Not ["One More Year"] but Last year - Finally ready

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Topic Author
hornet74
Posts: 106
Joined: Sun Mar 31, 2019 5:19 pm

Not ["One More Year"] but Last year - Finally ready

Post by hornet74 »

Emergency funds: 4 months of expenses

Debt: None

Tax Filing Status: Single

Tax Rate: 37% Federal, 5.075% State

State of Residence:VA

Age:47

Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: 0% of stocks

Approximate size of your total portfolio: 8M

Current retirement assets

Taxable
25.30% - Fidelity Total Market - FSKAX
18.34% - iShares Core S&P Total US Stock Market ETF - ITOT
1.50% - iShares US Technology ETF - IYW
0.46% - SPDR S&P 500 ETF Trust - SPY
16.14% - Vanguard Information Technology Index Fund ETF Shares - VGT
6.54% - Vanguard Total Stock Market Index Fund Admiral Shares - VTSAX

8.19% - Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares - VWITX
6.89% - T. Rowe Price Virginia Tax-Free Bond Fund - PRVAX
0.14% - Vanguard Short-Term Corporate Bond Index Fund ETF - VCSH
0.77% - CASH

His 401k
10.77% - US LARGE CO INDEX
Company match: Yes @ 100% of 6%

His Roth IRA at Fidelity
0.22% - Direxion Daily 20+ Year Treasury Bull 3X Shares - TMF
0.29% - ProShares UltraPro S&P500 - UPRO


_______________________________________________________________
Note: Total percentage of all the above accounts together (not each account individually) should equal 100%.

Contributions

New annual Contributions
$57000 his 401k (Mega included)
$6000 his IRA/Roth IRA


I have been dealing with OMY but feel like I am finally ready to exit, time is something I cannot get back and just want to enjoy life and stop with the daily grind. Will be with my partner, and her numbers are not above, just gravy (400k)

No mortgage, and about 6-8k in expenses a month currently.

Questions:

1. With 1.1M in Bonds, should I just live off of bonds for 7 years @ 13k a month? Assuming 3k in taxes per year based on 165k income.

2. What happens after 7 years, just sell equities and fill 7 more years of bonds?

3. Besides healthcare, and my current expenses, any retirees want to tell me other areas to plan for?
sailaway
Posts: 8188
Joined: Fri May 12, 2017 1:11 pm

Re: Not OMY but Last year - Finally ready

Post by sailaway »

Do you want to spend down all of your bonds or would you prefer to maintain a certain asset allocation? That comes down to, why did you purchase bonds (especially in your taxable accounts) in the first place? What do you consider the role of bonds in your portfolio?

For myself, I consider bonds as ballast and prefer to maintain the asset allocation. As such, I plan to sell stocks when the market is up and bonds when the market is down, rebalancing along the way.

You may also consider turning off any dividend reinvestment that you may have and accumulating cash in that way. With your assets to spending, it may turn out that you don't need to sell anything if you collect the dividends.
Topic Author
hornet74
Posts: 106
Joined: Sun Mar 31, 2019 5:19 pm

Re: Not OMY but Last year - Finally ready

Post by hornet74 »

sailaway wrote: Mon Oct 25, 2021 12:06 pm Do you want to spend down all of your bonds or would you prefer to maintain a certain asset allocation? That comes down to, why did you purchase bonds (especially in your taxable accounts) in the first place? What do you consider the role of bonds in your portfolio?

For myself, I consider bonds as ballast and prefer to maintain the asset allocation. As such, I plan to sell stocks when the market is up and bonds when the market is down, rebalancing along the way.

You may also consider turning off any dividend reinvestment that you may have and accumulating cash in that way. With your assets to spending, it may turn out that you don't need to sell anything if you collect the dividends.
That's the question. I am trying to determine the better approach. I was thinking when I get close to the end of the bond portion, I would sell equity and fill bond bucket.

Dividends are roughly: $60,537.69 per year, so I would need to sell 90k in bonds a year (roughly).

Does that still work?
Exchme
Posts: 1323
Joined: Sun Sep 06, 2020 3:00 pm

Re: Not OMY but Last year - Finally ready

Post by Exchme »

While your stock allocation is higher than most retirees, your nest egg is so large that you won't run out of money even if the market takes a big dive and stays down for a long time. If you spend down your bonds are you OK with being 100% stocks when they're gone? Most folks would not be, but with your level of assets, that may be fine.

Since you have so long to go before RMDs, your 401k may grow quite a lot before you get there, so personally, I would load the 401k with bonds first to slow its growth. You can test the results of this with the new Retiree Portfolio Model beta version available at this site's wiki.

If you have any heirs you are interested in helping, you should be thinking about the estate tax. The exempt amount is scheduled to be cut in half in 2026 from $11.7M today to $5.85M. Either way, your heirs are in for a shellacking. I think you need to talk to an estate planning specialist.
Topic Author
hornet74
Posts: 106
Joined: Sun Mar 31, 2019 5:19 pm

Re: Not OMY but Last year - Finally ready

Post by hornet74 »

Exchme wrote: Mon Oct 25, 2021 12:17 pm While your stock allocation is higher than most retirees, your nest egg is so large that you won't run out of money even if the market takes a big dive and stays down for a long time. If you spend down your bonds are you OK with being 100% stocks when they're gone? Most folks would not be, but with your level of assets, that may be fine.

Since you have so long to go before RMDs, your 401k may grow quite a lot before you get there, so personally, I would load the 401k with bonds first to slow its growth. You can test the results of this with the new Retiree Portfolio Model beta version available at this site's wiki.

If you have any heirs you are interested in helping, you should be thinking about the estate tax. The exempt amount is scheduled to be cut in half in 2026 from $11.7M today to $5.85M. Either way, your heirs are in for a shellacking. I think you need to talk to an estate planning specialist.
I did just reach out to EY (Fidelity offers a fixed cost price with 3 hours or so) for estate and tax planning. I was planning on converting the max for 12% tax bracket for 401k --> Roth IRA. Ideally slowly reducing the 401k amount over time.

I also would fill the bond bucket every 7 years back to 85/15.
random_walker_77
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Joined: Tue May 21, 2013 8:49 pm

Re: Not OMY but Last year - Finally ready

Post by random_walker_77 »

One of the biggest considerations in investing is asset allocation, and deciding how to balance risk vs reward. Rather than see-sawing bond allocation and subjecting myself to periods of higher risk and the idiosyncrasies of timing to refill the bond bucket, I'd just sell towards rebalancing. In other words, I'd start with spending dividends and then selling whatever was overweight relative to my target allocation in order to harvest the remaining funds needed for that year's spending. Since stocks will on average grow more than bonds, in the long run you'll probably be primarily selling stock, but in a down year, you might be selling bonds if you're overweight on bonds.
Topic Author
hornet74
Posts: 106
Joined: Sun Mar 31, 2019 5:19 pm

Re: Not OMY but Last year - Finally ready

Post by hornet74 »

random_walker_77 wrote: Mon Oct 25, 2021 1:33 pm One of the biggest considerations in investing is asset allocation, and deciding how to balance risk vs reward. Rather than see-sawing bond allocation and subjecting myself to periods of higher risk and the idiosyncrasies of timing to refill the bond bucket, I'd just sell towards rebalancing. In other words, I'd start with spending dividends and then selling whatever was overweight relative to my target allocation in order to harvest the remaining funds needed for that year's spending. Since stocks will on average grow more than bonds, in the long run you'll probably be primarily selling stock, but in a down year, you might be selling bonds if you're overweight on bonds.
Interesting, that makes more sense and is more intuitive. So spend to maintain AA? I could also spend down to maintain a new AA I assume. From 85/15 to 80/20 over time. I was assuming I would spend the bonds first to allow the equity side to grow though, 7 years of equity growth (Assuming all goes well) seemed like a prudent move.
random_walker_77
Posts: 2207
Joined: Tue May 21, 2013 8:49 pm

Re: Not OMY but Last year - Finally ready

Post by random_walker_77 »

hornet74 wrote: Mon Oct 25, 2021 1:42 pm
random_walker_77 wrote: Mon Oct 25, 2021 1:33 pm One of the biggest considerations in investing is asset allocation, and deciding how to balance risk vs reward. Rather than see-sawing bond allocation and subjecting myself to periods of higher risk and the idiosyncrasies of timing to refill the bond bucket, I'd just sell towards rebalancing. In other words, I'd start with spending dividends and then selling whatever was overweight relative to my target allocation in order to harvest the remaining funds needed for that year's spending. Since stocks will on average grow more than bonds, in the long run you'll probably be primarily selling stock, but in a down year, you might be selling bonds if you're overweight on bonds.
Interesting, that makes more sense and is more intuitive. So spend to maintain AA? I could also spend down to maintain a new AA I assume. From 85/15 to 80/20 over time. I was assuming I would spend the bonds first to allow the equity side to grow though, 7 years of equity growth (Assuming all goes well) seemed like a prudent move.
1) I wouldn't spend _more_ solely to maintain AA but rather spend in the direction towards rebalancing. Keep in mind that stocks grow 8+ percent per year, "on average*" and bonds do not (hence terms like "sequence of returns risk").

2) If you're harvesting gains to take advantage of lower rates, I'd similarly harvest from whatever's overweight and use that as an opportunity to rebalance.

3) In a taxable account, I'm loath to rebalance for the sake of rebalancing because of the tax costs, but when pitted against letting stocks grow to be "too much" of my portfolio, it's perhaps a necessary evil (every now and then).

Looking at these on a continuum, 3) is to fully rebalance and pay whatever taxes that might entail. 2) is to harvest funds for living and to opportunistically harvest more to rebalance based on tax considerations and 1) is to just harvest funds for living expenses with an eye towards helping restore asset allocation but doing nothing extra towards rebalancing

If one had limited remaining life expectancy, then you wouldn't do 2) or 3) because your heirs pay 0% taxes due to the step-up in basis on inheritances. For you, being in your mid-40s and withdrawing ~2%, it's just a matter of time before your $8M turns into $20M. In other words, your allocation will naturally climb to 90+% in stocks unless you do something, so 2) makes a lot of sense and 3) is something for you to mull over (no hurry here)
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celia
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Location: SoCal

Re: Not OMY but Last year - Finally ready

Post by celia »

You have more years to do Roth conversions compared to most people, so you should be able to convert your entire million dollar 401K at a low tax rate. But you also need to consider what other income you would have each year (I’m looking at you, Mr. Dividends and LTCG!)

However, the part that stands out to me is your Asset Location, which can be changed to give you a more tax-efficient portfolio. Your Roth should hold only stock funds, to maximize future tax-free growth. The 401K/(rollover IRA) should hold bonds since regular interest isn’t taxed favorably in taxable (but as ordinary income). And it would be more tax-efficient for your taxable holdings to be in Index funds.

See how much in Dividends you have in taxable each year. Instead of re-investing them, if you send all of them to a settlement fund instead, is that enough to live off of? If you re-invested them instead, you would then have to turn around and figure out what to sell, which would probably be the recently re-invested dividends! So, turn off automatic dividend reinvestment in taxable.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
LeftCoastIV
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Re: Not OMY but Last year - Finally ready

Post by LeftCoastIV »

Aside from the financials, how do you foresee yourself spending your time?
Topic Author
hornet74
Posts: 106
Joined: Sun Mar 31, 2019 5:19 pm

Re: Not OMY but Last year - Finally ready

Post by hornet74 »

celia wrote: Mon Oct 25, 2021 2:19 pm You have more years to do Roth conversions compared to most people, so you should be able to convert your entire million dollar 401K at a low tax rate. But you also need to consider what other income you would have each year (I’m looking at you, Mr. Dividends and LTCG!)

However, the part that stands out to me is your Asset Location, which can be changed to give you a more tax-efficient portfolio. Your Roth should hold only stock funds, to maximize future tax-free growth. The 401K/(rollover IRA) should hold bonds since regular interest isn’t taxed favorably in taxable (but as ordinary income). And it would be more tax-efficient for your taxable holdings to be in Index funds.

See how much in Dividends you have in taxable each year. Instead of re-investing them, if you send all of them to a settlement fund instead, is that enough to live off of? If you re-invested them instead, you would then have to turn around and figure out what to sell, which would probably be the recently re-invested dividends! So, turn off automatic dividend reinvestment in taxable.
Last year was around 40,353.74 in Dividends and 17,568 in Muni bonds payments. (Total portfolio was 6.2M) so 57,922.67 total
The Roth is using the HFEA approach, with 18k initial investment (6k per year via backdoor)
The bonds are municipal because of my tax bracket, but once I retire, I need to figure out how to rebalance in the 401k (which will move to a IRA).

Does that change anything?
Topic Author
hornet74
Posts: 106
Joined: Sun Mar 31, 2019 5:19 pm

Re: Not OMY but Last year - Finally ready

Post by hornet74 »

LeftCoastIV wrote: Mon Oct 25, 2021 2:36 pm Aside from the financials, how do you foresee yourself spending your time?
Ohhh. Good question. My GF and I would just do what we do now on weekend, exercise, go for walks, etc. Plus, there are 3 kids (I have 1) so time with family would be there as well.

The rest of the time, not really sure! I will probably play more chess, but there is so much to figure out.
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calmaniac
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What is "OMY"?

Post by calmaniac »

What is "OMY"??

OMG! Curious people want to know.
"Pretired", working 20 h/wk. AA 75/25: 30% TSM, 19% value (VFVA/AVUV), 18% Int'l LC, 8% emerging, 25% GFund/VBTLX. Military pension ≈60% of expenses. Pension+SS@age 70 ≈100% of expenses.
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JoeRetire
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Re: Not OMY but Last year - Finally ready

Post by JoeRetire »

hornet74 wrote: Mon Oct 25, 2021 11:58 amDesired Asset allocation: 85% stocks / 15% bonds

Approximate size of your total portfolio: 8M

No mortgage, and about 6-8k in expenses a month currently.

1. With 1.1M in Bonds, should I just live off of bonds for 7 years @ 13k a month? Assuming 3k in taxes per year based on 165k income.
Not if your desired asset allocation is 85/15.
2. What happens after 7 years, just sell equities and fill 7 more years of bonds?
See above.
3. Besides healthcare, and my current expenses, any retirees want to tell me other areas to plan for?
Plan for whatever it is you and your partner want to do in retirement, other than "not work".
This isn't just my wallet. It's an organizer, a memory and an old friend.
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Soul.in.Progress
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Re: What is "OMY"?

Post by Soul.in.Progress »

calmaniac wrote: Mon Oct 25, 2021 5:46 pm What is "OMY"??

OMG! Curious people want to know.
One more year, as in one more year of working to stash more money before retiring.
Start by doing what is necessary; | then do what is possible; | and suddenly you are doing the impossible. | -- Francis of Assisi
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Watty
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Re: Not OMY but Last year - Finally ready

Post by Watty »

A few sort of random things;

1) In addition to not having dividends from mutual funds reinvested there is a second setting to not automatically reinvest capital gains distributions. You may be able to set that your self online but at some brokerages you may need to call their 800 number to have them set that up.

2) Once you retire you may be in a low enough tax bracket so that muni bonds no longer make sense.

3) You did not say when your official last day of work will be. You may want to work a bit into 2022 so you can make retirement account contributions. At many, but not all, companies your healthcare will be paid through the end of the month when you leave a job. This means that if you leave on the 1st of the month you will basically get an extra months healthcare compared to if you leave on the last day of the month. If you have a healthcare FSA then you may be able to take advantage of that too. Here is a recent post about that.

viewtopic.php?p=6276222#p6276222

4) You can only buy a limited amount of iBonds each year but you should consider buying $10K now and another $10K in January. There are lots of threads about these that you can look up. Depending on how the finances work with your partner they might want to do this too

5) If you support a charity then you can give the appreciated shares of stock instead of cash. That will let you avoid the capital gains tax on that stock, and the charity does not need to pay it either. You need to watch out for the "kiddie tax rules" but when you kid is older you may be able to give them shares of stock for things like weddings instead of cash too since they will likely be in a lower tax bracket.

6) You need to be careful about selecting a good one but you really need to work with an estate planning lawyer and a fee only financial advisor.

7) Before you retire you might want to set up a home equity line of credit since that will be easier to do while you still have income. You obviously do not need that but having funds that you can draw on can help you if you have some large expense but you do not want to take a tax hit all at once to do something like buy an RV. You could also set up your brokerage account to allow margin loans.

8) It is just my pet peeve but sometimes people post about having a lot of money but they are not driving a real safe car. Car safety has advanced a lot recently, especially in the last four years, and it might be time to buy a safer car even if your current car is still running fine.
hornet74 wrote: Mon Oct 25, 2021 11:58 am Will be with my partner, and her numbers are not above, just gravy (400k)
You can easily afford to retire but your partner can't, assuming that you are not married.

If they retire now they could be in a lot of financial trouble if you ever break up so they may still need to work. Having one retired partner and a working partner makes it difficult to do things like travel much and there can be bad relationship dynamics. It is a complicated situation so I won't try to give you suggestions but be sure to talk this over with them and/or with your lawyer to figure out how to handle it.
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celia
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Re: What is "OMY"?

Post by celia »

Soul.in.Progress wrote: Mon Oct 25, 2021 6:23 pm
calmaniac wrote: Mon Oct 25, 2021 5:46 pm What is "OMY"??

OMG! Curious people want to know.
One more year, as in one more year of working to stash more money before retiring.
I didn’t know it either, so I googled it to find that one of it’s definitions is ‘On My Way’ [to retirement] which made sense to me.

https://acronyms.thefreedictionary.com/OMY

But now that I look at it, ‘WAY’ ends with ‘Y’, not starts with it. So now I’m really confused.

Now, I’m stuck on ‘HFEA’ which might have to do with ‘Human Fertility… ‘ or ‘Hedging <other acronyms>’?

Oh, well. . . :confused
random_walker_77
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Re: Not OMY but Last year - Finally ready

Post by random_walker_77 »

hornet74 wrote: Mon Oct 25, 2021 4:16 pm
celia wrote: Mon Oct 25, 2021 2:19 pm You have more years to do Roth conversions compared to most people, so you should be able to convert your entire million dollar 401K at a low tax rate. But you also need to consider what other income you would have each year (I’m looking at you, Mr. Dividends and LTCG!)

However, the part that stands out to me is your Asset Location, which can be changed to give you a more tax-efficient portfolio. Your Roth should hold only stock funds, to maximize future tax-free growth. The 401K/(rollover IRA) should hold bonds since regular interest isn’t taxed favorably in taxable (but as ordinary income). And it would be more tax-efficient for your taxable holdings to be in Index funds.

See how much in Dividends you have in taxable each year. Instead of re-investing them, if you send all of them to a settlement fund instead, is that enough to live off of? If you re-invested them instead, you would then have to turn around and figure out what to sell, which would probably be the recently re-invested dividends! So, turn off automatic dividend reinvestment in taxable.
Last year was around 40,353.74 in Dividends and 17,568 in Muni bonds payments. (Total portfolio was 6.2M) so 57,922.67 total
The Roth is using the HFEA approach, with 18k initial investment (6k per year via backdoor)
The bonds are municipal because of my tax bracket, but once I retire, I need to figure out how to rebalance in the 401k (which will move to a IRA).

Does that change anything?
Don't the dividends seem a little low? Last I checked, total stock market yielded about 1.2% (and it used to be 1.8-2.5%). You also might not need muni's after retirement with your lower rates.

Or maybe you do. Do note that ordinary income can easily have a higher marginal tax rate than you might initially assume. That 12% bracket might look attractive, but if it's displacing capital gains from the 0% to the 15% bracket, then your marginal tax rate is 12% + 15% = 27%. If capital gains get displaced into NIIT territory, then it's even worse. And this is without taking into account any other phaseouts (or ACA cliffs etc). So run the numbers with care before doing Roth conversions...
rossington
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Re: What is "OMY"?

Post by rossington »

celia wrote: Mon Oct 25, 2021 10:11 pm
Now, I’m stuck on ‘HFEA’ which might have to do with ‘Human Fertility… ‘ or ‘Hedging <other acronyms>’?

Oh, well. . . :confused
FWIW it appears to be HEDGEFUNDIE's Excellent Adventure.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
Topic Author
hornet74
Posts: 106
Joined: Sun Mar 31, 2019 5:19 pm

Re: Not OMY but Last year - Finally ready

Post by hornet74 »

random_walker_77 wrote: Mon Oct 25, 2021 10:51 pm
hornet74 wrote: Mon Oct 25, 2021 4:16 pm
celia wrote: Mon Oct 25, 2021 2:19 pm You have more years to do Roth conversions compared to most people, so you should be able to convert your entire million dollar 401K at a low tax rate. But you also need to consider what other income you would have each year (I’m looking at you, Mr. Dividends and LTCG!)

However, the part that stands out to me is your Asset Location, which can be changed to give you a more tax-efficient portfolio. Your Roth should hold only stock funds, to maximize future tax-free growth. The 401K/(rollover IRA) should hold bonds since regular interest isn’t taxed favorably in taxable (but as ordinary income). And it would be more tax-efficient for your taxable holdings to be in Index funds.

See how much in Dividends you have in taxable each year. Instead of re-investing them, if you send all of them to a settlement fund instead, is that enough to live off of? If you re-invested them instead, you would then have to turn around and figure out what to sell, which would probably be the recently re-invested dividends! So, turn off automatic dividend reinvestment in taxable.
Last year was around 40,353.74 in Dividends and 17,568 in Muni bonds payments. (Total portfolio was 6.2M) so 57,922.67 total
The Roth is using the HFEA approach, with 18k initial investment (6k per year via backdoor)
The bonds are municipal because of my tax bracket, but once I retire, I need to figure out how to rebalance in the 401k (which will move to a IRA).

Does that change anything?
Don't the dividends seem a little low? Last I checked, total stock market yielded about 1.2% (and it used to be 1.8-2.5%). You also might not need muni's after retirement with your lower rates.

Or maybe you do. Do note that ordinary income can easily have a higher marginal tax rate than you might initially assume. That 12% bracket might look attractive, but if it's displacing capital gains from the 0% to the 15% bracket, then your marginal tax rate is 12% + 15% = 27%. If capital gains get displaced into NIIT territory, then it's even worse. And this is without taking into account any other phaseouts (or ACA cliffs etc). So run the numbers with care before doing Roth conversions...
So here is the odd thing, my spreadsheet has the following dividend for each ETF/MF
FSKAX - 1.18%
ITOT - 1.41%
IYW - 0.71%
SPY - 1.52%
VGT - 0.82%
VTSAX - 1.41%
VWITX - 2.31%
PRVAX - 2.46%

That should be $84,610.16 per year (with $61,248.49 being from equities, rest from bonds), but oddly I don't get when I get my statements it is 57k. Not a big deal, but would be nice just to live off of dividends.

Really good info on capgains and 12%. I will be meeting with EY to get planning on how to retire "properly".
Topic Author
hornet74
Posts: 106
Joined: Sun Mar 31, 2019 5:19 pm

Re: Not OMY but Last year - Finally ready

Post by hornet74 »

Watty wrote: Mon Oct 25, 2021 8:02 pm A few sort of random things;

1) In addition to not having dividends from mutual funds reinvested there is a second setting to not automatically reinvest capital gains distributions. You may be able to set that your self online but at some brokerages you may need to call their 800 number to have them set that up.

2) Once you retire you may be in a low enough tax bracket so that muni bonds no longer make sense.

3) You did not say when your official last day of work will be. You may want to work a bit into 2022 so you can make retirement account contributions. At many, but not all, companies your healthcare will be paid through the end of the month when you leave a job. This means that if you leave on the 1st of the month you will basically get an extra months healthcare compared to if you leave on the last day of the month. If you have a healthcare FSA then you may be able to take advantage of that too. Here is a recent post about that.

viewtopic.php?p=6276222#p6276222

4) You can only buy a limited amount of iBonds each year but you should consider buying $10K now and another $10K in January. There are lots of threads about these that you can look up. Depending on how the finances work with your partner they might want to do this too

5) If you support a charity then you can give the appreciated shares of stock instead of cash. That will let you avoid the capital gains tax on that stock, and the charity does not need to pay it either. You need to watch out for the "kiddie tax rules" but when you kid is older you may be able to give them shares of stock for things like weddings instead of cash too since they will likely be in a lower tax bracket.

6) You need to be careful about selecting a good one but you really need to work with an estate planning lawyer and a fee only financial advisor.

7) Before you retire you might want to set up a home equity line of credit since that will be easier to do while you still have income. You obviously do not need that but having funds that you can draw on can help you if you have some large expense but you do not want to take a tax hit all at once to do something like buy an RV. You could also set up your brokerage account to allow margin loans.

8) It is just my pet peeve but sometimes people post about having a lot of money but they are not driving a real safe car. Car safety has advanced a lot recently, especially in the last four years, and it might be time to buy a safer car even if your current car is still running fine.
hornet74 wrote: Mon Oct 25, 2021 11:58 am Will be with my partner, and her numbers are not above, just gravy (400k)
You can easily afford to retire but your partner can't, assuming that you are not married.

If they retire now they could be in a lot of financial trouble if you ever break up so they may still need to work. Having one retired partner and a working partner makes it difficult to do things like travel much and there can be bad relationship dynamics. It is a complicated situation so I won't try to give you suggestions but be sure to talk this over with them and/or with your lawyer to figure out how to handle it.
Time for TMI.

I am not getting married (Again) and have talked with my partner about this. I know she cannot afford to retire, but we are working out numbers, bottom line is she is going to retire with me. Won't touch her 401k at all, she has no car debt and plan is to rent our her home and she can use that income as she sees fit. If for some reason it doesn't work out, which I hope that is not the case, she would move back in to her house.


8) Have a brand new car, nothing crazy, but new safe car.
7) I love this idea, get it now, don't touch it.
6) Met with estate planner, moved everything into a trust, equities, house, etc. Have all that worked out including my partner, etc.
5) Looked at a DAF with this in mind
4) I need to learn more about iBonds, not sure of the purpose
3) Planning on turning in resignation mid jan. If I stay longer to contribute more, I will hit that bonus/LTI range where I would think one more year....
2) Agreed
1) That will be part of goal, turn off all reinvesting. Last year portfolio kicked out 57k, see post below. Hopefully this year 70-80k. Let to take from bonds.

Thank you for all your feedback!!
random_walker_77
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Re: Not OMY but Last year - Finally ready

Post by random_walker_77 »

hornet74 wrote: Tue Oct 26, 2021 12:21 pm That should be $84,610.16 per year (with $61,248.49 being from equities, rest from bonds), but oddly I don't get when I get my statements it is 57k. Not a big deal, but would be nice just to live off of dividends.
If I were you, I'd spend an hour or two looking up published distributions and doublechecking your spreadsheet. To first order, your dividends should've been 50% higher than what's been reported to you -- that's worth following up on. If you don't have the time, this would be worth hiring an accountant to track down.

If there's an intermediary (i.e. financial advisor) involved, I'd be concerned about a mistake (or embezzlement).
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Watty
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Re: Not OMY but Last year - Finally ready

Post by Watty »

hornet74 wrote: Tue Oct 26, 2021 12:29 pm 4) I need to learn more about iBonds, not sure of the purpose
One thing they are good for is that they are relatively tax efficient way to hold bonds in a taxable account. If the stars align just right there can also be some tax advantages if you use them to pay for a kids college but there are a number restrictions so that may or may not work out if the educational tax advantages do work out I would look at it as just being an unexpected bonus.

I had just skimmed over your investments since you were not mainly asking about what to invest and in looking at it now it looks like you there may be an issue since your are holding all your bonds in the taxable account and your 401k is all stocks. That is not very tax efficient unless there is something special going on. Most of the time you would want to fill up your retirement account as many bonds as you need and then only own bonds in a taxable account if you did not have enough space in your retirement accounts.

If you do not have a good bond option in your 401k then when you retire you can move the 401k money into an IRA anywhere to get better bond options.

There is a wiki on this.

https://www.bogleheads.org/wiki/Tax-eff ... _placement

With the way TIPS are taxed each year on the inflation adjustment owning them in a tax advantaged account is really important.

Be sure to read this wiki and ask questions if you do not understand it. Right now with interest rates being so low it does not make a huge difference since bond interest rates and stock dividend percentages are about the same. If inflation and interest rates get higher then having your investments in the most tax efficient accounts will become more important.
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hornet74
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Re: Not OMY but Last year - Finally ready

Post by hornet74 »

random_walker_77 wrote: Tue Oct 26, 2021 2:05 pm
hornet74 wrote: Tue Oct 26, 2021 12:21 pm That should be $84,610.16 per year (with $61,248.49 being from equities, rest from bonds), but oddly I don't get when I get my statements it is 57k. Not a big deal, but would be nice just to live off of dividends.
If I were you, I'd spend an hour or two looking up published distributions and doublechecking your spreadsheet. To first order, your dividends should've been 50% higher than what's been reported to you -- that's worth following up on. If you don't have the time, this would be worth hiring an accountant to track down.

If there's an intermediary (i.e. financial advisor) involved, I'd be concerned about a mistake (or embezzlement).
I don't have an intermediary, its direct through fidelity. I am going to reach out to my contact there today. TBH, just blind trust in how they manage it.

Good point though, always shocked a bit.
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hornet74
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Re: Not OMY but Last year - Finally ready

Post by hornet74 »

Watty wrote: Tue Oct 26, 2021 4:53 pm
hornet74 wrote: Tue Oct 26, 2021 12:29 pm 4) I need to learn more about iBonds, not sure of the purpose
One thing they are good for is that they are relatively tax efficient way to hold bonds in a taxable account. If the stars align just right there can also be some tax advantages if you use them to pay for a kids college but there are a number restrictions so that may or may not work out if the educational tax advantages do work out I would look at it as just being an unexpected bonus.

I had just skimmed over your investments since you were not mainly asking about what to invest and in looking at it now it looks like you there may be an issue since your are holding all your bonds in the taxable account and your 401k is all stocks. That is not very tax efficient unless there is something special going on. Most of the time you would want to fill up your retirement account as many bonds as you need and then only own bonds in a taxable account if you did not have enough space in your retirement accounts.

If you do not have a good bond option in your 401k then when you retire you can move the 401k money into an IRA anywhere to get better bond options.

There is a wiki on this.

https://www.bogleheads.org/wiki/Tax-eff ... _placement

With the way TIPS are taxed each year on the inflation adjustment owning them in a tax advantaged account is really important.

Be sure to read this wiki and ask questions if you do not understand it. Right now with interest rates being so low it does not make a huge difference since bond interest rates and stock dividend percentages are about the same. If inflation and interest rates get higher then having your investments in the most tax efficient accounts will become more important.
Bonds are in taxable due to high income tax bracket. They are muni bonds. The TEY (Tax Equiv Yield) was better to use munis. Obviously in retirement this would change, and I would have to spend down bonds and rebalance 401k (or IRA) to keep AA.

Looked at iBonds, and the 10k is just pathetic. Wonder why it is so low.
random_walker_77
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Re: Not OMY but Last year - Finally ready

Post by random_walker_77 »

The ibonds are geared towards the "average joe," and not people who have 1%-level wealth... Note that you can get an extra 5K by overpaying on your taxes. So married couples could get 25K/yr which over the years would add up.

After you hear back from EY, would you share their advice? It'd be interesting.
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hornet74
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Re: Not OMY but Last year - Finally ready

Post by hornet74 »

random_walker_77 wrote: Wed Oct 27, 2021 10:24 am The ibonds are geared towards the "average joe," and not people who have 1%-level wealth... Note that you can get an extra 5K by overpaying on your taxes. So married couples could get 25K/yr which over the years would add up.

After you hear back from EY, would you share their advice? It'd be interesting.
I will report back.
How do you get an extra 5k?
Grt2bOutdoors
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Re: Not OMY but Last year - Finally ready

Post by Grt2bOutdoors »

hornet74 wrote: Thu Oct 28, 2021 4:48 am
random_walker_77 wrote: Wed Oct 27, 2021 10:24 am The ibonds are geared towards the "average joe," and not people who have 1%-level wealth... Note that you can get an extra 5K by overpaying on your taxes. So married couples could get 25K/yr which over the years would add up.

After you hear back from EY, would you share their advice? It'd be interesting.
I will report back.
How do you get an extra 5k?
Overpay your federal taxes before you file your federal tax return. If you need to, you can file an extension first, make an estimated payment for the filing year - then file your taxes and use Form 8888 to request $5k in paper I bonds as form of tax refund.

Since you are not married you could still purchase up to $25k by purchasing $10k individually, then $10k in a living trust and finally through the tax refund method described above.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
fourwheelcycle
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Re: Not OMY but Last year - Finally ready

Post by fourwheelcycle »

Role of bonds in portfolio? My rule is to always have sufficient cash and bonds to cover five years of necessary withdrawals. This should be a sufficient cushion to prevent any need to sell equities during an extended down market. My wife and I have entered RMD territory, so I keep enough bonds to cover five years of RMDs in our rollover IRAs. I also keep enough checking, money market and bond funds in our taxable savings to cover five years of needed withdrawals. In total, cash and bonds represent just under 15% of our total savings.
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hornet74
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Re: Not OMY but Last year - Finally ready

Post by hornet74 »

That's my approach as well. Or at least my though
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Wiggums
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Re: Not OMY but Last year - Finally ready

Post by Wiggums »

We have about the same portfolio size and retired at 56. We are holding some cash for Roth conversions and we use the MD bond muni fund through Fidelity. TRP Is a good broker, but was nice eliminate one broker for simplicity. We have a DAF at Fidelity and two kids in college. We reduced our AA to 65/35. We have not turned off dividend reinvestments yet. We are still buying stock. We considered IBonds but the limit is annoying low. So call me lazy.
Last edited by Wiggums on Thu Nov 18, 2021 2:19 pm, edited 1 time in total.
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fortunefavored
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Re: Not OMY but Last year - Finally ready

Post by fortunefavored »

fourwheelcycle wrote: Thu Oct 28, 2021 7:52 am Role of bonds in portfolio? My rule is to always have sufficient cash and bonds to cover five years of necessary withdrawals. This should be a sufficient cushion to prevent any need to sell equities during an extended down market. My wife and I have entered RMD territory, so I keep enough bonds to cover five years of RMDs in our rollover IRAs. I also keep enough checking, money market and bond funds in our taxable savings to cover five years of needed withdrawals. In total, cash and bonds represent just under 15% of our total savings.
Curious why you picked 5 years. Typical secular bears have been 10 to 15 years. Is this due to your age or some other logic?

(I am also early retired at a similar age to OP.. I maintain 70/30 AA)
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HomerJ
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Re: Not OMY but Last year - Finally ready

Post by HomerJ »

random_walker_77 wrote: Mon Oct 25, 2021 2:04 pm
hornet74 wrote: Mon Oct 25, 2021 1:42 pm
random_walker_77 wrote: Mon Oct 25, 2021 1:33 pm One of the biggest considerations in investing is asset allocation, and deciding how to balance risk vs reward. Rather than see-sawing bond allocation and subjecting myself to periods of higher risk and the idiosyncrasies of timing to refill the bond bucket, I'd just sell towards rebalancing. In other words, I'd start with spending dividends and then selling whatever was overweight relative to my target allocation in order to harvest the remaining funds needed for that year's spending. Since stocks will on average grow more than bonds, in the long run you'll probably be primarily selling stock, but in a down year, you might be selling bonds if you're overweight on bonds.
Interesting, that makes more sense and is more intuitive. So spend to maintain AA? I could also spend down to maintain a new AA I assume. From 85/15 to 80/20 over time. I was assuming I would spend the bonds first to allow the equity side to grow though, 7 years of equity growth (Assuming all goes well) seemed like a prudent move.
1) I wouldn't spend _more_ solely to maintain AA but rather spend in the direction towards rebalancing. Keep in mind that stocks grow 8+ percent per year, "on average*" and bonds do not (hence terms like "sequence of returns risk").
This.

If stocks go up, sell stocks to fund next year's spending.

If stocks go down, sell bonds to fund next year's spending.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
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HomerJ
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Re: Not OMY but Last year - Finally ready

Post by HomerJ »

fourwheelcycle wrote: Thu Oct 28, 2021 7:52 am Role of bonds in portfolio? My rule is to always have sufficient cash and bonds to cover five years of necessary withdrawals. This should be a sufficient cushion to prevent any need to sell equities during an extended down market. My wife and I have entered RMD territory, so I keep enough bonds to cover five years of RMDs in our rollover IRAs. I also keep enough checking, money market and bond funds in our taxable savings to cover five years of needed withdrawals. In total, cash and bonds represent just under 15% of our total savings.
With 25x, I keep 12.5 years (50/50 portfolio), and would probably never go below 10 years (60/40).

1966-1982 was 16 years of crap. Markets don't always bounce back in 5 years.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
fourwheelcycle
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Re: Not OMY but Last year - Finally ready

Post by fourwheelcycle »

fortunefavored wrote: Thu Nov 18, 2021 2:17 pm Curious why you picked 5 years. Typical secular bears have been 10 to 15 years. Is this due to your age or some other logic?
HomerJ wrote: Thu Nov 18, 2021 2:30 pm
With 25x, I keep 12.5 years (50/50 portfolio), and would probably never go below 10 years (60/40).

1966-1982 was 16 years of crap. Markets don't always bounce back in 5 years.
I'm not sure what a secular bear is. When I was considering how many years of bond withdrawal "protection" I should have in my IRA and taxable savings accounts to avoid the need to sell equities in a down market, I looked at the 100 year stock market graph. The only 10 to 15 year or more periods I saw were the Great Depression and the market drop that started in 1966. Maybe I missed some other periods.

I retired in June, 2008 and I did not have to sell any equities during the less than five year down market that followed. I realize a 1966-like market decline could begin tomorrow. I hope it will not. If it does, I will burn through my IRA bonds first, and then sell equities for my RMDs as needed. I have minimal bonds in my taxable savings accounts because all of my annual living expenses are covered by my pension, social security, and RMD income.
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HomerJ
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Re: Not OMY but Last year - Finally ready

Post by HomerJ »

fourwheelcycle wrote: Fri Nov 19, 2021 8:01 am
fortunefavored wrote: Thu Nov 18, 2021 2:17 pm Curious why you picked 5 years. Typical secular bears have been 10 to 15 years. Is this due to your age or some other logic?
HomerJ wrote: Thu Nov 18, 2021 2:30 pm
With 25x, I keep 12.5 years (50/50 portfolio), and would probably never go below 10 years (60/40).

1966-1982 was 16 years of crap. Markets don't always bounce back in 5 years.
I'm not sure what a secular bear is. When I was considering how many years of bond withdrawal "protection" I should have in my IRA and taxable savings accounts to avoid the need to sell equities in a down market, I looked at the 100 year stock market graph. The only 10 to 15 year or more periods I saw were the Great Depression and the market drop that started in 1966. Maybe I missed some other periods.
No, you got it right... Only two times.

And 5 years is extremely likely to be plenty good. You're in solid shape.

I'm just super-conservative, although it might introduce more risks for myself because my portfolio growth might not be enough with so much in bonds/cash.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
fortunefavored
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Re: Not OMY but Last year - Finally ready

Post by fortunefavored »

fourwheelcycle wrote: Fri Nov 19, 2021 8:01 am
fortunefavored wrote: Thu Nov 18, 2021 2:17 pm Curious why you picked 5 years. Typical secular bears have been 10 to 15 years. Is this due to your age or some other logic?
HomerJ wrote: Thu Nov 18, 2021 2:30 pm
With 25x, I keep 12.5 years (50/50 portfolio), and would probably never go below 10 years (60/40).

1966-1982 was 16 years of crap. Markets don't always bounce back in 5 years.
I'm not sure what a secular bear is. When I was considering how many years of bond withdrawal "protection" I should have in my IRA and taxable savings accounts to avoid the need to sell equities in a down market, I looked at the 100 year stock market graph. The only 10 to 15 year or more periods I saw were the Great Depression and the market drop that started in 1966. Maybe I missed some other periods.

I retired in June, 2008 and I did not have to sell any equities during the less than five year down market that followed. I realize a 1966-like market decline could begin tomorrow. I hope it will not. If it does, I will burn through my IRA bonds first, and then sell equities for my RMDs as needed. I have minimal bonds in my taxable savings accounts because all of my annual living expenses are covered by my pension, social security, and RMD income.
We're shaped by our experiences, I suppose. 1998 to 2010ish was also a lost decade. And I lived through that one. My own portfolio had barely any real returns (after inflation) for that entire period.

A secular bear is when the markets are flat to down over a long period - there may be bull runs in between, but the aggregate return is flat to down. I'm sure someone has a fancy chart some where. :)

A 10 year bear is not uncommon, a 15 year is rare. I plan for 10, although I won't like it!
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AnnetteLouisan
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Re: What is "OMY"?

Post by AnnetteLouisan »

rossington wrote: Tue Oct 26, 2021 4:04 am
celia wrote: Mon Oct 25, 2021 10:11 pm
Now, I’m stuck on ‘HFEA’ which might have to do with ‘Human Fertility… ‘ or ‘Hedging <other acronyms>’?

Oh, well. . . :confused
FWIW it appears to be HEDGEFUNDIE's Excellent Adventure.
I learned a new one yesterday, IANAL (I am not a lawyer).
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