Newly retired, portfolio review and rolling 401k

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Topic Author
RetiredWeAre2024
Posts: 4
Joined: Sun Jul 07, 2024 7:38 pm

Newly retired, portfolio review and rolling 401k

Post by RetiredWeAre2024 »

Emergency fund: Yes
Debt: none
Tax Filing Status: Married Filing Jointly
Tax Rate: 15% Federal, 0% State
State of Residence: FL
Ages: 67, 68

Desired Asset allocation: 30% stocks / 70% bonds & cash
Desired International allocation: 5% of stocks

approximate size of total portfolio: 2.529 million

Current retirement assets

Taxable
11.5% cash
25.6% CDs

His 401k at Bank of America
2.4% Dodge & Cox Income Fund C11, DODIX, .41%
8.8% Fidelity 500 Index Fund, FXAIX, .01%
0.7% Putnum Stable Value Fund, PSVTT, .37%
Company match? NA, Retired

His Health Savings Account at Bank of America
2% ishares S&P 500 index CLK, WFSPX, .03%

His Roth IRA at Vanguard
3.6% Total Stock Index VTSAX .04%
1.9% Total International Index VTIAX .12%

Her Roth IRA at Vanguard
1.2% Total Stock Index VTSAX .04%
2.2% Total International Index VTIAX .12%

His Traditional IRA at Vanguard
11.4% 500 Index VFIAX .05%
8.6% Total Bond Index (VBTLX .05%
10.2% Dividend Appreciation Index VDADX .08%

Her Traditional IRA at Vanguard
2.4% 500 Index VFIAX .05%
1.9% Total Bond Index VBTLX .05%

His Inherited IRA at Vanguard
.6% Total Bond VBTLX .05%
2.8% Dividend Appreciation Index VDADX .08%

Her Inherited IRA at Vanguard
2.2% 500 Index VFIAX .12%

Just retired:,

1. We would like to generate $5,000 a month or $60,000 a year income for our retirement.

2. Invest His 401k into which Vanguard funds?

3. Concerned we recently invested in VDADX, Dividend Appreciation Index, looking for income.

Nick & Dee
niagara_guy
Posts: 1271
Joined: Tue Feb 11, 2020 7:32 am

Re: Newly retired, portfolio review and rolling 401k

Post by niagara_guy »

I am only going to comment on your fund placement.

https://www.bogleheads.org/wiki/Tax-eff ... _placement

I hold only stock funds in taxable because it's more tax efficient, I see that you have only cash and CDs in taxable. I believe if you hold a CD to maturity and then choose to move those dollars to a stock fund there are no tax issues, others will correct me if I am wrong. For the cash I believe there are no tax issues if you choose to move those dollars into a stock fund. (There are no tax issues when buying/selling in a tax advantaged account.) Might be a good idea to post your plan here if you want to sell large amounts in taxable to give people a chance to review it first.

I hold only VFIAX in my taxable account because it's very tax efficient (dividends are almost all qualified so taxed at a lower bracket) and very low capital gains since a stock is only sold/bought within the fund when a company joins/leaves the index. There are other stock index funds that are probably just as tax efficient as VFIAX.

I also have only stocks in my Roth since stocks normally provide the most growth over time, I hold non-stock assets in my pretax accounts (t-IRA, 401k).
Topic Author
RetiredWeAre2024
Posts: 4
Joined: Sun Jul 07, 2024 7:38 pm

Re: Newly retired, portfolio review and rolling 401k

Post by RetiredWeAre2024 »

Thank you for sharing your experience Niagara_Guy. We need help getting this right! We will digest the info and compare it to our fund placements.
bonesly
Posts: 1682
Joined: Mon Dec 18, 2017 9:28 pm
Location: WA

Re: Newly retired, portfolio review and rolling 401k

Post by bonesly »

RetiredWeAre2024 wrote: Sun Jul 07, 2024 11:37 pm Just retired.
Congratulations!
RetiredWeAre2024 wrote: Sun Jul 07, 2024 11:37 pm 1. We would like to generate $5,000 a month or $60,000 a year income for our retirement.
The younger of you is 67, so if that one lives to 95, that's a 28-year withdrawal phase; 4% rule from the Trinity Study applies (30y period). A total retirement portfolio of $2.529M supports a 4% initial draw of $101,160 which is well in excess of $60,000, but that $101K is before any taxes. Taxes shouldn't be an issue unless your Fed+State effective tax rate is ≥35% (the Roth withdrawals will be tax-free as long as they've been held for at least 5 years).
RetiredWeAre2024 wrote: Sun Jul 07, 2024 11:37 pm 2. Invest His 401k into which Vanguard funds?
Typical suggestion is the funds that make up a 3-Fund Portfolio; so VTSAX (Total Stock Market), VTIAX (Total Int'l Stock Market), and VBTLX (Total US Bond Market). Use those in proportions to meet your overall asset allocation (AA).
RetiredWeAre2024 wrote: Sun Jul 07, 2024 11:37 pm 3. Concerned we recently invested in VDADX, Dividend Appreciation Index, looking for income.
What's the specific concern? I would likely just stick with VTSAX, VTIAX, and VBTLX for all your Vanguard accounts, but there's nothing inherently wrong with VDADX... it doesn't help and it adds to your total number of funds (increased complication for rebalancing), but it's not going to cause any major problems just because you purchased that fund. If you have concerns, could you share why you bought this in the first place? Maybe with an understanding of motivation, we can say that was a good idea, bad idea, or didn't really matter that much.

You do seem to be using a Mirrored Setup across accounts and that may seem simple, but it actually results in more funds (and thus more complicated to rebalance) than if you viewed all of your accounts as a unified portfolio when assessing against your desired AA.

Here's an example of how I might simplify things for your consideration (this may or may not appeal to you). I've split your 70% bonds & cash to 35% bonds and 35% cash (AA of 30/35/35). I also think it's common international stock exposure guidance to hold at least 20% or nothing at all, so I've increased your international allocation from 5% of stock to 20%.

Image

You're currently holding about 20% too much stock and short 20% on bonds. I don't know where you're holding that 11.5% in cash, but VUSXX is mostly US Treasuries so exempt from state tax and is paying a 5.28% 7d SEC yield (which is likely better than any bank savings account) and your money is not tied up like it is in CDs (as CDs mature move them into VUSXX in a Vanguard Taxable brokerage account). I've also had you purchase $10K for each of you ($20K total) in I-Bonds through TreasuryDirect as you can elect to defer the interest until they're cashed in so effectively turns a Taxable holding into a Tax-Deferred holding and that's a great way to hold bonds in a Taxable account. There's still an imbalance among stocks/cash of ±1.31% in the Proposed Allocation; you can buy another $20K of I-Bonds next year to reduce that delta between current and target AA, but <5% error isn't worth worrying over either.

His 401k, once rolled over to Vanguard, could simply be Total International Stock and the rest in Total Bond Market. The majority of your 35% in bonds would be held in His Trad IRA. Everything else is just Total US Stock (except the HSA is still S&P-500; that could be VTSAX if it is rolled over to Vanguard, but not sure if you were moving the HSA or leaving it with the current admin). That simplifies your holdings from 18 down to 12, and hopefully the two inherited IRAs are on a 10-year clock to also go away (I think the label "His 401K" would merge into "His Trad IRA" too).

While this is simplified (fewer holdings so easier to rebalance) it's still not particularly Tax-Efficient Fund Placement to have so much cash in Taxable. That's an optimization though, so just consider this set of changes and see if you think it fits for where you want to go now that you've just retired. If you're interested in further tax-efficiency, we can discuss that but unless you're in a particularly high tax bracket in retirement, it might be more work than it's worth to pursue optimization.

A link to a template sheet to do the rebalancing per the image above is given below.

Asset Allocation Sheet
AA Current and Proposed

"Simplicity is the master key to financial success." -- John C. Bogle
Don't do what Bogleheads tell you. Listen to what we say, consider other sources, and make your own decisions, since you have to live with the risks & rewards (not us or anyone else).
Topic Author
RetiredWeAre2024
Posts: 4
Joined: Sun Jul 07, 2024 7:38 pm

Re: Newly retired, portfolio review and rolling 401k

Post by RetiredWeAre2024 »

hi Bonesly,

We thank you. This is exciting. I am half way through reading the information links embedded in your post. I have also printed out the, current & proposed, to refer to when we start assimilating again tomorrow.

Separately, I had bought the VDADX after some research because I was trying to stop growing the portfolio so much as wanting it to safely generate income for us. I read more recently that it does not do that. That was my concern about VDADX, that I had made a wrong choice after careful study.

Thank you for your help and I will respond again.
bonesly
Posts: 1682
Joined: Mon Dec 18, 2017 9:28 pm
Location: WA

Re: Newly retired, portfolio review and rolling 401k

Post by bonesly »

RetiredWeAre2024 wrote: Tue Jul 09, 2024 8:30 pm Separately, I had bought the VDADX after some research because I was trying to stop growing the portfolio so much as wanting it to safely generate income for us. I read more recently that it does not do that. That was my concern about VDADX, that I had made a wrong choice after careful study.
Yes, it was a wrong choice, but it's in an IRA so there's no immediate tax-consequence to fix it to a better choice. The right idea to limit growth and more safely generate income in those Inherited IRAs would be to shift them from stocks to bonds (or cash) by swapping from VTASX into VBTLX or VUSXX. Then you would make a corresponding swap in His Trad IRA from VBTLX into VTASX (same dollar amount that you moved into VBTLX/VUSXX in the Inherited IRAs). If safely generate income is the highest concern then you might prefer VUSXX (stable NAV of $1.00) over VBTLX (fluctuating NAV and can move quite a bit if a lot of interest rate changes are set by the Fed Reserve Board in rapid succession). Even if your primary objective was to "stop growing the [inherited IRA accounts]", you might still prefer VUSXX because if the Fed cuts rates, the NAV on VBTLX will rise increasing the dollar value of the portfolio (that's offset because the yield should drop but that will be a slower reaction than the NAV change).

Those swaps in the Inherited IRAs balanced by a swap in His Trad IRA would maintain your 30/35/35 AA and reduce the growth rate in the Inherited IRAs (and provide income with near-zero risk of loss of principal, so more safe than VDADX).
Don't do what Bogleheads tell you. Listen to what we say, consider other sources, and make your own decisions, since you have to live with the risks & rewards (not us or anyone else).
Topic Author
RetiredWeAre2024
Posts: 4
Joined: Sun Jul 07, 2024 7:38 pm

Re: Newly retired, portfolio review and rolling 401k

Post by RetiredWeAre2024 »

Thank you again bonesly. i understand your suggestions. they make perfect sense and we will rebalance accordingly. One change we will make though is drop the international stock VTIAX all together to further simplify the overall portfolio. thank you for your time and attention and we check in again with this informative forum.
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