One Retired - Portfolio Review Help

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Topic Author
bobcat_4363
Posts: 6
Joined: Wed May 30, 2018 2:50 pm
Location: California

One Retired - Portfolio Review Help

Post by bobcat_4363 »

I retired last year, and my wife plans to work another 5 years. We're both savers with a fairly simple investment strategy based on an 80/20 stocks to bonds portfolio of few, low-expense indexed funds. Long-term plans include indulging in hobbies, traveling, and spoiling grandchildren (first expected any time!). Longer-term plans to leave something behind for kids.

Emergency funds: > 2 years

Debt: None

Tax Filing Status: Married Filing Jointly, no dependents

Tax Rate: 24% Federal (was 32% last year), 9.3% State

State of Residence: CA

Own home: low seven-figures

Age: Both 58

Total portfolio size: mid seven-figures

Taxable
0.15% Cash (for investing – not emergency funds)
3.56% Schwab US Broad Market ETF (SCHB) (0.03%)
0.80% Schwab International Equity ETF (SCHZ) (0.04%)
0.69% Schwab U.S. Aggregate Bond ETF (SCHF) (0.06%)
0.90% [Etrade] Vanguard S&P 500 ETF (VOO) (0.03%)
0.16% [Etrade] Vanguard Total Bond Market ETF (BND) (0.04%)
0.37% Crypto (BTC)
12.22% His prior tech company LT stock
4.61% Her current tech company LT stock
9.22% Her prior tech company LT stock

His Rollover IRA at Schwab
18.96% Schwab S&P 500 Index Fund (SWPPX) (0.02%)
4.63% Schwab International Index Fund (SWISX) (0.06%)
5.68% Schwab Small-Cap Index Fund (SWSSX) (0.04%)
6.55% Schwab U.S. Aggregate Bond Index Fund (SWAGX) (0.04%)
3.47% Cash (recent 401K rollover not yet invested)

Her 401k at Fidelity (annual 8% / company 2%)
12.57% Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX)
5.91% Vanguard Total Bond Market Index Fund Institutional Shares (VBTIX)
3.20% Vanguard Total International Stock Index Fund Institutional Shares (VTSNX)
2.96% Vanguard Extended Market Index Fund Institutional Shares (VIEIX)

Her Rollover IRA at Fidelity
3.39% Fidelity Freedom 2025 Fund (VVTWX)

Questions
1. A good percentage of our portfolio is in three tech stocks that have performed well. Should it be a priority to begin reducing and diversifying the investments? There are tax and capital gains implications that could affect our tax rate.
2. Generally, we have a fairly high risk tolerance. Given my retirement, I'm thinking about rebalancing of my part of the portfolio while my wife continues at 80/20. Should I grow the bond allocation, or are there other allocation options to consider?
3. I should have started a Roth some time ago, but from what I've read, I'm not sure starting a long-term conversion plan at this stage would be the best for us. Any thoughts on this?
4. Current allocation mostly domestic stocks/bonds. Any insight into other long-term investment options to tune the portfolio?
User avatar
Watty
Posts: 22335
Joined: Wed Oct 10, 2007 3:55 pm

Re: One Retired - Portfolio Review Help

Post by Watty »

bobcat_4363 wrote: Sun May 02, 2021 10:51 pm 12.22% His prior tech company LT stock
4.61% Her current tech company LT stock
9.22% Her prior tech company LT stock
......
1. A good percentage of our portfolio is in three tech stocks that have performed well. Should it be a priority to begin reducing and diversifying the investments? There are tax and capital gains implications that could affect our tax rate.
Your other mutual funds likely also own these stocks as well so you may have even more exposure to those stocks than you realize. Of course a there is a big risk that the stocks could go down. Even if the companies keep doing well a general bear market could impact all stocks.

One thing try to figure out is if there is some realistic way you will be able to pay less in capital gains taxes if you delay selling them for a few years. If you would be paying the same taxes in a few years then it may just be a question of when you pay the taxes, not if you will pay the taxes.

Because of board rules we cannot discuss proposed legislation but even without current events there is always a chance that tax rates could be higher in the future.

Paying a federal 15% long term capital gains tax and your state taxes might be about as good as it gets.
trueblueky
Posts: 2079
Joined: Tue May 27, 2014 3:50 pm

Re: One Retired - Portfolio Review Help

Post by trueblueky »

Watty wrote: Sun May 02, 2021 11:56 pm
bobcat_4363 wrote: Sun May 02, 2021 10:51 pm 12.22% His prior tech company LT stock
4.61% Her current tech company LT stock
9.22% Her prior tech company LT stock
......
1. A good percentage of our portfolio is in three tech stocks that have performed well. Should it be a priority to begin reducing and diversifying the investments? There are tax and capital gains implications that could affect our tax rate.
Your other mutual funds likely also own these stocks as well so you may have even more exposure to those stocks than you realize. Of course a there is a big risk that the stocks could go down. Even if the companies keep doing well a general bear market could impact all stocks.

One thing try to figure out is if there is some realistic way you will be able to pay less in capital gains taxes if you delay selling them for a few years. If you would be paying the same taxes in a few years then it may just be a question of when you pay the taxes, not if you will pay the taxes.

Because of board rules we cannot discuss proposed legislation but even without current events there is always a chance that tax rates could be higher in the future.

Paying a federal 15% long term capital gains tax and your state taxes might be about as good as it gets.
While we can't discuss legislation, we can note that the tax rates are scheduled to be higher when your wife retires. The current rates are temporary; the former, higher rates return in 2026.
HomeStretch
Posts: 6201
Joined: Thu Dec 27, 2018 3:06 pm

Re: One Retired - Portfolio Review Help

Post by HomeStretch »

Don’t reinvest tech stock dividends, if any, so you don’t buy more.

Roth accounts grow tax free so shift Taxable account funds to Roth if it makes sense. Use the Taxable account funds (cash, dividends, any tax lots with little/no gain) to contribute to spouse’s Roth 401k, if available, if spouse is not maxing out the 401k elective deferral ($19.5k < age 50, $26k age 50+).

Other options to get funds into Roth accounts are:
1) Roth conversions over time (depending on marginal tax rate at conversion vs. rate at distribution in retirement)
https://www.bogleheads.org/wiki/Roth_IRA_conversion
2) mega back door Roth if offered by spouse’s 401k:
https://www.bogleheads.org/wiki/After-tax_401(k)
3) backdoor Roth for spouse if Her Rollover IRA can be rolled over into Her 401k to avoid pro-rated taxes:
https://www.bogleheads.org/wiki/Backdoor_Roth
Topic Author
bobcat_4363
Posts: 6
Joined: Wed May 30, 2018 2:50 pm
Location: California

Re: One Retired - Portfolio Review Help

Post by bobcat_4363 »

Watty wrote: Sun May 02, 2021 11:56 pm
bobcat_4363 wrote: Sun May 02, 2021 10:51 pm 12.22% His prior tech company LT stock
4.61% Her current tech company LT stock
9.22% Her prior tech company LT stock
......
1. A good percentage of our portfolio is in three tech stocks that have performed well. Should it be a priority to begin reducing and diversifying the investments? There are tax and capital gains implications that could affect our tax rate.
Your other mutual funds likely also own these stocks as well so you may have even more exposure to those stocks than you realize. Of course a there is a big risk that the stocks could go down. Even if the companies keep doing well a general bear market could impact all stocks.

One thing try to figure out is if there is some realistic way you will be able to pay less in capital gains taxes if you delay selling them for a few years. If you would be paying the same taxes in a few years then it may just be a question of when you pay the taxes, not if you will pay the taxes.

Because of board rules we cannot discuss proposed legislation but even without current events there is always a chance that tax rates could be higher in the future.

Paying a federal 15% long term capital gains tax and your state taxes might be about as good as it gets.
Thanks Watty. Agreed that our company tech stocks are probably in the mutual funds and ETF we are already invested in. Concentration in a few stocks with future bear market and coming tax changes are behind my thinking about reducing and diversifying. Staying under the limit to get 15% cap gains fed and 9.3% for state tax (CA treats as income) is probably best I can hope for. Key would be staying under income level. If tax changes come, might be a hold and wait.
Topic Author
bobcat_4363
Posts: 6
Joined: Wed May 30, 2018 2:50 pm
Location: California

Re: One Retired - Portfolio Review Help

Post by bobcat_4363 »

trueblueky wrote: Mon May 03, 2021 7:23 am
Watty wrote: Sun May 02, 2021 11:56 pm
bobcat_4363 wrote: Sun May 02, 2021 10:51 pm 12.22% His prior tech company LT stock
4.61% Her current tech company LT stock
9.22% Her prior tech company LT stock
......
1. A good percentage of our portfolio is in three tech stocks that have performed well. Should it be a priority to begin reducing and diversifying the investments? There are tax and capital gains implications that could affect our tax rate.
Your other mutual funds likely also own these stocks as well so you may have even more exposure to those stocks than you realize. Of course a there is a big risk that the stocks could go down. Even if the companies keep doing well a general bear market could impact all stocks.

One thing try to figure out is if there is some realistic way you will be able to pay less in capital gains taxes if you delay selling them for a few years. If you would be paying the same taxes in a few years then it may just be a question of when you pay the taxes, not if you will pay the taxes.

Because of board rules we cannot discuss proposed legislation but even without current events there is always a chance that tax rates could be higher in the future.

Paying a federal 15% long term capital gains tax and your state taxes might be about as good as it gets.
While we can't discuss legislation, we can note that the tax rates are scheduled to be higher when your wife retires. The current rates are temporary; the former, higher rates return in 2026.
Thanks trueblueky. I believe tax rate changes are coming, and hope that they are not retroactive to 1/1/2021 :( . I wasn't aware that the current rates will expire in the near future unless changed to something else by current administration.
Topic Author
bobcat_4363
Posts: 6
Joined: Wed May 30, 2018 2:50 pm
Location: California

Re: One Retired - Portfolio Review Help

Post by bobcat_4363 »

HomeStretch wrote: Mon May 03, 2021 8:08 am Don’t reinvest tech stock dividends, if any, so you don’t buy more.

Roth accounts grow tax free so shift Taxable account funds to Roth if it makes sense. Use the Taxable account funds (cash, dividends, any tax lots with little/no gain) to contribute to spouse’s Roth 401k, if available, if spouse is not maxing out the 401k elective deferral ($19.5k < age 50, $26k age 50+).

Other options to get funds into Roth accounts are:
1) Roth conversions over time (depending on marginal tax rate at conversion vs. rate at distribution in retirement)
https://www.bogleheads.org/wiki/Roth_IRA_conversion
2) mega back door Roth if offered by spouse’s 401k:
https://www.bogleheads.org/wiki/After-tax_401(k)
3) backdoor Roth for spouse if Her Rollover IRA can be rolled over into Her 401k to avoid pro-rated taxes:
https://www.bogleheads.org/wiki/Backdoor_Roth
Thanks homestretch. Wife's company offers Roth 401k - my daughter works at same company and began with the Roth option. I could setup a new Roth IRA and setup an annual plan to move taxable investments up to max $26k - there would be some capital gains on sell, but probably not an issue. I have read others in this forum discuss that. I'll check out the other options you listed. I had thought about beginning a Roth conversion - AFAIK the key would be any capital gains, and using other money on hand to pay the taxes.
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