Portfolio Review & Questions

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save4kollege
Posts: 51
Joined: Sun Mar 15, 2015 4:48 pm

Portfolio Review & Questions

Post by save4kollege » Thu Sep 26, 2019 11:09 am

I’ve posted posted previously for a portfolio review, but our situation has changed somewhat and it’s time to ask for feedback again.


Emergency funds: $45K which is about 5 months expenses

Debt: $25K mortgage balance @ 3.125%, monthly P+I = $1006, 27 months remaining with total interest payments = $965.

Tax Filing Status: Married Filing Jointly

Tax Rate: 10% Federal, 5% State

State of Residence: Illinois

Age: Him = 57, Her = 58

Desired Asset allocation: US stock = 35%, Intl stock = 25%, US bond = 25%, Intl bond = 10%, TIPS = 5%

Taxable
90K cash (mad money proceeds from recent stock sale net of capital gains tax)
45K Vanguard money market VMMXX
52K Capital One CD 3.1%, matures 12/2023

Current retirement assets (total 1,288K)
His 401k
1,125k Vanguard Target Retirement 2025 Trust Plus (VTTVX) (.06)
(32.3%) 416K Total Stock Market Index Institutional Plus (VITPX) (.06)
(23.9%) 308K Total Bond Market II index (VTBIX) (.06)
(21.1%) 271K Total International Stock Index Institutional Plus (VTPSX) (.06)
(10.0%) 129K Total International Bond Index Institutional Plus (VTIFX) (.06)


His Roth IRA at Vanguard
(4.5%) 58K Vanguard Total Bond Index Admiral (VBTLX) (.05)
(1.8%) 23K Vanguard 500 Index Admiral (VFIAX) (.04)

Her Roth IRA at Vanguard
(6.4%) 82K Vanguard Inflation-protected Securities Admiral (VAIPX) (.10)


Contributions
Currently not making contributions to his or her accounts. Husband downsized (official retiree after 31 years at 55 years 9 months) in 2017 and income dropped 25%+ working as contractor. We’re slightly upside-down on expenses but anticipating that to change by 2021 and will review making contributions then.

Available funds

Funds available in his 401(k)
All Vanguard Target Retirement Funds, a generic stock fund, a money market fund and a company stock fund.

Questions:
1. Any compelling reason(s) to move his 401K to tIRA or rIRA? Having a large position in VTTVX limits ability to move funds if re-balancing was needed. I know the .06 ER is pretty good, but could we benefit by moving and get lower ER’s? Ideally, I would like to simplify to a US stock, an Intl stock and a bond fund but only if there are good reasons to do so.

2. Should we consider wife’s Roth separately with its own AA? We would probably follow similar AA strategy. Are there any good reasons to make this change?

3. We have a large cash position and a small mortgage balance. After losing my job in 2016, struggling to find employment and now working as a contractor I’ve become rather conservative with cash. My thinking is, as long as I’m working I’ll pay the mortgage with payroll dollars. That being said, what are some conservative options for about 100-125K of the cash we have?

4. I’ve been in the BH world for several years (thanks to everyone for their incredible help!) and feel well versed in the key areas. I’ve enjoyed reading posts and many books recommended here. Yet I haven’t started absorbing the world of taxes yet. My eyes blur and head throbs. From a tax perspective do we need to change anything?

5. Lastly, I’m open to all/any other feedback/questions anyone has about our portfolio’s current state.
Thanks much for everyone’s support!

snailderby
Posts: 466
Joined: Thu Jul 26, 2018 11:30 am

Re: Portfolio Review & Questions

Post by snailderby » Fri Sep 27, 2019 9:11 am

save4kollege wrote:
Thu Sep 26, 2019 11:09 am
1. Any compelling reason(s) to move his 401K to tIRA or rIRA? Having a large position in VTTVX limits ability to move funds if re-balancing was needed. I know the .06 ER is pretty good, but could we benefit by moving and get lower ER’s? Ideally, I would like to simplify to a US stock, an Intl stock and a bond fund but only if there are good reasons to do so.
save4kollege wrote:
Thu Sep 26, 2019 11:09 am
4. I’ve been in the BH world for several years (thanks to everyone for their incredible help!) and feel well versed in the key areas. I’ve enjoyed reading posts and many books recommended here. Yet I haven’t started absorbing the world of taxes yet. My eyes blur and head throbs. From a tax perspective do we need to change anything?
The simplest option would be to invest everything in a target-date fund. The most tax-efficient option would be to use three separate funds and follow the wiki's recommendations on tax-efficient fund placement. See https://www.bogleheads.org/wiki/Tax-eff ... _placement. In general, the least tax-efficient funds (think bonds) should go in a traditional or Roth IRA or 401(k) before they go in a taxable account, and funds with the highest-expected growth (think stocks) should go in a Roth IRA or 401(k) before they go in a traditional IRA or 401(k). See https://www.betterment.com/resources/re ... ite-paper/.
save4kollege wrote:
Thu Sep 26, 2019 11:09 am
2. Should we consider wife’s Roth separately with its own AA? We would probably follow similar AA strategy. Are there any good reasons to make this change?
If you manage your accounts together, your wife can maximize her Roth IRA space by filling it with stocks. She can then use your 401(k) or traditional IRA to reach your family's (joint) desired bond allocation.
save4kollege wrote:
Thu Sep 26, 2019 11:09 am
3. We have a large cash position and a small mortgage balance. After losing my job in 2016, struggling to find employment and now working as a contractor I’ve become rather conservative with cash. My thinking is, as long as I’m working I’ll pay the mortgage with payroll dollars. That being said, what are some conservative options for about 100-125K of the cash we have?
Have you considered a high-yield savings account, money market account, CD, short-term treasury fund, T-bills, or I bonds?

deikel
Posts: 885
Joined: Sat Jan 25, 2014 7:13 pm

Re: Portfolio Review & Questions

Post by deikel » Fri Sep 27, 2019 2:35 pm

I would pay off the mortgage with the ecess cash money and then apply for a HELOC as a possible emergency fall back to gain liquididty to your house asset value in a pinch (although not the same as cash and HELOC can be cancelled by the bank, its a nice to have and should cost little closing costs)

ISInce you mentioned that you are slightly upside down every months, I assume your contracting and your wifes work is sufficient to cover the roughly 9k monthly expenses ?

If so, I would actually start projecting out what social security looks like for you and your wife, possibly both taking it at 62 years of age (although loosing the longevity insurance, you might gain the peace of mind that you made it to the FIRE line). In 5 years your account should have grown another 40% (with no additional conribution) to ca 2 mil. You can draw 80k a year SWR and get some SS - so you are certainly close to the finish line ...

I would consider a savings account vs MM account under current conditions.

Wifes Roth should be part of the overall asset allocation, its all common assets anyway other then you have a pre-nup that says otherwise or its an inherited account ?

Not much to optimize, I would focus my energy on cutting expenses, I think that would provide more bang for the buck for you right now.
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.

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

Re: Portfolio Review & Questions

Post by HomeStretch » Fri Sep 27, 2019 7:35 pm

Use $14k cash to make Roth IRA contributions (direct or back door) for you and spouse. You are paying taxes on the interest in a Taxable account whereas the Roth will grow tax free.

Use $25k cash to pay off the mortgage. No mortgage payment may help make your monthly cash flow positive.

BernardShakey
Posts: 32
Joined: Tue Jun 25, 2019 10:52 pm

Re: Portfolio Review & Questions

Post by BernardShakey » Fri Sep 27, 2019 8:56 pm

I would most certainly pay off that mortgage!

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save4kollege
Posts: 51
Joined: Sun Mar 15, 2015 4:48 pm

Re: Portfolio Review & Questions

Post by save4kollege » Sat Sep 28, 2019 8:02 am

HomeStretch wrote:
Fri Sep 27, 2019 7:35 pm
Use $14k cash to make Roth IRA contributions (direct or back door) for you and spouse. You are paying taxes on the interest in a Taxable account whereas the Roth will grow tax free.

Use $25k cash to pay off the mortgage. No mortgage payment may help make your monthly cash flow positive.
Thanks, I had not considered contributing to Roth for the tax advantage. Paying off mortgage would help make monthly cash flow positive.

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save4kollege
Posts: 51
Joined: Sun Mar 15, 2015 4:48 pm

Re: Portfolio Review & Questions

Post by save4kollege » Sat Sep 28, 2019 8:03 am

BernardShakey wrote:
Fri Sep 27, 2019 8:56 pm
I would most certainly pay off that mortgage!
Sensing a theme on paying off mortgage. Perhaps if my contract is renewed for 2020 we'll take the plunge!

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save4kollege
Posts: 51
Joined: Sun Mar 15, 2015 4:48 pm

Re: Portfolio Review & Questions

Post by save4kollege » Sat Sep 28, 2019 8:17 am

deikel wrote:
Fri Sep 27, 2019 2:35 pm
I would pay off the mortgage with the ecess cash money and then apply for a HELOC as a possible emergency fall back to gain liquididty to your house asset value in a pinch (although not the same as cash and HELOC can be cancelled by the bank, its a nice to have and should cost little closing costs)

ISInce you mentioned that you are slightly upside down every months, I assume your contracting and your wifes work is sufficient to cover the roughly 9k monthly expenses ?

If so, I would actually start projecting out what social security looks like for you and your wife, possibly both taking it at 62 years of age (although loosing the longevity insurance, you might gain the peace of mind that you made it to the FIRE line). In 5 years your account should have grown another 40% (with no additional conribution) to ca 2 mil. You can draw 80k a year SWR and get some SS - so you are certainly close to the finish line ...

I would consider a savings account vs MM account under current conditions.

Wifes Roth should be part of the overall asset allocation, its all common assets anyway other then you have a pre-nup that says otherwise or its an inherited account ?

Not much to optimize, I would focus my energy on cutting expenses, I think that would provide more bang for the buck for you right now.
Good idea on HELOC, had not considered. Would provide air cover for unusually situations.

I've started looking at SS and the scenario that is developing is taking wife's SS at 62 and waiting until at least 65 for me. The upside of waiting until 70 for max benefit isn't that important considering project of how 401K would continue to grow. I'm probably going to post a separate topic on the entire withdrawal strategy I've been considering. I've used some of the FIRE tools and things are looking pretty good!

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save4kollege
Posts: 51
Joined: Sun Mar 15, 2015 4:48 pm

Re: Portfolio Review & Questions

Post by save4kollege » Sat Sep 28, 2019 8:39 am

HomeStretch wrote:
Fri Sep 27, 2019 7:35 pm
Use $14k cash to make Roth IRA contributions (direct or back door) for you and spouse. You are paying taxes on the interest in a Taxable account whereas the Roth will grow tax free.

Use $25k cash to pay off the mortgage. No mortgage payment may help make your monthly cash flow positive.
Thanks for reply. Paying off mortgage would definitely help. Adding Roth has tax advantage and seems attractive.

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WoodSpinner
Posts: 914
Joined: Mon Feb 27, 2017 1:15 pm

Re: Portfolio Review & Questions

Post by WoodSpinner » Sat Sep 28, 2019 8:43 am

OP,

Not sure if you know about this tool Open Social Security. If you haven’t, give it a try.

WoodSpinner

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Topic Author
save4kollege
Posts: 51
Joined: Sun Mar 15, 2015 4:48 pm

Re: Portfolio Review & Questions

Post by save4kollege » Sat Sep 28, 2019 8:59 am

snailderby wrote:
Fri Sep 27, 2019 9:11 am
save4kollege wrote:
Thu Sep 26, 2019 11:09 am
1. Any compelling reason(s) to move his 401K to tIRA or rIRA? Having a large position in VTTVX limits ability to move funds if re-balancing was needed. I know the .06 ER is pretty good, but could we benefit by moving and get lower ER’s? Ideally, I would like to simplify to a US stock, an Intl stock and a bond fund but only if there are good reasons to do so.
save4kollege wrote:
Thu Sep 26, 2019 11:09 am
4. I’ve been in the BH world for several years (thanks to everyone for their incredible help!) and feel well versed in the key areas. I’ve enjoyed reading posts and many books recommended here. Yet I haven’t started absorbing the world of taxes yet. My eyes blur and head throbs. From a tax perspective do we need to change anything?
The simplest option would be to invest everything in a target-date fund. The most tax-efficient option would be to use three separate funds and follow the wiki's recommendations on tax-efficient fund placement. See https://www.bogleheads.org/wiki/Tax-eff ... _placement. In general, the least tax-efficient funds (think bonds) should go in a traditional or Roth IRA or 401(k) before they go in a taxable account, and funds with the highest-expected growth (think stocks) should go in a Roth IRA or 401(k) before they go in a traditional IRA or 401(k). See https://www.betterment.com/resources/re ... ite-paper/.
save4kollege wrote:
Thu Sep 26, 2019 11:09 am
2. Should we consider wife’s Roth separately with its own AA? We would probably follow similar AA strategy. Are there any good reasons to make this change?
If you manage your accounts together, your wife can maximize her Roth IRA space by filling it with stocks. She can then use your 401(k) or traditional IRA to reach your family's (joint) desired bond allocation.
save4kollege wrote:
Thu Sep 26, 2019 11:09 am
3. We have a large cash position and a small mortgage balance. After losing my job in 2016, struggling to find employment and now working as a contractor I’ve become rather conservative with cash. My thinking is, as long as I’m working I’ll pay the mortgage with payroll dollars. That being said, what are some conservative options for about 100-125K of the cash we have?
Have you considered a high-yield savings account, money market account, CD, short-term treasury fund, T-bills, or I bonds?
@snailderby - thanks for your reply, a couple of follow up questions:

1. By "simplest option" do you mean, for example, moving his and her Roth to a target fund like VTTVX?

2. Tax effieciency: for the sake of example let's leave wife's Roth out of the picture. So, that leaves 1100K in VTTVX in the 401k, and then 58K in VBTLX and 23K in VFIAX. How do I get to three funds with desired ratios of 60 stock and 40 bonds?

3. Can you provide examples of short term treasury, T bills and I bonds? I've never research these items. Any recommendations at Vanguard?

Thanks!

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Topic Author
save4kollege
Posts: 51
Joined: Sun Mar 15, 2015 4:48 pm

Re: Portfolio Review & Questions

Post by save4kollege » Sat Sep 28, 2019 9:07 am

WoodSpinner wrote:
Sat Sep 28, 2019 8:43 am
OP,

Not sure if you know about this tool Open Social Security. If you haven’t, give it a try.

WoodSpinner
Yes, thanks I have used it. Recommends starting wife SS at 62 and mine at 70 but i don't see the logic in waiting that long for me. The break even point if I start at 67 is at age 83. Doesn't it make more sense to use SS dollars instead of 401k dollars? The 401k would continue to grow faster that way?

deikel
Posts: 885
Joined: Sat Jan 25, 2014 7:13 pm

Re: Portfolio Review & Questions

Post by deikel » Sat Sep 28, 2019 6:05 pm

save4kollege wrote:
Sat Sep 28, 2019 9:07 am
WoodSpinner wrote:
Sat Sep 28, 2019 8:43 am
OP,

Not sure if you know about this tool Open Social Security. If you haven’t, give it a try.

WoodSpinner
Yes, thanks I have used it. Recommends starting wife SS at 62 and mine at 70 but i don't see the logic in waiting that long for me. The break even point if I start at 67 is at age 83. Doesn't it make more sense to use SS dollars instead of 401k dollars? The 401k would continue to grow faster that way?
Taking SS late makes sense because a) you simplify the income stream with a kind of paycheck from SS - that's nice if your wife has no interest in finance and/or both of you get older and less mentally capable; b) once you reached your maximum payout, your wife will claim spousal benefits and increase her SS payments for as long as you both live and C) the longevity insurance, if one of you make it beyond the statistically typical point, taking SS late is the better outcome for social security.

Yes, you do draw down your retirement funds to get to 70 and if the market does poorly in that time frame, you loose vs the SS increase, but its a guaranteed increase...so its hard to beat by average market gain. The really powerful function is the longevity insurance in case you or your wife somehow make it to 105...SS still pays, your retirements funds are probably long gone (assuming normal assumptions)

The good thing is that you can decide every year if you want to wait or start SS - so you can check the market performance and pull the trigger when needed, that's a nice planning tool to have in your hand.
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.

User avatar
WoodSpinner
Posts: 914
Joined: Mon Feb 27, 2017 1:15 pm

Re: Portfolio Review & Questions

Post by WoodSpinner » Sat Sep 28, 2019 10:19 pm

save4kollege wrote:
Sat Sep 28, 2019 9:07 am
WoodSpinner wrote:
Sat Sep 28, 2019 8:43 am
OP,

Not sure if you know about this tool Open Social Security. If you haven’t, give it a try.

WoodSpinner
Yes, thanks I have used it. Recommends starting wife SS at 62 and mine at 70 but i don't see the logic in waiting that long for me. The break even point if I start at 67 is at age 83. Doesn't it make more sense to use SS dollars instead of 401k dollars? The 401k would continue to grow faster that way?
Lot’s of prior threads on this and many opinions.

Best recommendation is to think of this as longevity insurance not a break even analysis.

Plus, spending down the 401k can help reduce RMDs after 70.

WoodSpinner

User avatar
Topic Author
save4kollege
Posts: 51
Joined: Sun Mar 15, 2015 4:48 pm

Re: Portfolio Review & Questions

Post by save4kollege » Mon Sep 30, 2019 9:32 am

deikel wrote:
Sat Sep 28, 2019 6:05 pm
save4kollege wrote:
Sat Sep 28, 2019 9:07 am
WoodSpinner wrote:
Sat Sep 28, 2019 8:43 am
OP,

Not sure if you know about this tool Open Social Security. If you haven’t, give it a try.

WoodSpinner
Yes, thanks I have used it. Recommends starting wife SS at 62 and mine at 70 but i don't see the logic in waiting that long for me. The break even point if I start at 67 is at age 83. Doesn't it make more sense to use SS dollars instead of 401k dollars? The 401k would continue to grow faster that way?
Taking SS late makes sense because a) you simplify the income stream with a kind of paycheck from SS - that's nice if your wife has no interest in finance and/or both of you get older and less mentally capable; b) once you reached your maximum payout, your wife will claim spousal benefits and increase her SS payments for as long as you both live and C) the longevity insurance, if one of you make it beyond the statistically typical point, taking SS late is the better outcome for social security.

Yes, you do draw down your retirement funds to get to 70 and if the market does poorly in that time frame, you loose vs the SS increase, but its a guaranteed increase...so its hard to beat by average market gain. The really powerful function is the longevity insurance in case you or your wife somehow make it to 105...SS still pays, your retirements funds are probably long gone (assuming normal assumptions)

The good thing is that you can decide every year if you want to wait or start SS - so you can check the market performance and pull the trigger when needed, that's a nice planning tool to have in your hand.
Thanks for the response. I hadn't been looking at it that way and what you stated makes sense.

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Topic Author
save4kollege
Posts: 51
Joined: Sun Mar 15, 2015 4:48 pm

Re: Portfolio Review & Questions

Post by save4kollege » Mon Sep 30, 2019 9:37 am

WoodSpinner wrote:
Sat Sep 28, 2019 10:19 pm
save4kollege wrote:
Sat Sep 28, 2019 9:07 am
WoodSpinner wrote:
Sat Sep 28, 2019 8:43 am
OP,

Not sure if you know about this tool Open Social Security. If you haven’t, give it a try.

WoodSpinner
Yes, thanks I have used it. Recommends starting wife SS at 62 and mine at 70 but i don't see the logic in waiting that long for me. The break even point if I start at 67 is at age 83. Doesn't it make more sense to use SS dollars instead of 401k dollars? The 401k would continue to grow faster that way?
Lot’s of prior threads on this and many opinions.

Best recommendation is to think of this as longevity insurance not a break even analysis.

Plus, spending down the 401k can help reduce RMDs after 70.

WoodSpinner
Thanks, I like the concept of longevity insurance.

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