Months from Retirement, Gut Check, questions

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LuigiLikesPizza
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Joined: Tue Jan 05, 2016 7:54 am

Months from Retirement, Gut Check, questions

Post by LuigiLikesPizza » Sun Jun 30, 2019 4:20 pm

Emergency funds: Yes
Debt: No debt

Age: 58.5
Tax Filing Status: Single, Divorced
Tax Rate: 28% Federal, 5.75% State

State of Residence: Virginia, but in transition, new location TBD



Portfolio Size : $1.570M +/-


Expected expenses in retirement: $60K/year

Key information: I am a renter, do not own any RE. Own a car without a note, value approx $10K, Planning to move from HCOL area to LCOL area in retirement.

Current retirement assets

Morningstar X Ray View of Asset Allocation:

https://i.postimg.cc/zG4Z4Rc4/Image-6-3 ... -57-PM.jpg

Taxable

Money Market $105K

Vanguard Total Market ETF: $85K
Vanguard Total Int. Fund $148K
Vanguard Total Stock Market $27K
(Exxon) $20K
Total: $385K

Federal Government TSP (401K)

G Fund (guaranteed income) $743K
S Fund (small cap index) $ 65K
Total: $808K


Roth IRA

Money Market $30K
REIT FUND $50K
Vanguard Total Market ETF $29K
Vanguard Total Stock Market $65K
Total: $174K

HSA
IWB (Russell 1000). $27K

I-BONDS

$147K

CASH ON HAND

$80K

PENSIONS:

Private Employer: $831/month payable now, not COLA adjusted

Federal Pension: later this year will be approx $1,000/month minus $160/month for health insurance

Social Security $2000 at age 62
$3044 at age 67

Contributions

New annual Contributions

Every year I contribute the max to the TSP, to the Roth and the HSA.


Questions:

1. I will reach federal retirement eligibility in 60 days. I plan to retire either then or 12/31/2019. I have recently switched my allocation away from stocks toward bond funds and cash with the understanding that this is now is the riskiest timeframe for my portfolio.
I will reconsider my AA once I am retired and a bit farther down the road. I realize that the way it's structured now is not sustainable.

Can anyone see any pitfalls with the way I have my assets structured, *going into retirement in 2019*?

2. Have I overlooked anything as a potential retiree? Any specific advice before making the big jump?
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Wiggums
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Re: Months from Retirement, Gut Check, questions

Post by Wiggums » Sun Jun 30, 2019 4:27 pm

I don’t see any issues with your plan. Congratulations on your retirement.

lakpr
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Re: Months from Retirement, Gut Check, questions

Post by lakpr » Sun Jun 30, 2019 5:05 pm

Consider retirement in early 2020, perhaps you can add a few more dollars into the TSP and Roth accounts for 2020. Retirement on 12/31/2019 loses the benefit of earnings in the new year. Not for too long, just enough to earn $25k in taxable income that you can contribute to Roth TSP and a Roth IRA for 2020. Note that even though the taxable income will be only $25k, if you contribute that entirely to Roth TSP, the W2 form would show $25k income which will make you eligible to contribute $7k to Roth IRA as well. $25k income thus lets you shield $32k into Roth accounts. I think that is a good deal and you should make use of it. Your SS credits also will get boost of an additional quarter

There is also not a 28% bracket any more, you are either in the 24% bracket (most likely, this bracket is very wide, up to $160k for a single + standard deduction) or 32% tax bracket.

Based on $743k in your G fund in an overall portfolio of $1.57 million, looks like your portfolio is 50:50 stocks to bonds. That is a bit more conservative than what I would like personally, I suggest you bump up to 60:40, at least after age 67 once you begin drawing social security. You will have the SS + pension taking care of most of your expenses then, you can afford to be a bit more aggressive then I think. But this is strictly advisory, if the 50:50 is what aids the SWAN factor, so be it.

Lastly, I suggest you switch investments in your Roth IRA to something other than Vanguard Total Market ETF and mutual fund. These are the same investments as in your taxable account, so should there be a market drop in the future, you can take the opportunity to do tax loss harvesting without being worried about wash sale rules.

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Watty
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Re: Months from Retirement, Gut Check, questions

Post by Watty » Sun Jun 30, 2019 11:12 pm

Gut Check
LuigiLikesPizza wrote:
Sun Jun 30, 2019 4:20 pm
Private Employer: $831/month payable now, not COLA adjusted

Federal Pension: later this year will be approx $1,000/month minus $160/month for health insurance

Social Security $2000 at age 62
$3044 at age 67
Total at 67, $4,875 a month, $58,500 a year.
LuigiLikesPizza wrote:
Sun Jun 30, 2019 4:20 pm
Expected expenses in retirement: $60K/year
:sharebeer

Lots of details but you look fine with the usual comments about healthcare.
LuigiLikesPizza wrote:
Sun Jun 30, 2019 4:20 pm
I am a renter,

Any specific advice before making the big jump?
Since you are able to live on $60k a year I would assume that you must live somewhere that housing is fairly reasonable.

Maybe not right away but for the long term I would consider eventually buying a place to live in since with a paid off house your monthly costs will be even lower.

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onthecusp
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Re: Months from Retirement, Gut Check, questions

Post by onthecusp » Mon Jul 01, 2019 11:09 am

160/month for health insurance seems incredibly cheap. But I'll assume it is a government subsidized program and is just fine. Will Medicare take over once you become of age? That might boost you spending significantly, but not unreasonably for your assets.

Either way you seem set. Eventually pension and Social Security income will meet your needs and your portfolio a source of flexible funds. Personally I would delay social security as long as possible (till 70 to maximize the payment) and spend a bit more out of savings in the meantime.

With your low spending for now, you could probably do Roth conversions between now and taking Social Security. But with your plan that is just padding your eventual huge balance. If you keep to 60,000/yr for other spend you could splurge on a real nice vacation, car, or donation occasionally.

In edit,
Oh, and congratulations!

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dodecahedron
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Re: Months from Retirement, Gut Check, questions

Post by dodecahedron » Mon Jul 01, 2019 11:54 am

Watty wrote:
Sun Jun 30, 2019 11:12 pm
Since you are able to live on $60k a year I would assume that you must live somewhere that housing is fairly reasonable.

Maybe not right away but for the long term I would consider eventually buying a place to live in since with a paid off house your monthly costs will be even lower.
I would not do this in the OP´s shoes. Unexpected repairs (some potentially quite large like new roof or furnace), responsibilities for mowing and snow removal, needing to deal with other unpredictable costs like increased real estate taxes, homeowners´ insurance, etc. All this is more headaches down the road for the OP´s designated POA to manage if and when OP becomes incapacitated. And/or for the executor to manage after death.

That said, I myself have a paid off home (and two young adult daughters with a sentimental attachment to it, one of whom still lives with me and already helps with home maintenance and support and is deeply familiar with its quirks.) I may or may not live out my life here, but if I do sell and move out it will be to a rental apartment, not to a newly purchased home with unknown new issues. (And this includes ruling out condos. I have heard too many horror stories about HOA surprise assessments.)

If I were already living the contented life of a renter, I would not change to being a homeowner at this stage of my life.

delamer
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Re: Months from Retirement, Gut Check, questions

Post by delamer » Mon Jul 01, 2019 12:41 pm

You’ll need to take roughly $36,000/year from your investments to cover your expenses until you begin taking Social Security. I am assuming that the $60,000 includes income taxes.

I would consider a chunk of your cash-equivalent assets as earmarked for that purpose (for instance, if it will be 5 years then $180,000).

Then see if you are comfortable with the allocation for the remainder of your portfolio. Having half of your assets in the G fund is very conservative, especially given that your pensions plus Social Security will cover a huge percentage — if not all — of your expenses.

Topic Author
LuigiLikesPizza
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Re: Months from Retirement, Gut Check, questions

Post by LuigiLikesPizza » Tue Jul 02, 2019 5:45 am

LuigiLikesPizza wrote: ↑Sun Jun 30, 2019 4:20 pm
Private Employer: $831/month payable now, not COLA adjusted

Federal Pension: later this year will be approx $1,000/month minus $160/month for health insurance

Social Security $2000 at age 62
$3044 at age 67
Total at 67, $4,875 a month, $58,500 a year.

Hi Watty, do you mind clarifying this comment? Thanks, not sure what this means.

Topic Author
LuigiLikesPizza
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Re: Months from Retirement, Gut Check, questions

Post by LuigiLikesPizza » Tue Jul 02, 2019 5:53 am

Having half of your assets in the G fund is very conservative, especially given that your pensions plus Social Security will cover a huge percentage — if not all — of your expenses.

I very much agree. As the market has continued to rise, I have been taking money "off the table" from other TSP funds and moving to the G, the primary reason being that I am only months from retirement.

I do intend to rebalance again once I am past this important hurdle. Perhaps I need to start investigating now how a reasonable retiree's portfolio should be allocated based on number of years since retirement.

Thanks for your comments.

k3vb0t
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Re: Months from Retirement, Gut Check, questions

Post by k3vb0t » Tue Jul 02, 2019 5:58 am

LuigiLikesPizza wrote:
Tue Jul 02, 2019 5:45 am
LuigiLikesPizza wrote: ↑Sun Jun 30, 2019 4:20 pm
Private Employer: $831/month payable now, not COLA adjusted

Federal Pension: later this year will be approx $1,000/month minus $160/month for health insurance

Social Security $2000 at age 62
$3044 at age 67
Total at 67, $4,875 a month, $58,500 a year.

Hi Watty, do you mind clarifying this comment? Thanks, not sure what this means.
I think he was looking at the total income you would have if you wait until age 67 to take SS: $831 + $1000 + $3044 = $4875 per month or $58,500 per year.

Of course you’d have to discount the $831 a bit due to inflation but the overall idea being that if your $60k target includes health insurance, income tax, and expected expenses then you’ve almost got all of that covered just with pensions and social security. So you can focus on having your portfolio cover you from now until 67 — or even age 70 (what would that do to your social security?)

Congrats :)

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jabberwockOG
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Re: Months from Retirement, Gut Check, questions

Post by jabberwockOG » Tue Jul 02, 2019 7:37 am

lakpr wrote:
Sun Jun 30, 2019 5:05 pm
Consider retirement in early 2020, perhaps you can add a few more dollars into the TSP and Roth accounts for 2020. Retirement on 12/31/2019 loses the benefit of earnings in the new year. Not for too long, just enough to earn $25k in taxable income that you can contribute to Roth TSP and a Roth IRA for 2020. Note that even though the taxable income will be only $25k, if you contribute that entirely to Roth TSP, the W2 form would show $25k income which will make you eligible to contribute $7k to Roth IRA as well. $25k income thus lets you shield $32k into Roth accounts. I think that is a good deal and you should make use of it. Your SS credits also will get boost of an additional quarter

There is also not a 28% bracket any more, you are either in the 24% bracket (most likely, this bracket is very wide, up to $160k for a single + standard deduction) or 32% tax bracket.

Based on $743k in your G fund in an overall portfolio of $1.57 million, looks like your portfolio is 50:50 stocks to bonds. That is a bit more conservative than what I would like personally, I suggest you bump up to 60:40, at least after age 67 once you begin drawing social security. You will have the SS + pension taking care of most of your expenses then, you can afford to be a bit more aggressive then I think. But this is strictly advisory, if the 50:50 is what aids the SWAN factor, so be it.

Lastly, I suggest you switch investments in your Roth IRA to something other than Vanguard Total Market ETF and mutual fund. These are the same investments as in your taxable account, so should there be a market drop in the future, you can take the opportunity to do tax loss harvesting without being worried about wash sale rules.
Agree - very good advice from above.

The only suggestion I have as some have posted is to buy (with cash) a nice condo or townhouse in your new location. Rent inflation over time is a risk that is fairly easy eliminate in your case particularly if moving to a LCOL area.
Congratulations on your upcoming retirement. With the indicated pensions and SS you will be in great shape. Enjoy!
Last edited by jabberwockOG on Tue Jul 02, 2019 7:40 am, edited 1 time in total.

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Watty
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Re: Months from Retirement, Gut Check, questions

Post by Watty » Tue Jul 02, 2019 7:39 am

k3vb0t wrote:
Tue Jul 02, 2019 5:58 am
LuigiLikesPizza wrote:
Tue Jul 02, 2019 5:45 am
LuigiLikesPizza wrote: ↑Sun Jun 30, 2019 4:20 pm
Private Employer: $831/month payable now, not COLA adjusted

Federal Pension: later this year will be approx $1,000/month minus $160/month for health insurance

Social Security $2000 at age 62
$3044 at age 67
Total at 67, $4,875 a month, $58,500 a year.

Hi Watty, do you mind clarifying this comment? Thanks, not sure what this means.
I think he was looking at the total income you would have if you wait until age 67 to take SS: $831 + $1000 + $3044 = $4875 per month or $58,500 per year.

Of course you’d have to discount the $831 a bit due to inflation but the overall idea being that if your $60k target includes health insurance, income tax, and expected expenses then you’ve almost got all of that covered just with pensions and social security. So you can focus on having your portfolio cover you from now until 67 — or even age 70 (what would that do to your social security?)

Congrats :)
That is correct.

In addition your portfolio will be generating at least 2% in interest and dividends so once you have both pensions and Social Security you will have several tens of thousands of dollars in other income available without having to touch your principal.

The details of how to invest the money and when to start Social Security are important to figure out but at the "gut check" level you are so good that they would not be a deciding factor in knowing if it is OK to retire or not.

delamer
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Re: Months from Retirement, Gut Check, questions

Post by delamer » Tue Jul 02, 2019 7:55 am

LuigiLikesPizza wrote:
Tue Jul 02, 2019 5:53 am
Having half of your assets in the G fund is very conservative, especially given that your pensions plus Social Security will cover a huge percentage — if not all — of your expenses.

I very much agree. As the market has continued to rise, I have been taking money "off the table" from other TSP funds and moving to the G, the primary reason being that I am only months from retirement.

I do intend to rebalance again once I am past this important hurdle. Perhaps I need to start investigating now how a reasonable retiree's portfolio should be allocated based on number of years since retirement.

Thanks for your comments.
I have not heard of an approach that looks backward (number of years since retirement) to determine the appropriate allocation.

Sequence of risk going forward is a real issue, so having adequate cash to cover several years of net expenses is appropriate. But it doesn’t just go away after the first couple years of retirement. In fact, William Bernstein has suggested having 25 years of net expenses in cash/short-term bonds and then putting the rest of your portfolio in stocks.

Topic Author
LuigiLikesPizza
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Re: Months from Retirement, Gut Check, questions

Post by LuigiLikesPizza » Wed Jul 03, 2019 1:48 pm

I have not heard of an approach that looks backward (number of years since retirement) to determine the appropriate allocation.

I apologize, I did not word that clearly. I meant an asset allocation based on age and expected life span...so in other words, retirement is like the pinnacle, and now you've reached it, you plan to plan for decumulation...etc.

In any event, I do appreciate all the feedback.

CnC
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Re: Months from Retirement, Gut Check, questions

Post by CnC » Wed Jul 03, 2019 2:47 pm

LuigiLikesPizza wrote:
Wed Jul 03, 2019 1:48 pm
I have not heard of an approach that looks backward (number of years since retirement) to determine the appropriate allocation.

I apologize, I did not word that clearly. I meant an asset allocation based on age and expected life span...so in other words, retirement is like the pinnacle, and now you've reached it, you plan to plan for decumulation...etc.

In any event, I do appreciate all the feedback.
Plan looks plenty solid. Honestly 50:50 ratio while not ideal isn't that bad. Just do not take off more money 50:50 is about the minimum you should go.


You are looking at taking around 45k a year from your investments until social security.

That's about a 3% withdrawal rate. I would rate that as very safe especially since it doesn't include social security.

Assuming no big crashes, you will likely have more money when you reach social security withdrawals than you do now based on your numbers. That means you are in great shape.

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LuigiLikesPizza
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Re: Months from Retirement, Gut Check, questions

Post by LuigiLikesPizza » Wed Jul 03, 2019 3:28 pm

Honestly 50:50 ratio while not ideal isn't that bad. Just do not take off more money 50:50 is about the minimum you should go.

Just to be clear, your advice is that a stock allocation greater than 50% is too much risk?

k3vb0t
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Re: Months from Retirement, Gut Check, questions

Post by k3vb0t » Wed Jul 03, 2019 6:45 pm

LuigiLikesPizza wrote:
Wed Jul 03, 2019 3:28 pm
Honestly 50:50 ratio while not ideal isn't that bad. Just do not take off more money 50:50 is about the minimum you should go.

Just to be clear, your advice is that a stock allocation greater than 50% is too much risk?
Meaning 50% stocks is the minimum stock allocation.

Also if you want to respond to a specific post you can click the quotation icon on that post and it will quote it for you so you don’t have to type it all out yourself :beer

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beyou
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Re: Months from Retirement, Gut Check, questions

Post by beyou » Wed Jul 03, 2019 6:58 pm

I agree with your 50/50 allocation, not because of market conditions. I would increase later, as your federal pension and SS kicks in. If you have extra income you can take more risk. Until then conservative is fine.

JoeRetire
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Re: Months from Retirement, Gut Check, questions

Post by JoeRetire » Wed Jul 03, 2019 7:05 pm

LuigiLikesPizza wrote:
Sun Jun 30, 2019 4:20 pm
Portfolio Size : $1.570M +/-

Expected expenses in retirement: $60K/year

Key information: I am a renter, do not own any RE.

2. Have I overlooked anything as a potential retiree? Any specific advice before making the big jump?
So you don't know where you'll live, you estimate $60k/year, but you will be renting.

How much in rent increases have you factored into your $60k estimate?

Rents can and do increase. In some locales, in some years, they increase a lot.

Topic Author
LuigiLikesPizza
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Re: Months from Retirement, Gut Check, questions

Post by LuigiLikesPizza » Thu Jul 04, 2019 5:10 am

One of the places I am considering a move to is rural, a reasonably nice home can be had for $150K. So buying is a consideration, with concerns about how difficult it would be to get a mortgage AFTER retirement, maybe not too bad if I put down a large up front payment.

The few places I have identified are all in the lowest cost parts of the US.

I've somehow managed to build my stack in the one of the highest cost of living areas of the US - DC Metro, so maybe I am optimistic, but I have to think it will all get somewhat easier from here - watching out for things like property tax rates, tax rebates or waivers for people over a certain age, etc.

So, I do plan to rent for the forseeable with an eye toward traveling and looking for my permanent spot. Heck, from reading this board, looks like we are in for another economic downturn, maybe deals ahead lol. 8-)

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