AA advice for this situation

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willybiggs
Posts: 27
Joined: Fri Aug 30, 2013 4:21 pm

AA advice for this situation

Post by willybiggs » Thu Jan 10, 2019 12:21 am

He: 65 retired
Her: 61 retired
Been retired for exactly 4 years now and feel pretty good about financial situation but realize some changes are needed to put finances in a better position. Advice is greatly appreciated from the BH experts.

Pensions, SS for both: $95/yr
Cash: $46k
Taxable Investments: $715k
Tax Def. Investments: $1,225k

Recently was given $535k of single pharma stock currently at $117/share carrying $75 cost basis of donor (in taxable # above)
Rest of Taxable is mix of same stock and some mutual funds.
Tax Def. has $425k of funds in MM earning 2.3% with other $800 in mostly domestic stocks, mutual funds and 2 bond funds.
Total Portfolio: $1,985k
My FIDO total allocation shows:
Dom. stock: 62%
Int'l stock: 1%
Bonds: 10%
Short term: 26%
How would you unwind or re-allocate this portfolio given my situation? Our spending is not much more than current guaranteed income. Only debt is $315k on 30yr mortgage ($1500/mo.)

123
Posts: 4048
Joined: Fri Oct 12, 2012 3:55 pm

Re: AA advice for this situation

Post by 123 » Thu Jan 10, 2019 1:24 am

The pharma stock is your biggest risk due to concentration in a single issuer. If you have a sentimental attachement to the giftor or the security you may want to keep 100 shares indefinately for that purpose and liquidate the rest. I would recommend liquidation over the 5 years before you have to take RMDS. You may want to liquidate it faster than 5 years depending on the tax consequences. If you liquidate it faster it's possible that you might get bumped up on your Medicare premiums due to IRMAA provisions. As it is liquidated I would replace it with a diversified Total US Stock Market Index fund or ETF (like VTI).

Depending on your risk tolerance I would suggest a possible stock/bond allocation of 50/50 or 60/40.
The closest helping hand is at the end of your own arm.

RickBoglehead
Posts: 1630
Joined: Wed Feb 14, 2018 9:10 am

Re: AA advice for this situation

Post by RickBoglehead » Thu Jan 10, 2019 6:57 am

Given? Donor?

If you inherited the stock, cost basis is date of death of person that passed.

DA200
Posts: 171
Joined: Fri Feb 06, 2015 3:47 pm

Re: AA advice for this situation

Post by DA200 » Thu Jan 10, 2019 9:04 am

The concentration in a single pharma stock is the biggest concern. You mention that $535K is in this stock, plus additional shares in the same stock. How much total do you own of this pharma stock?
To give better advice on how to unwind from this position and to also provide further guidance regarding overall asset allocation, more info would be useful including the detailed list of all holdings in the taxable account, expense ratios of funds held, and unrealized capital gains for each.
Are you investing the $2M portfolio for yourselves only, or do you plan to provide an inheritance?
Do you plan to donate to charities (good use of individual stocks with large gains)?
At first glance with limited info provided, it looks like you have nearly $200K in unrealized gains in the pharma stock. Currently you are at the bottom of the 22% tax bracket. You could realize roughly $70K per year of gains while staying in the 22% bracket and also staying below the IRMAA baseline of $170K MAGI. This would allow you to sell all of the pharma in 3 years. You can use the RPM tool to optimize exact amount to sell each year.
You may also want to consider paying off mortgage. What is your interest rate?
Would recommend more reading on this site and develop an overall investment plan. Consider moving towards a 3 fund portfolio.

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