Am I on track for retirement? Also: Simplify? Optimize?

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understandingJH
Posts: 282
Joined: Thu Apr 01, 2010 1:18 pm

Am I on track for retirement? Also: Simplify? Optimize?

Post by understandingJH » Sat Sep 22, 2018 7:22 pm

Age: 35
Stock/Bond AA Target: 70/30
US/Intl AA 70/30
Goal: 15x my income by 55 (I live off 1/3 of my gross income)
Portfolio Size: 1.5x my income
Emergency Fund: 1 Year of expenses at 1.8% APY

Taxable:
8.9% Savings Account (1.8% APY)
0.8% Vanguard Limited Term Tax Exempt (2.0% SEC Yield)
7.7% Vanguard Total International Stock Admiral
19.5% Vanguard Total Stock Market Admiral

Rollover IRA
3.5% Vanguard Interim-Term Investment Grade (3.5% SEC Yield)
3.0% Vanguard Short-Term Investment Grade (3.1% SEC Yield)
2.4% Vanguard Prime Money Market (2.1% SEC Yield)
2.4% Vanguard Total Bond Market (3.1% SEC Yield)
8.3% Vanguard Total International Stock Admiral
18.3% Vanguard Total Stock Market Admiral

Roth IRA:
3.5% CD (5-year 2.1% APY maturing in a year)
3.5% Vanguard Prime Money Market (2.1% SEC Yield)
4.1% Vanguard Total International Stock
10.1% Vanguard Total Stock Market Admiral

[new] 401k:
0.6% Vanguard Federal Money Market (2.0% SEC Yield)
0.6% Vanguard Total Bond Market Admiral (3.1% SEC Yield)
0.8% Vanguard Total International Stock Admiral
2.0% Vanguard Total Stock Market Admiral

Current Contributions:
30% of my Pretax Income (Max 401k and Roth IRA before investing in taxable -- the reason why taxable is so large is because I didn't have access to a 401k at my last job)

Questions:
1) Am I too conservative? I started investing 7 years ago with an 80/20 allocation. I switched to 70/30 about 3 years ago as I was able to increase my savings rate significantly and felt that my need to take additional risk lowered having more to save. At the time my willingness was less too because I was concerned about long-term growth prospects of capitalism in general (it doesn't seem like things will be as rosy going forward as they have been in the past). I also was concerned with the sequence of return risk in my investing lifetime. I expect that my income will keep going up, so my ability to take risk will continue to increase while at the same time my need decreases. Having thought more about this though, I can't control how capitalism goes or sequence of return risk. So should such concerns factor in to my "willingness" to take risk? Having a high fixed income allocation for my age increases risk in terms of inflation eroding my savings too. I have about 20 years left in my investment horizon as I want to retire by 55 at the latest. Let's say my rate of return matches inflation, that means I'd only save 0.3 * 20 = 6 + 1.5 = 7.5x my income. This is half what I think I'll need (15x). So I need to not only keep up with inflation, but I need to double the money I save in real terms. Back of the napkin rule of 72 suggests I'd need 3.6% real return to do this, probably a bit more since I'll be contributing throughout the next 20 years -- not all right now. Question is how likely is > 4% real return with 70/30 over 20 years?

2) Should I simplify? One thing that may look odd is my fixed income allocation. The VMLTX fund (limited tax exempt) was one of the first funds I bought and I'm just holding onto it. It has a small amount. I used it at the time to keep some emergency money. I now consider it part of my AA. The two investment grade funds I've had for many years too. Bought at the time when they were doing better than Total Bond (and their SEC is still better). I don't actively contribute to these bond funds. The taxable savings account is when I didn't have access to a 401k and wanted to still save for bonds. I started accumulating there instead of tax-exempt funds because my tax bracket makes it a wash. I don't actively contribute to the aforementioned funds at this time. New money is going into my 401k. I split fixed income 50/50 into Total Bond and Federal Money Market. Reasoning is that Total Bond has higher SEC, but is losing money due to rising interest rates. Prime/Federal Money Market Funds benefits from rising interest rates. It hedges the interest rate situation in the short term. I'm thinking this will work nicely for the next year or two.

3) Tax Loss Havesting won't be possible with my setup correct? When a market crash comes, I won't be able to tax loss harvest because I have replication of my AA (and funds) in all 4 account types. How should I move things around to fix this? Is it worth doing? It seems more complex than just doing the same funds roughly in each account.

4) My Credit Union has 2.65% APY for 1 year CD. Should I move my Emergency Fund and Taxable Retirement saving account to that?

5) Is 15x my income enough to retire by 55? I spend only about 1/3 of my pretax income. Will not receive any pensions outside of social security. However, my goal for retirement is to be able to work on anything I want, not because I need the money. I will not sit around and watch TV all day. So I'm open to working after 55 as long as it's enjoyable, interesting, and intellectually stimulating. So retirement to me means having financial independence from an employer. Work if and only if I want to.

6) Is 1 year emergency fund too much? I lost my job over the summer working at a startup and was unemployed for a couple months. I am now at another startup. Unemployment in my field is low (2% or so). I didn't tap my emergency fund much during unemployment.
Last edited by understandingJH on Sun Sep 23, 2018 12:22 pm, edited 2 times in total.

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Noobvestor
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Re: Am I on track for retirement? Also: Simplify? Optimize?

Post by Noobvestor » Sat Sep 22, 2018 8:56 pm

Just some simplification potential first:

Taxable:
Sell: 0.8% Vanguard Limited Term Tax Exempt (probably just roll into savings or w/e)

Rollover IRA:
Combine everything into Total Bond up to whatever percent you need, rest in Total Stock and/or Total International

Roth IRA:
Put everything in Total Stock or Total International (or whatever split you need)

[new] 401k:
Put everything into Total Stock or Total International (or switch new funds based on what needs topping off)

Reasoning: usually you want higher expected growth in Roth (since you'll never pay taxes on it). Also: overall simplicity. I have about as many accounts as you, and some of those accounts have just one thing in them, which is totally fine and much less of a headache. It *can* be nice to have one account in which you have a little of each main thing just for ease of rebalancing (could be your Rollover IRA, for instance).

You might also find this link helpful: https://www.bogleheads.org/wiki/Asset_a ... e_accounts

(1) I don't think you're being too conservative - easy to feel that way after a long bull market, though. With 20 years of work ahead of you, I would count more on savings rate than expected returns to build to where you need regardless.

(2) I would, yes (per the above)

(3) You could TLH with your current setup or with the setup I proposed above - just have to be careful about automatic (or manual) new contributions in any still-active accounts (otherwise might trigger a wash sale at the wrong time)

(4) I wouldn't put all of your emergency funds into CDs. I like I Bond laddering for part of e funds. Def want some to be pure liquid, though.

(5) 15x really depends on what you'll do/have for income outside of the portfolio. May need more.

(6) I think a 1-year e-fund is fine, especially with cash yielding so much these days (not that much less than bonds)
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

Ron Scott
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Joined: Tue Apr 05, 2016 5:38 am

Re: Am I on track for retirement? Also: Simplify? Optimize?

Post by Ron Scott » Sun Sep 23, 2018 8:56 am

15X plus SS seems quite low to me even for a “normal” retirement age like 65. At 55 I’d be concerned about running out of money.

Assuming WR of 3%, you’re looking at 33X.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. Preparing for financial challenges is more fruitful than trying to predict them.

smitcat
Posts: 1868
Joined: Mon Nov 07, 2016 10:51 am

Re: Am I on track for retirement? Also: Simplify? Optimize?

Post by smitcat » Sun Sep 23, 2018 10:12 am

Ron Scott wrote:
Sun Sep 23, 2018 8:56 am
15X plus SS seems quite low to me even for a “normal” retirement age like 65. At 55 I’d be concerned about running out of money.

Assuming WR of 3%, you’re looking at 33X.
I follow your posts and have ,earned from them , tnank you.
I am curious if his 15X gross income is relevant since the OP also states that this will be about 45X expenses?

amitb00
Posts: 426
Joined: Sun Jan 01, 2012 9:04 am

Re: Am I on track for retirement? Also: Simplify? Optimize?

Post by amitb00 » Sun Sep 23, 2018 10:21 am

Yep, OP says his expenses are one third of income. If he saves 15 times income, he will have 45 times expenses. He should add health care expense, education for kids if pertinent. Going just by numbers, 45 times expenses at age 55 will be great for him.

Ron Scott
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Re: Am I on track for retirement? Also: Simplify? Optimize?

Post by Ron Scott » Sun Sep 23, 2018 10:44 am

smitcat wrote:
Sun Sep 23, 2018 10:12 am
Ron Scott wrote:
Sun Sep 23, 2018 8:56 am
15X plus SS seems quite low to me even for a “normal” retirement age like 65. At 55 I’d be concerned about running out of money.

Assuming WR of 3%, you’re looking at 33X.
I follow your posts and have ,earned from them , tnank you.
I am curious if his 15X gross income is relevant since the OP also states that this will be about 45X expenses?
Oh, I did not do that math... 45X seems conservative and wise.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. Preparing for financial challenges is more fruitful than trying to predict them.

understandingJH
Posts: 282
Joined: Thu Apr 01, 2010 1:18 pm

Re: Am I on track for retirement? Also: Simplify? Optimize?

Post by understandingJH » Sun Sep 23, 2018 12:19 pm

Ron Scott wrote:
Sun Sep 23, 2018 10:44 am
smitcat wrote:
Sun Sep 23, 2018 10:12 am
Ron Scott wrote:
Sun Sep 23, 2018 8:56 am
15X plus SS seems quite low to me even for a “normal” retirement age like 65. At 55 I’d be concerned about running out of money.

Assuming WR of 3%, you’re looking at 33X.
I follow your posts and have ,earned from them , tnank you.
I am curious if his 15X gross income is relevant since the OP also states that this will be about 45X expenses?
Oh, I did not do that math... 45X seems conservative and wise.
That is correct. 15x gross income is about 45x expenses right now. 20 years from now my expenses likely will be higher as other posters mentioned. But even if it's 30-35x expenses that's probably okay.

bradpevans
Posts: 330
Joined: Sun Apr 08, 2018 1:09 pm

Re: Am I on track for retirement? Also: Simplify? Optimize?

Post by bradpevans » Sun Sep 23, 2018 3:46 pm

I think some concepts are confused

Sequence of risk is only relevant when you are no longer adding money and/or withdrawing. In accumulating its nit relevant

Tax loss harvest is only applicable in taxable. Just watch auto reinvest in other accounts (many hear direct dividend to a money market to avoid this situation)

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