Please help analyzing our portfolio. Retirement is looming.

[DmitryZ]

About us:55 and 52. Children: one HS senior, one college senior. No debt.
The 55H is projected to be retiring in 2026 at 57, while the 52W will keep working for another 10 years, till she's 62.
Current household yearly income 700k. The working spouse will be earning 475k per year. 35% federal, 6% state income tax. Monthly spending is 15k.

Taxable account: 2.8M.
AAPL 43%
MA 5%
MSFT 5%
NVO 10%
VFIAX 37%

H 401k: 1M.
VFIAX 100%

W 401k: 540K.
VFIAX 100%

W IRA: 600K.
VOOG 100%

T-Bills and CDs: 120K.

I-Bonds: 60K.

Cash: 100k.

How would you suggest we tweak our assets, considering impending retirement? Is too much invested into AAPL, for example? It has been a tremendous performer for us over the years.
We have almost no bonds in our portfolio, as you can see. I've looked into the 60/40, 75/25 and other ratios, but haven't moved in any direction.
The New Retirement planner tells me that we won't start drawing for our living expenses out of our taxable portfolio and other sources until the 62W retires, which is 10 years from now.
Thanks for your advice!!!

[GAAP]

My guess is that nobody will give you any meaningful input since you provided nothing to work with.

Please read the following post on Asking Portfolio Questions, and follow the suggested format: viewtopic.php?t=6212.

[DmitryZ]

My guess is that nobody will give you any meaningful input since you provided nothing to work with.

Please read the following post on Asking Portfolio Questions, and follow the suggested format: viewtopic.php?t=6212.

That's done. Thanks.

[DmitryZ]

My guess is that nobody will give you any meaningful input since you provided nothing to work with.

Please read the following post on Asking Portfolio Questions, and follow the suggested format: viewtopic.php?t=6212.

That's done. Thanks.

[bonesly]

How would you suggest we tweak our assets, considering impending retirement? Is too much invested into AAPL, for example? We have almost no bonds in our portfolio, as you can see. I've looked into the 60/40 and other ratios, but haven't moved in any direction.

Yes, Bogle's guidance was no more than 10% in a sector tilt and no more than 5% in any one stock, so 43% in AAPL (and 10% in NVO), bears higher risk of a single company's bad financials having a significant impact on your portfolio. It's in a Taxable account so it might be costly to unwind that higher risk unless you have losses in other taxable holdings to offset the gains.

Since you mentioned you have no bonds, have looked at other asset allocations (e.g., AA of 60/40 and other ratios), but haven't decided yet, you should likely review the Wiki topic on Assessing Risk Tolerance, take the Vanguard Investor Questionnaire, then tailor the quiz result based on your understanding of your personal risk tolerance (from having read the aforementioned Wiki topic and done some soul-searching).

That should provide a desired AA, which we'd need to know to provide a better idea of if you're in good shape for one of you to retire in 2026, while the other works on to 2034. A second missing piece of information is how much the spouse that will keep working is earning ($700K for both of you, but what will income be after 2026?). Is the income from the spouse continuing to work going to continue to cover the $168K (after-tax) annual spending while still maxing out his/her 401K and Roth IRA?

Tweaking your asset allocation (probably by gradually adding bonds over the next 5-10 years) will help reduce long-term volatility, but it probably won't dramatically change sustainable withdrawals from your portfolio. If the 55 year old retires at 57, that's a 38y withdrawal phase, so the 4% rule from the Trinity Study would be reduced to about 3.5%, which for a $2.8M portfolio is a $98K initial withdrawal, adjusted for average inflation thereafter (say around +3%/yr). Since $98K is less than $168K, you'd need to save more, work longer, or significantly cut expenses; that changes based on income from the spouse working until 2034, expected Social Security benefits for each spouse at 62/65/67/70, any pensions, and any expected reductions in expenses in retirement (e.g., does the $168K/yr current spending include mortgage & college costs that will go away in retirement?).

@KlangFool has a simple formula to verify your expenses: Annual Expenses = Gross Income - Taxes (1040, Line 24) - Annual Savings

As noted expenses may go down (mortgage & college) or up (increased health care unless it carries forward with a pension); annual savings should go down (retirement savings go away, but savings for home repairs/upgrades, replacement cars, & vacations might go down if they're in your savings column vs expense column).

It might be worth doing that calculation to see how it compares your estimated $168K/yr ($14K/mo x 12 mo/yr).

I will echo the sentiment that you will get more accurate/relevant responses if you post a more complete situation per the template in Asking Portfolio Questions.

[DmitryZ]

How would you suggest we tweak our assets, considering impending retirement? Is too much invested into AAPL, for example? We have almost no bonds in our portfolio, as you can see. I've looked into the 60/40 and other ratios, but haven't moved in any direction.

Yes, Bogle's guidance was no more than 10% in a sector tilt and no more than 5% in any one stock, so 43% in AAPL (and 10% in NVO), bears higher risk of a single company's bad financials having a significant impact on your portfolio. It's in a Taxable account so it might be costly to unwind that higher risk unless you have losses in other taxable holdings to offset the gains.

Since you mentioned you have no bonds, have looked at other asset allocations (e.g., AA of 60/40 and other ratios), but haven't decided yet, you should likely review the Wiki topic on Assessing Risk Tolerance, take the Vanguard Investor Questionnaire, then tailor the quiz result based on your understanding of your personal risk tolerance (from having read the aforementioned Wiki topic and done some soul-searching).

That should provide a desired AA, which we'd need to know to provide a better idea of if you're in good shape for one of you to retire in 2026, while the other works on to 2034. A second missing piece of information is how much the spouse that will keep working is earning ($700K for both of you, but what will income be after 2026?). Is the income from the spouse continuing to work going to continue to cover the $168K (after-tax) annual spending while still maxing out his/her 401K and Roth IRA?

Tweaking your asset allocation (probably by gradually adding bonds over the next 5-10 years) will help reduce long-term volatility, but it probably won't dramatically change sustainable withdrawals from your portfolio. If the 55 year old retires at 57, that's a 38y withdrawal phase, so the 4% rule from the Trinity Study would be reduced to about 3.5%, which for a $2.8M portfolio is a $98K initial withdrawal, adjusted for average inflation thereafter (say around +3%/yr). Since $98K is less than $168K, you'd need to save more, work longer, or significantly cut expenses; that changes based on income from the spouse working until 2034, expected Social Security benefits for each spouse at 62/65/67/70, any pensions, and any expected reductions in expenses in retirement (e.g., does the $168K/yr current spending include mortgage & college costs that will go away in retirement?).

@KlangFool has a simple formula to verify your expenses: Annual Expenses = Gross Income - Taxes (1040, Line 24) - Annual Savings

As noted expenses may go down (mortgage & college) or up (increased health care unless it carries forward with a pension); annual savings should go down (retirement savings go away, but savings for home repairs/upgrades, replacement cars, & vacations might go down if they're in your savings column vs expense column).

It might be worth doing that calculation to see how it compares your estimated $168K/yr ($14K/mo x 12 mo/yr).

I will echo the sentiment that you will get more accurate/relevant responses if you post a more complete situation per the template in Asking Portfolio Questions.

Thank you VERY MUCH for your input. I've amended my initial opening post with additional information about our situation, as it stands.
I ran our numbers through the New Retirement (fantastic tool!) and it appears that at the very conservative return rate of 3.5% on all our current investments, we will never run out of money or get even close to running out, unless we change our spending habits. I also took the Vanguard Risk Assessment test, and it produced a 75/25 ratio for my investor type.

[retired@50]

... I've amended my initial opening post with additional information about our situation, as it stands.
I ran our numbers through the New Retirement (fantastic tool!) and it appears that at the very conservative return rate of 3.5% on all our current investments, we will never run out of money or get even close to running out, unless we change our spending habits. I also took the Vanguard Risk Assessment test, and it produced a 75/25 ratio for my investor type.

I'm curious if you told the New Retirement tool that you have 43% in Apple stock?

Does the tool recognize the huge additional risk of a large single company stock position, or does it merely consider it "equity" like an S&P 500 fund?

Regards,

[DmitryZ]

... I've amended my initial opening post with additional information about our situation, as it stands.
I ran our numbers through the New Retirement (fantastic tool!) and it appears that at the very conservative return rate of 3.5% on all our current investments, we will never run out of money or get even close to running out, unless we change our spending habits. I also took the Vanguard Risk Assessment test, and it produced a 75/25 ratio for my investor type.

I'm curious if you told the New Retirement tool that you have 43% in Apple stock?

Does the tool recognize the huge additional risk of a large single company stock position, or does it merely consider it "equity" like an S&P 500 fund?

Regards,

New Retirement doesn't analyze individual investments. It just estimates returns and inflation in three scenarios - optimistic, average, and pessimistic. I'm assuming it calculates them based on historical data.
So no, it doesn't recognize whether I have 43% in AAPL or 5% in AAPL.

[retired@50]

... I've amended my initial opening post with additional information about our situation, as it stands.
I ran our numbers through the New Retirement (fantastic tool!) and it appears that at the very conservative return rate of 3.5% on all our current investments, we will never run out of money or get even close to running out, unless we change our spending habits. I also took the Vanguard Risk Assessment test, and it produced a 75/25 ratio for my investor type.

I'm curious if you told the New Retirement tool that you have 43% in Apple stock?

Does the tool recognize the huge additional risk of a large single company stock position, or does it merely consider it "equity" like an S&P 500 fund?

Regards,

New Retirement doesn't analyze individual investments. It just estimates returns and inflation in three scenarios - optimistic, average, and pessimistic. I'm assuming it calculates them based on historical data.
So no, it doesn't recognize whether I have 43% in AAPL or 5% in AAPL.

That sounds like a bit of a gap in the analysis. You still may not run out of money, but if it were me, I'd reduce the size of the Apple position.

I've seen the damage this sort of thing can do. I've known people who had an oversized position in a single firm (GE) and watched it wither away.

Regards,

[DmitryZ]

... I've amended my initial opening post with additional information about our situation, as it stands.
I ran our numbers through the New Retirement (fantastic tool!) and it appears that at the very conservative return rate of 3.5% on all our current investments, we will never run out of money or get even close to running out, unless we change our spending habits. I also took the Vanguard Risk Assessment test, and it produced a 75/25 ratio for my investor type.

I'm curious if you told the New Retirement tool that you have 43% in Apple stock?

Does the tool recognize the huge additional risk of a large single company stock position, or does it merely consider it "equity" like an S&P 500 fund?

Regards,

New Retirement doesn't analyze individual investments. It just estimates returns and inflation in three scenarios - optimistic, average, and pessimistic. I'm assuming it calculates them based on historical data.
So no, it doesn't recognize whether I have 43% in AAPL or 5% in AAPL.

That sounds like a bit of a gap in the analysis. You still may not run out of money, but if it were me, I'd reduce the size of the Apple position.

I've seen the damage this sort of thing can do. I've known people who had an oversized position in a single firm (GE) and watched it wither away.

Regards,

Thanks. That's why I asked for opinions here, because I value sober advice! The New Retirement allows the user to tweak the returns and the inflation numbers. The default Optimistic yearly returns are set at 5%, Average 3.5% and Pessimistic 2%. You can play with the numbers as you wish. To be honest, I was now terribly preoccupied with having AAPL as half of our taxable account, but the statistics and the common sense say otherwise.
Like you, I briefly knew someone who had just one stock in his portfolio, and it did amazing. The stock was Enron. You know the rest.

[retired@50]

The stock was Enron. You know the rest.

Yes, I do.

At least GE was just disappointing, instead of catastrophic.

Regards,

[bonesly]

I've amended my initial opening post with additional information about our situation, as it stands.

It'd be nice to know how much you put away towards retirement savings each year as well as some estimate of whether or not expenses will drop in retirement, but I can make some guesses.

I ran our numbers through the New Retirement (fantastic tool!) and it appears that at the very conservative return rate of 3.5% on all our current investments, we will never run out of money or get even close to running out, unless we change our spending habits. I also took the Vanguard Risk Assessment test, and it produced a 75/25 ratio for my investor type.

A 3.5% nominal return is indeed very conservative for a period of 20 years or more. Rather than using a fixed return with zero volatility, I like to model the returns in a Monte Carlo simulation and then look at low percentile outcomes that represent a bad sequence of returns (low likelihood but possible due to a string of bad returns that you don't see with a fixed return/zero volatility approach). Here's some assumptions I'm using for this analysis to compare to your New Retirement results:

1) $93.5K/yr contributions for 2 years, then $55.5K/yr for the next 8 years. That is both of you maxing out your 401K accounts ($30K/yr x 2), maxing the (Roth?) IRAs ($8K/yr x 2), and her adding $17.5K/yr to Taxable, all for the first 2 years (then you retire), then the 401K+IRA dropping from double to single over the next 8 years (then she retires).
2) Her income covers all income tax & expenses and non-retirement savings, so you don't start tapping the portfolio until after she retires.
3) Your AA starts at 75/25 and glides down to 70/30 over 10 years.
4) Your average expense ratio is 0.10% (if your actual average is less that's a bonus).
5) Annual contributions increase by +3%/yr (salary raises increase savings).
6) SocSec, Pensions, or any other income sources aren't considered; this annual draw is just the portfolio.



The balance formula at age 53 & 54 is colored orange to denote that I modified the formula to include a higher contribution level (his 401K & IRA) for just those two years.

The 5th percentile conservative outcome is $3,988K, which supports a 4% initial draw (assumes she lives to 92 for a 30y withdrawal phase) is $159.5K, which is about $119K in today's purchasing power in year-1 of the portfolio withdrawal phase. Your updated spend rate was $15K/mo x 12 mo = $180K/yr, so $119K is still short. There would seem to be a discrepancy between New Retirement's rosier outcome compared to mine, which may have to do with a constant compounding rate with zero volatility compared to volatility modeling for 75% stocks in your AA. New Retirement might have also included SocSec benefits (which you didn't quantify for us yet) and that might make this shortfall a non-issue.

If there's still a shortfall after including SocSec/Pensions, you really need to scrub your expenses and look for ways to cut back spending in retirement (I'm assuming $15K/mo does NOT include your retirement savings or income taxes, per KlangFool's formula).

The only other "easy" option to address the potential shortfall is to assume a higher risk of reaching a projected end-balance (i.e, there's only a 5% chance that you'll realize this shortfall, but how much risk do you want to increase that 5% chance to?). At the 10th percentile, the balance would be about $4.7M, supporting a 4% draw of about $140K in today's dollars, but double the likelihood of not reaching that balance (jumped from 5% to 10% to miss the target). At the 20th percentile, the balance would be about $5.6M, supporting a 4% draw of about $167K/yr with the chance of not reaching that balance jumping from 5% to 20%). To get to a 4% draw in today's dollars of $180K, you need to accept a 27% chance of not reaching that balance... I typically don't recommend anyone go over 20% and for conservative investors, I default recommend 5% (many Monte Carlos show 10th percentile as the low-end and that's OK too). Just for a point of comparison, going all the way to the 50th percentile is essentially planning your retirement spending on reaching a certain balance that's has a 50% of being less than what you planned; that's effectively gambling with your retirement life-plan. I say higher risk-acceptance is "easy" because you just assume you'll reach a balance associated with a higher percentile. The hard part is if that higher likelihood risk of not reaching that balance is realized, do you have to flexibility to cut back spending (perhaps by a lot).

The image above is from my Accumulation Monte Carlo, which is linked below if you're good with Excel and want to play around with it. Otherwise there are other models I like with public facing website interfaces that I've also linked (Portfolio Visualizer's Monte Carlo and Financial Goals tools I think are particularly good).

Data and Models I use for Monte Carlo:
NYU Data Set 1928-2017 with Model Fits
Accumulation Monte Carlo <-- image above
Withdrawal Monte Carlo

You'll need a MS Excel license; download to your local machine and enable macros (required for the 1,000 random trials and results aggregation).

I'm using my own model as I like to know what's under the hood, but there are other models I like that have public facing website interfaces:
Portfolio Visualizer's Monte Carlo (I like this one best),
FiCalc (probably the easiest to use),
TPAW, and
FireCalc.

[DmitryZ]

I've amended my initial opening post with additional information about our situation, as it stands.

It'd be nice to know how much you put away towards retirement savings each year as well as some estimate of whether or not expenses will drop in retirement, but I can make some guesses.

I ran our numbers through the New Retirement (fantastic tool!) and it appears that at the very conservative return rate of 3.5% on all our current investments, we will never run out of money or get even close to running out, unless we change our spending habits. I also took the Vanguard Risk Assessment test, and it produced a 75/25 ratio for my investor type.

A 3.5% nominal return is indeed very conservative for a period of 20 years or more. Rather than using a fixed return with zero volatility, I like to model the returns in a Monte Carlo simulation and then look at low percentile outcomes that represent a bad sequence of returns (low likelihood but possible due to a string of bad returns that you don't see with a fixed return/zero volatility approach). Here's some assumptions I'm using for this analysis to compare to your New Retirement results:

1) $93.5K/yr contributions for 2 years, then $55.5K/yr for the next 8 years. That is both of you maxing out your 401K accounts ($30K/yr x 2), maxing the (Roth?) IRAs ($8K/yr x 2), and her adding $17.5K/yr to Taxable, all for the first 2 years (then you retire), then the 401K+IRA dropping from double to single over the next 8 years (then she retires).
2) Her income covers all income tax & expenses and non-retirement savings, so you don't start tapping the portfolio until after she retires.
3) Your AA starts at 75/25 and glides down to 70/30 over 10 years.
4) Your average expense ratio is 0.10% (if your actual average is less that's a bonus).
5) Annual contributions increase by +3%/yr (salary raises increase savings).
6) SocSec, Pensions, or any other income sources aren't considered; this annual draw is just the portfolio.



The balance formula at age 53 & 54 is colored orange to denote that I modified the formula to include a higher contribution level (his 401K & IRA) for just those two years.

The 5th percentile conservative outcome is $3,988K, which supports a 4% initial draw (assumes she lives to 92 for a 30y withdrawal phase) is $159.5K, which is about $119K in today's purchasing power in year-1 of the portfolio withdrawal phase. Your updated spend rate was $15K/mo x 12 mo = $180K/yr, so $119K is still short. There would seem to be a discrepancy between New Retirement's rosier outcome compared to mine, which may have to do with a constant compounding rate with zero volatility compared to volatility modeling for 75% stocks in your AA. New Retirement might have also included SocSec benefits (which you didn't quantify for us yet) and that might make this shortfall a non-issue.

If there's still a shortfall after including SocSec/Pensions, you really need to scrub your expenses and look for ways to cut back spending in retirement (I'm assuming $15K/mo does NOT include your retirement savings or income taxes, per KlangFool's formula).

The only other "easy" option to address the potential shortfall is to assume a higher risk of reaching a projected end-balance (i.e, there's only a 5% chance that you'll realize this shortfall, but how much risk do you want to increase that 5% chance to?). At the 10th percentile, the balance would be about $4.7M, supporting a 4% draw of about $140K in today's dollars, but double the likelihood of not reaching that balance (jumped from 5% to 10% to miss the target). At the 20th percentile, the balance would be about $5.6M, supporting a 4% draw of about $167K/yr with the chance of not reaching that balance jumping from 5% to 20%). To get to a 4% draw in today's dollars of $180K, you need to accept a 27% chance of not reaching that balance... I typically don't recommend anyone go over 20% and for conservative investors, I default recommend 5% (many Monte Carlos show 10th percentile as the low-end and that's OK too). Just for a point of comparison, going all the way to the 50th percentile is essentially planning your retirement spending on reaching a certain balance that's has a 50% of being less than what you planned; that's effectively gambling with your retirement life-plan. I say higher risk-acceptance is "easy" because you just assume you'll reach a balance associated with a higher percentile. The hard part is if that higher likelihood risk of not reaching that balance is realized, do you have to flexibility to cut back spending (perhaps by a lot).

The image above is from my Accumulation Monte Carlo, which is linked below if you're good with Excel and want to play around with it. Otherwise there are other models I like with public facing website interfaces that I've also linked (Portfolio Visualizer's Monte Carlo and Financial Goals tools I think are particularly good).

Data and Models I use for Monte Carlo:
NYU Data Set 1928-2017 with Model Fits
Accumulation Monte Carlo <-- image above
Withdrawal Monte Carlo

You'll need a MS Excel license; download to your local machine and enable macros (required for the 1,000 random trials and results aggregation).

I'm using my own model as I like to know what's under the hood, but there are other models I like that have public facing website interfaces:
Portfolio Visualizer's Monte Carlo (I like this one best),
FiCalc (probably the easiest to use),
TPAW, and
FireCalc.

That's amazing, bonesly! Thank you so very much!
I had foolishly neglected to include a one-time windfall of 1M in 2026 in my initial post, as the 55H retirement is dependant on the sale of a business, projected for 2026. That sale is factored into the New Retirement projections. This injection of cash possibly skewed the numbers you ran?

[HomeStretch]

As your prepare your finance for retirement, consider running a retirement scenario where the wife’s income stops at the same time as the husband retires to see if the portfolio is still adequate for retirement. Your current retirement scenario is that the wife will work for 8 more years after the husband retires. It’s possible the wife may be unable or unwilling to work those 8 years (i.e., layoff, disability, wants to join husband earlier in retirement).

Another retirement scenario to run is a surviving spouse scenario for each spouse.

[bonesly]

I had foolishly neglected to include a one-time windfall of 1M in 2026 in my initial post, as the 55H retirement is dependent on the sale of a business, projected for 2026. That sale is factored into the New Retirement projections. This injection of cash possibly skewed the numbers you ran?

Yes, adding $1M to any of the end-balances when she reaches 62 will make a noticeable difference in the initial draw in today's dollars!

5% risk-level is a jump from $118.7K/yr to $144K/yr
10% risk-level is a jump from $140K/yr to $163.5K/yr
14% risk-level supports your $180.0K/yr spend rate
20% risk-level is a jump from $167K/yr to $195.4K/yr

That's still not 0% risk like New Retirement perhaps implied, but it's likely acceptable risk given your relatively aggressive AA of 75/25 with only 10 years remaining until retirement. You and your wife might be comfortable with a 14% risk of not reaching $5.1M and the unquantified risk that the business sale is for <$1M, especially if that $180K/yr spend has a big discretionary portion that can be cut back if your risk is realized.

Only you and your spouse can determine what risk-level is acceptable to you since the tolerance part is so personal. The Vanguard quiz told you 75/25, but perhaps you should have your wife take the quiz as well and then use an average of your two results for your joint portfolio AA. If she doesn't already have a buyer lined up and willing to pay at least $1M, then it might also be worthwhile to have the business appraised 5y before she plans to retire just to see that you're on track for adding that $1M to your portfolio balance when she reaches 62 (have the appraiser give you a range of sale values with 80%, 90%, 95% likelihoods of closing a deal on those possible sale values; don't use a single number as most financial projections have inherent uncertainty).

[DmitryZ]

I had foolishly neglected to include a one-time windfall of 1M in 2026 in my initial post, as the 55H retirement is dependent on the sale of a business, projected for 2026. That sale is factored into the New Retirement projections. This injection of cash possibly skewed the numbers you ran?

Yes, adding $1M to any of the end-balances when she reaches 62 will make a noticeable difference in the initial draw in today's dollars!

5% risk-level is a jump from $118.7K/yr to $144K/yr
10% risk-level is a jump from $140K/yr to $163.5K/yr
14% risk-level supports your $180.0K/yr spend rate
20% risk-level is a jump from $167K/yr to $195.4K/yr

That's still not 0% risk like New Retirement perhaps implied, but it's likely acceptable risk given your relatively aggressive AA of 75/25 with only 10 years remaining until retirement. You and your wife might be comfortable with a 14% risk of not reaching $5.1M and the unquantified risk that the business sale is for <$1M, especially if that $180K/yr spend has a big discretionary portion that can be cut back if your risk is realized.

Only you and your spouse can determine what risk-level is acceptable to you since the tolerance part is so personal. The Vanguard quiz told you 75/25, but perhaps you should have your wife take the quiz as well and then use an average of your two results for your joint portfolio AA. If she doesn't already have a buyer lined up and willing to pay at least $1M, then it might also be worthwhile to have the business appraised 5y before she plans to retire just to see that you're on track for adding that $1M to your portfolio balance when she reaches 62 (have the appraiser give you a range of sale values with 80%, 90%, 95% likelihoods of closing a deal on those possible sale values; don't use a single number as most financial projections have inherent uncertainty).

Brilliant suggestions again, folks!
It's interesting about the Vanguard Quiz. While I was at 75/25, she was at 100% bonds, so polar opposites there. A happy medium would need to be achieved with the portfolio, then.
As per your suggestion, we also subtracted the potential windfall (the business and the building are worth 1m combined, and roughly add up to 50/50 of that 1m). Even if we lock up the business and sell the building at its FMV, the New Retirement projects we would still do OK.
Our monthly expenses of 15k are positioned below the benchmark 4% withdrawal rate.
What was unexpected is that keeping the building and renting it out didn't make financial sense to the New Retirement, as opposed to selling it and investing the proceeds into the taxable account with 3.5% return. Where we live the appreciation of commercial real estate is probably close to 0%.

[retired@50]

What was unexpected is that keeping the building and renting it out didn't make financial sense to the New Retirement, as opposed to selling it and investing the proceeds into the taxable account with 3.5% return. Where we live the appreciation of commercial real estate is probably close to 0%.

I don't know how you feel about being a landlord, but I'd suggest you think about that beforehand.

Many in the forum (myself included) have lost their desire to be landlords as they age. Index funds are so much easier to own.

Regards,

[DmitryZ]

What was unexpected is that keeping the building and renting it out didn't make financial sense to the New Retirement, as opposed to selling it and investing the proceeds into the taxable account with 3.5% return. Where we live the appreciation of commercial real estate is probably close to 0%.

I don't know how you feel about being a landlord, but I'd suggest you think about that beforehand.

Many in the forum (myself included) have lost their desire to be landlords as they age. Index funds are so much easier to own.

Regards,

Thank you very much for the input regarding landlording!
I am a landlord now, and it's definitely not something I enjoy or how we make a living. We have a tenant who essentially offsets the taxes we pay on the property. Like some of you landlords, I have stories to tell about the tenants we've had. There's some bizarre stuff. We decided to sell the building along with the business and investing the proceeds.

Correct me if I'm wrong, but there's a IRS Section 1031, an exchange of business property for the same kind of property. In our case, the sale of the $500k building would probably mean a $100k tax bill, unless we invest into another income-producing property. That's something I'd have to look into further.

[retired@50]

What was unexpected is that keeping the building and renting it out didn't make financial sense to the New Retirement, as opposed to selling it and investing the proceeds into the taxable account with 3.5% return. Where we live the appreciation of commercial real estate is probably close to 0%.

I don't know how you feel about being a landlord, but I'd suggest you think about that beforehand.

Many in the forum (myself included) have lost their desire to be landlords as they age. Index funds are so much easier to own.

Regards,

Thank you very much for the input regarding landlording!
I am a landlord now, and it's definitely not something I enjoy or how we make a living. We have a tenant who essentially offsets the taxes we pay on the property. Like some of you landlords, I have stories to tell about the tenants we've had. There's some bizarre stuff. We decided to sell the building along with the business and investing the proceeds.

Correct me if I'm wrong, but there's a IRS Section 1031, an exchange of business property for the same kind of property. In our case, the sale of the $500k building would probably mean a $100k tax bill, unless we invest into another income-producing property. That's something I'd have to look into further.

I think you're correct about the 1031 exchange, but that just means you have to "stay in the game" of being a rental property owner / landlord.

Regards,

[pasadena]

So you have a total of $5.2M, of which $1.76M (33%) is in individual stocks. That puts you AAPL holding at 23% of your total liquid NW. Is this correct? It's still much too high, but not 43% either.

Will you kid be out of your household when H retires? Will you pay for college out of pocket or out of the investments you listed, or will it be funded by a 529 account for example? What do you foresee your expenses to be between the time H retires and the time F does? What about after she retires? What about Social Security?

[bonesly]

It's interesting about the Vanguard Quiz. While I was at 75/25, she was at 100% bonds, so polar opposites there. A happy medium would need to be achieved with the portfolio, then.

Typically, we assume that all assets are listed (his and hers) and that the desired asset allocation is joint per the template Asking Portfolio Questions. If someone says "we run our finances separately" or "this is just my portfolio and it's independent from my spouse's," then we can run an analysis and provide suggestions (like I did above), but we'd provide a caveat that it is best to look at all assets of both spouses and have a joint overall AA before providing suggested moves to improve tax-efficient placement, projections on the range of outcomes for how much your portfolio could likely provide at retirement, shortfalls (or surpluses) given an estimate of joint retirement spending, his/her SocSec (likely at two different claiming dates), etc.

So, 75/25 vs 0/100 is pretty different and will lead to different future outcomes when combined in a holistic portfolio analysis, but perhaps there's more than the $2,800K initial balance if that's just "your" money and her money (all in bonds) wasn't included in your original post. I'll reiterate that the most accurate/relevant responses for your situation and specific questions are given with as complete a picture of that situation as possible, so if that's of interest, then try and fill in as many details from the Asking Portfolio Questions template as possible in your first post of the thread (add a new responses identifying that you've provided another update). If you have enough information for you and your spouse to make changes (or stay the course given what you think the range of outcomes will look like), then you don't need to bother with digging into more details.

[DmitryZ]

Our Vanguard questionnaire answers were hypothetical to a degree, for obvious reasons, since I already disclosed what our portfolio consists of. I asked my spouse to imagine what her portfolio would have been, had it conformed to her preceding answers in the questionnaire, so she chose what she did.

[DmitryZ]

So you have a total of $5.2M, of which $1.76M (33%) is in individual stocks. That puts you AAPL holding at 23% of your total liquid NW. Is this correct? It's still much too high, but not 43% either.

Will you kid be out of your household when H retires? Will you pay for college out of pocket or out of the investments you listed, or will it be funded by a 529 account for example? What do you foresee your expenses to be between the time H retires and the time F does? What about after she retires? What about Social Security?

You nailed it! The AAPL is 43% of the brokerage account, not of the total portfolio. Kid will graduate HS same year as H plans to retire and sell the business and the building. College is funded by investments. We were planning to start collecting SS at 62.
I couldn't figure out how to add screenshots from the New Retirement planner.

[DmitryZ]

Greetings, all !!!
I have updated our portfolio, and have a couple of questions.

Taxable account: 3.2M.
AAPL 41%
MA 4.5%
MSFT 4%
NVO 7%
VFIAX 41%
VSIAX 3%

H 401k: 1.1M.
VFIAX 100%

W 401k: 615K.
VFIAX 100%

W IRA: 670K.
VOOG 100%

Cash: 150K
______________
Total 5,735K

NO DEBT

In the foreseeable future I am planning to divest of the majority of individual stocks and invest the proceeds in the VFIAX.

The 55H is projected to be retiring in 2026 at 57, while the 52W will keep working for another 10 years, till she's 62.
Current household yearly income 700k. The working spouse will be earning 525K per year. 35% federal, 6% state income tax. Monthly spending is 15K.

In addition to the current portfolio of 5,735K, we expect 500K from sale of business and 500K from sale of real estate.

I'd like to plan the post-retirement financial implications as best as possible. Is there specific literature you recommend, or should I consult an accountant, specializing in such matters? I want to start planning immediately.
My biggest concern (like most everyone's) are the taxes, Roth conversions and such when one spouse continues to work and is a high earner. I'd like to read up on a scenario like ours. Suggestions?
Thanks!

[bonesly]

Greetings, all !!!
I have updated our portfolio, and have a couple of questions.

Updated portfolio for those that don't want to deal with only ticker symbols...


You have a potential concern with Wash Sales since you're holding VFIAX in both Taxable (highlighted in dark red) and a tax-advantaged account (highlighted in light red). If there is another low-cost large-cap US Stock index available in the two 401k (like Total Stock Market Index or Vanguard Large Cap Blend Index) you could swap VFIAX in the tax-advantaged accounts to that alternative and avoid the wash sale concern with no tax impact (trading in a tax-advantaged account doesn't incur taxes). Typically, I'd suggest VFIAX in the 401k and VTSAX (Total Stock Market) in the Taxable account, but you already have a sizeable position in 500 Index in Taxable and that would be costly to change, so need to work around it.

The 55H is projected to be retiring in 2026 at 57, while the 52W will keep working for another 10 years, till she's 62.
Current household yearly income 700k. The working spouse will be earning 525K per year. 35% federal, 6% state income tax. Monthly spending is 15K.

In addition to the current portfolio of 5,735K, we expect 500K from sale of business and 500K from sale of real estate.

This doesn't seem much different than your expected situation back in early July, so balance projections provided then likely still apply.

In the foreseeable future I am planning to divest of the majority of individual stocks and invest the proceeds in the VFIAX.

This is pretty straight-forward.
a) Decide what your "tax pain" threshold is (perhaps up to the top of the current bracket).
b) Determine what the unrealized gain/loss is on shares you intend to sell (you can pick if your basis is Specific Identification; there's not much control if it's Average Cost or First In First Out).
c) Sell shares that will result in a net gain no greater than your "tax pain" threshold (estimate this in a mock return like in TurboTax). d) Optionally, review this plan with your CPA to make sure no bad/missing assumptions were made in the mock return.

This is also likely a higher priority than doing Roth conversions, since doing those before she retires likely doesn't make sense (see comments later on that).

I'd like to plan the post-retirement financial implications as best as possible. Is there specific literature you recommend, or should I consult an accountant, specializing in such matters? I want to start planning immediately.
My biggest concern (like most everyone's) are the taxes, Roth conversions and such when one spouse continues to work and is a high earner. I'd like to read up on a scenario like ours. Suggestions?

An accountant can certainly tell you what the tax consequences would be if you provide the input scenario with estimated capital gains & losses, but most Certified Public Accountants (CPAs) are tax specialists rather than financial planning specialists, who hold the Certified Financial Planner (CFP) designation. Perhaps seeking a CPA first to get their suggestions on unwinding the individual stocks and the impact of Roth conversions, as well as claiming SocSec (the higher earner should probably delay that to 72 to maximize the benefit unless there's a high risk of a short life expectancy). but if you want a complete picture of "financial implications ... to start planning immediately," you probably want a CFP rather than a CPA.

A CFP is specifically trained to assess the total financial implication set, and even though they might not have a CPA designation, part of their coursework to earn a CFP includes understanding tax impact on the portfolio in both the accumulation and withdrawal phases of your life.

Roth Conversion - It's likely that trying to execute Trad to Roth conversions while one of you is still working full-time will be counter-productive. The typical strategy I see discussed here is that when both partners retire, they delay claiming SocSec and pensions and live off their Taxable accounts such that their AGI drops down to a 12% or less effective Fed Tax rate. At that low tax-rate, you get the double-bonus of having had an immediate tax-break for deferred income when you earned it at a high Fed bracket and the conversion from Trad to Roth is in a lower bracket that for the dollars you put into the Trad account (hopefully much lower). That particular scenario is a no-brainer to do the conversion if the Trad balance dwarfs the Roth balance. However, if you're still in the 24% or 32% bracket due to one spouse working full-time, then conversions will be taxed at that rate or higher if the conversion amount bumps you up to the next tax bracket (typically one only converts an amount that would just barely cap them in the current bracket but not push into the next one up).

You said you're in the 35% Fed + 6% State marginal tax bracket. How much will that drop (if at all) when he stops working, but she continues to work for another 10 years? Does the expected tax rate (Fed + State) during that 10y window make sense to do Roth conversions? Read the Wiki topic on Trad vs Roth to understand how to evaluate staying in a Trad account or converting to a Roth account. Also read the Wiki topic on Roth Conversion, which has tools specifically for evaluating the end-value tax cost/savings of doing a conversion.

If you're looking for a CFP, these are ones I commonly see recommended here:

Advice-Only Advisors (rather than those that work for a fee that is proportional to your account balance)

Start with Jason Zweig's 19 Questions for your Advisor, so you know what to ask when choosing an advisor.

Rick Ferri (Rick hosts the Boglehead Podcasts Series)
Mark Zoril (of Plan Vision)
Allan Roth (of WealthLogic; Allan has been a panel member in several of the Bogleheads Speaker Series)

Rick's site also has this link: Advice-Only Network
Recommended by @Sandi_K, a client of Plan Vision: Garrett Planning Network

Also see @ObliviousInvestor's Financial Planners to Consider in Theory, News, & General.