Help a Boglehead feel comfortable about our portfolio...

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
DisplacedHoosier
Posts: 8
Joined: Sat Jun 09, 2018 1:30 pm

Help a Boglehead feel comfortable about our portfolio...

Post by DisplacedHoosier » Tue Jun 25, 2019 8:14 am

Hello! Thanks in advance for reading and sharing your wisdom!

Contemplating starting the next phase of our life at YE19 and looking for reassurance and guidance. Just crossed the 30-yr. mark at Megacorp and pension plan will be frozen at YE so exit plan timing seems right. DW (54) and I (57) have been planning and re-planning this transition for 2+ years. All the calculators look good. DW is a SAHM and our only child is now through college and on their own. We - like many Bogleheads - have lived a FIRE lifestyle, but it almost seems too good to be true. Finally realizing there is a potential life outside the cubicle and that time>money. Let me know what we've missed or any suggestions you might have!

The Details:

Estimated Annual Expenses: $90K (without taxes)
Based on detailed Quicken data we've collected for 20+ years.

Emergency funds: 12-18 months in CDs
Pension: $60K annually - No COLA
Healthcare: Retiree Healthcare through Megacorp
Debt: $0 (house paid off - Estimated Market Value $450K)
Property Taxes: $5.5K
Tax Filing Status: MFJ
Tax Rate: 22% Federal, 0% State
State of Residence: FL
Age: 57 / 54
Desired Asset allocation: 75% stocks / 25% bonds
Desired International allocation: 20% of stocks

Retirement Portfolio:

Total Portfolio: $1.8M (excluding home value)

Megacorp 401K 55%
23% Bond Fund .15ER
16% Intl Equity Index fund .05ER
10% US LC Equity Index Fund .01ER
4% US MC Equity Index Fund .05ER
2% Company Stock Fund .02 ER

Brokerage 31%
10% VTSAX .04ER
7% VFIAX .04ER
5% VWENX .17ER
5% VBIAX .07ER
3% VTTHX .14ER
1% VOO .03ER

My Roth 7%
4% VTSAX .04ER
2% VIGAX .05ER
1% VFIAX .04ER

Wife's Roth 6%
4% VTSAX .04ER
1% VIGAX .05ER
1% VFIAX .04ER

HSA 1%

Questions:
1. We plan to spend a few years converting the 401K to Roth from age 58+. Maybe $130K per year and paying the taxes from our Brokerage account. Tested this out in the RPM spreadsheet and the math works. Any concerns with this plan?
2. We're being fairly aggressive in our Vanguard accounts due to our Pension and cash-on-hand. Trying to make sure we factor in some growth to offset a non-COLA Pension. Would you do the same?
3. We've been cleaning up the VG fund placement over the years. Last year did some TLH in Brokerage to remove VBLTX and reallocated Bond fund in 401K to account tax placement. Wary of cleaning up the Brokerage more due to current taxable gains costs, but any suggestions are welcome.
4. No long-term care insurance, but we've earmarked about $1M in our budget at 75 to (hopefully) account for this.
5. With the $60K annual Pension, I think we are "OK" but looking for any advice on how we can further maximize. Would like to be able to leave a legacy to our child and donate/travel in our next phase.

Thoughts/suggestions/questions/etc...

anon_investor
Posts: 587
Joined: Mon Jun 03, 2019 1:43 pm

Re: Help a Boglehead feel comfortable about our portfolio...

Post by anon_investor » Tue Jun 25, 2019 8:21 am

Does your pension continue to payout to your wife in the event you should pass first? Also does the retiree health insurance through your company continue for your wife in the event you should pass first?

The answers to those questions may impact your allocation.

Also, are either reduced if you should pass first? There would also be some impact to the surviving spouse's tax bracket should either of you pass.

Topic Author
DisplacedHoosier
Posts: 8
Joined: Sat Jun 09, 2018 1:30 pm

Re: Help a Boglehead feel comfortable about our portfolio...

Post by DisplacedHoosier » Tue Jun 25, 2019 10:00 am

Great questions...

The Pension is 100% survivor and Megacorp healthcare is continued to my wife if I go first.

They also are providing a modest HRA to offset some of the cost post 65.

Thanks for the feedback.

livesoft
Posts: 68591
Joined: Thu Mar 01, 2007 8:00 pm

Re: Help a Boglehead feel comfortable about our portfolio...

Post by livesoft » Tue Jun 25, 2019 10:48 am

Looks good to me, but ...

I would simplify the Roth accounts have only one single fund in each of them.

In the brokerage account, I would simplify as I could. I would not reinvest dividends automatically, but would spend them or manually invest them in one or two of my chosen funds which would be VTSAX. Your other funds more or less duplicate VTSAX. The VWENX and VBIAX are not as tax efficient as I would want for myself and I would try to get rid of them or use them in a tax-deferred account instead.

Basically, I would look at your Form 1040 Schedule B and have no interest on the top half and no non-qualified dividends on the bottom half. It is OK to have qualified dividends on the bottom half.

When you are retired, you really don't need emergency funds, so those CDs have got to go. Invest in VTSAX in taxable instead and adjust asset allocation by having more fixed income in tax-deferred. See also: https://www.bogleheads.org/wiki/Placing ... ed_account

If you make charitable contributions, then do you have a Donor-Advised Fund, so that you can channel perhaps VWENX and VBIAX through that?
Wiki This signature message sponsored by sscritic: Learn to fish.

BernardShakey
Posts: 31
Joined: Tue Jun 25, 2019 10:52 pm

Re: Help a Boglehead feel comfortable about our portfolio...

Post by BernardShakey » Wed Jun 26, 2019 12:13 am

I think you're looking great! Very similar situation to my own, you are just a couple years ahead of me and in a little better shape. Couple suggestions to your questions....

1) Roth conversion plan looks good. Will want to do the bulk of them by age 63 as there is a 2-year income look back for Medicare premium calculations.
2) Understand your aggressiveness here with the Vanguard account. Looks like you are a little more conservative with the 401k. For me, overall 60/40 is what I'm comfortable with heading into these last 3-4 pre-retirement years. And as the big day approaches, I intend to reduce risk to 45/55 for the first few years of retirement (to reduce SORR) and then ramp it back up. Michael Kitces has some good research on this approach.
4) You are probably in the range where self-insurance is feasible though might want to think about family history and likelihood of needing several years of care for Alzheimers/dementia if that is in the family histories.

I assume you are planning to defer SS to 70. Good luck!

Topic Author
DisplacedHoosier
Posts: 8
Joined: Sat Jun 09, 2018 1:30 pm

Re: Help a Boglehead feel comfortable about our portfolio...

Post by DisplacedHoosier » Wed Jun 26, 2019 7:13 am

Thank you for your feedback livesoft and BernardShakey...

I hadn't considered the Medicare look-back period so I'll definitely incorporate that into our Roth conversion plan. Definitely want to get all this conversion accomplished before taxes go back up, RMDs kick in. We also want to eliminate any tax implications for spouse and child.

I've purposely kept our more conservative funds in the the 401K and left the VG accounts for growth. As we do the conversion we'll likely rebalance a bit.

Our plan is to leverage the Pension as the base and offset any SORR the first few years with CDs and savings. Hope is to not have to pull out of the VG and Roths until much further down the road - let it grow for now. We will need some $ for home improvements and possible downsizing, but we've built that into our plans at this point. We can easily live on less than the $90K, but want to spend some time traveling, seeing family and enjoying life.

We are deferring SS until 70 to maximize that benefit as well.

Like for most - health care is the big variable. We did have a parent that went through suffering with Dementia. They spent about 12 months in a LTC facility before thankfully the suffering was ended. DW and I have made the strategic decision that we'll need to deal with that if it happens to one of us...

retiredjg
Posts: 38456
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help a Boglehead feel comfortable about our portfolio...

Post by retiredjg » Wed Jun 26, 2019 1:56 pm

Looks comfortable to me.

I don't think you will be in the 22% tax bracket if you don't do conversions, but it might be close. Off the cuff, I would look at doing conversions up to near the top of the 22% bracket from 57 to 62. In the year you turn 63, cut that back to under the first IRMAA tier (currently $170k AGI I think) so that your Medicare costs do not go up when you reach 65.

Another thing to watch - if/when tax rates revert back to higher levels in a few years, what you might have converted at 22% may look less attractive to convert at 25%.

Note that tax brackets are based on taxable income (after deductions) and IRMAA is based on AGI/MAGI (before deductions) so don't let that confuse you.

Also, don't worry about converting every to Roth. It could be helpful to have some still tax-deferred money sitting around to pay for high medical costs (tax free) if one of you should face that.

Topic Author
DisplacedHoosier
Posts: 8
Joined: Sat Jun 09, 2018 1:30 pm

Re: Help a Boglehead feel comfortable about our portfolio...

Post by DisplacedHoosier » Wed Jun 26, 2019 3:32 pm

Thank you retiredjg. Great advice.

Our initial plan is to convert up to the top of the 22% bracket as you suggested - and convert as soon as possible (58-62). We know it's highly likely we won't get it all converted before 63 and/or any potential tax increases. Probably maxing out at between $120-130K per year converted. Something we will need to deal with.

There could be worse problems to have!

retiredjg
Posts: 38456
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help a Boglehead feel comfortable about our portfolio...

Post by retiredjg » Wed Jun 26, 2019 4:01 pm

Yes, there could be worse problems. :happy And don't forget that keeping a little nest egg in tax-deferred can be a good idea.

Post Reply