Retirement Portfolio Review

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Chrysanthemum
Posts: 4
Joined: Fri Jan 03, 2020 5:51 pm

Retirement Portfolio Review

Post by Chrysanthemum » Fri May 22, 2020 3:45 pm

Hello Bogleheads,
I’m a long-time lurker that has learned many things from reading the wonderful advice given on this website, but this is my first post!
Since 2005 I’ve been investing in index funds and have continued to contribute to a tax-advantaged plan regularly since then. In order to do that, I’ve paid off all debt and lived below my means with an eye toward building up retirement funds after raising and educating three children.

History:
I semi-retired in 2018 and took a part-time job with an employer that offered outstanding benefits including a 401K with 5% match and pension vesting after 3 years. At that time my Fidelity advisor recommended moving the 403b plan under their custody to an IRA in order to have a broader choice of funds. (my investments were mostly in a Fidelity target date and Fidelity index funds - Vanguard funds were not offered in the plan.)
The advice included going with either a Fidelity managed account or a Model Portfolio that was self-managed. Not wanting to cede control, I picked the self-managed option. The AA I chose (60/40) was split into 11 funds by Fidelity which has made it difficult to re-balance. Some of the actively managed investments have done poorly.

The Portfolio:

Debt: 0
Emergency funds: ~5 yrs in High-yield savings

Tax Filing Status: Single
Tax Rate: 22% Federal, 5% State
Age: 68

Desired Asset allocation: 50% stocks /50% bonds
Desired International AA: 20%

Total portfolio: Low 7 figures

Current AA (when including taxable legacy account): 66% equities, 29% bonds, 5% short term
AA: (excluding taxable account): 54% equities, 40% bonds, 6% short term.

Current retirement assets

Taxable-Fidelity
0.94% -Columbia Contrarian Core V – SGIEX
0.19% - Fidelity Intermediate Bond – FTHRX
0.24% - Fidelity Short Term Bond – FSHBX
0.22% – PGIM High Yield A – PBHAX
28.15% –various blue chip stocks paying dividends
1.80%– Fidelity Cash Reserves - SPAXX

Traditional IRA-Fidelity
3.09% FMI Int’l –FMIJX – .09%
3.15% FMI Common Stock –FMIMX – 1.01%
2.76 %Fidelity Low-Priced Stock – FLPSX – 0.52%
1.74% Fidelity Int’l Discovery –FIGRX – 0.78%
5.38% Fidelity Contrafund –FCNTX -0.85%
4.81% T. Rowe Price New America Growth – PRWAX – 0.78%
1.98% American Funds Fundamental F1-AFIFX – 0.65%
2.52% LSV Value Equity Investor- LVAEX- 0.9%
4.59% Frost Total Return Bond Investor – FATRX -0.73%
4.31% Fidelity Total Bond – FTBFX -0.45%
4.24% PGIM Total Return Bond A – PDBAX -0.76%
0.39% Fidelity Cash Reserves – FDRXX 0.01

Roth IRA-Fidelity
0.76% - Fidelity Gov MM – SPAXX 0.01
0.62% - Fidelity Select Heathcare –FSPHX – 0.7%
1.89% – T. Rowe Price Blue Chip Growth –TRBCX -0.69
0.48% - Schwab US Div Equity ETF –SCHD – 0.06

Roth 401K (new employer)
0.42% - Vanguard Target Retirement Plus 2025 – 0.06%
0.30% - TRP Inst Large Cap Growth – TRLGX – 0.56%

TIAA-CREF 403b
10.84% - TIAA Traditional (min 3%)
9.94% - Vanguard Target Retirement 2020 –VTWNX - 0.13%
3.64% - Vanguard Growth Index – VIGIX – 0.04%
0.61% - Vanguard Small Cap Index – VSCIX – 0.04

New annual Contributions

$7,000 Roth IRA
$7,800 Roth 401K (with employer 5% match)

Available funds

Funds available in 401(k)
Vanguard Target Retirement Funds Trust Plus - 2020 - 2065 - 0.06%
Vanguard Target Retirement Income Trust Plus - 0.06
Vanguard Institutional Total Stk Mkt Index Trust – 0.01
Vanguard Mid-Cap Index Institutional – 0.04
Vanguard Institutional Total International Stk Mkt Index Trust – 0.06
Vanguard Institutional Total Bond Mkt Index Trust – 0.03
Vanguard Institutional Total International Bond Mkt Index Trust – 0.07
Vanguard FTSE Social Index – 0.12
Vanguard Growth Index -0.04
Vanguard Value Index Vanguard Small Cap Index -0.04
Vanguard Emerging Mkt Stk Index – 0.10
Vanguard Real Estate Index – 0.10
Vanguard Short Term Bond Index - 0.05
Vanguard Inflation Protected Sec – 0.07
Vanguard Prime Money Mkt – 0.10
Wellington Trust CIF II High Yield – 0.05
Prudential Core plus Class 5 – 0.12 and more

Questions:
I’m looking to simplify my portfolio by moving back into index funds. Fidelity charges $75 for trading Vanguard funds, so my choices in the tIRA will be limited. I already hold Vanguard funds in my new 401K and in my older TIAA account. My taxable account is full of LTCG but has been used as a source of income from dividends (~7K/yr). How do I simplify in a tax efficient manner?

AA: My plan was to move to 50/50 at age 70 1/2 when RMD’s used to kick in and then have a slowly declining glide path. Given the change to age 72 and the current economic climate, is this still reasonable?

Cash: I hold a lot of cash in high-yield savings accounts for two reasons: to avoid selling equities in an extended market downturn like 2008 and to hedge the over-allocation to stocks created by including the legacy taxable account in my AA. Is there a better place for the cash?

IRA to Roth Conversion: Current tax bracket is 22% based on income from salary, pension, SSI and dividends/interest. My plan is to fully retire at age 70 after which my tax bracket may fall to 12% before rising to at least 22% again at age 72 when RMDs kick in. It’s also possible I may move to a HCOL state in the future. Should I wait until age 70 to do the conversions or pay the 22% on a small one this year?

Thank you all for reading my post. I’m looking forward to hearing your thoughts!

lakpr
Posts: 4968
Joined: Fri Mar 18, 2011 9:59 am

Re: Retirement Portfolio Review

Post by lakpr » Fri May 22, 2020 4:31 pm

Your Traditional IRA total percentage adds up to 38%. Let it be the repository for all the bonds in your allocation.
Along with the 10.84% in TIAA Traditional, your overall fixed income allocation would become 52:48. You have a little smattering of bonds in your taxable and also as part of the Vanguard Target Retirement 2020. So the end result would be exceedingly close to the 50:50 desired allocation.

Sell every fund in your Fidelity Traditional IRA, and buy FXNAX (Fidelity Total Bond Index Fund) and/or FUMAX (Fidelity Intermediate Term Treasury Index Fund). I suggest a 50:50 allocation between the two because in sudden crises like Covid-19 and the 2008 Great Recession, the Intermediate Treasuries hold their value up, whereas the corporate bonds that are part of the FXNAX tend to lose value. In good times, though, the corporate bonds tend to give you more yield than treasuries that's valuable for a retiree. Hence the 50:50 recommendation.

I am afraid to recommend any actions on your taxable account because any transactions there could subject you to capital gain and/or ordinary income taxes. The only thing I would suggest for you to do is to maximize the Traditional 401k contributions, get a tax break at 22% now, and withdraw from the Trad-401k / Trad IRA when you fully retire at 12% tax rate. It does NOT make sense to make Roth 401k contributions at this time.

I would also suggest you MAXIMIZE the Traditional 401k contributions now.

User avatar
FiveK
Posts: 8896
Joined: Sun Mar 16, 2014 2:43 pm

Re: Retirement Portfolio Review

Post by FiveK » Fri May 22, 2020 4:43 pm

See Other than Vanguard, Boglehead-style for some Fidelity funds you could use.

If you will pay 22% (or higher) marginal rates for the rest of your life (other than perhaps a two year window of 12%), then doing conversions at 22% (and paying the tax from cash on hand) is favorable. See the discussion about the Break-even withdrawal rate in that wiki article.

ETA: By the same logic (22% marginal rates ~forever), Roth contributions may be preferable now if you are Maxing out your retirement accounts.

Of course, if you will have many years of 12% marginal rates then using traditional to get a 22% break now would be good.

Topic Author
Chrysanthemum
Posts: 4
Joined: Fri Jan 03, 2020 5:51 pm

Re: Retirement Portfolio Review

Post by Chrysanthemum » Sat May 23, 2020 11:48 am

lakpr wrote:
Fri May 22, 2020 4:31 pm
Your Traditional IRA total percentage adds up to 38%. Let it be the repository for all the bonds in your allocation.
Along with the 10.84% in TIAA Traditional, your overall fixed income allocation would become 52:48. You have a little smattering of bonds in your taxable and also as part of the Vanguard Target Retirement 2020. So the end result would be exceedingly close to the 50:50 desired allocation.

Sell every fund in your Fidelity Traditional IRA, and buy FXNAX (Fidelity Total Bond Index Fund) and/or FUMAX (Fidelity Intermediate Term Treasury Index Fund). I suggest a 50:50 allocation between the two because in sudden crises like Covid-19 and the 2008 Great Recession, the Intermediate Treasuries hold their value up, whereas the corporate bonds that are part of the FXNAX tend to lose value. In good times, though, the corporate bonds tend to give you more yield than treasuries that's valuable for a retiree. Hence the 50:50 recommendation.

I am afraid to recommend any actions on your taxable account because any transactions there could subject you to capital gain and/or ordinary income taxes. The only thing I would suggest for you to do is to maximize the Traditional 401k contributions, get a tax break at 22% now, and withdraw from the Trad-401k / Trad IRA when you fully retire at 12% tax rate. It does NOT make sense to make Roth 401k contributions at this time.

I would also suggest you MAXIMIZE the Traditional 401k contributions now.
Lakpr, thanks for your comments and suggestions. I will look into those two Fidelity funds.

Topic Author
Chrysanthemum
Posts: 4
Joined: Fri Jan 03, 2020 5:51 pm

Re: Retirement Portfolio Review

Post by Chrysanthemum » Sat May 23, 2020 12:05 pm

FiveK wrote:
Fri May 22, 2020 4:43 pm
See Other than Vanguard, Boglehead-style for some Fidelity funds you could use.

If you will pay 22% (or higher) marginal rates for the rest of your life (other than perhaps a two year window of 12%), then doing conversions at 22% (and paying the tax from cash on hand) is favorable. See the discussion about the Break-even withdrawal rate in that wiki article.

ETA: By the same logic (22% marginal rates ~forever), Roth contributions may be preferable now if you are Maxing out your retirement accounts.

Of course, if you will have many years of 12% marginal rates then using traditional to get a 22% break now would be good.
Thanks for your response and the links to the wiki page, FiveK. I do expect to only have a two year window of 12% due to RMDs. I'm not sure I understand what the "break-even withdrawal" rate is showing though. Could you clarify?

User avatar
FiveK
Posts: 8896
Joined: Sun Mar 16, 2014 2:43 pm

Re: Retirement Portfolio Review

Post by FiveK » Sat May 23, 2020 12:33 pm

Chrysanthemum wrote:
Sat May 23, 2020 12:05 pm
Thanks for your response and the links to the wiki page, FiveK. I do expect to only have a two year window of 12% due to RMDs. I'm not sure I understand what the "break-even withdrawal" rate is showing though. Could you clarify?
In short, the simplest traditional vs. Roth advice is "if your tax rate now is higher than your tax rate in retirement, then the traditional account is better; if it is lower, then the Roth account is better; if it is the same then traditional and Roth results are equal."

However, when the pre-tax amount one wants to use is greater than the contribution limit, or when one uses taxable funds to pay the tax on a conversion, the breakeven withdrawal tax rate (i.e., the rate at which today's traditional or Roth contributions provide the same spendable result) is somewhat lower than the tax rate for today's traditional amount.

Start with More complicated situations, and follow the links in that section for more details.

Does that help?

Topic Author
Chrysanthemum
Posts: 4
Joined: Fri Jan 03, 2020 5:51 pm

Re: Retirement Portfolio Review

Post by Chrysanthemum » Sat May 23, 2020 2:37 pm

FiveK wrote:
Sat May 23, 2020 12:33 pm
Chrysanthemum wrote:
Sat May 23, 2020 12:05 pm
Thanks for your response and the links to the wiki page, FiveK. I do expect to only have a two year window of 12% due to RMDs. I'm not sure I understand what the "break-even withdrawal" rate is showing though. Could you clarify?
In short, the simplest traditional vs. Roth advice is "if your tax rate now is higher than your tax rate in retirement, then the traditional account is better; if it is lower, then the Roth account is better; if it is the same then traditional and Roth results are equal."

However, when the pre-tax amount one wants to use is greater than the contribution limit, or when one uses taxable funds to pay the tax on a conversion, the breakeven withdrawal tax rate (i.e., the rate at which today's traditional or Roth contributions provide the same spendable result) is somewhat lower than the tax rate for today's traditional amount.

Start with More complicated situations, and follow the links in that section for more details.

Does that help?
Yes it does, thanks FiveK!

Post Reply