Help with My Draft Retirement Investment Plan please!

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danceswithhammer
Posts: 32
Joined: Wed May 16, 2018 2:20 pm

Help with My Draft Retirement Investment Plan please!

Post by danceswithhammer » Wed Aug 01, 2018 7:15 pm

New Questions to add to my recent post below:
As a new retirement investor, I am concerned about the placement of my entire investment in a 60bond/ 40 stock AA with Vanguard Total market index funds in light of the seemingly volatile economic conditions presently themselves now at the end of a ten year bull market. (See this article in New York Times from yesterday, predicting 3 possible scenarios of gloom and doom:https://www.nytimes.com/2018/08/02/upsh ... auses.html) as an example. If I had been fully invested for several years, I feel like I could weather the next storm, but since I am just getting ready to invest my entire portfolio, I am concerned about being the DIY that entered the market right before a serious downturn and lost so much principal that there is no way to ever recover during my 20 year investment horizon, or have access to money to spend during the next few years of active life in retirement while I am healthy..

1. Is this time as safe as any to enter the market full tilt right away with a 60/40 portfolio described below? In all my reading here and elsewhere , I have not seen this question addressed; I get the impression that any time is the right time, as the market is the market. I am not interested in playing the market, so contrary to Boglehead philosophy. Also, with 20 year investment horizon should I be thinking 70/30 instead....?

2 Would it be advantageous for me to hold back about 100K of my 700K portfolio in emergency cash (held partly in CD's to increase earnings) to cover living expenses (along with SS widower two years, then two years 70 year old personal benefit) through 2022 to ride out this potentally dangerous period? This way my invested portfolio could be left alone, with occasional rebalancing for the duration, with retirement withdrawals of about 4% not starting until 2022 instead of right away, in hopes of maximizing my potential. With this plan I miss out on investing about 30K right away that could be part of my market participation for the next 4 years. Alternatively, I could start 4% withdrawal right away as long as bull market conditions prevail, then simply invest most of the unused emergency cash set aside into the market at my AA each year or wait until 2022.

3. If the four year idea above seems irrational, is one year of emergency cash besides SS sufficient?


Below is my original post from a few days ago:


After two years of R and D, I am ready to ask the Boglehead community to help me design my retirement investment portfolio. I am putting numbers by each section, to make it easy to reference responses. I so appreciate the generosity of this community, and hope to give back in ways I can.

I hope that I will be forgiven for info overload in this posting. As a preface, I have almost no investment experience, with my background mostly consisting of the books and postings of Bogleheads including John Bogle, Boglehead Guide to Retirement,, All About Asset Allocation by Rich Ferri, The Coffeehouse Investor, Control Your Retirement Destiny by Dana Anspach, many ideas shared with me by a good friend over a couple years who introduced me to the Boglehead philosophy and the Bogleheads , and who suggested serious reconsideration of my SS strategy, which resulted in a huge lifetime benefit increase when I withdrew my first claim. I can read more books, so please suggest accordingly…..

2. -I have six months of emergency funds, not including my widowers SS benefit of $800 month.
-I have no debt
-tax filing status single
-tax rate last year was 14% of my taxable income, including 85% of SS widower benefit. This year my taxable income will be totally different due to interest income, no business income, etc. I just retired in Dec 2017. I just sold a rental house, so I will be paying on depreciated basis at full rate, and LTCG on the rest; total gross income on line 37 of 1040 will be about 21K for 2018 not including the house depreciation earnings. I have subtracted $100 K from my present assets to estimate my portfolio value stated below, to allow for house sale IRS taxes.
-I live in Washington, no state tax
-age 67
- I am not budgeting for a legacy, but will include potential recipients in my will.
3. I have reached the conclusion that a 40% stock/60% bonds/fixed income is about right for me concerning risk and time frame of retirement, from all I have read.
I also think about 30% of stocks should be international (how about bonds?)

4. I am drawn toward simplicity of investment, such as the Taylor L 3 fund portfolio, with V Total US Stock 27%, V Total International Stock 13%, V Total US Bond 60% (or equivalent in secure fixed income investments of some kind). Also, I am willing to consider holding 5 or 6 funds, to allow more flexibility and diversity, such as V Target 2015 holdings, or combination of V Managed Payout 60/40 in addition to the 3 fund portfolio. I need help with this obviously.

5. My portfolio size is very close to $700 K. All but my IRA is in cash at this time, to be invested ASAP when I am ready……

6. This includes a $88K IRA that I need to rollover in late September to something that makes sense, depending on when I will draw from it. I need household income in addition to my $800 SS , of $2700 month ($73,000 total in 26 months, starting now until age 70, when I plan to file on my personal SS claim.) I thought it was a no brainer to spend down my IRA money as much as possible before starting my SS in 2020, to avoid excess taxation, but have heard conflicting opinions; I need help with this decision. Instead of using my IRA, I could use cash for two years, then have $4K yr RMDs.
7. I am not making contributions. It is pure grace that I have a $700 K portfolio at this time.


8. Retirement income needs:
I need $42 K year for household and travel expense at minimum, not including taxes, with %5 inflation raise yearly to keep up with local inflation (my property taxes went up 18% in 2018, for example). This $42 K does not allow for high medical expenses, so I may end up having to tap my investments at inconvenient times.
-my SS payment starting 2020 will be about 33K yr.
-I do not know what my estimated taxes will be, but I definitely will be paying on 85% of my SS, plus interest and dividends from my investments.
-I am assuming long term health care needs may need to be met by sale of my condo, worth $550K today, if needed. Also, I am a named beneficiary in a trust left by my father, to be distributed sometime between now and 2030, so this may take the place of selling my condo for health reasons.

Questions, including ones mentioned above:
1. IRA rollover, spend down question, addressed above, is my only urgent question, I have time to make the others carefully, with a lot of help from the community I hope……

2. I mention in “4” above my inclination to use a simple investment strategy such as the 3 fund, or variations mentioned.
Due to the long term significance of these decisions now, I obviously want to make good ones. Feedback from several people in the financial investment industry that I have met with have suggested that someone like me is not qualified, like I imagine a DIYer weekend warrior (I was a contractor for 40 years, and saw the damage that can be done by novice workmanship and poor material choices). I don’t want to be the arrogant DIY investor who is broke in 5 or 10 years. And, yes I know that “past performance is not indicative of future performance.” The bottom line regarding financial advisor value added for me is that I will have trouble sleeping unless I know exactly what is happening, to understand every decision being made, every question being asked, so I don’t think I will need one to provide hand holding. If I am sensibly invested, I will be able to sleep. I am open to the ideas of ways to get professional guidance, even by the hour from a “professional” , if it is obvious that I am just not qualified (responses please). I have phoned around, and found out that “fee only” typically means !% AUM, +++++ , forever, or at Vanguard .3% AUM++++ for what sounds extremely minimal involvement (a calm friendly voice when needed, and help with account review and rebalancing from time to time. (and I was told by one rep that I could quit at any time, or start any time in the future.). My mental or physical abilities could change at any time in the future, requiring a manager, but at this time I feel that I am of sound mind and health.

3. I have computed my investment withdrawal based on 4% suggested withdrawal rate on $612 K starting in 2 years, and it looks like I could get the equivalent of my present $3500 monthly expenses from my investments and SS, with about $10K left for paying IRS, and investment expenses (Can’t see how I would be able to afford 1% AUM and/or significant amount of mutual funds ER’s., involving over $8K a year, or at Vanguard, maybe totally about $3K year ), with possibly $5K yr extra for unforeseen expenses, principal withdrawals, etc. If the market is healthy for the next two years, I will be starting with more than $612K.


4. I have concern about using a bond fund instead of getting individual bonds. I see the huge advantage of the liquidity and diversity of bond fund, but worry about share value declining when interest rates rise. Individual bonds are guaranteed to deliver, but seem risky and awkward to use regarding ongoing rebalancing, etc. I’d love more insight on this.


I hope that I have not worn out my welcome with this long posting . I apologize ahead of time for my unfamiliarity with the blog process (I will learn quickly), and hope that I will be able to offer my gifts to the community in the future (I know a lot more about carpentry and remodeling than I know about investing,,,!, and eventually I will know a lot more about investing we can all hope:))
Last edited by danceswithhammer on Sun Aug 05, 2018 3:58 pm, edited 1 time in total.

bloom2708
Posts: 6972
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Help with My Draft Retirement Investment Plan please!

Post by bloom2708 » Thu Aug 02, 2018 11:11 am

You don't call out a lot of questions. Just some observations and statements.

You can do it yourself. No need for advisor fees. The 3 fund works exceptionally well.

You don't list your cash outside of the IRA, but here is the general idea:

Cash - Enough for 1 to 2 years of expenses. Just a guideline
Taxable - LifeStrategy Conservative Growth (40/60) - You are in a low enough tax bracket to go with this type of fund.
Rollover IRA - 3 fund or LifeStrategy Conservative Growth (40/60). Not sure where this is located (Vanguard, Fidelity, etc).

You can split into Total US, Total International and Total US Bond. LifeStrategy does the work for you and adds a small % of International Bonds.

If the NAV of the bond portion dips, it is offset (over time) by paying higher interest. My grandparents had Lehman Brothers individual bonds. That didn't work out so good. The risk of individual bonds isn't worth it in my opinion. Bond funds (Total US) is for safety and some return. The NAV will fluctuate.

Your bridge is to SS. After that, you sell from your sources to meet your spending and tax needs. Keeping spending in check and on track is a must.

Overall, I think you are doing good. Spend time here and ask follow up questions. Hopefully others can pick out nuggest from your post and expand. I think you are on the right track and there are a few very easy ways to get there. Low cost, index, total market, tax efficient.
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words. Whole food, plant based. Bing it.

LeeMKE
Posts: 1885
Joined: Mon Oct 14, 2013 9:40 pm

Re: Help with My Draft Retirement Investment Plan please!

Post by LeeMKE » Thu Aug 02, 2018 4:06 pm

+1 Bloom2708

You are doing fine. You can manage this yourself.

One tool I use that may be helpful is the calculator at www.I-ORP.com
This website has a simple version, just one page and gives you an idea of how it works. Then, select the Extended version, answer a few more questions than before and you'll get a pile of tables, year by year guidance for withdrawals from your portfolio (which funds and how much of each, for every year of retirement) which are optimized for taxes (as far as we can know today). This calculator is easier to use than some (FireCalc, etc) but robust enough to offer concrete recommendations which in some cases have surprises. For us, we needed to roll over to ROTH much more than my pencil calculations would have guessed. This will save us significant taxes that extends the life of our portfolio.
The mightiest Oak is just a nut who stayed the course.

Topic Author
danceswithhammer
Posts: 32
Joined: Wed May 16, 2018 2:20 pm

Re: Help with My Draft Retirement Investment Plan please!

Post by danceswithhammer » Thu Aug 02, 2018 9:48 pm

bloom2708 wrote:
Thu Aug 02, 2018 11:11 am
You don't call out a lot of questions. Just some observations and statements.

You can do it yourself. No need for advisor fees. The 3 fund works exceptionally well.

You don't list your cash outside of the IRA, but here is the general idea:

Cash - Enough for 1 to 2 years of expenses. Just a guideline
Taxable - LifeStrategy Conservative Growth (40/60) - You are in a low enough tax bracket to go with this type of fund.
Rollover IRA - 3 fund or LifeStrategy Conservative Growth (40/60). Not sure where this is located (Vanguard, Fidelity, etc).

You can split into Total US, Total International and Total US Bond. LifeStrategy does the work for you and adds a small % of International Bonds.

If the NAV of the bond portion dips, it is offset (over time) by paying higher interest. My grandparents had Lehman Brothers individual bonds. That didn't work out so good. The risk of individual bonds isn't worth it in my opinion. Bond funds (Total US) is for safety and some return. The NAV will fluctuate.

Your bridge is to SS. After that, you sell from your sources to meet your spending and tax needs. Keeping spending in check and on track is a must.

Overall, I think you are doing good. Spend time here and ask follow up questions. Hopefully others can pick out nuggest from your post and expand. I think you are on the right track and there are a few very easy ways to get there. Low cost, index, total market, tax efficient.
Thank you for your ideas, and your time! I will revisit LifeStrategy, and seriously consider having more emergency reserve than 6 months. It is reassuring to hear more direct reassurance about using the 3 fund strategy for a beginning investor for retirement.

Topic Author
danceswithhammer
Posts: 32
Joined: Wed May 16, 2018 2:20 pm

Re: Help with My Draft Retirement Investment Plan please!

Post by danceswithhammer » Thu Aug 02, 2018 10:05 pm

LeeMKE wrote:
Thu Aug 02, 2018 4:06 pm
+1 Bloom2708

You are doing fine. You can manage this yourself.

One tool I use that may be helpful is the calculator at www.I-ORP.com
This website has a simple version, just one page and gives you an idea of how it works. Then, select the Extended version, answer a few more questions than before and you'll get a pile of tables, year by year guidance for withdrawals from your portfolio (which funds and how much of each, for every year of retirement) which are optimized for taxes (as far as we can know today). This calculator is easier to use than some (FireCalc, etc) but robust enough to offer concrete recommendations which in some cases have surprises. For us, we needed to roll over to ROTH much more than my pencil calculations would have guessed. This will save us significant taxes that extends the life of our portfolio.
Thank you for the calculator suggestion, I will check it out. I recently got Maxifi, but have only just gotten started with it; i imagine each calculator has different perspectives to offer.

I am wondering if I should just use my $88K IRA to buy my way to age 70, to avoid RMD's in future and possible additional taxation than if I liquidate them in the next two years. I imagine if I convert the IRA to a Roth over the next two years to avoid taxable RMDs later , i would pay the same tax as liquidating the IRA over the next two years. Your favorite calculator or another one might help me figure out this question. It may make more sense to use cash until age 70 1/2, them do $4K RMDs for 18 years tax wise (?)

Thanks for your time and suggestions!

kaudrey
Posts: 1023
Joined: Fri Nov 22, 2013 2:40 pm

Re: Help with My Draft Retirement Investment Plan please!

Post by kaudrey » Fri Aug 03, 2018 11:38 am

On the RMD question, please note that when people talk about trying to avoid RMDs, it is usually because they will be very large because IRAs make up a huge percentage of someone's retirement portfolio, and if they don't need the money to spend right away, they don't want to pay taxes on it just to re-invest it in a taxable account. Having $4K of RMD a year is not a big deal and shouldn't be a focus for you, as you'll probably need that money to live on anyway.

JW-Retired
Posts: 7146
Joined: Sun Dec 16, 2007 12:25 pm

Re: Help with My Draft Retirement Investment Plan please!

Post by JW-Retired » Fri Aug 03, 2018 11:59 am

danceswithhammer wrote:
Wed Aug 01, 2018 7:15 pm
8. Retirement income needs:
I need $42 K year for household and travel expense at minimum, not including taxes, with %5 inflation raise yearly to keep up with local inflation (my property taxes went up 18% in 2018, for example). This $42 K does not allow for high medical expenses, so I may end up having to tap my investments at inconvenient times.
-my SS payment starting 2020 will be about 33K yr.
-I do not know what my estimated taxes will be, but I definitely will be paying on 85% of my SS, plus interest and dividends from my investments.
..........................................

3. I have computed my investment withdrawal based on 4% suggested withdrawal rate on $612 K starting in 2 years, and it looks like I could get the equivalent of my present $3500 monthly expenses from my investments and SS, with about $10K left for paying IRS, and investment expenses (Can’t see how I would be able to afford 1% AUM and/or significant amount of mutual funds ER’s., involving over $8K a year, or at Vanguard, maybe totally about $3K year ), with possibly $5K yr extra for unforeseen expenses, principal withdrawals, etc. If the market is healthy for the next two years, I will be starting with more than $612K.
......................
It's hard to tell exactly what all your income is, but I think quite possibly you are grossly overestimating taxes. If your SS payment is $33K/year and you are taking a 4% RMD from a $612K IRA, that's $33K + $24.5K = $57.5K gross income. If I put that income mix into a tax calculator I only get $2372 in Federal tax for 2018. You said your state has no income tax, and you could cut your investment expenses to almost nothing if you go to Vanguard or Fidelity or another low cost outfit. All good news I hope. :beer

There is probably more detail in your taxes so try it for yourself. (I sometimes need checking too.)
https://www.hrblock.com/tax-calculator/#/en/te/aboutYou
JW
Welcome to the Forum!
Retired at Last

Topic Author
danceswithhammer
Posts: 32
Joined: Wed May 16, 2018 2:20 pm

Re: Help with My Draft Retirement Investment Plan please!

Post by danceswithhammer » Sun Aug 05, 2018 10:58 am

kaudrey wrote:
Fri Aug 03, 2018 11:38 am
On the RMD question, please note that when people talk about trying to avoid RMDs, it is usually because they will be very large because IRAs make up a huge percentage of someone's retirement portfolio, and if they don't need the money to spend right away, they don't want to pay taxes on it just to re-invest it in a taxable account. Having $4K of RMD a year is not a big deal and shouldn't be a focus for you, as you'll probably need that money to live on anyway.
Thank you for your input. If I take most it all out now in the next two years, i probably would incur significant tax in the short term , plus lose the tax deferred investment income over the 18 years of RMD’s. Appreciate your time and interest!

Topic Author
danceswithhammer
Posts: 32
Joined: Wed May 16, 2018 2:20 pm

Re: Help with My Draft Retirement Investment Plan please!

Post by danceswithhammer » Sun Aug 05, 2018 11:09 am

JW-Retired wrote:
Fri Aug 03, 2018 11:59 am
danceswithhammer wrote:
Wed Aug 01, 2018 7:15 pm
8. Retirement income needs:
I need $42 K year for household and travel expense at minimum, not including taxes, with %5 inflation raise yearly to keep up with local inflation (my property taxes went up 18% in 2018, for example). This $42 K does not allow for high medical expenses, so I may end up having to tap my investments at inconvenient times.
-my SS payment starting 2020 will be about 33K yr.
-I do not know what my estimated taxes will be, but I definitely will be paying on 85% of my SS, plus interest and dividends from my investments.
..........................................

3. I have computed my investment withdrawal based on 4% suggested withdrawal rate on $612 K starting in 2 years, and it looks like I could get the equivalent of my present $3500 monthly expenses from my investments and SS, with about $10K left for paying IRS, and investment expenses (Can’t see how I would be able to afford 1% AUM and/or significant amount of mutual funds ER’s., involving over $8K a year, or at Vanguard, maybe totally about $3K year ), with possibly $5K yr extra for unforeseen expenses, principal withdrawals, etc. If the market is healthy for the next two years, I will be starting with more than $612K.
......................
It's hard to tell exactly what all your income is, but I think quite possibly you are grossly overestimating taxes. If your SS payment is $33K/year and you are taking a 4% RMD from a $612K IRA, that's $33K + $24.5K = $57.5K gross income. If I put that income mix into a tax calculator I only get $2372 in Federal tax for 2018. You said your state has no income tax, and you could cut your investment expenses to almost nothing if you go to Vanguard or Fidelity or another low cost outfit. All good news I hope. :beer

There is probably more detail in your taxes so try it for yourself. (I sometimes need checking too.)
https://www.hrblock.com/tax-calculator/#/en/te/aboutYou
JW
Welcome to the Forum!
JW
Thank you so much for your input! I have used a couple planning calculators since I posted initially, and found my future tax burden is much less than imagined. I plan to try your calculator that you mention as well. The news may be even better than you say, as my $612 is not an IRA, so will not be taxable except for investment earnings.! If you happen to have any other thoughts about my situation, please let me know.

Thanks again!

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