Portfolio Questions - Recently Retired

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Topic Author
kitesurfa
Posts: 3
Joined: Tue Nov 26, 2019 2:17 pm

Portfolio Questions - Recently Retired

Post by kitesurfa » Sat Nov 30, 2019 3:42 pm

Hello all, I've been a VG investor for several years, but recently discovered this forum and this is my first post. Since retiring I have been considering signing up for VG Personal Advisor Services, but it appears to me that there are some extremely knowledgeable and helpful folks here who can answer most, if not all, my significant questions on fund choices and the general consensus is that PAS does not add tremendous value (for relatively simple situations like ours). Thanks so much in advance for your suggestions and insights.

I became retired at the beginning of 2019 at age 64 (unplanned due to corporate down-sizing, but it's all good). Rolled over my entire 401k to VG. My wife is 63 and plans to keep working through 2020 (she is a contractor earning about 60k/yr with no company 401k, benefits, pension, etc). We have no kids and no pensions or other current income aside from SS (neither of us has claimed yet). Below are the details.

Emergency funds: Approx 10-12 months

Expenses: Approx 4-5k/month

Debt: None, home and vehicles are paid off and we pay off CCs monthly.

Tax Filing Status: Married Filing Jointly

Tax Rate: 22% Federal, 8% State

State of Residence: Hawaii (love it but will likely move to a lower cost location in a few years)

Ages: Him 65 (in 1 month); Her-63

Current Allocation: Approx 60% stocks/40% bonds/0% intl

Current retirement assets (TOTAL Approx $1.9M) as follows:

Taxable
20K - cash
30K - VG 500 Index Adm fund
60K - VG Wellington Adm fund

His Rollover IRA
870K VG total stock market Adm fund
540K VG total bond market Adm fund

His Roth IRA
97K VG total stock market Adm fund
50K VG total bond market Adm fund

Her IRA
80K VG Wellington Adm fund
26K VG 500 Index Adm fund
26K VG Interm-term Bond Adm fund

Her Roth IRA
60K VG Target Ret 2025 fund

Other
65K - Joint Account Hawaii muni bond fund- SURFX (ER-1%, high but it is essentially tax free and this is large part of our emergency fund)
50K - Her Allianz Dominator Individual Retirement Annuity (interest rate 4.5% set up years ago by her father, not sure how this one works and if it could be rolled over into an IRA, etc)

Questions:

1. Obviously sooner or later the market could/should pull back from its current levels, so what would be a safe recommended strategy to protect our current balances as much as possible while still maintaining fairly good returns? More Intl holdings, more bonds or other funds? I've never been a fan of Intl stocks/bonds as it seemed to me their returns were not too great (admittedly I did not look that closely) but I am open to any and all suggestions for a more 'defensive' portfolio. Note I have always (mostly) avoided doing any big moves with my 401k and other funds during past market swings.

2. Many folks seem to believe that taxes are as low as they will ever be, so now is a good time to do Roth conversions with IRA funds. What would be a recommended strategy and amounts for this, while minimizing the tax and IRMAA hit as much as possible?

3, Given question 2 I understand it is usually recommended to hold off on to hold off on collecting SS if doing Roth conversions. Simulations I have done show us maximizing SS by me holding off to age 70 while my wife starts collecting upon her retirement (both in good health). At FRA mine would be about $32k/yr and hers $19k/yr. Any additional thoughts or recommendations on SS strategies?

Thanks again for any thoughts and suggestions!

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David Jay
Posts: 7311
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Portfolio Questions - Recently Retired

Post by David Jay » Sat Nov 30, 2019 7:47 pm

Welcome to the forum!

I do believe, with a bit of study, that you can manage your own finances. And BH is here to help. I also retired earlier this year.

Regarding question #1, we at BH do not recommend market timing as it has proved extremely difficult, even for professionals. What we teach is to establish an Asset Allocation that you can live with through thick-and-thin. The primary control knob is the balance between stock funds and bond/money market funds. The more stocks the higher anticipated return and the more volatility. We teach stocks for growth and bonds for safety.

In retirement a likely stock/bond ratio could be between, say, 60/40 and 30/70, depending on your comfort level. Using the often quoted around here 40% major drop in the market, a 30/70 portfolio would only drop 12% which creates a lot less angst.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

HomeStretch
Posts: 2968
Joined: Thu Dec 27, 2018 3:06 pm

Re: Portfolio Questions - Recently Retired

Post by HomeStretch » Sat Nov 30, 2019 8:26 pm

Welcome!

In response to your questions:
1. Agree that it’s about having the right asset allocation (AA) for you.
2. Based on SS, RMDs and Taxable dividends, in your early 70s it looks like you and spouse would be at the top of the 12% bracket or lower part of the 22% bracket (and higher as a sole survivor). Current tax rates sunset in 2025. Consider doing Roth conversions now until RMDs start. You will need to use Excel or a tool like extended i-ORP to help determine how much to convert.
3. Have you checked your SS claiming strategy using the calculator at opensocialsecurity.com?

Other comments to consider:
1. Hold 100% equity in the Roth IRAs for highest expected growth, tax free. Move the bonds into the traditional IRAs.
2. Wellington is 1/3 bonds and is not tax-efficient in a Taxable account. Hold the $20k cash and all equities in Taxable account(s). Increase bonds in the Traditional IRAs to maintain your overall portfolio AA.
3. In Her IRA exchange the S&P 500 into US Total Stock Market (TSM). Holding S&P 500 in Taxable and US TSM in your IRAs helps avoid inadvertent wash sales if you tax loss harvest in your Taxable account.
4. Look into the Allianz investment.

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David Jay
Posts: 7311
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Portfolio Questions - Recently Retired

Post by David Jay » Sat Nov 30, 2019 8:38 pm

Regarding your second question, there has been a lot of discussion on the subject on BH recently, here is a site search for “IRMAA Roth”: https://www.google.com/search?sitesearc ... IRMAA+Roth
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Wiggums
Posts: 1960
Joined: Thu Jan 31, 2019 8:02 am

Re: Portfolio Questions - Recently Retired

Post by Wiggums » Sat Nov 30, 2019 8:52 pm

Welcome to the forum. I’m glad you found us.

You have good funds. I would encourage you to manage your own funds. Vanguard PAS is a good choice if you really don’t want yo do it yourself.

David Jay gave you great advice on the Asset Allocation. That’s really a personal decision. I recently retired so I understand why you want to revisit it. Whatever you decide, you should stay the course if the market sells off. Now is a great time to make adjustments.

Good luck to you.

Topic Author
kitesurfa
Posts: 3
Joined: Tue Nov 26, 2019 2:17 pm

Re: Portfolio Questions - Recently Retired

Post by kitesurfa » Mon Dec 02, 2019 6:38 pm

Thank you very much Wiggums, David Jay, and Homestretch for your comments and recommendations. I will seriously consider them all :happy

Homestretch, yes we did use the tool on Opensocialsecurity when looking into SS claiming, but what (and where) is the "extended i-ORP" tool you mention for Roth conversions? Also why is Wellington not a tax-efficient fund? Due to dividend payouts?

Follow up question on Total Bond index funds in general: I have read that some feel bonds are no longer the "safe haven" they once were and do not necessarily move opposite of equities now (ie up when stocks go down) and may become more volatile. Is that primarily for certain types of bonds and/or bond funds and could or would it also apply to larger index funds?

Thanks again all and I'm really glad I found this forum too!

HomeStretch
Posts: 2968
Joined: Thu Dec 27, 2018 3:06 pm

Re: Portfolio Questions - Recently Retired

Post by HomeStretch » Mon Dec 02, 2019 6:52 pm

kitesurfa wrote:
Mon Dec 02, 2019 6:38 pm
Homestretch, yes we did use the tool on Opensocialsecurity when looking into SS claiming, but what (and where) is the "extended i-ORP" tool you mention for Roth conversions? Also why is Wellington not a tax-efficient fund? Due to dividend payouts?
i-ORP.com - see the “Extended ORP” tab at top. The Retiree Portfolio Model (RPM) created by BH Bigfoot is another tool. Link to BH RPM wiki page:
https://www.bogleheads.org/wiki/Retiree_Portfolio_Model Search the forum for threads on these tools that you may find helpful.

Wellington is about 1/3 bonds. Bonds are generally inefficient in a Taxable account (your tax situation may be different). Bond income is usually higher than equity and is taxed at ordinary income rates. Here is a link to the BH wiki page on Tax Efficient Fund Placement:
https://www.bogleheads.org/wiki/Tax-eff ... _placement

Topic Author
kitesurfa
Posts: 3
Joined: Tue Nov 26, 2019 2:17 pm

Re: Portfolio Questions - Recently Retired

Post by kitesurfa » Wed Dec 04, 2019 12:51 pm

Thanks again HomeStretch, appreciate your quick response!

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