Portfolio Advice - Near Retirement - New Investor Needs Help!

[dogbros]

My wife and I are nearing 62 and just now thinking about retirement plans. Without any guidance, we have saved what we could, but have no clue how to invest at this point. Up until the other day 90% of my 401k was in stock. I recently put a large amount in money market (see below) until I could get some guidance. I stumbled on a Boglehead Guide to Retirement and have now read 3 of the books and found this page. That is the extent of my financial education!

Questions

(1) Based on my Boglehead research, I think I would like to start with a re-balance of our funds to a 40% stock / 60% bond allocation. Need recommendation on how to invest to get there.

(2) After reading the books and trolling this site for a few days, I wish I would have taken the initiative to learn this information at 32 instead of 62. But, it is what it is. With that, are we close to being able to retire given the information below?

note - Despite the large amount in cash, we are not risk averse. Just bad planning on our part...

Thank You!!!

Current Retirement Assets

Portfolio Size - $1,700,000

Taxable

Cash 15.7%
Employer Stock 4.3%
Vanguard Long Term Bond Index (VBLAX) (0.070) 1.5%

His 401k
Vanguard 500 Index (VFIAX) (0.040) 15.4%
Vanguard Small Cap Index (VSMAX) (0.050) 3.3%
Vanguard Money Market (Temporary!!!) 38.2%

Available Funds (all of Vanguard)

His Roth IRA
Credit Union Money Market 4.8%
Vanguard Target Retirement 2020 Fund (VTWNX) (0.13) 0.5%

His Regular IRA
Credit Union Money Market 3.3%
American Funds Capital World Growth (CWGIX) (0.76) 2.3%
American Funds Euro Pacific (AEPGX) (0.83) 1.4%

His HSA
Credit Union Money Market 2.0%

Her Roth IRA
Credit Union Money Market 4.4%
Vanguard Global Equity Fund (VHGEX) (0.48) 0.4%

Her Regular IRA
American Funds Investment Company of America (AIVSX) (0.57) 2.2%
Credit Union CD 0.3%


Contributions
His 401k = $25,000
His Roth IRA = $7,000
His HSA = $8,000
Her Roth IRA = $7,000

Retirement Information
Emergency Fund = 1 year cash (not in the amounts above)
His Salary = $92,000
Her Salary = $20,000
Debt = $0
Ages = 61.5 (both)
His desired ret age - 63
Her desired ret age - 65
Expected annual expenses - $75,000
Her pension @ 62 - $8,400 / yr.
His SS @ 70 = $3,500
Her SS @ ful ret = $1,000
Tax Rates = 22% (fed), 4.25% (state)
Residence = Michigan
Health = Excellent
Desired years retirement = 30

[David Jay]

Welcome to the forum, Go Blue! (I hope you’re not a Spartan...)

First off, let me say that you are doing great. Yes, you probably need to move to a 50/50 or 40/60 portfolio as you prepare for retirement, I retired in January (@62) with a 45/55 Allocation.

The first thing to understand is that you need to set your allocation for the entire portfolio, but then put the various assets where they are the most efficient. Because the Roth accounts are tax-free we want to put the growth assets there. Because you will pay taxes on the 401K withdrawals, put the “safety” assets (bonds, money market) there. The Wiki is a great resource, here is a link to the Wiki article on tax efficient fund placement: https://www.bogleheads.org/wiki/Tax-eff ... _placement

What this means is that you should hold bonds/cash in your 401K (where the big money market balance already is, how handy!). So your portfolio “work” is really minimal. Start by moving all of your 401K into an intermediate bond fund (list your bond choices if you want help). Move your taxable cash into Vanguard Total Stock, this fund had distributed all qualified dividends for many years, so you pay long term capital gains tax rate on those dividends.

We can look at fine tuning from there, but that gets you started.

[HomeStretch]

Welcome! You and your spouse are doing great!

It should be fairly straight forward to adjust your portfolio holdings as most is held in tax advantaged accounts with no tax consequences for making changes. The suggestions below rebalance to your desired 40/60 asset allocation and invests cash in a tax-efficient manner:

Taxable Account 21.5%
1. Hold a diversified equity fund (like VTSAX U.S. Total Stock Market (TSM) Fund) here for tax efficiency
2. Your employer stock is low as it’s <5% but it’s more risky than VTSAX as it is a single stock and an employer stock. If you continue to hold, consider turning off dividend reinvestment so you don’t buy more.
3. Sell the bond fund as bonds in a Taxable account are tax inefficient.

His/Her Roth IRAs 10.1%
Hold a diversified equity fund here for highest expected growth, tax free. Good choices are VFIAX S&P 500 or VTSAX. I prefer to use TSM in Taxable and S&P 500 in all tax advantaged accounts to help avoid inadvertent wash sales if I tax loss harvest.

HSA 2%
1. Hold a diversified equity fund (like VTSAX or VFIAX) here for highest expected growth, tax free.
2. Your spouse can also make an annual catch-up contribution to her own HSA account. Fidelity offers no-fee HSA accounts.

His/Her Traditional IRAs 9.5%
Hold bond funds here like VBTLX U.S.Total Bond Market Fund

His 401k 56.9%
1. Hold remaining bond and equity allocation here. If you want an international equity allocation, VTIAX International TSM is a good choice.
2. Rebalance as necessary periodically in this account to maintain your asset allocation

New contributions should be invested 40/60 to His 401k and 100% equity to all other accounts.

Emergency fund should be held in a high yield bank account or at Vanguard as there are good money market funds available in your Taxable account.

[David Jay]

When I say you are in good shape, I mean that your assets will provide well for your retirement years.

Doing a quick check, after age 70 your finances Will look like this (rounded):
His SS: 42,000
Spousal: $14,000 (half of his full retirement benefit, based on his birth year. This round number covers ‘56 and ‘57)
Pension: 8,000

That only leaves a requirement of about $15,000 per year. Using a super conservative 3% (3.5 - 4% is reasonable at age 70) withdrawal rate, that is $500,000.

Getting from 62 to 70 at $75,000 a year is $600,000, even without any portfolio gains and without pension / her SS.

The total of those two figures is well below your current 1.7 million. I didn’t see a “no debt” comment. If your mortgage is not paid off you may want to take your planned portfolio contributions for the next couple of years and redirect that money to paying down your mortgage. I paid off the mortgage with my retirement check (vacation bank payout, etc.), it feels great.

Don’t be concerned about asking questions, lots of great help here at BH.

[HomeStretch]

Does the $75k annual expense include income taxes, healthcare and lumpy expenses like a new car or major home repair?

Are healthcare benefits through your employer or spouse’s? What is your plan for healthcare coverage between retirement date and, assuming your are Medicare eligible, age 65?

Check your SS claiming strategy at opensocialsecurity.com. Likely your plan to claim at age 70 makes sense but the site might recommend wife takes SS after retirement but before FRA.

Does your wife’s pension increase if she delays claiming beyond age 62? Does the pension receive annual cost-of-living adjustments?

With ~2/3 of your portfolio in tax-deferred accounts (401k, tIRAs), it might be advantageous to do Roth conversions before required minimum distributions at age 70-1/2. Consider modeling your income/deductions/marginal tax rate by year starting at your retirement to see if your marginal tax rate fluctuates and, if so, whether Roth conversions help level it out. Also look at the retirement tax rates by year in a sole survivor scenario. Be aware of Medicare IRMAA premium surcharges if you plan large Roth conversions.

[dogbros]

Welcome to the forum, Go Blue! (I hope you’re not a Spartan...)

First off, let me say that you are doing great. Yes, you probably need to move to a 50/50 or 40/60 portfolio as you prepare for retirement, I retired in January (@62) with a 45/55 Allocation.

The first thing to understand is that you need to set your allocation for the entire portfolio, but then put the various assets where they are the most efficient. Because the Roth accounts are tax-free we want to put the growth assets there. Because you will pay taxes on the 401K withdrawals, put the “safety” assets (bonds, money market) there. The Wiki is a great resource, here is a link to the Wiki article on tax efficient fund placement: https://www.bogleheads.org/wiki/Tax-eff ... _placement

What this means is that you should hold bonds/cash in your 401K (where the big money market balance already is, how handy!). So your portfolio “work” is really minimal. Start by moving all of your 401K into an intermediate bond fund (list your bond choices if you want help). Move your taxable cash into Vanguard Total Stock, this fund had distributed all qualified dividends for many years, so you pay long term capital gains tax rate on those dividends.

We can look at fine tuning from there, but that gets you started.

David:

Thank you for your guidance. Using your input (and that of others), I plan to lay out a table that shows my existing assets and where I think I should move them to establish our new asset allocation based on the advice given. I will then upload that for peer review. (Sorry, I am an engineer... )

Because you have been so gracious with your time and wisdom, I am granting you a victory for your Wolverines this weekend. This one time only. Yes, I am a Spartan, thus my need to seek financial advice from my more educated brethren in Ann Arbor

[dogbros]

When I say you are in good shape, I mean that your assets will provide well for your retirement years.

Doing a quick check, after age 70 your finances Will look like this (rounded):
His SS: 42,000
Spousal: $14,000 (half of his full retirement benefit, based on his birth year. This round number covers ‘56 and ‘57)
Pension: 8,000

That only leaves a requirement of about $15,000 per year. Using a super conservative 3% (3.5 - 4% is reasonable at age 70) withdrawal rate, that is $500,000.

Getting from 62 to 70 at $75,000 a year is $600,000, even without any portfolio gains and without pension / her SS.

The total of those two figures is well below your current 1.7 million. I didn’t see a “no debt” comment. If your mortgage is not paid off you may want to take your planned portfolio contributions for the next couple of years and redirect that money to paying down your mortgage. I paid off the mortgage with my retirement check (vacation bank payout, etc.), it feels great.

Don’t be concerned about asking questions, lots of great help here at BH.

David:

This is an interesting way to look at that I had not considered. Using this approach, I am working on a spreadsheet that calculates what I would need to self fund the years between 63 and 70, taking into account insurance and then contributions from my wife's pension and SS staring at 65. I will upload for comment when I have it done. Fortunately, we have no debt!

It's starting to look like the asset allocation is the easy part. Proper asset placement to minimize taxes seems to be the major challenge.

Thank you!

[Stinky]

After reading the books and trolling this site for a few days, I wish I would have taken the initiative to learn this information at 32 instead of 62. But, it is what it is.

Welcome to the Forum! Glad that you posted your questions and information.

I must say that, for not having "a plan", you've done a remarkably good job of saving for retirement and maximizing tax-preferred retirement savings vehicles. Kudos to you!

You may be a little late to the party in putting a fine touch to your retirement financial outlook, but you've got a lot of options. And you've received good advice upthread. Please post when you figure out how to allocate and place your assets.

[dogbros]

Welcome! You and your spouse are doing great!

It should be fairly straight forward to adjust your portfolio holdings as most is held in tax advantaged accounts with no tax consequences for making changes. The suggestions below rebalance to your desired 40/60 asset allocation and invests cash in a tax-efficient manner:

Taxable Account 21.5%
1. Hold a diversified equity fund (like VTSAX U.S. Total Stock Market (TSM) Fund) here for tax efficiency
2. Your employer stock is low as it’s <5% but it’s more risky than VTSAX as it is a single stock and an employer stock. If you continue to hold, consider turning off dividend reinvestment so you don’t buy more.
3. Sell the bond fund as bonds in a Taxable account are tax inefficient.

His/Her Roth IRAs 10.1%
Hold a diversified equity fund here for highest expected growth, tax free. Good choices are VFIAX S&P 500 or VTSAX. I prefer to use TSM in Taxable and S&P 500 in all tax advantaged accounts to help avoid inadvertent wash sales if I tax loss harvest.

HSA 2%
1. Hold a diversified equity fund (like VTSAX or VFIAX) here for highest expected growth, tax free.
2. Your spouse can also make an annual catch-up contribution to her own HSA account. Fidelity offers no-fee HSA accounts.

His/Her Traditional IRAs 9.5%
Hold bond funds here like VBTLX U.S.Total Bond Market Fund

His 401k 56.9%
1. Hold remaining bond and equity allocation here. If you want an international equity allocation, VTIAX International TSM is a good choice.
2. Rebalance as necessary periodically in this account to maintain your asset allocation

New contributions should be invested 40/60 to His 401k and 100% equity to all other accounts.

Emergency fund should be held in a high yield bank account or at Vanguard as there are good money market funds available in your Taxable account.

Thank you so much! This is a big help to get us off dead center. Using your input (and that of others), I plan to lay out a table that shows my existing assets and where I think I should move them to establish our new asset allocation based on the advice given. I will then upload that for peer review. The topic of tax efficiency seems to be the real challenge. I have a lot to learn there but will keep researching.

My company stock is really an ESOP balance that I can take out once I'm 62. I have already sold all my regular company stock in previous years.

Thanks again!

[HomeStretch]

My company stock is really an ESOP balance that I can take out once I'm 62. I have already sold all my regular company stock in previous years.

If you aren’t familiar with it, before you make a distribution of company stock from the ESOP research the Net Unrealized Appreciation rules. Here’s a link to a Kitces article about NUA:
https://www.kitces.com/blog/net-unreali ... sop-plans/

[dogbros]

After reading the books and trolling this site for a few days, I wish I would have taken the initiative to learn this information at 32 instead of 62. But, it is what it is.

Welcome to the Forum! Glad that you posted your questions and information.

I must say that, for not having "a plan", you've done a remarkably good job of saving for retirement and maximizing tax-preferred retirement savings vehicles. Kudos to you!

You may be a little late to the party in putting a fine touch to your retirement financial outlook, but you've got a lot of options. And you've received good advice upthread. Please post when you figure out how to allocate and place your assets.

What's that saying? "Even a broke clock is right twice a day..." The good thing is we followed a Dave Ramsey approach (no debt, used cars, live within our means, etc.) The bad news is we just threw darts at the retirement funds and now realize we could have been much further ahead if we would have paid more attention earlier. So, we are on a mission to make the most of what we have to work with and adjust our lifestyle accordingly. Glad we stumbled on the Bolgeheads !

[David Jay]

And Go Green...

[dogbros]

When I say you are in good shape, I mean that your assets will provide well for your retirement years.

Doing a quick check, after age 70 your finances Will look like this (rounded):
His SS: 42,000
Spousal: $14,000 (half of his full retirement benefit, based on his birth year. This round number covers ‘56 and ‘57)
Pension: 8,000

That only leaves a requirement of about $15,000 per year. Using a super conservative 3% (3.5 - 4% is reasonable at age 70) withdrawal rate, that is $500,000.

Getting from 62 to 70 at $75,000 a year is $600,000, even without any portfolio gains and without pension / her SS.

The total of those two figures is well below your current 1.7 million. I didn’t see a “no debt” comment. If your mortgage is not paid off you may want to take your planned portfolio contributions for the next couple of years and redirect that money to paying down your mortgage. I paid off the mortgage with my retirement check (vacation bank payout, etc.), it feels great.

Don’t be concerned about asking questions, lots of great help here at BH.

David:

This is an interesting way to look at that I had not considered. Using this approach, I am working on a spreadsheet that calculates what I would need to self fund the years between 63 and 70, taking into account insurance and then contributions from my wife's pension and SS staring at 65. I will upload for comment when I have it done. Fortunately, we have no debt!

It's starting to look like the asset allocation is the easy part. Proper asset placement to minimize taxes seems to be the major challenge.

Thank you!

Ok. Here is my first attempt to re-balance using the suggestions received earlier. I have not put much thought into the specific funds, other than to try and head in the direction provided.

https://drive.google.com/open?id=13_GCy ... -U8C2TVFOm

Thanks to all for your patience with my investment knowledge (lack thereof) and of my forum skills!

[dogbros]

Welcome! You and your spouse are doing great!

It should be fairly straight forward to adjust your portfolio holdings as most is held in tax advantaged accounts with no tax consequences for making changes. The suggestions below rebalance to your desired 40/60 asset allocation and invests cash in a tax-efficient manner:

Taxable Account 21.5%
1. Hold a diversified equity fund (like VTSAX U.S. Total Stock Market (TSM) Fund) here for tax efficiency
2. Your employer stock is low as it’s <5% but it’s more risky than VTSAX as it is a single stock and an employer stock. If you continue to hold, consider turning off dividend reinvestment so you don’t buy more.
3. Sell the bond fund as bonds in a Taxable account are tax inefficient.

His/Her Roth IRAs 10.1%
Hold a diversified equity fund here for highest expected growth, tax free. Good choices are VFIAX S&P 500 or VTSAX. I prefer to use TSM in Taxable and S&P 500 in all tax advantaged accounts to help avoid inadvertent wash sales if I tax loss harvest.

HSA 2%
1. Hold a diversified equity fund (like VTSAX or VFIAX) here for highest expected growth, tax free.
2. Your spouse can also make an annual catch-up contribution to her own HSA account. Fidelity offers no-fee HSA accounts.

His/Her Traditional IRAs 9.5%
Hold bond funds here like VBTLX U.S.Total Bond Market Fund

His 401k 56.9%
1. Hold remaining bond and equity allocation here. If you want an international equity allocation, VTIAX International TSM is a good choice.
2. Rebalance as necessary periodically in this account to maintain your asset allocation

New contributions should be invested 40/60 to His 401k and 100% equity to all other accounts.

Emergency fund should be held in a high yield bank account or at Vanguard as there are good money market funds available in your Taxable account.

Thank you so much! This is a big help to get us off dead center. Using your input (and that of others), I plan to lay out a table that shows my existing assets and where I think I should move them to establish our new asset allocation based on the advice given. I will then upload that for peer review. The topic of tax efficiency seems to be the real challenge. I have a lot to learn there but will keep researching.

My company stock is really an ESOP balance that I can take out once I'm 62. I have already sold all my regular company stock in previous years.

Thanks again!

Ok. Here is my first attempt to re-balance using the suggestions received earlier. I have not put much thought into the specific funds, other than to try and head in the direction provided.

https://drive.google.com/open?id=13_GCy ... -U8C2TVFOm

Thanks to all for your patience with my investment knowledge (lack thereof) and of my forum skills!

[HomeStretch]

Nice job planning how best to reallocate tax-efficiently across your accounts!

When you can, consider moving bonds out of your Taxable account to a tax-deferred account.