Please help with asset allocation - 63 yr old

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summerof42
Posts: 53
Joined: Wed Nov 12, 2014 12:33 am

Please help with asset allocation - 63 yr old

Post by summerof42 » Sat Oct 13, 2018 6:00 pm

Thank you in advance for your valuable input! I realize my retirement funds and balance is not at all where it should be given my age, but as an aside, I went through a divorce, job losses and financial hardship several years ago and working very hard in making up for lost time.

Looking for your advice on appropriate fund selections/percentages within my 401k and also my Vanguard funds. I'm not quite certain the choices I made are the best.

Age: 63 - planning to retire at FRA
Tax Filing Status: Single
Tax Rate: 25%
State: WI
Desired Asset Allocation: 60% stocks /40% bonds [certainly open to suggestions]

Debt:
Mortgage $89,000 with $850 monthly payment [includes property taxes in escrow]
No other debt, car is paid off

Cash in taxable accounts:
Savings account at local bank $16,040 [includes emergency fund]

Current Retirement Portfolio:
Roth IRA at Vanguard
Vanguard Target 2020 Fund $22,545.63
ER: 0.13%

IRA at Vanguard
Vanguard Target 2025 Fund $6,575.03
ER: 0.14%

Flexible Premium Deferred Annuity 3% Fixed [no fees, held for 9 years]
Modern Woodmen of America $25,381.02
I'm comfortable with the idea of a stable, fixed rate fund. Hard to find anything at 3% today

401k at ONE AMERICA
Current Balance $93,683 [took a hit last week!]
Presently contributing $18% with 6% company match

Vanguard Total Bond Market Index $28.466.61 [30.39%]
ER: 0.05%

Vanguard 500 Index $65,216.49 [69.61%]
ER: 0.04%

Available Funds in 401k with expense ratio:
BMO Stable Value | ER: 0.49% PDBZX
PGIM Total Return Bond Market Index | ER 0.52% VBTLX
MSF Value | ER: 0.84% | MEIHX
American Fundamental Investors | ER: 0.30% | RFNGX
Mainstay Large Cap Growth | ER: 0.85% | MLRRX
JP Morgan Mid Gap |ER: 0.86% | FLMVX
Vanguard Extended Market Index | ER: 0.08% | VEXAX
Max Mutual Select Mid Cap | ER: 0.72% | MEFZX
Prudential QMA Small Cap Value | ER: 0.63% | TSVQX
PGIM Jennison Health Sciences | ER: 0.84% | PHSZX
American Euro Pacific | ER: 0.49% | RERGX
Dodge & Cox Intl Stock | ER: 0.63% | DODFX
Vanguard Total Intl Stock | ER: 0.11% | VTIAX
Fidelity Freedom Income | ER: 0.47% | FFFAX
Fidelity Freedom 2005 | ER: 0.49% | FFFVX
Fidelity Freedom 2010 | ER: 0.53% | FFFCX
Fidelity Freedom 2015 | ER: 0.57% | FFFVX
Fidelity Freedom 2020 | ER: 0.61% | FFFDX
Fidelity Freedom 2025 | ER: 0.66% | FFTWX
Fidelity Freedom 2030 | ER: 0.70% | FFFEX
Fidelity Freedom 2035 | ER: 0.74% | FFTHX
Fidelity Freedom 2040 | ER: 0.75% | FFFFX
Fidelity Freedom 2045 | ER: 0.75% | FFFGX
Fidelity Freedom 2050 | ER: 0.75% | FFFHX
Fidelity Freedom 2055 | ER: 0.75% | FDEEX
Fidelity Freedom 2060 | ER: 0.75% | FDKVX

Pension:
$238 Month

Annual Contributions to all accounts:
$6,500 to Roth IRA
$3,000 to Savings
$11,000 401k with 6% match

Annual salary $52,000
Last edited by summerof42 on Sat Oct 13, 2018 8:41 pm, edited 4 times in total.

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David Jay
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Location: Michigan

Re: How Am I Doing? 63 Yrs Young

Post by David Jay » Sat Oct 13, 2018 6:13 pm

So what are you thinking about? What are your concerns? What is your schedule?
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

delamer
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Re: How Am I Doing? 63 Yrs Young

Post by delamer » Sat Oct 13, 2018 6:21 pm

You certainly have a high savings rate as a percent of income.

To give you better advice, there are a few more things that would be good to know.

When do you want to retire? How much income will you need to live comfortably?

Do you have an estimate of your Social Security benefits?

Keep this in mind — if you subtract your pension and Social Security benefits from your expenses (including income taxes), that tells you how much money you need to withdraw from your savings to pay your bills in retirement.

Dottie57
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Re: How Am I Doing? 63 Yrs Young

Post by Dottie57 » Sat Oct 13, 2018 6:30 pm

The way I think of retirement expenses is : monthly take home pay + medical insurance costs + taxes. And remember you won’t have the Roth IRA contribution expense.

summerof42
Posts: 53
Joined: Wed Nov 12, 2014 12:33 am

Would like to create a better portfolio

Post by summerof42 » Sat Oct 13, 2018 8:38 pm

My apologies for any confusion. The reason for my post is as title implies, a review of my present portfolio and funds vs options; hence the posted information of my present fund selections. Of course, already having a Vanguard account also provides me many options.

In answer to the first 3 posts, I understand and know what my expenses will be when I retire and where monies will come from (SS, retirement funds, savings and pension) so posting this information is irrelevant.

delamer
Posts: 6272
Joined: Tue Feb 08, 2011 6:13 pm

Re: Would like to create a better portfolio

Post by delamer » Sat Oct 13, 2018 9:04 pm

summerof42 wrote:
Sat Oct 13, 2018 8:38 pm
My apologies for any confusion. The reason for my post is as title implies, a review of my present portfolio and funds vs options; hence the posted information of my present fund selections. Of course, already having a Vanguard account also provides me many options.

In answer to the first 3 posts, I understand and know what my expenses will be when I retire and where monies will come from (SS, retirement funds, savings and pension) so posting this information is irrelevant.
The degree to which you need to withdraw funds from your portfolio to cover expenses is highly relevant to how the portfolio should be invested.

summerof42
Posts: 53
Joined: Wed Nov 12, 2014 12:33 am

Re: Please help with asset allocation - 63 yr old

Post by summerof42 » Sat Oct 13, 2018 9:34 pm

Similar posts to mine have been posted on this site with replies of recommended fund allocation, which is merely what I am looking for. I'm sure there's room for improvement.

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sergeant
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Re: Please help with asset allocation - 63 yr old

Post by sergeant » Sat Oct 13, 2018 9:41 pm

summerof42 wrote:
Sat Oct 13, 2018 9:34 pm
Similar posts to mine have been posted on this site with replies of recommended fund allocation, which is merely what I am looking for. I'm sure there's room for improvement.
Ok, why not just put it in the Vanguard balanced fund where available. There's your 60/40 which is a viable AA for most.
Lincoln 3 EOW!

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GerryL
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Re: Would like to create a better portfolio

Post by GerryL » Sat Oct 13, 2018 9:48 pm

delamer wrote:
Sat Oct 13, 2018 9:04 pm
summerof42 wrote:
Sat Oct 13, 2018 8:38 pm
My apologies for any confusion. The reason for my post is as title implies, a review of my present portfolio and funds vs options; hence the posted information of my present fund selections. Of course, already having a Vanguard account also provides me many options.

In answer to the first 3 posts, I understand and know what my expenses will be when I retire and where monies will come from (SS, retirement funds, savings and pension) so posting this information is irrelevant.
The degree to which you need to withdraw funds from your portfolio to cover expenses is highly relevant to how the portfolio should be invested.
To the OP:
If your expenses will be completely or almost completely covered by your retirement income (SS+pension), you have "won the game" as they say and the appropriate allocation for you will depend on whether you want to stop playing (lower stock holdings) or keep playing to perhaps build a legacy (more aggressive in stocks). So knowing how much you expect to spend annually in retirement, or at the very least, what kind of gap you need to fill, is very relevant to what might be an appropriate asset allocation.

Dottie57
Posts: 4654
Joined: Thu May 19, 2016 5:43 pm

Re: Would like to create a better portfolio

Post by Dottie57 » Sun Oct 14, 2018 11:17 am

GerryL wrote:
Sat Oct 13, 2018 9:48 pm
delamer wrote:
Sat Oct 13, 2018 9:04 pm
summerof42 wrote:
Sat Oct 13, 2018 8:38 pm
My apologies for any confusion. The reason for my post is as title implies, a review of my present portfolio and funds vs options; hence the posted information of my present fund selections. Of course, already having a Vanguard account also provides me many options.

In answer to the first 3 posts, I understand and know what my expenses will be when I retire and where monies will come from (SS, retirement funds, savings and pension) so posting this information is irrelevant.
The degree to which you need to withdraw funds from your portfolio to cover expenses is highly relevant to how the portfolio should be invested.
To the OP:
If your expenses will be completely or almost completely covered by your retirement income (SS+pension), you have "won the game" as they say and the appropriate allocation for you will depend on whether you want to stop playing (lower stock holdings) or keep playing to perhaps build a legacy (more aggressive in stocks). So knowing how much you expect to spend annually in retirement, or at the very least, what kind of gap you need to fill, is very relevant to what might be an appropriate asset allocation.
+1

It is hard to give appropriate advice in the dark.

Lafder
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Location: East of the Rio Grande

Re: Please help with asset allocation - 63 yr old

Post by Lafder » Sun Oct 14, 2018 10:32 pm

There is a general recommendation for age down to age - (15-20) in bonds.

That would suggest 43-63% bonds for you.

I like rounder number so I would go with a range of 60/40 asset allocation to 40/60.

(These happen to be the asset allocations of the Vanguard Wellington and Wellesley funds).

Or pick an in between of 50/50. Basically there is a trade off of wanting higher gains with more stocks, versus higher bonds to protect your holdings in a stock market crash.

My plan is to go no more conservative than 60/40. But I am not retired yet so I can not tell you my actual future behavior yet :)

As far as International stocks, there is a rec to have 0-50% of your stock holdings as International. Vanguard recs 30-50%, Buffett and Bogle have said 0% is fine. So somewhere in between there is fine.

Target date funds are convenient.

Why are you not maxing your 401k ?

Hopefully something I said helps :)

lafder

summerof42
Posts: 53
Joined: Wed Nov 12, 2014 12:33 am

Re: Please help with asset allocation - 63 yr old

Post by summerof42 » Sun Oct 14, 2018 11:45 pm

Hello Lafder:

Thank you kindly for replying. As much as I would love to max out my 401k I am not able since I need the other monies to survive and pay my monthly expenses since my salary is only $52k. Additionally, I need to build up my savings for emergencies and also put $6,500 into Roth every year; to make that happen, I live very frugally in working hard in building up my retirement savings. Every year if I'm awarded a raise I also increase my contribution.

When I retire 2021 or 2022 it looks like 55% of my income will come from SS and the other portion from retirement investments and tiny pension.

Can you review my 401k funds and also investments at Vanguard and let me know if I'm in the correct funds? Also percentages. I'm on the fence regarding my small annuity. With this crazy market lately it looks like I'm safe in keeping the annuity for now but would like to know at what point and time I should transfer to Vanguard and to what fund.

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nedsaid
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Joined: Fri Nov 23, 2012 12:33 pm

Re: Please help with asset allocation - 63 yr old

Post by nedsaid » Mon Oct 15, 2018 12:19 am

What I would do is look at the asset allocation models for the Target 2020 Funds. Take a look and see what Vanguard, Fidelity, and T. Rowe Price are doing. You will get the best thinking of what the mutual fund industry thinks is appropriate for someone your age.

Vanguard is at 53.52% stocks and 46.47% bonds and 0.01% other. That translates into 32.20% US Total Stock Market Index, 21.30% Total International Stock Index, 28.90% US Total Bond Market Index, 12.20% Total International Bond Index, and 5.40% Short Term TIPS. Vanguard recommends that stocks be allocated 60% US and 40% International. Vanguard had recommended 70% US and 30% International for bonds, it looks like the International portion is now about 26.3% and short term TIPS have been added.

Fidelity 2020 Freedom has 52.13% stocks, 36.03% bonds, 11.28% cash, and 0.56% other. Fidelity recommends that stocks be allocated 60% US Stocks and 40% International, this is a change, it was 70%/30%. It appears Fidelity is following Vanguard's lead.

The Fidelity 2020 Index Freedom Fund is a tad more aggressive with 54.36% stocks, 36.89% bonds, 2.45% cash and 6.29% other. Unlike Vanguard, Fidelity does not include International Bonds. I noticed that the Index version has a stock allocation of about 71% US and 29% International. Interesting that the active version has more International than the Index version. Fidelity has TIPS in this portfolio.

T. Rowe Price is the most aggressive here with 56.18% stocks, 38.77% bonds, 3.29% cash, and 1.76% other. The stocks are split at 66% US and 34% International. Bonds are split at 80% US and 20% International. T. Rowe Price has some short term TIPS here.

So some themes stick out here. You see a range of 52% to 56% stocks. Stock portfolios have 30-40% in International. Vanguard and T. Rowe Price allocate 20% to 26% of bonds to International. Fidelity doesn't use International Bonds. All three have TIPS, Vanguard and T. Rowe Price buy short term TIPS, Fidelity sticks with Intermediate term.

So that should give you some ideas.
A fool and his money are good for business.

retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: Please help with asset allocation - 63 yr old

Post by retiredjg » Sun Nov 11, 2018 10:05 am

Summerof 42, it's been a long time! Sorry I missed your post. Just a few comments.
Tax Rate: 25%
You are no longer in the 25% bracket. The tax changes would reduce you to the 22% bracket, but you are not there either.

If your salary is $52,000 and you subtract the $12k standard deduction and subtract your contribution to your 401k, that should bring you under the top of the 12% bracket which is $38,700. So it appears to me that you are now in the 12% bracket and will remain there (except the tax cuts may expire in which case your tax bracket will increase to 15%).

As I was reading back through your old threads, I was quite impressed at the progress you have made in increasing your retirement savings even while receiving a fairly low salary. Since you are able to live very frugally, I think you will be fine in retirement.


Desired Asset Allocation: 60% stocks /40% bonds [certainly open to suggestions]
I think this is reasonable for now. Since you don't have a lot of "extra" money you won't have a lot of wiggle room in retirement. For that reason I think you should consider arriving at retirement at something closer to 55/45 and moving to 50/50 after that. Just my thoughts.


Here's what your portfolio looks like now (total =$148,184)

Roth IRA at Vanguard 15.2%
Vanguard Target 2020 Fund $22,545.63<--this is 8% stocks and 7.2% bonds
ER: 0.13%

IRA at Vanguard 4%
Vanguard Target 2025 Fund $6,575.03<--I'll call this 2.6% stocks and 1.4% bonds...close enough
ER: 0.14%

Flexible Premium Deferred Annuity 3% Fixed [no fees, held for 9 years] 17%
Modern Woodmen of America $25,381.02
I'm comfortable with the idea of a stable, fixed rate fund. Hard to find anything at 3% today

401k at ONE AMERICA 63%
Current Balance $93,683 [took a hit last week!]
Presently contributing $18% with 6% company match

19% Vanguard Total Bond Market Index $28.466.61 [30.39%]
ER: 0.05%

44% Vanguard 500 Index $65,216.49 [69.61%]
ER: 0.04%

This puts your overall portfolio at about 54.5% stocks and 44.6% bonds (some rounding error in there) if you count the Deferred Annuity as bonds. Of course that was 3 weeks ago and I think the market has rallied a little since then so it might be closer to your target today.

Keep up the good work!

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