Retirement Planning

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Topic Author
dogwalker
Posts: 3
Joined: Sun Jul 26, 2020 2:05 pm

Retirement Planning

Post by dogwalker » Fri Jul 31, 2020 3:15 pm

Recently retired couple. Husband is 63. I'm 59.

Emergency funds: $15,000 in bank account.

Debt: None.

State of Residence: AZ

Desired asset allocation: 60% stocks/40% bonds (we had been more conservative but both want to increase our stock allocation for a variety of reasons)

Taxable accounts:
VTI (Vanguard Total Market ETF): $1.5 million
VMFXX (VANGUARD FEDERAL MONEY MARKET INVESTOR): $900k (CDs just matured)

Roth IRAs:
VTI (Vanguard Total Market ETF): $75K

Traditional (Rollover): IRAs:
BND (Vanguard Total Market Bond Fund ETF): $950K

Pensions total: $45K a year.

House value(s): ~$1.2 million. No mortgage. No desire to move any time soon.

Expenses: About $70K annually (includes health insurance)

Social security: Husband: about $3,800 a month at age 70. Me: $500 a month at age 62.

Major decision revolves around the availability of the $900k in taxable/VMFXX. Right now our AA is around 45/55. Quick math: taking ~$550k of VMFXX and buying VTI now and taking ~$350k of VMFXX and buying BND now seems the simplest way to get around 60/40. We have never hesitated in the past about doing anything that resembled lump sum investing, but now being newly retired with no paycheck coming in, quarantining alone with everything going on Covid-related (husband has a preexisting condition), and watching the market rise so incredibly rapidly since March, we'd probably be more comfortable with a disciplined DCA plan. No one else can speak to our emotions, but are we just being chickens to not lump sum the $900k in VTI and BND?

Also, can we count our ~$1.2 million home as part of our bond/FI allocation and recalculate our overall AA accordingly (e.g., start by taking the entire $900k of VMFXX and buy VTI either lump sum or DCA)?

Suggestions appreciated.
Last edited by dogwalker on Fri Jul 31, 2020 3:21 pm, edited 1 time in total.

livesoft
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Joined: Thu Mar 01, 2007 8:00 pm

Re: Retirement Planning

Post by livesoft » Fri Jul 31, 2020 3:19 pm

One cannot count the home value as part of the fixed income.

I don't think it will matter that much what you do. You can lump sum or not. You can LS 50% and DCA the rest over the next 10 months. You can LS the BND purchase and LS 50% of the VTI purchase and DCA the rest of the VTI purchase over the next 10 months. You can ....

You see? There are many ways to get to your end point. Will you somehow do exactly the best way that doesn't lose you any money and makes you the most money?? Sorry, I don't see that happening unless you get really really lucky.
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Escapevelocity
Posts: 84
Joined: Mon Feb 18, 2019 8:32 am

Re: Retirement Planning

Post by Escapevelocity » Fri Jul 31, 2020 3:37 pm

Just curious why you are planning to collect SS at 62? You clearly don't need the income.

jarjarM
Posts: 123
Joined: Mon Jul 16, 2018 1:21 pm

Re: Retirement Planning

Post by jarjarM » Fri Jul 31, 2020 3:42 pm

Escapevelocity wrote:
Fri Jul 31, 2020 3:37 pm
Just curious why you are planning to collect SS at 62? You clearly don't need the income.
I’m assume file at 62 to start collecting now and then @67 and beyond use spousal benefits, the optimized method of collecting SS when one spouse has significant higher earnings than the other

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ruralavalon
Posts: 18741
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Retirement Planning

Post by ruralavalon » Fri Jul 31, 2020 3:45 pm

dogwalker wrote:
Fri Jul 31, 2020 3:15 pm
Recently retired couple. Husband is 63. I'm 59.

Emergency funds: $15,000 in bank account.

Debt: None.

State of Residence: AZ

Desired asset allocation: 60% stocks/40% bonds (we had been more conservative but both want to increase our stock allocation for a variety of reasons)
In my opinion at ages 59 and 63, recently retired, a 60/40 asset allocation is within the range of what is reasonable.
dogwalker wrote:
Fri Jul 31, 2020 3:15 pm
Taxable accounts:
VTI (Vanguard Total Market ETF): $1.5 millionVMFXX (VANGUARD FEDERAL MONEY MARKET INVESTOR): $900k (CDs just matured)

Roth IRAs:
VTI (Vanguard Total Market ETF): $75K

Traditional (Rollover): IRAs:
BND (Vanguard Total Market Bond Fund ETF): $950K

Pensions total: $45K a year.

House value(s): ~$1.2 million. No mortgage. No desire to move any time soon.

Expenses: About $70K annually (includes health insurance)

Social security: Husband: about $3,800 a month at age 70. Me: $500 a month at age 62.
With about $70k annual expenses, pensions of $45k annually, Social Security, and about $3.4 million in investments you are in great shape. You can be as flexible as you wish in asset allocation, selection of investments, and on how to start investing the cash you have from the recently matured CD.

dogwalker wrote:
Fri Jul 31, 2020 3:15 pm
Major decision revolves around the availability of the $900k in taxable/VMFXX. Right now our AA is around 45/55. Quick math: taking ~$550k of VMFXX and buying VTI now and taking ~$350k of VMFXX and buying BND now seems the simplest way to get around 60/40. We have never hesitated in the past about doing anything that resembled lump sum investing, but now being newly retired with no paycheck coming in, quarantining alone with everything going on Covid-related (husband has a preexisting condition), and watching the market rise so incredibly rapidly since March, we'd probably be more comfortable with a disciplined DCA plan. No one else can speak to our emotions, but are we just being chickens to not lump sum the $900k in VTI and BND?
I always favor a lump sum investment, rather than stringing it out in stages.

If you delay Social Security for years, then you could continue to hold some portion of fixed income in cash (high yield savings account or money market fund) to cover several years of expected retirement living expenses.

dogwalker wrote:
Fri Jul 31, 2020 3:15 pm
Also, can we count our ~$1.2 million home as part of our bond/FI allocation and recalculate our overall AA accordingly (e.g., start by taking the entire $900k of VMFXX and buy VTI either lump sum or DCA)?

Suggestions appreciated.
I would not count the value of a home as a bond of some kind of fixed income investment. A home is primarily a place to live, rather than an investment.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

02nz
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Joined: Wed Feb 21, 2018 3:17 pm

Re: Retirement Planning

Post by 02nz » Fri Jul 31, 2020 3:45 pm

I agree you should not count your home as part of your portfolio. As for lump vs DCA - there are a gazillion threads :happy but the answer is pretty much always: lump sum wins on average, but if it makes you feel better, DCA for all or a part, but make a plan and stick to it regardless of what happens in the market.

Here's something that will likely make a bigger difference than lump sum vs DCA: You should probably do enough withdrawals from tax-deferred or Roth conversions to at least fill up the 12% bracket (about $105K of income in 2020 including standard deduction). Assuming you only have the $45K of pension income, then you'd want to withdraw/convert around $60K. This will 1) take advantage of lower tax brackets every year, especially before tax rates are scheduled to go back up in 2026; 2) draw down your balance to reduce RMDs 3) help reduce the amount of SS benefits subject to income tax, and 4) mitigate the likelihood one of you passes (most likely your husband) and the other faces higher tax rates filing single. (However, if you're using ACA for health care, watch out for the subsidy "cliff" at 400% of FPL.)

Alternatively, you can fill that space with 0% long-term capital gains by selling from taxable. You can also do a mix of the two. But if there's any likelihood of passing on assets to heirs and/or charity, the I'd leave taxable for last in the hope of getting a step-up in basis or donating appreciated shares. Tax-deferred accounts, on the other hand, have to be taxed at some point regardless (except whatever fits into the standard deduction, of course).
Last edited by 02nz on Fri Jul 31, 2020 3:50 pm, edited 1 time in total.

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KlingKlang
Posts: 897
Joined: Wed Oct 16, 2013 3:26 pm

Re: Retirement Planning

Post by KlingKlang » Fri Jul 31, 2020 3:50 pm

jarjarM wrote:
Fri Jul 31, 2020 3:42 pm
Escapevelocity wrote:
Fri Jul 31, 2020 3:37 pm
Just curious why you are planning to collect SS at 62? You clearly don't need the income.
I’m assume file at 62 to start collecting now and then @67 and beyond use spousal benefits, the optimized method of collecting SS when one spouse has significant higher earnings than the other
If you collect your social security before your full retirement age it will permanently reduce your spousal benefits.

utvolfan
Posts: 75
Joined: Sat Apr 13, 2013 1:08 pm

Re: Retirement Planning

Post by utvolfan » Fri Jul 31, 2020 3:53 pm

KlingKlang wrote:
Fri Jul 31, 2020 3:50 pm
jarjarM wrote:
Fri Jul 31, 2020 3:42 pm
Escapevelocity wrote:
Fri Jul 31, 2020 3:37 pm
Just curious why you are planning to collect SS at 62? You clearly don't need the income.
I’m assume file at 62 to start collecting now and then @67 and beyond use spousal benefits, the optimized method of collecting SS when one spouse has significant higher earnings than the other
If you collect your social security before your full retirement age it will permanently reduce your spousal benefits.
It permanently reduces spousal benefits but not survivor's benefits, correct?

User avatar
KlingKlang
Posts: 897
Joined: Wed Oct 16, 2013 3:26 pm

Re: Retirement Planning

Post by KlingKlang » Fri Jul 31, 2020 3:56 pm

utvolfan wrote:
Fri Jul 31, 2020 3:53 pm
KlingKlang wrote:
Fri Jul 31, 2020 3:50 pm
jarjarM wrote:
Fri Jul 31, 2020 3:42 pm
Escapevelocity wrote:
Fri Jul 31, 2020 3:37 pm
Just curious why you are planning to collect SS at 62? You clearly don't need the income.
I’m assume file at 62 to start collecting now and then @67 and beyond use spousal benefits, the optimized method of collecting SS when one spouse has significant higher earnings than the other
If you collect your social security before your full retirement age it will permanently reduce your spousal benefits.
It permanently reduces spousal benefits but not survivor's benefits, correct?
Correct. When a retired worker dies, the surviving spouse gets an amount equal to the worker's full retirement benefit.

jarjarM
Posts: 123
Joined: Mon Jul 16, 2018 1:21 pm

Re: Retirement Planning

Post by jarjarM » Fri Jul 31, 2020 3:56 pm

KlingKlang wrote:
Fri Jul 31, 2020 3:50 pm
jarjarM wrote:
Fri Jul 31, 2020 3:42 pm
Escapevelocity wrote:
Fri Jul 31, 2020 3:37 pm
Just curious why you are planning to collect SS at 62? You clearly don't need the income.
I’m assume file at 62 to start collecting now and then @67 and beyond use spousal benefits, the optimized method of collecting SS when one spouse has significant higher earnings than the other
If you collect your social security before your full retirement age it will permanently reduce your spousal benefits.
Ah I see, I didn't realize that. Thanks for pointing it out.

Escapevelocity
Posts: 84
Joined: Mon Feb 18, 2019 8:32 am

Re: Retirement Planning

Post by Escapevelocity » Fri Jul 31, 2020 5:37 pm

jarjarM wrote:
Fri Jul 31, 2020 3:56 pm
KlingKlang wrote:
Fri Jul 31, 2020 3:50 pm
jarjarM wrote:
Fri Jul 31, 2020 3:42 pm
Escapevelocity wrote:
Fri Jul 31, 2020 3:37 pm
Just curious why you are planning to collect SS at 62? You clearly don't need the income.
I’m assume file at 62 to start collecting now and then @67 and beyond use spousal benefits, the optimized method of collecting SS when one spouse has significant higher earnings than the other
If you collect your social security before your full retirement age it will permanently reduce your spousal benefits.
Ah I see, I didn't realize that. Thanks for pointing it out.
So, in this instance should the OP not collect at 62 based on the specific data points provided?

User avatar
FiveK
Posts: 9546
Joined: Sun Mar 16, 2014 2:43 pm

Re: Retirement Planning

Post by FiveK » Fri Jul 31, 2020 7:58 pm

Escapevelocity wrote:
Fri Jul 31, 2020 5:37 pm
So, in this instance should the OP not collect at 62 based on the specific data points provided?
Running Open Social Security, then shading toward a later benefit start if that would have a significant effect on Roth conversion taxation, would be one reasonable approach.

Topic Author
dogwalker
Posts: 3
Joined: Sun Jul 26, 2020 2:05 pm

Re: Retirement Planning

Post by dogwalker » Sat Aug 01, 2020 7:27 am

Thank you everyone for all of the helpful responses across so many fronts!

Again, so many Covid-related matters have raised our level of anxiety to a point where we may not be thinking clearly (e.g., some version of "this time it might really be different").

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