First Post! Portfolio Review Needed

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aeaiaea
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Joined: Sat Jun 08, 2019 1:57 pm

First Post! Portfolio Review Needed

Post by aeaiaea » Sat Jun 08, 2019 9:55 pm

Hi Everyone! Longtime reader, first post. Thanks in advance for any advice, comments, etc. on my portfolio.

Emergency funds: five to six months of expenses in Prime MMF
Debt: mortgage - $489,000 30 yr @ 4.125% (28.5 yrs left); student loan $42,500 @ 2% fixed (a little under 12 yrs left)
Tax Filing Status: MFJ
Tax Rate: 24% Federal, 0% State
Age: 38
Desired Asset allocation: 85%/15%
Desired International allocation: 35%
TSP/403(b)/Roth/Rollover IRA/Taxable total: $464,000
529 #1 & #2 - $30,000 (age-based plans)
Checking/Misc. - approx. $25,000

Current retirement assets

Taxable
2% Vanguard Total World Stock Index Fun - Admiral Shares - 0.1% - 100% stock - 42% int.

His TSP
70% L2050 Fund - .04% - 82/18 split - 31% int.

Her 403(b)
2% Vanguard Lifestrategy Growth Fund - 1.39% 80/20 - 31% int.

His Roth IRA
10% Vanguard Total Retirement 2045 - 0.15% - 90-10 - 35% int.

Her Roth IRA
11% Vanguard Total Retirement 2045 - 0.15% - 90-10 - 35% int.

Her Rollover IRA
5% Vanguard Total Retirement 2045 - 0.15% - 90-10 - 35% int.

Options in Her 403(b):

BROAD CAP VALUE INC • Barrow Hanley 1.85%
DIVIDEND VALUE • BlackRock/SunAmerica 1.81%
LARGE CAP VALUE FUND • Boston Company/Perkins 1.56%
VALUE FUND • Wellington 1.85%
VANGUARD WINDSOR II Vanguard 1.58%
CORE EQUITY FUND • BlackRock 1.75%
GROWTH & INCOME FUND • JP Morgan 1.85%
LARGE CAP CORE • Columbia 1.84%
SOCIALLY RESPONSIBLE FUND • SunAmerica 1.31%
STOCK INDEX FUND • SunAmerica 1.34%
AMER BEACON BRDWY LRG CP GRW I 2.20%
BLUE CHIP GROWTH FUND • T. Rowe Price 1.83%
CAPITAL APPRECIATION FUND • Boston Company 1.60%
GROWTH FUND • American Century 1.74%
LARGE CAPITAL GROWTH • MFS 1.75%
NASDAQ-100(R) INDEX FUND • SunAmerica 1.53%
ARIEL APPRECIATION FUND Ariel 2.13%
MID CAP VALUE FUND • Wellington/Robeco 1.80%
MID CAP INDEX FUND • SunAmerica 1.35%
MID CAP GROWTH FUND • Wells Capital 1.60%
MID CAP STRATEGIC GWTH • Janus/Allianz Global 1.82%
ARIEL FUND Ariel 2.01%
SMALL CAP SPECIAL VALUE FUND • Wells Capital 1.87%
SMALL CAP VALUE FUND • JP Morgan/Met West 1.70%
SMALL CAP FUND • Invesco/T. Rowe Price/Bridgeway 1.93%
SMALL CAP INDEX FUND • SunAmerica 1.40%
SM CAP AGGRESSIVE GWTH • RS Investments 1.99%
SMALL CAP GROWTH FUND • JP Morgan 1.91%
SMALL MID GROWTH FUND • Goldman Sachs 1.95%
GLOBAL SOCIAL AWARENESS FUND • SunAmerica 1.62%
GLOBAL STRATEGY • Franklin Templeton 1.65%
EMERGING ECONOMIES • JP Morgan 1.93%
FOREIGN VALUE • Templeton Global 1.72%
INTERNATIONAL GROWTH FUND • American Century 1.88%
INTERNATL EQUITIES INDEX FUND • SunAmerica 1.43%
INTL OPPORTUNITIES • Delaware/MFS 1.75%
GLOBAL REAL ESTATE FUND • Invesco/Goldman Sachs 1.86%
INVESCO BAL RISK COMMOD STR R5 Invesco 102 2.15%
SCIENCE & TECHNOLOGY FUND • T. Rowe Price 1.97%
HEALTH SCIENCES FUND • T. Rowe Price 2.06%
AGGRESSIVE GROWTH LIFESTYLE • PineBridge 1.62%
CONSERVATIVE GROWTH LIFESTYLE • PineBridge 1.64%
DYNAMIC ALLOCATION FUND • AllianceBernstein 1.91%
MODERATE GROWTH LIFESTYLE • PineBridge 1.62%
VANGUARD LIFESTRATEGY CONSER Vanguard 1.37%
VANGUARD LIFESTRATEGY GROWTH Vanguard 1.39%
VANGUARD LIFESTRATEGY MODERA Vanguard 1.38%
ASSET ALLOCATION FUND • PineBridge 1.78%
VANGUARD WELLINGTON FUND INC Vanguard 1.50%
CAPITAL CONSERVATION • PineBridge 1.64%
CORE BOND FUND • PineBridge 1.52%
GOVERNMENT SECURITIES FUND • JP Morgan 1.66%
INFLATION PROTECTED FUND • PineBridge 1.57%
STRATEGIC BOND FUND PineBridge 1.62%
VANGUARD LONG-TERM TREASURY Vanguard 1.20%
VANGUARD LT INV-GRADE FUND 1.22%
INTERNATIONAL GOVERNMENT BOND • PineBridge 1.65%
HIGH YIELD BOND FUND • Wellington 1.71%
GOVERNMENT MONEY MARKET I • SunAmerica 1.51%
GOVERNMENT MONEY MARKET II • SunAmerica 1.30%

Contributions

New annual Contributions
$19,000 in TSP (+ $7,200 match) - All TSP holdings and contributions going to traditional, non-Roth contributions.
$1,300 her 403b (+ $1,300 match - this is max for match) - Her plan permits Roth contributions.
$6,500 taxable
$12,000 in 529s

Questions:
1) How are things looking? Any general advice?

2) One goal is to retire with FERS pension at approx. age 57. This is a bit hard to gauge, but annual expenses net of pension should be approx. $70k. Pension amount approx. $35k-$40k per year. I'm thinking of dialing back 529 contributions (kids have 10-12 yrs before college but I would like to contribute approx. half of state school tuition for them) and start maxing both our Roths. At our income level, we are close to limit so will have to door backdoor which I haven't done before. Also, not sure how to handle wife's rollover IRA with regard to her Roth backdoor. I also think it may not be optimal to have bonds in Roth - maybe I should switch to Vanguard Total World Stock Fund for Roths and increase bonds in TSP?

2) Started investing in taxable account to give me flexibility. But once the value of the taxable account hits the level of an average new car, I will look to possibly pay down some debt. Mortgage probably makes more sense than student loan based on interest rates. Thoughts?

Thanks!
Last edited by aeaiaea on Tue Jun 18, 2019 6:51 pm, edited 2 times in total.

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Nestegg_User
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Re: First Post! Portfolio Review Needed

Post by Nestegg_User » Sun Jun 09, 2019 12:49 am

first, welcome to the forum

AFA bonds, the G fund is basically paying intermediate rates without term risk... so I would consider using that for your bond side. others may like total bond, but I'm not sure that it's that much better on a risk adjusted level.

With a mortgage that large in a zero tax state means you're probably paying higher property taxes and that you may be the near the cliff of deductibility after you add your mortgage interest, under the new rules. You need to calc the tax equivalent cost for each; likely the mortgage is the higher costing. further, I wouldn't wait until you reach some large cash level for payoff but rather commit extra to principal every month to pay it off early, if that's your best option/goal. Getting money into tax advantaged space might be a higher priority. (I might also suspect that getting money into the Roth, via the backdoor method, and having tax free gains is better than the quicker payoff of the car loan at 2%.) Good that you are maxing out Thrift plan; the L 2050 seems acceptable given your age and likely employment situation.

{i'll let others delve into the allocation question}

ETA: you didn't mention using an FSA, which might be advantageous for you / assuming you're not in a high deductible plan and using an HSA.

Topic Author
aeaiaea
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Joined: Sat Jun 08, 2019 1:57 pm

Re: First Post! Portfolio Review Needed

Post by aeaiaea » Sun Jun 09, 2019 7:06 am

Thanks for your reply. To follow up on a few items in the last post. 1) I max out my FSA allocation each year. 2) I am still below the limit for property tax deductions under the new tax rules.

With regard to paying down mortgage, we have approx. $500-$1,000 or so of extra cash each month after expenses that could be used to pay down principal while still contributing to taxable account.

Thanks for your input - I would love to hear others' thoughts on the other questions in my post.

OnLevel
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Re: First Post! Portfolio Review Needed

Post by OnLevel » Sun Jun 09, 2019 7:12 am

OP, you probably make too much to be eligible to do a regular roth IRA, but have you considered a backdoor roth? That's $12k (for you and spouse) that you guys can put in an account that'll grow tax-free.

Topic Author
aeaiaea
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Re: First Post! Portfolio Review Needed

Post by aeaiaea » Sun Jun 09, 2019 7:40 am

Yes, I would like to start re-contributing to Roth but as I mentioned above, I would have to do backdoor (which I'll have to review process b/c I've never done it before). Also, b/c my wife has a approx. $25,000 rollover IRA, I'm not sure how this will affect her ability to do backdoor Roth. Advice on these issues would be greatly appreciated.

retiredjg
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Re: First Post! Portfolio Review Needed

Post by retiredjg » Sun Jun 09, 2019 8:28 am

I think your plan is fine. You are saving a lot of money!

The rollover IRA will interfere with your wife doing the back door. But it does not affect you. It might be possible for her to roll her rollover IRA into Her 4003b. You should check that.

The other thing you could do is put more into her 403b and change part of your contributions to Roth TSP. This will accomplish essentially the same thing.

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Nestegg_User
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Re: First Post! Portfolio Review Needed

Post by Nestegg_User » Sun Jun 09, 2019 8:35 am

Just follow the Form 8606 on pro-rata rules, there's lots of threads on that as it's a very common issue on BH. she might be able to roll it into her existing 401k at work (a common way to avoid the pro-rata issue) but in either case it's just a slightly more complicated tax filing (that has to be kept up with until all rollover monies are exhausted.... bit of a pain) but doesn't affect YOUR ability to do so.


Good to see you are using FSA; with a family it's probably expected that something will come up and it's best to have some untaxed monies available.

(we were up in the 33% Fed plus state tax levels before retirement so we know what you might be going through)

Topic Author
aeaiaea
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Re: First Post! Portfolio Review Needed

Post by aeaiaea » Sun Jun 09, 2019 11:59 am

Thanks again for everyone's comments.

A few follow up questions:

1) Does it make sense to switch our Roth funds from 2045 Lifecycle to VTWAX (Vanguard Total World) and then increase my bond exposure in TSP (move from L2050 to L2040 for example)? Also, just to confirm, switching funds within a Roth account is not a taxable event, correct?

2) Overall, and considering FERS pension (high 3 at GS15), how realistic does our plan look with regard to retiring at 57 (would have 30 yrs of service) at that age? Current expenses are approx. $8,000 a month.

Northern Flicker
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Re: First Post! Portfolio Review Needed

Post by Northern Flicker » Sun Jun 09, 2019 12:19 pm

Minor point but I would not hold the total world index fund in a taxable account. If you want to hold the world market cap, that is fine, but you can hold it as separate US and non-US index funds and still not need to rebalance to maintain world market cap.

The disadvantages of commingling them in one fund are:

1. Reduced tax-loss harvesting opportunities if one asset class is under water for your holding period but the other isn’t;

2. Depending in tax bracket, it can be advantageous to get the foreign tax credit by holding non-US equities in taxable space, or it can be advantageous to have the dividend distribution tax drag of non-US equities in tax-deferred space. Tax bracket will change over time, but if you want to change the mix of US and non-US in taxable space, the total world fund will likely make it difficult to do on account of tax consequences from an embedded gain. With separate funds the allocation can be change by redirecting dividends to either fund and by making much smaller withdrawals from one of the funds.

3. Holding a mix of VTI and IXUS is cheaper and more tax-efficient, which will matter as the taxable balance grows.

On the other hand, holding the total world index fund in a taxable account is by no means a disaster.

Topic Author
aeaiaea
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Re: First Post! Portfolio Review Needed

Post by aeaiaea » Mon Jun 10, 2019 6:13 am

Would love to hear others' thoughts on my two questions posed below regarding the funds to hold in Roth and how retirement plan is looking. Thanks!

retiredjg
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Re: First Post! Portfolio Review Needed

Post by retiredjg » Mon Jun 10, 2019 8:10 am

aeaiaea wrote:
Sun Jun 09, 2019 11:59 am
1) Does it make sense to switch our Roth funds from 2045 Lifecycle to VTWAX (Vanguard Total World) and then increase my bond exposure in TSP (move from L2050 to L2040 for example)? Also, just to confirm, switching funds within a Roth account is not a taxable event, correct?
There are many ways to achieve the stock to bond ratio you want. Exchanging target funds into individual funds is fine. This will make more work for you to watch and rebalance but it will also result in a slightly lower cost portfolio.
2) Overall, and considering FERS pension (high 3 at GS15), how realistic does our plan look with regard to retiring at 57 (would have 30 yrs of service) at that age? Current expenses are approx. $8,000 a month.
It may depend on what happens with the market between now and then, but I don't think that goal is unreasonable.

Rus In Urbe
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Re: First Post! Portfolio Review Needed

Post by Rus In Urbe » Mon Jun 10, 2019 8:18 am

There are some great, granular comments here that should be helpful to you!

I just want to say-----BRAVO on the savings rate!

More than any other factor, this will help you amass wealth. :moneybag :moneybag :moneybag
(It constantly amazes me, even on this board, the number of posters who are obsessing about which fund to buy, and when to get into the market, while their savings rate is downright negligible.)

CONGRATS on your very solid progress! Keep it up. :beer
I'd like to live as a poor man with lots of money. ~Pablo Picasso

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ruralavalon
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Re: First Post! Portfolio Review Needed

Post by ruralavalon » Mon Jun 10, 2019 9:01 am

Welcome to the forum :) .

A little more information will be helpful.

What is the approximate size of your investing portfolio?

What is your estimate of the your annual retirement living expenses, net of the pension?

Is he making Roth or traditional contributions to the TSP?

Does her 403b plan permit Roth contributions?

How much (in dollars) is the full match in the his TSP plan?

How much (in dollars) full match in her 403b?

About how many years left on your mortgage note at your current rate of payments?

About how many years left on the student debt if you don't increase your payments?

What other funds are offered in her 403b plan? Please give fund names, tickers and expense ratios.

Please simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot of all of your information is In one place.


aeaiaea wrote:
Sat Jun 08, 2019 9:55 pm
. . . . .

Debt: mortgage - $489,000 30 yr @ 4.125%; student loan $42,500 @ 2% fixed
Tax Filing Status: MFJ
Tax Rate: 24% Federal, 0% State
Age: 38
. . . . .

. . . . .
Contributions

New annual Contributions
$19,000 in TSP (+ full match)
$1,300 her 403b (+ 3% match)
$6,500 taxable
$12,000 in 529s


Questions:
1) How are things looking? Any general advice?
In general I would try to pay off all debt by the time of retirement.

In general I would try to maximize contributions to her 403b account if the funds offered in the plan are good with low expense ratios.

In general because of the pension Roth contributions will likely be better than traditional contributions. For most people traditional 401k contributions will likely be better, but the pension alters the case.

The income tax code is progressive, with a lower tax rate for lower income. Retirement usually means that employment income has ended. Therefore, most people are in a lower tax bracket in retirement and for most people traditional 401k contributions will probably be better. In addition when you withdraw from your 401k in retirement, your income is not all taxed at your marginal tax rate specified for your tax bracket. TFB blog post, "The case against Roth 401k". "I think for most people the majority, if not 100%, of the contribution should go to a Traditional 401(k)."

"Until you know you can generate from your Traditional 401(k) enough income to fill the lower brackets, it doesn’t make sense to contribute to a Roth 401(k). For people without a traditional defined benefit pension plan, it means the majority of the retirement savings should go to a Traditional 401(k), not Roth."

A pension changes that analysis, so that Roth contributions are likely better if you have a significant pension coming in addition to Social Security. TFB blog post, "Most TSP participants should switch to the Roth TSP".

Wiki article, "Traditional vs Roth".
"Tax considerations:
* If your current marginal tax rate is 15% or less, prefer a Roth.
* If you expect to have higher marginal rates than your current marginal rate for most of your career, prefer a Roth.
* If you will have a traditional account or a pension large enough to meet your expected retirement expenses (and you expect to take that pension shortly after retiring), prefer a Roth.
* Otherwise, prefer a traditional account."


aeaiaea wrote:
Sat Jun 08, 2019 9:55 pm
2) One goal is to retire with FERS pension at approx. age 57. I'm thinking of dialing back 529 contributions (kids have 10-12 yrs before college but I would like to contribute approx. half of state school tuition for them) and start maxing both our Roths.
If good funds with low expense ratios are offered in her 403b plan, then my suggestion is to stop 529 contributions and increase contributions to her 403b plan.

College expenses will start at your age 48, then you might be able to reduce retirement contributions and pay college expenses from cash flow.


aeaiaea wrote:
Sat Jun 08, 2019 9:55 pm
At our income level, we are close to limit so will have to door backdoor which I haven't done before. Also, not sure how to handle wife's rollover IRA with regard to her Roth backdoor.
If good funds with low expense ratios are offered in her 403b plan, then she should transfer her traditional rollover IRA into her 403b.


aeaiaea wrote:
Sat Jun 08, 2019 9:55 pm
I also think it may not be optimal to have bonds in Roth - maybe I should switch to Vanguard Total World Stock Fund for Roths and increase bonds in TSP?
I don't see any significant harm in using the different balanced funds in every tax-advantaged account, as you are doing. That certainly makes things very simple and easy to manage, all you have to do is make contributions.

The balanced funds being used in the Roth IRAs have only 10% in bonds.

You won't improve much by having pure stock funds in the Roth IRAs, and switching to the F Fund or the G Fund in the TSP.



aeaiaea wrote:
Sat Jun 08, 2019 9:55 pm
2) Started investing in taxable account to give me flexibility. But once the value of the taxable account hits the level of an average new car, I will look to possibly pay down some debt. Mortgage probably makes more sense than student loan based on interest rates. Thoughts?
I would address the mortgage versus student debt issue, based on what it requires to get both paid off by the time rettirement.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Tucker50
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Re: First Post! Portfolio Review Needed

Post by Tucker50 » Mon Jun 10, 2019 8:11 pm

Have you considered switching his TSP contributions to Roth TSP?

Topic Author
aeaiaea
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Re: First Post! Portfolio Review Needed

Post by aeaiaea » Mon Jun 10, 2019 9:58 pm

Thanks for everyone's input - very much appreciated. I added in the extra information that ruralavalon suggested to my original post.

The one concern I have about her 403(b) is that the specific account that holds her current fund product is labeled as an "annuity." I'll have to look into this as I'm not sure what this means exactly.

Based on the suggestions, it seems like the following plan might be a good path:

1) reduce total 529 contributions to $500/month and stop contributions to taxable
2) this will free up $12,000 per year I can funnel to Roth IRAs via backdoor
3) BUT this depends on whether I should move her rollover IRA to her 403(b). Advice on whether this would be a wise move in light of available funds, the "annuity" issue noted above, etc.

After reading up on traditional vs. Roth options in TSP, I think I will try to get the best of both worlds by maxing out trad TSP and start contributing to Roth IRA via backdoor.

retiredjg
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Re: First Post! Portfolio Review Needed

Post by retiredjg » Tue Jun 11, 2019 6:46 am

aeaiaea wrote:
Mon Jun 10, 2019 9:58 pm
e
2) this will free up $12,000 per year I can funnel to Roth IRAs via backdoor
3) BUT this depends on whether I should move her rollover IRA to her 403(b). Advice on whether this would be a wise move in light of available funds, the "annuity" issue noted above, etc.
YOu already know the cost of the fund in the 403b - it is .14% based on what you posted. First, is that the cost specific to her plan or did you just take the cost off the internet site that is available to all buyers? It must be the cost in her plan.

Second, is it the only cost? The other thing about 403b plans is they often have additional fees that apply to all funds, in addition to the fund fees. If her plan has a high additional fee, you might not want to put the rollover IRA in there too.

Edited....in fact, from the list, the cost of her fund VANGUARD LIFESTRATEGY GROWTH Vanguard is 1.39%. It would give me pause to roll her rollover iRA into that.

retiredjg
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Re: First Post! Portfolio Review Needed

Post by retiredjg » Tue Jun 11, 2019 7:02 am

It appears you will likely have a pension and it will be a pretty healthy one at GS 15. Will your spouse also have a pension?

Having a pension should argue for putting more into Rothness than a person without a pension. Having 2 pensions would mean using Roth even more.

I think you should consider using some Roth TSP in addition to Roth IRA. I think your wife should get the match in her 403b and put her "Roth IRA money" into taxable. You are not going to need a large tax-deferred account in retirement so I would not fill her 403b at that cost unless she plans to stay at that job for a limited number of years.

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ruralavalon
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Re: First Post! Portfolio Review Needed

Post by ruralavalon » Tue Jun 11, 2019 8:30 am

Here are some partial answers, and a few additional questions.

aeaiaea wrote:
Mon Jun 10, 2019 9:58 pm
Thanks for everyone's input - very much appreciated. I added in the extra information that ruralavalon suggested to my original post.

The one concern I have about her 403(b) is that the specific account that holds her current fund product is labeled as an "annuity." I'll have to look into this as I'm not sure what this means exactly.

Based on the suggestions, it seems like the following plan might be a good path:

1) reduce total 529 contributions to $500/month and stop contributions to taxable
2) this will free up $12,000 per year I can funnel to Roth IRAs via backdoor
3) BUT this depends on whether I should move her rollover IRA to her 403(b). Advice on whether this would be a wise move in light of available funds, the "annuity" issue noted above, etc.

After reading up on traditional vs. Roth options in TSP, I think I will try to get the best of both worlds by maxing out trad TSP and start contributing to Roth IRA via backdoor.
1) With those high expense ratios in her 403b, she should contribute just enough ($1.3k annually) to get the employer match, unless she will be leaving that employer soon.

About how long might she be staying with that employer?

2) With those high expense ratios in her 403b she should NOT transfer her traditional rollover IRA into her 403b.

So she will not be able to do a backdoor Roth IRA.

3) He should start doing a backdoor Roth IRA ($6k annually).

4) Some or all of his TSP contributions should be switched to Roth contributions.

Will she also have a significant pension from her job?

5) This will leave around $6-12k annually for paying off debt or other retirement investing.

Given retirement savings "total: $464,000", your desire to retire at age 57, and your estimate of "annual expenses net of pension should be approx. $70k" you may need more retirement investing, and it is also important to pay off some debt in my opinion.

About how much principal on your student debt would you have to pay off now, in order to have it entirely paid off before your oldest child starts college?

How much would you need to increase your monthly mortgage payment, in order to have the mortgage entirely paid off by the by time you oldest child starts college?

How much would you need to increase your monthly mortgage payment, in order to have the mortgage entirely paid off by the by time you reach age 57?



aeaiaea wrote:
Sat Jun 08, 2019 9:55 pm
Debt: mortgage - $489,000 30 yr @ 4.125% (28.5 yrs left); student loan $42,500 @ 2% fixed (a little under 12 yrs left.
. . . . .
TSP/403(b)/Roth/Rollover IRA/Taxable total: $464,000
. . . . .
New annual Contributions
$19,000 in TSP (+ $7,200 match) - All TSP holdings and contributions going to traditional, non-Roth contributions.
$1,300 her 403b (+ $1,300 match - this is max for match) - Her plan permits Roth contributions.
$6,500 taxable
$12,000 in 529s
aeaiaea wrote:
Sat Jun 08, 2019 9:55 pm
2) One goal is to retire with FERS pension at approx. age 57. This is a bit hard to gauge, but annual expenses net of pension should be approx. $70k. Pension amount approx. $35k-$40k per year. I'm thinking of dialing back 529 contributions (kids have 10-12 yrs before college but I would like to contribute approx. half of state school tuition for them) and start maxing both our Roths. At our income level, we are close to limit so will have to door backdoor which I haven't done before. Also, not sure how to handle wife's rollover IRA with regard to her Roth backdoor. I also think it may not be optimal to have bonds in Roth - maybe I should switch to Vanguard Total World Stock Fund for Roths and increase bonds in TSP?

2) Started investing in taxable account to give me flexibility. But once the value of the taxable account hits the level of an average new car, I will look to possibly pay down some debt. Mortgage probably makes more sense than student loan based on interest rates. Thoughts?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Northern Flicker
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Re: First Post! Portfolio Review Needed

Post by Northern Flicker » Wed Jun 12, 2019 12:55 pm

The one concern I have about her 403(b) is that the specific account that holds her current fund product is labeled as an "annuity." I'll have to look into this as I'm not sure what this means exactly.
Definitely follow up with the plan administrator for due diligence but I believe it is just the type of legal structure used for the plan. It would likely mean that the plan and its investments are regulated by the state insurance regulators rather than the SEC and/or US Dept of Labor. Most likely it is structured that way because the provider is an insurance company.

Topic Author
aeaiaea
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Re: First Post! Portfolio Review Needed

Post by aeaiaea » Thu Jun 13, 2019 9:14 pm

Many, many thanks to all of those who took the time to provide guidance and answers. Here are some answers to the questions posed below. Any follow up advice or comments would be most welcome.

1) With those high expense ratios in her 403b, she should contribute just enough ($1.3k annually) to get the employer match, unless she will be leaving that employer soon.

About how long might she be staying with that employer?

For at least another 10-15 years.

3) He should start doing a backdoor Roth IRA ($6k annually).

Agreed! Will have to examine the Bogleheads Backdoor Roth Wiki to fully understand the process.

4) Some or all of his TSP contributions should be switched to Roth contributions.

I'm a bit reluctant to switch some of my TSP contributions to Roth. I think I'll keep them as is and do the backdoor Roth.

Will she also have a significant pension from her job?

No pension at her job.

5) This will leave around $6-12k annually for paying off debt or other retirement investing.

About how much principal on your student debt would you have to pay off now, in order to have it entirely paid off before your oldest child starts college?

I have approx. 9 years before oldest would hit college age. Total outstanding is $42,500 at 2%, with payment at $298/mo. I could pay it off in 9 years if I upped payment to approx. $400/mo. I hesitate to pay this down early due to low locked rate. I feel fairly confident I would be able to beat this by investing in the market. Having the loan causes me no lost sleep.

How much would you need to increase your monthly mortgage payment, in order to have the mortgage entirely paid off by the by time you oldest child starts college?

A lot. Total outstanding is $489,000 at 4.125%. Monthly principal and interest is approx. $2,400, with about $750 going to principal and remainder to interest. Only 28.5 yrs into 30 year loan.

How much would you need to increase your monthly mortgage payment, in order to have the mortgage entirely paid off by the by time you reach age 57?

This might be more manageable, though I haven't run the numbers on how much more I would have to pay toward principal to pay it off in 18 years instead of 28.5.

I think I am going to slightly reduce the yearly contributions to 529s to $8,400, reduce taxable to $3,600 (this is basically the next car fund), and then use the extra $6,000 for the backdoor Roth. Any found money will be used to pay down mortgage principal.

Northern Flicker
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Re: First Post! Portfolio Review Needed

Post by Northern Flicker » Thu Jun 13, 2019 11:14 pm

1) With those high expense ratios in her 403b, she should contribute just enough ($1.3k annually) to get the employer match, unless she will be leaving that employer soon.

About how long might she be staying with that employer?

For at least another 10-15 years.

3) He should start doing a backdoor Roth IRA ($6k annually).

Agreed! Will have to examine the Bogleheads Backdoor Roth Wiki to fully understand the process.
If you do the backdoor Roth you will want to be sure you have no other traditional IRA assets other than the after-tax contribution that will be converted to Roth. Your spouses rollover IRA would be such an asset. While it could be rolled into the 403b to address that issue, it could mean moving that asset into the much higher fee 403b. Rather than making Roth contributions to TSP you could equivalently concert that rollover IRA to a Roth IRA, doing it in pieces to spread over more tax years as necessary to ensure it does not get taxed in a higher marginal bracket. This is equivalent to doing a Roth TSP contribution in that contributing $1 to Roth TSP is equivalent to contributing that $1 tax-deferred and converting $1 from the rollover IRA to Roth.

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aeaiaea
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Re: First Post! Portfolio Review Needed

Post by aeaiaea » Sat Jun 15, 2019 11:56 am

**UPDATE**

Based on everyone's thoughtful advice, I made the changes to my contributions going forward. Any last comments or advice based on the following?

New annual Contributions:

$19,000 in TSP (+ $7,200 match) to L2050 fund .04% - 82/18 split - 31% int. (traditional, not Roth TSP)
$1,300 her 403b (+ $1,300 match) to Vanguard LifeStrategy Growth fund 1.39% 80/20 - 31% int.
$6,000 to his Roth via backdoor to Vanguard Total Retirement 2045 - 0.15% - 90-10 - 35% int.
$3,600 taxable to Vanguard Total World Stock Index Fun - Admiral Shares - 0.1% - 100% stock - 42% int.
$8,400 total split between both 529s to Vanguard Age-Based Plans
Last edited by aeaiaea on Sat Jun 15, 2019 1:53 pm, edited 1 time in total.

retiredjg
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Re: First Post! Portfolio Review Needed

Post by retiredjg » Sat Jun 15, 2019 12:10 pm

Looks ok other than remembering that is not the ER for the LS fund in Her 403b :(

cherijoh
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Re: First Post! Portfolio Review Needed

Post by cherijoh » Sat Jun 15, 2019 12:43 pm

retiredjg wrote:
Sun Jun 09, 2019 8:28 am
I think your plan is fine. You are saving a lot of money!

The rollover IRA will interfere with your wife doing the back door. But it does not affect you. It might be possible for her to roll her rollover IRA into Her 4003b. You should check that.

The other thing you could do is put more into her 403b and change part of your contributions to Roth TSP. This will accomplish essentially the same thing.
Did you notice the fees on her 403b? Yikes! I wonder if the better option in the long run might not be to stop contributing to taxable and use that money to pay the extra taxes to bite the bullet convert her rollover IRA to Roth (possibly over the next couple of years) that would free her up to do a clean backdoor Roth in the future. She could still make the non-deductible for 2019 but then also convert some of the deductible portion so a bit of the conversion would be tax-free.

I would also recommend looking at moving her Rollover IRA to 100% bond fund and switching out of a TR fund in a Roth IRA. That way the Rollover IRA will grow less and the Roth will grow more.

cherijoh
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Re: First Post! Portfolio Review Needed

Post by cherijoh » Sat Jun 15, 2019 1:34 pm

aeaiaea wrote:
Thu Jun 13, 2019 9:14 pm

How much would you need to increase your monthly mortgage payment, in order to have the mortgage entirely paid off by the by time you oldest child starts college?

A lot. Total outstanding is $489,000 at 4.125%. Monthly principal and interest is approx. $2,400, with about $750 going to principal and remainder to interest. Only 28.5 yrs into 30 year loan. <-- I believe you mean that you are 1.5 years into your 30-yr mortgage, not 28.5 :wink:


How much would you need to increase your monthly mortgage payment, in order to have the mortgage entirely paid off by the by time you reach age 57?

This might be more manageable, though I haven't run the numbers on how much more I would have to pay toward principal to pay it off in 18 years instead of 28.5. <-- At this point in your mortgage an extra principal payment will jump you ahead a good bit in the amortization schedule. It doesn't have be the same amount every month.


I think I am going to slightly reduce the yearly contributions to 529s to $8,400, reduce taxable to $3,600 (this is basically the next car fund) <-- I wouldn't recommend investing money you plan to use within the next few years
Another potential future option would be to see if your lender would allow you to recast your mortgage. You could make extra principal payments as it is possible, then when the kids are in college and you need extra cash flow you could (if lender allows) recast the mortgage to a lower payment amount going forward. With recast you keep the same 30-yr term and interest rate but recalculate the monthly payment to get you back to the point where you would pay in off in the same # of months as remaining on the mortgage.

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aeaiaea
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Re: First Post! Portfolio Review Needed

Post by aeaiaea » Sat Jun 15, 2019 1:58 pm

Did you notice the fees on her 403b? Yikes! I wonder if the better option in the long run might not be to stop contributing to taxable and use that money to pay the extra taxes to bite the bullet convert her rollover IRA to Roth (possibly over the next couple of years) that would free her up to do a clean backdoor Roth in the future. She could still make the non-deductible for 2019 but then also convert some of the deductible portion so a bit of the conversion would be tax-free.

Over how many years would you recommend to minimize the tax hit? Would vanguard be able to assist with this process?

I would also recommend looking at moving her Rollover IRA to 100% bond fund and switching out of a TR fund in a Roth IRA. That way the Rollover IRA will grow less and the Roth will grow more.
[/quote]

So, you recommend switching out of the target date funds in both Roths and into something like a VTWAX or VTSAX/VTIAX? If I am going to slowly roll the Rollover IRA into Roth, I guess I need to up my bond allocation elsewhere - perhaps going to L2040 in TSP from L2050?

retiredjg
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Re: First Post! Portfolio Review Needed

Post by retiredjg » Sat Jun 15, 2019 2:31 pm

cherijoh wrote:
Sat Jun 15, 2019 12:43 pm
Did you notice the fees on her 403b? Yikes!...
Yes. Information about that got added and changed and then my recommendation changed. :happy

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aeaiaea
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Re: First Post! Portfolio Review Needed

Post by aeaiaea » Sat Jun 15, 2019 3:23 pm

Thanks for pointing that out! :sharebeer

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ruralavalon
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Re: First Post! Portfolio Review Needed

Post by ruralavalon » Sat Jun 15, 2019 6:25 pm

How much would you need to increase your monthly mortgage payment, in order to have the mortgage entirely paid off by the by time you oldest child starts college?

A lot. Total outstanding is $489,000 at 4.125%. Monthly principal and interest is approx. $2,400, with about $750 going to principal and remainder to interest. Only 28.5 yrs into 30 year loan.

How much would you need to increase your monthly mortgage payment, in order to have the mortgage entirely paid off by the by time you reach age 57?

This might be more manageable, though I haven't run the numbers on how much more I would have to pay toward principal to pay it off in 18 years instead of 28.5.
I suggest looking into refinancing to a 10 fixed rate mortgage, both to get a better interest rate and to zero out the debt around the time that college expenses start.

I suggest looking into refinancing to a 20 fixed rate mortgage, both to get a better interest rate and to zero out the debt around the time that retirement starts.

Given retirement savings "total: $464,000", your desire to retire at age 57 (19 years), and your estimate of "annual expenses net of pension should be approx. $70k" you may need more retirement investing, and it is also important to pay off some debt in my opinion.

Here are calculators you can use to assess the range of possible outcomes at different contribution rates:
1) www.firecalc.com; and
2) www.i-orp.com.

I suggest taking a close look at your spending and budget to accomplish some of this.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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aeaiaea
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Re: First Post! Portfolio Review Needed

Post by aeaiaea » Tue Jun 18, 2019 6:46 pm

**UPDATE #2**

I've being doing a lot more research and have considered everyone's comments and advice. How does my revised plan (below) look to everyone? Thanks in advance! Also, a few questions are thrown in below for those who'd like to continue to chime in. Again, to everyone, thanks!

New annual Contributions:

$19,000 in TSP (+ $7,200 match) to L2050 fund .04% - 82/18 split - 31% int. (traditional, not Roth TSP)
$1,300 her 403b (+ $1,300 match) to Vanguard LifeStrategy Growth fund 1.39% 80/20 - 31% int.
$6,000 to his Roth via backdoor to Vanguard Total Retirement 2045 - 0.15% - 90-10 - 35% int.
$8,400 total split between both 529s to Vanguard Age-Based Plans
$3,600 toward extra mortgage principal payments (in lieu of continuing to invest in VTWAX in taxable)

Questions:

1) If I convert my wife's $25k rollover IRA into her existing Roth, how should I best go about this? A bit each year? If so, how much? Would like to get it all into her Roth so I can start doing backdoor Roths for her.

2) For efficiency, is it that big of a drag to leave our Roths invested in TD 2045 (10% bonds). Or better to change to VTWAX or VTSAX/VTIAX? This change would not be a taxable event, correct?

3) Assuming I switch out of TD 2045 (see above), what would be the best way to increase bond exposure? Add some in TSP? Or is plan to pay down mortgage a type of negative bond exposure? Perhaps additional bond exposure isn't needed if I am interested in keeping a 80/20 or 85/15 split.

ExitStageLeft
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Re: First Post! Portfolio Review Needed

Post by ExitStageLeft » Tue Jun 18, 2019 7:40 pm

aeaiaea wrote:
Tue Jun 18, 2019 6:46 pm
1) If I convert my wife's $25k rollover IRA into her existing Roth, how should I best go about this? A bit each year? If so, how much? Would like to get it all into her Roth so I can start doing backdoor Roths for her.
The taxes for doing it all in one year will be about the same as making a $6k contribution. I think I'd do it in one fell swoop and be done with it.
aeaiaea wrote:
Tue Jun 18, 2019 6:46 pm
2) For efficiency, is it that big of a drag to leave our Roths invested in TD 2045 (10% bonds). Or better to change to VTWAX or VTSAX/VTIAX? This change would not be a taxable event, correct?

3) Assuming I switch out of TD 2045 (see above), what would be the best way to increase bond exposure? Add some in TSP? Or is plan to pay down mortgage a type of negative bond exposure? Perhaps additional bond exposure isn't needed if I am interested in keeping a 80/20 or 85/15 split.
It doesn't really take all that much to monitor and re-balance a three-fund portfolio, so you may as well pivot from having the target date fund manager doing the work to you doing it. The reward is a simple, understandable portfolio. I would have all the bonds and international in the TSP. Everything else gets a total market stock fund or S&P 500 index fund. The balance of the TSP is a 4:1 mix of C and S funds.

Stick with the plan to pay down the mortgage some. I wouldn't tweak the assset allocation though. Stick with 80/20 or what works for you so you can sleep well at night.

HomeStretch
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Re: First Post! Portfolio Review Needed

Post by HomeStretch » Tue Jun 18, 2019 8:09 pm

aeaiaea wrote:
Tue Jun 18, 2019 6:46 pm
1) If I convert my wife's $25k rollover IRA into her existing Roth, how should I best go about this? A bit each year? If so, how much? Would like to get it all into her Roth so I can start doing backdoor Roths for her.
Assuming your marginal federal rate will be 24% for the next few years, I would convert the entire amount this year unless the additional income puts you over the 3.8% net investment income threshold ($250k MFJ) or into the next tax bracket.

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aeaiaea
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Re: First Post! Portfolio Review Needed

Post by aeaiaea » Wed Jun 19, 2019 8:00 am

Thank you for the guidance and advice!

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