Reallocation of assets question/plan

[ClaireB1000]

Hi!
Sorry if this has been done to death already and I’ve just missed the thread….

I’m currently pretty much 96% stock/etfs. $3mil
I have about $38k in taxable dividends per year.
52 years old, currently eating into our 6 month safety net of cash as my husband has lost his job which is making me question my allocation strategy and planning for retirement. He is currently in negotiation to get a new job which could potentially be a 50% pay cut and we would have to divest some stock as it’s a government job (so dividend income will also drop). If he stays in it for 5 years and retires after that he would potentially lock in health care? (Still investigating this to see if there’s any small print). Luckily the government has just taken care of the social security issues.

I am thinking of taking out say 4% of stocks each year for the next 5 years to turn to cash cushion (or TT fund) to see how our portfolio holds up and if in 5 years we could retire without too much consequence. This would also reduce my stock vs other securities allocation.

Is there something better I could do or some tweak I should make to such a plan?

And we have $189k left to pay on our mortgage (with a very low interest rate) due to be paid off by 2030.

[ruralavalon]

I don't understand your term "TT fund". Please clarify.

Hi!
Sorry if this has been done to death already and I’ve just missed the thread….

I’m currently pretty much 96% stock/etfs. $3mil
I have about $38k in taxable dividends per year.
52 years old, currently eating into our 6 month safety net of cash as my husband has lost his job which is making me question my allocation strategy and planning for retirement. He is currently in negotiation to get a new job which could potentially be a 50% pay cut and we would have to divest some stock as it’s a government job (so dividend income will also drop). If he stays in it for 5 years and retires after that he would potentially lock in health care? (Still investigating this to see if there’s any small print). Luckily the government has just taken care of the social security issues.

I am thinking of taking out say 4% of stocks each year for the next 5 years to turn to cash cushion (or TT fund) to see how our portfolio holds up and if in 5 years we could retire without too much consequence. This would also reduce my stock vs other securities allocation.

Is there something better I could do or some tweak I should make to such a plan?

And we have $189k left to pay on our mortgage (with a very low interest rate) due to be paid off by 2030.

In my opinion an asset allocation of 92% stocks is too risky at age 52 expecting retirement in 5 years, (even without the added uncertainty of his employment). So establishing a more conservative asset allocation is reasonable in my opinion.

Instead of selling 4% of stocks per year for 5 years, in a tax-advantaged account (to avoid creating unnecessary income tax liability) you could sell 20% of stocks now, and use the proceeds to buy a good bond fund like a total bond market index fund or intermediate-term treasury bond fund in the same tax-advantaged account.

More information will be very helpful. What is your tax bracket, both federal and state? What accounts do you have, what is the size of each account, what investments do you currently have in each account? Asking Portfolio Questions.

[ClaireB1000]

TT fund - treasury trust fund (maybe a term my Mom used, but basically it would be a Treasuries ETF)


My original plan was to look at our financial situation at 62, 65 or 67 to decide about full retirement (as this is when I was considering SS could potentially be claimed too) but seeing how stressed my husband is and also a family history of father and brothers getting laid off in their 50’s and then having a hard time finding replacement jobs, I am reassessing our position. My husband has floated the idea of doing the government job for 5 years and retire to lock in the health care benefits and then to do consultancy work to still get some income (this is where I’m not sure if he could retain the health care benefits or not).

Tax brackets last year federal 24%, effective rate 16.97%
State is 3.07%
Roughly $1.8 mil in brokerage accounts. $1.2 mil in t401k and tIRA

[ruralavalon]

In my opinion it's wise to switch to a more conservative asset allocation, no matter what happens with his job.

Roughly $1.8 mil in brokerage accounts. $1.2 mil in t401k and tIRA

So you should be able to do the stocks to bonds switch of your asset allocation inside the tax-advantaged accounts, avoiding unnecessary income tax liability.

[averagelonghorn]

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He is currently in negotiation to get a new job which could potentially be a 50% pay cut and we would have to divest some stock as it’s a government job (so dividend income will also drop). If he stays in it for 5 years and retires after that he would potentially lock in health care? (Still investigating this to see if there’s any small print).
--------------------

I'm jumping to a conclusion that government job means Federal employee covered by FERS.

Not really small print, but often misunderstood by federal employees:
The locking in health care part, assuming he is going into a FERS system requires 5 years of healthcare coverage (FEHB) AND that he be eligible for an immediate annuity... For most who have not been there for 30ish years, that second part means you have to have 5 years of service AND be age 62.

The section on Immediate Retirement on this page outlines eligibility:

https://www.opm.gov/retirement-center/f ... igibility/

Hope that helps with that part of your planning, I'll leave advice on the rest of your plan for others more knowledgeable than I to comment on.

[ClaireB1000]

---------------------
He is currently in negotiation to get a new job which could potentially be a 50% pay cut and we would have to divest some stock as it’s a government job (so dividend income will also drop). If he stays in it for 5 years and retires after that he would potentially lock in health care? (Still investigating this to see if there’s any small print).
--------------------

I'm jumping to a conclusion that government job means Federal employee covered by FERS.

Not really small print, but often misunderstood by federal employees:
The locking in health care part, assuming he is going into a FERS system requires 5 years of healthcare coverage (FEHB) AND that he be eligible for an immediate annuity... For most who have not been there for 30ish years, that second part means you have to have 5 years of service AND be age 62.

The section on Immediate Retirement on this page outlines eligibility:

https://www.opm.gov/retirement-center/f ... igibility/

Hope that helps with that part of your planning, I'll leave advice on the rest of your plan for others more knowledgeable than I to comment on.

Thanks! This is what I needed to find! I will let him know so he can better decide what he wants to do.

[delamer]

I'm jumping to a conclusion that government job means Federal employee covered by FERS.

Not really small print, but often misunderstood by federal employees:
The locking in health care part, assuming he is going into a FERS system requires 5 years of healthcare coverage (FEHB) AND that he be eligible for an immediate annuity... For most who have not been there for 30ish years, that second part means you have to have 5 years of service AND be age 62.

The section on Immediate Retirement on this page outlines eligibility:

https://www.opm.gov/retirement-center/f ... igibility/

Hope that helps with that part of your planning, I'll leave advice on the rest of your plan for others more knowledgeable than I to comment on.

Thanks! This is what I needed to find! I will let him know so he can better decide what he wants to do.

If he was born in 1970 or later, he can retire after 10 years of service (with pension & healthcare) if he’s reached aged 57.

If he was born pre-1970, then he can retire as above at a lower age (depending on birth year).

[delamer]

How much do you actually need from your savings to cover expenses during his unemployment?

Are you working?

[ClaireB1000]

How much do you actually need from your savings to cover expenses during his unemployment?

Are you working?

Currently supporting daughter and son through college and paying their rent. Luckily daughter will be finished in May, but has no full time job yet. Although she does have 2 part time jobs.
Son is taking a semester off to do a Co-op (paid) and will have one year left after that, but he won’t be getting a pay check for at least another month.

Then we have our mortgage. However, after seeing what happened with my Dad all those years ago, I have made sure we have a healthy emergency fund and always planned to pay for the kids college in full and put the money aside for that so that they can start out debt free.

Unfortunately I am not salary working either right now which doesn’t help, but I always think we are probably very fortunate and count my blessings. We will be okay, just need to pick the best plan going forward and adjust our spending habits.

[delamer]

How much do you actually need from your savings to cover expenses during his unemployment?

Are you working?

Currently supporting daughter and son through college and paying their rent. Luckily daughter will be finished in May, but has no full time job yet. Although she does have 2 part time jobs.
Son is taking a semester off to do a Co-op (paid) and will have one year left after that, but he won’t be getting a pay check for at least another month.

Then we have our mortgage. However, after seeing what happened with my Dad all those years ago, I have made sure we have a healthy emergency fund and always planned to pay for the kids college in full and put the money aside for that so that they can start out debt free.

Unfortunately I am not salary working either right now which doesn’t help, but I always think we are probably very fortunate and count my blessings. We will be okay, just need to pick the best plan going forward and adjust our spending habits.

It’s a good idea to have several years of expenses in cash equivalents upon retirement so you don’t have to sell stocks (or bonds) if there is a market drop.

I don’t know if transferring 4%/year to cash is adequate, too much, or not enough for your situation. But the principle makes sense.

[ClaireB1000]

It’s a good idea to have several years of expenses in cash equivalents upon retirement so you don’t have to sell stocks (or bonds) if there is a market drop.

I don’t know if transferring 4%/year to cash is adequate, too much, or not enough for your situation. But the principle makes sense.

I was thinking 4% a year to transfer (but not spend - just put it into cash and TT) as kind of a dummy run for how much we would take if we had retired - to see how the rest of the portfolio maintains its value while also building up our cash reserves in case of a market drop ready for when we do “officially” retire. If in 5 years it doesn’t look good, then we won’t retire yet.

[delamer]

I was thinking 4% a year to transfer (but not spend - just put it into cash and TT) as kind of a dummy run for how much we would take if we had retired - to see how the rest of the portfolio maintains its value while also building up our cash reserves in case of a market drop ready for when we do “officially” retire. If in 5 years it doesn’t look good, then we won’t retire yet.

Is 4% of your current portfolio what you’d need to cover expenses in retirement?

[ClaireB1000]

Is 4% of your current portfolio what you’d need to cover expenses in retirement?

Once I get the kids off the books, it would pretty much cover us and social security will be a bonus when we take that. Of course the wild cards are inflation and stock market fluctuations.

[averagelonghorn]

If he was born in 1970 or later, he can retire after 10 years of service (with pension & healthcare) if he’s reached aged 57.

If he was born pre-1970, then he can retire as above at a lower age (depending on birth year).

Thanks for the clarification.

You’re right…. Since I started at age 52, the 62+ 5 year eligibility and the FRA + 10 years are essentially the same thing to me.

But as far as evaluating the healthcare part, the immediate annuity eligibility is an important piece.

[KEotSK66]

why construct a one-time cash cushion when you could construct a permanent cash cushion?

my portfolio generates 3.5% per year, year after year.