Emergency funds: 3 months (use taxable bond funds if need more)
Debt: Adjustable rate mortgage, 3%, balance of $420,000. Rate adjusts in November 2021, max of 5%, then annually thereafter. Indexed to Libor plus 2.5%.
Tax Filing Status: Married Filing Jointly
Tax Rate: 22% Federal, 4.25% State
State of Residence: Michigan
Desired Asset allocation: 65% stocks / 35% bonds (CD ladder is included in bonds)
Desired International allocation: 5% max
Planned retirement summer of 2021 (just under 3 years from now), likely selling house with above mortgage and buying new home. No pension for myself, DW will get just over $3,100 a year (in today’s dollars) beginning in 2021, will adjust up each year. Plan on delaying SS until 70 for both, subject to regular re-evaluation. Medical benefits available at discount from state at retirement, as well as supplemental coverage upon start of Medicare. Portfolio size is adequate for 4% withdrawal during retirement at projected level of spending, if future growth exceeds ~ 3.5% withdrawal rate could be higher.
Taxable / Retirement: Each year a very large percentage of earnings is put into retirement accounts, even in low year where earnings might be less than actual expenses (i.e. sell taxable to put into retirement). Taxable will always be larger than retirement accounts due to makeup of assets.
CURRENT TAXABLE INVESTMENT ASSETS (REPRESENTS 67.08% OF ALL INVESTMENT ASSETS):
Some investments existed years ago, collapsing to 3 fund portfolio would incur high taxable gains.
- Stock/stock mutual funds:
16.01% Vanguard Primecap Admiral (VPMAX) – 0.32%, this fund is 43% long term gains.
18.60% Vanguard Value Index Admiral (VVIAX) – 0.05%, this fund is 26% long term gains.
17.77% Vanguard Extended Market Index Admiral (VEXAX) – 0.08% - this fund is 32% long term gains.
0.71% Vanguard Total International Stock Index Admiral (VTIAX) – 0.11%
2.44% IBM (owned since 1984, huge taxable gains)
55.54% of total
- Bonds/bond mutual funds:
4.00% Vanguard Short-Term Investment-Grade Admiral (VFSUX) – 0.10%
0.89% Vanguard Intermediate-Term Investment Grade (VFICX) – 0.20%
5.18% Vanguard Total Bond Market Index Admiral (VBTLX) – 0.05%
1.39% Vanguard Total International Bond Index Admiral (VTABX) – 0.11%
0.08% Tennessee Valley Authority (TVC) – inherited, matures 2028, 3.55% rate
11.54% of total
CURRENT RETIREMENT INVESTMENT ASSETS (REPRESENTS 32.92% OF ALL INVESTMENT ASSETS):
Overall, 88.8% of retirement assets are ROTH, 11.2% are taxable. Conversion done last year (15% tax bracket), likely won’t be done this year due to 22% tax bracket. Current contributions (IRA, 403b, i401K) are ROTH, except for company contribution to i401K which is taxable.
- His 401k
Solo 401K. Maxed out each year, both company and individual contributions. Currently 33.93% taxable, 66.07% ROTH. Individual contributions are ROTH, company contributions are taxable.
Bond mutual funds:
1.16% Vanguard Intermediate-Term Investment-Grade (VFICX) – 0.20%
2.44% Vanguard Long-Term Investment-Grade Fund (VWESX) – 0.22%
3.60% of total
- His ROTH IRA at Vanguard (19.39% of total)
Stock mutual funds:
9.73% Vanguard Primecap Fund Admiral (VPMAX) – 0.32%
Bond mutual funds:
6.32% Vanguard Intermediate-Term Investment-Grade Admiral (VFIDX) – 0.10%
0.67% Vanguard Total Bond Market Index Admiral (VBTLX) – 0.05%
0.99% Vanguard Total International Bond Index Admiral (VTABX) – 0.11%
1.68% 2.65% CD maturing 4/2020
9.66% of total
- Her 457/401K
0.41% State Street Global Advisors S&P 500 Index (no stock symbol exists) – no idea of expense ratio, very hard to get info. This is the best fund choice they have. DW puts in mandatory 2% of pay, nothing more, because she maxes out on her 403b and that is the max that the company will match against. Due to low earnings (public school teaching assistant), this is only a few hundred dollars a year.
- Her 403b
0.49% Fidelity U.S. Bond Index Fund Premium Class (FSITX) – 0.02%
Last year emptied fund into Rollover IRA, will do that every year to get lower expense and shift to bonds to help overall AA%. Currently 0.48% of total investments due to shifting assets out last year (allowed at 59 ½). Contributes all her net pay to this.
- Her Rollover IRA at Fidelity
0.37% Fidelity U.S. Bond Index Fund Premium Class (FSITX) – 0.02%
- Her Rollover IRA at Vanguard (1.68% of total)
0.92% Vanguard Primecap Fund (VPMCX) – 0.39%
0.76% 2.1% CD maturing 4/2019
- Her ROTH IRA at Vanguard (6.98% of total)
3.86% Vanguard Primecap Admiral (VPMAX) – 0.32%
0.97% Vanguard Total International Bond Admiral (VTABX) – 0.11%
0.49% 2.1% CD maturing 4/2019
1.64% 2.35% CD maturing 10/2019
0.01% Misc stock
3.12% of total
65/35 desired allocation, currently 70.47/29.53
Total Holdings Composition (combined taxable and retirement to show total holdings summarized)
- Stock/stock mutual funds:
2.44% - IBM
0.01% - Misc stock
0.41% - SSGA S&P 500
17.77% -Vanguard Extended Market Index (VEXAX) – 0.08%, this fund is 32% long term gains in taxable holding.
30.53% - Vanguard Primecap (VPMAX) – 0.32%, this fund is 43% long term gains in taxable holding.
0.71% - Vanguard Total International Stock Index (VTIAX) -0.11%
18.60% - Vanguard Value Index (VVIAX) – 0.05%, this fund is 26% long term gains in taxable holding.
70.47% of total
Bond/bond mutual funds:
4.57% - CDs
0.08% – Tennessee Valley Authority (TVC)
8.38% - Vanguard Intermediate-Term Investment-Grade (VFIDX) – 0.20%
2.44% - Vanguard Long-Term Investment-Grade (VWESX) – 0.22%
4.00% - Vanguard Short-Term Investment-Grade (VFSUX) – 0.10%
6.71% - Vanguard Total Bond Market Index (VBTLX) – 0.05%
3.35% - Vanguard Total International Bond Index (VTABX) – 0.11%
29.53% of total
New annual Contributions
Maximum contributions for company and individual (ROTH) on solo 401k are made each year.
Entire net pay contributed to DW’s 401k.
$6,500 to each ROTH IRA each year.
Each year, evaluate whether ROTH conversions make sense. Some years, when in lower bracket, do conversions to top of bracket.
I bought my first Primecap holding in 1995, long before I switched to indexing. Great long term performance, big gains (in the taxable holdings). Limited to $25,000 additional investment per year, per account type per person (his IRA, her IRA, his solo brokerage, her solo brokerage, joint account). I re-evaluate each year whether I want to put new money into Primecap or convert existing funds (take IRA holding and convert to Primecap). For 2018, I can invest another $75,000 if I choose to. Additional investments in Primecap in the years I make them have thrown off my AA as one would expect.
1) Due to my desired AA of 65/35, plus the fact that I want to keep my Primecap holdings (some of which are in retirement accounts as you see), I have to hold bonds in my taxable account. State tax rate is relatively low. Would you hold something different, and why? I will likely be TLH the bonds (see #3 below), so a different approach can be easily implemented in early 2019.
2) I have a spread of short, intermediate, and long term bonds, as well as total bond market. Any comments about those holdings? Since I will likely be liquidating them to TLH (in taxable account, see #3 below) and take advantage of Ally’s 1% bonus, would you place these funds differently early next year?
3) Tax loss harvesting - I haven’t done really any tax loss harvesting. I’m thinking this year of selling my taxable bonds to get the loss to offset sizeable gains as I sell off IBM, purchased mostly 30+ years ago (losses won’t begin to cover the gains). I have about $4,750 in short term losses (Vanguard Intermediate-Term Investment-Grade, Vanguard Short-Term Investment Grade, Vanguard Total Bond Market, and Vanguard Total International Bond) and $5,700 in long term losses (Vanguard Short-Term Investment-Grade and Vanguard Total Bond Market). My short-term losses become long term losses in 7 days. I have no short-term gains. I plan on moving as much as can qualify to Ally for the 1% bonus, the rest to Prime Money Market and then reassess. Comments?
4) I see many posts about the tax efficiency of holdings, certain funds not being efficient because they throw off more gains than other funds. I have huge gains in 3 large holdings (which is why they never were changed to a 3 fund portfolio, 4 counting IBM), so I can’t shift much without creating gains. IBM will be reduced dramatically prior to end of year if I TLH.
5) I can rollover assets out of the Solo 401K (hit 59½). I understand the different legal protections between 401ks and IRAs, but this is a small percent of our assets. I am considering doing this to get Admiral Shares, and have less assets in Investor funds. Each year we convert some to ROTH (depending on our tax bracket), but right now DW’s conversions eat it up any room we have, so I guess leaving the company contribution in the i401k for now makes sense, just pull the ROTH contribution. Comments?
Thank you very much.