we are age 72 and have as asset allocation of 50/50 stocks/fixed income, with 25% of stocks in international stocks.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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BL
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Re: Please help with RMDs and asset allocation

Post by BL » Mon Jun 18, 2018 1:23 am

If both trad. and Rollover IRAs are in your name, you could combine them for simplicity.

If it just gets too difficult to think about, you could always exchange the individual funds in your IRA for a balanced fund of similar bond percentage, for example a Life Strategy Conservative, if that is close enough. I had a small IRA in a balanced fund, and there were no decisions on what to sell.

Or:
You could designate a certain % for each of the funds to be sold each time.

You probably could, as a different alternative, combine all bonds into one bond and all stocks into one stock fund (for example, total bond + total stock market). Then you could pull a % from each or just pull from one and replenish it by rebalancing. This might mean changing some funds in another account, international stock fund, for example.

jhgeorgia
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Joined: Sat Jun 16, 2018 4:18 pm

Re: Please help with RMDs and asset allocation

Post by jhgeorgia » Mon Jun 18, 2018 6:15 am

Thanks again. I have thought I had too much cash on hand, but it has also felt like a good safety net during uncertain times - maybe I don't need that since I have bonds and have to start RMDs this year. I do wonder if I should take the dividends from the bond funds monthly as part of RMDs or reinvest them as I do now?
Yes, I have considered selling MSFT. If I do so, should I place the funds?
Thanks again, such a great service this board offers .

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ruralavalon
Posts: 13707
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Location: Illinois

Re: Please help with RMDs and asset allocation

Post by ruralavalon » Mon Jun 18, 2018 7:07 am

jhgeorgia wrote:
Mon Jun 18, 2018 6:15 am
Thanks again. I have thought I had too much cash on hand, but it has also felt like a good safety net during uncertain times - maybe I don't need that since I have bonds and have to start RMDs this year. I do wonder if I should take the dividends from the bond funds monthly as part of RMDs or reinvest them as I do now?
Yes, I have considered selling MSFT. If I do so, should I place the funds?
Thanks again, such a great service this board offers .
I reinvest dividends in my rollover IRA, and that works fine when I have the RMDs taken proportionately from each fund in the rollover IRA.

If you sell Microsoft you could buy some Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04% in your taxable account.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

jhgeorgia
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Joined: Sat Jun 16, 2018 4:18 pm

Re: Please help with RMDs and asset allocation

Post by jhgeorgia » Mon Jun 18, 2018 5:13 pm

Once again, thank you for your insight and help.

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