Portfolio Review / Retirement Income Plan

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Portfolio Review / Retirement Income Plan

Post by bkweathe » Tue Mar 24, 2020 5:56 pm

Emergency funds: I've already used it, but we have some cash in our retirement assets.  I should probably re-establish a separate emergency fund.

Debt: Mortgage ($98K @ 3.875%, ~21 years to go)

Tax Filing Status: Married Filing Jointly

Tax Rate: 2019:  0% Federal, 6% State
            2020:  12% Federal, 6% State

State of Residence:  Missouri

Age:  58 (wife is 62)

Desired Asset allocation: Currently 70% stocks / 30% bonds but probably should shift to 60/40 or even lower
Desired International allocation: 30% of stocks; 20% of bonds

Retirement Portfolio as of 3/15/20  ~$604K (Including mine & wife's)
Vanguard IRA (traditional)
Vanguard Total Bond                            9.5%
Vanguard Total International Bond        6.3%
Vanguard Total Stock                            45.8%
Vanguard Total International Stock        5.1%
Vanguard Prime Money Market            1.6%

Vanguard IRA (Roth)
Vanguard Prime Money Market            1.6%

401K #1  (traditional)
Total Bond                                             16.2%
(This fund is very similar to Vanguard Total Bond Fund & has the same expense ratio as that fund.  Other funds are available, but I should probably just move this to Vanguard.)

401K #2  (traditional)
Vanguard Total International Stock        14.1% (institutional shares, so a bit cheaper than Admiral)
(Other funds are available, but this one has the biggest discount relative to Admiral shares of the same fund.  If I need to move to something else, I'll probably just move it to Vanguard.)

Total of above
US Stocks                    45.8%
International Stocks    19.2%
US Bonds                    25.7%
International Bonds    6.3%
Cash                            3.2%

Other Assets (not included above)
A few shares of Manulife that we got when they de-mutualized.  We'll probably donate them to church.

Whole Life Insurance Policy
Face value $25K - $30K
Cash value about $14,500
My parents bought this for me when I was very young.  I have a level-premium term policy that I can keep for about another 10 years, so I don't think I really need this for insurance.

Health Savings Account
$13K in some kind of money market-like account

$0 (unemployed)

Available funds
None (unemployed)

1. I'm retired.  I hadn't planned to retire quite so early, so I don't have everything lined up as I'd like them to be.  I'd appreciate suggestions about how I can get there.
2. Because of our ages & employment history, I think it will make sense to start taking Social Security when I turn 62 in late 2023; waiting until 70 would not benefit us as much as it would many people.  My wife doesn't qualify for benefits of her own.  However, because she is older than me, she'll qualify for a spousal benefit of 50% of my PIA as soon as I turn 62 & start taking benefits.  If I wait, my benefits would grow until I reach 70, but hers would not grow at all.
3. We live in a low cost of living area.  I expect to need about $50K/year.  Once we start taking it (see #2), SS should cover about $37K/year of that.  So, I'll need about $13K/year after I start SS.  Using a withdrawal rate of 4%, $325K should provide a $13K/year "permanent withdrawal"; I'll round up to $350K.
4. I need money to get from now until I start taking SS.  I'll talk about 2020 later.  I need $37K/year ($50K expenses - $13K permanent withdrawal) in 2021, 2022, & 2023.  This is a total of $111K.
5. I could split my portfolio into two parts, a "Permanent Portfolio" of $350K and a "Bridge Portfolio" of $111K and still have a bit left.   The Permanent Portfolio should provide the $13K/year permanent withdrawal.  The Bridge Portfolio will provide most of the rest of what I need between now & when I start taking SS.
6. I could set up a substantially equal periodic payments (SEPP) series from my IRA and/or 401Ks.  IRS rules for this are complicated.  Once a SEPP is started from a specific account, pretty much no other withdrawals (besides the SEPPs) or other changes (except transfers between funds) can be made to that account.  However, other accounts can be used as normal.
7. I could put some of my traditional 401K/IRA assets into a "SEPP Source IRA" & consolidate the rest into a "Regular IRA".  IRS rules would allow me to take about 5% of the SEPP Source IRA per year; I would have to do so for at least the next five years.
8. I could put about $320K into the SEPP Source IRA so that I can take about $16K/year from it for the next five years.  Part of this $320K would be in my Bridge Portfolio & part would be in the Permanent Portfolio. SEPP withdrawals would come from the Bridge Portfolio part.
9. I could put the rest of both portfolios into the Regular IRA.  Starting next year, when I turn 59.5, I can start withdrawals from my Regular IRA without penalty.  I could take $34K ($50K expenses - $16K SEPP) from that IRA in 2021, 2022, & 2023.  $13K/year of this $34K would come from the Permanent Portfolio; the rest would come from the Bridge.
10. So, I think 2021 & beyond are OK.  $13K/year from my Permanent Portfolio; $37K/year from my Bridge Portfolio followed by Social Security.
11. For 2020, I could take the $16K SEPP described above.  To be conservative, I could take that out of the Bridge.  So, bump up the Bridge ($111K + $16K = $127K) & round off to $130K. 
12. $350K is needed for the Permanent Portfolio; $130K for the Bridge.  That leaves about $100K (minus losses since 3/15) that could be added to either of those or to my emergency fund.
13. For 2020, I could also use the Roth IRA ($9k).  I have at least $1K in medical bills that I have not reimbursed from my HSA.  I expect tax refunds of at least $4K.  I've already spent about $8K from other sources.  So, I have a gap of about $12K ($50K - $16K - $9K - $1K - $4K - $8K = $12K).
14. I'm a computer nerd, so creating a spreadsheet to track this stuff would be easy; it might even be fun.
15. I'd be happy to provide additional details about the above, but this initial note is already too long!

1. Is my plan sound?  What should I change?
2. How should I cover the $12K gap for 2020?  Should I cash out my whole life insurance policy?  Take some more from my IRA/401K assets & pay the 10% penalty?  Work?  What?
3. What asset allocations should I use in my Permanent Portfolio?  in my Bridge Portfolio?  Or, should I use the same AA for both but make it more conservative than I normally would (because of the large amount needed in the next few years)?
4. How should I get to that/those AA(s)?  I know that a lump sum tends to work better for investing new money (& I've done that twice).  So, it seems like switching a bit at a time should tend to work better going the other way. Maybe switch some amount each month until I get to my goal?
5. Should I take a different SEPP amount?  If I take more, I could close part of the 2020 gap, but I'd lose some flexibility.  Even if I go back to work, I'll have to take those payments or be penalized on previous SEPPs.
6. How can I pay off my mortgage early w/ minimal tax consequences?  I'm guessing that will have to wait until I start taking SS.
7. Should I convert some of my traditional 401K/IRA assets to a Roth IRA.  Again, I'm guessing that will have to wait until I start taking SS.

I will appreciate whatever help you can give us!

Last edited by bkweathe on Wed Mar 25, 2020 6:43 pm, edited 1 time in total.

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Re: Protfolio Review / Retirement Income Plan

Post by megabad » Tue Mar 24, 2020 7:55 pm

bkweathe wrote:
Tue Mar 24, 2020 5:56 pm
Lots of stuff
Wow. Just my opinion but it seems like you have created a very complicated solution to a problem that I don’t think you have. Are you rule of 55 eligible with respect to 401k? If so, just use that for now. Otherwise I would probably use the whole life temporarily. No need for SEPP. Definitely look into getting rid of the term policy as well. That is probably a gigantic expense for you that could go away assuming you are healthy. A pessimist might say wait until the current virus threat is over though...

I would keep it simple. You are extremely aggressively invested compared to where I would be in your situation. I would probably work slowly toward a more conservative allocation that mirrors maybe Vanguard Target Retirement 2020. Problem is this is likely a really bad time to be doing this...this really should have already been part of your IPS.

I also think you need to run the future numbers again for single because you may be a little short on funds but you can probably cut expenses and life insurance and cover that.

Lastly, I would probably think about Roth converting but be careful since I assume you need ACA. You will need to be in the right income range for that. If so, be sure to run these numbers too since I can’t tell from your post

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Re: Protfolio Review / Retirement Income Plan

Post by bkweathe » Wed Mar 25, 2020 9:40 am

Thanks megabad!

1. Neither 401k is eligible for Rule of 55.
2. Term policy expense is small - dropping it would barely make a debt in the 2020 gap.
3. Whole life cash value is about $14k. Not enough to fill 2020 gap, but enough to help. Is there another way to get money out of it?I


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Re: Protfolio Review / Retirement Income Plan

Post by WoodSpinner » Wed Mar 25, 2020 10:58 am


You might give this plan a couple of days and see what affect (if any) the Covid-19 Stimulus bill has on your options. It might offer an alternative that isn’t on the table yet.


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Re: Protfolio Review / Retirement Income Plan

Post by megabad » Wed Mar 25, 2020 2:13 pm

WoodSpinner wrote:
Wed Mar 25, 2020 10:58 am

You might give this plan a couple of days and see what affect (if any) the Covid-19 Stimulus bill has on your options. It might offer an alternative that isn’t on the table yet.


Good tip to wait and check this.

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