Retirement Planning

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
dogwalker
Posts: 4
Joined: Sun Jul 26, 2020 2:05 pm

Retirement Planning

Post by dogwalker » Fri Jul 31, 2020 3:15 pm

Recently retired couple. Husband is 63. I'm 59.

Emergency funds: $15,000 in bank account.

Debt: None.

State of Residence: AZ

Desired asset allocation: 60% stocks/40% bonds (we had been more conservative but both want to increase our stock allocation for a variety of reasons)

Taxable accounts:
VTI (Vanguard Total Market ETF): $1.5 million
VMFXX (VANGUARD FEDERAL MONEY MARKET INVESTOR): $900k (CDs just matured)

Roth IRAs:
VTI (Vanguard Total Market ETF): $75K

Traditional (Rollover): IRAs:
BND (Vanguard Total Market Bond Fund ETF): $950K

Pensions total: $45K a year.

House value(s): ~$1.2 million. No mortgage. No desire to move any time soon.

Expenses: About $70K annually (includes health insurance)

Social security: Husband: about $3,800 a month at age 70. Me: $500 a month at age 62.

Major decision revolves around the availability of the $900k in taxable/VMFXX. Right now our AA is around 45/55. Quick math: taking ~$550k of VMFXX and buying VTI now and taking ~$350k of VMFXX and buying BND now seems the simplest way to get around 60/40. We have never hesitated in the past about doing anything that resembled lump sum investing, but now being newly retired with no paycheck coming in, quarantining alone with everything going on Covid-related (husband has a preexisting condition), and watching the market rise so incredibly rapidly since March, we'd probably be more comfortable with a disciplined DCA plan. No one else can speak to our emotions, but are we just being chickens to not lump sum the $900k in VTI and BND?

Also, can we count our ~$1.2 million home as part of our bond/FI allocation and recalculate our overall AA accordingly (e.g., start by taking the entire $900k of VMFXX and buy VTI either lump sum or DCA)?

Suggestions appreciated.
Last edited by dogwalker on Fri Jul 31, 2020 3:21 pm, edited 1 time in total.

livesoft
Posts: 72626
Joined: Thu Mar 01, 2007 8:00 pm

Re: Retirement Planning

Post by livesoft » Fri Jul 31, 2020 3:19 pm

One cannot count the home value as part of the fixed income.

I don't think it will matter that much what you do. You can lump sum or not. You can LS 50% and DCA the rest over the next 10 months. You can LS the BND purchase and LS 50% of the VTI purchase and DCA the rest of the VTI purchase over the next 10 months. You can ....

You see? There are many ways to get to your end point. Will you somehow do exactly the best way that doesn't lose you any money and makes you the most money?? Sorry, I don't see that happening unless you get really really lucky.
Wiki This signature message sponsored by sscritic: Learn to fish.

Escapevelocity
Posts: 101
Joined: Mon Feb 18, 2019 8:32 am

Re: Retirement Planning

Post by Escapevelocity » Fri Jul 31, 2020 3:37 pm

Just curious why you are planning to collect SS at 62? You clearly don't need the income.

jarjarM
Posts: 177
Joined: Mon Jul 16, 2018 1:21 pm

Re: Retirement Planning

Post by jarjarM » Fri Jul 31, 2020 3:42 pm

Escapevelocity wrote:
Fri Jul 31, 2020 3:37 pm
Just curious why you are planning to collect SS at 62? You clearly don't need the income.
I’m assume file at 62 to start collecting now and then @67 and beyond use spousal benefits, the optimized method of collecting SS when one spouse has significant higher earnings than the other

User avatar
ruralavalon
Posts: 18828
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Retirement Planning

Post by ruralavalon » Fri Jul 31, 2020 3:45 pm

dogwalker wrote:
Fri Jul 31, 2020 3:15 pm
Recently retired couple. Husband is 63. I'm 59.

Emergency funds: $15,000 in bank account.

Debt: None.

State of Residence: AZ

Desired asset allocation: 60% stocks/40% bonds (we had been more conservative but both want to increase our stock allocation for a variety of reasons)
In my opinion at ages 59 and 63, recently retired, a 60/40 asset allocation is within the range of what is reasonable.
dogwalker wrote:
Fri Jul 31, 2020 3:15 pm
Taxable accounts:
VTI (Vanguard Total Market ETF): $1.5 millionVMFXX (VANGUARD FEDERAL MONEY MARKET INVESTOR): $900k (CDs just matured)

Roth IRAs:
VTI (Vanguard Total Market ETF): $75K

Traditional (Rollover): IRAs:
BND (Vanguard Total Market Bond Fund ETF): $950K

Pensions total: $45K a year.

House value(s): ~$1.2 million. No mortgage. No desire to move any time soon.

Expenses: About $70K annually (includes health insurance)

Social security: Husband: about $3,800 a month at age 70. Me: $500 a month at age 62.
With about $70k annual expenses, pensions of $45k annually, Social Security, and about $3.4 million in investments you are in great shape. You can be as flexible as you wish in asset allocation, selection of investments, and on how to start investing the cash you have from the recently matured CD.

dogwalker wrote:
Fri Jul 31, 2020 3:15 pm
Major decision revolves around the availability of the $900k in taxable/VMFXX. Right now our AA is around 45/55. Quick math: taking ~$550k of VMFXX and buying VTI now and taking ~$350k of VMFXX and buying BND now seems the simplest way to get around 60/40. We have never hesitated in the past about doing anything that resembled lump sum investing, but now being newly retired with no paycheck coming in, quarantining alone with everything going on Covid-related (husband has a preexisting condition), and watching the market rise so incredibly rapidly since March, we'd probably be more comfortable with a disciplined DCA plan. No one else can speak to our emotions, but are we just being chickens to not lump sum the $900k in VTI and BND?
I always favor a lump sum investment, rather than stringing it out in stages.

If you delay Social Security for years, then you could continue to hold some portion of fixed income in cash (high yield savings account or money market fund) to cover several years of expected retirement living expenses.

dogwalker wrote:
Fri Jul 31, 2020 3:15 pm
Also, can we count our ~$1.2 million home as part of our bond/FI allocation and recalculate our overall AA accordingly (e.g., start by taking the entire $900k of VMFXX and buy VTI either lump sum or DCA)?

Suggestions appreciated.
I would not count the value of a home as a bond of some kind of fixed income investment. A home is primarily a place to live, rather than an investment.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

02nz
Posts: 5436
Joined: Wed Feb 21, 2018 3:17 pm

Re: Retirement Planning

Post by 02nz » Fri Jul 31, 2020 3:45 pm

I agree you should not count your home as part of your portfolio. As for lump vs DCA - there are a gazillion threads :happy but the answer is pretty much always: lump sum wins on average, but if it makes you feel better, DCA for all or a part, but make a plan and stick to it regardless of what happens in the market.

Here's something that will likely make a bigger difference than lump sum vs DCA: You should probably do enough withdrawals from tax-deferred or Roth conversions to at least fill up the 12% bracket (about $105K of income in 2020 including standard deduction). Assuming you only have the $45K of pension income, then you'd want to withdraw/convert around $60K. This will 1) take advantage of lower tax brackets every year, especially before tax rates are scheduled to go back up in 2026; 2) draw down your balance to reduce RMDs 3) help reduce the amount of SS benefits subject to income tax, and 4) mitigate the likelihood one of you passes (most likely your husband) and the other faces higher tax rates filing single. (However, if you're using ACA for health care, watch out for the subsidy "cliff" at 400% of FPL.)

Alternatively, you can fill that space with 0% long-term capital gains by selling from taxable. You can also do a mix of the two. But if there's any likelihood of passing on assets to heirs and/or charity, the I'd leave taxable for last in the hope of getting a step-up in basis or donating appreciated shares. Tax-deferred accounts, on the other hand, have to be taxed at some point regardless (except whatever fits into the standard deduction, of course).
Last edited by 02nz on Fri Jul 31, 2020 3:50 pm, edited 1 time in total.

User avatar
KlingKlang
Posts: 897
Joined: Wed Oct 16, 2013 3:26 pm

Re: Retirement Planning

Post by KlingKlang » Fri Jul 31, 2020 3:50 pm

jarjarM wrote:
Fri Jul 31, 2020 3:42 pm
Escapevelocity wrote:
Fri Jul 31, 2020 3:37 pm
Just curious why you are planning to collect SS at 62? You clearly don't need the income.
I’m assume file at 62 to start collecting now and then @67 and beyond use spousal benefits, the optimized method of collecting SS when one spouse has significant higher earnings than the other
If you collect your social security before your full retirement age it will permanently reduce your spousal benefits.

utvolfan
Posts: 75
Joined: Sat Apr 13, 2013 1:08 pm

Re: Retirement Planning

Post by utvolfan » Fri Jul 31, 2020 3:53 pm

KlingKlang wrote:
Fri Jul 31, 2020 3:50 pm
jarjarM wrote:
Fri Jul 31, 2020 3:42 pm
Escapevelocity wrote:
Fri Jul 31, 2020 3:37 pm
Just curious why you are planning to collect SS at 62? You clearly don't need the income.
I’m assume file at 62 to start collecting now and then @67 and beyond use spousal benefits, the optimized method of collecting SS when one spouse has significant higher earnings than the other
If you collect your social security before your full retirement age it will permanently reduce your spousal benefits.
It permanently reduces spousal benefits but not survivor's benefits, correct?

User avatar
KlingKlang
Posts: 897
Joined: Wed Oct 16, 2013 3:26 pm

Re: Retirement Planning

Post by KlingKlang » Fri Jul 31, 2020 3:56 pm

utvolfan wrote:
Fri Jul 31, 2020 3:53 pm
KlingKlang wrote:
Fri Jul 31, 2020 3:50 pm
jarjarM wrote:
Fri Jul 31, 2020 3:42 pm
Escapevelocity wrote:
Fri Jul 31, 2020 3:37 pm
Just curious why you are planning to collect SS at 62? You clearly don't need the income.
I’m assume file at 62 to start collecting now and then @67 and beyond use spousal benefits, the optimized method of collecting SS when one spouse has significant higher earnings than the other
If you collect your social security before your full retirement age it will permanently reduce your spousal benefits.
It permanently reduces spousal benefits but not survivor's benefits, correct?
Correct. When a retired worker dies, the surviving spouse gets an amount equal to the worker's full retirement benefit.

jarjarM
Posts: 177
Joined: Mon Jul 16, 2018 1:21 pm

Re: Retirement Planning

Post by jarjarM » Fri Jul 31, 2020 3:56 pm

KlingKlang wrote:
Fri Jul 31, 2020 3:50 pm
jarjarM wrote:
Fri Jul 31, 2020 3:42 pm
Escapevelocity wrote:
Fri Jul 31, 2020 3:37 pm
Just curious why you are planning to collect SS at 62? You clearly don't need the income.
I’m assume file at 62 to start collecting now and then @67 and beyond use spousal benefits, the optimized method of collecting SS when one spouse has significant higher earnings than the other
If you collect your social security before your full retirement age it will permanently reduce your spousal benefits.
Ah I see, I didn't realize that. Thanks for pointing it out.

Escapevelocity
Posts: 101
Joined: Mon Feb 18, 2019 8:32 am

Re: Retirement Planning

Post by Escapevelocity » Fri Jul 31, 2020 5:37 pm

jarjarM wrote:
Fri Jul 31, 2020 3:56 pm
KlingKlang wrote:
Fri Jul 31, 2020 3:50 pm
jarjarM wrote:
Fri Jul 31, 2020 3:42 pm
Escapevelocity wrote:
Fri Jul 31, 2020 3:37 pm
Just curious why you are planning to collect SS at 62? You clearly don't need the income.
I’m assume file at 62 to start collecting now and then @67 and beyond use spousal benefits, the optimized method of collecting SS when one spouse has significant higher earnings than the other
If you collect your social security before your full retirement age it will permanently reduce your spousal benefits.
Ah I see, I didn't realize that. Thanks for pointing it out.
So, in this instance should the OP not collect at 62 based on the specific data points provided?

User avatar
FiveK
Posts: 9672
Joined: Sun Mar 16, 2014 2:43 pm

Re: Retirement Planning

Post by FiveK » Fri Jul 31, 2020 7:58 pm

Escapevelocity wrote:
Fri Jul 31, 2020 5:37 pm
So, in this instance should the OP not collect at 62 based on the specific data points provided?
Running Open Social Security, then shading toward a later benefit start if that would have a significant effect on Roth conversion taxation, would be one reasonable approach.

Topic Author
dogwalker
Posts: 4
Joined: Sun Jul 26, 2020 2:05 pm

Re: Retirement Planning

Post by dogwalker » Sat Aug 01, 2020 7:27 am

Thank you everyone for all of the helpful responses across so many fronts!

Again, so many Covid-related matters have raised our level of anxiety to a point where we may not be thinking clearly (e.g., some version of "this time it might really be different").

retiredjg
Posts: 41163
Joined: Thu Jan 10, 2008 12:56 pm

Re: Retirement Planning

Post by retiredjg » Mon Aug 10, 2020 9:56 am

dogwalker wrote:
Fri Jul 31, 2020 3:15 pm
Traditional (Rollover): IRAs:
BND (Vanguard Total Market Bond Fund ETF): $950K
Not something you asked about, but you might consider doing some Roth conversion of these IRAs to Roth IRA. There is not enough information in your post to make much of a suggestion, but if you reduce this amount over the next 10 years, your RMDs will be lower. Since hubby is 63, you would want to watch for converting too much (going over an IRMAA limit) because that would make his Medicare costs increase at 65.

Just put this idea on the back burner for now if you want, but do know that option is available and watch for threads that discuss this subject in case you do get interested.


Major decision revolves around the availability of the $900k in taxable/VMFXX. Right now our AA is around 45/55. Quick math: taking ~$550k of VMFXX and buying VTI now and taking ~$350k of VMFXX and buying BND now seems the simplest way to get around 60/40. We have never hesitated in the past about doing anything that resembled lump sum investing, but now being newly retired with no paycheck coming in, quarantining alone with everything going on Covid-related (husband has a preexisting condition), and watching the market rise so incredibly rapidly since March, we'd probably be more comfortable with a disciplined DCA plan. No one else can speak to our emotions, but are we just being chickens to not lump sum the $900k in VTI and BND?
Investing is both a financial and an emotional activity and both should be taken into account. Financially, the odds favor doing a lump sum. Putting it in over time is not a bad second choice though. The important thing is to do one thing or the other rather than let analysis-paralysis set in. Either decision works and it will not matter much in the long run which you do.

If you are not comfortable with lump sum, why not invest about $300k now and get the remaining $600k into investments in the next 6 months?

The other way to look at it...the $900k just came out of a fixed income investment, right? Perhaps a better idea is to put the $350k into bonds today and buying the $550k stock portion over 6 months. Maybe that seems less threatening?

You seem Ok with the idea of increasing your stock to bond ratio but are hesitant to pull the trigger on doing it. If you really are OK with this, just get it done either lump sum or not. If you cannot get it done, maybe you are not as OK with doing it as you think?

If you do choose to take some months, make a plan and stick to that plan (unless you want to go faster/add more than planned). Write it down and do it no matter what the market is doing. This is so you can avoid the decision making process every week/month which would be agonizing. Make a decision once and just do it.

Also, can we count our ~$1.2 million home as part of our bond/FI allocation and recalculate our overall AA accordingly (e.g., start by taking the entire $900k of VMFXX and buy VTI either lump sum or DCA)?
I am not in favor of counting your home as part of a bond allocation. However, the fact that you own a home, especially one of high value, can influence your comfort level when deciding the stock to bond ratio in your portfolio. I think you have already done that by deciding to increase your AA to 60% stocks from where you have been.

You are in a state of transition with the recent retirement in addition to this whole new world of uncertainty we are all dealing with. A little extra anxiety seems pretty normal to me. You are in good shape financially and will continue to be in good shape even if/when the market goes into gyrations. You'll be fine. :happy

retired@50
Posts: 3214
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Retirement Planning

Post by retired@50 » Mon Aug 10, 2020 10:09 am

Congratulations.

The only problems you've mentioned are certainly considered first world problems. If I were you, I'd lump sum the money where it needs to go. As you get situated with retirement and your income level, consider the Roth conversion(s) mentioned above. You're going to be fine, at least from a financial perspective. Turn off the news.

Regards,
This is one person's opinion. Nothing more.

FoolMeOnce
Posts: 935
Joined: Mon Apr 24, 2017 11:16 am

Re: Retirement Planning

Post by FoolMeOnce » Mon Aug 10, 2020 10:56 am

Considering you are looking at a withdrawal rate below 1% for less than a decade and then below 0% thereafter, lump sum v DCA is rather trivial. Do what makes you feel comfortable. Same with your allocation. More important is preparing your estate for what happens after you both pass.

Topic Author
dogwalker
Posts: 4
Joined: Sun Jul 26, 2020 2:05 pm

Re: Retirement Planning

Post by dogwalker » Mon Aug 10, 2020 8:46 pm

Thanks to everyone for your thoughtful responses. Especially appreciate the idea of doing Roth conversion research.

Post Reply