Portfolio and Ramping Up to Retirement Readiness - On Track?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
User avatar
Topic Author
Sandi_k
Posts: 1369
Joined: Sat May 16, 2015 11:55 am
Location: SF Bay Area

Portfolio and Ramping Up to Retirement Readiness - On Track?

Post by Sandi_k » Thu Jul 30, 2020 9:08 pm

Emergency funds: Eight+ months of expenses

Debt:

1 – Mortgage. Balance $390k, house value $875k.

2 – Car loan, 2.99%, $11k outstanding. Holding onto cash right now; my job is secure at the moment, but DH’s freelance income has taken a hit. It’s possible I could be facing a layoff next fiscal year. In which case, I may decide to simply retire.

Tax Filing Status: MFJ

Tax Rate: 22% Federal, 9.3% State

State of Residence: CA

Age: 55F, 57M

Desired Asset allocation:
65% stocks / 35% bonds
Desired International allocation: 0%

Current retirement assets

Portfolio: High six figures

Taxable – Emergency funds, in HYSA

His SEP-IRA, 15%
100% Fidelity Total Market (FSKAX, .015% ER)

His Roth IRA, 3%
100% Fidelity Total Market (FSKAX, .015% ER)

Her 403(b), 53%
6% Fidelity Government Cash Reserves (FDRXX, .35% ER)
94% Fidelity Total Market (FSKAX, .015% ER)

Her 457(b), 13%
100% Vanguard Inflation Protected Securities (VIPSX, .20% ER)

Her 401(a)/DCP, 13%
100% Fidelity GNMAE Funds (FGMNX, .45% ER)

Her Roth, 3%
100% Fidelity Total Market (FSKAX, .015% ER)
_______________________________________________________________

Contributions

New annual Contributions
$26,000 her 457(b) (currently directed to more TSM – FSKAX for the entire contribution). I also have an employer match of ~ 14% of salary into a Defined Benefit pension, which does have a COLA.

Questions:

1. Current estimates show that we’ll have pension + 3.5% SWR equaling $200k annually, starting in 2026. Our estimated basic living expenses are approximately $120k, and could reach $150k with more travel, more eating out, more leisure time.

As a result, we’re focused on Roth IRA conversions for the next 4 years, using cash that would have gone to SEP or after-tax accounts, all while staying within the 22% bracket. I am assuming we’ll be over the IRMAA cliff, no matter what, but this prepares us for the reversion to the 2016 tax brackets in 2026, *and* it will help with RMDs when we have a survivor.

2. We still have the benefit of retiree health care, so assuming it’s still in place, medical costs will be reasonable. If it’s revoked between now and 2025, our plan is for me to work until DH reaches age 62. Then he will be covered via COBRA for 3 years, until Medicare. This means I would only need to be on the ACA market for two years before Medicare. (Yes, I’ve verified we’d qualify for the CA-run COBRA extension). Any thoughts on that?

3. We are using a modified bucket approach, and are setting aside a chunk for the “go-go” years, 1-5 of retirement – outside of the investment portfolio itself.

4. We’re assuming a “safe withdrawal rate” of 3.5% for years 1-5 (age 60-65); 3.75% for years 6-10; and 4% after age 70. Then RMDs will kick in, but we should have ~ 20% in the Roth at that point.

5. House will be paid off in year 5 of retirement, if not before. Interest rate is 2.625%, ending in 2031, so we don’t have a huge desire to pre-pay on it; we’d rather pay for Roth conversions now.

6. We’re planning on DH pulling Social Security in Year Three – as the lower earner, Open Social Security suggests he should file at age 65. As the higher earner, I plan to delay until Year 10/age 70, so he has higher survivor benefits should he last longer than I do.

Are we missing anything? Thanks for your assistance!

User avatar
David Jay
Posts: 8908
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Portfolio and Ramping Up to Retirement Readiness - On Track?

Post by David Jay » Fri Jul 31, 2020 8:24 am

Sounds like you are in great shape.

I would do a little more modeling of the survivor situation. If pensions do not continue, are each of you in good shape if they end up as the surviving spouse.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

User avatar
Topic Author
Sandi_k
Posts: 1369
Joined: Sat May 16, 2015 11:55 am
Location: SF Bay Area

Re: Portfolio and Ramping Up to Retirement Readiness - On Track?

Post by Sandi_k » Fri Jul 31, 2020 1:59 pm

David Jay wrote:
Fri Jul 31, 2020 8:24 am
Sounds like you are in great shape.

I would do a little more modeling of the survivor situation. If pensions do not continue, are each of you in good shape if they end up as the surviving spouse.
Thanks, David!

Yes, the pension election would have a 100% survivor benefit. With 36 years of service, and hitting the 2.5% multiplier, I'm eligible for a 90% replacement of my while-working paycheck.

By choosing the 100% continuation for survivor option, I lose another 12% off the top of the "Three High" average salary calculation. But that is more than made up from no longer paying OASDI, disability insurance (LT and ST), parking, mandatory retirement savings and optional retirement savings. ;)

And this is exactly why we're focusing on Roth conversions these next few years: we want as much in Roth as we can manage for the surviving spouse, when that time comes. The tax rate will be high.

User avatar
David Jay
Posts: 8908
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Portfolio and Ramping Up to Retirement Readiness - On Track?

Post by David Jay » Fri Jul 31, 2020 3:17 pm

Looks like you are on top of it!
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

User avatar
Topic Author
Sandi_k
Posts: 1369
Joined: Sat May 16, 2015 11:55 am
Location: SF Bay Area

Re: Portfolio and Ramping Up to Retirement Readiness - On Track?

Post by Sandi_k » Mon Aug 03, 2020 3:19 pm

Bump...

Anyone else care to weigh in? Or is the plan just that perfect?

:D

Post Reply