50 years old and time for a portfolio review

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Topic Author
Mysterious
Posts: 15
Joined: Thu Apr 01, 2021 9:08 am

50 years old and time for a portfolio review

Post by Mysterious »

Emergency funds: Yes-six months of expenses (not part of asset allocation)

Debt: None. (House paid off, 2020 Value=$300K, not included below)

Tax Filing Status: Married Filing Jointly

Tax Rate: 24% Federal, No state income tax

State of Residence: TX

Age: both are age 50

Desired Asset allocation:
50% stocks / 50% bonds (This is what I think is recommended)
Desired International allocation: xx% of stocks (negotiable-no real desire one way or the other)

Please provide an approximate size of your total portfolio: 1M

Taxable
20% cash (for investing – do not include emergency funds) Currently in HYSA at 0.5% (Inherited half of this in 2021)
10% 2021 inherited taxable investment in a municipal bond fund (unknown ER-getting info)
10% 2021 Inherited IRA in a fixed income - return rate was 3% (unknown ER-getting info)

OK with moving this into investment strategy. Looking for the best way to manage this and also straighten out/simplify overall portfolio

His traditional TSP
18.2% 2040 L Fund (expense ratio-.054)
12.7% C Fund (expense ratio-.051)
4.7% S Fund (expense ratio-.068)
4.0% I Fund (expense ratio-.055)

Actively Contributing $19,500/yr into 60% C fund, 20% S fund, 20% I fund. Agency matches 4% (maxing out the match)

Her traditional 401K
2.2% Fidelity Freedom Index 2030 Premier Class (FMKPX)(expense ratio-.06)
1.6% Fidelity Freedom Index 2040 Premier Class (FPIPX)(expense ratio-.06)
2.2% Vanguard Value Index Admiral (VVIAX)(expense ratio-.07)
4.5% Vanguard Growth Index Admiral (VIGAX)(expense ratio-.05)
2.1% Vanguard mid-cap Index Admiral (VIMAX)(expense ratio-.05)

Actively Contributing $19,500 into 75% VIGAX and 25% FPIPX. Matches 3.5% (maxing out the match)

Her 403b (No longer contributing - AIG)
.2% VALIC Systemic Core Equity 0016
.4% VALIC Small Cap Fund 0018
.3% VALIC international Growth 0020
1.8% VALIC Science and Technology Fund 0017

Her Traditional IRA at Retirement Clearinghouse (No longer contributing
.5% Fidelity Advisor Freedom Funds 2040 Class M (FTFFX) (0.97)

Her Traditional IRA at Fidelity (No longer contributing
3.4% Fidelity Contrafund(FCNTX) (0.86)
1.2% Fidelity Magellan (FMAGX) (0.79)
_______________________________________________________________

Contributions


New annual Contributions
$19,500 his trad TSP (60% C fund, 20% S fund, 20% I fund. Agency matches 4%)
$19,500 her trad 401K (75% VIGAX and 25% FPIPX. Match is 3.5%)

Available funds

Funds available in his TSP
G fund - Government Securities Investment Fund (0.049)
Per poster Grabiner: "The G fund invests in non-marketable Treasury bonds, which have the yield of intermediate-term and long-term Treasury bonds but have no interest-rate risk."
C fund - Common Stock Index Investment Fund (Match the performance of the S/P 500 index) (0.051)
I fund - International Stock Index Investment Fund (Match the performance of the MSCI EAFE Index) (0.055)
F fund - Fixed Income Index Investment Fund (Match the performance of the Bloomberg Barclays US Aggregate Bond Index) (0.060)
S fund - Small cap stock Index Investment Fund (Match the performance of the Dow Jones US Completion Total Stock Market Index) (0.068)
And then lifecycle Funds.

Funds available in her 401K
Invesco Stable Asset Fund-ADPZ Class (0.31)
Vanguard Intermediate Term Bond Index Fund-Admiral Class (0.07)
Fidelity Freedom Index Funds Premier Class (.06%)
Vanguard Balanced Index Fund Admiral Class (0.07)
Vanguard Value Index Fund Admiral Class(0.05)
iShares Russell 1000 Large Cap Index Fund Class K (0.08)
State Street Equity 500 Index Fund Class K (0.02)
Vanguard Growth Index Fund- Admiral Class (0.05)
Vanguard Mid Cap Index Fund- Admiral Class(0.05)
Vanguard Small Cap Value Index Fund-Admiral Class (0.07)
TIAA-CREF Small Cap Blend Index Fund- Institutional Class (0.06)
Vanguard Small Cap Index Fund Admiral Class (0.05)
Vanguard Small Cap Growth Index Fund Admiral Class (0.07)
iShares MSCI EAFE International Index Fund Class K (0.04)
iShares MSCI Total International Index Fund Class K (0.11)
Vanguard emerging markets Stock index fund Admiral Class (0.14)
Vanguard Real Estate Index Fund Admiral Class (0.12)

Questions:
1. Looking for guidance to simplify/straighten out portfolio as I am now 50+! Thank you in advance!
2. After this exercise I think I need to start rolling trad IRAs (reducing expense ratios) into 401K and could use help on future allocation inside that 401K.
3. I do like the idea of the municipal bond fund in taxable and am wondering if that is what I should hold in taxable outside of retirement accounts.
4. I am strongly considering quitting work so want to think in terms of the 401K being settled if no more contributions were added. I do not have to move the 401K if I resign.

Added 10/12/2021 Besides getting portfolio adjusted, I (she) am thinking of retirement.
Retirement:. (He) Spouse will try retire in 12 years at age 62. His FERS Pension will be 50k per year with health insurance available.
My (Her) decision currently is whether she (me) would retire today. Yearly expenses are 96k with major expenses like car replacement, etc. factored in (long time budgeter). Spouse (he) brings home 90k net. Could adjust his TSP contribution down to $12k to make up difference. Our household expenses are dropping dramatically as three of the five kids all moved back out after lockdown. College funds are in place in 529's at $55k each for other two kids ( middle schoolers ) which is what is cost my other 3. She makes 3x what he makes but 1M should be enough since it would not be tapped until age 62 and then only need $40k + pension or close to none if you count Social Security.
Last edited by Mysterious on Wed Oct 13, 2021 10:42 pm, edited 6 times in total.
HomeStretch
Posts: 7014
Joined: Thu Dec 27, 2018 3:06 pm

Re: 50 years old and time for a portfolio review

Post by HomeStretch »

Simplifying and reducing investment costs makes sense.

Your current 401k has very good low-cost fund choices available. If your current 401k accepts rollovers in, consider rolling over your 403b and two Traditional IRA balances into your 401k. If you complete the rollovers before the end of 2021, you will be able to do a 2021 backdoor Roth without being subject to pro-rated taxes.

Consider doing backdoor Roths for you and spouse in 2021 for two reasons:
1) you start the 5-year clock on initial Roth IRAs. Having Roth accounts open now gives you flexibility in the future.
2) Roth accounts grow tax free whereas Taxable accounts do not.

If you are not familiar with a backdoor Roth or the Roth 5-year clocks (there are two), the following may be helpful:
https://www.bogleheads.org/wiki/Backdoor_Roth
https://www.kitces.com/blog/understandi ... nversions/

With multiple types of accounts (Taxable, tax deferred and Roth), it’s good to consider tax efficient fund placement.
https://www.bogleheads.org/wiki/Tax-eff ... _placement

Are you open to a simpler 3-fund portfolio with an overall portfolio asset allocation of 50/50? If yes, consider:

1) A US equity fund in your Taxable account(s) for tax efficiency (30% of your portfolio if the inherited muni bond fund is not a keeper, post details).

2) A US equity fund in your future Roth accounts for highest expected growth, tax free (0% of your current portfolio)

3) Keep the Inherited IRA in some fixed income holding (10% of your portfolio). This will help slow the growth and the taxable income as you empty the account by the end of 10 years. Post the details of the current holding to see if it is a keeper.

4) Tax deferred accounts (His TSP and your 401k w/the 3 rollovers in) - each plan has good low-cost choices. Depending on whether or not you keep the Taxable Muni fund, to achieve your desired overall portfolio asset allocation of 50/50, you need to place here the remaining 20-30% in US/International equities and the remaining 30-40% of fixed income. My preference would be to put one holding in one of the plans and to hold all three US equity/International equity/US Bonds in the other. This way you could do any future portfolio rebalancing, if needed, in one account without tax consequences.

You can get feedback on exactly which holdings to hold in which accounts once you decide if this is the way you want to go and provide additional information, such as:
1. What is your desired International equity % (as a % of your desired 50% total equity allocation)
2. Will you rollover the 3 IRAs/403b balances into your 401k?
3. Do you plan to open Roth IRAs in 2021?
4. Which brokerages hold/will hold the Taxable account(s), Roth IRAs, Inherited IRA? Is your 401k already at one of those brokerages? Consider simplifying by holding these accounts at a low-cost brokerage such as Fidelity, Vanguard or Schwab. You may be eligible for a new account bonus at Fidelity or Schwab plus other perks (reimbursement of any closure fees for transferred accounts, fee waivers for purchases of Vanguard funds).
5. Do you prefer mutual funds or ETFs?
6. Details of the Taxable Muni fund
7. Details of the Inherited IRA’s fixed income investment.
8. Find out if your 401k offers a mega backdoor Roth. If yes, it can be a useful way to shift Taxable funds (which will increase due to future Inherited IRA distributions) into Roth funds which will reduce your future taxable income.
https://www.bogleheads.org/wiki/Mega-backdoor_Roth

This may seem like a lot. But it’s very doable especially if you plan first, then execute in steps. You will reap the benefits of a simpler, tax efficient and more easily managed portfolio.
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Watty
Posts: 23625
Joined: Wed Oct 10, 2007 3:55 pm

Re: 50 years old and time for a portfolio review

Post by Watty »

You may get better responses if you edit your post to include the fund names of the TSP funds. Most people will not know what the letters stand for. You can use the icon with the pencil on it to edit your post.

Since you mentioned the TSP I would assume that you also have a pension but you did not mention any general details about that. Likewise you did not give any general details about what your expenses are. That makes it impossible to give any feedback about if you retiring soon looks like a reasonable choice.
Mysterious wrote: Tue Oct 12, 2021 9:51 pm Desired Asset allocation: 50% stocks / 50% bonds (This is what I think is recommended)
Desired International allocation: xx% of stocks (negotiable-no real desire one way or the other)
When figuring out what asset allocation to use I like to look at target date funds to see what asset allocation they have. The Vanguard 2025 fund is about 57% stocks and 43% bonds. That is reasonably close to yours but your is more conservative, that is OK if you want to be more conservative but often people with a pension will be a bit more agressive.

https://investor.vanguard.com/mutual-fu ... olio/vttvx

You can also look at the target date fund to see how much international it has and which bond funds it uses.
Mysterious wrote: Tue Oct 12, 2021 9:51 pm 2. After this exercise I think I need to start rolling trad IRAs (reducing expense ratios) into 401K and could use help on future allocation inside that 401K.
Moving the IRA to a different company with lower expense ratios would likely be a better choice.
Mysterious wrote: Tue Oct 12, 2021 9:51 pm 3. I do like the idea of the municipal bond fund in taxable and am wondering if that is what I should hold in taxable outside of retirement accounts.
You are in a state with no income tax and your tax rate is not terrible and will likely be lower when you retire. Municipal bonds may not be a good choice for you. It likely makes more sense to have your bonds in a retirement account where the tax efficiency is not an issue. There is a wiki on this.

https://www.bogleheads.org/wiki/Tax-eff ... _placement
Mysterious wrote: Tue Oct 12, 2021 9:51 pm 4. I am strongly considering quitting work so want to think in terms of the 401K being settled if no more contributions were added. I do not have to move the 401K if I resign.
I moved my 401k to an IRA when I retired to simplify my investments. One problem with a 401k is that the company may change 401k companies or they could go through a merger and the 401k company could change. I did not want to risk having to deal with this when I am 80 years old and may not be as financially capable.

The inheritance rules for a 401k can also be more complicated since you can be impacted by the details of what that plan allows. The TSP also has a big "gotcha" in the inheritance rules. There was a post a while back where someone had run into the situation where;
1)Dad had a large TSP.
2) Dad dies and mom inherited it as a beneficiary participant. This worked Ok for her.
3) A few years later the mom dies and the kid inherits it.
4) Because of the TSP rules the kid could not leave the money in the TSP or roll it out into an inherited IRA. They had to withdrawal all the money and pay taxes on it in one tax year.

If either the Mom or Dad had rolled the money out to an IRA the kid could have inherited it as an inherited IRA and avoided or at least delayed a six figure tax bill.

There a wiki on this. When you retire you may want to roll the TSP out to an IRA.

https://www.bogleheads.org/wiki/TSP_estate_planning
Topic Author
Mysterious
Posts: 15
Joined: Thu Apr 01, 2021 9:08 am

Re: 50 years old and time for a portfolio review

Post by Mysterious »

Excellent! Thank you!

I added some details as requested and as I have obtained them to original post.

Actions:

1. I reread the Boglehead "Guide to Investing" book this morning over coffee.
60 stocks/40 bond split is best since we have the pension.
2. Yes, I need to open the Roth's. Started the process of transferring trad IRA's this morning.
3. Sent email about mega option in 401K. Awaiting answer.

I am digesting the rest and will reply as soon as I have more info.

Ah-ha moment----if I exclude my inherited assets, I am currently carrying less than 5% of bonds and those are inside my lifecycle/target funds. That is correct, right?
HomeStretch
Posts: 7014
Joined: Thu Dec 27, 2018 3:06 pm

Re: 50 years old and time for a portfolio review

Post by HomeStretch »

Mysterious wrote: Wed Oct 13, 2021 11:23 am … if I exclude my inherited assets, I am currently carrying less than 5% of bonds and those are inside my lifecycle/target funds. That is correct, right?
I would describe your portfolio as having non-equity holdings of 40%* + the TDF bond %. Less than your desired 50% fixed income allocation.
*40% = inherited IRA FI 10% + Muni bonds 10% + cash 20%

If the cash gets invested in equities or you exchange fixed income holdings for equities, you will need to increase your fixed income holdings in other accounts. I suggested your 401k and/or spouse’s TSP account. The TSP fixed income funds are F and G. The G Fund seems popular from past BH threads.
Outer Marker
Posts: 2079
Joined: Sun Mar 08, 2009 8:01 am

Re: 50 years old and time for a portfolio review

Post by Outer Marker »

I'd suggest starting out by taking the Vanguard asset allocation questionaire. https://retirementplans.vanguard.com/VG ... Step=start I've found it to be remarkably accurate, at least in my case.

50/50 and 60/40 are both pretty conservative allocations for someone in their 50s with a long time horizon. I'm age 55 with well funded retirement accounts and could quit tomorrow if I wanted to. I'm at 70/30 AA and plan to stay there forever.

Hard to say on how the pension factors into AA. Some would say you can afford to take more risk; others would say you can afford to take less risk. I'd ignore it and just consider it as extra padding apart and outside of my overall AA.

I think you'd be an excellent candidate for an "all in one" fund solution across all your accounts. Pick the "L" fund that most closely matches you asset allocation (or a Vanguard Lifestrategy or target date fund in non-TSP retirement accounts). Give yourself a generous emergency fund in a high yield savings account, and park everything else in taxable in the tax-managed balanced fund: https://investor.vanguard.com/mutual-fu ... view/vtmfx
Topic Author
Mysterious
Posts: 15
Joined: Thu Apr 01, 2021 9:08 am

Re: 50 years old and time for a portfolio review

Post by Mysterious »

HomeStretch wrote: Wed Oct 13, 2021 1:37 pm
Mysterious wrote: Wed Oct 13, 2021 11:23 am … if I exclude my inherited assets, I am currently carrying less than 5% of bonds and those are inside my lifecycle/target funds. That is correct, right?
I would describe your portfolio as having non-equity holdings of 40%* + the TDF bond %. Less than your desired 50% fixed income allocation.
*40% = inherited IRA FI 10% + Muni bonds 10% + cash 20%

If the cash gets invested in equities or you exchange fixed income holdings for equities, you will need to increase your fixed income holdings in other accounts. I suggested your 401k and/or spouse’s TSP account. The TSP fixed income funds are F and G. The G Fund seems popular from past BH threads.
Yes, 40%!!! My original less than 5% bonds was excluding the inherited accounts and cold cash. Terribly excited that I could actually follow what you are saying!

*** am mulling over if 40% is too high considering the pension.***
Topic Author
Mysterious
Posts: 15
Joined: Thu Apr 01, 2021 9:08 am

Re: 50 years old and time for a portfolio review

Post by Mysterious »

And now I know why I did not roll over these last accounts.

2 1/2 hours on the phone. Ugh!

Fidelity is where my IRA's are located and they will only rollover if ADP initiates. ADP won't initiate as that is not their process.

I will begin again tomorrow.

The 403b will only transfer if I contact my employer from 30 years ago and a specific person (they gave me the first and last name) signs the form "in ink, ma'am". They have no contact info for that person. CS told me just to wait until 59 1/2 and no signature required.

🤪
pingo
Posts: 2632
Joined: Sat Sep 19, 2009 8:24 pm

Re: 50 years old and time for a portfolio review

Post by pingo »

Mysterious wrote: Tue Oct 12, 2021 9:51 pmAdded 10/12/2021 Besides getting portfolio adjusted, I am thinking of retirement.
As long as one of you is working, the earned income qualifies both of you to make Backdoor Roth IRA contributions ($14,000/year total), after the Traditional IRAs have been merged into 401k accounts.

If income is insufficient to fund Backdoor Roth contributions, use cash and dividends from your taxable investments to fund the Backdoor Roth.

Turn off automatic dividend re-investment in the taxable account, if you haven't already.
Last edited by pingo on Wed Oct 13, 2021 6:00 pm, edited 1 time in total.
pingo
Posts: 2632
Joined: Sat Sep 19, 2009 8:24 pm

Re: 50 years old and time for a portfolio review

Post by pingo »

On a similar note, each of you can make additional catch-up contributions to the 401(k) plans.

$19,500 elective deferral limit + $6,500 catch-up contributions = $26,000/year 401(k) contributions.

If income is insufficient to save the extra $6,500 and still put food on the table, you can make the catch-up contributions anyway, and any shortfall in take-home pay can be withdrawn from the taxable account.

Also, find out if your spouse's 401(k) allows here to setup an after-tax 401(k) account (which is not the same as a Roth 401(k) account), with the ability to regularly take out the after-tax savings.

If so, she could also save money after-tax in the 401(k) and have it directly rolled over into her Backdoor Roth IRA. (Another $32,000 per year -- minus the company match.)

It is casually called a "Mega Backdoor Roth" and you can read about it in the Bogleheads.org Wiki:

https://www.bogleheads.org/wiki/Mega-backdoor_Roth

$19,500 Her 401(k) elective deferral
+ $ 6,500 Her 401(k) catch-up contribution
+ $ x,xxx Her company match
+$32,000 minus company match for Her after-tax account
-------------------------------------
= $58,000 IRS Overall limit on contributions (Source: irs.gov.)

Again, any income shortfalls can be pulled from the taxable account as a way to indirectly convert taxable assets into Backdoor Roth assets, if desired.
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Duckie
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Re: 50 years old and time for a portfolio review

Post by Duckie »

Mysterious wrote: Tue Oct 12, 2021 9:51 pm Funds available in her 401K
The best options are:
  • State Street Equity 500 Index Fund Class K (0.02)
  • iShares MSCI Total International Index Fund Class K (0.11)
  • Vanguard Intermediate Term Bond Index Fund-Admiral Class (0.07)
  • Invesco Stable Asset Fund-ADPZ Class (0.31) depending on current interest rate
Looking for guidance to simplify/straighten out portfolio as I am now 50+!
The following portfolio example has an AA of 50% stocks, 50% bonds, with 20% of stocks in international. That breaks down to 40% US stocks, 10% international stocks, and 50% bonds/cash. You could have something like this:

Taxable at Fidelity -- 30%
30% (FSKAX) Fidelity Total Market Index Fund (0.015%)

His Thrift Savings Plan -- 40%
40% (N/A) G Fund (0.05%)

Her 401k -- 20% <-- Includes rollovers from 403b and both TIRAs.
10% (SSSYX) State Street Equity 500 Index Fund Class K (0.02%)
10% (BDOKX) iShares MSCI Total International Index Fund Class K (0.11%)

His Roth IRA at Fidelity -- 0%
0% (FZROX) Fidelity Zero Total Market Index Fund (0.00%)

Her Roth IRA at Fidelity -- 0%
0% (FZROX) Fidelity Zero Total Market Index Fund (0.00%)

Inherited Traditional IRA at Fidelity -- 10%
10% (FXNAX) Fidelity U.S. Bond Index Fund (0.025%)

My comments/questions:
  • The inherited IRA is not a taxable account.
  • Sell the inherited muni bonds in taxable and buy stocks. Put your bonds in tax-sheltered accounts.
  • Whose inherited TIRA? His or hers?
  • Start Roth IRA accounts for both of you, backdoor if necessary. Unknown if you need the backdoor Roth method, but 24% tax bracket could mean that.
  • Don't hold the same funds in taxable as in the IRAs. It makes potential tax-loss harvesting simpler.
Something to think about.
pingo
Posts: 2632
Joined: Sat Sep 19, 2009 8:24 pm

Re: 50 years old and time for a portfolio review

Post by pingo »

Mysterious wrote: Wed Oct 13, 2021 3:52 pmThe 403b will only transfer if I contact my employer from 30 years ago [...]
The only 403(b) listed is for Her. Is there an error in the original post?
Topic Author
Mysterious
Posts: 15
Joined: Thu Apr 01, 2021 9:08 am

Re: 50 years old and time for a portfolio review

Post by Mysterious »

pingo wrote: Wed Oct 13, 2021 6:32 pm
Mysterious wrote: Wed Oct 13, 2021 3:52 pmThe 403b will only transfer if I contact my employer from 30 years ago [...]
The only 403(b) listed is for Her. Is there an error in the original post?
*I* is me---the wife. I am the one with the 403b. I am thinking about staying home but dh wants to work until retirement. The pause for me is I make 2x my dh's salary. We live off of 96k.

Dh has only the TSP.
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