Portfolio Optimization Request - First Time Poster!

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Topic Author
BigDundee
Posts: 6
Joined: Sun Mar 31, 2024 12:56 am

Portfolio Optimization Request - First Time Poster!

Post by BigDundee »

Hello Bogleheads,

I am looking for Bogleheads’ expert eyes to take a look at my current portfolio to recommend any optimizations. I found the Boglehead forum last year and have enjoyed reading all the knowledgeable information and posts, thank you.
We are a family of 4 living in a VHCOL area with DW working part time, one DS launched, and other DS a freshman in college. Targeting to retire @ 57 when DW is 65. After 16 more months at work, my lump sum pension payout doubles. I appreciate your time. Thank you!

Emergency funds: Yes, three months of expenses.
Debt: Mortgage debt: ($344k @ 2.375%). Home valued @ 2M, not included in total portfolio below. No other debt.
Tax Filing Status: Married Filing Jointly.
Tax Rate: 22% Federal, 9.3% State
State of Residence: California

Current Combined Income: 215,000k
Current Living Expenses + Taxes: 122,000k + 40,000k = 162,000k
Approximate Retired Living Expenses Including Taxes: 130,000k in 2027

Age: His-53 Her 61
DS 1 – 23 - launched, Software Engineer at Big Tech and totally off payroll.
DS 2 – 19 - freshman in college. College expenses covered in CDs and duration matched inside of joint taxable account, but not included in total portfolio.

Desired Asset allocation: Now 70% stocks / 30% bonds. In retirement 65% stocks / 35% bonds
Desired International allocation: 0% of stocks

Approximate size of your total portfolio: 2.5M

Current retirement assets:

Joint Taxable at Fidelity – 135,000
4.4% FSKAX – Fidelity Total Market Index – 0.015%. Unrealized gains approx 20k
1% FDVLX – Fidelity Mid Cap Value Fund – 0.83%. Using to fund DAF. Unrealized gains approx 13k

His 401k – at Fidelity 1.567M
36% S&P 500 Index – 0.02%
11% Small/Mid Cap Stock Index – 0.01%
9% Fixed Income US Intermediate Bond – 0.03%
6.7% Mega Corp Stock – Currently selling company matching with intent to sell all.
Company match- 80% on first 6%

His Roth IRA at Fidelity - 7,500
0.3% FSKAX – Fidelity Total Market Index – 0.015%. 2023 first year funding Roth.

His Rollover IRA at Fidelity – 60,000
2.4% FXAIX Fidelity S&P 500 Index Fund – 0.02%

His HSA at Fidelity – 55,000
0.7% FXAIX Fidelity S&P 500 Index Fund – 0.02%
0.7% FDRXX Fidelity® Government Cash Reserves 0.38%
0.8% Mega Corp Stock - I know I know-lol

His Mega Corp pension at Fidelity – Taking as a lump sum – 275,000
11% –if I left Mega Corp today. Treating as Bond allocation.

Her Rollover IRA at Fidelity – 400,000
12% FXAIX Fidelity S&P 500 Index Fund – 0.02%
4% FXNAX Fidelity U.S. Bond Index Fund – 0.03%

New Annual Contributions-
$38,300 his 401k + Catch up 401k + employer matching contributions.
$8300 his HSA + Company match
$8000 his Roth IRA
$8000 her IRA-DW works part time, no 401k.

Social Security Plan – Used opensecurity to develop plan.
Him $71,900 per year. Start receiving at 70. Current age 53.
Her $18,000 per year. Start receiving at 62. Current age 61.

Questions:
1. DW will start collecting Social Security at 62 this July 2024. DW will continue working part time while collecting Social Security and not exceeding earnings limit of $22,320. I believe no Social Security benefits will be withheld, am I missing anything?

2. I have been modeling with the Retiree Portfolio Tool (Thank you BigFoot48) and current plan is for medical coverage for me (prob DS2) with ACA from age 57 to 65, while DW is on Traditional Medicare. Then Roth conversion from age 65 to 75. Should I switch and invest Roth 401k vs reg 401k to build up Roth account? Invest more in our joint taxable account vs reg 401k to prepare for ACA?

3. I realize I have duplicate funds in some accounts, which could impact my ability to TLH. Are we missing anything else? Looking for any gaps and blind spots with our plan.
User avatar
Miriam2
Posts: 4403
Joined: Fri Nov 14, 2014 10:51 am

Re: Portfolio Optimization Request - First Time Poster!

Post by Miriam2 »

BigDundee wrote: Sun Mar 31, 2024 11:41 am Hello Bogleheads,

I am looking for Bogleheads’ expert eyes to take a look at my current portfolio to recommend any optimizations. I found the Boglehead forum last year and have enjoyed reading all the knowledgeable information and posts, thank you.
Welcome to the Bogleheads, BigDundee!

I'll let others with more expertise than I have chime in about the numbers, but your investments look quite good to me and your financial retirement plans look well thought-out and nothing stands out as fix-it-now :happy

Retirement is more than just putting one's finances in order. What are you going to do with your free time with all that unstructured space ahead of you for some 40 years or more?
Topic Author
BigDundee
Posts: 6
Joined: Sun Mar 31, 2024 12:56 am

Re: Portfolio Optimization Request - First Time Poster!

Post by BigDundee »

Miriam2 wrote: Sun Mar 31, 2024 4:21 pm
BigDundee wrote: Sun Mar 31, 2024 11:41 am Hello Bogleheads,

I am looking for Bogleheads’ expert eyes to take a look at my current portfolio to recommend any optimizations. I found the Boglehead forum last year and have enjoyed reading all the knowledgeable information and posts, thank you.
Welcome to the Bogleheads, BigDundee!

I'll let others with more expertise than I have chime in about the numbers, but your investments look quite good to me and your financial retirement plans look well thought-out and nothing stands out as fix-it-now :happy

Retirement is more than just putting one's finances in order. What are you going to do with your free time with all that unstructured space ahead of you for some 40 years or more?
Miriam2,

Thank you for the warm welcome!

DW and I are taking more time to answer that specific question. We currently volunteer our time a lot and will continue to do that. Most of our family live outside of California, so we want to spend more time with them. Continue to build the friendships we have developed over the years. As well as some traveling. Best!
invest4
Posts: 1947
Joined: Wed Apr 24, 2019 2:19 am

Re: Portfolio Optimization Request - First Time Poster!

Post by invest4 »

Some initial comments:

Portfolio needed to retire: To support $130k annual expenses (ALL expenses including taxes, future roof replacement, etc.), for a 30 year retirement with a 4% withdrawal rate, you will need $130K * 25 = $3.25M

If you need / want to plan for longer than 30 years, you will need more or spend less.

https://www.investopedia.com/terms/f/fo ... t-rule.asp

Of course, there are many resources on this topic including our own Wiki. For myself, my aspiration is for a 3% withdrawal rate vs the histoically typical 4% to provide some additional measure of safety. YMMV.

Simplicity: Do not underestimate the value of simplicity in your portfolio. Do not see any value in having more ETFs / funds than needed and having different investments in places where it seems you have the option to choose what you want (versus a 401k plan for example where you have limited choices. I think you could have something like 3 investments across all accounts to create a simple, diversified portfolio which can endure for the long term.

HSA: Just use Total Stock Market (ignoring your Mega Corp stock).

Roth: Great

Rollover IRA: Total Stock Market instead of S&P 500

Pension: I guess you will invest in BND or whatever you will use for fixed income when in hand?

Rollover IRA: Total Stock Market and BND or whatever you choose.
Topic Author
BigDundee
Posts: 6
Joined: Sun Mar 31, 2024 12:56 am

Re: Portfolio Optimization Request - First Time Poster!

Post by BigDundee »

invest4 wrote: Mon Apr 01, 2024 10:01 am Some initial comments:

invest4,

Thank you for taking the time to review,
Portfolio needed to retire: To support $130k annual expenses (ALL expenses including taxes, future roof replacement, etc.), for a 30 year retirement with a 4% withdrawal rate, you will need $130K * 25 = $3.25M
Is this the right thought process?- 130k-DW SS 18k = 112k * 25 = 2.8M.
Also any thoughts on question 1. DW will start collecting Social Security at 62 this July 2024. DW will continue working part time while collecting Social Security and not exceeding earnings limit of $22,320. I believe no Social Security benefits will be withheld, am I missing anything?
Simplicity: Do not underestimate the value of simplicity in your portfolio.
Agreed, continuing to look at ways to simplify toward the 3-fund portfolio. Intent is to sell Mega Corp stock, but currently is at a loss and mentally trying to overcome that.
Pension: I guess you will invest in BND or whatever you will use for fixed income when in hand?
Yes, taking as a lump sum and will rollover to FXNAX Fidelity U.S. Bond Index Fund – 0.03%. After 16 more months at work, my lump sum pension payout doubles. Best!
invest4
Posts: 1947
Joined: Wed Apr 24, 2019 2:19 am

Re: Portfolio Optimization Request - First Time Poster!

Post by invest4 »

invest4 wrote: Mon Apr 01, 2024 10:01 am Portfolio needed to retire: To support $130k annual expenses (ALL expenses including taxes, future roof replacement, etc.), for a 30 year retirement with a 4% withdrawal rate, you will need $130K * 25 = $3.25M
BigDundee wrote: Mon Apr 01, 2024 12:10 pm Is this the right thought process?- 130k-DW SS 18k = 112k * 25 = 2.8M.
Also any thoughts on question 1. DW will start collecting Social Security at 62 this July 2024. DW will continue working part time while collecting Social Security and not exceeding earnings limit of $22,320. I believe no Social Security benefits will be withheld, am I missing anything?
The 4% rule does not consider other income sources such as Social Security, annuities, or part time income. However, as you highlighted in your response, you may not need a 4% withdrawal rate from your portfolio to generate the income you require when no longer working due to those other income sources.

What you proposed as far as reducing your expense needs by the social security income is a reasonable way to look at it.

Some people are more conservative and others less so when considering what they think they will need and able to feel good that it's very unlikely they will run out money.


The following link was also recently shared which I found relevant and informative for this topic.

https://portfoliocharts.com/2024/03/15/ ... rate-math/
bonesly
Posts: 1291
Joined: Mon Dec 18, 2017 9:28 pm
Location: WA

Re: Portfolio Optimization Request - First Time Poster!

Post by bonesly »

BigDundee wrote: Sun Mar 31, 2024 11:41 am 1. DW will start collecting Social Security at 62 this July 2024. DW will continue working part time while collecting Social Security and not exceeding earnings limit of $22,320. I believe no Social Security benefits will be withheld, am I missing anything?
Yes, per the SSA FAQ, your spouse at 62 is under the FRA of 67, so the limit to avoid any deduction in benefits is $22,230 for 2024.
BigDundee wrote: Sun Mar 31, 2024 11:41 am 2. I have been modeling with the Retiree Portfolio Tool (Thank you BigFoot48) and current plan is for medical coverage for me (prob DS2) with ACA from age 57 to 65, while DW is on Traditional Medicare. Then Roth conversion from age 65 to 75. Should I switch and invest Roth 401k vs reg 401k to build up Roth account? Invest more in our joint taxable account vs reg 401k to prepare for ACA?
Does the tool indicate it would be beneficial to a have a larger Roth balance at retirement/going-forward than if you do not make any changes to your current plan? Choosing Traditional vs Roth can be a complicated decision loop if you're trying to optimize. Some clearly know their tax bracket will always be lower after retiring, even with RMDs, other clearly know their bracket will never drop, for most it's an uncertain prediction.

What I can say is that if you plan to collect SocSec at 70 and are planning Roth conversions from 65 to 75, those conversion from 70 to 75 with your maxed SocSec benefit are going to generate a big tax bill or reduce the amount you want to convert to stay under a spillover into the next tax bracket. I'd probably look at your projected annual income over the next two decades and do Roth conversion at the lowest income points you expect to have; again predictions tend to be fuzzy so it's expected to not execute the optimal strategy (which often is known only after the fact).
BigDundee wrote: Sun Mar 31, 2024 11:41 am 3. I realize I have duplicate funds in some accounts, which could impact my ability to TLH. Are we missing anything else? Looking for any gaps and blind spots with our plan.
Your taxable account is holding FSKAX – Fidelity Total Market Index, but it's also in your Roth IRA. An easy fix for Wash Sale concerns is to swap the Roth IRA to Fidelity 500 Index instead of Total Market.
FDVLX – Fidelity Mid Cap Value Fund seems to only be in your taxable account, so not a wash sale concern.
Topic Author
BigDundee
Posts: 6
Joined: Sun Mar 31, 2024 12:56 am

Re: Portfolio Optimization Request - First Time Poster!

Post by BigDundee »

bonesly wrote: Tue Apr 02, 2024 4:58 pm
BigDundee wrote: Sun Mar 31, 2024 11:41 am 1. DW will start collecting Social Security at 62 this July 2024. DW will continue working part time while collecting Social Security and not exceeding earnings limit of $22,320. I believe no Social Security benefits will be withheld, am I missing anything?
Yes, per the SSA FAQ, your spouse at 62 is under the FRA of 67, so the limit to avoid any deduction in benefits is $22,230 for 2024.
BigDundee wrote: Sun Mar 31, 2024 11:41 am 2. I have been modeling with the Retiree Portfolio Tool (Thank you BigFoot48) and current plan is for medical coverage for me (prob DS2) with ACA from age 57 to 65, while DW is on Traditional Medicare. Then Roth conversion from age 65 to 75. Should I switch and invest Roth 401k vs reg 401k to build up Roth account? Invest more in our joint taxable account vs reg 401k to prepare for ACA?
Does the tool indicate it would be beneficial to a have a larger Roth balance at retirement/going-forward than if you do not make any changes to your current plan? Choosing Traditional vs Roth can be a complicated decision loop if you're trying to optimize. Some clearly know their tax bracket will always be lower after retiring, even with RMDs, other clearly know their bracket will never drop, for most it's an uncertain prediction.

What I can say is that if you plan to collect SocSec at 70 and are planning Roth conversions from 65 to 75, those conversion from 70 to 75 with your maxed SocSec benefit are going to generate a big tax bill or reduce the amount you want to convert to stay under a spillover into the next tax bracket. I'd probably look at your projected annual income over the next two decades and do Roth conversion at the lowest income points you expect to have; again predictions tend to be fuzzy so it's expected to not execute the optimal strategy (which often is known only after the fact).
BigDundee wrote: Sun Mar 31, 2024 11:41 am 3. I realize I have duplicate funds in some accounts, which could impact my ability to TLH. Are we missing anything else? Looking for any gaps and blind spots with our plan.
Your taxable account is holding FSKAX – Fidelity Total Market Index, but it's also in your Roth IRA. An easy fix for Wash Sale concerns is to swap the Roth IRA to Fidelity 500 Index instead of Total Market.
FDVLX – Fidelity Mid Cap Value Fund seems to only be in your taxable account, so not a wash sale concern.
bonesly,
Yes, per the SSA FAQ, your spouse at 62 is under the FRA of 67, so the limit to avoid any deduction in benefits is $22,230 for 2024.
Thanks for confirmation.
What I can say is that if you plan to collect SocSec at 70 and are planning Roth conversions from 65 to 75, those conversion from 70 to 75 with your maxed SocSec benefit are going to generate a big tax bill or reduce the amount you want to convert to stay under a spillover into the next tax bracket. I'd probably look at your projected annual income over the next two decades and do Roth conversion at the lowest income points you expect to have; again predictions tend to be fuzzy so it's expected to not execute the optimal strategy (which often is known only after the fact).
More modeling in my future. Most modeling was done to decide on ACA from age 57 to 65 versus Roth Conversion.
Your taxable account is holding FSKAX – Fidelity Total Market Index, but it's also in your Roth IRA. An easy fix for Wash Sale concerns is to swap the Roth IRA to Fidelity 500 Index instead of Total Market.
I put the order in today to sell FSKAX, thanks. Best!
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