Portfolio review - 13 years from retirement

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Topic Author
confused1
Posts: 56
Joined: Mon Jul 27, 2015 12:03 am

Portfolio review - 13 years from retirement

Post by confused1 »

All

Thanks in advance for the help, advice and guidance.

We have spent the last few years working through finances and in a very fortunate position to have been given generous RSU packages and are earning good money.

Based on our calculations everything looks on track but I wanted to check we are not missing anything.

Emergency funds: Yes - $60k in CDs

Debt:
Car $3k (0%) $500pm paid off Feb 2021
Mortgage $600k (2.75%) $4000pm - House Value $2.5m
Paying off at accelerated rate (+$5500pm) - Want to pay off by time we are 50 (8 years)

Tax Filing Status: Married Filing Jointly
Tax Rate: 37% Federal, 12% State
State of Residence: CA
Age: 42 and 41
Salary: Both ~~$275k and 30% bonus

Desired Asset allocation: Need to decide this, never settled on a % figure :-(

Total Portfolio Size $1.5m

RSU that vest in the next 36 months - Assumption is that we will vest 100% of these (accept there is a risk this may not happen)
His $2m -> $1m after tax
Her $450k -> $225 after tax
Total after tax $1.225m

$240k of this is to be added to existing savings ($384k) to fund a remodel/addition of sq ft to our main property. Being in a VHCOL location (Bay Area) this is expected to add $1m+ to the value of the property - Now if the economy tanks badly we will revisit this decision, no commitments made yet just saving for it.

This would leave $1m to be put into taxable accounts in the overall retirement bucket.

Current retirement assets

Taxable
17% VTIAX $270k (0.11%)
16% VTIAX $260k (0.04%)

His 401k
18% Vanguard Target Retirement 2040 Trust $292k (0.04%)
Company match - Yes to $9k per year

Her 401k
8% Fidelity Fidelity® 500 Index Fund FXAIX $134 (0.015%)
7% Fidelity Fidelity® International Index Fund FSPSX $115k (0.035%)
Company match - Yes to $5k per year

His Roth IRA at Vanguard
3% VTIVX $43k (0.15%) 2045 Target retirement fund

Her Roth IRA at Vanguard
3% VTIVX $43k (0.15%) 2045 Target retirement fund

Retirement accounts held outside US - Europe
27% Total of $428k - Across 6 accounts. Obviously no further/future contributions.

Maybe 20% as some form of guarantee or minimum value
Invested in funds such as
FTSE Developed World Index (0.18%)
Developed Government Bonds 12.1%
Developed Corporate Bonds 16.3%
Equities 34.2%
Alternatives 37.4%

Gov Pensions held outside of US
~~$750pm each from age 68

US SSA projection
We have only lived in the US for ~5 years and plan to retire early. Projections seem to put us at ~$1750pm each at 60. 75% sure of this calculation.

______________________________________________________________

Contributions

New annual Contributions
$56k his 401k - inc $9k company match and mega backdoor roth
$56k her 401k - inc $5k company match and mega backdoor roth
$6k his IRA/Roth IRA (backdoor Roth)
$6k her IRA/Roth IRA (backdoor Roth)


There is usually another $100-200k we put into taxable savings (retirement pot) each year from bonus/extra salary etc


Questions:

1. Advice on asset allocation. We are now 13 years from our proposed retirement and look to be in a strong position. This means we could take a riskier (higher stock) allocation?

2. Objective is to have $7.5m when we retire at 55
Purchase nice property in CA - $2.5m
$150k living expenses (after tax)
Travel around the world and enjoy life. Running the numbers $150k would allow us to live the life we want. Assume $5m pot could generate $200k per year (then minus 25% tax)

Current modelling puts us past this
Retirement accounts (Taxable and non-taxable) ~$5.7m
Main Property $3.5m

When I run these numbers all through Firecalc with the following assumptions all looks to be well on track
  • We both vest and invest the next 36m of our RSUs - Yes the economy is in an odd place but we both feel we are in stable tech companies with highly marketable skills.
  • We continue to max retirement savings until we are 55
  • 401k $56k - Matched contributions + mega backdoors
  • $6k backdoor roth

Question - Does anyone see anything wrong or incorrect with these calculations/assumptions?

2. Are we missing any opportunities to be more efficient with taxes. Think we have covered the most obvious ones?


Really look forward to thoughts and observations you all have

Thanks
Last edited by confused1 on Wed Jul 15, 2020 9:40 pm, edited 2 times in total.
psychodoc
Posts: 46
Joined: Tue Jun 10, 2008 11:21 pm

Re: Portfolio review - 13 years from retirement

Post by psychodoc »

looks like an overall enviable position. some details from your post that may be limiting responses include: not knowing what fxaix and fspsx are, fund names are usually better; 'pensions outside us - europe' don't sound like pensions, but retirement accounts; you won't get anything from social security in the u.s. at 60, most likely.

for your questions:

1- you can probably be as aggressive as you want, given portfolio size. do you need to leave a legacy, or are okay spending it all? If legacy is not a concern, then you may be better off being conservative. hard to tell without knowing what the foreign 'pension' is, given its 27% allocation.

2-no obvious problem with your calculations, though you don't describe what actual expected return you are using. house value is largely irrelevant, other than possibly determining some of your fixed costs or willingness to down-size.

[2nd] 2-HSA's or 529's may be useful, if applicable. If all of your income isn't w-2 wages, then perhaps.
Topic Author
confused1
Posts: 56
Joined: Mon Jul 27, 2015 12:03 am

Re: Portfolio review - 13 years from retirement

Post by confused1 »

psychodoc,

Thanks

fxaix and fspsx - Updated in statement above
fxaix Fidelity® 500 Index Fund
fspsx Fidelity® International Index Fund

'pensions outside us - europe' - Updated, correct they are retirement accounts. Maybe 20% as some form of guarantee or minimum value
Invested in funds such as
FTSE Developed World Index (0.18%)
Developed Government Bonds 12.1%
Developed Corporate Bonds 16.3%
Equities 34.2%
Alternatives 37.4%

Chosen the best choices as close to index trackers as possible not not always an option

Is legacy a concern?

Great question, sorry I forgot to mention. No children so zero need to leave anything to anyone :-)

I have modelled two ways - Results similar
1. Assume 3% annual growth (easiest way to account for inflation etc)
2. Put all figures in FireCalc with default settings

Primary House

Assume we will leave the city one day and move out. So sale of our house simply needs to fund retirement property - At $3.5m that should be easily covered and gives option to release equity if something else goes wrong.

All income = w-2
HSAs - Sorry forgot to mention. Maxing those out every year
529 - Did not make sense for us

Thank you again
babystep
Posts: 318
Joined: Tue Apr 09, 2019 9:44 am

Re: Portfolio review - 13 years from retirement

Post by babystep »

confused1 wrote: Wed Jul 15, 2020 7:12 pm All

Thanks in advance for the help, advice and guidance.

We have spent the last few years working through finances and in a very fortunate position to have been given generous RSU packages and are earning good money.

Based on our calculations everything looks on track but I wanted to check we are not missing anything.

Emergency funds: Yes - $60k in CDs

Debt:
Car $3k (0%) $500pm paid off Feb 2021
Mortgage $600k (2.75%) $4000pm - House Value $2.5m
Paying off at accelerated rate (+$5500pm) - Want to pay off by time we are 50 (8 years)

Tax Filing Status: Married Filing Jointly
Tax Rate: 37% Federal, 12% State
State of Residence: CA
Age: 42 and 41
Salary: Both ~~$275k and 30% bonus

Desired Asset allocation: Need to decide this, never settled on a % figure :-(

Total Portfolio Size $1.5m

RSU that vest in the next 36 months - Assumption is that we will vest 100% of these (accept there is a risk this may not happen)
His $2m -> $1m after tax
Her $450k -> $225 after tax
Total after tax $1.225m

$240k of this is to be added to existing savings ($384k) to fund a remodel/addition of sq ft to our main property. Being in a VHCOL location (Bay Area) this is expected to add $1m+ to the value of the property - Now if the economy tanks badly we will revisit this decision, no commitments made yet just saving for it.

This would leave $1m to be put into taxable accounts in the overall retirement bucket.

Current retirement assets

Taxable
17% VTIAX $270k (0.11%)
16% VTIAX $260k (0.04%)

His 401k
18% Vanguard Target Retirement 2040 Trust $292k (0.04%)
Company match - Yes to $9k per year

Her 401k
8% Fidelity Fidelity® 500 Index Fund FXAIX $134 (0.015%)
7% Fidelity Fidelity® International Index Fund FSPSX $115k (0.035%)
Company match - Yes to $5k per year

His Roth IRA at Vanguard
3% VTIVX $43k (0.15%) 2045 Target retirement fund

Her Roth IRA at Vanguard
3% VTIVX $43k (0.15%) 2045 Target retirement fund

Retirement accounts held outside US - Europe
27% Total of $428k - Across 6 accounts. Obviously no further/future contributions.

Maybe 20% as some form of guarantee or minimum value
Invested in funds such as
FTSE Developed World Index (0.18%)
Developed Government Bonds 12.1%
Developed Corporate Bonds 16.3%
Equities 34.2%
Alternatives 37.4%

Gov Pensions held outside of US
~~$750pm each from age 68

US SSA projection
We have only lived in the US for ~5 years and plan to retire early. Projections seem to put us at ~$1750pm each at 60. 75% sure of this calculation.

______________________________________________________________

Contributions

New annual Contributions
$56k his 401k - inc $9k company match and mega backdoor roth
$56k her 401k - inc $5k company match and mega backdoor roth
$6k his IRA/Roth IRA (backdoor Roth)
$6k her IRA/Roth IRA (backdoor Roth)


There is usually another $100-200k we put into taxable savings (retirement pot) each year from bonus/extra salary etc


Questions:

1. Advice on asset allocation. We are now 13 years from our proposed retirement and look to be in a strong position. This means we could take a riskier (higher stock) allocation?

2. Objective is to have $7.5m when we retire at 55
Purchase nice property in CA - $2.5m
$150k living expenses (after tax)
Travel around the world and enjoy life. Running the numbers $150k would allow us to live the life we want. Assume $5m pot could generate $200k per year (then minus 25% tax)

Current modelling puts us past this
Retirement accounts (Taxable and non-taxable) ~$5.7m
Main Property $3.5m

When I run these numbers all through Firecalc with the following assumptions all looks to be well on track
  • We both vest and invest the next 36m of our RSUs - Yes the economy is in an odd place but we both feel we are in stable tech companies with highly marketable skills.
  • We continue to max retirement savings until we are 55
  • 401k $56k - Matched contributions + mega backdoors
  • $6k backdoor roth

Question - Does anyone see anything wrong or incorrect with these calculations/assumptions?

2. Are we missing any opportunities to be more efficient with taxes. Think we have covered the most obvious ones?


Really look forward to thoughts and observations you all have

Thanks
VTIAX in your tax bracket is not very efficient in taxable. It has about 3% dividend and you are paying about 23.8+12 = 35.8% tax on that. I would direct new money towards VTSAX and if want to hold VTIAX then would keep that in a tax-deferred account.

You have a home worth 2.5m and then you want to buy another home for 2.5m in CA?

AA is a personal choice. Some would choose 90/10 or 80/20 in this condition and then over the years move towards 70/30 or 60/40.

Please go through this:
https://www.bogleheads.org/wiki/Tax-eff ... _placement

e.g. VTIVX which is TDF with some bonds is not ideal for Roth.

Take a look at the munis for bonds in taxable, like CA munis or VTEB
Topic Author
confused1
Posts: 56
Joined: Mon Jul 27, 2015 12:03 am

Re: Portfolio review - 13 years from retirement

Post by confused1 »

Thanks, will take look at the suggestions for more efficient placement for tax purposes. With resent RSU vests situation the tax burden has rapidly risen.
You have a home worth 2.5m and then you want to buy another home for 2.5m in CA?
Home currently worth 2.5m
Going to remodel to add sq ft that should bring the value up to 3.5m +

Then in retirement we would sell this house and use the proceeds to fund retirement home. Ideally in CA but open to other places in the world.

Thanks
Topic Author
confused1
Posts: 56
Joined: Mon Jul 27, 2015 12:03 am

Re: Portfolio review - 13 years from retirement

Post by confused1 »

you won't get anything from social security in the u.s. at 60, most likely.
Think I see the mistake on my part. US SAA would start paying out at 68 not 60- thanks

‘ To be eligible for Social Security, you must have a minimum of 10 years of covered employment, which equates to 40 credits in the Social Security system. If you don't have 35 years with earnings, zeros will be included in the calculation.’

We will probably have 20 years of SSA contributions by the time we retire and they all would have been as high earners (I hope) - when I last calculated a few years ago this was enough to return something meaningful, starting at 68

Thanks
User avatar
CyclingDuo
Posts: 4036
Joined: Fri Jan 06, 2017 9:07 am

Re: Portfolio review - 13 years from retirement

Post by CyclingDuo »

confused1 wrote: Thu Jul 16, 2020 1:06 am
you won't get anything from social security in the u.s. at 60, most likely.
Think I see the mistake on my part. US SAA would start paying out at 68 not 60- thanks

‘ To be eligible for Social Security, you must have a minimum of 10 years of covered employment, which equates to 40 credits in the Social Security system. If you don't have 35 years with earnings, zeros will be included in the calculation.’

We will probably have 20 years of SSA contributions by the time we retire and they all would have been as high earners (I hope) - when I last calculated a few years ago this was enough to return something meaningful, starting at 68

Thanks
Create SS accounts for each of you at: https://www.ssa.gov/myaccount/

That way you can follow along.

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
Topic Author
confused1
Posts: 56
Joined: Mon Jul 27, 2015 12:03 am

Re: Portfolio review - 13 years from retirement

Post by confused1 »

CyclingDuo wrote: Thu Jul 16, 2020 8:57 am
Create SS accounts for each of you at: https://www.ssa.gov/myaccount/

That way you can follow along.

CyclingDuo
I had tried that but many of their calculators don't work until you have 40 credits :-(
Just checked and we currently have 6 years and 28 credits

Thanks
User avatar
CyclingDuo
Posts: 4036
Joined: Fri Jan 06, 2017 9:07 am

Re: Portfolio review - 13 years from retirement

Post by CyclingDuo »

confused1 wrote: Thu Jul 16, 2020 10:25 am
CyclingDuo wrote: Thu Jul 16, 2020 8:57 am
Create SS accounts for each of you at: https://www.ssa.gov/myaccount/

That way you can follow along.

CyclingDuo
I had tried that but many of their calculators don't work until you have 40 credits :-(
Just checked and we currently have 6 years and 28 credits

Thanks
Understood.

Also, check in with potential other countries you are considering for retirement to see if that particular country has any sort of agreement with the US regarding your benefits to receive credits there (if you have also worked there and built up some credits). I put in a lot of years overseas and built up enough credits in one particular country that my US credits could apply there, but not vice versa (that's the agreement between the two countries).
"Save like a pessimist, invest like an optimist." - Morgan Housel
Topic Author
confused1
Posts: 56
Joined: Mon Jul 27, 2015 12:03 am

Re: Portfolio review - 13 years from retirement

Post by confused1 »

CyclingDuo wrote: Thu Jul 16, 2020 10:36 am
confused1 wrote: Thu Jul 16, 2020 10:25 am
CyclingDuo wrote: Thu Jul 16, 2020 8:57 am
Create SS accounts for each of you at: https://www.ssa.gov/myaccount/

That way you can follow along.

CyclingDuo
I had tried that but many of their calculators don't work until you have 40 credits :-(
Just checked and we currently have 6 years and 28 credits

Thanks
Understood.

Also, check in with potential other countries you are considering for retirement to see if that particular country has any sort of agreement with the US regarding your benefits to receive credits there (if you have also worked there and built up some credits). I put in a lot of years overseas and built up enough credits in one particular country that my US credits could apply there, but not vice versa (that's the agreement between the two countries).
I am currently ignoring the impact of having retirement savings in 2 different countries. Who knows what will change in the next 13 years wrt tax treaties :-)
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