Portfolio review and advice after leaving FA

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Topic Author
Aloe
Posts: 13
Joined: Thu May 09, 2024 1:54 pm

Portfolio review and advice after leaving FA

Post by Aloe »

Thank you for reading this and offering your expertise. I retired early after being laid off and recently left my financial advisor of 2.5 years to return to self-directed. I want to transition back to a simple and low-cost portfolio. My experience with investments is primarily through workplace plans. I have been doing a lot of research lately, which brought me here.

Emergency funds: Yes, ~$50K (half in HYSA/half in Fidelity SPAXX in taxable account)

Debt: Mortgage balance $184K at 2.375%, maturity date 10/01/2035, property value $575K

Tax Filing Status: Single

Tax Rate: 12% or 22% Federal, 3.07% State

State of Residence: PA

Age: 59.5 in Dec. 2024

SS Age: 62 is currently the plan

SS Amount: $2,423 is current monthly estimate

Desired Asset allocation: 60% stocks / 40% bonds
Desired International allocation: 25% of stocks

Retirement Portfolio: ~1.2M

Current retirement assets

Taxable
None

401k at Fidelity
05.98% Vanguard Institutional 500 Index Trust (0.0104%)
01.97% Vanguard Institutional Extended Market Index Trust (0.0205%)
01.36% Vanguard Institutional Total International Stock Market Index Trust (0.0450%)
00.84% US Small-Mid Cap Value Stock Portfolio (0.4700%)

Roth IRA at Vanguard
03.64% Vanguard LifeStrategy Growth Fund Investor (VASGX) (0.14%)

Rollover IRA transferred to Fidelity when I left FA
01.84% Fidelity Government Money Market (SPAXX) (0.42%)
02.39% Abrdn ETFS Bloomberg All Commodity Strategy K-1 FRE (BCI) (0.26%)
01.31% Invesco Exchange Traded FD TR S&P500 EQL WGT (RSP) (0.20%)
01.06% Invesco Exch Traded FD TR II SR LN ETF (BKLN) (0.65%)
10.35% Ishares Inc MSCI Gbl Min Vol (ACWV) (0.20%)
01.36% Ishares TR MBS ETF (MBB) (0.04%)
01.41% Ishares TR USD INV GRDE ETF (USIG) (0.04%)
03.41% J P Morgan Exchange Traded FD Ultra Shrt Inc (JPST) (0.18%)
02.74% Spdr Ser TR Portfli High Yld (SPHY) (0.05%)
00.43% Schwab Strategic TR US Large-Cap ETF (SCHX) (0.03%)
01.27% Schwab Strategic TR US Small-Cap ETF (SCHA) (0.04%)
12.05% Schwab Strategic TR Short-Term US Treasury ETF (SCHO) (0.03%)
02.91% Schwab Strategic TR US TIPS ETF (SCHP) (0.03%)
00.84% SEI Enhanced US Large Cap Quality Factor ETF (SEIQ) (0.15%)
01.73% SEI Enhanced US Large Cap Momentum Factor ETF (SEIM) (0.15%)
01.77% SEI Enhanced US Large Cap Value Factor ETF (SEIV) (0.15%)
04.70% SEI Enhanced Low Volatility US Large Cap ETF (SELV) (0.15%)
01.45% Vaneck ETF Trust JP Mrgan EM LOC (EMLC) (0.30%)
10.43% Vanguard Balanced Index FD INC Total BND Mrkt (BND) (0.03%)
05.75% Vanguard Developed Markets Index Fund ETF (VEA) (0.06%)
01.49% Vanguard Whitehall FDS EM MK GOV BD ETF (VWOB) (0.20%)
06.41% Vanguard Sht-Term Inflation-Protected SEC IDX (VTIP) (0.04%)
05.51% Vanguard Charlotte FDS Total INTL BD ETF (BNDX) (0.07%)
03.58% Vanguard INTL Equity Index FDS FTSE EMR MKT ETF (VWO) (0.08%)
_______________________________________________________________

New Contributions

New annual Contributions
None

Available funds

Funds available 401(k)
Dodge & Cox International Stock Fund Class X (DOXFX) (0.52%)
Dodge & Cox Stock Fund Class X (DOXGX) (0.41%)
Vanguard Target Retirement 2020 Trust (0.0375%)
Vanguard Target Retirement 2025 Trust (0.0375%)
Vanguard Target Retirement 2030 Trust (0.0375%)
Vanguard Target Retirement 2035 Trust (0.0375%)
Vanguard Target Retirement 2040 Trust (0.0375%)
Vanguard Target Retirement 2045 Trust (0.0375%)
Vanguard Target Retirement 2050 Trust (0.0375%)
Vanguard Target Retirement 2055 Trust (0.0375%)
Vanguard Target Retirement 2060 Trust (0.0375%)
Vanguard Target Retirement 2065 Trust (0.0375%)
Vanguard Target Retirement 2070 Trust (0.0375%)
Vanguard Target Retirement Income Trust (0.0375%)
Vanguard Institutional 500 Index Trust (0.0104%)
Vanguard Institutional Extended Market Index Trust (0.0205%)
Vanguard Institutional Total International Stock Market Index Trust (0.0450%)
Vanguard Institutional Total Bond Market Index Trust (0.0180%)
Artisan International Separate Account (0.6600%)
Emerging Markets Stock Portfolio (0.5600%)
Fidelity Contrafund Commingled Pool Class S (0.30%)
Fidelity Growth Company Commingled Pool Class S (0.32%)
Fidelity Low-Priced Stock Commingled Pool Class O (0.41%)
Fidelity Worldwide Fund (FWWFX) (0.63%)
US Small-Mid Cap Value Stock Portfolio (0.4700%)
William Blair SMID Cap Growth Strategy (0.6600%)
Fidelity Balanced Fund Class K (FBAKX) (0.39%)
PIMCO Inflation Response Multi-National Fund Institutional (PIRMX) (0.82%)
Broad Market Bond Portfolio (0.1800%)
Galliard Stable Value Fund (0.2630%)
Note - Fidelity BrokerageLink is also available, but I have not explored using it

Questions:
1. Is turning the IRA into a three-fund portfolio a wise move for me? I am a buy and hold investor. The IRA already has BND, so I was thinking of selling everything else and buying VTI and VXUS. If I do this, should I care about timing or just get it done? I may be drawing on the IRA for living expenses in 2025.

2. Recommendations for the 401k investments? I currently draw on this account monthly for living expenses under the Rule of 55. Expenses average $4500 monthly YTD (includes mortgage and healthcare premium). Withdrawal amount is $5,772 monthly. I net $4,617 after mandatory 20% Federal tax withholding. The 401k is currently precariously positioned (my bad). I'm thinking remove the US Small-Mid Cap Value Stock Portfolio (because of expense) and add Vanguard Institutional Total Bond Market Index Trust (because currently all stocks)?

3. Thoughts on investments for the Roth? Keep VASGX or change?

I appreciate your help!
Last edited by Aloe on Wed May 15, 2024 1:03 pm, edited 3 times in total.
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retired@50
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Location: Living in the U.S.A.

Re: Portfolio review and advice after leaving FA

Post by retired@50 »

Aloe wrote: Fri May 10, 2024 3:30 pm
Questions:
1. Is turning the IRA into a three-fund portfolio a wise move for me? I am a buy and hold investor. The IRA already has BND, so I was thinking of selling everything else and buying VTI and VXUS. If I do this, should I care about timing or just get it done? I may be drawing on the IRA for living expenses in 2025.

2. Recommendations for the 401k investments? I currently draw on this account monthly for living expenses under the Rule of 55. Expenses average $4500 monthly YTD (includes mortgage and healthcare premium). Withdrawal amount is $5,772 monthly. I net $4,617 after mandatory 20% Federal tax withholding. The 401k is currently precariously positioned (my bad). I'm thinking remove the US Small-Mid Cap Value Stock Portfolio (because of expense) and add Vanguard Institutional Total Bond Market Index Trust (because currently all stocks)?

3. Thoughts on investments for the Roth? Keep VASGX or change?

I appreciate your help!
Welcome to the forum.

1. Well, it certainly would be better than the mess that exists in the Rollover IRA now. Once you determine how much BND you need in the Rollover IRA, buy that, then use the remainder of the funds in the account to buy some VTI and VXUS. I would just make the necessary move(s) as soon as is practical. The money is already invested, just in a huge list of funds, so I see no good reason to delay.

2. The 401k looks fine, although the small/mid cap value fund is somewhat duplicative of the extended market index fund. I'd probably eliminate the small/mid cap value fund and consolidate.
You could add a bond fund in the 401k if you want, since there is a good bond fund choice. When considering your bond allocation, just look at the portfolio as one "whole" instead of 3 sub accounts. Then, as withdrawals occur, you can re-balance as needed to maintain your desired asset mix.

3. Most folks would use a pure stock index fund in the Roth account. Since the VASGX fund holds some bonds, it's often better to put bond investments in a tax-deferred account (instead of a tax free Roth account). See the wiki page on tax efficient fund placement.
Link: https://www.bogleheads.org/wiki/Tax-eff ... _placement

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
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Duckie
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Re: Portfolio review and advice after leaving FA

Post by Duckie »

Aloe, welcome to the forum.
Aloe wrote: Fri May 10, 2024 3:30 pm Desired Asset allocation: 60% stocks / 40% bonds
Desired International allocation: 25% of stocks
That is reasonable for your age.
Is turning the IRA into a three-fund portfolio a wise move for me?
Yes. Use the Rollover IRA for all rebalancing.
The IRA already has BND, so I was thinking of selling everything else and buying VTI and VXUS.
The below example used Fidelity mutual funds in the Rollover IRA, but using Vanguard or iShares ETFs will work also.
If I do this, should I care about timing or just get it done?
Just get it done.
I may be drawing on the IRA for living expenses in 2025.
Have all dividends/distributions funneled to the settlement fund.
Recommendations for the 401k investments? I currently draw on this account monthly for living expenses under the Rule of 55. Expenses average $4500 monthly YTD (includes mortgage and healthcare premium). Withdrawal amount is $5,772 monthly. I net $4,617 after mandatory 20% Federal tax withholding. The 401k is currently precariously positioned (my bad). I'm thinking remove the US Small-Mid Cap Value Stock Portfolio (because of expense) and add Vanguard Institutional Total Bond Market Index Trust (because currently all stocks)?
I would switch it all to the Bond Market Trust until you turn 59.5 in December and then use the Rollover IRA for all withdrawals. At that point I would roll the remainder of the Fidelity 401k into the Fidelity Rollover IRA to simplify.
Thoughts on investments for the Roth? Keep VASGX or change?
In general it is better to put assets with higher expected growth (stocks) in Roth accounts and assets with lower expected growth (bonds) in pre-tax accounts. That is because you have already paid the taxes in the Roth accounts so future growth is tax-free. So I would use just one stock index fund/ETF in the Roth IRA. Consider rolling the Roth IRA to Fidelity for consolidation. You could purchase VTI there.
___________________________________

You have a desired AA of 60% stocks, 40% bonds, with 25% of stocks in international. That breaks down to 45% US stocks, 15% international stocks, and 40% bonds. Since everything is in tax-sheltered accounts, you could quickly have:

401k at Fidelity -- 10%
10% (N/A) Vanguard Institutional Total Bond Market Index Trust (??)

Rollover IRA at Fidelity -- 86%
41% (FSKAX) Fidelity Total Market Index Fund (0.015%)
15% (FTIHX) Fidelity Total International Index Fund (0.06%)
30% (FXNAX) Fidelity U.S. Bond Index Fund (0.025%)

or

41% (VTI) Vanguard Total Stock Market ETF (0.03%)
15% (VXUS) Vanguard Total International Stock ETF (0.08%)
30% (BND) Vanguard Total Bond Market ETF (0.03%)

Roth IRA at Vanguard -- 4%
4% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)

Just some possibilities.
Topic Author
Aloe
Posts: 13
Joined: Thu May 09, 2024 1:54 pm

Re: Portfolio review and advice after leaving FA

Post by Aloe »

retired@50 wrote: Fri May 10, 2024 6:03 pm Welcome to the forum.
Thank you and thanks for your responses to my questions.
retired@50 wrote: Fri May 10, 2024 6:03 pm When considering your bond allocation, just look at the portfolio as one "whole" instead of 3 sub accounts.
Good advice. I am not in the habit of doing this.
retired@50 wrote: Fri May 10, 2024 6:03 pm See the wiki page on tax efficient fund placement.
I appreciate you bringing this to my attention and providing the link.
Northern Flicker
Posts: 15571
Joined: Fri Apr 10, 2015 12:29 am

Re: Portfolio review and advice after leaving FA

Post by Northern Flicker »

Since you are using the 401K for your primary current income stream, you could just use the Vanguard Target Retirement Income fund "Vanguard Target Retirement Income Trust" that Vanguard designed for this purpose in that account, and build the portfolio that will support longer term needs in the rollover IRA and Roth account.

I would move the Roth account to Fidelity for simplicity. That also will facilitate using it strategically. If it is reasonable to realize more income to reduce future RMDs you then can do a Roth conversion. Or, you can manage tax brackets and income by withdrawing from Roth or tax-deferred as appropriate. You can shift income to a future year by withdrawing from Roth in a current year, and doing a Roth conversion in a subsequent year etc.

Be sure to track the rules for a Roth withdrawal being penalty-free and tax-free. Some of these strategies may require being 59.5 in age, but it also is possible to withdraw principal contributions from Roth accounts tax-free as long as you follow the requirements. You would need 5498 documents to demonstrate principal basis in the Roth IRA. May even be able to withdraw principal from Roth and do a Roth conversion from the rollover IRA to simulate tapping the rollover IRA penalty-free before 59.5.

Some of those strategies won't be applicable to your situation, but the point is that moving the Roth to Fidelity will enable more strategies and options, maximizing flexibility.
Topic Author
Aloe
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Joined: Thu May 09, 2024 1:54 pm

Re: Portfolio review and advice after leaving FA

Post by Aloe »

Duckie, thank you for welcoming me and for your responses to my questions. Please see my follow-up questions. Thanks
Duckie wrote: Fri May 10, 2024 6:21 pm The below example used Fidelity mutual funds in the Rollover IRA, but using Vanguard or iShares ETFs will work also.
In the Rollover IRA, BND Total Loss currently is -24,672 (-15.81%). Is this a compelling reason to hold on to BND and opt for Vanguard ETFs over other options?
Duckie wrote: Fri May 10, 2024 6:21 pm Have all dividends/distributions funneled to the settlement fund.
Does this mean keep the existing 23K in the settlement fund in addition to funneling future dividends/distributions to it?
Duckie wrote: Fri May 10, 2024 6:21 pm I would switch it all to the Bond Market Trust until you turn 59.5 in December and then use the Rollover IRA for all withdrawals.
What are your thoughts behind the move to the Bond Market Trust? Safest place in 401k since I am drawing on it for living expenses? I want to ensure that I understand. Bond Market Trust YTD return: -1.82%, (ER .0180%); Galliard Stable Value Fund YTD return: +1.17%, (ER .2630%); 401k YTD return 7.78%.
Duckie wrote: Fri May 10, 2024 6:21 pm In general it is better to put assets with higher expected growth (stocks) in Roth accounts and assets with lower expected growth (bonds) in pre-tax accounts. That is because you have already paid the taxes in the Roth accounts so future growth is tax-free. So I would use just one stock index fund/ETF in the Roth IRA. Consider rolling the Roth IRA to Fidelity for consolidation. You could purchase VTI there.
Got it - thank you. I appreciate your thorough responses to my questions and the additional information you provided. The examples of some possibilities help to clarify things.
Northern Flicker
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Re: Portfolio review and advice after leaving FA

Post by Northern Flicker »

The Roth account is a small enough portion of the portfolio, and bond yields are now high enough that it does not matter very much whether stocks or bonds are held in the Roth account in this situation. Roth accounts also amplify risk. At current yields, 10-20% of a portfolio bonds probably reduces more risk than it gives up in return. And if you realize a rebalancing premium in Roth space, it is tax-free. Taking all of that together, I think 80% stock and 20% bonds in the OP's Roth account is fine, and may even be optimal. 100% stocks in the Roth account also is fine.
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Duckie
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Re: Portfolio review and advice after leaving FA

Post by Duckie »

Aloe wrote: Sat May 11, 2024 5:14 pm
Duckie wrote: Fri May 10, 2024 6:21 pm The below example used Fidelity mutual funds in the Rollover IRA, but using Vanguard or iShares ETFs will work also.
In the Rollover IRA, BND Total Loss currently is -24,672 (-15.81%). Is this a compelling reason to hold on to BND and opt for Vanguard ETFs over other options?
You want 40% fixed income. The bulk of that will be bonds. Whether you use BND, AGG, VTIP, and/or FXNAX for that portion is up to you.
Have all dividends/distributions funneled to the settlement fund.
Does this mean keep the existing 23K in the settlement fund in addition to funneling future dividends/distributions to it?
If you have $23K in the Rollover IRA settlement fund now in addition to the $50K emergency fund (I assume in taxable), I think you should use that $23K to purchase new shares in the three funds I recommended you switch to in the portfolio example.
I would switch it all to the Bond Market Trust until you turn 59.5 in December and then use the Rollover IRA for all withdrawals.
What are your thoughts behind the move to the Bond Market Trust? Safest place in 401k since I am drawing on it for living expenses? I want to ensure that I understand. Bond Market Trust YTD return: -1.82%, (ER .0180%); Galliard Stable Value Fund YTD return: +1.17%, (ER .2630%); 401k YTD return 7.78%.
My thoughts are "safest place". The stable value fund would work, too. Maybe better than BND over the short term. Heck, it is only for seven months. You could just leave the 401k as is until you roll it into the Rollover IRA after age 59.5.
Topic Author
Aloe
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Joined: Thu May 09, 2024 1:54 pm

Re: Portfolio review and advice after leaving FA

Post by Aloe »

Duckie wrote: Sat May 11, 2024 5:39 pm If you have $23K in the Rollover IRA settlement fund now in addition to the $50K emergency fund (I assume in taxable), I think you should use that $23K to purchase new shares in the three funds I recommended you switch to in the portfolio example.
Thanks. Yes, the Rollover IRA had $21K in cash when transferred to Fidelity and $2K in dividends were added since then. Your emergency fund assumption is correct, half in Fidelity Government Money Market Fund (SPAXX) in taxable account and half in HYSA.
Topic Author
Aloe
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Joined: Thu May 09, 2024 1:54 pm

Re: Portfolio review and advice after leaving FA

Post by Aloe »

Northern Flicker wrote: Sat May 11, 2024 3:31 pm Since you are using the 401K for your primary current income stream, you could just use the Vanguard Target Retirement Income fund "Vanguard Target Retirement Income Trust" that Vanguard designed for this purpose in that account, and build the portfolio that will support longer term needs in the rollover IRA and Roth account.
Thanks for the heads up on the purpose of that Vanguard account. Good to know! I appreciate you providing a strategy option as well.
Northern Flicker wrote: Sat May 11, 2024 3:31 pm I would move the Roth account to Fidelity for simplicity. That also will facilitate using it strategically. If it is reasonable to realize more income to reduce future RMDs you then can do a Roth conversion. Or, you can manage tax brackets and income by withdrawing from Roth or tax-deferred as appropriate. You can shift income to a future year by withdrawing from Roth in a current year, and doing a Roth conversion in a subsequent year etc.
Thanks. This and the other guidance you gave on the Roth account is very helpful. Gives me plenty to consider as I work to manage income and keep my monthly healthcare premium as low as possible.
Northern Flicker
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Re: Portfolio review and advice after leaving FA

Post by Northern Flicker »

Aloe wrote: Sun May 12, 2024 2:02 pm
Northern Flicker wrote: Sat May 11, 2024 3:31 pm Since you are using the 401K for your primary current income stream, you could just use the Vanguard Target Retirement Income fund "Vanguard Target Retirement Income Trust" that Vanguard designed for this purpose in that account, and build the portfolio that will support longer term needs in the rollover IRA and Roth account.
Thanks for the heads up on the purpose of that Vanguard account.
Target Retirement Income is the endpoint of the Target Retirement glidepath for when you've reached retirement and need to generate regular income. You could hold say 10% stable value fund, 90% Target Retirement Income to smooth out volatility-- withdraw from the stable value fund when the market has sold off enough for TR income to have dropped some. It is 30% stock, so a conservative investment, but it can fluctuate some of course.
HomeStretch
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Re: Portfolio review and advice after leaving FA

Post by HomeStretch »

+1 to using an equity total stock market fund in the Roth account for highest expected growth and a lower ER.

At what age will you claim Social Security benefits, if eligible? How much will your monthly SS benefit be?

Will you have any pension or other income?

Are you utilizing ACA healthcare coverage with a premium tax credits (PTC)?

With almost $1.2 million in tax deferred, have you looked at whether you should do some Roth conversions?
Topic Author
Aloe
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Joined: Thu May 09, 2024 1:54 pm

Re: Portfolio review and advice after leaving FA

Post by Aloe »

HomeStretch wrote: Sun May 12, 2024 10:16 pm +1 to using an equity total stock market fund in the Roth account for highest expected growth and a lower ER.
Thanks for contributing!
HomeStretch wrote: Sun May 12, 2024 10:16 pm At what age will you claim Social Security benefits, if eligible? How much will your monthly SS benefit be?
I plan to claim Social Security benefits at 62. My monthly SS benefit estimate is $2,423 as of today. I updated my post with this and a little other info.
HomeStretch wrote: Sun May 12, 2024 10:16 pm Will you have any pension or other income?
No pension and no other income expected at this time.
HomeStretch wrote: Sun May 12, 2024 10:16 pm Are you utilizing ACA healthcare coverage with a premium tax credits (PTC)?
Yes, I chose a plan that costs ~$550 monthly and based on an income estimate of $60K I get a $250 monthly advance premium tax credit.
HomeStretch wrote: Sun May 12, 2024 10:16 pm With almost $1.2 million in tax deferred, have you looked at whether you should do some Roth conversions?
I am aware of Roth conversions, but that's about it. Please share any suggestions you may have. I figured I haven't been in a position to take on a Roth conversion because of the taxable income bump. I have primarily been focused on keeping expenses and taxable income as low as possible while retaining an emergency fund and reaching 59.5.
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retired@50
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Re: Portfolio review and advice after leaving FA

Post by retired@50 »

Aloe wrote: Fri May 10, 2024 3:30 pm SS Age: 62 is currently the plan
Have you run your details through Mike Piper's open social security website? He's a fellow Boglehead.

It can help people with Social Security claiming decisions. For lots of folks, waiting beyond 62 is usually better, but of course there are some unknowns and assumptions.

See link: https://opensocialsecurity.com/

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
Topic Author
Aloe
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Joined: Thu May 09, 2024 1:54 pm

Re: Portfolio review and advice after leaving FA

Post by Aloe »

retired@50 wrote: Mon May 13, 2024 12:33 pm
Aloe wrote: Fri May 10, 2024 3:30 pm SS Age: 62 is currently the plan
Have you run your details through Mike Piper's open social security website? He's a fellow Boglehead.

It can help people with Social Security claiming decisions. For lots of folks, waiting beyond 62 is usually better, but of course there are some unknowns and assumptions.

See link: https://opensocialsecurity.com/
I have not. I will check it out. Thanks!
Topic Author
Aloe
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Joined: Thu May 09, 2024 1:54 pm

Re: Portfolio review and advice after leaving FA

Post by Aloe »

Northern Flicker wrote: Sun May 12, 2024 9:20 pm Target Retirement Income is the endpoint of the Target Retirement glidepath for when you've reached retirement and need to generate regular income. You could hold say 10% stable value fund, 90% Target Retirement Income to smooth out volatility-- withdraw from the stable value fund when the market has sold off enough for TR income to have dropped some. It is 30% stock, so a conservative investment, but it can fluctuate some of course.
Thanks for the additional information. I am not quite following the part I bolded. Can you further explain that part? Thanks so much.
Northern Flicker
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Re: Portfolio review and advice after leaving FA

Post by Northern Flicker »

Aloe wrote: Mon May 13, 2024 9:42 pm
Northern Flicker wrote: Sun May 12, 2024 9:20 pm Target Retirement Income is the endpoint of the Target Retirement glidepath for when you've reached retirement and need to generate regular income. You could hold say 10% stable value fund, 90% Target Retirement Income to smooth out volatility-- withdraw from the stable value fund when the market has sold off enough for TR income to have dropped some. It is 30% stock, so a conservative investment, but it can fluctuate some of course.
Thanks for the additional information. I am not quite following the part I bolded. Can you further explain that part? Thanks so much.
Target Retirement Income (TRI) has had drawdowns around 15-17% (2008/2009 and 2021/2022). In both cases it took about a year to recover, but there are no guarantees of such an outcome. Having say a year of expenses in the stable value fund (SVF) to draw in when TRI has dropped would smooth out the risk, which is sometimes called sequence if returns risk.

This would be a bucket strategy for portfolio design. Bucket 1 would be the SVF, Bucket 2 TRI, and Bucket 3 the remaining portfolio. The buckets align risk and volatility with 3 different spending horizons.

While the SVF aligns with the shortest horizon, you still normally would spend down Target Retirement Income except when it has experienced a decline. In that scenario, withdraw from the SVF, and when TRI (hopefully) has recovered, replenish the SVF bucket.

You don't have to use the strategy. Just holding TRI in the account you currently are funding expenses from also is acceptable.
Northern Flicker
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Re: Portfolio review and advice after leaving FA

Post by Northern Flicker »

Aloe wrote: I am aware of Roth conversions, but that's about it. Please share any suggestions you may have.
Required mandatory distributions will start when you turn 73. With $1M in trad IRAs/401Ks the first required distribution will be in the neighborhood of $50K which may push up into higher brackets than the tax on some Roth conversions, and may trigger higher Medicare premiums under IRMAA.
Topic Author
Aloe
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Joined: Thu May 09, 2024 1:54 pm

Re: Portfolio review and advice after leaving FA

Post by Aloe »

Northern Flicker wrote: Tue May 14, 2024 12:47 am Required mandatory distributions will start when you turn 73. With $1M in trad IRAs/401Ks the first required distribution will be in the neighborhood of $50K which may push up into higher brackets than the tax on some Roth conversions, and may trigger higher Medicare premiums under IRMAA.
Thanks for the heads up. I will do more research on this. The good news is that with the latest legislation my RMD age now is 75.
Topic Author
Aloe
Posts: 13
Joined: Thu May 09, 2024 1:54 pm

Re: Portfolio review and advice after leaving FA

Post by Aloe »

Northern Flicker wrote: Tue May 14, 2024 12:41 am Target Retirement Income (TRI) has had drawdowns around 15-17% (2008/2009 and 2021/2022). In both cases it took about a year to recover, but there are no guarantees of such an outcome. Having say a year of expenses in the stable value fund (SVF) to draw in when TRI has dropped would smooth out the risk, which is sometimes called sequence if returns risk.

This would be a bucket strategy for portfolio design. Bucket 1 would be the SVF, Bucket 2 TRI, and Bucket 3 the remaining portfolio. The buckets align risk and volatility with 3 different spending horizons.

While the SVF aligns with the shortest horizon, you still normally would spend down Target Retirement Income except when it has experienced a decline. In that scenario, withdraw from the SVF, and when TRI (hopefully) has recovered, replenish the SVF bucket.
Thanks for the great explanation. It sounds like this particular bucket strategy relies on my ability to dictate the holdings funds are withdrawn from in my 401(k). I don't think the workplace plan provides that flexibility. At least it wasn't part of the conversation when I talked to Fidelity to set up the monthly automatic withdrawals.
Northern Flicker wrote: Tue May 14, 2024 12:41 am You don't have to use the strategy. Just holding TRI in the account you currently are funding expenses from also is acceptable.
Thanks for this additional guidance.
HomeStretch
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Re: Portfolio review and advice after leaving FA

Post by HomeStretch »

Aloe wrote: Mon May 13, 2024 12:11 pm
HomeStretch wrote: Sun May 12, 2024 10:16 pm At what age will you claim Social Security benefits, if eligible? How much will your monthly SS benefit be?
I plan to claim Social Security benefits at 62. My monthly SS benefit estimate is $2,423 as of today. I updated my post with this and a little other info.
HomeStretch wrote: Sun May 12, 2024 10:16 pm Will you have any pension or other income?
No pension and no other income expected at this time.
HomeStretch wrote: Sun May 12, 2024 10:16 pm Are you utilizing ACA healthcare coverage with a premium tax credits (PTC)?
Yes, I chose a plan that costs ~$550 monthly and based on an income estimate of $60K I get a $250 monthly advance premium tax credit.
HomeStretch wrote: Sun May 12, 2024 10:16 pm With almost $1.2 million in tax deferred, have you looked at whether you should do some Roth conversions?
I am aware of Roth conversions, but that's about it. Please share any suggestions you may have. I figured I haven't been in a position to take on a Roth conversion because of the taxable income bump. I have primarily been focused on keeping expenses and taxable income as low as possible while retaining an emergency fund and reaching 59.5.
Whether or not Roth conversions make sense requires some more analysis on your part.

You have 96% of your portfolio in tax deferred (~$1.1 million) and you will be withdrawing from it to fund spending (perhaps also future care costs unless your home equity is sufficient to cover it).

As you receive ACA PTCs, the Roth conversions you do, if any, until eligible for Medicare in 5 years will generate income that is subject to a marginal rate that includes both income taxes and PTC loss (the latter will be 8.5% or more). In 2026+, the ACA cliff will return so you will also be in the position for a couple pre-Medicare years of having to keep your ACA MAGI below 400% of the federal poverty limit for an ACA family side of 1 (~$60k in 2024) to receive PTCs.

To determine whether Roth conversions are worthwhile at any point in retirement to smooth out your marginal tax rate, avoid Medicare IRMAA, etc., a projection by year until at least age 75 (RMD start date) is needed to look at your income, spending, marginal rate, IRMAA, PTCs to see if Roth conversions in any tax year make sense. You may find you don’t need to do any as you are currently withdrawing ~$69k/year or 5.75% of your portfolio. Even after SS starts, your withdrawal rate (ignoring market returns and in today’s $) will be $40k or 3.3%.
Northern Flicker
Posts: 15571
Joined: Fri Apr 10, 2015 12:29 am

Re: Portfolio review and advice after leaving FA

Post by Northern Flicker »

Aloe wrote: Wed May 15, 2024 8:28 am
Northern Flicker wrote: Tue May 14, 2024 12:41 am Target Retirement Income (TRI) has had drawdowns around 15-17% (2008/2009 and 2021/2022). In both cases it took about a year to recover, but there are no guarantees of such an outcome. Having say a year of expenses in the stable value fund (SVF) to draw in when TRI has dropped would smooth out the risk, which is sometimes called sequence if returns risk.

This would be a bucket strategy for portfolio design. Bucket 1 would be the SVF, Bucket 2 TRI, and Bucket 3 the remaining portfolio. The buckets align risk and volatility with 3 different spending horizons.

While the SVF aligns with the shortest horizon, you still normally would spend down Target Retirement Income except when it has experienced a decline. In that scenario, withdraw from the SVF, and when TRI (hopefully) has recovered, replenish the SVF bucket.
Thanks for the great explanation. It sounds like this particular bucket strategy relies on my ability to dictate the holdings funds are withdrawn from in my 401(k). I don't think the workplace plan provides that flexibility. At least it wasn't part of the conversation when I talked to Fidelity to set up the monthly automatic withdrawals.
If the automatic withdrawals are a part of what is avoiding a withdrawal penalty, then you would have to live with it. If not, you could turn off auto withdrawals if you want to use the strategy, but it is not necessary to use it. If you were just to hold Target Retirement Income with automatic monthly withdrawals, you would essentially be dollar-cost averaging the liquidation price monthly. If you hold a different portfolio there, the same dollar-cost averaging observation would apply as well.
Topic Author
Aloe
Posts: 13
Joined: Thu May 09, 2024 1:54 pm

Re: Portfolio review and advice after leaving FA

Post by Aloe »

HomeStretch wrote: Wed May 15, 2024 8:40 am
Aloe wrote: Mon May 13, 2024 12:11 pm
HomeStretch wrote: Sun May 12, 2024 10:16 pm At what age will you claim Social Security benefits, if eligible? How much will your monthly SS benefit be?
I plan to claim Social Security benefits at 62. My monthly SS benefit estimate is $2,423 as of today. I updated my post with this and a little other info.
HomeStretch wrote: Sun May 12, 2024 10:16 pm Will you have any pension or other income?
No pension and no other income expected at this time.
HomeStretch wrote: Sun May 12, 2024 10:16 pm Are you utilizing ACA healthcare coverage with a premium tax credits (PTC)?
Yes, I chose a plan that costs ~$550 monthly and based on an income estimate of $60K I get a $250 monthly advance premium tax credit.
HomeStretch wrote: Sun May 12, 2024 10:16 pm With almost $1.2 million in tax deferred, have you looked at whether you should do some Roth conversions?
I am aware of Roth conversions, but that's about it. Please share any suggestions you may have. I figured I haven't been in a position to take on a Roth conversion because of the taxable income bump. I have primarily been focused on keeping expenses and taxable income as low as possible while retaining an emergency fund and reaching 59.5.
Whether or not Roth conversions make sense requires some more analysis on your part.

You have 96% of your portfolio in tax deferred (~$1.1 million) and you will be withdrawing from it to fund spending (perhaps also future care costs unless your home equity is sufficient to cover it).

As you receive ACA PTCs, the Roth conversions you do, if any, until eligible for Medicare in 5 years will generate income that is subject to a marginal rate that includes both income taxes and PTC loss (the latter will be 8.5% or more). In 2026+, the ACA cliff will return so you will also be in the position for a couple pre-Medicare years of having to keep your ACA MAGI below 400% of the federal poverty limit for an ACA family side of 1 (~$60k in 2024) to receive PTCs.

To determine whether Roth conversions are worthwhile at any point in retirement to smooth out your marginal tax rate, avoid Medicare IRMAA, etc., a projection by year until at least age 75 (RMD start date) is needed to look at your income, spending, marginal rate, IRMAA, PTCs to see if Roth conversions in any tax year make sense. You may find you don’t need to do any as you are currently withdrawing ~$69k/year or 5.75% of your portfolio. Even after SS starts, your withdrawal rate (ignoring market returns and in today’s $) will be $40k or 3.3%.
Thank you for this detailed information. It's very helpful. Yes, I definitely need to learn more on this topic and run the numbers for my situation. My property value is ~575K. I updated my original post with this info.
Northern Flicker
Posts: 15571
Joined: Fri Apr 10, 2015 12:29 am

Re: Portfolio review and advice after leaving FA

Post by Northern Flicker »

Aloe wrote: The good news is that with the latest legislation my RMD age now is 75.
It is good news in that you have more years to consider doing conversions, and spreading them out over more years can reduce the income realized by conversions in any given year.

But the flip side is that the RMDs will be calculated with fewer years until the age of life expectancy, which means that the RMDs will be a somewhat larger fraction of any trad IRA or 401K balance.
Topic Author
Aloe
Posts: 13
Joined: Thu May 09, 2024 1:54 pm

Re: Portfolio review and advice after leaving FA

Post by Aloe »

Northern Flicker wrote: Wed May 15, 2024 1:39 pm If the automatic withdrawals are a part of what is avoiding a withdrawal penalty, then you would have to live with it. If not, you could turn off auto withdrawals if you want to use the strategy, but it is not necessary to use it. If you were just to hold Target Retirement Income with automatic monthly withdrawals, you would essentially be dollar-cost averaging the liquidation price monthly. If you hold a different portfolio there, the same dollar-cost averaging observation would apply as well.
Ok, understood. Thank you for your guidance!
Topic Author
Aloe
Posts: 13
Joined: Thu May 09, 2024 1:54 pm

Re: Portfolio review and advice after leaving FA

Post by Aloe »

Northern Flicker wrote: Wed May 15, 2024 6:30 pm
Aloe wrote: The good news is that with the latest legislation my RMD age now is 75.
It is good news in that you have more years to consider doing conversions, and spreading them out over more years can reduce the income realized by conversions in any given year.

But the flip side is that the RMDs will be calculated with fewer years until the age of life expectancy, which means that the RMDs will be a somewhat larger fraction of any trad IRA or 401K balance.
Good point. Thanks.
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