Nearing Retirement -- Your Thoughts?

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Topic Author
Boatguy
Posts: 32
Joined: Fri Apr 19, 2019 7:54 pm

Nearing Retirement -- Your Thoughts?

Post by Boatguy » Sun Jun 30, 2019 9:51 am

Good morning. I've been a closet Boglehead for a lot longer than I've know about this site, so it has been fascinating to read through all of the comments and insights. I can see the light at the end of the tunnel, but I enjoy my job and plan to work for a "couple more" years. I'd appreciate comments and suggestions regarding our investments.

Emergency funds: Several years (in anticipation of bridging to SS when I turn 70) in CD's and online mm's

Debt: None

Expenses: $70k/yr

Tax Filing Status: MFJ

Tax Rate: 32% Federal, 5% State

State of Residence: Ohio

Age: 66 me/63 wife

Wife is retired

Desired Asset allocation: 50% stocks / 50% bonds (as Target Date funds shift)
Desired International allocation: 30% of stocks

Portfolio size: Low(ish) 7 figures

Current retirement assets

Taxable
Amazon 0.6%
iShares USMV 1.8%
Vanguard Tx Managed Bal 4.8% .09
Vanguard Tx Managed Cap App 11.8% .09
Vanguard Int Term Tax Exempt 1.5% .09
Vanguard Tx Mgd Bal 1.1% .09
Vanguard VIG Div App ETF 0.5% .06
Schwab account with various stocks/bonds (managed by family friend @.75% fee) 16.7%

His 401k (at Fidelity)
Vanguard Total Bond VBMPX 3.1% 0.03
Van Inst Tr 2020 VITWX 21.7% 0.09
Van 2025 VRIVX 8.3% 0.09
Van Fed MM VMFXXQ 0.5%
Fidelity 2020 1.2% 0.08

His Roth IRA
Vanguard 2020 0.5% .13
Fidelity 2025 0.8% .12 (Just started Mega Backdoor last year, darn it)

His traditional IRA
Fidelity Contrafund 2.9% .82
Vanguard 2020 3.4% .13

Her Traditional IRA
Vanguard 2020 5.1% .13

Ohio 529 0.5% (in Wellington fund)
Health Savings Acct 1.0%

Contributions

New annual Contributions
25k pretax to 401k (co match of 7%) plus another ~30k spillover to rollover to Roth)

Additional information:
=I am receiving an $18k/yr pension from a previous employer. It will be paid until wife and I are both gone and is not indexed to inflation (static)
=Wife receives $3k/yr pension from previous employer that will pay until we are both gone and is indexed to inflation
=Wife started receiving SS (at 63) of ~$650/mo and I will start receiving spousal benefits of ~$398/mo beginning in July ( I was born in '53 so mine was the last year that could do this, as you know)
=My expected SS at 70 will be ~$3800 or so

1)I'd like to put more into tax deferred, but I don't see any avenues for this. Am I missing something? Note that I had to stop contributing to HSA because of SS.
2)I know some of my taxable investments are a bit "busy", but some of it is a function of inheriting money from parents and trying to keep "hers" and "his" identifiable. We're also hoping to not touch much of this and pass it on to our 2 kids. Is this foolish?
3)Once I retire, I'll have a couple of years to make Roth conversion, but I'm concerned that I just have too much in pretax IRAs to make that worthwhile. I can't roll my existing IRAs into my 401k (not permitted). Thoughts on this?
4)Other comments?

Thanks in advance..

User avatar
David Jay
Posts: 7877
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Nearing Retirement -- Your Thoughts?

Post by David Jay » Sun Jun 30, 2019 3:59 pm

Hi Boatguy, welcome to the forum!

It looks like you are in good shape. Specific responses to your questions:

1. A regular (not Mega) backdoor Roth is available to each of you, $14,000 a year. Your income covers the spousal contribution. Link here: https://www.bogleheads.org/wiki/Backdoor_Roth

2. I am a fan of simplicity. I think arbitrary his, hers and parents adds complexity. Money is fungible - it doesn’t make any difference if your kids inherit “her” money, “his” money or “grandpa” money. It will all spend the same. Keeping highly appreciated assets for your kids (so they get stepped-up basis) may make sense, but don’t let the tax tail wag the portfolio dog.

3. The amount in pre-tax does not affect Roth Conversions, in fact pre-tax funds are the funds available for Roth Conversions. You may have read about “backdoor Roth” contributions and may be confusing those two processes. The issue to evaluate when weighing Roth Conversions is the accelerating rate of RMDs with age and a future “filing single” status for the surviving spouse.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Topic Author
Boatguy
Posts: 32
Joined: Fri Apr 19, 2019 7:54 pm

Re: Nearing Retirement -- Your Thoughts?

Post by Boatguy » Sun Jun 30, 2019 5:41 pm

Thanks, David Jay. My concern with the Backdoor Roth is that I’d get taxed on most of the conversion dollars at my rather high marginal rate because we each have a fair amount of pretax IRAs already. Wouldn’t it make sense to wait until my tax bracket drops (I’ll likely work part time at an hourly job once I retire in order to keep busy) when I have only some earned income? Am I missing the point here? BTW, I completely agree with your point about his and hers...and I will continue to negotiate on that point. We don’t really have the investments “walled off”, and it’s more for transparency than anything else.

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David Jay
Posts: 7877
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Nearing Retirement -- Your Thoughts?

Post by David Jay » Sun Jun 30, 2019 6:19 pm

Boatguy wrote:
Sun Jun 30, 2019 5:41 pm
Thanks, David Jay. My concern with the Backdoor Roth is that I’d get taxed on most of the conversion dollars at my rather high marginal rate because we each have a fair amount of pretax IRAs already.

Yes, I somehow overlooked your tIRA accounts (in your first post). Backdoor Roth is not particularly useful unless you can roll one of the tIRAs back into a 401K.

Wouldn’t it make sense to wait until my tax bracket drops (I’ll likely work part time at an hourly job once I retire in order to keep busy) when I have only some earned income?

Yes, I you should make the conversions after retirement and before start of SS benefits.

Am I missing the point here? BTW, I completely agree with your point about his and hers...and I will continue to negotiate on that point. We don’t really have the investments “walled off”, and it’s more for transparency than anything else.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

RetiredAL
Posts: 595
Joined: Tue Jun 06, 2017 12:09 am
Location: SF Bay Area

Re: Nearing Retirement -- Your Thoughts?

Post by RetiredAL » Sun Jun 30, 2019 6:26 pm

Boatguy wrote:
Sun Jun 30, 2019 5:41 pm
Thanks, David Jay. My concern with the Backdoor Roth is that I’d get taxed on most of the conversion dollars at my rather high marginal rate because we each have a fair amount of pretax IRAs already. Wouldn’t it make sense to wait until my tax bracket drops (I’ll likely work part time at an hourly job once I retire in order to keep busy) when I have only some earned income? Am I missing the point here? BTW, I completely agree with your point about his and hers...and I will continue to negotiate on that point. We don’t really have the investments “walled off”, and it’s more for transparency than anything else.
I waited until I retired to start conversions to Roth to void being in a higher tax bracket for the conversion $, for the reason you outlined. Now that I an retired, I convert to the top of 12% ( was 15% ) bracket. My reasoning for doing conversions now before I reach RMD Age is to minimize the RMD tax bill that the surviving spouse will have to pay whenever one of us dies.

After you retire, what you earn from further employment can be used to fund Roth contributions, both your's and your wife's spousal, up the the Roth limits or up to your wage total, whichever is lower. This got me and DW's an to extra 3 years of Roth contributions continuation. If you do this, I suggest waiting until towards the end of the year so you know how much your earnings are, to avoid over-contribution entanglements.

Topic Author
Boatguy
Posts: 32
Joined: Fri Apr 19, 2019 7:54 pm

Re: Nearing Retirement -- Your Thoughts?

Post by Boatguy » Sun Jun 30, 2019 6:42 pm

Thanks, RetiredAL. That’s the plan! Im relieved that I haven’t missed anything too big other than being late to the party on my spillover 401k Roth conversions, which was bad enough. I’m now in my second year of doing that, but I missed several years of opportunity.

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