Just about retirement age...am I on the right track?

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Topic Author
FalconMan
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Joined: Thu Nov 22, 2018 10:17 am

Just about retirement age...am I on the right track?

Post by FalconMan » Tue Feb 05, 2019 1:22 pm

ages 58 & 60
Wife-full time Me part time: filling jointly
Emergency funds 1.5 years
Debt- $0
Tax bracket-2017 25-28% state 3.07%
State-PA
Desired allocations: not sure right now
Goal is to both work part time but not generating enough cash flow to cover all expenses & health care. Current taxable account dividends & pa municipal bonds are generating about $19k a year with the bonds doing $11k at 4.5% avg.
Current allocations across taxable & nontaxable accounts:
Total accounts approx $3 million, $1 million taxable & $2 million nontax

taxable account breakdown
domestic equity 46%
international equity 5%
speciality 4%
domestic fixed income 7%
pa municipal individual bonds 31%
cash & cash equivalents 7%
100%

non taxable account breakdown
domestic equity 64%
international equity 10%
bonds 23%
short term 3%
100%

We have about $300k in the above in individual PA tax exempt municipal bonds with maturity dates varying.
Are we exposed to alot of risk here. I am hesitant to buy cd's due to after taxes the rate of return is so low.
Any guidance is appreciated....I lost my 6 figure job of 30 years & am nervous that I am not doing the right thing
by not looking to go full time back to corporate america but I don't miss the stress.

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David Jay
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Location: Michigan

Re: Just about retirement age...am I on the right track?

Post by David Jay » Tue Feb 05, 2019 4:09 pm

Welcome to the forum!

The whole issue of retirement funding is your expense level. It is pretty easy to project income, but one has to know one’s expenses to know if it is “enough”.

At your ages, you can easily withdraw 90,000 a year (3%) - including future inflation adjustments - from your portfolio for the rest of your lives. So taking out a bit of money every year is no problem. Add in Social Security down the road for your net cash flow.

It is quite an adjustment to go from accumulating assets to spending those assets. I know - I just retired in January @ age 62.

I can’t recommend enough the search function: it is in the upper left of the screen, says: “Google”. There is a wealth of wisdom on so many topics here on the forum.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

EnjoyTheJourney
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Re: Just about retirement age...am I on the right track?

Post by EnjoyTheJourney » Tue Feb 05, 2019 4:45 pm

It looks like you've "won the game", so to speak, unless you have very high annual expenditures.

You probably have enough of a nest egg that you can take a fair amount of risk and still live very well for the rest of your lives even if you have very bad luck. If you really like to keep risk low, though, then you can consider setting up a liability matching portfolio to look after your planned expenses, and a risk portfolio to look after contingencies, bequests, charitable giving, and/or bucket list items that would cost a lot of money*.

* This is a way of organizing retirement investment suggested by William Bernstein and details about how to set that up are not difficult to find, in case you're interested.

Topic Author
FalconMan
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Joined: Thu Nov 22, 2018 10:17 am

Re: Just about retirement age...am I on the right track?

Post by FalconMan » Tue Feb 05, 2019 5:37 pm

David Jay wrote:
Tue Feb 05, 2019 4:09 pm
Welcome to the forum!

The whole issue of retirement funding is your expense level. It is pretty easy to project income, but one has to know one’s expenses to know if it is “enough”.

At your ages, you can easily withdraw 90,000 a year (3%) - including future inflation adjustments - from your portfolio for the rest of your lives. So taking out a bit of money every year is no problem. Add in Social Security down the road for your net cash flow.

It is quite an adjustment to go from accumulating assets to spending those assets. I know - I just retired in January @ age 62.

I can’t recommend enough the search function: it is in the upper left of the screen, says: “Google”. There is a wealth of wisdom on so many topics here on the forum.
Basic expenses if we both quit working would be about 45k including what i estimate we would have to pay for basic health insurance. This would not include any travel or emergency home repairs etc

Grt2bOutdoors
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Re: Just about retirement age...am I on the right track?

Post by Grt2bOutdoors » Tue Feb 05, 2019 5:51 pm

FalconMan wrote:
Tue Feb 05, 2019 5:37 pm
David Jay wrote:
Tue Feb 05, 2019 4:09 pm
Welcome to the forum!

The whole issue of retirement funding is your expense level. It is pretty easy to project income, but one has to know one’s expenses to know if it is “enough”.

At your ages, you can easily withdraw 90,000 a year (3%) - including future inflation adjustments - from your portfolio for the rest of your lives. So taking out a bit of money every year is no problem. Add in Social Security down the road for your net cash flow.

It is quite an adjustment to go from accumulating assets to spending those assets. I know - I just retired in January @ age 62.

I can’t recommend enough the search function: it is in the upper left of the screen, says: “Google”. There is a wealth of wisdom on so many topics here on the forum.
Basic expenses if we both quit working would be about 45k including what i estimate we would have to pay for basic health insurance. This would not include any travel or emergency home repairs etc
Seems low, price out your health insurance on www.healthcare.gov. You asked about the risk in your PA municipal bonds, do you know what they are currently rated by either Moody's, S&P or Fitch? Do you know if they are general obligation bonds and/or revenue specific projects?

Let's say your expenses are $90K, the portfolio is currently valued at $3 million, if the portfolio grew at just 3%, your value would stay about the same through the period of withdrawal. Since you are past age 59.5 years of age, you can withdraw from tax-deferred without penalty, your wife has 1.5 more years to go. In exactly 7 years, you will then collect Social Security, you could choose to spend more or save the excess. You've won the game - you could pick up a part time job at Home Depot or something that suits you. Well done!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Peter Foley
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Re: Just about retirement age...am I on the right track?

Post by Peter Foley » Tue Feb 05, 2019 6:05 pm

Again welcome.

You have done well with saving and are in an excellent position to transition into retirement. I like your asset allocation, savings mix, and cash set aside.

The only thing I would suggest is that once you both go part time and your marginal tax rate drops is to do some Roth conversions to the top of the 12% bracket at least. You have a lot in tax deferred and it would be helpful in terms of tax leveling when you add in SS income and RMDs. It looks like you have the ability to create a few low tax years prior to taking SS.

bloom2708
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Re: Just about retirement age...am I on the right track?

Post by bloom2708 » Tue Feb 05, 2019 7:50 pm

Are you sure you need to work part-time if your expenses are $45k + $20k for health insurance?

3% is 90k. Working for $12/hour need not be an option. Especially while you still have your health.

Down with "One More Year". :wink:

Congrats on your savings. Enjoy it.
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words. Whole food, plant based. Bing it.

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David Jay
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Location: Michigan

Re: Just about retirement age...am I on the right track?

Post by David Jay » Tue Feb 05, 2019 7:53 pm

FalconMan wrote:
Tue Feb 05, 2019 5:37 pm
Basic expenses if we both quit working would be about 45k including what i estimate we would have to pay for basic health insurance. This would not include any travel or emergency home repairs etc
Sounds like you have “won the game”, even if you add $15,000 for health care, you can spend $30,000 a year in “extras” - travel, etc - and still be super safe. And then there is SS down the road to make things even better.
David Jay wrote:
Tue Feb 05, 2019 4:09 pm
I can’t recommend enough the search function: it is in the upper left of the screen, says: “Google”. There is a wealth of wisdom on so many topics here on the forum.
A few examples of useful searches:

“Asset allocation retirement”
“sequence of returns”
“Bond tent”
“Delay SS to 70”
“Roth conversions before Social Security”
“Trinity study”
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Peter Foley
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Location: Lake Wobegon

Re: Just about retirement age...am I on the right track?

Post by Peter Foley » Tue Feb 05, 2019 11:43 pm

Good suggestions by David Jay.

You also might want to look at Mike Piper's Social Security calculator. It provides insight into when one should apply for SS benefits.

Website: https://opensocialsecurity.com/

doneat53
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Re: Just about retirement age...am I on the right track?

Post by doneat53 » Wed Feb 06, 2019 12:16 am

I agree with the other comments that you are in a good spot. The one thing I'd recommend, especially if you are comfortable with spreadsheets, is to make a withdrawl plan that maximizes tax savings and minimizes healthcare expense. As you and your wife go to part time your annual income will drop significantly. This allows extra room within lower tax brackets to roll over 401k funds (ie take them as income) into a ROTH IRA account. Eventually you will have to take required minimum distributions on your 401k totals that can bump you into higher tax brackets later on so converting that to ROTH before social security and RMD's kick in will be important.

That said, if you roll over too much, you could bump yourself out of the ACA subsidy brackets and end up having to pay substantially more for health care so balancing the two is a bit of a puzzle.

doneat

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Watty
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Re: Just about retirement age...am I on the right track?

Post by Watty » Wed Feb 06, 2019 1:46 am

As others have said if your estimate of your expenses is anywhere near what you think then you should do fine.

The big wild card is what healthcare will be like over the next few years but most likely you can use COBRA for at least 18 months so there is not anything urgent about that.

One thing you should look at is tax efficient fund placement. You probably do not want to have any bonds in your taxable account.

https://www.bogleheads.org/wiki/Tax-eff ... _placement

Once you stop working you may not be in a high enough tax bracket for muni bonds to make sense either. A married couple can have over $100K in taxable income and still be in the 12% federal tax bracket so you may be able to stay in that tax bracket.

Bacchus01
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Re: Just about retirement age...am I on the right track?

Post by Bacchus01 » Wed Feb 06, 2019 6:48 am

He’s 60.

4% withdrawal is fine. With SS in a few years, you’re more than set.

Enjoy the retirement.

pennywise
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Re: Just about retirement age...am I on the right track?

Post by pennywise » Wed Feb 06, 2019 8:35 am

FalconMan wrote:
Tue Feb 05, 2019 1:22 pm
I lost my 6 figure job of 30 years & am nervous that I am not doing the right thing
by not looking to go full time back to corporate america but I don't miss the stress.
This struck me-OP, you are probably reeling emotionally from becoming 'retired' suddenly, before you planned to do so and not by choice.

However, why not think of this as a chance to reframe your narrative: given your level of assets here's your opportunity to hire yourself as a financial advisor with one client-you (and your wife of course). You've gotten a fair amount of advice already that includes using some relatively arcane concepts like shifting tax burden via Roth conversions. You have a very healthy nest egg and the folks here are exactly the people to help you not only keep it but increase it while enjoying the fruits of that 30 years of stressful earning! The Bogleheads forum is an incredibly rich and varied source of knowledge. You can become the steward of your own wealth and future using this online team--now that's a pretty sweet part time job. And of course you'll get along great with the boss, you can take mental health days whenever you want and you'll have 100% profit sharing to boot.

Financially you and your wife are in great shape. Now comes the work of getting your head wrapped around the next phase of your lives and it can and should be a wonderful time. You are young retirees, you are smart enough to have earned six figures for 30 years....congratulations on being set free and welcome to your new virtual investment advisory team and frugal social club :D .

elainet7
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Re: Just about retirement age...am I on the right track?

Post by elainet7 » Wed Feb 06, 2019 8:51 am

in retirement the goal is not absolute return but having enough passive income to maintain lifestyle and not to outlive your money

Topic Author
FalconMan
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Joined: Thu Nov 22, 2018 10:17 am

Re: Just about retirement age...am I on the right track?

Post by FalconMan » Wed Feb 06, 2019 3:38 pm

pennywise wrote:
Wed Feb 06, 2019 8:35 am
FalconMan wrote:
Tue Feb 05, 2019 1:22 pm
I lost my 6 figure job of 30 years & am nervous that I am not doing the right thing
by not looking to go full time back to corporate america but I don't miss the stress.
This struck me-OP, you are probably reeling emotionally from becoming 'retired' suddenly, before you planned to do so and not by choice.

However, why not think of this as a chance to reframe your narrative: given your level of assets here's your opportunity to hire yourself as a financial advisor with one client-you (and your wife of course). You've gotten a fair amount of advice already that includes using some relatively arcane concepts like shifting tax burden via Roth conversions. You have a very healthy nest egg and the folks here are exactly the people to help you not only keep it but increase it while enjoying the fruits of that 30 years of stressful earning! The Bogleheads forum is an incredibly rich and varied source of knowledge. You can become the steward of your own wealth and future using this online team--now that's a pretty sweet part time job. And of course you'll get along great with the boss, you can take mental health days whenever you want and you'll have 100% profit sharing to boot.

Financially you and your wife are in great shape. Now comes the work of getting your head wrapped around the next phase of your lives and it can and should be a wonderful time. You are young retirees, you are smart enough to have earned six figures for 30 years....congratulations on being set free and welcome to your new virtual investment advisory team and frugal social club :D .
You are correct. I gave my working life to a company that shut the door on me one morning...close to a year severance & insurance is up now....I did take a part time job slinging mail for the post office. Still at it because you can work part time & buy basic medical for $120/month... I lurked here a long time....sat down with one of the big investment brokers...but after reading John Bogles book decided that putting my money with them would help them more than me. What I need to learn more about is this tax thing & converting 401K to roths? All the ira's that we currently have all already Roth's. I do appreciate all the advise.....but not sure why the one poster above says I would not want to have muni's in a taxable account...I would think the opposite?

curmudgeon
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Re: Just about retirement age...am I on the right track?

Post by curmudgeon » Wed Feb 06, 2019 5:35 pm

Your financial situation sounds somewhat similar to mine. I chose to retire two years ago, in part because there didn't seem much point in piling up more money. After doing some analysis, it seemed pretty clear that we had plenty to retire with the lifestyle we prefer. I entertain myself by tweaking and optimizing our financials, but they could also just pretty much run on autopilot if need be. There are various tools you can run to help give yourself more confidence in your plan; cfiresim is a good one, also there are some decent models available through Fidelity. I'll walk you through my own planning to give you an example of one path.

Knowing your expenses is an important factor. I don't budget or track to any high degree of precision, but prior to retiring, I did spend some time looking at expenses both from bottom-up estimates, and top-down looking at cash flows over a couple of years. With a paid-off house, $45K/year covers a pretty good baseline of expenses for us. I make allowance for eventual car replacement and house repairs, which are lumpy expenses. Also included is some basic amount of travel and entertainment, but not big trips. I track health insurance separately, because ACA puts a lot of funkiness into that expense. Nominally, I add another $20K for health insurance in my budget planning; actually I spend very little on premiums because of the peculiarities of the ACA market in my state. I keep the $20K in my budget, though, because I have no confidence in the stability of ACA (or the local pricing games; an equivalent plan in another state could easily cost us $5-8K even with subsidy).

I then looked at our future social security benefits. For a variety of reasons (you can explore threads on these boards), I'm planning to delay claiming until age 70 for highest benefit. My wife, who has a much lower benefit, will claim somewhere between age 62 and age 67, then get a higher spousal benefit when I start. Since my SS benefit is close to the max, at age 70 our baseline budget would be fully covered by the (inflation-protected) SS benefit; at that time everything we draw from our savings is gravy. I've set aside in low-risk investments the equivalent of that SS benefit from now till age 70.

You could do a rough model of this by subtracting $500K from your taxable investment accounts and treating that as your interim SS benefits from now till age 70. Then treat the rest of your investments as what you will draw from for the rest of your lives. At age 60, a 3% withdrawal rate (inflation adjusted) would be a conservative withdrawal rate for an efficiently invested portfolio. So that would say if you retired today, you could reasonably spend $50K + (3% x $2,500,000). If you expect to spend less than that $125K per year (including taxes), you are in pretty good shape.

To optimize things a bit, from now until age 65 I'm choosing to keep our MAGI under the $65K ACA subsidy cliff. We get a large subsidy by choosing a bronze HSA health plan. We spend substantially more than our $45K baseline budget; maybe 2X, but we are drawing it in ways that don't generate much taxable income (principal from bonds/CDs). So our tax situation looks like $35K of interest and dividends (remember that muni interest gets added in for ACA purposes) and $35K of Roth conversions, minus $9K of HSA contributions.

Between age 65 and 70, we plan to ramp up the Roth conversions to a substantially larger degree. Otherwise, the RMDs at age 70.5 could make for a big tax bite. I don't see a need for us to convert everything tax-deferred to Roth, but if we can get half of it done, that would give us a lot more flexibility with RMDs and legacy.

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