TSP and Vanguard allocation review

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Topic Author
rinalee
Posts: 6
Joined: Tue Nov 05, 2019 1:02 pm

TSP and Vanguard allocation review

Post by rinalee » Wed Nov 06, 2019 1:14 pm

Hi, we're in retirement (60 and 62) and currently trying to adjust our asset allocation. If we're targetting 40/60 (stock/bond), would something like below be a good mix? Any suggestions? The total asset is $600K ($400 in tsp and $200 in Vanguard taxable account). We do plan on withdrawing about $2500 for extra monthly income. Thank you.

G Fund 50%
Vanguard Total Bond Market Index Fund 10%
Vanguard Total Stock Market Index Fund 16%
Vanguard Total International Market Index Fund 14%
C Fund 8%
S Fund 2%

lakpr
Posts: 2854
Joined: Fri Mar 18, 2011 9:59 am

Re: TSP and Vanguard allocation review

Post by lakpr » Wed Nov 06, 2019 1:20 pm

Any reason not to consider going full bore Vanguard or full bore TSP? With two accounts, you will have two separate RMDs that must be computed and taken from two different sources. It might be an annoyance or a major inconvenience, as RMDs do not begin until age 70.5 (and possibly 72 based on Congress actions), at a time when presumably your faculties aren't sharper than they are now.

That said, my only comment is to allocate more to Vanguard Total Bond Market Index (say 30%), with the extra funds coming from G fund (reduce to 30%).

retiredjg
Posts: 38255
Joined: Thu Jan 10, 2008 12:56 pm

Re: TSP and Vanguard allocation review

Post by retiredjg » Wed Nov 06, 2019 1:34 pm

rinalee wrote:
Wed Nov 06, 2019 1:14 pm
Hi, we're in retirement (60 and 62) and currently trying to adjust our asset allocation. If we're targetting 40/60 (stock/bond), would something like below be a good mix? Any suggestions? The total asset is $600K ($400 in tsp and $200 in Vanguard taxable account). We do plan on withdrawing about $2500 for extra monthly income. Thank you.

G Fund 50%
Vanguard Total Bond Market Index Fund 10%
Vanguard Total Stock Market Index Fund 16%
Vanguard Total International Market Index Fund 14%
C Fund 8%
S Fund 2%
I think your allocation is fine but your withdrawal rate seems to be pretty high at 5%. There is a good chance you will not be able to withdraw that much for a very long time. Is that $2,500 going to be reduced later on, say when SS starts?

You have several years to determine if you want to consolidate your accounts before RMDs start. I don't see any reason to change anything at this point unless you just want to.

I will start RMDs soon from both the TSP and Vanguard. If I don't like how it works, I'll figure something else out.

Makefile
Posts: 74
Joined: Fri Apr 22, 2016 11:03 pm

Re: TSP and Vanguard allocation review

Post by Makefile » Wed Nov 06, 2019 1:41 pm

lakpr wrote:
Wed Nov 06, 2019 1:20 pm
Any reason not to consider going full bore Vanguard or full bore TSP? With two accounts, you will have two separate RMDs that must be computed and taken from two different sources. It might be an annoyance or a major inconvenience, as RMDs do not begin until age 70.5 (and possibly 72 based on Congress actions), at a time when presumably your faculties aren't sharper than they are now.

That said, my only comment is to allocate more to Vanguard Total Bond Market Index (say 30%), with the extra funds coming from G fund (reduce to 30%).
The OP said a taxable account at Vanguard - no RMDs.

lakpr
Posts: 2854
Joined: Fri Mar 18, 2011 9:59 am

Re: TSP and Vanguard allocation review

Post by lakpr » Wed Nov 06, 2019 1:44 pm

Makefile wrote:
Wed Nov 06, 2019 1:41 pm
lakpr wrote:
Wed Nov 06, 2019 1:20 pm
Any reason not to consider going full bore Vanguard or full bore TSP? With two accounts, you will have two separate RMDs that must be computed and taken from two different sources. It might be an annoyance or a major inconvenience, as RMDs do not begin until age 70.5 (and possibly 72 based on Congress actions), at a time when presumably your faculties aren't sharper than they are now.

That said, my only comment is to allocate more to Vanguard Total Bond Market Index (say 30%), with the extra funds coming from G fund (reduce to 30%).
The OP said a taxable account at Vanguard - no RMDs.
AH, thanks for setting me right. Sorry I skipped right through that ...

rkhusky
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Joined: Thu Aug 18, 2011 8:09 pm

Re: TSP and Vanguard allocation review

Post by rkhusky » Wed Nov 06, 2019 2:14 pm

rinalee wrote:
Wed Nov 06, 2019 1:14 pm
Hi, we're in retirement (60 and 62) and currently trying to adjust our asset allocation. If we're targetting 40/60 (stock/bond), would something like below be a good mix? Any suggestions? The total asset is $600K ($400 in tsp and $200 in Vanguard taxable account). We do plan on withdrawing about $2500 for extra monthly income. Thank you.

G Fund 50%
Vanguard Total Bond Market Index Fund 10%
Vanguard Total Stock Market Index Fund 16%
Vanguard Total International Market Index Fund 14%
C Fund 8%
S Fund 2%
I suggest pulling your $2500/mo from the taxable account.

You should also transfer some of the TSP to a Vanguard Traditional IRA and then do a Roth conversion to a Roth IRA, at least to the top of the 10% bracket ($43,800, with the first $24,400 taxed at 0%) and maybe into the 12% bracket (up to $103,350). If the latter, you would want to make sure your total income + dividends + interest + capital gains did not go over $103,350, so that all your cap gains, realized by selling from the taxable account, are taxed at 0%. (To see if converting in the 12% bracket would be worthwhile, you would need to see what your retirement taxation with SS and RMD's would look like)

It is more tax efficient to have stocks in your taxable account, so you might want to use up the Total Bond Market allocation first. I wouldn't adjust your asset allocation in the taxable account, but just pull from Total Bond and adjust in the TSP by moving from the C Fund to the G Fund. I also would not keep that small allocation to the S Fund, the C Fund is good enough. And if you decide to do Roth conversions you could hold Total Stock in the Roth IRA, which would give you more small cap stocks.

Definitely want to take advantage of $24,400 of income, taxed at 0%, and long term taxable gains, taxed at 0%.

Topic Author
rinalee
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Joined: Tue Nov 05, 2019 1:02 pm

Re: TSP and Vanguard allocation review

Post by rinalee » Thu Nov 07, 2019 10:50 am

Thank you for your suggestions. They are very helpful. Is there advantage mixing up bonds and stocks between the IRA and taxable account? What is your thought on going all bonds in TSP and all stocks in the taxable account (for simplicity)? Would this change from which I should withdraw $2500?

G Fund 60%
Vanguard Total Stock Market Index Fund 26%
Vanguard Total International Market Index Fund 14%

I will also further look into Roth conversion. Thank you!

retiredjg
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Re: TSP and Vanguard allocation review

Post by retiredjg » Thu Nov 07, 2019 11:15 am

You need both stocks and bonds in one of the accounts so you can rebalance. My choice has been to be all bonds in the TSP and hold all the asset classes in IRA/Roth IRA.

HomeStretch
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Re: TSP and Vanguard allocation review

Post by HomeStretch » Thu Nov 07, 2019 11:30 am

rinalee wrote:
Thu Nov 07, 2019 10:50 am
Is there advantage mixing up bonds and stocks between the IRA and taxable account?
As posted above it is more tax efficient to hold your bonds in a tax deferred account (that you can rebalance in).

Here is a link to the BH wiki page on “Tax-Efficient Fund Placement”:
https://www.bogleheads.org/wiki/Tax-eff ... _placement

HeelaMonster
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Re: TSP and Vanguard allocation review

Post by HeelaMonster » Thu Nov 07, 2019 4:07 pm

rkhusky wrote:
Wed Nov 06, 2019 2:14 pm

You should also transfer some of the TSP to a Vanguard Traditional IRA and then do a Roth conversion to a Roth IRA, at least to the top of the 10% bracket ($43,800, with the first $24,400 taxed at 0%) and maybe into the 12% bracket (up to $103,350). If the latter, you would want to make sure your total income + dividends + interest + capital gains did not go over $103,350, so that all your cap gains, realized by selling from the taxable account, are taxed at 0%. (To see if converting in the 12% bracket would be worthwhile, you would need to see what your retirement taxation with SS and RMD's would look like)
Good, clear description... and I plan to do exactly that on an annual basis, over next several years. But I do have a few related questions:

1. The first sentence above describes a "two-step" process, from TSP to VG Traditional IRA, and from there to Roth IRA. I have gotten mixed messages on that, with some indications that two-step is preferred (or perhaps even required), but other indications that I can do a direct rollover from TSP to VG Roth IRA. QUESTION: Is that two-step conversion process preferred... and why, if direct rollover to Roth is possible to accomplish, with only one-step?

2. Notwithstanding my interest in the one-step direct process (TSP to Roth IRA), I do plan to use the two-step. But here's my dilemma for the near term. There are several factors that will make it difficult for me to accurately predict how much I can transfer/convert, while staying within the desired bracket. These include first year in retirement (i.e., not enough practice yet!), wife still working, rental income in flux, capital gains and dividends all over the place and hard to predict, moving and consolidating several accounts, etc, etc. I expect this will be easier in coming years, as I gain experience and settle into a rhythm, but next year will be more touch-and-go. Specifically, I envision that I may have to do Roth conversions in a couple installments, with the final one late in the year, edging me up toward the top of bracket (without going over). QUESTION: I was thinking about transferring an amount from TSP into VG Traditional IRA that was sufficiently large to cover anything I might possibly want to convert for the year, providing some buffer but maintaining the tax-deferred status. That Traditional IRA then serves as source for any conversions I might want to make, without going back to TSP (this also avoids the difficulties I see people encountering with too many TSP withdrawals). Once Trad IRA is depleted, I can reload from the TSP. Does anyone see problems with that approach, assuming I don't need that Traditional IRA space for anything else?

retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: TSP and Vanguard allocation review

Post by retiredjg » Thu Nov 07, 2019 5:05 pm

HeelaMonster wrote:
Thu Nov 07, 2019 4:07 pm
1. The first sentence above describes a "two-step" process, from TSP to VG Traditional IRA, and from there to Roth IRA. I have gotten mixed messages on that, with some indications that two-step is preferred (or perhaps even required), but other indications that I can do a direct rollover from TSP to VG Roth IRA. QUESTION: Is that two-step conversion process preferred... and why, if direct rollover to Roth is possible to accomplish, with only one-step?
Until about 7 weeks ago, one could only do 1 transfer out of the TSP - you could not just take $3k this month and $0 next month. The solution for many of us was to make one large rollover and then convert to Roth on your own time table.

Another reason to use two steps is that the TSP is clunky and requires special paper forms, etc. When I tried to do a rollover from TSP to Roth IRA recently, withholding taxes from the TSP, it was just awkward. It seemed to work ok if you are going to pay taxes out of savings, not the TSP.


QUESTION: I was thinking about transferring an amount from TSP into VG Traditional IRA that was sufficiently large to cover anything I might possibly want to convert for the year, providing some buffer but maintaining the tax-deferred status. That Traditional IRA then serves as source for any conversions I might want to make, without going back to TSP (this also avoids the difficulties I see people encountering with too many TSP withdrawals). Once Trad IRA is depleted, I can reload from the TSP. Does anyone see problems with that approach, assuming I don't need that Traditional IRA space for anything else?
This is probably the best approach for you.

HeelaMonster
Posts: 105
Joined: Sat Aug 10, 2019 11:46 am

Re: TSP and Vanguard allocation review

Post by HeelaMonster » Thu Nov 07, 2019 7:14 pm

retiredjg wrote:
Thu Nov 07, 2019 5:05 pm
HeelaMonster wrote:
Thu Nov 07, 2019 4:07 pm
1. The first sentence above describes a "two-step" process, from TSP to VG Traditional IRA, and from there to Roth IRA. I have gotten mixed messages on that, with some indications that two-step is preferred (or perhaps even required), but other indications that I can do a direct rollover from TSP to VG Roth IRA. QUESTION: Is that two-step conversion process preferred... and why, if direct rollover to Roth is possible to accomplish, with only one-step?
Until about 7 weeks ago, one could only do 1 transfer out of the TSP - you could not just take $3k this month and $0 next month. The solution for many of us was to make one large rollover and then convert to Roth on your own time table.

Another reason to use two steps is that the TSP is clunky and requires special paper forms, etc. When I tried to do a rollover from TSP to Roth IRA recently, withholding taxes from the TSP, it was just awkward. It seemed to work ok if you are going to pay taxes out of savings, not the TSP.
QUESTION: I was thinking about transferring an amount from TSP into VG Traditional IRA that was sufficiently large to cover anything I might possibly want to convert for the year, providing some buffer but maintaining the tax-deferred status. That Traditional IRA then serves as source for any conversions I might want to make, without going back to TSP (this also avoids the difficulties I see people encountering with too many TSP withdrawals). Once Trad IRA is depleted, I can reload from the TSP. Does anyone see problems with that approach, assuming I don't need that Traditional IRA space for anything else?
This is probably the best approach for you.
Thanks! All makes sense. Yours is far from the only report of TSP clunkiness, despite recent enhancements to withdrawal options.

rkhusky
Posts: 7464
Joined: Thu Aug 18, 2011 8:09 pm

Re: TSP and Vanguard allocation review

Post by rkhusky » Thu Nov 07, 2019 8:24 pm

rinalee wrote:
Thu Nov 07, 2019 10:50 am
I will also further look into Roth conversion. Thank you!
Note that I forgot that you probably have a pension, which should be taken into account in the calculations.

rkhusky
Posts: 7464
Joined: Thu Aug 18, 2011 8:09 pm

Re: TSP and Vanguard allocation review

Post by rkhusky » Thu Nov 07, 2019 8:27 pm

retiredjg wrote:
Thu Nov 07, 2019 5:05 pm
HeelaMonster wrote:
Thu Nov 07, 2019 4:07 pm
1. The first sentence above describes a "two-step" process, from TSP to VG Traditional IRA, and from there to Roth IRA. I have gotten mixed messages on that, with some indications that two-step is preferred (or perhaps even required), but other indications that I can do a direct rollover from TSP to VG Roth IRA. QUESTION: Is that two-step conversion process preferred... and why, if direct rollover to Roth is possible to accomplish, with only one-step?
Until about 7 weeks ago, one could only do 1 transfer out of the TSP - you could not just take $3k this month and $0 next month. The solution for many of us was to make one large rollover and then convert to Roth on your own time table.
Yes, I am not yet used to the ability to pull funds monthly from the TSP. However, even now it is somewhat burdensome to withdraw from the TSP, so you may want to pull a year or two worth of conversions each time. It is sure easier to click a couple buttons on the Vanguard web site and transfer from tIRA to Roth IRA, with the transaction taking place within a day.

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TimeRunner
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Re: TSP and Vanguard allocation review

Post by TimeRunner » Thu Nov 07, 2019 8:35 pm

All the advice from posters upthread is good. I'd just use the TSP to hold the G fund as my complete and total bond allocation, and use external TIRA and Roth IRA accounts to hold equities, with the exception of some amount of money market funds to pull from in the TIRA and Roth IRA as emergency or big purchase money. I wouldn't keep use any other funds in the TSP other than the G fund - instead, transfer that money out to an external TIRA (and consider Roth conversions from that account), because the TSP is still a PITA for withdrawals if you are FERS and have a spouse. Having some money market in each gives you some tax diversification. You can pull IRA money and then as you get into a higher tax bracket, pull any additional money (if you have to) from your Roth tax-free. Happy retirement! :sharebeer
One cannot enlighten the unconscious.

HeelaMonster
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Joined: Sat Aug 10, 2019 11:46 am

Re: TSP and Vanguard allocation review

Post by HeelaMonster » Thu Nov 07, 2019 9:28 pm

rkhusky wrote:
Thu Nov 07, 2019 8:27 pm
retiredjg wrote:
Thu Nov 07, 2019 5:05 pm
HeelaMonster wrote:
Thu Nov 07, 2019 4:07 pm
1. The first sentence above describes a "two-step" process, from TSP to VG Traditional IRA, and from there to Roth IRA. I have gotten mixed messages on that, with some indications that two-step is preferred (or perhaps even required), but other indications that I can do a direct rollover from TSP to VG Roth IRA. QUESTION: Is that two-step conversion process preferred... and why, if direct rollover to Roth is possible to accomplish, with only one-step?
Until about 7 weeks ago, one could only do 1 transfer out of the TSP - you could not just take $3k this month and $0 next month. The solution for many of us was to make one large rollover and then convert to Roth on your own time table.
Yes, I am not yet used to the ability to pull funds monthly from the TSP. However, even now it is somewhat burdensome to withdraw from the TSP, so you may want to pull a year or two worth of conversions each time. It is sure easier to click a couple buttons on the Vanguard web site and transfer from tIRA to Roth IRA, with the transaction taking place within a day.
Thanks to you, as well. These were also my thoughts, and it's good to have confirmed, before I wade into this for the first time.

Topic Author
rinalee
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Joined: Tue Nov 05, 2019 1:02 pm

Re: TSP and Vanguard allocation review

Post by rinalee » Fri Nov 08, 2019 12:26 pm

Thank you for all of your insights.

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