Need portfolio advice heading into retirement

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
newabnormal
Posts: 1
Joined: Fri Oct 16, 2020 12:01 pm

Need portfolio advice heading into retirement

Post by newabnormal »

Hello All. I have been a long time reader on this forum as I subscribe to the three-fund portfolio concept. The only thing is I am nowhere near a three fund portfolio as of now and I am getting nervous heading into retirement when I turn 55 next year. My husband will continue to work part-time as a lecturer as he enjoys working. I am burnt out in my job and ready to quit. We have invested well for the last 22 years and I feel the only thing left to do is to decide on how best to re-allocate our investments (especially for tax efficiency) to set us up for the next step.

Emergency funds: 3 months of expenses in HYSA.

Debt: None. Mortgage is paid off and we pay credit card balance every month. 2015 and 2018 cars paid off. Usually own cars for 10 years.

Tax Filing Status: Married filing jointly.
Tax Rate: 24% Federal, 9.3% State

State of Residence: CA

Age: 54 (Husband also 54).

Desired Asset allocation: 60% stocks / 40% bonds
Desired International allocation: 20% of stocks

Portfolio: $2.14M

Current retirement assets:

11.8%/$250K in High Yield Savings Account (HYSA) for living expenses until 2025 (will start spending this in March 2021).

Taxable Mutual Funds:
5.9%/$126K American Funds Growth Fund of America Class A (AGTHX) (0.62% ER)
4.4%/$95K American Funds Washington Mutual Investors Fund Class A (AWSHX) (0.57% ER)
1.6%/$34K Janus Henderson Global Select Fund Class D (JANRX) (0.86% ER)
4.8%/$103K TIAA-CREF Large Cap Growth Fund Retail Class (TIRTX) (0.75% ER)
5.5%/$119K Wells Fargo Growth Fund Class A (1.16% ER)
0.6%/$13K Vanguard European Stock Index Fund Admiral Shares (0.1% ER)
2%/$43K Vanguard Small Cap Index Fund Admiral Shares (0.05% ER)
2.5%/$52K Vanguard International Growth Fund Admiral Shares (0.32% ER)

Taxable Stocks:
3.9%/$85K Broadcom (BRCM)
0.3%/$7K Target (TGT)
1.4%/$30K Lowes (LOW)
0.7%/$16K Microsoft (MSFT)

His 403B (Retired from UC in 2015 and no longer contributes).
19.55%/$407K UC Pathway 2025 Target Date Fund me (no ticker symbol) (0.06% ER)
No Company match but will have pension of $2,700 per month starting in 2024.

His Roth IRA at Vanguard
3.4%/$71K Vanguard Healthcare Fund Admiral Shares (VGHAX) (0.33% ER)
1.3%/$27K Vanguard 500 Index Fund Admiral Shares (VFIAX) (0.04% ER)
0.45%/$9.5K Invesco QQQ Trust Series 1 (QQQ)

Her 401K
19%/$416K Great West Lifetime 2035 Fund Service Class (MXLLX) (1.02% ER)
2.3%/$48K Great West Aggressive Profile Fund Investor Class (MXAPX) (1.14% ER)
3.4%/$74K Great West S&P 500 Index Fund (MXVIX) (0.5% ER)
Company match 4%

Her Roth IRA at Vanguard
2.5%/$53K Vanguard Healthcare Fund Admiral Shares (VGHAX) (0.33% ER)
2.3%/$53K Vanguard 500 Index Fund Admiral Shares (VFIAX) (0.04% ER)
0.4%/$8K Invesco QQQ Trust Series 1 (QQQ)


Contributions - Husband is part-time lecturer with no 403B options left. I contribute $24K to my 401K yearly with 4% match from employer. This will stop in a few months when I retire. Not sure what to do with our Roth IRA contributions after we retire. We have not contributed much to Roths in the last decade as we made too much money to contribute.

One other thing I should mention is that we have $125K in a 529 college fund for our 15 year old daughter. This should cover most college expenses. My father is 88 years old and will be giving me and my sister an inheritance of $2.6M each, plus a house each in the same city as us (my husband and I will probably use this as a rental income of approx. $3,300 per month). My father is very open about his investments and how he has planned everything. He could, we hope, live to 100 and his monthly pension would cover a nursing home if he ever had to move into one. Investments are 60% stocks/mutual funds and 40% bonds.

Questions:
1. Should we contribute to Roth IRA's when I retire?

2. Should we convert our 401K and 403B to an IRA at Vanguard when I retire? Ideally, we would like to put all of our portfolio into Vanguard for simplicity. I just don't know what to put it in now that we are so close to retirement. I want to quit my job in March 2021. My husband will continue to work part-time and make approximately $35K from lecturing. He will avail of a pension of $2,600 per month once he turns 58 in 2024. Is there a more tax efficient way of allocating funds once we transfer everything to Vanguard? I am thinking 40% VTSAX, 20% VTIAX and 40% VBTLX or ETF equivalent if that is a better approach.

Plan is to live off our cash in HYSA until 2025. Our monthly expenses are approximately $6K per month and I am budgeting an additional $2K per month for healthcare once I retire. Our income will be under $60K per year once I retire.

Thank you in advance for your replies. I really appreciate it. I hope I have been clear in everything above. It is very hard for me to come up with a strategy for preserving our investments for retirement....now that the saving part is almost done.
User avatar
David Jay
Posts: 9374
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Need portfolio advice heading into retirement

Post by David Jay »

Welcome to the forum!

First, let me say that you folks have saved well and you are all set to retire.
Questions:
1. Should we contribute to Roth IRA's when I retire?

If you have retirement savings that are not inside a 401K or 403B you should definitely "convert" $14,000 ($7000 each) of that money to Roth each year that your husband has income to cover the contributions. Both spouses are qualified to contribute based on one spouse's compensation. Roth is great - no taxes on the contributions (immediately) and no taxes on earnings after 59.5 with a Roth account that has been open for 5 years. It is also tax-free to your heirs.

2. Should we convert our 401K and 403B to an IRA at Vanguard when I retire?
If you have been reading here for a while, you know that folks are "wincing" at those ERs in your 401K. Anything over about a .30 seems high to many of us BH types. If there are no low-cost funds in the 401K (and it looks like the SP500, normally the lowest, is .50) I would do a Rollover to an IRA. The commonly recommended brokerages with a full line of in-house funds are Vanguard, Fidelity and Schwab.

Within a tax-advantaged account there is no issue with changing funds, so don't let that get you frustrated. Start with a Total US stock market fund for your US allocation, a total international stock fund for your international allocation and a Total US bond fund for your bond allocation. That is all you ever need to do. You can evaluate and do something more later if that strikes your fancy. In my case, I have been simplifying through the process of retirement - I have been retired for about a year and a half.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
User avatar
David Jay
Posts: 9374
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Need portfolio advice heading into retirement

Post by David Jay »

I wouldn't sell any of the taxable this year (based on your tax bracket) if they have substantial gains, I would wait for next year when you will have some low capital gains rates available. Then I would begin selling those funds a piece at a time, to fill the 0% and 15% capital gains brackets each year.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
User avatar
Duckie
Posts: 7589
Joined: Thu Mar 08, 2007 2:55 pm

Re: Need portfolio advice heading into retirement

Post by Duckie »

newabnormal wrote:Age: 54 (Husband also 54).

Desired Asset allocation: 60% stocks / 40% bonds
Desired International allocation: 20% of stocks
That breaks down to 48% US stocks, 12% international stocks, and 40% bonds. That is reasonable for your ages.
Current retirement assets:

11.8%/$250K in High Yield Savings Account (HYSA) for living expenses until 2025 (will start spending this in March 2021).
This is not part of the portfolio. An asset yes, an investment no.
Taxable Mutual Funds:
5.9%/$126K American Funds Growth Fund of America Class A (AGTHX) (0.62% ER)
4.4%/$95K American Funds Washington Mutual Investors Fund Class A (AWSHX) (0.57% ER)
1.6%/$34K Janus Henderson Global Select Fund Class D (JANRX) (0.86% ER)
4.8%/$103K TIAA-CREF Large Cap Growth Fund Retail Class (TIRTX) (0.75% ER)
5.5%/$119K Wells Fargo Growth Fund Class A (1.16% ER)
0.6%/$13K Vanguard European Stock Index Fund Admiral Shares (0.1% ER)
2%/$43K Vanguard Small Cap Index Fund Admiral Shares (0.05% ER)
2.5%/$52K Vanguard International Growth Fund Admiral Shares (0.32% ER)

Taxable Stocks:
3.9%/$85K Broadcom (BRCM)
0.3%/$7K Target (TGT)
1.4%/$30K Lowes (LOW)
0.7%/$16K Microsoft (MSFT)
First, turn OFF all automatic dividend reinvestment in taxable. Do not buy more of anything right now. Have all dividends/distributions funneled to the settlement fund.

Second, figure out the cost basis for each asset. You need to add up every purchase including dividends. Then compare to current value. Your brokerage might have this listed under "unrealized gains/losses". If you want to sell taxable assets you need to know what the tax-hit will be for each asset.

Third, what brokerage holds the taxable assets?
His 403B (Retired from UC in 2015 and no longer contributes).
19.55%/$407K UC Pathway 2025 Target Date Fund me (no ticker symbol) (0.06% ER)
He should roll this 403b into a Rollover IRA at Vanguard. Bonds (VBTLX) would be perfect in this account.
His Roth IRA at Vanguard
3.4%/$71K Vanguard Healthcare Fund Admiral Shares (VGHAX) (0.33% ER)
1.3%/$27K Vanguard 500 Index Fund Admiral Shares (VFIAX) (0.04% ER)
0.45%/$9.5K Invesco QQQ Trust Series 1 (QQQ)
This account is small and only one fund is needed here.
Her 401K
19%/$416K Great West Lifetime 2035 Fund Service Class (MXLLX) (1.02% ER)
2.3%/$48K Great West Aggressive Profile Fund Investor Class (MXAPX) (1.14% ER)
3.4%/$74K Great West S&P 500 Index Fund (MXVIX) (0.5% ER)
This account should hold just MXVIX. The other two funds are too expensive. When you retire and roll this over to an IRA it will hold the remainder of the 40% bond allocation.
Her Roth IRA at Vanguard
2.5%/$53K Vanguard Healthcare Fund Admiral Shares (VGHAX) (0.33% ER)
2.3%/$53K Vanguard 500 Index Fund Admiral Shares (VFIAX) (0.04% ER)
0.4%/$8K Invesco QQQ Trust Series 1 (QQQ)
Again, this account is small and only one fund is needed.
Should we contribute to Roth IRA's when I retire?
Yes, since his part-time income is large enough you should both contribute if filing taxes MFJ.
Should we convert our 401K and 403B to an IRA at Vanguard when I retire?
He can roll his 403b over to an IRA now. You absolutely should when you retire. Your three shown options are very expensive.
Is there a more tax efficient way of allocating funds once we transfer everything to Vanguard? I am thinking 40% VTSAX, 20% VTIAX and 40% VBTLX or ETF equivalent if that is a better approach.
That is a good choice of funds, however you will have to work around the taxable account until it is cleaned up.

Do you contribute to charity? If so you could open a Donor Advised Fund and contribute taxable assets with substantial gains. Fidelity has an excellent DAF, more flexible than Vanguard's.
JBTX
Posts: 6958
Joined: Wed Jul 26, 2017 12:46 pm

Re: Need portfolio advice heading into retirement

Post by JBTX »

1. You can only contribute to iras or Roths if you have earned income (ie work income). If you have earned income in retirement, and have the ability to fund a Roth, I would certainly do so. You can always pull out your contribution if you need it in an emergency, otherwise it grows tax free.

2. If it were me, I'd probably hold on to the 403b and keep the money in target dates. That is a very low expense ratio for a targrt date, lower than you would get in a rollover IRA. Plus 401ks (and I assume 403bs) have greater protection against liability claims, especially in CA.

But if you want to roll over to vanguard rollover IRA for simplicity that is a perfectly reasonable thing to do.

As to the 401k, due to expense ratios I'd probably roll it over whenever I had the opportunity to do so.
Boatguy
Posts: 44
Joined: Fri Apr 19, 2019 7:54 pm

Re: Need portfolio advice heading into retirement

Post by Boatguy »

Why not hold off on converting anything into an IRA until next year, and each of you put $7k into your Roths this year via the backdoor?
Post Reply