Need Help with Mom’s Retirement Income

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more_cans
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Joined: Fri Jul 27, 2018 9:52 pm

Need Help with Mom’s Retirement Income

Post by more_cans » Mon Jul 30, 2018 4:17 am

We are seeking guidance for my mom’s retirement and we thank you in advance!

We have read the Getting Started and Laura’s Investment planning overview wiki pages. We feel overwhelmed and intimated with all the information; would it be possible to get some help?

Mom is retired. 70 years old. RMD started this year. Mom had Schwab Advisor services until the first quarter of 2018.

After Social Security, need $2150 income/month.

The following is the allocation for her holdings:

Taxable account and % of portfolio:
IVV iShares S&P 500 Index Fund 6.90%
IOO S&P global 100 index Fund 5.81%
EFA iShares MSCI EAFE Index Fund 10.46%
FNDC SCHWAB STRATEGI/SCHWAB FUNDAMENTAL 1.72%
XLF Financial Select Sector SPDR Fund 5.78%
VWO Vanguard Emerging Markets Stock Index Fd 7.60%
VNQ Vanguard Real Estate ETF 2.45%
VB Vanguard Small-Cap Index Fund 5.29%
DES WisdomTree U.S. SmallCap Dividend ETF 4.32%
GFAFX American Funds The Growth Fund of America® 7.12%
SKIRX DWS Enhanced Commodity Strategy Fund 4.34%
LGILX Laudus U.S. Large Cap Growth Fund 9.52%
PRBLX Parnassus Core Equity Fund 8.18%
VCADX Vanguard California Intermediate-Term Tax-Exempt 3.00%
VDIGX Vanguard Dividend Growth Fund 7.18%
Cash 10.33%


Rollover IRA and % of portfolio
SCHP TIPS 3.43%
VNQI Vanguard Global ex-U.S. Real Estate ETF 4.31%
VNQ Vanguard Real Estate ETF 3.38%
VSS FTSE Global Small Cap ex US Index 4.90%
TCMPX TimesSquare International Small Cap Fund 10.70%
GTLOX Glenmede Quantitative U.S. Large Cap Core Portfolio 2.43%
PONAX PIMCO Income Fund 15.39%
TGMEX TCW Emerging Markets Multi-Asset Opportunities Fund 5.15%
Cash (liquidated some poor performers) 50.30%


Goal is income/growth (if possible).

Mom has high risk tolerance.

When we converted her account is when we realized that she never had a Roth IRA account. :oops: Is it too late now?

Her dividend income from both accounts = roughly ~$850/month. She needs $2150 on a monthly basis.

Here are our questions:

1. How can we rebalance to get her closer to her monthly needs?
2. Her current tax bracket is 12%. Would it make sense to do some Roth conversion?
3. What should be liquidated if we can’t generate her monthly$?

Any and all thoughts and feedback is much appreciated!

LC

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celia
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Location: SoCal

Re: Need Help with Mom’s Retirement Income

Post by celia » Mon Jul 30, 2018 4:38 am

Need more information:
more_cans wrote:
Mon Jul 30, 2018 4:17 am
When we converted her account is when we realized that she never had a Roth IRA account. :oops: Is it too late now?
What do you mean by "converted". I didn't see any Roth IRAs in the list.

What is her desired Asset Allocation? What is the current Asset Allocation?

By just looking at the goals at a basic level, $2150/mo is $25,800 per year. If she lives another 30 years with no growth, her spendable assets would need to equal $774,000. Is she anywhere close to that?

If she is paying off a mortgage, how many years are left on that? and how much in living expenses would then be saved each year?

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BeBH65
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Re: Need Help with Mom’s Retirement Income

Post by BeBH65 » Mon Jul 30, 2018 5:02 am

The Portfolio is rather complicated and could possibly includes some expensive funds (could you add the ER Expense Ratios to each position).
What is her withdrawal rate with the $2150 that she needs per month? (what % of her portfolio does this represent per year?)
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

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Tamarind
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Re: Need Help with Mom’s Retirement Income

Post by Tamarind » Mon Jul 30, 2018 5:50 am

Welcome to the forum! Don't panic. You do not need to make this portfolio throw off $2150 in income by picking investments. You can use a total return strategy. Assuming 4% withdrawal rate (which I think is reasonable for 70), you'd need $625,000 to achieve the income you want sustainably. It would help if you can tell us roughly how much she has.

The way you do this is by also selling the winners with the highest expense ratios up to the amount you already sold in poor performers (assuming that means you sold those shares at a loss). You can have an incredibly simple portfolio, just 3 or 4 funds, that covers as much of the market as all that stuff Scwab had her in. She'll still get dividends, but she'll also sell some shares each month/year to make up the difference.

Does your estimate of the income you need include health care expenses?

If her nest egg is below $500,000, you are going to need to take some steps to reduce her expenses, or else she'll run short of money. Let us know as much as you can about her budget.

UncleBen
Posts: 284
Joined: Wed Feb 19, 2014 8:43 pm

Re: Need Help with Mom’s Retirement Income

Post by UncleBen » Mon Jul 30, 2018 5:56 am

more_cans wrote:
Mon Jul 30, 2018 4:17 am
We are seeking guidance for my mom’s retirement and we thank you in advance!

We have read the Getting Started and Laura’s Investment planning overview wiki pages. We feel overwhelmed and intimated with all the information; would it be possible to get some help?

Mom is retired. 70 years old. RMD started this year. Mom had Schwab Advisor services until the first quarter of 2018.

After Social Security, need $2150 income/month.

The following is the allocation for her holdings:

Taxable account and % of portfolio:
IVV iShares S&P 500 Index Fund 6.90%
IOO S&P global 100 index Fund 5.81%
EFA iShares MSCI EAFE Index Fund 10.46%
FNDC SCHWAB STRATEGI/SCHWAB FUNDAMENTAL 1.72%
XLF Financial Select Sector SPDR Fund 5.78%
VWO Vanguard Emerging Markets Stock Index Fd 7.60%
VNQ Vanguard Real Estate ETF 2.45%
VB Vanguard Small-Cap Index Fund 5.29%
DES WisdomTree U.S. SmallCap Dividend ETF 4.32%
GFAFX American Funds The Growth Fund of America® 7.12%
SKIRX DWS Enhanced Commodity Strategy Fund 4.34%
LGILX Laudus U.S. Large Cap Growth Fund 9.52%
PRBLX Parnassus Core Equity Fund 8.18%
VCADX Vanguard California Intermediate-Term Tax-Exempt 3.00%
VDIGX Vanguard Dividend Growth Fund 7.18%
Cash 10.33%


Rollover IRA and % of portfolio
SCHP TIPS 3.43%
VNQI Vanguard Global ex-U.S. Real Estate ETF 4.31%
VNQ Vanguard Real Estate ETF 3.38%
VSS FTSE Global Small Cap ex US Index 4.90%
TCMPX TimesSquare International Small Cap Fund 10.70%
GTLOX Glenmede Quantitative U.S. Large Cap Core Portfolio 2.43%
PONAX PIMCO Income Fund 15.39%
TGMEX TCW Emerging Markets Multi-Asset Opportunities Fund 5.15%
Cash (liquidated some poor performers) 50.30%


Goal is income/growth (if possible).

Mom has high risk tolerance.

When we converted her account is when we realized that she never had a Roth IRA account. :oops: Is it too late now?
You cannot contribute to a ROTH IRA if you don't have earned income unless you are married to a spouse that has earned income.
Her dividend income from both accounts = roughly ~$850/month. She needs $2150 on a monthly basis.

Here are our questions:

1. How can we rebalance to get her closer to her monthly needs? We know that she needs $2150 after SS, $1300 after dividends. What we don't know is what her RMD is. It may cover all her needs. The more important question is "Will her portfolio sustain a $2150/month withdrawal for her lifetime"?
2. Her current tax bracket is 12%. Would it make sense to do some Roth conversion?3. What should be liquidated if we can’t generate her monthly$? Knowing the expense ratios and capital gains of each fund would help and answer that question.

Any and all thoughts and feedback is much appreciated!

LC
The first important consideration is to determine if mom's investments can safely support $2150/month. In other words "does she have $645k. If not can she reduce her monthly spending?

Secondly, in changing her investments, she/you must decide what her desired stock/bond ratio will be given both her age and high risk tolerance. Then you can look at how to rebalance and decide what to keep and sell. And of course that should be done with a goal to simplify as much as possible.

You are off to a great start and your mom is lucky to have your help. You'll get more specific advice from some great people as you work through the additional information and provide more details.
Last edited by UncleBen on Mon Jul 30, 2018 7:22 am, edited 1 time in total.

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Tamarind
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Re: Need Help with Mom’s Retirement Income

Post by Tamarind » Mon Jul 30, 2018 6:17 am

UncleBen wrote:
Mon Jul 30, 2018 5:56 am
more_cans wrote:
Mon Jul 30, 2018 4:17 am
When we converted her account is when we realized that she never had a Roth IRA account. :oops: Is it too late now?
You cannot contribute to a ROTH IRA if you don't have earned income unless you are married to a spouse that has earned income.

[...]

2. Her current tax bracket is 12%. Would it make sense to do some Roth conversion? You cannot convert something you do not have. I suspect you meant to ask if it makes sense to sell some of her taxable investments to take advantage of her low tax bracket.
Presumably she could convert her rollover IRA to Roth, though it might not make sense. We don't know enough yet to answer that. I don't think you missed anything by not doing this, OP, as it would be best to convert a bit at a time with attention to her needs and tax rate.

UncleBen
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Re: Need Help with Mom’s Retirement Income

Post by UncleBen » Mon Jul 30, 2018 7:24 am

Tamarind wrote:
Mon Jul 30, 2018 6:17 am
UncleBen wrote:
Mon Jul 30, 2018 5:56 am
more_cans wrote:
Mon Jul 30, 2018 4:17 am
When we converted her account is when we realized that she never had a Roth IRA account. :oops: Is it too late now?
You cannot contribute to a ROTH IRA if you don't have earned income unless you are married to a spouse that has earned income.

[...]

2. Her current tax bracket is 12%. Would it make sense to do some Roth conversion? You cannot convert something you do not have. I suspect you meant to ask if it makes sense to sell some of her taxable investments to take advantage of her low tax bracket.
Presumably she could convert her rollover IRA to Roth, though it might not make sense. We don't know enough yet to answer that. I don't think you missed anything by not doing this, OP, as it would be best to convert a bit at a time with attention to her needs and tax rate.
Yes, she could I corrected that comment on my post. And yes it might make sense.

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celia
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Location: SoCal

Re: Need Help with Mom’s Retirement Income

Post by celia » Mon Jul 30, 2018 1:32 pm

UncleBen wrote:
Mon Jul 30, 2018 5:56 am
more_cans wrote:
Mon Jul 30, 2018 4:17 am
When we converted her account is when we realized that she never had a Roth IRA account. :oops: Is it too late now?
You cannot contribute to a ROTH IRA if you don't have earned income unless you are married to a spouse that has earned income.
OP never mentioned Roth contributions. We're not even sure there was a conversion to Roth either as there is no Roth listed as an asset.
UncleBen wrote:
Her dividend income from both accounts = roughly ~$850/month. She needs $2150 on a monthly basis.

Here are our questions:

1. How can we rebalance to get her closer to her monthly needs?
We know that she needs $2150 after SS, $1300 after dividends. What we don't know is what her RMD is. It may cover all her needs. The more important question is "Will her portfolio sustain a $2150/month withdrawal for her lifetime"?[
The first thing that needs to be considered are her RMDs. At age 70.5 they start at 3.65% of the previous year-end value of the IRA. In following years, the percentage goes up slightly. (Technically, there is a divisor for each year.) Since the account can also grow during this time, even when the RMD is being taken, the account value increases until the RMDs are more than the yearly growth. But this traditional R/O IRA won't grow much if 50% of it is left in cash. Note the every dollar withdrawn from the Traditional Rollover IRA will be taxed as ordinary income for the year it was withdrawn.

It also needs to be noted that any asset spent down will no longer be able to generate dividends or interest.

UncleBen wrote:
2. Her current tax bracket is 12%. Would it make sense to do some Roth conversion?3. What should be liquidated if we can’t generate her monthly$?
Knowing the expense ratios and capital gains of each fund would help and answer that question.
Note that capital gains/losses are only relevant in the taxable account. There was a suggestion to take capital gains up to the amount of capital losses already incurred this year, but that only applies to gains and losses in the taxable account.

OP, I also noticed that the assets in the taxable account don't add up to 100%, only 89.57% Did you accidentally omit 10%?

delamer
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Re: Need Help with Mom’s Retirement Income

Post by delamer » Mon Jul 30, 2018 4:40 pm

You should familiarize yourself with the concept of “safe withdrawal rates” as outlined in this section of the Bogleheads wiki: https://www.bogleheads.org/wiki/Safe_withdrawal_rates

In your mother’s case, her safe withdrawal rate is between 4% and 5% of her portfolio. She can’t restrict her withdrawals to interest and dividends thrown off by her portfolio. She won’t get to her desired $2150 per month with just interest/dividends by changing her portfolio — given that the current portfolio is only throwing off $850.

She needs to accept that she has to sell some assets. But if done carefully, she won’t run out of money even so.

As others have indicated, she needs a portfolio of about $600,000 to give her the desired income. If she has less than that, she’ll need to figure out a way to reduce expenses. My guess is that her portfolio is around $400,000, unfortunately.

And remember that she’ll owe some federal (and maybe state) income taxes too.

Jablean
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Re: Need Help with Mom’s Retirement Income

Post by Jablean » Mon Jul 30, 2018 5:24 pm

How did you come to the conclusion of how much she needs per month? Is this what she's been spending? Is she getting her social security amount or is she using her spouse's amount?

more_cans
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Re: Need Help with Mom’s Retirement Income

Post by more_cans » Tue Jul 31, 2018 2:46 am

celia wrote:
Mon Jul 30, 2018 4:38 am
Need more information:
What do you mean by "converted". I didn't see any Roth IRAs in the list. My mistake. Rolled over 401K...

What is her desired Asset Allocation? What is the current Asset Allocation? Please see new post below.

By just looking at the goals at a basic level, $2150/mo is $25,800 per year. If she lives another 30 years with no growth, her spendable assets would need to equal $774,000. Is she anywhere close to that? eh.... :|

If she is paying off a mortgage, how many years are left on that? and how much in living expenses would then be saved each year? Housing is accounted for and won't change. :happy
BeBH65 wrote:
Mon Jul 30, 2018 5:02 am
The Portfolio is rather complicated and could possibly includes some expensive funds (could you add the ER Expense Ratios to each position). Yes! I see some eye sores in fees. Please see additional post below with the details.
What is her withdrawal rate with the $2150 that she needs per month? (what % of her portfolio does this represent per year?) 9% if strictly from rollover IRA (hoping I did it right).
Tamarind wrote:
Mon Jul 30, 2018 5:50 am
Welcome to the forum! Don't panic. You do not need to make this portfolio throw off $2150 in income by picking investments. You can use a total return strategy. Assuming 4% withdrawal rate (which I think is reasonable for 70), you'd need $625,000 to achieve the income you want sustainably. It would help if you can tell us roughly how much she has. Okay! The support is helping. :D Well, if we combine both accounts, she is close to $625,000. Breakdown of figures in additional post below.

The way you do this is by also selling the winners with the highest expense ratios up to the amount you already sold in poor performers (assuming that means you sold those shares at a loss). You can have an incredibly simple portfolio, just 3 or 4 funds, that covers as much of the market as all that stuff Scwab had her in. She'll still get dividends, but she'll also sell some shares each month/year to make up the difference. Would love to simplify and have just 3-4 funds!

Does your estimate of the income you need include health care expenses? Yes, it does. :)

If her nest egg is below $500,000, you are going to need to take some steps to reduce her expenses, or else she'll run short of money. Let us know as much as you can about her budget. Eh, trying to get her on board with budgeting. :wink:
Tamarind wrote:
Mon Jul 30, 2018 6:17 am
Presumably she could convert her rollover IRA to Roth, though it might not make sense. We don't know enough yet to answer that. I don't think you missed anything by not doing this, OP, as it would be best to convert a bit at a time with attention to her needs and tax rate. Indeed, haven't taken action as we want to ensure it doesn't bump her up to the next tax bracket - unless we are doing it intentionally.
UncleBen wrote:
Mon Jul 30, 2018 5:56 am
The first important consideration is to determine if mom's investments can safely support $2150/month. In other words "does she have $645k. If not can she reduce her monthly spending? Combined accounts, close but no cigar. :( .

Secondly, in changing her investments, she/you must decide what her desired stock/bond ratio will be given both her age and high risk tolerance. Then you can look at how to rebalance and decide what to keep and sell. And of course that should be done with a goal to simplify as much as possible. She has a bigger risk tolerance than I do. Included the target allocation in new post below.

You are off to a great start and your mom is lucky to have your help. You'll get more specific advice from some great people as you work through the additional information and provide more details. Appreciate the support and thank you! :beer
delamer wrote:
Mon Jul 30, 2018 4:40 pm
You should familiarize yourself with the concept of “safe withdrawal rates” as outlined in this section of the Bogleheads wiki: https://www.bogleheads.org/wiki/Safe_withdrawal_rates Will do. TY.

In your mother’s case, her safe withdrawal rate is between 4% and 5% of her portfolio. She can’t restrict her withdrawals to interest and dividends thrown off by her portfolio. She won’t get to her desired $2150 per month with just interest/dividends by changing her portfolio — given that the current portfolio is only throwing off $850.

She needs to accept that she has to sell some assets. But if done carefully, she won’t run out of money even so.

As others have indicated, she needs a portfolio of about $600,000 to give her the desired income. If she has less than that, she’ll need to figure out a way to reduce expenses. My guess is that her portfolio is around $400,000, unfortunately.

And remember that she’ll owe some federal (and maybe state) income taxes too.
Hoping I miscalculated her withdraw rate from her rollover IRA, cause it's at 9% and it'll last only 15 years with 4% return. We understand selling will need to be done, hoping to have an action plan so we can reposition this for her with her best interest in mind. Her rollover IRA portfolio is $285,000. We have taxes withholding.
celia wrote:
Mon Jul 30, 2018 1:32 pm
OP never mentioned Roth contributions. We're not even sure there was a conversion to Roth either as there is no Roth listed as an asset. No Roth. Misused the term "conversion." Rolled over 401K to rollover IRA.

The first thing that needs to be considered are her RMDs. At age 70.5 they start at 3.65% of the previous year-end value of the IRA. In following years, the percentage goes up slightly. (Technically, there is a divisor for each year.) Since the account can also grow during this time, even when the RMD is being taken, the account value increases until the RMDs are more than the yearly growth. But this traditional R/O IRA won't grow much if 50% of it is left in cash. Note the every dollar withdrawn from the Traditional Rollover IRA will be taxed as ordinary income for the year it was withdrawn. Current RMD is $15,000. Agreed, definitely won't grow much with it as cash. Goal is to reposition from recent liquidation. :mrgreen:

It also needs to be noted that any asset spent down will no longer be able to generate dividends or interest.

Note that capital gains/losses are only relevant in the taxable account. There was a suggestion to take capital gains up to the amount of capital losses already incurred this year, but that only applies to gains and losses in the taxable account.

OP, I also noticed that the assets in the taxable account don't add up to 100%, only 89.57% Did you accidentally omit 10%? Great catch, I am going to summarize and include the updated figures in a new post below. Thank you!
Jablean wrote:
Mon Jul 30, 2018 5:24 pm
How did you come to the conclusion of how much she needs per month? Is this what she's been spending? Is she getting her social security amount or is she using her spouse's amount?
Used EOY summary and reviewed $in/out of accounts. :sharebeer

more_cans
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Joined: Fri Jul 27, 2018 9:52 pm

Re: Need Help with Mom’s Retirement Income

Post by more_cans » Tue Jul 31, 2018 3:14 am

You guys are amazing. Thank you everyone for the support and the guidance. I hope I responded to the questions/clarifications that was requested in the last 24 hours. If I missed any (my apologies), please let me know and I’ll respond to the best of my ability.

And here we go… I had most of the information in my original draft and I watered it down thinking it be easier to read. My bad.

From the comments, I’ve included clarification and additional information:

Assets:
$327,000 taxable account
$285,000 rollover IRA

~$612000 total (today’s balance)

$15,000 RMD = $1250/month
$2150 income needed - $1250 monthly RMD = $898.00 income/dividend needs

$2150 monthly withdraw from rollover IRA = 9% yearly withdraw rate… based on 4% annual return… will deplete the rollover IRA in 15 years (bankrate.com calculator) — that’s with favorable market conditions, before we access the taxable account and overly simplified. Expenses was confirmed with a revisit of EOY 2017 summary for an average of monthly expense figures - including housing (which will not change). We can trim a couple hundred here and there, however, left as is to act as a mini buffer for unexpected expenses.

Combined accounts current allocation (outdated as of yesterday, this was before today’s losses):
59.92% stocks
9.02% fixed income
2.32% commodities
1.02% alternatives
27.40% cash
.33% not classified

Desired allocation (moderately aggressive - open to thoughts/feedbacks - mom has always been a dare devil):
61% stocks
29% fixed income
5% commodities
5% cash


Individual

IVV iShares S&P 500 Index
Portfolio %: 6.89%
ER: 0.04
Gain/Loss: 130.69%

IOO S&P global 100
Portfolio %:5.83%
0.4
46.74%

EFA iShares MSCI EAFE Index Fund
Portfolio %: 10.51%
0.32
30.62

FNDC SCHWAB STRATEGIES/SCHWAB FUNDAMENTAL
Portfolio %:1.72%
0.39
11.07%

XLF Financial Select Sector SPDR Fund
5.81%
0.13
22.23%

VWO Vanguard Emerging Markets Stock Index Fd
7.62%
0.14
9.82%

VNQ Vanguard Real Estate ETF
2.46%
0.12
30.84%

VB Vanguard Small-Cap Index Fund
5.28%
0.05
116.24%

DES WisdomTree U.S. SmallCap Dividend ETF
4.35%
0.38
13.69%

GFAFX American Funds The Growth Fund of America® Class F-1
7.08%
0.7
23.70%

SKIRX DWS Enhanced Commodity Strategy Fund
4.38%
1.18
2.39%

LGILX Laudus U.S. Large Cap Growth Fund
9.37%
0.76
49.26%

PRBLX Parnassus Core Equity Fund
8.16%
0.87
35.53%

VCADX Vanguard California Intermediate-Term Tax-Exempt
3.02%
0.09
-1.27%

VDIGX Vanguard Dividend Growth Fund
7.17%
0.26
54.77%

BABA
2.82%
98.99%

Cash 7.52%


Rollover IRA
SCHP TIPS
Portfolio %:3.43%
ER: 0.05
Gain/Loss: -1.82%

VNQI Vanguard Global ex-U.S. Real Estate ETF
4.32%
0.14
6.38%

VNQ Vanguard Real Estate ETF
3.39%
0.12
-0.71%

VSS FTSE Global Small Cap ex US Index
4.90%
0.13
10.10%

TCMPX TimesSquare International Small Cap Fund
10.67%
1.24
10.46%

GTLOX Glenmede Quantitative U.S. Large Cap Core Portfolio
2.42%
0.86
15.09%

PONAX PIMCO Income FundÂ
15.41%
0.93
-2.18%

TGMEX TCW Emerging Markets Multi-Asset Opportunities Fund
5.12%
1.96
9.21%

Cash
50.35%
_____

Goal is income/growth (if possible).

Mom has high risk tolerance.

Her uninvested dividend income from both accounts = roughly ~$850/month.

It be great if we can explore simplifying her portfolio while sustaining her positions before tapping into her taxable account. Unless it makes sense to for tax purposes? Slow conversion to Roth if it is advisable would be great for future withdraw w/o taxes on growth.

Any and all thoughts and feedback is much appreciated. Once again, very appreciative of the responses and reach outs.

LC

gostars
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Re: Need Help with Mom’s Retirement Income

Post by gostars » Tue Jul 31, 2018 4:38 am

Can you elaborate on the high risk tolerance? The way I see it, she's already in excess of the 4% withdrawal rate and has a beyond aggressive asset allocation for someone already in retirement. If the stock market tanks tomorrow and $200k flies out the window, then that becomes a 6% rate, and she's going to have to switch to a high-ramen diet to survive, and all that salt won't be good for her heart. I'd start back cutting back the allocation to 50/50, which is still very aggressive for the situation, but buys some extra time in the event of a crash. Everything in the IRA goes and gets replaced with fixed income, split between an aggregate bond fund and maybe a good money market like VMMXX at Vanguard. Taxable gets the leftover fixed income, probably in aggregate bond, because there's no point in munis in a low bracket. Rest of the cash goes in to the typical US and international funds, and you sell off the miscellaneous junk up to the top of the 0% LTCG bracket each year and replace with US and international funds, or use that to supplement the RMDs. Start with all the mutual funds and real estate, and then work your way on to the ETFs starting with the higher ERs. In good years for the market, take RMDs from the IRA and nothing more, then supplement from taxable. If stocks crash, draw more from the IRA.

Roth conversions aren't even a thought here; the whole point of them is to take advantage of a lower current tax bracket compared to a higher future tax bracket, such as what many people have after they retire but before they start collecting SS and RMDs. Once those have started, it's too late.

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Tamarind
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Re: Need Help with Mom’s Retirement Income

Post by Tamarind » Tue Jul 31, 2018 5:00 am

Thanks for coming back, OP. I'll post again when I'm more awake with an example of how you can arrange these holdings for simplicity. Others are bound to have good advice on drawing from taxable vs the IRA (seems like since the RMDs are smaller than your needs, there's no particular incentive to do Roth conversions).

Did you/your mom sell any holdings in the *taxable* account this year? What is the total loss or gain on what's been sold?

There's definitely going to be budgeting involved, but she won't have to trim too much, sounds like.

We do also need to know how much income she has from what sources (to do tax estimates). How much is her SS? Any other income not from this portfolio?

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vineviz
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Re: Need Help with Mom’s Retirement Income

Post by vineviz » Tue Jul 31, 2018 7:11 am

more_cans wrote:
Tue Jul 31, 2018 3:14 am
You guys are amazing. Thank you everyone for the support and the guidance. I hope I responded to the questions/clarifications that was requested in the last 24 hours. If I missed any (my apologies), please let me know and I’ll respond to the best of my ability.

And here we go… I had most of the information in my original draft and I watered it down thinking it be easier to read. My bad.

From the comments, I’ve included clarification and additional information:

Assets:
$327,000 taxable account
$285,000 rollover IRA

~$612000 total (today’s balance)

$15,000 RMD = $1250/month
$2150 income needed - $1250 monthly RMD = $898.00 income/dividend needs
Hey there,

First, I think sticking with the RMD in the IRA account is wise if your mom intends for it to last her lifetime. Obviously you can't take out less, but not taking out more if you can avoid it is probably smart. I think her RMD now is a little less than $15,000 per year so you should check it based on her actual birthday. But let's say that's $1250/month as you calculate.

To get the other $898 I'd seriously investigate converting some of the taxable account money into a single premium immediate annuity (SPIA). Most annuities are a bad deal in my opinion, but an SPIA might be right for your mom especially if you guys aren't worried about her dying earlier than average AND you don't need to inherit the money. You'd need to get a quote, but I estimate you can probably get the $900 monthly income you need by converting $150k of the taxable into a SPIA with no cash payout. A SPIA will guarantee (for her lifetime) a payout a much higher percentage of the portfolio than your mom could otherwise safely withdrawal, with the caveat that the heirs probably won't get much of that money. For someone right at the margin of having enough money for retirement, like your mom, that's often a smart trade.

That would leave you with the other $177k in taxable to invest according to your desired allocation.

I'd invest what remains in the taxable account after purchasing the annuity primarily in a broad stock market fund like Vanguard Total World Stock Index Fund Investor Shares (VTWSX) [or the equivalent ETF] and then balance your overall desired asset allocation with the holdings in the IRA. That would mean the IRA is 40% stock/60% bond

Assuming the SPIA is $150k, the taxable account is $177k, and the IRA is $285k:

Taxable
>>100% in Vanguard Total World Stock Index Fund Investor Shares (VTWSX)

IRA
>>100% in Vanguard LifeStrategy Conservative Growth Fund (VSCGX)
OR
>>40% Vanguard Total World Stock Index Fund Investor Shares (VTWSX)
>>60% Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)

The combined allocation of taxable and IRA is 60/40 as you requested.

Any RMDs that don't need to be spent can be deposited into the taxable account. Her allocation will likely become MORE equity heavy as she ages, but since she really shouldn't expect to touch the taxable account I think that's a reasonable approach.

Also, if completely changing over the taxable account would cause a tax burden then you could also just sell JUST ENOUGH of the funds to fund the SPIA. If you sell these funds I think you'd have enough to fund the SPIA:
  • LGILX Laudus U.S. Large Cap Growth Fund
  • PRBLX Parnassus Core Equity Fund
  • GFAFX American Funds The Growth Fund
  • IOO S&P global 100 index Fund
  • XLF Financial Select Sector SPDR Fund
  • SKIRX DWS Enhanced Commodity Strategy Fund
  • VCADX Vanguard California Intermediate-Term Tax-Exempt
  • VNQ Vanguard Real Estate ETF
That'd still leave a ragtag fleet of funds, but it might be an okay compromise as a way to avoid an excessive tax bill this year.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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BL
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Re: Need Help with Mom’s Retirement Income

Post by BL » Tue Jul 31, 2018 9:04 am

She may have a need for risk, the desire for risk, but she does not have the ability to take a lot of risk (if market crashes, she is in big trouble with a high % of equities.)

Someone else should weigh in on this, but I am thinking that it might make sense to roll over an amount to an IndividualRetirementAnnuity SPIA with your IRA money rather than selling and paying tax on the taxable account to buy a SPIA. The SPIA amount would be taken out of the RMD calculation and the SPIA payout satisfies its own RMD. immediateAnnuities.com should give you an idea about how much you can get per month. You should get more "interest" than current rates, but that principal is gone forever and is used to give you the higher rates.

An independent insurance agent, or perhaps Vanguard annuities, would be a source of highly-rated companies to compare. Buying some more every 5-10 years would help cover inflation.

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Re: Need Help with Mom’s Retirement Income

Post by vineviz » Tue Jul 31, 2018 9:16 am

BL wrote:
Tue Jul 31, 2018 9:04 am
Someone else should weigh in on this, but I am thinking that it might make sense to roll over an amount to an IndividualRetirementAnnuity SPIA with your IRA money rather than selling and paying tax on the taxable account to buy a SPIA.
Good idea: that's definitely worth exploring.

Handling the SPIA within the IRA would still leave the taxable account a jumbled mess, however, so my thought was that Mom is going to need to do some trades in that account anyway.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Need Help with Mom’s Retirement Income

Post by delamer » Tue Jul 31, 2018 11:19 am

Apparently I am in the minority, but I don’t think 61% stocks is overly aggressive at your mother’s age.

I do, however, think that she needs more of a cash buffer than proposed above. I would have 3 years of expenses ($2150 times 12 times 3) in cash so that she can spend down the cash in the event of a stock market correction (or worse).

I’d take that out of the commodities portion, which is too small to make much of a difference on the upside or downside.

It can be a hassle to figure out what to sell and when, but sometimes you have an investment with a high ER and a low profit (or loss) and you can sell that just to winnow down the portfolio. Looks like the Pimco Income fund fits the bill, as does Schwab Strategies, and the Commodities fund.

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Re: Need Help with Mom’s Retirement Income

Post by Dottie57 » Tue Jul 31, 2018 11:52 am

vineviz wrote:
Tue Jul 31, 2018 9:16 am
BL wrote:
Tue Jul 31, 2018 9:04 am
Someone else should weigh in on this, but I am thinking that it might make sense to roll over an amount to an IndividualRetirementAnnuity SPIA with your IRA money rather than selling and paying tax on the taxable account to buy a SPIA.
Good idea: that's definitely worth exploring.

Handling the SPIA within the IRA would still leave the taxable account a jumbled mess, however, so my thought was that Mom is going to need to do some trades in that account anyway.
The nice thing about SPIA in taxable is that a large portion will not be taxed. Only the earning/interest portion is taxed.

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Re: Need Help with Mom’s Retirement Income

Post by Nate79 » Tue Jul 31, 2018 12:04 pm

No Social Security?

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Re: Need Help with Mom’s Retirement Income

Post by more_cans » Wed Aug 01, 2018 11:28 pm

Thank you everyone! Just wanted to drop a note to say I am here! I am not familiar with SPIA and it sounds like it’s something worth looking into and the high ER positions needs to go. I will respond tomorrow once I had time to dive into SPIA and the wealth of information provided in the responses here! :D

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Re: Need Help with Mom’s Retirement Income

Post by more_cans » Thu Aug 02, 2018 11:19 pm

gostars wrote:
Tue Jul 31, 2018 4:38 am
I'd start back cutting back the allocation to 50/50, which is still very aggressive for the situation, but buys some extra time in the event of a crash. Everything in the IRA goes and gets replaced with fixed income, split between an aggregate bond fund and maybe a good money market like VMMXX at Vanguard. Taxable gets the leftover fixed income, probably in aggregate bond, because there's no point in munis in a low bracket. Rest of the cash goes in to the typical US and international funds, and you sell off the miscellaneous junk up to the top of the 0% LTCG bracket each year and replace with US and international funds, or use that to supplement the RMDs. Start with all the mutual funds and real estate, and then work your way on to the ETFs starting with the higher ERs. In good years for the market, take RMDs from the IRA and nothing more, then supplement from taxable. If stocks crash, draw more from the IRA. Noted. Very good points. We can't force decisions on her, however, what we can do is reiterate again the risks associated with stocks. Will draft this up and present it to her as an option!
vineviz wrote:
Tue Jul 31, 2018 7:11 am

Hey there,

First, I think sticking with the RMD in the IRA account is wise if your mom intends for it to last her lifetime. Obviously you can't take out less, but not taking out more if you can avoid it is probably smart. I think her RMD now is a little less than $15,000 per year so you should check it based on her actual birthday. But let's say that's $1250/month as you calculate. It is less... that's the amount she requested to be taken out...

To get the other $898 I'd seriously investigate converting some of the taxable account money into a single premium immediate annuity (SPIA). Will do.

Assuming the SPIA is $150k, the taxable account is $177k, and the IRA is $285k:

Taxable
>>100% in Vanguard Total World Stock Index Fund Investor Shares (VTWSX)

IRA
>>100% in Vanguard LifeStrategy Conservative Growth Fund (VSCGX)
OR
>>40% Vanguard Total World Stock Index Fund Investor Shares (VTWSX)
>>60% Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)

The combined allocation of taxable and IRA is 60/40 as you requested.

Any RMDs that don't need to be spent can be deposited into the taxable account. Her allocation will likely become MORE equity heavy as she ages, but since she really shouldn't expect to touch the taxable account I think that's a reasonable approach. But that is not touching the taxable account after selling the funds in taxable to start a SPIA, yes?

Also, if completely changing over the taxable account would cause a tax burden then you could also just sell JUST ENOUGH of the funds to fund the SPIA. It will be a tax burden, esp. with the selling done this year, it'll have to be spaced out in some way and will need to dive further into this. I really like the action plan and the lists of positions to offload coupled with the new funds. Have added this to our list.
Tamarind wrote:
Tue Jul 31, 2018 5:00 am
Thanks for coming back, OP. I'll post again when I'm more awake with an example of how you can arrange these holdings for simplicity. Others are bound to have good advice on drawing from taxable vs the IRA (seems like since the RMDs are smaller than your needs, there's no particular incentive to do Roth conversions).

Did you/your mom sell any holdings in the *taxable* account this year? What is the total loss or gain on what's been sold? Yes, $25,000 gains.

There's definitely going to be budgeting involved, but she won't have to trim too much, sounds like. [=#FF00BF] Hopefully, cause she is not one who budgets. [/color]

We do also need to know how much income she has from what sources (to do tax estimates). How much is her SS? Any other income not from this portfolio? Great questions. Tax is a concern as it is my understanding that taxing on SS depends on AGI. No other income other than $ from this portfolio. SS is $16000, RMD $15200 and $22,000 capital gains this year in taxable account. Looking at this she is over $25K AGI...
delamer wrote:
Tue Jul 31, 2018 11:19 am
Apparently I am in the minority, but I don’t think 61% stocks is overly aggressive at your mother’s age.

I do, however, think that she needs more of a cash buffer than proposed above. I would have 3 years of expenses ($2150 times 12 times 3) in cash so that she can spend down the cash in the event of a stock market correction (or worse).

I’d take that out of the commodities portion, which is too small to make much of a difference on the upside or downside.

It can be a hassle to figure out what to sell and when, but sometimes you have an investment with a high ER and a low profit (or loss) and you can sell that just to winnow down the portfolio. Looks like the Pimco Income fund fits the bill, as does Schwab Strategies, and the Commodities fund. Music to mom's ears. She would go all equity if we weren't holding her back. We are also not a fan of commodities, it's just there and we are not getting much out of it. We agree, those three are on the chopping block list. We will revise the target holdings to reallocate the funds from those positions. Is it the recommendation then that we are looking at $77,400 cash between both accounts?
BL wrote:
Tue Jul 31, 2018 9:04 am
She may have a need for risk, the desire for risk, but she does not have the ability to take a lot of risk (if market crashes, she is in big trouble with a high % of equities.) Agreed.

Someone else should weigh in on this, but I am thinking that it might make sense to roll over an amount to an IndividualRetirementAnnuity SPIA with your IRA money rather than selling and paying tax on the taxable account to buy a SPIA. The SPIA amount would be taken out of the RMD calculation and the SPIA payout satisfies its own. immediateAnnuities.com should give you an idea about how much you can get per month. You should get more "interest" than current rates, but that principal is gone forever and is used to give you the higher rates. Okay, so the recommendation is to roll over to a IRA SPIA where we would get some income but we would lose the principal... and this should be done every 5-10 years to cover inflation?
So majority thought is SPIA. If we can't sell her on SPIA, are there any other options as a back up plan?

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Tamarind
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Re: Need Help with Mom’s Retirement Income

Post by Tamarind » Fri Aug 03, 2018 5:24 am

more_cans wrote:
Thu Aug 02, 2018 11:19 pm
Tamarind wrote:
Tue Jul 31, 2018 5:00 am
Did you/your mom sell any holdings in the *taxable* account this year? What is the total loss or gain on what's been sold? Yes, $25,000 gains.

There's definitely going to be budgeting involved, but she won't have to trim too much, sounds like. Hopefully, cause she is not one who budgets.

We do also need to know how much income she has from what sources (to do tax estimates). How much is her SS? Any other income not from this portfolio? Great questions. Tax is a concern as it is my understanding that taxing on SS depends on AGI. No other income other than $ from this portfolio. SS is $16000, RMD $15200 and $22,000 capital gains this year in taxable account. Looking at this she is over $25K AGI...
So majority thought is SPIA. If we can't sell her on SPIA, are there any other options as a back up plan?
I'm not convinced about the SPIA. It will stretch her money but whether it helps her money last really depends on her behavioral traits.

You've said a few times that your mom is resistant to budgeting. What form does that take? Does she just not want to talk about how she spends but the amount is consistent? Does she freely spend all the money in her checking account but stop there? Does she raid her investment accounts? I ask because many of the methods that will be suggested here, including the SPIA, work by delivering a fixed sustainable amount of cash to checking, whether by automated sales of securities, or a payment from the annuity. They imitate a paycheck, so her ability to live within her income is relevant.

Sounds like the next couple of years are a good time for gradually selling appreciated stocks in taxable to reduce her costs (without causing too big a bump in taxes). As long as she keeps her taxable income below $50,600 she shouldn't owe any taxes on long term capital gains (check this math for yourself, too!), so that's the ceiling to sell up to. Looks like you are right on the edge this year w just the taxable SS, RMD and capital gains so far. You're going to want to do that math to the dollar and find out if she's already gone over.

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Re: Need Help with Mom’s Retirement Income

Post by delamer » Fri Aug 03, 2018 11:12 am

Yes, roughly $75,000 in cash is what I’d do.

more_cans
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Re: Need Help with Mom’s Retirement Income

Post by more_cans » Sat Aug 04, 2018 1:19 am

Tamarind wrote:
Fri Aug 03, 2018 5:24 am

I'm not convinced about the SPIA. It will stretch her money but whether it helps her money last really depends on her behavioral traits. With the additional info below, does it help any to determine if SPIA is a good call?

You've said a few times that your mom is resistant to budgeting. What form does that take? Does she just not want to talk about how she spends but the amount is consistent? Does she freely spend all the money in her checking account but stop there? Does she raid her investment accounts? I ask because many of the methods that will be suggested here, including the SPIA, work by delivering a fixed sustainable amount of cash to checking, whether by automated sales of securities, or a payment from the annuity. They imitate a paycheck, so her ability to live within her income is relevant. She does not want to talk about how she spends. Amount of her spending is inconsistent. As of right now, she is living within her means. She does not raid her investment accounts and stays mainly within her checking.

Sounds like the next couple of years are a good time for gradually selling appreciated stocks in taxable to reduce her costs (without causing too big a bump in taxes). As long as she keeps her taxable income below $50,600 she shouldn't owe any taxes on long term capital gains (check this math for yourself, too!), so that's the ceiling to sell up to. Looks like you are right on the edge this year w just the taxable SS, RMD and capital gains so far. You're going to want to do that math to the dollar and find out if she's already gone over. Yes! We need to rebalance gradually and keep an eye on her taxable income. And you are right, we are very close to that threshold this year with the $50,600. She should be right on the cusp. If anything pushes her over maybe dividends. I need to do some number crunching on that... I am really hoping it is $50,600 cause then if we can keep her under then it will minimize her taxes. If you don't mind, I am probably not understanding the tax code correctly, I thought it was taxable income up to $38,700 that has no capital gains tax?
delamer wrote:
Fri Aug 03, 2018 11:12 am
Yes, roughly $75,000 in cash is what I’d do. Great. Thank you!

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Re: Need Help with Mom’s Retirement Income

Post by gostars » Sat Aug 04, 2018 1:54 am

A SPIA seems like the best option for someone who isn't interested in modifying their lifestyle to meet a reasonable drawdown rate. It will continue to pay regardless of what the market does.

I suspect the $50,600 comes from the 0% capital gains bracket of $38,600 and the $12,000 standard deduction for single filers in 2018. Someone making say $40,000 in actual income and $10,600 in capital gains would have a total of $50,600, deduct $12,000 from the income to get to $28,000 and still $10,600 in capital gains. Tax would be $952.50 (10% bracket) plus $2,217 (12% of the rest of the income) plus nothing in capital gains, since it would reach right to the limit. How social security affects that is left as an exercise for those who understand such things. Not my concern because (rant about the boomer generation ruining everything).

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Re: Need Help with Mom’s Retirement Income

Post by BL » Sat Aug 04, 2018 6:20 pm

gostars wrote:
Sat Aug 04, 2018 1:54 am
A SPIA seems like the best option for someone who isn't interested in modifying their lifestyle to meet a reasonable drawdown rate. It will continue to pay regardless of what the market does.

It might make sense to wait until next year for a SPIA. If taxable, perhaps not sell more this year (or maybe better to get it over with in one year). Also as a year older and if interest rates increase, payout will increase. Still not sure if taxable or IRA is best, since income would be less from taxable after the original batch is sold.

I suspect the $50,600 comes from the 0% capital gains bracket of $38,600 and the $12,000 standard deduction for single filers in 2018. Someone making say $40,000 in actual income and $10,600 in capital gains would have a total of $50,600, deduct $12,000 from the income to get to $28,000 and still $10,600 in capital gains. Tax would be $952.50 (10% bracket) plus $2,217 (12% of the rest of the income) plus nothing in capital gains, since it would reach right to the limit. How social security affects that is left as an exercise for those who understand such things. Not my concern because (rant about the boomer generation ruining everything).
It may be 50,500 for CGs. There is a slight difference with the new law.
Up to 85% of SS might be taxed, so that would bring up AGI and Taxable Income, and knock CGs into 15% bracket. Looks like an estimating program should be used to find out.

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Re: Need Help with Mom’s Retirement Income

Post by AlphaLess » Sat Aug 04, 2018 6:25 pm

Missing: available assets.

No amount of portfolio allocation can replace sufficient assets.

I would say that with a need of $2.15K / M, or $26K a year, you need $750K in assets.

Judging with the dividends figure, maybe you are close. But who knows.

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Re: Need Help with Mom’s Retirement Income

Post by AlphaLess » Sat Aug 04, 2018 6:42 pm

BL wrote:
Tue Jul 31, 2018 9:04 am
Someone else should weigh in on this, but I am thinking that it might make sense to roll over an amount to an IndividualRetirementAnnuity SPIA with your IRA money rather than selling and paying tax on the taxable account to buy a SPIA. The SPIA amount would be taken out of the RMD calculation and the SPIA payout satisfies its own RMD. immediateAnnuities.com should give you an idea about how much you can get per month. You should get more "interest" than current rates, but that principal is gone forever and is used to give you the higher rates.
SPIA sounds like a great idea. Inputting numbers close to OPs mother, I am seeing a 7% annual 'return' on the annuity. Granted: these are not inflation adjusted, and obviously, you lose premium (equivalent to spending down your nest egg in your lifetime).

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Re: Need Help with Mom’s Retirement Income

Post by grok87 » Sat Aug 04, 2018 7:27 pm

AlphaLess wrote:
Sat Aug 04, 2018 6:42 pm
BL wrote:
Tue Jul 31, 2018 9:04 am
Someone else should weigh in on this, but I am thinking that it might make sense to roll over an amount to an IndividualRetirementAnnuity SPIA with your IRA money rather than selling and paying tax on the taxable account to buy a SPIA. The SPIA amount would be taken out of the RMD calculation and the SPIA payout satisfies its own RMD. immediateAnnuities.com should give you an idea about how much you can get per month. You should get more "interest" than current rates, but that principal is gone forever and is used to give you the higher rates.
SPIA sounds like a great idea. Inputting numbers close to OPs mother, I am seeing a 7% annual 'return' on the annuity. Granted: these are not inflation adjusted, and obviously, you lose premium (equivalent to spending down your nest egg in your lifetime).
the 7% is not really a return as some of that is return on principal. i would call it a 7% payout
Keep calm and Boglehead on. KCBO.

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Re: Need Help with Mom’s Retirement Income

Post by grok87 » Sat Aug 04, 2018 7:34 pm

delamer wrote:
Mon Jul 30, 2018 4:40 pm
You should familiarize yourself with the concept of “safe withdrawal rates” as outlined in this section of the Bogleheads wiki: https://www.bogleheads.org/wiki/Safe_withdrawal_rates

In your mother’s case, her safe withdrawal rate is between 4% and 5% of her portfolio. She can’t restrict her withdrawals to interest and dividends thrown off by her portfolio. She won’t get to her desired $2150 per month with just interest/dividends by changing her portfolio — given that the current portfolio is only throwing off $850.

She needs to accept that she has to sell some assets. But if done carefully, she won’t run out of money even so.

As others have indicated, she needs a portfolio of about $600,000 to give her the desired income. If she has less than that, she’ll need to figure out a way to reduce expenses. My guess is that her portfolio is around $400,000, unfortunately.

And remember that she’ll owe some federal (and maybe state) income taxes too.
is the needed $2150 a month before or after taxes?
Keep calm and Boglehead on. KCBO.

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Re: Need Help with Mom’s Retirement Income

Post by Tamarind » Sat Aug 04, 2018 8:21 pm

more_cans wrote:
Sat Aug 04, 2018 1:19 am
Tamarind wrote:
Fri Aug 03, 2018 5:24 am

I'm not convinced about the SPIA. It will stretch her money but whether it helps her money last really depends on her behavioral traits. With the additional info below, does it help any to determine if SPIA is a good call?

You've said a few times that your mom is resistant to budgeting. What form does that take? Does she just not want to talk about how she spends but the amount is consistent? Does she freely spend all the money in her checking account but stop there? Does she raid her investment accounts? I ask because many of the methods that will be suggested here, including the SPIA, work by delivering a fixed sustainable amount of cash to checking, whether by automated sales of securities, or a payment from the annuity. They imitate a paycheck, so her ability to live within her income is relevant. She does not want to talk about how she spends. Amount of her spending is inconsistent. As of right now, she is living within her means. She does not raid her investment accounts and stays mainly within her checking.

Sounds like the next couple of years are a good time for gradually selling appreciated stocks in taxable to reduce her costs (without causing too big a bump in taxes). As long as she keeps her taxable income below $50,600 she shouldn't owe any taxes on long term capital gains (check this math for yourself, too!), so that's the ceiling to sell up to. Looks like you are right on the edge this year w just the taxable SS, RMD and capital gains so far. You're going to want to do that math to the dollar and find out if she's already gone over. Yes! We need to rebalance gradually and keep an eye on her taxable income. And you are right, we are very close to that threshold this year with the $50,600. She should be right on the cusp. If anything pushes her over maybe dividends. I need to do some number crunching on that... I am really hoping it is $50,600 cause then if we can keep her under then it will minimize her taxes. If you don't mind, I am probably not understanding the tax code correctly, I thought it was taxable income up to $38,700 that has no capital gains tax?
Yes, I'm including the standard deduction.

If she does go over it won't be too bad as you'll only pay 15% on the extra amount of LTCG, but there's no reason to pay 15% on capital gains when she could easily stay in the 12% marginal bracket.

Here's the choice your mom has:
1) Set up a total return portfolio with the whole amount. Maximum flexibility. The amount she can take as monthly income on top of SS is a little lower, let's say absolutely not more than $2300 (that'd be 4.5% withdrawal rate - you calculate them on the portfolio as a whole, not a particular account). If she is 70 and average health and life expectancy, and can stick to a monthly maximum, she should not run out of money. This should be fine.

2) If you think your mom has good odds of living longer than average, or you are worried she'll need more than the max withdrawal and might raid retirement accounts, you could buy an SPIA with some of the money (probably from the taxable account). That money is gone forever - in return the insurance company will give you a monthly payment at a higher rate than you could sustainably draw (7% or so). You get more money because some people who buy annuities die early and their remaining money can be used to pay higher rates to remaining customers (mortality credits). But there's no flexibility once you buy. The money can't be used for major unexpected needs or inherited.

Personally I'm skeptical of the SPIA for your mom. She doesn't quite have enough to withdraw what she wants at 4%, but she's older so she may be just fine with a period of sustainability less than 30 years. I also disagree with the poster above who suggests that she needs $750k - that implies a 3.5% SWR and I don't think that makes any sense for a 70-year old.

If your mom shows she can't stick to her means, she can always buy an SPIA later and the rate of return will only get higher as she gets older.

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Re: Need Help with Mom’s Retirement Income

Post by AlphaLess » Sun Aug 05, 2018 3:22 pm

grok87 wrote:
Sat Aug 04, 2018 7:27 pm
AlphaLess wrote:
Sat Aug 04, 2018 6:42 pm
BL wrote:
Tue Jul 31, 2018 9:04 am
Someone else should weigh in on this, but I am thinking that it might make sense to roll over an amount to an IndividualRetirementAnnuity SPIA with your IRA money rather than selling and paying tax on the taxable account to buy a SPIA. The SPIA amount would be taken out of the RMD calculation and the SPIA payout satisfies its own RMD. immediateAnnuities.com should give you an idea about how much you can get per month. You should get more "interest" than current rates, but that principal is gone forever and is used to give you the higher rates.
SPIA sounds like a great idea. Inputting numbers close to OPs mother, I am seeing a 7% annual 'return' on the annuity. Granted: these are not inflation adjusted, and obviously, you lose premium (equivalent to spending down your nest egg in your lifetime).
the 7% is not really a return as some of that is return on principal. i would call it a 7% payout
Point taken. Let's call it 'payout'.

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Re: Need Help with Mom’s Retirement Income

Post by more_cans » Tue Aug 07, 2018 7:31 pm

Tamarind wrote:
Sat Aug 04, 2018 8:21 pm
Yes, I'm including the standard deduction.

If she does go over it won't be too bad as you'll only pay 15% on the extra amount of LTCG, but there's no reason to pay 15% on capital gains when she could easily stay in the 12% marginal bracket. Agreed. We like to keep her in the 12% marginal bracket since we can't change certain expenditures; then what we can do is work on the back end (taxes/investment fees, etc.) to keep the numbers positive.

Here's the choice your mom has:
1) Set up a total return portfolio with the whole amount. Maximum flexibility. The amount she can take as monthly income on top of SS is a little lower, let's say absolutely not more than $2300 (that'd be 4.5% withdrawal rate - you calculate them on the portfolio as a whole, not a particular account). If she is 70 and average health and life expectancy, and can stick to a monthly maximum, she should not run out of money. This should be fine. $2300 on top of her SS is more than sufficient. Total return on both accounts sounds more manageable as we are not dealing with 10-20 different funds.

2) If you think your mom has good odds of living longer than average, or you are worried she'll need more than the max withdrawal and might raid retirement accounts, you could buy an SPIA with some of the money (probably from the taxable account). That money is gone forever - in return the insurance company will give you a monthly payment at a higher rate than you could sustainably draw (7% or so). You get more money because some people who buy annuities die early and their remaining money can be used to pay higher rates to remaining customers (mortality credits). But there's no flexibility once you buy. The money can't be used for major unexpected needs or inherited. Mmm. That's where the money comes from for SPIA.

Personally I'm skeptical of the SPIA for your mom. She doesn't quite have enough to withdraw what she wants at 4%, but she's older so she may be just fine with a period of sustainability less than 30 years. I also disagree with the poster above who suggests that she needs $750k - that implies a 3.5% SWR and I don't think that makes any sense for a 70-year old.

If your mom shows she can't stick to her means, she can always buy an SPIA later and the rate of return will only get higher as she gets older We know where the leaks are and are slowing making progress.
grok87 wrote:
Sat Aug 04, 2018 7:34 pm
is the needed $2150 a month before or after taxes? Before taxes. Speaking of which, for her next withdraw, should we pay taxes at tax time instead of up front and hope the funds will appreciate in value before taxes are due?
grok87 wrote:
Sat Aug 04, 2018 7:27 pm
the 7% is not really a return as some of that is return on principal. i would call it a 7% payout Learned something new. Payout it is...

BL wrote:
Sat Aug 04, 2018 6:20 pm
It may be 50,500 for CGs. There is a slight difference with the new law.
Up to 85% of SS might be taxed, so that would bring up AGI and Taxable Income, and knock CGs into 15% bracket. Looks like an estimating program should be used to find out.If her AGI that we have currently already includes 85% of her SS, and her combined income is under 50,500, then are we looking at 12% marginal tax still? I want to understand this so that we can make informed decisions before we offload more from her taxable account.
gostars wrote:
Sat Aug 04, 2018 1:54 am
A SPIA seems like the best option for someone who isn't interested in modifying their lifestyle to meet a reasonable drawdown rate. It will continue to pay regardless of what the market does.

I suspect the $50,600 comes from the 0% capital gains bracket of $38,600 and the $12,000 standard deduction for single filers in 2018. Someone making say $40,000 in actual income and $10,600 in capital gains would have a total of $50,600, deduct $12,000 from the income to get to $28,000 and still $10,600 in capital gains. Tax would be $952.50 (10% bracket) plus $2,217 (12% of the rest of the income) plus nothing in capital gains, since it would reach right to the limit. How social security affects that is left as an exercise for those who understand such things. Not my concern because (rant about the boomer generation ruining everything)? Aha. Thank you for the breakdown and the example. This would make the calculations easier. As for SS, with where she is at currently, we are probably looking at 85 percent of benefits that may be taxable?
I also want to thank everyone again on the responses and support. It's a relief knowing that there are actions we can to help her out. I have been recovering from heat stroke, food poisoning, losing my draft when trying to post and being locked out of my account. So if my responses seem short and delayed... well... thank you again.

cas
Posts: 309
Joined: Wed Apr 26, 2017 8:41 am

Re: Need Help with Mom’s Retirement Income

Post by cas » Wed Aug 08, 2018 6:45 am

more_cans wrote:
Tue Aug 07, 2018 7:31 pm

Agreed. We like to keep her in the 12% marginal bracket since we can't change certain expenditures; then what we can do is work on the back end (taxes/investment fees, etc.) to keep the numbers positive.

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If her AGI that we have currently already includes 85% of her SS, and her combined income is under 50,500, then are we looking at 12% marginal tax still? I want to understand this so that we can make informed decisions before we offload more from her taxable account.

<skip>

As for SS, with where she is at currently, we are probably looking at 85 percent of benefits that may be taxable?
I was holding off on mentioning this complication, since you initially said that the amount of investing info you were trying to absorb was overwhelming, but ... from your questions, it seems like now might be the time when it is necessary to delve deeper into SS, its taxation and its effects on marginal tax rates. (I'd hate for you to add a bit to your mother's income, thinking you would be taxed at 12%, but getting the nasty surprise at tax time that that bit of income was actually taxed at 49.95% - which is possible if the income is nominally in the 12% bracket, but you have just the right mix of SS income, tIRA withdrawals, and qualified dividends/long term capital gains. )

Unfortunately, *marginal* tax rates (as opposed to nominal tax bracket rate) get complicated when social security is in the picture. It is the way that taxation of social security phases in that makes it complicated. You may want to read the wiki article on Taxation of Social Security. Especially look at the table/graph for a single taxpayer under the "Examples" section and pay attention to how the numbers in the "Marginal Tax Rate" column can be much, much higher than the number in the "Tax Bracket" column. https://www.bogleheads.org/wiki/Taxatio ... y_benefits

(Note that the example in that wiki article is assuming only SS and tIRA withdrawals, i.e. no qualified dividends or long term capital gains are in the picture. Things get even more complicated when QDiv/LTCG (with their special tax rates) are in the picture. Once you wrap your head around the wiki article given above, you might want to read the "Common Examples of High Marginal Tax Rates" in the "Marginal Tax Rate" wiki article. https://www.bogleheads.org/wiki/Margina ... inal_rates )

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