Retirement Readiness Check-In

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Topic Author
reddison
Posts: 67
Joined: Mon Jul 16, 2018 11:13 am

Retirement Readiness Check-In

Post by reddison » Mon Sep 09, 2019 10:36 am

I got some helpful advice from forumites about a year ago and made a number of changes to our portfolio. We’re a year closer to retirement (1 year 3 mos for DW and 1 year 6mos for me) so time for another readiness check-in. Some of my numbers/% are a little off with values in flux but close enough. I'm hoping for confirmation from those wiser than me that we are good to go, but not if it's not true...

Emergency funds: >12 months
Debt: None Home paid: 300k
Tax Filing Status: Married Filing Jointly
Tax Rate: 32% Federal, 3.23% State
State of Residence: IN
Age: Me-62 Spouse – 61
Desired Asset allocation: 60-70% stocks / 30-40% bonds
Desired International allocation: 15% of stocks
Current allocation breakdown: 65.5% Stock--28% Bond--6.5% Checking-Money Market
(11.6% of stock is in Intl)

Current total portfolio: $2.95 million
$1.985m tax advantaged (68%)
$965k taxable (32%)

Taxable – Total 965k

4.78% Checking and Misc
3.14% Inherited Stocks – 94k total - Allstate (ALL), Discover (DFS), Morgan Stanley (MS)
VG Funds
2.14% VG Div Growth (VDIGX) ER .22
2% VG Prime Money Mkt (VMMXX) .16
2.51% VG Small Cap Indx (VSMAX) .05
3.04% VG Ttl Stk Adm (VTSAX) .04
3.41% VG Growth Indx Adm (VIGAX) .05
4.75% VG500 Indx Adm (VFIAX) .04
1.33% VG FTSE All World (VFWAX) .11
2.74% VG Large Cap (VLCAX) .05

529 Plan – Remaining after College completed
.57% US Equity Index Portfolio

HSA – 1.72% 51k total
1.72% VG500 Indx Adm (VFIAX) .04

His Roth IRA
.13% VG Total Stk (VTSAX) .04

Tax Advantaged
His 401k 51.3% (Total $1.528m)
No company match
5.86% Amer Cent Balanced Fund (ABINX) .71
13.49% VG Tgt Ret 2020 (VTWNX) .13
5.22% Harbor Cap Apprec (HNACX) .63
12.77% Dodge & Cox Income (DODIX) .43
2.61% Opp Dev Mkts Class Y (ODVYX) 1.07
6.61% T Rowe P New Horiz (PRJIX) .65
4.67% VG Mid Cap Indx Adm (VIMAX) .05

His Rollover IRA at Vanguard
5.52% Wellington Adm (VWENX) .17

His Rollover IRA w/ Broker
1% (American Funds)

His Inherited IRA at Vanguard
.88% VG Target Ret 2030 (VTHRX) .14

Her 401k – 9.22% 272k Total
2.94% AF Balanced Funds Class A (ABALX) .57
1.62% AF Cap World Growth (CWGIX) .77
1.79% AF Inv Co. America Class A (AIVSX) .58
2.84% AF Growth Fund America (AGTHX) .64

New annual Contributions
$62k his 401k (no match)
$20k her 401k (includes 2% match)
$120k taxable into VG (10k/month)
8k - HSA

Fund Options: There are too many to list between both our plans but it covers the gamut. Hers are only American Funds and I have a pretty broad selection of funds across all types.

My wife and I are planning to retire in early 2021. I will receive about $100k per year for the first 5 years of retirement. Combining that with interest and dividends and her social security (if taken at 62), we’ll have estimated gross taxable income of $159k the first year, then 140k the following four. We'll take the standard deduction. I believe I will only need to withdraw around 1-1.5% for the first 5 years so everything will grow. I am estimating 150k total expenses to include taxes (excluding taxes on Roth rollover amounts) and COBRA premiums. I plan to rollover the 401ks to VG IRAs, then do Roth IRA rollovers to top of 24% bracket/IRMAA cap of around $168k until RMDs. When I take social security at 70, and start RMDs the following year, we will exceed the current 24% tax bracket limit, but the limits will likely change between now and then.

Questions
1. By my calculations, we are good to retire. But as a DIYer I have some fear of the unknown. Does anyone see any $ pitfalls in plans to retire?
2. I estimate that I can do Roth conversions for 7 years in these amounts: 33k-52k-52k-52k-113k-125k assuming we take my wife’s SS at 62. Open Social Security says take my wife’s SS at 62 (18k) and mine at 70 (54K). This will mean more taxes, so where should I pull the money from to pay them (cash, equity funds, bond funds)?
3. Should we consider delaying her SS any way just so we can roll an additional $126k to Roth before RMDs?
4. My taxable VG accounts have about 100k in capital gains so I am limited on making changes, but do you see any issues with my holdings? Some overlaps are from TLH last year.
5. The inherited stocks have appreciated significantly (over $75k), so I am just holding them for my kids or maybe charitable contributions in the future. Don’t really care to own stocks but can’t see a reason to sell and pay the taxes either. Reasonable?
6. I have quite a fair amount in checking, VG money market, and bond funds sitting there to pay the extra taxes on the Roth rollovers and whatever else comes up in the first 5 years. Any issues with this?

Thanks in advance.

HomeStretch
Posts: 1425
Joined: Thu Dec 27, 2018 3:06 pm

Re: Retirement Readiness Check-In

Post by HomeStretch » Mon Sep 09, 2019 11:25 am

Your retirement plan looks good to go to me too. Your Roth conversion plan and SS claiming strategy look well thought out. Look to simplify your finances where possible in retirement.

I think your portfolio is going to be fine no matter what you do. If you want to optimize (including when to claim Her SS and which accounts to pull withdrawals from), you need to do a projection by year of income, expenses, taxes and withdrawal sources. Play around with the variables in each until you get the best after tax results. Look at a sole survivor scenario as well. If applicable, consider your “legacy” and your heirs likely tax situations too.

As you noted, your Taxable account could be simplified to reduce holdings and redundancies. Given the constraint of high capital gains... for now, invest the $10k/mo (see suggestion below for 2019 for $7k to go to Her back door Roth and $1k to go to Her HSA) contributions into desired 1 or 2 funds and turn off dividend and capital gains reinvestment in all other funds.

Rollover His broker-managed tIRA in likely high ER funds to His Vanguard tIRA to reduce fees and # of accounts.

Have you considered doing a backdoor Roth for her of $7k? The $7k will grow tax free rather than being taxed in Taxable account where you are investing $10k/mo.

You are making family HSA contributions of $8k per year. Your spouse can open a HSA and make an additional catch-up contribution of $1k/year. I believe Fidelity offers a no-fee HSA account.

His 401k has some high ER funds. Consider simplifying to fewer low-ER funds as you say a broad range of funds are available. You are contributing $62k per year to His 401k - are some of the contributions after-tax? If so, are you able to do mega back door Roths?

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Wiggums
Posts: 1345
Joined: Thu Jan 31, 2019 8:02 am

Re: Retirement Readiness Check-In

Post by Wiggums » Mon Sep 09, 2019 1:02 pm

I don’t see any issues with retiring.

The Roth conversion amounts look fine and very similar to our conversion plan with similar retirement savings.

I don’t know the answer, but it might make sense to defer DWs social security.

Good luck to you.

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Watty
Posts: 17032
Joined: Wed Oct 10, 2007 3:55 pm

Re: Retirement Readiness Check-In

Post by Watty » Mon Sep 09, 2019 1:47 pm

You seemed a big vague about your plans for Social Security. Check out this web site to get a suggested claiming strategy.

https://opensocialsecurity.com/

reddison wrote:
Mon Sep 09, 2019 10:36 am
Desired Asset allocation: 60-70% stocks / 30-40% bonds
Desired International allocation: 15% of stocks
Current allocation breakdown: 65.5% Stock--28% Bond--6.5% Checking-Money Market
Your asset allocation is on the aggressive side. For comparison the Vanguard 2020 fund is 55% stocks and 45% bonds.

https://investor.vanguard.com/mutual-fu ... file/VTWNX

You also said
reddison wrote:
Mon Sep 09, 2019 10:36 am
But as a DIYer I have some fear of the unknown.
Which suggests that you might not be fearlessly aggressive.

Being 10% overweighted in stocks is not a terrible position if that is what you really want, but you might consider reducing that to 55% like the target date fund uses.
reddison wrote:
Mon Sep 09, 2019 10:36 am

Current total portfolio: $2.95 million
......

I am estimating 150k total expenses to include taxes (excluding taxes on Roth rollover amounts) and COBRA premiums.
...
My wife and I are planning to retire in early 2021.
The COBRA expenses will only be for a few years.

You also need to consider you income needs at different ages. I have seen relatives that naturally slowed down once they got to be in about their mid 70s even though they were in relatively good health. At that point their spending went way down since they didn't want to do things like traveling much and expensive evening out were a rarity. They were also more interested in downsizing than buying new stuff. It was not every month but there were often months when they did not even spend their entire Social Security check.

If only one of you is surviving when a nursing home is needed your expenses may even go down then.

People spend it but with a paid off house spending $150K a year in Indiana is a lot so be sure your estimate is realistic. I suspect that it is to high.

Unless you really enjoy your jobs then you could probably retire now.

There are a lot of things that will be a lot harder, or impossible, to do when you are in your 70s or older so now is a good time to do anything on your "bucket list" since you likely only have a limited number of "good years" left.

This life expectancy calculator is very simplistic but it looks like there is about a 40% chance that one of you will not be alive in 15 years and a 6% chance that you will both be dead by then. There is probably a greater chance that at least one of you will be having significant health problems by then too.

https://personal.vanguard.com/us/insigh ... ement-tool

I retired just before I turned 59 and one of the major reasons was that I knew that I could not count on having a lot of "good" years left. I left some money on the table but I have no regrets about that.

Topic Author
reddison
Posts: 67
Joined: Mon Jul 16, 2018 11:13 am

Re: Retirement Readiness Check-In

Post by reddison » Mon Sep 09, 2019 2:43 pm

HomeStretch wrote:
Mon Sep 09, 2019 11:25 am
Your retirement plan looks good to go to me too. Your Roth conversion plan and SS claiming strategy look well thought out. Look to simplify your finances where possible in retirement.
Thanks for all of the comments Homestretch. Once we're retired, our combined 401k plans will be rolled into a 3-4 fund VG portfolio.

I think your portfolio is going to be fine no matter what you do. If you want to optimize (including when to claim Her SS and which accounts to pull withdrawals from), you need to do a projection by year of income, expenses, taxes and withdrawal sources. Play around with the variables in each until you get the best after tax results. Look at a sole survivor scenario as well. If applicable, consider your “legacy” and your heirs likely tax situations too.

As you noted, your Taxable account could be simplified to reduce holdings and redundancies. Given the constraint of high capital gains... for now, invest the $10k/mo (see suggestion below for 2019 for $7k to go to Her back door Roth and $1k to go to Her HSA) contributions into desired 1 or 2 funds and turn off dividend and capital gains reinvestment in all other funds. I never really looked into a back door Roth and didn't know we could put more than the family amount into an HSA. I'll look into this.

Rollover His broker-managed tIRA in likely high ER funds to His Vanguard tIRA to reduce fees and # of accounts. Yes, putting this on my list of to dos. It's not a lot of money, but my wife's 401k is with the same brokerage so it will be good practice.

Have you considered doing a backdoor Roth for her of $7k? The $7k will grow tax free rather than being taxed in Taxable account where you are investing $10k/mo. See above.

You are making family HSA contributions of $8k per year. Your spouse can open a HSA and make an additional catch-up contribution of $1k/year. I believe Fidelity offers a no-fee HSA account. Wasn't aware.

His 401k has some high ER funds. Consider simplifying to fewer low-ER funds as you say a broad range of funds are available. You are contributing $62k per year to His 401k - are some of the contributions after-tax? If so, are you able to do mega back door Roths?
All 62k are pretax. I am a self-employed partner and the plan is a combination of 401k and profit sharing. 62k is the max for this year.

Topic Author
reddison
Posts: 67
Joined: Mon Jul 16, 2018 11:13 am

Re: Retirement Readiness Check-In

Post by reddison » Mon Sep 09, 2019 2:50 pm

Watty wrote:
Mon Sep 09, 2019 1:47 pm
You seemed a big vague about your plans for Social Security. Check out this web site to get a suggested claiming strategy.

https://opensocialsecurity.com/
Thx for the comments Watty. This is what I was trying to state. opensocial security says I get max SS by having my wife claim at 62 and me at 70. I am questioning it because instead to taking her SS then, we could hold off since we don't need the money and instead roll that additional amount into the Roth which would grow tax free. I'm not sure there is a clear cut answer or way to analyze it.
reddison wrote:
Mon Sep 09, 2019 10:36 am
Desired Asset allocation: 60-70% stocks / 30-40% bonds
Desired International allocation: 15% of stocks
Current allocation breakdown: 65.5% Stock--28% Bond--6.5% Checking-Money Market
Your asset allocation is on the aggressive side. For comparison the Vanguard 2020 fund is 55% stocks and 45% bonds.

https://investor.vanguard.com/mutual-fu ... file/VTWNX

You also said
reddison wrote:
Mon Sep 09, 2019 10:36 am
But as a DIYer I have some fear of the unknown.
Which suggests that you might not be fearlessly aggressive.

You are right, it's a bit aggressive. A year ago when I first posted my AA I was at 78% equity, so I've moved the needle a fair amount, but I think I'm ok with where it's at for now. I may bring the equity down a bit more towards 60 in the not too distant future.

Being 10% overweighted in stocks is not a terrible position if that is what you really want, but you might consider reducing that to 55% like the target date fund uses.
reddison wrote:
Mon Sep 09, 2019 10:36 am

Current total portfolio: $2.95 million
......

I am estimating 150k total expenses to include taxes (excluding taxes on Roth rollover amounts) and COBRA premiums.
...
My wife and I are planning to retire in early 2021.
The COBRA expenses will only be for a few years.

You also need to consider you income needs at different ages. I have seen relatives that naturally slowed down once they got to be in about their mid 70s even though they were in relatively good health. At that point their spending went way down since they didn't want to do things like traveling much and expensive evening out were a rarity. They were also more interested in downsizing than buying new stuff. It was not every month but there were often months when they did not even spend their entire Social Security check.

If only one of you is surviving when a nursing home is needed your expenses may even go down then.

People spend it but with a paid off house spending $150K a year in Indiana is a lot so be sure your estimate is realistic. I suspect that it is to high. This could be high, but with taxes at 24%, and COBRA for insurance of $25,000+/year (which is what I currently pay in full being self-employed), I think it's a good estimate. Once we're both on Medicare, the insurance costs will come down but the taxes never will.

Unless you really enjoy your jobs then you could probably retire now. You make good points. We are both committed to waiting until 2021 for our respective companies. I have seen others slow way down in their 70s so I know what you mean. Knock on wood, we are both exceptionally healthy and active so hopefully that will continue. Retiring at 63/62 is certainly not FIRE but I believe/hope we'll have a lot of good years for travel, etc.

There are a lot of things that will be a lot harder, or impossible, to do when you are in your 70s or older so now is a good time to do anything on your "bucket list" since you likely only have a limited number of "good years" left.

This life expectancy calculator is very simplistic but it looks like there is about a 40% chance that one of you will not be alive in 15 years and a 6% chance that you will both be dead by then. There is probably a greater chance that at least one of you will be having significant health problems by then too.

https://personal.vanguard.com/us/insigh ... ement-tool

I retired just before I turned 59 and one of the major reasons was that I knew that I could not count on having a lot of "good" years left. I left some money on the table but I have no regrets about that. I'm thinking the same way..., but I'm getting a later start than you.

Topic Author
reddison
Posts: 67
Joined: Mon Jul 16, 2018 11:13 am

Re: Retirement Readiness Check-In

Post by reddison » Mon Sep 09, 2019 2:59 pm

Wiggums wrote:
Mon Sep 09, 2019 1:02 pm
I don’t see any issues with retiring.

The Roth conversion amounts look fine and very similar to our conversion plan with similar retirement savings.

I don’t know the answer, but it might make sense to defer DWs social security.

Good luck to you.
[/Thank you Wiggums. I was hoping for votes of confidence!]

Topic Author
reddison
Posts: 67
Joined: Mon Jul 16, 2018 11:13 am

Re: Retirement Readiness Check-In

Post by reddison » Mon Sep 09, 2019 3:04 pm

HomeStretch wrote:
Mon Sep 09, 2019 11:25 am

As you noted, your Taxable account could be simplified to reduce holdings and redundancies. Given the constraint of high capital gains... for now, invest the $10k/mo (see suggestion below for 2019 for $7k to go to Her back door Roth and $1k to go to Her HSA) contributions into desired 1 or 2 funds and turn off dividend and capital gains reinvestment in all other funds. I forgot to ask. What is the benefit of turning off dividend and capital gains reinvestment of the funds?

infotrader
Posts: 260
Joined: Tue Feb 28, 2017 2:39 pm

Re: Retirement Readiness Check-In

Post by infotrader » Mon Sep 09, 2019 3:53 pm

It makes more sense to delay her ss. The rest looks ok.

HomeStretch
Posts: 1425
Joined: Thu Dec 27, 2018 3:06 pm

Re: Retirement Readiness Check-In

Post by HomeStretch » Mon Sep 09, 2019 5:03 pm

reddison wrote:
Mon Sep 09, 2019 3:04 pm
HomeStretch wrote:
Mon Sep 09, 2019 11:25 am

As you noted, your Taxable account could be simplified to reduce holdings and redundancies. Given the constraint of high capital gains... for now, invest the $10k/mo (see suggestion below for 2019 for $7k to go to Her back door Roth and $1k to go to Her HSA) contributions into desired 1 or 2 funds and turn off dividend and capital gains reinvestment in all other funds. I forgot to ask. What is the benefit of turning off dividend and capital gains reinvestment of the funds?
Turn off reinvestment for any funds you don’t want to buy more of.

For example, your Taxable account holds 3 overlapping US equity funds - VTSAX, VLCAX and VFIAX. Pick the one you want (suggest VTSAX) and turn off dividend/capital gain (CG) reinvestment for the other 2. Use the dividends/CG deposited into the settlement fund to buy more VTSAX. Keep buying VSMAX if you want to tilt to small cap otherwise you can turn that off too as VTSAX holds something like 7% small cap.

Topic Author
reddison
Posts: 67
Joined: Mon Jul 16, 2018 11:13 am

Re: Retirement Readiness Check-In

Post by reddison » Tue Sep 10, 2019 9:21 am

Thx Homestretch. Makes sense.

bltn
Posts: 492
Joined: Mon Feb 20, 2017 9:32 pm

Re: Retirement Readiness Check-In

Post by bltn » Tue Sep 10, 2019 3:07 pm

The individual stocks would be one of the first things I d liquidate when I start taking withdrawals. With 94,000 in value with a 75,000 capital gain, you must have inherited those stocks a long time ago. Otherwise the step up in basis would be much higher. Those particular companies haven t been growing that fast.

Nice job with your accumulation . Simplify as much as you can into a half dozen stock mutual funds or less . I ve been happy with Vanguard.

I think the idea of working another year is a good one. The additional accumulation will be useful.

Best of luck.

Topic Author
reddison
Posts: 67
Joined: Mon Jul 16, 2018 11:13 am

Re: Retirement Readiness Check-In

Post by reddison » Tue Sep 10, 2019 5:33 pm

bltn wrote:
Tue Sep 10, 2019 3:07 pm
The individual stocks would be one of the first things I d liquidate when I start taking withdrawals. With 94,000 in value with a 75,000 capital gain, you must have inherited those stocks a long time ago. Otherwise the step up in basis would be much higher. Those particular companies haven t been growing that fast. It's been 10 years since we inherited these. With all dividends reinvested Discover has gone up 9x, Allstate 5x and Morgan Stanley a bit less than 2x.

Nice job with your accumulation . Simplify as much as you can into a half dozen stock mutual funds or less . I ve been happy with Vanguard. Thank you. I've been happy with VG too-and with the help and advice from people on this forum. We currently have 12 funds in our combined 401ks, so I look to reduce that to 3 or 4. I'll have to work on the taxable funds too, but keeping an eye on capital gains and taxes.

I think the idea of working another year is a good one. The additional accumulation will be useful. I think waiting will strike a good balance of comfort with our net worth/retirement income and age of retirement.

Best of luck. Thank you.

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