portfolio, plan and early retirement

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SSM1
Posts: 8
Joined: Wed Sep 26, 2018 2:47 pm

portfolio, plan and early retirement

Post by SSM1 » Tue Oct 16, 2018 9:49 pm

Emergency funds: TBD Have $112k for cash for emergency & next house in Ally Bank money mkt – however, unemployed x 1.8 yrs now
(Also Schwab checking/cash $400 and bank sweep $2,449)
Debt: None
Have HELOC on house for available $250k for cash purchase next house
Tax Filing Status: Single (unsure about adult child needing help in future)
College fund: $8,162 (Vanguard income portfolio and mod age-baswd inc college savings plan) – on hold/inactive
Tax Rate: 15% Federal, 4.63% State
State of Residence: CO
Age:60.9
Desired Asset allocation: xx% stocks / xx% bonds ( 60/40 TBD!?)
Desired International allocation: % of stocks (24%? TBD?)

Current total portfolio (7 figure starting with 1; would be close to 1.5 if include cash noted above. Does not include house value approx. $575-600k, wish to downsize/simplify, but difficult in this market)

Current retirement assets

Taxable
0% cash (for investing – do not include emergency funds)
5.3 % VG Primecap Admiral (VPMAX) (.32%)
17% VG Wellington Admiral (VWENX) (.17%)
2% Schwab S&P 500 (SWPPX) (.03%)
1.9% (Schwab) Nuveen Quality Municipal Income Fund (NAD) (previously NPF) (?)

Other
0.7% IBond Treasury Direct (0 %?)

Roth IRA at Vanguard
3.2% Vanguard Extended Market Index Admiral (VEXAX) (.08%)
3.6% Vanguard Growth Index Admiral (VIGAX) (.05%)
0.28% Vanguard Total International Bond Index Investor (VTIBX) (.13%)
8.2% Vanguard Total Stock Market Index Admiral (.04%) (VTSAX)

SEP IRA at Vanguard
0.16% Vanguard Target Retirement 2015 Fund (VTXVX) (.13%)

Traditional IRA at Vanguard
3.2% Vanguard total stock market index fund admiral (VTSAX) (.04%)

Rollover IRA at Vanguard
1.45% Vanguard High-Yield Corporate Fund Investor (VWEHX) (.23%)
3.9% Vanguard Short-term Admiral (VFSUX) (.1%)
3.4% Vanguard Small-cap Index Fund Admiral (VSMAX) (.05%)
16.6% Vanguard Total Bond Market Index Fund Admiral (VBTLX) (.05%)
0.3% Vanguard Total International Bond Index Fund Investor (VTIBX) (.13%)
7.1% Vanguard Total International Stock Index Fund Admiral (VTIAX) (.11%)
20.4% Vanguard total stock market index fund admiral (VTSAX) (.04%)

Rollover IRA at Schwab - none

Annuity
0.3% Metlife Growth Plus Fixed Annuity

Total of All Accounts Together (not each account individually) should equal 100%. {Note: I’m off by ~ 1% = $13,469 which is “college money”, car insurance payment for repairs pending, and some cash, assume not critical for the post.}

Contributions

New annual Contributions
0
Annual Individual expenses
About $45 – 55k/yr.

Questions:
1. A. I prefer to simplify, but Vanguard FP suggests more international both in bond and stock funds (24% of stock funds), and more diversification to value (50% growth, 50% value). Both VG FP and previous FP said to reduce Total Bond Index fund holdings, which I have had for years for simple portfolio.
1. B. What about Social/Environmental Index Fund? (VFTSX large growth domestic) (.20%)
1. C. Advice on asset allocation, asset location, etc.
1. D. Use laddered CDs for 5 years of cash (after house decision?)

2. A. Start transferring dividends, capital gains & interest to Ally bank cash acct, not reinvesting, correct?
2. B. Roth conversion while I have little/no income? All or part?
The “income” could affect current individual medical plan limits.

3. Need advice on medical plan and access to specialty care (specific to CO).

4. Long term care funding?

5. Adult child may need help, unsure future college and other special/career needs.

6. Want to simplify my life/downsize -- but live in a crazy real estate market. How to purchase smaller home or townhouse for cash without income? Can’t get bridge loan? Consider apartment but costs/moving?

6. Can I retire now?

Living Free
Posts: 119
Joined: Thu Jul 19, 2018 7:31 pm

Re: portfolio, plan and early retirement

Post by Living Free » Thu Oct 18, 2018 6:52 pm

SSM1 wrote:
Tue Oct 16, 2018 9:49 pm

6. Can I retire now?
Maybe. with expenses of 45-55k per year and an invested portfolio of 1.3 million or so, you would probably be fairly close to 4% withdrawal rate. But also you'd presumably be getting some social security at some point in the future which would be a big help. And you could downsize the house as you're already considering, providing further capital.
Not sure what the story is with the adult child - does he/she have special needs or just hasn't yet established himself/herself?

SSM1
Posts: 8
Joined: Wed Sep 26, 2018 2:47 pm

Re: portfolio, plan and early retirement

Post by SSM1 » Mon Oct 22, 2018 11:12 am

How to downsize when need cash for next house/townhouse but no work income? Adult child situation is uncertain. What about complexity of portfolio and which funds to use for living expenses in near-term?

megabad
Posts: 663
Joined: Fri Jun 01, 2018 4:00 pm

Re: portfolio, plan and early retirement

Post by megabad » Mon Oct 22, 2018 4:11 pm

SSM1 wrote:
Tue Oct 16, 2018 9:49 pm
1. A. I prefer to simplify, but Vanguard FP suggests more international both in bond and stock funds (24% of stock funds), and more diversification to value (50% growth, 50% value). Both VG FP and previous FP said to reduce Total Bond Index fund holdings, which I have had for years for simple portfolio.
You are probably tilted growth, but I can't say whether this is smart or not (can't predict the future). Do you have room in 0% LTCG bracket? If so, I might trying to realize a little bit of capital gains each year and you would be able to simplify taxable down to one or two funds. Your portfolio is hard for me to interpret since you have multiple balanced funds, but I would say you are right around 42-45% bonds (I dont really count junk bonds though). You currently hold bonds in 6 different bunds, I would probably hold them in 3 for simplicity. Your taxable holdings are not particularly tax efficient.
1. B. What about Social/Environmental Index Fund? (VFTSX large growth domestic) (.20%)
This seems like a personal preference question to me, so can't help there. You will need to ask yourself whether it is worth less diversity and slighly higher expense to own more socially/environmentally conscious funds.
1. C. Advice on asset allocation, asset location, etc.
You are close to your target equity bond allocation, but you accomplish this in a roundabout manner with multiple balanced funds and individual funds. You will need to ask yourself if you believe that holding this collection of funds is worth the increased complexity. You hold ~14 funds, I would likely hold roughly half of the number you own. Also, as above, you appear to be holding some of the least tax efficient holdings in your taxable vs. your tax advantaged accounts.
1. D. Use laddered CDs for 5 years of cash (after house decision?)
Does this fit with your investment plan and risk tolerance? I don't see anything wrong with holding some of your cash (not all) this way if it does.
2. A. Start transferring dividends, capital gains & interest to Ally bank cash acct, not reinvesting, correct?
This depends on your goals, but I would typically do this for simplicity later in life.
2. B. Roth conversion while I have little/no income? All or part?
What is your anticipated future tax bracket? You do not seem to have enough to fill out the lower tax brackets with RMDs alone, but do you have a sizable pension or SS that could raise your bracket? Realizing capital gains may be more attractive. Or it may not.
The “income” could affect current individual medical plan limits.
If by limits you mean subsidies/tax credits, than yes it could. You would likely be wise to stay under the allowable income for these.
3. Need advice on medical plan and access to specialty care (specific to CO).
I am not knowledgeable here. What I do know is that your options will be severely limited under both Healthcare.gov and Medicare so I would plan accordingly.
4. Long term care funding?
Looks to me you have about $1.5 million in "long term care funding" in the form of retirement accounts. I would not recommend a traditional LTC policy at this time and I hesitate to mention the only other option I would even consider as it is complex and easily misunderstood (universal/whole life with a long term care rider).
5. Adult child may need help, unsure future college and other special/career needs.
I can't tell what your situation is, but are you eligible for ABLE account? If so, I might look into this.

6. Want to simplify my life/downsize -- but live in a crazy real estate market. How to purchase smaller home or townhouse for cash without income? Can’t get bridge loan? Consider apartment but costs/moving?
I don't understand your question, I'm sorry. You don't mention a loan so I am assuming you have $600k equity in your current home. Do you need more than this if you downsize? If so, than I would hesitate to retire.

6. Can I retire now?
Well you are essentially retired now. I think you will probably be ok. I would not overspend on the home and I would be somewhat concerned if you have a true dependent (I can't tell if you do or not) since you probably don't qualify for cost effective life insurance. You may want to protect the assets you would want dependent to have in case you have a Medicaid drawdown situation later so that dependent will have some funds.

SSM1
Posts: 8
Joined: Wed Sep 26, 2018 2:47 pm

Re: portfolio, plan and early retirement

Post by SSM1 » Wed Oct 24, 2018 4:04 pm

Thank you very much, megabad.
I just received a financial plan from a new independent hourly FP CPA. Of course, some assumptions are different than the VG and other plan (this plan has higher healthcare increases at 6%, etc. Plan does not include $100k for dependent college, which is uncertain ).
Age 97 Monte Carlo probability = 71% (Is this concerning? He did not think a concern.)
He suggests that I can retire now, start taking distributions from all my accounts to be put into Ally Bank money market savings. Opinions?
Income draw at 2%. Investment returns around 4.61-5.21%
SS at FRA 66.5 = $30636/yr. Pension is very small (about $250/month).
He also suggests that I convert all retirement accounts to Vanguard Target 2025 VTTVX (exp. ratio 0.14%). To simplify and automatically rebalance. I calculate costs to be $1240/yr for all 3 retirement accounts in VTTVX. Seems to make sense?
He estimates house value at $575k, but cost to sell and move is about $40k. I need to find out about a bridge loan tho I am unemployed?! Any thoughts? Estimate proceeds from house sale of $100k to help fund retirement.
I will look into an ABLE account, though not sure if we qualify. Thanks for suggestion. I do have a LRT.
Thanks again!

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celia
Posts: 8490
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: portfolio, plan and early retirement

Post by celia » Wed Nov 07, 2018 10:15 pm

SSM1, The first thing I look at when looking at the portfolio and taxes of a young retiree, is if it makes sense for them to do some Roth conversions (which you may already know from my past posts :D ). If most of the portfolio is in tax-deferred accounts and they will/could start SS at age 70, conversions can be used to help "level" their "income" and tax bracket over the long term (from now until forever after...) Looking at this relevant information:

age 61 (by the end of 2018)
tax bracket 15% federal 4.63% state
Current portfolio:
27% Taxable (about $378K)
15% Roth (about $210K)
56.5% Tax-deferred (about $791K) with this being 1/3 stocks and 2/3 bonds,
and assuming the Tax-deferred could grow an average of 2% to 4% yearly, if leaving it as it is,

then at the end of 2027, as you turn 70, the account value would be $945,318 (2% growth) to $1,125,840 (4% growth) with
RMDs of $61,446 (2%) to $73,180 (4%). That, with your age 70 SS ($30,636 * 1.28[for waiting 3.5 years to start at 70]) would certainly increase your tax bracket.

Instead, if you convert something before then, the amount you convert each year would have to be taxed as ordinary income. You could also withdraw from tax-deferred for living expenses before the RMDs start.

However, I think you are also looking for an ACA subsidy, which would mean you want to keep your income low. Although I don't know what the number is for CO, this is the opposite of increasing your income by doing Roth conversions. So what I first recommend, with nothing else changing, is to figure out a scenario showing how much you would take from each source of income for each year from 2018 to 2028. Estimate what that would do to your ACA costs and to your taxes. Be sure you include Capital Gains and Dividends in taxable accounts, withdrawals from taxable, from Roth, from tax-deferred, as well as Roth conversions so that the total goes just to under the ACA cliff (stopping $1,000 short for safety) or to the top of a particular tax bracket. Then develop another scenario showing another goal. (Ie, one scenario maximizes ACA subsidies while one maximizes Roth conversions.)

If you have a lot of taxable income in one year, be aware of how "High Income" impacts your Medicare premium two years later. This will impact you when your MAGI hits $85,000 (for Singles).
https://www.ssa.gov/pubs/EN-05-10536.pdf

SSM1 wrote:
Tue Oct 16, 2018 9:49 pm
Annuity
0.3% Metlife Growth Plus Fixed Annuity
When will/did this start and how much will you receive each year? (This is another source of income.)
Questions:
1. A. I prefer to simplify, but Vanguard FP suggests more international both in bond and stock funds (24% of stock funds), and more diversification to value (50% growth, 50% value). Both VG FP and previous FP said to reduce Total Bond Index fund holdings, which I have had for years for simple portfolio.
1. B. What about Social/Environmental Index Fund? (VFTSX large growth domestic) (.20%)
1. C. Advice on asset allocation, asset location, etc.
1. D. Use laddered CDs for 5 years of cash (after house decision?)
A. You already have 7% of the entire portfolio in international. I wouldn't recommend more, although it is more tax-efficient to hold it in taxable if Foreign Taxes are paid by the fund. You can get a tax credit for Foreign Taxes paid by your fund if it is in a taxable account.
B. Social/Environmental is a small slice of the market. If you're looking for diversity of holdings, you're better off elsewhere..
C-D. Somehow you need to take into account that you will be depending on this portfolio heavily for the first 10 years. I think a set aside for a few years of known living expenses is a good idea. But consider that part of your "bonds". Note that this doesn't have to be in Taxable.
2. A. Start transferring dividends, capital gains & interest to Ally bank cash acct, not reinvesting, correct?
This refers to Taxable holdings only. Since a re-investment is, in effect, a purchase, if you keep re-investing in the same holdings, you will get lots of tiny purchases (and purchase prices). This is mostly important if you want to specify which shares to sell. So I would turn off re-investing in taxable accounts, but the dividends/gains don't need to go to another custodian (unless you want to spend them).
4. Long term care funding?
I don't think you have enough money freed up for this. You need to stabilize living expenses first, especially with your child and housing unknowns.
5. Adult child may need help, unsure future college and other special/career needs.
We have no idea of what the costs for this would be or when it would be needed. But if it is to help "launch" them, I have heard of people moving to a 55+ living community so their adult child is forced to find someplace else to live.
6. Want to simplify my life/downsize -- but live in a crazy real estate market. How to purchase smaller home or townhouse for cash without income? Can’t get bridge loan? Consider apartment but costs/moving?
Properties, especially those sized for families, often sell easiest in the spring, so that the family can move during the summer. This is generally not a good time of year to buy/sell a house, but it is possible to do!.
6. Can I retire now?
Yes, with your new information about your Social Security amount, it is now clearer that the first couple of years will require some decisions. It is primarily a question of the best way to withdraw from your resources. But you have the housing and child questions to resolve before things settle down.

---------------------------------------------------------------
SSM1 wrote:
Wed Oct 24, 2018 4:04 pm
Age 97 Monte Carlo probability = 71% (Is this concerning? He did not think a concern.)
He suggests that I can retire now, start taking distributions from all my accounts to be put into Ally Bank money market savings. Opinions?
Income draw at 2%. Investment returns around 4.61-5.21%
Let's put it this way. *IF* you live to age 97, of 100 people with your portfolio (the FP may have also taken your SS into account), 71 of them will be fine and 29 will not. No-one knows which group you would be in. Of course, no-one knows if you will live to 97 either. But I'd rather live to 97 and have higher confidence than that, than try to figure out what to do when I'm in the other group. The part of this you can most control is your living expense. It is easier to be frugal, and lighten up later, than the other way around.
He also suggests that I convert all retirement accounts to Vanguard Target 2025 VTTVX (exp. ratio 0.14%). To simplify and automatically rebalance. I calculate costs to be $1240/yr for all 3 retirement accounts in VTTVX. Seems to make sense?
When you put everything in one fund-of-funds, you are unable to:
* re-balance between the funds involved
* specify which fund to convert or withdraw from (preferably you would convert stock funds first since they have the most expected growth)
* take advantage of the lowest ERs (you could instead hold the 4 funds yourself in the same proportion and not have to pay the fee that is included on top of each of the separate fund fees). However, the fund-of-funds would be eligible for admiral shares (or better) whereas you might not be.

When the year occurs that is specified in the fund name ("2025"), the holdings change in the direction of the Target Retirement fund [no year]. This is the most conservative version of target funds but it may be too conservative for you (70% bonds) and too soon for you, especially if you already set aside some money in CDs for living expenses.

You also should ignore the "cost" of $1240. This is just the amount in fees they deduct (spread out through the year) before showing you the NAV (closing price for the day). You never have to "pay" it in the sense of broker fees.
He estimates house value at $575k, but cost to sell and move is about $40k. I need to find out about a bridge loan tho I am unemployed?! Any thoughts? Estimate proceeds from house sale of $100k to help fund retirement.
If you are only netting 100K between selling one house and buying something smaller, I wonder if it is worth the time and expense and moving for that amount of money. You can always sell in the future after your child is settled and hopefully the value of the house will have risen by then. I would also calculate the "price" of a bridge loan to make this happen. Is there a reason you can't just sell one day followed by a purchase soon after (ie, no bridge loan required)? You could include a contingency in the sale or purchase to "rent back" for a few months to avoid having to move twice if you want.

SSM1
Posts: 8
Joined: Wed Sep 26, 2018 2:47 pm

Re: portfolio, plan and early retirement

Post by SSM1 » Mon Nov 12, 2018 12:49 pm

Thank you so much for your thoughtful and very helpful reply post! It's what I was hoping to learn about more.
Sincerely grateful!

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