Portfolio Review for New Retiree

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Topic Author
mpnret
Posts: 279
Joined: Sun May 20, 2018 9:16 am

Portfolio Review for New Retiree

Post by mpnret » Tue Jul 31, 2018 7:58 am

Hi Everyone - I have been lurking here for a while now and have hopefully learned a quite a bit. With this knowledge I have put together a proposed portfolio. Thanks in advance for your time and help.

Background
Both retired. 2 pensions and 2 social securities provide low 6 figures/yr which we could easily live on. We will both start RMDs this year which will provide additional low 6 figure income/yr. We will use this to kick things up a notch (additional travel, entertainment, lifetime giving, QCDs etc.). It's only about 2% of investable assets so I figure we're relatively safe spending it. Medicare B including IRMAA and secondary insurance paid by employer retirement plan. Long term care self insured. Looking at feasibility of moving to no tax state, may never happen.

Goal
Provide comfortable retirement with buffer for the unexpected i.e., long term care, etc. Preserve/grow principle for inheritance.

Emergency funds: Cash and I bonds listed below under taxable are my emergency funds.
Debt: None. No mortage (500K equity in house)
Tax Filing Status: Married Filing Jointly
Tax Rate: 24% Federal, 6.37% State (Federal rate could bump up to 32% for about a 10 yr period (2025-2035) when RMDs are high and I bonds are maturing)
State of Residence:NJ
Age: Both 70
Desired Asset allocation: 50% stocks / 50% bonds (Currently 60/40)
Desired International allocation: open


Current retirement assets - Mid 7 figure

Taxable
4% Cash - Interest checking, high yield savings and CDs. (overall 2% yield)
7% Portfolio of individulal stocks (DRIPs) @ Computershare
16% Older I Bonds 5.6% yield. These mature 2023 through 2035. Adding another low 6 figures/yr to income during that period.

His 401k (Currently at Megacorp. Retirement rules are that when RMDs start retiree closes account, so I will be moving this to Vanguard.
16% Vanguard TR 2020 VTWNX .14% ER
13% Large Cap Stock Index Fund .09% ER
5% Large Cap Stock Fund .44% ER
9% Mid Cap Stock Index Fund .11% ER
9% International Stock Index Fund .16% ER
3% International Stock Fund .57% ER

His Roth IRA at Vanguard
6% Vanguard TR 2015 Fund VTXVX .13% ER

Her Roth at Vanguard
3% Vanguard TR Income Fund VTINX .13% ER

Her Traditional IRA at Vanguard
9% Vanguard TR Income Fund VTINX .13% ER

100% Total. AA 60/40


Proposed Portfolio

Taxable (same as before)
4% Cash - Interest checking, high yield savings and CDs. (overall 2% yield)
7% Portfolio of individulal stocks (DRIPs) @ Computershare
16% Older I Bonds 5.6% current yield. These mature 2023 through 2035. Adding another low 6 figures/yr to income during that period.

His former 401k (to be converted to IRA @ Vanguard)
6% Total Stock Market Index Fund Admiral Shares VTSAX .04% ER
19% Total International Stock Market Index Fund Admiral Shares VTIAX .11% ER
15% Total Bond Market Index Fund Admiral Shares VBTLX .05% ER
15% Total International Bond Index Fund Admiral Shares VTABX .11% ER

His Roth IRA at Vanguard
6% Total Stock Market Index Fund Admiral Shares VTSAX .04% ER

Her Roth at Vanguard
3% Total Stock Market Index Fund Admiral Shares VTSAX .04% ER

Her Traditional IRA at Vanguard
9% Total Stock Market Index Fund Admiral Shares VTSAX .04% ER

100% Total. AA 50/50


Questions:
1. Any suggestions for portfolio improvement and/or asset allocation?
2. I need to create a account to deposit the RMDs into and possibly hold them until we need them. I was thinking of Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX) .09% ER. Any thoughts?

bloom2708
Posts: 7108
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Portfolio Review for New Retiree

Post by bloom2708 » Tue Jul 31, 2018 11:59 am

I would combine these 2:

15% Total Bond Market Index Fund Admiral Shares VBTLX .05% ER
15% Total International Bond Index Fund Admiral Shares VTABX .11% ER

To this:

30% Total US Bond index

Bonds are for safety and some return. International bonds have a higher cost and potentially more risk. ~50% of your bonds is too high a percentage for my taste. I would skip International bonds entirely.

You could also combine these two in Rollover IRA:

6% Total Stock Market Index Fund Admiral Shares VTSAX .04% ER
19% Total International Stock Market Index Fund Admiral Shares VTIAX .11% ER

To this:

25% Total US Stock index

Then make each of the Roth IRAs be Total International stock index.

The percentages come out the same and one less fund to fiddle with. I eliminated 2 funds. :wink:

The other strategy would be to stick with Target Date funds in each of your tax sheltered accts and let them do the work. The expense ratio is a bit higher. So probably the individual (simplified) funds are the way to go.

No other suggestions other than trying to figure out how to quit/get of of the individual stocks in taxable. I'm sure you have hefty gains which is prohibitive for making changes.

I like Tax-Managed Balanced fund in taxable. You could look at selling losers/winners that net to $0 and moving to this fund and also as i bonds mature, move to Tax-Managed Balanced. With a goal of just that fund in taxable as you peel out of individual stocks.

Hopefully others will chime in.
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words: Whole food, plant based

abonder
Posts: 261
Joined: Sat Nov 03, 2012 10:52 am

Re: Portfolio Review for New Retiree

Post by abonder » Tue Jul 31, 2018 12:29 pm

You’ve got your costs covered by pensions/SS and a mid-7 figure savings, so I’d say congratulations are on order. I think you also have an appropriate asset allocation and a good plan to simplify holdings and reduce expense ratios as you roll over your 401k to IRA. You could further simplify with a blended fund (usually slightly higher expense ratio) but it seems that you have a great handle on things and might prefer individual indices to fine tune as you go along. I think Bloom had the same thoughts.

If you want to rid yourself of individual stocks, you’d likely benefit from annually assessing and selling any losers and offsetting gains. You may be able to whittle away via that pathway. Make sure you stop automatic reinvestment, etc. if you want to decrease role of individual securities. Realistically, given your retirement income and significant savings, most of the impact will likely be on your heirs/charities.

Again, congratulations on getting yourself to an admirable position. Enjoy it!

Topic Author
mpnret
Posts: 279
Joined: Sun May 20, 2018 9:16 am

Re: Portfolio Review for New Retiree

Post by mpnret » Tue Jul 31, 2018 2:30 pm

Thank you both for your responses and suggestions. I noticed you both mentioned getting rid of the individual stocks and both hit on one of the reasons I may not - taxable gains. I fully understand the reasoning of getting rid of these but they do fullfill one of my needs of not having all of my money in one place. With 2 banks, I Bonds, Computershare and Vanguard I feel I have some options in the event of the unexpected. Also dividends send some extra spending money into checking account. I do have the stocks in my name so if I pass first my wife will get the step up and can sell without gains. If not my son will have that same option some day. Otherwise if circumstances dictate I may sell them sooner.
I also like the suggestion of target date and balanced funds. My favorite would be Life Strategy Funds. For now I just followed the Boglehead philosophy of low cost index. For the amount of my portfolio I will be investing with Vanguard it will cost a few thousand for index funds, double that for Life Strategy and quadruple for PAS. Initially I was thinking of PAS but only if they had a top stop on the cost like Schwab instead of just a discount for funds over 5M.
I may take the suggestion of eliminating international bonds and consolidating some funds. The only reason I had international bonds is that's what Life Strategy holds in it's funds and PAS puts them in their recommendations also. Being I wanted AA 50/50 all I really did was look at the funds that Life Strategy 40/60 and 60/40 hold and extroplated what Life Strategy 50/50 would hold if it existed. That being 35% Total Bond, 30% Total Stock, 15% Total Int Bond, 20% Total Int Stock. Then I just carved my portfolio up to match. I realize that with 15% Total Bond next to 15% Int Bond it looked like 50% of my bonds were in international but for AA purposes I added 16% I bonds and 4% cash to 15% Total Bond for a total of 35% to match Life Stragety 50/50.
Thanks again for your help.
Last edited by mpnret on Tue Jul 31, 2018 4:42 pm, edited 1 time in total.

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bertilak
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Location: East of the Pecos, West of the Mississippi

Re: Portfolio Review for New Retiree

Post by bertilak » Tue Jul 31, 2018 2:36 pm

mpnret wrote:
Tue Jul 31, 2018 7:58 am
We will both start RMDs this year which will provide additional low 6 figure income/yr.
The RMD does not provide any additional income. There is nothing preventing you from simply reinvesting it. You do not need to spend it.

It does COST taxes as IF it were income.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

Topic Author
mpnret
Posts: 279
Joined: Sun May 20, 2018 9:16 am

Re: Portfolio Review for New Retiree

Post by mpnret » Tue Jul 31, 2018 4:41 pm

bertilak wrote:
Tue Jul 31, 2018 2:36 pm
mpnret wrote:
Tue Jul 31, 2018 7:58 am
We will both start RMDs this year which will provide additional low 6 figure income/yr.
The RMD does not provide any additional income. There is nothing preventing you from simply reinvesting it. You do not need to spend it.

It does COST taxes as IF it were income.
Yes I realize that. I was merly saying that being it's only 2% of my investable assets I feel safe spending it as if it were income and not reinvesting it. That RMD will not be paid until December of every year and my entire tax for the year will be deducted . Not just the tax due on the RMD. This way I don't have to pay estimated taxes throughout the year or have taxes deducted from anything else and don't actually pay the tax until December.

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