Review of late start portfolio and future recommendation

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Topic Author
mdpii
Posts: 7
Joined: Fri Jul 19, 2019 7:33 am

Review of late start portfolio and future recommendation

Post by mdpii » Fri Jul 19, 2019 8:46 am

Emergency fund: $10,000
Debt: Mortgage $211,106 , auto finance x 2 $1,500 month, 4 years
Tax: file married head of house
Tax rate: Federal 25% No state tax TEXAS

AGE: 54 both


401k options

Funds Available
AM FUNDS CAPITAL WORLD GR INC World Large Stock
AMERICAN CENTURY MC VALUE R6 Mid-Cap Value
BLACKROCK LIQUIDITY FED FUND Money Market-Taxable
VANGUARD WINDSOR II Large Value
VANGUARD MID CAP GROWTH Mid-Cap Growth
VANGUARD INTL EXPLORER Foreign Small/Mid Growth
VANGUARD INFL PROTECTED SEC Inflation-Protected Bond
VANGUARD HIGH YIELD CORP BOND High Yield Bond
VANGUARD GNMA Intermediate Government
VAN US GROWTH ADM Large Growth
VAN TARGET RETIRE 2055 Target-Date 2055
VAN TARGET RETIRE 2045 Target-Date 2045
VAN TARGET RETIRE 2035 Target-Date 2035
VAN TARGET RETIRE 2025 Target-Date 2025
VAN TARGET RETIRE 2015 Target-Date 2015
VAN SHT TRM CORP 539 Short-Term Bond
VAN SC INDEX 548 Small Blend
VAN REIT INDEX Real Estate
VAN PRIME CAP ADM Large Growth
VAN MC INDEX 5859 Mid-Cap Blend
VAN INTER ADM Corporate Bond
VAN HEALTH CARE ADM Health
VAN EM MKTS STK INDEX Diversified Emerging Mkts
VAN 500 INDEX Large Blend
TR PRICE CAP APP Allocation--50% to 70% Equity
T ROWE PRICE GLOBAL TECH 132 Technology
PIMCO COMMODITY REAL RETURN Commodities Broad Basket
NUVEEN SM CAP VALUE Small Value
JANUS TRITON FUND Small Growth
INVESCO OPPENHEIMER INTL GWTH Foreign Large Growth
BRANDES INTERNATIONAL EQUITY Foreign Large Value
BLACKROCK LIQUIDITY FED FUND Money Market-Taxable
AMERICAN CENTURY MC VALUE R6 Mid-Cap Value
AM FUNDS CAPITAL WORLD GR INC World Large Stock

His 401K

Balance $91,668

Contribution $1,200 month

Employer $1,200 month

45% VFIAX van 500 index

25% VSMAX van sc index 548

15% van inter adm bond
15% van sht trm corp bond


Her 401k

Balance $63,538

Contribution $1,000 month
Employer $500 month

45% VFIAX van 500 index

25% VSMAX van sc index 548

15% van inter adm bond
15% van sht trm corp bond


Taxable Additional Vanguard Acct.

Balance $16,948

VFIAX Van 500 index $11,436

VTSAX Van tot stock mar index $5,512


Home Mortgage
Balance $211,106 refinancing from 7.25% to 3.5-3.75%, payoff now anticipated in 5 years.

Husband and wife current age 54
Desired retirement age 63

Both plan to increase 401k investment $100 per month yearly with plans to max on mortgage payoff.

Plan to increase Vanguard investment to at least $20,000 yearly, 30% in Bond index 70% stock index.

Plan to rollover company 401k to Vanguard IRA upon retirement.

Wife will begin social security at age 63 at $1,794 month.
Husband will begin social security at age 67 $3,011 month.

Husband has monthly pension $1,500 until death.

First off, I am late to the savings game. Second, I am in it to win it now! I welcome critical review of my current plan and particularly would be pleased to hear recommendations for future allocations. As you can see, my wife and I will be aggressive with savings upon mortgage payoff. This will leave 6 years of $100,000 yearly to invest over our current retirement savings. I desire to maximize return, but have been only planning on 5% to be conservative. I am seeking recommendations and review by the Boglehead community.

Edit: I have now included my 401k options. I am able to tolerate some volatility, but do not desire to lose savings. Have changed allocations in 401k to 30% bonds. In process of refinancing home to lower %rate. Currently planning on retirement income of $120,000 - 130,000/yr.

Thank You
Last edited by mdpii on Sun Jul 21, 2019 4:03 pm, edited 4 times in total.

megabad
Posts: 2208
Joined: Fri Jun 01, 2018 4:00 pm

Re: Review of late start portfolio and future recommendation

Post by megabad » Fri Jul 19, 2019 12:32 pm

Some of the numbers don't really make sense to me in your post (maybe I am reading it wrong), but my really rough guess...

If you are saving 25k per year for next 2 years and then 125k until 63...maybe you end up with $1 million real (probably a little optimistic).
At 4% withdrawal, maybe $40k per year safe withdrawal from portfolio.
At 63, spouse gets another $20k from SS. So thats 60k per year until 67.
At 67, you get another 36k from SS. So thats close to 100k per year after 67.

So, as long as you can keep expenses between 60k and 100k in retirement after tax, you don't look bad off to me.

It is quite a commitment to cut expenses that much and save $125k per year though. Very much kudos to you if you can consistently pull it off.

I cannot tell if you are accelerating mortgage payoff of not. If so, I would likely stop and contribute more to 401k/IRAs instead.

Your allocations don't really indicate a clear portfolio plan, but are generally low cost. I would revisit your investment plan and make sure you are in alignment with your goals. The combined used of multiple dates of target retirement funds and individual funds is somewhat hard to interpret for me, so I might simplify that somewhat. You are heavily weighted in large and mid cap equity. I would make sure that is consistent with your plans.

Good luck. I think it is certainly possible for you to retire early, but it will require a huge commitment (and it appears you are aware of that). You have a great income and low expenses to work in your favor here.

delamer
Posts: 8456
Joined: Tue Feb 08, 2011 6:13 pm

Re: Review of late start portfolio and future recommendation

Post by delamer » Fri Jul 19, 2019 12:57 pm

You’ll have about $6300/month in income from Social Security and pensions once both of you are collecting all benefits. That is about $75,000 per year.

So the first question we need to ask is how that compares to your expected expenses in retirement. (You also should consider how income and expenses will change when one of you dies. It almost inevitable that one of you will be widowed.)

The extent to which you are dependent on your portfolio to cover expenses should be a factor in determining your allocation.

You have a very aggressive portfolio overall, with less than 10% in bonds and a high allocation to mid-cap stocks. Take a look at these alternate options: https://www.bogleheads.org/wiki/Lazy_portfolios

You could use one of them instead, possibly with a somewhat higher weight to stocks than shown. But over 90% in stocks as you are now means a 50% drop in stock prices (see the Great Recession) would reduce your portfolio by 45%. Can you stomach that?

Here’s a chart that shows average returns, plus highs and lows, for different combinations of stocks/bonds: https://personal.vanguard.com/us/insigh ... llocations

It is important to understand the trade-offs.

Topic Author
mdpii
Posts: 7
Joined: Fri Jul 19, 2019 7:33 am

Re: Review of late start portfolio and future recommendation

Post by mdpii » Fri Jul 19, 2019 8:02 pm

Thank you megabad and delamer for your comments.

To answer your question on numbers, we are aggressively paying down the mortgage. The finance rate is 7.5%. At payoff we use the same amount, roughly 70,000 per year to retirement.

You both bring up significant points concerning asset allocation and expected retirement expenses. As I have started late, I have been greedy on desiring higher returns on investment. It is good counsel to real that in to include a higher percentage of bonds. Have bonds been more closely mirroring stocks recently?

Thank you for your responses, suggestions and links!

HomeStretch
Posts: 1168
Joined: Thu Dec 27, 2018 3:06 pm

Re: Review of late start portfolio and future recommendation

Post by HomeStretch » Fri Jul 19, 2019 8:09 pm

mdpii wrote:
Fri Jul 19, 2019 8:02 pm
To answer your question on numbers, we are aggressively paying down the mortgage. The finance rate is 7.5%.
Have you looked at refinancing your high mortgage rate?

ETA - what’s your rate on your two car loans?
Last edited by HomeStretch on Sat Jul 20, 2019 9:04 am, edited 1 time in total.

bradinsky
Posts: 95
Joined: Sat Jul 21, 2018 6:32 am

Re: Review of late start portfolio and future recommendation

Post by bradinsky » Sat Jul 20, 2019 7:47 am

7.5% rate. Wow! You could refinance to a 15 year mortgage at about 3.25% today, invest more in tax deferred, and still aggressively pay down the principal. 7.5% is crazy high.

cherijoh
Posts: 6066
Joined: Tue Feb 20, 2007 4:49 pm
Location: Charlotte NC

Re: Review of late start portfolio and future recommendation

Post by cherijoh » Sat Jul 20, 2019 8:11 am

HomeStretch wrote:
Fri Jul 19, 2019 8:09 pm
mdpii wrote:
Fri Jul 19, 2019 8:02 pm
To answer your question on numbers, we are aggressively paying down the mortgage. The finance rate is 7.5%.
Have you looked at refinancing your high mortgage rate?
Yes, why in the world did you not refinanced this mortgage years ago? :shock: I had a 7.75% 30-yr mortgage on my house when I purchased it in 1992. I refinanced twice (first to a 15-yr mortgage then to a 10-yr one and paid the house off in 2013 without making any extra principle payments. Instead I focused on maxing out all retirement accounts plus additional savings in a taxable account.

User avatar
ruralavalon
Posts: 16163
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

(subtracting expenses that will end by tectonic reiRe: Review of late start portfolio and future recommendation

Post by ruralavalon » Sat Jul 20, 2019 12:23 pm

Welcome w the forum :) .

Its good to see you are doing accelerated pay off of the mortgage note, are investing using low-cost index funds, and planning to increase contributions significantly.

In my opinion making very substantial contributions to investing is the better strategy than risk taking for playing catch up.

Age 54 is not too late to make a big difference in retirement, using a good plan.


mdpii wrote:
Fri Jul 19, 2019 8:46 am
Emergency fund: $10,000
Debt: Mortgage $211,106 , auto finance x 2 $1,500 month, 4 years
Tax: file married head of house
Tax rate: Federal 25% No state tax TEXAS

AGE: 54 both


His 401k

Balance $91,668

Contribution $1,200 month

Employer $1,200 month

34% VFIAX van 500 index

33% VSMAX van sc index 548

33% VTIVX van target retire 2045


Her 401k

Balance $63,538

Contribution $1,000 month
Employer $500 month

34% VFIAX Van 500 index

33% VIMAX Van MC index 5859

33% VTTVX Van Target retire 2025


Taxable Additional Vanguard Acct.

Balance $16,948

VFIAX Van 500 index $11,436

VTSAX Van tot stock mar index $5,512


Home Mortgage
Balance $211,106 payoff anticipated in 3.5 years

Husband and wife current age 54
Desired retirement age 63

Both plan to increase 401k investment to $25,000 yearly on mortgage payoff, age 57.
Plan to increase Vanguard investment to $50,000 yearly on mortgage payoff, age 57.

Plan to rollover company 401k to Vanguard IRA upon retirement.

Wife will begin social security at age 63 at $1,794 month.
Husband will begin social security at age 67 $3,011 month.

Husband has monthly pension $1,500 until death.

First off, I am late to the savings game. Second, I am in it to win it now! I welcome critical review of my current plan and particularly would be pleased to hear recommendations for future allocations. As you can see, my wife and I will be aggressive with savings upon mortgage payoff. This will leave 6 years of $100,000 yearly to invest over our current retirement savings. I desire to maximize return, but have been only planning on 5% to be conservative. I am seeking recommendations and review by the Boglehead community.

Thank You
mdpii wrote:
Fri Jul 19, 2019 8:02 pm
Thank you megabad and delamer for your comments.

To answer your question on numbers, we are aggressively paying down the mortgage. The finance rate is 7.5%. At payoff we use the same amount, roughly 70,000 per year to retirement.

You both bring up significant points concerning asset allocation and expected retirement expenses. As I have started late, I have been greedy on desiring higher returns on investment. It is good counsel to real that in to include a higher percentage of bonds. Have bonds been more closely mirroring stocks recently?

Thank you for your responses, suggestions and links!
.
Asset allocation.
The point is not whether or not "bonds have been more closely mirroring stocks recently", they haven't.

In my opinion the primary purpose of a bond allocation is to reduce portfolio volatility (risk). At age 54, retiring in 9 years, I suggest about 40% in bonds or other fixed income investments (like CDs, savings accounts, money market fund). This is expected to very substantially reduce portfolio volatility (risk), with only a relatively modest decrease in portfolio return. Graph, "An Efficient Frontier: the power of diversification". Please see:
1) Wiki article Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk"; and
2) Wiki article, "Asset allocation".

You might reexamine your assumptions about bonds, don't be too certain that stocks will significantly outperform bonds. Morningstar (01/10/2019), "Experts Forecast Long-Term Stock and Bond Returns: 2019 Edition ". The author says that the forecasts "suggest that bonds will give U.S. equities a run for their money over the next decade."



I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6). (You can find lots of debate here on international allocation, opinions ranging all the way from 00% to 50% of stocks in international stocks. If you want more viewpoints on international stocks please try the Google search box, upper right, this page).

Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.




401ks.
What funds are offered in each of the 401ks? Please give fund names, tickers and expense ratios as offered in each 401k plan. You can simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

I suggest dropping the target date fund in each 401k, and would like to suggest what funds to switch to.



Retirement planning.
What is missing is a forecast of your living expenses during retirement. Do you have a solid estimate of the total annual spending expected in retirement?

Base that on your current expenses over the last couple of years, subtracting out expenses that will end by then (such as 401k contributions, mortgage payment, Medicare and Social Security taxes) and adding what may increase by then (like medical insurance premiums, travel and recreation spending). Look back a couple of years so that you don't miss spending that does not recur monthly, or which does not recur on any regular basis.

Here are calculators you can use to assess the range of possible outcomes, based on your expected levels of contributions:
1) www.firecalc.com; and
2) www.i-orp.com.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
mdpii
Posts: 7
Joined: Fri Jul 19, 2019 7:33 am

Re: Review of late start portfolio and future recommendation

Post by mdpii » Sat Jul 20, 2019 11:12 pm

Thank you forum members: ruralavalon, cherijoh, bradinsky, HomeStretch for your comments and suggestions. I appreciate the insight given.

User avatar
ruralavalon
Posts: 16163
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Review of late start portfolio and future recommendation

Post by ruralavalon » Sun Jul 21, 2019 1:31 pm

In my opinion in your 401k the funds to consider using include:
1) U.S.stock
VAN 500 INDEX Large Blend
VAN SC INDEX 548 Small Blend

2) International Stock
VANGUARD INTL EXPLORER Foreign Small/Mid Growth
VAN EM MKTS STK INDEX Diversified Emerging Mkts

3) U.S. Bond
VAN INTER ADM Corporate Bond
VAN SHT TRM CORP 539 Short-Term Bond
VANGUARD INFL PROTECTED SEC Inflation-Protecte

It is very odd that there is no large-cap international stock fund offered. Could you double check that?

What are the expense ratios of the funds which I listed above. Sometimes the expense ratios of funds offered in a 401k are different than those charged the general public for the same funds.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
mdpii
Posts: 7
Joined: Fri Jul 19, 2019 7:33 am

Re: Review of late start portfolio and future recommendation

Post by mdpii » Sun Jul 21, 2019 3:18 pm

ruralavalon

To answer your questions.

1. van 500 index .04
van sc index .05

2. van int exp .39
van em mkt .14

3. van inter adm .10
van sht trm corp .10
van inf prot .10

Inadvertently left off these three:

AM FUNDS CAPITAL WORLD GR INC World Large Stock
AMERICAN CENTURY MC VALUE R6 Mid-Cap Value
BLACKROCK LIQUIDITY FED FUND Money Market-Taxable

Topic Author
mdpii
Posts: 7
Joined: Fri Jul 19, 2019 7:33 am

Re: Review of late start portfolio and future recommendation

Post by mdpii » Sun Jul 21, 2019 3:39 pm

Changes are coming! I am working towards a refinance of the mortgage going from 7.25 to 3.5-3.75 range.

Thanks for the Push, megabad, homestretch, bradinsky, and cherijoh.

This will allow an increase to retirement savings by at least $20,000 per year starting this year.

I have been reluctant to move into bonds, I will, but greed has driven the desire to capture greatest gains with stocks. Conventional wisdom will prevail!

Thanks again for looking at my late start!

User avatar
ruralavalon
Posts: 16163
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Review of late start portfolio and future recommendation

Post by ruralavalon » Sun Jul 21, 2019 3:42 pm

mdpii wrote:
Sun Jul 21, 2019 3:18 pm
ruralavalon

To answer your questions.

1. van 500 index .04
van sc index .05

2. van int exp .39
van em mkt .14

3. van inter adm .10
van sht trm corp .10
van inf prot .10

Inadvertently left off these three:

AM FUNDS CAPITAL WORLD GR INC World Large Stock
AMERICAN CENTURY MC VALUE R6 Mid-Cap Value
BLACKROCK LIQUIDITY FED FUND Money Market-Taxable
In your 401k accounts I suggest using these funds:
1) 45%, Vanguard 500 Index Admiral (82% of U.S. stock market) (VFIAX) ER 0.04%
2) 15%, Vanguard Emerging Markets Stock Index Fund Admiral Shares (VEMAX) ER 0.14%
3) 40%, Vanguard Intermediate-Term Bond Index Fund Admiral Shares (VBILX) ER 0.10%

Vanguard offers many different intermediate-term bond funds. in Your 401k is it Vanguard Intermediate-Term Bond Index Fund Admiral Shares (VBILX), or something else?
Last edited by ruralavalon on Sun Jul 21, 2019 5:37 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

HomeStretch
Posts: 1168
Joined: Thu Dec 27, 2018 3:06 pm

Re: Review of late start portfolio and future recommendation

Post by HomeStretch » Sun Jul 21, 2019 4:19 pm

mdpii wrote:
Sun Jul 21, 2019 3:39 pm
Changes are coming! I am working towards a refinance of the mortgage going from 7.25 to 3.5-3.75 range.

Thanks for the Push, megabad, homestretch, bradinsky, and cherijoh.

This will allow an increase to retirement savings by at least $20,000 per year starting this year.
Congratulations! At age 54, you might want to check to see if you can get a lower rate on a 10 or 15 year mortgage so you can have it paid off by the time you retire. Don’t know your car loan rates (unless you meant you leased cars) but if higher than your new mortgage rate after taxes, it might make sense to borrow a bit more to pay off the auto loans.

runner540
Posts: 1002
Joined: Sun Feb 26, 2017 5:43 pm

Re: Review of late start portfolio and future recommendation

Post by runner540 » Sun Jul 21, 2019 5:04 pm

Welcome mdpii!
Two tax details: there is no 25% federal bracket anymore, and you are filing EITHER married or head of household, not both. Check your current rates here
https://www.nerdwallet.com/blog/taxes/f ... -brackets/

If you are in the 24% MFJ bracket it means you make at least $168k taxable after standard and 401k, so at least $200k gross. Sound right?

Biggest immediate change I recommend: get cheaper cars that are paid for. Your cars are expensive and keepng you from saving more: $1500 x 12 months = $18k.

For people over 50, you can contribute up to $25k eachto your 401k. Right now you are contributing only $10k + $14k a year. Increasing 401k will also save you on taxes.

Herekittykitty
Posts: 619
Joined: Wed Apr 16, 2014 8:11 pm
Location: Flyover Country

Re: Review of late start portfolio and future recommendation

Post by Herekittykitty » Sun Jul 21, 2019 7:08 pm

Not directly related to the portfolio, but related to total retirement income: Make sure you understand how your pension works including all options related to it. I'm not offering an opinion on any of this, just bringing up things to consider.

For example: Will the pension have cost of living increases (COLA) or not? If not, do you know if there will be a graduated option such that you could take a lower starting amount in return for a guaranteed set cost of living percent each year?

Will you take it when you retire at age 63 and if so, will you get the full pension then or will you get less due to taking it before age 65?

Is there the option of purchasing service credits (to increase the pension) and if so, can you do it on a pre-tax basis by withdrawal from your monthly paycheck over a set period of time?

I assume there is the option of taking lower pension payments in return for pension payments to continue to your wife should you predecease her. Check into that and decide with your wife which way to go on this.
I don't know anything.

Topic Author
mdpii
Posts: 7
Joined: Fri Jul 19, 2019 7:33 am

Re: Review of late start portfolio and future recommendation

Post by mdpii » Sun Jul 21, 2019 10:20 pm

Herekittykitty,

Thank you for your input. My pension is permanent with cost of living adjustment. There is no manipulating it.

Topic Author
mdpii
Posts: 7
Joined: Fri Jul 19, 2019 7:33 am

Re: Review of late start portfolio and future recommendation

Post by mdpii » Sun Jul 21, 2019 10:24 pm

runner540, thank you for your input. Your assumptions are correct.

The vehicles are killing me!!! I drive an old ford pick up, my wife on the other hand... Then there is my teenage daughter...

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