left advisor, overwhelmed

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finance-mess
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Joined: Fri Aug 17, 2018 1:09 pm

left advisor, overwhelmed

Post by finance-mess » Fri Aug 17, 2018 3:40 pm

Hi guys, (I recently starting reading this forum, and The Boglehead's guide to Retirement Planning, and wish I could have found this 20 years ago :oops: )
We split with our financial advisor, moved most of our assets to Fidelity, and now I'm overwhelmed on how to transition the many different assets into a few passive index funds. I feel a lot of pressure because my time of financial accumulation is up, as I might need to be drawing on these funds soon due to health reasons. My original plan was to live off the interest of individual municipal bonds...and my broker sold me many, but didn't ever discuss...the yield to worst. Now all of these 4-4.5% bonds are getting called early, and I find I need a new plan - ASAP.

(Him) 51, career winding down, not by choice, get a 20k/year pension when I'm 65.
(Her) 54, she'll teach 4 more year, then pull 27k/year pension at age 58, then another 15k/year at age 60.
We have no debt, house paid for etc.
Tax Filing - joint, 22-24% Federal, 0% State
Contributions - (Her) - putting 24K/year into 403b account, VIMAX, just for 4 more years.


Emerg. Funds - checking/savings - Wells Fargo (total) , 125K

Him - tax-deferred, SEP - Cash , 92K
Him - tax-deferred, SEP - BWG (US and global bond fund) , 13K
Him - tax-deferred, SEP - TEGBX, class C (global bond fund) , 1.5K
Him - tax-deferred, SEP - TEGBX, class A (global bond fund) , 16K
Him - tax-deferred, SEP - bond, GE, 2026, 4.31% , 20K
Him - tax-deferred, SEP - bond, ArcelorMittal, 2022 , 11K
Him - tax-deferred, SEP - zero bond, MUFG bank, 2018 , 21K
Him - tax-deferred, SEP - step bond,Wells Fargo, 2024 , 10K
Him - tax-deferred, SEP - perpetual bond, B of Amer. , 11K
Him - tax-deferred, SEP - perpetual bond, Citigroup , 12K
Him - tax-deferred, SEP - total (from above) , 207.5K

Her - tax deferred, IRA - Cash , 6K
Her - tax deferred, IRA - AGDCX, bond fund, ER=1.56% , 67K
Her - tax deferred, 403b - VIMAX, index, mid-cap , 39K
Her - tax deferred, total (from above) , 112K

Taxable, joint - Cash , 319K
Taxable, joint - Stocks/ETF's (individual stocks) , 126K
Taxable, joint - AB High Income (muni fund) , 22K
Taxable, joint - individual municipal bonds , 1080K
Taxable, joint - VIMAX, index, mid-cap , 72K
Taxable, joint - VTSAX, index,tot-stock , 69K
Taxable, joint - VGSLX, index, REIT , 15K
Taxable, joint - TIIRX, large stock fund , 247K
Taxable, joint, total ( from above) , 1950K

Questions, now that I know I can't make the yearly needed income (80k after taxes) from ind. muni bonds, and I have to get to maybe a 50/50 stock bond split, how do I transition this portfolio into a few index funds, while taking into account capital gains, and being tax efficient (like having all bond funds and REIT's in tax-deferred, while keeping the stock index funds in the taxable).
Having my main account at Fidelity now, I was thinking of using their 2 new "zero" index funds for total and international stocks (but concerned they won't do as well as Vanguard when the tax efficiency in figured in).


Thank you guys for any info !

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Meg77
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Re: left advisor, overwhelmed

Post by Meg77 » Fri Aug 17, 2018 4:50 pm

Hi there! First thing to do is realize you're in a great position. There is NO RUSH to make any big changes. You have over $2.3 million in investments, pensions on the way that will cover most of your expenses eventually, tons of cash and no debt. Congrats!

I don't know what your wife's income is, but I'm assuming you can live off her income along with whatever dividends and interest your $2M taxable portfolio throws off for the next four years (cash is paying 2% now, and that's about the yield on the S&P 500 too - so you should get at least $40k from the taxable account just from the income). After that her pension will kick in at $27K so you may need to start selling some assets strategically - or just not reinvesting the bonds as they mature - to meet your spending needs. That's no big deal. You say you need $80K a year, and your portfolio TODAY should support about $92K per year of spending. And that's if both of you retired today and never saved another dime or got any pensions. Long story short - you're going to be fine, financially speaking!

As for your investments, I agree that a 50/50 stock/bond split is a good target for you guys. You can afford to take some risk given the pensions, and you may need this money to last 4 decades, so you need to juice your returns with a bit of risk to outpace inflation over that time and get some growth.

1. First thing I would do is make sure all your investments are set up so that dividends and capital gains are distributed to your settlement fund, not reinvested in your mutual finds.

2. Next thing I would do is select your new target asset allocation and which funds you want to use. The new free Fidelity funds are an obvious choice in my book. Not sure what you mean about them not outperforming Vanguard's or why the tax efficiency would be different. You might want 1 year of cash on hand, but not much more than that. So you'll need to move your cash into the markets slowly over the next few months.

3. There are no tax consequences for selling anything within your retirement accounts, so you can make those trades immediately. Be careful with the individual bonds though. It may be best to just let them run off and then reinvest the proceeds elsewhere rather than selling them (especially at a loss). The bond funds though are probably expensive; I'd just sell those and reinvest in a bond index or stock fund, according to your target.

4. In your taxable account, sell anything with a loss or very small gain and move that money (along with your uninvested cash) into your new funds. To the extent that you recognize losses from these sales, you can also sell funds with a gain which will be offset by those losses. I wouldn't be in a hurry to sell anything with a gain you can't offset though. You can do that slowly over time, preferably during big market corrections. And again, I would just leave the muni ladder in place. You already paid someone who ostensibly had some expertise to construct it. Just reinvest according to your target as you have excess funds.

5. That's it. Focus on your health and your family. Enjoy your money and spend some of it. Take a big trip with your wife. Have fun!

:D
"An investment in knowledge pays the best interest." - Benjamin Franklin

Jack FFR1846
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Re: left advisor, overwhelmed

Post by Jack FFR1846 » Fri Aug 17, 2018 5:23 pm

With the recent drops in ERs in index funds at Fidelity, I have to check my account to believe I have the right numbers. My highest ER at Fidelity now is my total bond FSITX at 0.025%. The wiki has a 3 fund for Fidelity which is still valid. You can use the zero funds rather than the 0.015% ER funds. I split my equity fund into FSTVX (total stock US) and FZROX (total stock zero) about a week ago. Not much difference. We'll see after a few years.
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pkcrafter
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Re: left advisor, overwhelmed

Post by pkcrafter » Fri Aug 17, 2018 8:26 pm

Welcome f-m, see comments below in blue.

finance-mess wrote:
Fri Aug 17, 2018 3:40 pm
Hi guys, (I recently starting reading this forum, and The Boglehead's guide to Retirement Planning, and wish I could have found this 20 years ago :oops: )
We split with our financial advisor, moved most of our assets to Fidelity, and now I'm overwhelmed on how to transition the many different assets into a few passive index funds.

Which account(s) are at Fidelity?

I feel a lot of pressure because my time of financial accumulation is up, as I might need to be drawing on these funds soon due to health reasons. My original plan was to live off the interest of individual municipal bonds...and my broker sold me many, but didn't ever discuss...the yield to worst. Now all of these 4-4.5% bonds are getting called early, and I find I need a new plan - ASAP.

Things aren't too bad here, and you will get them straightened out, but you will have to watch it for awhile. You want to draw 80k/year and that takes 2M at the 4% safe withdrawal rate. Between now and the time you will start receiving income you should be a bit protective. AA of 50/50 might be OK, but a major market downturn could stress your portfolio. 40/60 is also reasonable, at least until you start receiving an income stream.

(Him) 51, career winding down, not by choice, get a 20k/year pension when I'm 65.
(Her) 54, she'll teach 4 more year, then pull 27k/year pension at age 58, then another 15k/year at age 60.
We have no debt, house paid for etc.
Tax Filing - joint, 22-24% Federal, 0% State
Contributions - (Her) - putting 24K/year into 403b account, VIMAX, just for 4 more years.

You mention a 403b here, but it isn't listed.


Emerg. Funds - checking/savings - Wells Fargo (total) , 125K

Is this your company or are you working for an employer who provides a SEP? Most of what you have in here are poor choices. Some have front-end loads (commissions) and some have ongoing built-in commissions as 12b-1 fees. Many have very high fees. Are there any lower cost funds.

Where is this SEP?


Him - tax-deferred, SEP - Cash , 92K
Him - tax-deferred, SEP - BWG (US and global bond fund) , 13K
Him - tax-deferred, SEP - TEGBX, class C (global bond fund) , 1.5K
Him - tax-deferred, SEP - TEGBX, class A (global bond fund) , 16K
Him - tax-deferred, SEP - bond, GE, 2026, 4.31% , 20K
Him - tax-deferred, SEP - bond, ArcelorMittal, 2022 , 11K
Him - tax-deferred, SEP - zero bond, MUFG bank, 2018 , 21K
Him - tax-deferred, SEP - step bond,Wells Fargo, 2024 , 10K
Him - tax-deferred, SEP - perpetual bond, B of Amer. , 11K
Him - tax-deferred, SEP - perpetual bond, Citigroup , 12K
Him - tax-deferred, SEP - total (from above) , 207.5K

Her - tax deferred, IRA - Cash , 6K
Her - tax deferred, IRA - AGDCX, bond fund, ER=1.56% , 67K
Her - tax deferred, 403b - VIMAX, index, mid-cap , 39K
Her - tax deferred, total (from above) , 112K

Where is her IRA? Where is taxable?

Taxable, joint - Cash , 319K
Taxable, joint - Stocks/ETF's (individual stocks) , 126K
Taxable, joint - AB High Income (muni fund) , 22K
Taxable, joint - individual municipal bonds , 1080K
Taxable, joint - VIMAX, index, mid-cap , 72K
Taxable, joint - VTSAX, index,tot-stock , 69K
Taxable, joint - VGSLX, index, REIT , 15K
Taxable, joint - TIIRX, large stock fund , 247K
Taxable, joint, total ( from above) , 1950K

Questions, now that I know I can't make the yearly needed income (80k after taxes) from ind. muni bonds, and I have to get to maybe a 50/50 stock bond split, how do I transition this portfolio into a few index funds, while taking into account capital gains, and being tax efficient (like having all bond funds and REIT's in tax-deferred, while keeping the stock index funds in the taxable).

Cleaning up the tax-advantaged accounts may not be too difficult.
How many stocks in taxable? You'll have to get REIT out of taxable, the rest aren't urgent, but AB high income with an ER of 1.56 in not acceptable.


Having my main account at Fidelity now, I was thinking of using their 2 new "zero" index funds for total and international stocks (but concerned they won't do as well as Vanguard when the tax efficiency in figured in).

The difference in tax-efficiency is about 0.25%



Thank you guys for any info !
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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BL
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Re: left advisor, overwhelmed

Post by BL » Fri Aug 17, 2018 9:37 pm

If you decide to move to Vanguard, I would ask them for portfolio advice. With your large portfolio, they may be willing to help you to some extent. I would be cautious to ask for advice at other brokerages, as they may be looking out for themselves and maybe commissions. If you know exactly what you want, no problem.

MotoTrojan
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Re: left advisor, overwhelmed

Post by MotoTrojan » Fri Aug 17, 2018 9:39 pm

BL wrote:
Fri Aug 17, 2018 9:37 pm
If you decide to move to Vanguard, I would ask them for portfolio advice. With your large portfolio, they may be willing to help you to some extent. I would be cautious to ask for advice at other brokerages, as they may be looking out for themselves and maybe commissions. If you know exactly what you want, no problem.
Doubt they can/will give tax advise. OP we will help. No rush.

radiowave
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Re: left advisor, overwhelmed

Post by radiowave » Fri Aug 17, 2018 10:15 pm

Emerg. Funds - checking/savings - Wells Fargo (total) , 125K
Taxable, joint - Cash , 319K
You have $444k in cash at least some of it in a traditional bank not earning much if any interest. Consider opening a high yield online savings account, some of the recommended ones include: Ally, American Express, Capital One, and Discover. Currently Ally is getting 1.80% on savings and 2.40% on a 1 year CD. That will get you as least earning close to the inflation rate. So a mix of savings as liquid cash and CDs for higher yield will work and FDIC insured. Note, there is a $250k limit per person per account so you have $500k limit for FDIC insurance for a joint account.
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page

ThePrince
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Re: left advisor, overwhelmed

Post by ThePrince » Fri Aug 17, 2018 10:33 pm

Way too much cash in your AA.

finance-mess
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Joined: Fri Aug 17, 2018 1:09 pm

Re: left advisor, overwhelmed

Post by finance-mess » Mon Aug 20, 2018 1:37 pm

Thank you all for the comments, I really appreciate it !! To answer some ?'s or info I left out...

pkcrafter - all assets are held at/through Fidelity, except the Vanguard funds (held at Vanguard) and the fund listed as, TIIRX (held at TIAA-CREF). The SEP is through my company, not an employer, and I keep this at Fidelity. Wife's 403b account is at Vanguard, with 39k now, and during her next/last 4 years...she will contribute 96 total more before retiring. We have about 41 individual stocks (now 112k). I've recently sold all of the ones with a loss, or small gain, leaving these last 41 that have a 67k in LT capital gains. Copy on moving the REIT out of taxable, and the high ER on AB high income, and thx for the .25% tax-efficiency difference between Vanguard/Fidelity funds.

Meg77 - thank you for the help ! I wasn't clear with my 80K after tax/year needs...this need would be about 6 years from now, when my wife pulls both pensions, at 60. For now, we are actually spending about 110k/year. She makes 53k pre-tax now, and sends 24K of this to the 403b Vanguard VIMAX fund. The plan for the next 4-6 years - my dwindling career is free-lance, and will hopefully make 30/40k pre-tax just for next 2 years, then done. So my concerns were to pull from the right assets during these next 6 years, that takes into account the tax ramifications, and steers me to a simplified 3 or 4 fund portfolio for the long-term. Your advice was a great start - I was planning on leaving the muni ladder in place, and as they are redeemed, use these proceeds for income as needed, and reinvest the rest into the new 3 or 4 fund approach. Good idea on diverting the capital gains/dividends into the settlement account. And now I need to pick the 3 index funds to go with between Vanguard and Fidelity (I prefer the ease and website of Fidelity, but cost it more in taxes). pkcrafter answered that...saying that Fidelity is roughly .25% less tax efficient (I've read this is due to Vanguard having a patent on how they do their accounting using matching ETF's to the funds). I'm thinking.....40% - total stock, 10% - international stock, 50% - total bonds.
I know I'm very fortunate to have the amount of assets I've accumulated, especially with the ongoing health issues, but the low returns I've made in the past (using a broker), coupled with the forward approach of index funds...I can't afford to make any more mistakes now. I used Morningstar after tax %'s of Vanguards 3 funds, since inception (stocks/VTSAX, int. stocks/VGTSX, and bonds/VBMFX), to get returns of ...6.38, 4.22, and 3.72 respectively. If I weight these at 40%,10%, 50% = the average annual return is 4.83% = no room for error...and I'd say I'm more pessimistic about future returns than past.
Thank you !

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