Suddenly retired; Read the book; Have questions!

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RollWithTheChanges
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Suddenly retired; Read the book; Have questions!

Post by RollWithTheChanges »

Emergency Fund: Yes, we have it in cash.
Debt: None
Tax Filing Status: Married, Jointly
Tax Rate: 24%, but that was before his retirement (unexpected retirement)
No State Income Tax
Ages: Me: almost 56; Him: 61
I have been out of the paid workforce for many years. His unexpected retirement was Spring 2021.
Desired Asset Allocation: 45/55 (stocks/FI), unless you convince me I should change it; I just went with the “Bonds = your age” rule of thumb.
International: Currently 10% of stocks

Wholly admit to financial negligence in the past, but we are frugal, so I just plowed money into 401Ks. Ironically, at his retirement our portfolio somehow managed to end up at 50/50 (stocks/FI.) I did at least start Roth conversions a few years ago.
Textbook case of shock due to “windfall” with his pension lump sum.

Retirement funds, including pension lump sums are around mid-7-figures. The funds are all in retirement accounts (401Ks, IRAs, Roth IRAs.) Very small taxable brokerage account.
All of the money that I’m planning to spend through 2023 is in cash. This includes living expenses.
I am figuring out this whole financial puzzle so that I can position retirement funds appropriately.

Huge potential game-changer: He was diagnosed with Parkinson’s Disease, and does not have Long-Term-Care Insurance. I have LTCi, so that our finances won’t be subjected to two potential catastrophes.

Original post follows:
I'm 56 and haven't worked for money for many years. Husband, age 61 suddenly retired. Enter lump-sum pension. (We both have 401Ks.) I've read the Bogleheads' "windfall" Wiki and totally relate. I just read The Bogleheads' Guide to Investing and have some questions. I know these questions will be very basic for most of you, but any help for any/all of these questions is appreciated!

1. Goals: Since I, being the younger one, presumably have 40+ years of retirement, should I break my “retirement” goal into two timeframes: “retirement 0-20 years” AND “retirement 21-40+ years” and do a different asset allocation for each? It would seem that the 21-40 years would have a more aggressive asset allocation than the 0-20 years.

2. Investing in index bond funds: These are quotes from the book. “It’s important that you don’t invest in a fund with a duration that’s longer than your time horizon.” “A bond fund’s duration may change over time, so you’ll want to monitor your fund’s duration to make sure it continues to match your time horizon.”
With an average duration of 6-7 yrs, is the VG Total Bond Index Fund appropriate to hold my bonds allocation for my 40+ years of retirement?

3. Overall, I’m just confused regarding allocating my Fixed Income portion of our retirement portfolio. I have seen the “bucket” strategy, where I essentially ladder bond index funds that match my segmented time bands throughout retirement. I’ve seen the simplistic approach that puts my whole bond allocation into VG Total Bond Index Fund. I’ve seen putting my bond portion into TIPS funds. I’ve been told to just buy individual bonds since they actually mature. I know there are a gazillion ways to do this, but do you have a recommendation for "somewhat simple and still effective?" Some complexity is okay but I don't want too much complexity.

4. Income: If I stick with the 3 fund portfolio, what specifically am I harvesting as retirement income? Dividends from the VG Total Bond Index Fund, plus scraping off the funds that are winning?

5. It seems that since we are no longer employed, keeping what we have is incredibly important, so I am concerned about “drawdown.” I’ve seen big drawdowns on ultra-short funds. Yikes. How many years of expenses should just be in cash?
Last edited by RollWithTheChanges on Thu Apr 08, 2021 12:43 pm, edited 1 time in total.
dbr
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Re: Suddenly retired; Read the book; Have questions!

Post by dbr »

RollWithTheChanges wrote: Wed Apr 07, 2021 11:59 am I'm 56 and haven't worked for money for many years. Husband, age 61 suddenly retired. Enter lump-sum pension. (We both have 401Ks.) I've read the Bogleheads' "windfall" Wiki and totally relate. I just read The Bogleheads' Guide to Investing and have some questions. I know these questions will be very basic for most of you, but any help for any/all of these questions is appreciated!

1. Goals: Since I, being the younger one, presumably have 40+ years of retirement, should I break my “retirement” goal into two timeframes: “retirement 0-20 years” AND “retirement 21-40+ years” and do a different asset allocation for each? It would seem that the 21-40 years would have a more aggressive asset allocation than the 0-20 years.

I have never heard of a reason to to something like that. Maybe someone can think of a reason to try.

2. Investing in index bond funds: These are quotes from the book. “It’s important that you don’t invest in a fund with a duration that’s longer than your time horizon.” “A bond fund’s duration may change over time, so you’ll want to monitor your fund’s duration to make sure it continues to match your time horizon.”
With an average duration of 6-7 yrs, is the VG Total Bond Index Fund appropriate to hold my bonds allocation for my 40+ years of retirement?

The physical horizon is not a fixed location on earth but constantly recedes. So does your retirement horizon. Except maybe if you are seeing this: https://www.bing.com/videos/search?q=ho ... &FORM=VIRE

A possible answer that intermediate duration is much to short for a forty year retirement. Long bonds might be indicated, which are also a better diversifier for stocks. However, people may also find the total portfolio volatility too high in that case. Lots of people see intermediate bonds as the sweet spot holding for bonds for retirement.


3. Overall, I’m just confused regarding allocating my Fixed Income portion of our retirement portfolio. I have seen the “bucket” strategy, where I essentially ladder bond index funds that match my segmented time bands throughout retirement. I’ve seen the simplistic approach that puts my whole bond allocation into VG Total Bond Index Fund. I’ve seen putting my bond portion into TIPS funds. I’ve been told to just buy individual bonds since they actually mature. I know there are a gazillion ways to do this, but do you have a recommendation for "somewhat simple and still effective?" Some complexity is okay but I don't want too much complexity.

There are many more choices available in bonds than there are reasons to decide among them. In short it doesn't matter. Because it doesn't matter the virtue of simplicity in total bond holds the trump card. It is not a crazy argument that a retiree might be 100% TIPS. You have to decide for yourself if you would be happy with that. Disclaimer: I hold 50% of fixed income in intermediate Treasuries and 50% in intermediate TIPS and counting running balance in credit cards paid off each month almost zero in cash, sometimes negative, offset by significant SS and pension income streams.


4. Income: If I stick with the 3 fund portfolio, what specifically am I harvesting as retirement income? Dividends from the VG Total Bond Index Fund, plus scraping off the funds that are winning?

No, no, no. Don't misunderstand this. You retirement income is whatever you withdraw from your portfolio. I even include my checking account as portfolio and a withdrawal happens when I debit that account. The only other transaction that is a portfolio debit is that I like to pay my taxes by withholding from my RMD taken at year end. That is the only withdrawal that does not happen as a checking account debit. Everything else is just moving money around among accounts. As it happens I have dividends in taxable investment account paid directly into my checking account but they aren't withdrawals until paid out they are just a change in asset class from stocks to cash. If I want more cash to spend aside from pensions and SS, and stimulus checks, and RMDs, then I sell something for cash. If there is too much cash, I buy more stocks or bonds.

5. It seems that since we are no longer employed, keeping what we have is incredibly important, so I am concerned about “drawdown.” I’ve seen big drawdowns on ultra-short funds. Yikes. How many years of expenses should just be in cash?

It isn't necessary to have any money in cash. In practice a practical amount of cash is unavoidable, perhaps a couple of % of one's assets. All investments fluctuate in value, and the sum total of all of them fluctuates in value. Allowing for inflation cash fluctuates in value. Your retirement income planning is based on the range of outcomes that can develop from such a variable portfolio. The risk of higher fluctuations in value is offset by the higher return delivered by risk investments with a result that it is difficult to gain ground by playing on asset allocation, cash, buckets, bond tents, and the like. The variable that does matter is withdrawal rate, and one can play on that variable.

If you want income that is not related to a fluctuating portfolio you can buy a single premium immediate fixed annuity. That also has the advantage that the investment value does not change. It is zero from the start. Unfortunately inflation indexed annuities are hard to come by though some forms of employment offer (for the time being) inflation indexed pensions. Another idea sometime offered is to set up a declining ladder of long term TIPS and spend the expiring rung in the years that expiration occurs. When the TIPS are purchased those amounts and the interest payments along the way will already be known. Such a ladder can be established out to 30 years.
delamer
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Re: Suddenly retired; Read the book; Have questions!

Post by delamer »

Read the section in this column titled “How Much Is Enough?” for one perspective from a respected analyst: https://www.whitecoatinvestor.com/berns ... -the-game/
wolf359
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Re: Suddenly retired; Read the book; Have questions!

Post by wolf359 »

You may want to format your question in the following manner: viewtopic.php?t=6212

This would allow us to know specifically what your situation is, and how to best advise you to proceed.

It also lays out all your assets, income, and expenses in a standardized format, and is a useful exercise whether you post it or not.
alex_686
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Re: Suddenly retired; Read the book; Have questions!

Post by alex_686 »

Welcome to the forum!
RollWithTheChanges wrote: Wed Apr 07, 2021 11:59 am 2. Investing in index bond funds: These are quotes from the book. “It’s important that you don’t invest in a fund with a duration that’s longer than your time horizon.” “A bond fund’s duration may change over time, so you’ll want to monitor your fund’s duration to make sure it continues to match your time horizon.”
With an average duration of 6-7 yrs, is the VG Total Bond Index Fund appropriate to hold my bonds allocation for my 40+ years of retirement?
For practical purposes the answer is yes.

There are 2 real answers here.

There is a concept of "Liability Matching". You buy a bond (asset) now to meet a future cashflow need (liability or psedu-liability). Buy buying a bond with the same duration as the liability you have immunized yourself from risk. Treasuries and TIPS are the default option since they are risk free. This is a low return / low risk strategy. When I was working with life insurance we were required to do this. Our durations were often greater than the 30 year treasury. And there are other issues with the 30 year bond. So we loaded up on 10 year Treasuries and rolled with it because from a practical viewpoint that is the best you can do. So from a technically viewpoint a total bond index is the wrong choice. Maybe you should pick a longer duration fund. But it can be hard to define exactly when you will need the funds. There is a 1/3 chance you will need those funds prior to retirement. So from a pragmatic viewpoint a total bond fund is a decent choice.

The second concept is optimizing your asset allocation to generate the highest return for the least amount of risk. In the generic Boglehead 3 fund portfolio, the assets are US stocks, international stocks, and bonds. Here the a total bond fund is the default choice for good reasons. And for somebody with a really long time span for investing, maximizing your total return is probably the better answer than liability matching.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Topic Author
RollWithTheChanges
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Re: Suddenly retired; Read the book; Have questions!

Post by RollWithTheChanges »

delamer wrote: Wed Apr 07, 2021 2:08 pm Read the section in this column titled “How Much Is Enough?” for one perspective from a respected analyst: https://www.whitecoatinvestor.com/berns ... -the-game/
Does the "20-25" times your expenses going into safe assets imply that I have 20-25 years in retirement? I need to plan for 40+ years.

That brings me back to question number 1: should I have two asset allocations based on the 20-year blocks of years in retirement? Maybe have the first 20 years in something safe that is beating inflation, and the next 20 years in a mix of stocks/bonds?
Outer Marker
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Re: Suddenly retired; Read the book; Have questions!

Post by Outer Marker »

One portfolio is enough. Don't complicate your life. Pick an asset allocation you can live with, and stick with it. Retiring early, you may want to have a slightly higher allocation to equities. For my part, I plan to be 70/30 forever and pass on what's left.

Regarding fixed income, if you have access to a good stable value fund in your 401K, I'd park all of your fixed income in that. Bonds are yeilding very little right now, and have significant interest rate risk. Its something of a "free lunch" to be earning more in stable value (around 2%) with no interest rate risk, thank bonds (paying around 1%) with substantial interest rate risk. You can re-evaluate that when Total Bond starts paying substantially more than stable value. At the moment, there is no point to holding the lower yielding, riskier asset.
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ruralavalon
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Re: Suddenly retired; Read the book; Have questions!

Post by ruralavalon »

RollWithTheChanges wrote: Wed Apr 07, 2021 11:59 amI'm 56 and haven't worked for money for many years. Husband, age 61 suddenly retired. Enter lump-sum pension. (We both have 401Ks.) I've read the Bogleheads' "windfall" Wiki and totally relate. I just read The Bogleheads' Guide to Investing and have some questions. I know these questions will be very basic for most of you, but any help for any/all of these questions is appreciated!

1. Goals: Since I, being the younger one, presumably have 40+ years of retirement, should I break my “retirement” goal into two timeframes: “retirement 0-20 years” AND “retirement 21-40+ years” and do a different asset allocation for each? It would seem that the 21-40 years would have a more aggressive asset allocation than the 0-20 years.
I believe in simplicity, don't complicate investing by using two different portfolios.

RollWithTheChanges wrote: Wed Apr 07, 2021 11:59 am 2. Investing in index bond funds: These are quotes from the book. “It’s important that you don’t invest in a fund with a duration that’s longer than your time horizon.” “A bond fund’s duration may change over time, so you’ll want to monitor your fund’s duration to make sure it continues to match your time horizon.”
With an average duration of 6-7 yrs, is the VG Total Bond Index Fund appropriate to hold my bonds allocation for my 40+ years of retirement?
In my opinion the answer is yes, Vanguard Total Bond Market Index Fund (VBTLX), effective duration = 6.60 years, has a reasonable duration for a long retirement.

The effective duration will probably not change over time, like an actively managed bond fund might.

Age 75, retired 10 years, our only bond fund is Vanguard Intermediate-term Bond Index fund (VBILX), with an effective duration = 6.60 years.

In my opinion an intermediate-term bond fund is a good compromise for a combination of returns and low volatility.

RollWithTheChanges wrote: Wed Apr 07, 2021 11:59 am3. Overall, I’m just confused regarding allocating my Fixed Income portion of our retirement portfolio. I have seen the “bucket” strategy, where I essentially ladder bond index funds that match my segmented time bands throughout retirement. I’ve seen the simplistic approach that puts my whole bond allocation into VG Total Bond Index Fund. I’ve seen putting my bond portion into TIPS funds. I’ve been told to just buy individual bonds since they actually mature. I know there are a gazillion ways to do this, but do you have a recommendation for "somewhat simple and still effective?" Some complexity is okay but I don't want too much complexity.

4. Income: If I stick with the 3 fund portfolio, what specifically am I harvesting as retirement income? Dividends from the VG Total Bond Index Fund, plus scraping off the funds that are winning?
I believe in simplicity, and feel that a bucket strategy is an unnecessary complication. We have no pension or annuity.

In early retirement we funded living expenses with Social Security benefits and by selling shares of the stock index funds in our joint taxable account. To maintain our desired asset allocation we exchanged from stock funds to the bond fund in my rollover IRA.

After reaching age 70.5 when we started Required Minimum Distributions (RMDs) we took RMDs automatically and proportionally from each fund in my rollover IRA, paid directly to our joint checking account. Social Security benefits and RMDs have been enough to to cover our retirement living expenses.

We did not try to use dividends to build up a cash pile to pay our living expenses.


RollWithTheChanges wrote: Wed Apr 07, 2021 11:59 am5. It seems that since we are no longer employed, keeping what we have is incredibly important, so I am concerned about “drawdown.” I’ve seen big drawdowns on ultra-short funds. Yikes. How many years of expenses should just be in cash?
We do not have a cash allocation, have no savings account, no CDs, no ultra short-term bond fund, and no money market fund. Our only fixed income investment is Vanguard Intermediate-term Bond Index Fund (VBILX).

It varies but we usually have a couple months of living expenses in our joint checking account used to pay ordinary living expenses as they are incurred.
Last edited by ruralavalon on Wed Apr 07, 2021 5:33 pm, edited 2 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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RollWithTheChanges
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Re: Suddenly retired; Read the book; Have questions!

Post by RollWithTheChanges »

dbr wrote: Wed Apr 07, 2021 1:39 pm
RollWithTheChanges wrote: Wed Apr 07, 2021 11:59 am

4. Income: If I stick with the 3 fund portfolio, what specifically am I harvesting as retirement income? Dividends from the VG Total Bond Index Fund, plus scraping off the funds that are winning?

No, no, no. Don't misunderstand this. You retirement income is whatever you withdraw from your portfolio. I even include my checking account as portfolio and a withdrawal happens when I debit that account. The only other transaction that is a portfolio debit is that I like to pay my taxes by withholding from my RMD taken at year end. That is the only withdrawal that does not happen as a checking account debit. Everything else is just moving money around among accounts. As it happens I have dividends in taxable investment account paid directly into my checking account but they aren't withdrawals until paid out they are just a change in asset class from stocks to cash. If I want more cash to spend aside from pensions and SS, and stimulus checks, and RMDs, then I sell something for cash. If there is too much cash, I buy more stocks or bonds.

/color]
Pardon my ignorance, but I've never taken retirement income from our portfolio before. If I have the 3 fund thing going, do I have the dividends from the VG Total Bond Fund deposited into the sweep/cash account (and in turn, take it as income) plus cash in some shares of whatever appears to be doing well and take that as income? If not, can someone please tell me how "getting income from the 3 fund portfolio" works?
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Randtor
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Re: Suddenly retired; Read the book; Have questions!

Post by Randtor »


Age 75, retired 10 years, our only bond fund is Vanguard Intermediate-term Bond Index fund (VBILX), with an effective duration = 6.60 years.


Ruralavalon, just curious... why VBILX rather than the VG total bond index fund, VBTLX? I just turned 70, working very part time because I like what I do. I’m just wondering if there is an advantage to one over the other?
Thanks....
"Whats done is done, and can't be undone"
GAAP
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Re: Suddenly retired; Read the book; Have questions!

Post by GAAP »

RollWithTheChanges wrote: Wed Apr 07, 2021 11:59 am 1. Goals: Since I, being the younger one, presumably have 40+ years of retirement, should I break my “retirement” goal into two timeframes: “retirement 0-20 years” AND “retirement 21-40+ years” and do a different asset allocation for each? It would seem that the 21-40 years would have a more aggressive asset allocation than the 0-20 years.

2. Investing in index bond funds: These are quotes from the book. “It’s important that you don’t invest in a fund with a duration that’s longer than your time horizon.” “A bond fund’s duration may change over time, so you’ll want to monitor your fund’s duration to make sure it continues to match your time horizon.”
With an average duration of 6-7 yrs, is the VG Total Bond Index Fund appropriate to hold my bonds allocation for my 40+ years of retirement?

3. Overall, I’m just confused regarding allocating my Fixed Income portion of our retirement portfolio. I have seen the “bucket” strategy, where I essentially ladder bond index funds that match my segmented time bands throughout retirement. I’ve seen the simplistic approach that puts my whole bond allocation into VG Total Bond Index Fund. I’ve seen putting my bond portion into TIPS funds. I’ve been told to just buy individual bonds since they actually mature. I know there are a gazillion ways to do this, but do you have a recommendation for "somewhat simple and still effective?" Some complexity is okay but I don't want too much complexity.

4. Income: If I stick with the 3 fund portfolio, what specifically am I harvesting as retirement income? Dividends from the VG Total Bond Index Fund, plus scraping off the funds that are winning?

5. It seems that since we are no longer employed, keeping what we have is incredibly important, so I am concerned about “drawdown.” I’ve seen big drawdowns on ultra-short funds. Yikes. How many years of expenses should just be in cash?
1. You could do that, but the net result is still one allocation that is somewhere between the two choices. I feel that once you get beyond the length of the typical business cycle, you're effectively in "long term" mode anyway. The longest US business cycle ended last year after 128 months.

2. You might want to look at this topic: viewtopic.php?t=318412 "A bond duration glide path for retirement investing".

3. My personal choice is a single bond fund, but some of what I do is not "typical" for this forum. Bucket strategies effectively become glidepath variants -- you may want to read the paper by Estrada "The Bucket Approach for Retirement: A Suboptimal Behavioral Trick?"
Abstract
A bucket approach, which broadly consists of parking a few years of annual withdrawals safely in cash and investing the rest of the portfolio more ggressively, is a popular strategy often recommended by financial planners and typically embraced by retirees. Although this strategy is not devoid of merit, the comprehensive evidence discussed here, from 21 countries over a 115-year period, questions its effectiveness. In fact, simple static strategies, which by definition involve periodic rebalancing, clearly outperform bucket strategies, and they do so based not just on one but on four different ways of assessing performance.
I've never been able to justify TIPS or TIPS funds, the inflation protection doesn't match the cost for me -- others disagree. Individual bonds are more work to manage, they do actually mature -- and that can happen early if the bond is called. If you need money, they can be slow to sell at times.

4. It is likely that at various times, you will be selling shares for income. Unless you need only a tiny portion of your portfolio for income, dividends won't be sufficient. The current dividend yield of the S&P 500 is about 1.4%. Even 30-year Treasuries are barely over 2%.

5. Money in cash is money not earning anything meaningful -- and actually losing value due to inflation. I keep about 3 months expenses in a money market fund for liquidity, and manage cash in the checking account to end at $500 each month.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee
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ruralavalon
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Re: Suddenly retired; Read the book; Have questions!

Post by ruralavalon »

Randtor wrote: Wed Apr 07, 2021 5:21 pm
Age 75, retired 10 years, our only bond fund is Vanguard Intermediate-term Bond Index fund (VBILX), with an effective duration = 6.60 years.


Ruralavalon, just curious... why VBILX rather than the VG total bond index fund, VBTLX? I just turned 70, working very part time because I like what I do. I’m just wondering if there is an advantage to one over the other?
Thanks....
It's primarily personal preference. I wanted a higher allocation to corporate bonds, per published preference of Mr. Bogle. Also I have an aversion to mortgage backed securities (MBS), per published suggestion of Larry Swedroe.

Vanguard Intermediate-term Bond Index Fund (VBILX) is about 1/2 government bonds, 1/2 corporate bonds, with no MBS. It has had a little higher return :) , with a little more volatility :( .
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
dbr
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Re: Suddenly retired; Read the book; Have questions!

Post by dbr »

RollWithTheChanges wrote: Wed Apr 07, 2021 5:14 pm
Pardon my ignorance, but I've never taken retirement income from our portfolio before. If I have the 3 fund thing going, do I have the dividends from the VG Total Bond Fund deposited into the sweep/cash account (and in turn, take it as income) plus cash in some shares of whatever appears to be doing well and take that as income? If not, can someone please tell me how "getting income from the 3 fund portfolio" works?
[/quote]

Yes, so you are taking withdrawals from your portfolio which can be called income for purposes of cash flow activities. There are lots of ways to take withdrawals and exactly what one's you utilize are a matter of convenience and preference. Probably in taxable accounts it is more convenient and may be more tax efficient to withdraw dividends as such, if the amounts are appropriate. One should not set one's income budget according to the dividends, however. In tax deferred accounts it is probably most convenient to reinvest dividends in the fund issuing them and if you need to withdraw money, sell the asset that is over allocation target to drive back to balance.

There are a lot of details, so exactly the mechanics to withdraw money can be intricate and variable. A lot of it has to do with tax considerations. From the point of view of investment plan the details of how income is taken are mostly irrelevant. What does matter is how much is withdrawn and what is the asset allocation and location. It actually doesn't even mean anything to the investment plan to say "where" the income came from.

I should add that if you have both taxable and tax deferred accounts one would generally place bonds in the tax deferred accounts. That means the dividends paid on the bonds would be reinvested there and not cashed. You don't usually withdraw money from a tax deferred account sooner than necessary except for certain types of tax purposes (Roth conversion). That's what threw me talking about spending money from a bond fund.
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Re: Suddenly retired; Read the book; Have questions!

Post by Wiggums »

I retired at 56. We hold the three fund portfolio. In terms of withdrawals, we hold cash to cover annual expenses and Roth conversion. Just a personal preference which allows us to ignore market fluctuations. We track our expenses in Quicken. Our AA is 65/35 right now as we reduce the number of accounts. When cash is needed, we just sell from the portfolio and transfer to our checking account. You can also do automatic transfers if uou want to simulate a paycheck.

Intermediate bonds seems to be a good choice for most people.
delamer
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Re: Suddenly retired; Read the book; Have questions!

Post by delamer »

RollWithTheChanges wrote: Wed Apr 07, 2021 4:59 pm
delamer wrote: Wed Apr 07, 2021 2:08 pm Read the section in this column titled “How Much Is Enough?” for one perspective from a respected analyst: https://www.whitecoatinvestor.com/berns ... -the-game/
Does the "20-25" times your expenses going into safe assets imply that I have 20-25 years in retirement? I need to plan for 40+ years.

That brings me back to question number 1: should I have two asset allocations based on the 20-year blocks of years in retirement? Maybe have the first 20 years in something safe that is beating inflation, and the next 20 years in a mix of stocks/bonds?
20 years in safe and 20 years in stocks would be reasonable. Do you have 40 years in residual expenses saved?
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RollWithTheChanges
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Re: Suddenly retired; Read the book; Have questions!

Post by RollWithTheChanges »

delamer wrote: Wed Apr 07, 2021 7:20 pm

20 years in safe and 20 years in stocks would be reasonable. Do you have 40 years in residual expenses saved?
I do have 40 years of expenses saved. According to the article, it all needs primarily to beat inflation to win the game. However, we probably need some growth to pay for unknown medical/long-term-care expenses (which I will pose as a separate question somewhere, because this has the potential to really derail everything.)

Thanks to everyone who is responding. I'm reading everything, soaking it all in, and am forming my next questions to post. I really appreciate your help!
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Randtor
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Re: Suddenly retired; Read the book; Have questions!

Post by Randtor »

ruralavalon wrote: Wed Apr 07, 2021 5:42 pm
Randtor wrote: Wed Apr 07, 2021 5:21 pm
Age 75, retired 10 years, our only bond fund is Vanguard Intermediate-term Bond Index fund (VBILX), with an effective duration = 6.60 years.


Ruralavalon, just curious... why VBILX rather than the VG total bond index fund, VBTLX? I just turned 70, working very part time because I like what I do. I’m just wondering if there is an advantage to one over the other?
Thanks....
It's primarily personal preference. I wanted a higher allocation to corporate bonds, per published preference of Mr. Bogle. Also I have an aversion to mortgage backed securities (MBS), per published suggestion of Larry Swedroe.

Vanguard Intermediate-term Bond Index Fund (VBILX) is about 1/2 government bonds, 1/2 corporate bonds, with no MBS. It has had a little higher return :) , with a little more volatility :( .
Thanks for the info, much appreciated!
"Whats done is done, and can't be undone"
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dogagility
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Re: Suddenly retired; Read the book; Have questions!

Post by dogagility »

Welcome to the forum, RWTC!
RollWithTheChanges wrote: Wed Apr 07, 2021 11:59 am
I'm soon to be retired (1-5 years). Here's what we've determined on the topic of retirement asset allocation and spending. Just some things to consider.

We will keep our portfolio as a whole unit. No buckets. Simple and easy.

Our asset allocation will be 60-70% stocks and the remained in bonds. Given the length of our expected retirements, this amount is optimized for portfolio maintenance... enough growth but not too much downside risk of a higher equity allocation. Monte Carol simulators helped with this decision.

The biggest factor in my opinion is the need to be flexible in retirement. Flexible in spending mainly... reducing spending (and hence portfolio withdrawals) during times of deep stock market declines.

I suggest you look into using portfolio withdrawal methods/calculators like Variable Portfolio Withdrawal (VPW) and Amortization Based Withdrawal (ABW) methods/calculators. https://www.bogleheads.org/wiki/Variabl ... withdrawal https://www.bogleheads.org/wiki/Amortiz ... withdrawal

There are also dedicated bogleheads threads to VPW and ABW which you might be very helpful to understand these methods.
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Sandtrap
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Re: Suddenly retired; Read the book; Have questions!

Post by Sandtrap »

wolf359 wrote: Wed Apr 07, 2021 2:17 pm You may want to format your question in the following manner: viewtopic.php?t=6212

This would allow us to know specifically what your situation is, and how to best advise you to proceed.

It also lays out all your assets, income, and expenses in a standardized format, and is a useful exercise whether you post it or not.
+1
For more comprehensive input with better data, do this.
You can edit your original post using the "pencil icon".
j :D
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WoodSpinner
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Re: Suddenly retired; Read the book; Have questions!

Post by WoodSpinner »

OP,

I would like to take a step back before answering your questions (although lots of good thoughts upthread)....

When I was faced with my unexpected retirement decision two of the most important things we did were:
1. Work with my wife to come up with a short prioritized list of Retirement goals (we ended up with 5).
2. Modeled our long term Retirement Cashflow needs. A tool like the Retire Portfolio Model (see Wiki) or other software can provide invaluable insights. To do this you need:

1. Income (Wages, Pensions, SS, Rent, Taxable Dividends/Interest etc.)
2. Expenses (Housing, transportation, food, healthcare, travel, charity etc.)
3. Current assets
4. Expected growth (By asset)

Remember, this is a model, it doesn’t have to be perfect but should represent your best guess. You can review and improve periodically as you gain better insights.

For instance, when I did ours it highlighted:
1. We would have enough income from Pensions and SS (after 70) to cover our Mandatory spending with plenty left over for Discretionary spending.
2. We needed to fund 12 years of Cashflow (Income - Expenses) from 58 - 70.
3. Unlikely we will need to spend much of the RMDs that start at 72.
4. We really needed to do some Roth Conversions to reduce the size of our IRAs
5. We have enough assets that we can take advantage of new opportunities (e.g. RV, Travel, Photography) without a huge worry that we will blow-up our Retirement.

Armed with these insights it became much easier to plan out Retirement and discuss various Risks and Tradeoffs. Note: this planning never ends, priorities change, finances change, the key is to be flexible and adapt.

Wondering if you are thinking along the same lines?

WoodSpinner
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RollWithTheChanges
Posts: 10
Joined: Tue Apr 06, 2021 9:14 pm

Re: Suddenly retired; Read the book; Have questions!

Post by RollWithTheChanges »

Sandtrap wrote: Thu Apr 08, 2021 8:15 am
wolf359 wrote: Wed Apr 07, 2021 2:17 pm You may want to format your question in the following manner: viewtopic.php?t=6212

This would allow us to know specifically what your situation is, and how to best advise you to proceed.

It also lays out all your assets, income, and expenses in a standardized format, and is a useful exercise whether you post it or not.
+1
For more comprehensive input with better data, do this.
You can edit your original post using the "pencil icon".
j :D

Great! I'm doing that right now. I hope this gives everyone enough information. Thanks for everyone's help!
Topic Author
RollWithTheChanges
Posts: 10
Joined: Tue Apr 06, 2021 9:14 pm

Re: Suddenly retired; Read the book; Have questions!

Post by RollWithTheChanges »

WoodSpinner wrote: Thu Apr 08, 2021 10:11 am OP,

I would like to take a step back before answering your questions (although lots of good thoughts upthread)....

When I was faced with my unexpected retirement decision two of the most important things we did were:
1. Work with my wife to come up with a short prioritized list of Retirement goals (we ended up with 5).
2. Modeled our long term Retirement Cashflow needs. A tool like the Retire Portfolio Model (see Wiki) or other software can provide invaluable insights. To do this you need:

1. Income (Wages, Pensions, SS, Rent, Taxable Dividends/Interest etc.)
2. Expenses (Housing, transportation, food, healthcare, travel, charity etc.)
3. Current assets
4. Expected growth (By asset)

Remember, this is a model, it doesn’t have to be perfect but should represent your best guess. You can review and improve periodically as you gain better insights.

For instance, when I did ours it highlighted:
1. We would have enough income from Pensions and SS (after 70) to cover our Mandatory spending with plenty left over for Discretionary spending.
2. We needed to fund 12 years of Cashflow (Income - Expenses) from 58 - 70.
3. Unlikely we will need to spend much of the RMDs that start at 72.
4. We really needed to do some Roth Conversions to reduce the size of our IRAs
5. We have enough assets that we can take advantage of new opportunities (e.g. RV, Travel, Photography) without a huge worry that we will blow-up our Retirement.

Armed with these insights it became much easier to plan out Retirement and discuss various Risks and Tradeoffs. Note: this planning never ends, priorities change, finances change, the key is to be flexible and adapt.

Wondering if you are thinking along the same lines?

WoodSpinner
Yes, thankfully I am thinking along those same lines. Your points are great for me to do a sanity check.
I do have a budget, plus an "extraordinary known spending" plan that includes replacing cars, travel, kids' weddings, taxes on Roth conversions, etc. I have more confidence in those things in financial planning that have more clear answers, and things that I can control. The big obvious deficit for me is "Investing." And since we've just turned the corner from accumulation to spending, I have to understand how this whole "retirement income" thing will work for us.
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