Recently retired - Portfolio/plan review

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Topic Author
Warrior1983
Posts: 8
Joined: Tue Jan 08, 2019 3:51 pm
Location: Northern Virginia

Recently retired - Portfolio/plan review

Post by Warrior1983 » Sat Jan 12, 2019 2:15 pm

Retired as a Fed in mid 2018. Wife still working but that could end w one bad day. :(

Here's where we stand:

Emergency funds: Y (see cash below)
Debt: None
Tax Filing Status: MFJ
Tax Rates: Fed - 12%, State - 5.75%
State of Residency: VA
Age: 59
Desired Asset Allocation: 60/40ish
Desired Int'l: Not sure. 20%?

Current Retirement Assets

TSP - $1.25 million (G-50%, C-28%, I-15%, S-7%) 100% tax deferred
Her 457 - $43K, Blackstone managed 2035 Target Date Fund, 75/25 AA, .08 ER
His Roth IRA - $155K, TRP Retirement 2020, 53/47 AA, .61 ER
Her Roth IRA - $142K, TRP Retirement 2025, 62/38 AA, .64 ER

Non-Retirement Assets

Cash - $220K

Funds Available in her 457

Variety of Blackstone managed options in 2 flavors (tax-deferred and Roth):

Money Market - .08 ER
Stable Value - .26 ER
US Aggregate Bond - .04 ER
TIPS - .03 ER
High Yield Bond - .40 ER
S&P 500 Stock - .02 ER
Small/Mid-Cap Stock (Russell 2500) - .03 ER
Int'l Stock (MSCI ex US) - .07 ER
Global Real Estate - .09 ER
Variety of Target Date Funds (w above funds) ranging from Income to 2060 at 5 year increments - .08 ER

Contributions

Plan was to fund wife's 457 w Roth option instead of Roth IRAs. See Questions/Issues below.

Other

I have pension w diet COLA and 50% survivor benefit. She will have very small pension w COLA. Both social security eligible downstream.

Questions/Issues

1. TSP - was toying w idea of moving to IRA for better investment and withdrawal options but sentiment here seems to be stay w TSP. TSP Program changes due at year end should fix the withdrawal issue. Had avoided F Fund due to anticipated drag in rising interest rate environment moving ahead. Concur on staying w TSP and AA?

2. TRP Roths - have had forever. Can't recall why I went w TRP. My best recollection is they had a more aggressive equity exposure glide path to and through target date which I found appealing. Open to suggestions here.

3. Cash - consensus is probably too much but I have about $25K in anticipated home repairs/improvements coming up, elderly parents w limited resources, and an adult child w big $$$ chronic medical condition so I like to stay liquid not knowing when a sudden issue will arise. Having said that, my plan was to move a piece to a CapOne or Ally CD to get in the 2.7% range. Also see #5 below.

4. Since we're now in 12% bracket, for 2019 going forward as long as wife works, fund wife's 457 as generously as possible w Roth option instead of Roth IRAs. That would allow up to $25K instead of $14K w the two IRAs, would be an easy implementation, and the Blackstone 2035 target seems like a decent option w 75/25 AA and .08 ER. This is probably just for a couple years in anticipation of likely retirement. May as well take advantage of this window before it closes?

5. Implementing #4 above might create a cash crunch for monthly expenses so use TSP withdrawals to fill 12% tax bucket and draw down cash if necessary.

6. When wife retires, implement TSP to Roth IRA conversions to fill 12% tax bucket.

So, did I completely miss the boat? Is this a reasonable approach? Am I at least close? Suggestions?

Thank you in advance. Looking forward to your expert critiques!

Warrior

Fishing50
Posts: 304
Joined: Tue Sep 27, 2016 1:18 am

Re: Recently retired - Portfolio/plan review

Post by Fishing50 » Sun Jan 13, 2019 5:12 am

Yes, I think you have a reasonable approach to maximize the 12% tax bracket.

1. Determine your income needs from the portfolio and he withdrawal rate. It's probably in 3 pieces before SS, after SS, and after RMDs. You can afford a larger withdrawal rate early, if the withdrawal rate decreases after SS.
2. Determine your expected tax bracket at 70.5yrs once RMDs start. Without any calculations, I expect pensions, SS, and RMD will be higher than 12% tax bracket--so maximizing 12% is a great option.

Keep TSP. But, it might be worth executing a partial TSP withdrawal to create a rollover IRA to ensure you have IRA funds to convert in 2019 if TSP doesn't have the option yet. Roth IRA came to the military in Oct, and I couldn't get to the max in the 3 mos remaining in the year. Withdrawal into taxable is reasonable also, to ensure 12% max income $78,950+$24,400 exemption = $103,350 total income.

Roth conversions and TSP withdrawals to the top of the 12% tax bracket to allow $25K Roth 457 and $14K into two IRAs is a great plan. You won't regret extra Roth funds at 70yrs old.

Create a CD ladder. Try to spread equal amounts across multiple CDs maturing in sequential years.
It's perfectly legal, go ask the IRS, they'll say the same thing. I actually feel stupid telling you this, I'm sure you would've investigated the matter yourself. Andy Dufresne

Topic Author
Warrior1983
Posts: 8
Joined: Tue Jan 08, 2019 3:51 pm
Location: Northern Virginia

Re: Recently retired - Portfolio/plan review

Post by Warrior1983 » Sun Jan 13, 2019 8:47 am

Fishing50 wrote:
Sun Jan 13, 2019 5:12 am
Yes, I think you have a reasonable approach to maximize the 12% tax bracket.

1. Determine your income needs from the portfolio and he withdrawal rate. It's probably in 3 pieces before SS, after SS, and after RMDs. You can afford a larger withdrawal rate early, if the withdrawal rate decreases after SS.
2. Determine your expected tax bracket at 70.5yrs once RMDs start. Without any calculations, I expect pensions, SS, and RMD will be higher than 12% tax bracket--so maximizing 12% is a great option.

Keep TSP. But, it might be worth executing a partial TSP withdrawal to create a rollover IRA to ensure you have IRA funds to convert in 2019 if TSP doesn't have the option yet. Roth IRA came to the military in Oct, and I couldn't get to the max in the 3 mos remaining in the year. Withdrawal into taxable is reasonable also, to ensure 12% max income $78,950+$24,400 exemption = $103,350 total income.

Roth conversions and TSP withdrawals to the top of the 12% tax bracket to allow $25K Roth 457 and $14K into two IRAs is a great plan. You won't regret extra Roth funds at 70yrs old.

Create a CD ladder. Try to spread equal amounts across multiple CDs maturing in sequential years.

Great. That helps a lot! Quick follow-up. I know that IRA contributions are limited to $7K/ea (>50) or to the extent of income. Do you know if a 457 Roth contribution decreases income for the purposes of this calculation? For instance, if spouse makes $35K and contributes $25K to a Roth 457, does that decrease her income to $10K and limit the IRA contribution accordingly?

User avatar
Watty
Posts: 15254
Joined: Wed Oct 10, 2007 3:55 pm

Re: Recently retired - Portfolio/plan review

Post by Watty » Sun Jan 13, 2019 9:37 am

Warrior1983 wrote:
Sat Jan 12, 2019 2:15 pm
3. Cash - consensus is probably too much but I have about $25K in anticipated home repairs/improvements coming up, elderly parents w limited resources, and an adult child w big $$$ chronic medical condition so I like to stay liquid not knowing when a sudden issue will arise. Having said that, my plan was to move a piece to a CapOne or Ally CD to get in the 2.7% range. Also see #5 below.
You may a bit heavy in cash but you would also be paying for taxes for Roth conversions(if I read your post right) out of the cash. Getting the best interest rate is a good idea but I don't think that the cash is a problem and as you spend it down over the next few years it will get to be a lot more reasonable.

That would leave you with all your other funds in retirement accounts where taxes are not an issue. When I retired I was in a similar situation so I just moved all money money in the retirement accounts to a target date index fund to make it easier to manage as I get older, or if my wife who knows less about investing has to manage it some day.

Warrior1983 wrote:
Sat Jan 12, 2019 2:15 pm
1. TSP - was toying w idea of moving to IRA for better investment and withdrawal options but sentiment here seems to be stay w TSP. TSP Program changes due at year end should fix the withdrawal issue. Had avoided F Fund due to anticipated drag in rising interest rate environment moving ahead. Concur on staying w TSP and AA?
I don't think there is a consensus on that.

Be sure to understand that the TSP inheritance rules are not as good as for an IRA. You might want to roll the money to an IRA just for that reason. There is a wiki on this.

https://www.bogleheads.org/wiki/TSP_estate_planning

There was a post awhile back where someone had run into this situation;
1) Dad had a large TSP and he died and left it to his wife.
2) Mom left the money in a TSP as a beneficiary participate and was OK
3) Mom died a few years later and left it to their kid.
4) Because of the TSP inheritance rules the kid could not leave it in the TSP or take it as an inherited IRA.
5) Kid has to withdraw all the money from the TSP. The kid already had a good job and was in a high tax bracket so the TSP money was taxed at a very high tax bracket.

If either the mom or dad had rolled the money out to an IRA the kid could have received the money in an inherited IRA and avoided a six figure tax bill.

Some people do love the TSP and when this has come up in prior threads there have even been comments were people would just leave the money in a TSP and leave instructions for their wife to roll the money out to an IRA if they died first. I don't think it is realistic to count on that happening.

Fishing50
Posts: 304
Joined: Tue Sep 27, 2016 1:18 am

Re: Recently retired - Portfolio/plan review

Post by Fishing50 » Sun Jan 13, 2019 10:11 am

Warrior1983 wrote:
Sun Jan 13, 2019 8:47 am
Great. That helps a lot! Quick follow-up. I know that IRA contributions are limited to $7K/ea (>50) or to the extent of income. Do you know if a 457 Roth contribution decreases income for the purposes of this calculation? For instance, if spouse makes $35K and contributes $25K to a Roth 457, does that decrease her income to $10K and limit the IRA contribution accordingly?
I'm not sure, but I wouldn't think so. Roth 401k contributions do not decrease taxable income, so she still has $35K W2 taxable income which enables $14K Roth IRA contributions. If I'm wrong, I'm sure someone else will jump in.
It's perfectly legal, go ask the IRS, they'll say the same thing. I actually feel stupid telling you this, I'm sure you would've investigated the matter yourself. Andy Dufresne

Topic Author
Warrior1983
Posts: 8
Joined: Tue Jan 08, 2019 3:51 pm
Location: Northern Virginia

Re: Recently retired - Portfolio/plan review

Post by Warrior1983 » Sun Jan 13, 2019 1:22 pm

Watty wrote:
Sun Jan 13, 2019 9:37 am
Warrior1983 wrote:
Sat Jan 12, 2019 2:15 pm
3. Cash - consensus is probably too much but I have about $25K in anticipated home repairs/improvements coming up, elderly parents w limited resources, and an adult child w big $$$ chronic medical condition so I like to stay liquid not knowing when a sudden issue will arise. Having said that, my plan was to move a piece to a CapOne or Ally CD to get in the 2.7% range. Also see #5 below.
You may a bit heavy in cash but you would also be paying for taxes for Roth conversions(if I read your post right) out of the cash. Getting the best interest rate is a good idea but I don't think that the cash is a problem and as you spend it down over the next few years it will get to be a lot more reasonable.

That would leave you with all your other funds in retirement accounts where taxes are not an issue. When I retired I was in a similar situation so I just moved all money money in the retirement accounts to a target date index fund to make it easier to manage as I get older, or if my wife who knows less about investing has to manage it some day.

Warrior1983 wrote:
Sat Jan 12, 2019 2:15 pm
1. TSP - was toying w idea of moving to IRA for better investment and withdrawal options but sentiment here seems to be stay w TSP. TSP Program changes due at year end should fix the withdrawal issue. Had avoided F Fund due to anticipated drag in rising interest rate environment moving ahead. Concur on staying w TSP and AA?
I don't think there is a consensus on that.

Be sure to understand that the TSP inheritance rules are not as good as for an IRA. You might want to roll the money to an IRA just for that reason. There is a wiki on this.

https://www.bogleheads.org/wiki/TSP_estate_planning

There was a post awhile back where someone had run into this situation;
1) Dad had a large TSP and he died and left it to his wife.
2) Mom left the money in a TSP as a beneficiary participate and was OK
3) Mom died a few years later and left it to their kid.
4) Because of the TSP inheritance rules the kid could not leave it in the TSP or take it as an inherited IRA.
5) Kid has to withdraw all the money from the TSP. The kid already had a good job and was in a high tax bracket so the TSP money was taxed at a very high tax bracket.

If either the mom or dad had rolled the money out to an IRA the kid could have received the money in an inherited IRA and avoided a six figure tax bill.

Some people do love the TSP and when this has come up in prior threads there have even been comments were people would just leave the money in a TSP and leave instructions for their wife to roll the money out to an IRA if they died first. I don't think it is realistic to count on that happening.

Ouch! Good call on the TSP secondary inheritance issue! I'll definitely read the Wiki and go from there. Thanks!

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