Moving Investments Within 453 and 403 Accounts

[RaulSDuke]

My wife and I are both retired. Right now we are comfortably living on her pension, Social Security and 3K monthly from her 403b (TIAA CREF) and a state 457b account. We have about 130K in available cash and I will start drawing Social Security in a couple of years and pension in about 5 years, so we are not overly stressed about our tax sheltered accounts, but would like to get much more conservative with the investments within.

There is about 600K in her TIAA 403b account and it is very heavily tilted toward equities. This has been fine for the last couple of years as growth has far outpaced withdrawal, but we are probably pushing our luck with this mix and would like to move to a more sensible balance.

I have seen some discussion here about the Vanguard Balanced Index Fund Admiral Shares (VBIAX) being a good 60-40 option, but the only fund we have access to is the Vanguard Balanced Index Fund Institutional (VBAIX). Are these essentially the same fund? Historical performance seems to support this assumption.

And the main question: Is there any reason not to consider moving the entire portfolio into VBAIX?

[retired@50]

...
I have seen some discussion here about the Vanguard Balanced Index Fund Admiral Shares (VBIAX) being a good 60-40 option, but the only fund we have access to is the Vanguard Balanced Index Fund Institutional (VBAIX). Are these essentially the same fund? Historical performance seems to support this assumption.

And the main question: Is there any reason not to consider moving the entire portfolio into VBAIX?

Welcome to the forum.

Yes, it's the same fund, except the institutional share class has a lower expense ratio. Good for you!

The balanced index fund doesn't contain any international stock exposure, so that might be a concern, depending on your point of view with regard to international stock holdings.

Regards,

[RaulSDuke]

...
I have seen some discussion here about the Vanguard Balanced Index Fund Admiral Shares (VBIAX) being a good 60-40 option, but the only fund we have access to is the Vanguard Balanced Index Fund Institutional (VBAIX). Are these essentially the same fund? Historical performance seems to support this assumption.

And the main question: Is there any reason not to consider moving the entire portfolio into VBAIX?

Welcome to the forum.

Yes, it's the same fund, except the institutional share class has a lower expense ratio. Good for you!

The balanced index fund doesn't contain any international stock exposure, so that might be a concern, depending on your point of view with regard to international stock holdings.

Regards,

Thank you for the reply.

About 40% of our funds are in Vanguard Institutional Index Fund Institutional Plus (VIIIX) which has taken a -4.45 beating since December. VBAIX has fared a bit better. I'm just feeling like we should be moving out of VIIIX and into something with more balance and probably just need assurance that moving most of our funds to VBAIX isn't necessarily a "stupid" move right now. I'm a neophyte with respect to investment knowledge. We just saved and let it ride. So I'm ambivalent about international vs. U.S. equities.

[retired@50]

Thank you for the reply.

About 40% of our funds are in Vanguard Institutional Index Fund Institutional Plus (VIIIX) which has taken a -4.45 beating since December. VBAIX has fared a bit better. I'm just feeling like we should be moving out of VIIIX and into something with more balance and probably just need assurance that moving most of our funds to VBAIX isn't necessarily a "stupid" move right now. I'm a neophyte with respect to investment knowledge. We just saved and let it ride. So I'm ambivalent about international vs. U.S. equities.

If it helps you sleep at night, then it's not stupid. You'll be adding some bond holdings by switching to the balanced fund. Generally speaking, this will reduce the volatility of the portfolio.

Regards,

[Rocinante Rider]

What's your overall asset allocation? Instead of thinking about each account individually, it's generally better to view your composite allocation across all of your accounts and place your allocations in the most tax-efficient manner.

Addendum: you might consider posting according to this format to get more helpful responses:
viewtopic.php?t=6212

[RaulSDuke]

What's your overall asset allocation? Instead of thinking about each account individually, it's generally better to view your composite allocation across all of your accounts and place your allocations in the most tax-efficient manner.

Addendum: you might consider posting according to this format to get more helpful responses:
viewtopic.php?t=6212

Thank you for the suggestion!

A rough outline of our situation:

Again… both retired. I’m 60, wife is already on Medicare and collecting Social Security.


Wife:
$4500 monthly from pension and SS.

Tax sheltered 403 with TIAA: $600k
Tax sheltered 457: $250k between health care savings and standard investment account. Both tilted towards more aggressive equity funds.

She is drawing $2500 from the 403b with the idea that it will last about 20 years. She is also drawing Medicare payments from the tax sheltered HCSP.

So about $7000 monthly income which allows us to live as we like.

Me:

Not drawing anything yet, but in about 5 years could pull around $6000 monthly from SS and pension. We will evaluate at that time.

Tax sheltered 457b: $300k all moved to VBAIX and $150k HCSP all in VBAIX. Not touching any of it right now.

I have $25k in an HSA that is covering my health care premiums for now. It is invested in a low interest fund so I don’t have to worry about market volatility there.

We have $100k in a CD that we roll every 90 days and another $60k in savings accounts.

Our only debt is $200k on a very low interest mortgage.

Just typing this out makes me feel much better. So the primary question is stabilizing my wife’s tax sheltered accounts.

[Rocinante Rider]

If I'm following your numbers correctly, it looks like you have just under 1.5M, of which 1.15M is in tax-deferred with about 850k in equities (600k in TIAA that's "heavily tilted toward equities" + about 60% of the 450k that's in VBAIX in other tax-deferred accounts). So overall, your stock allocation is about 56% of your assets. That's not unreasonable. If you also shift the 600k in TIAA to VBAIX, this would lower your stock allocation down to about 42%, which is a bit more conservative than 56% but still not unreasonable.

If 7k per month covers all of your expenses, including taxes and health care, with 4.5k per month covered by your wife's pension and SS, you currently need only about 2% of your portfolio per year to cover the shortfall until your pension and SS kick-in in five years. Assuming that both pensions have COLAs, it sounds like pensions plus SS will more than cover expenses beginning in five years. Looks pretty good. Seems to me that your overall asset allocation is fine as it is, but you can certainly make the more conservative shift in the TIAA account if that helps you sleep better.

[RaulSDuke]

If I'm following your numbers correctly, it looks like you have just under 1.5M, of which 1.15M is in tax-deferred with about 850k in equities (600k in TIAA that's "heavily tilted toward equities" + about 60% of the 450k that's in VBAIX in other tax-deferred accounts). So overall, your stock allocation is about 56% of your assets. That's not unreasonable. If you also shift the 600k in TIAA to VBAIX, this would lower your stock allocation down to about 42%, which is a bit more conservative than 56% but still not unreasonable.

If 7k per month covers all of your expenses, including taxes and health care, with 4.5k per month covered by your wife's pension and SS, you currently need only about 2% of your portfolio per year to cover the shortfall until your pension and SS kick-in in five years. Assuming that both pensions have COLAs, it sounds like pensions plus SS will more than cover expenses beginning in five years. Looks pretty good. Seems to me that your overall asset allocation is fine as it is, but you can certainly make the more conservative shift in the TIAA account if that helps you sleep better.

Thank you. I appreciate the feedback.

[crefwatch]

Everyone has to decide how much they want to disclose, but you did not really answer the Asset Allocation question. We don't know (this is a made-up answer) that your wife has 75% of her 403(b) in CREF Stock VA, and 25% in a liquid version of TIAA Traditional. It would also be useful to know how you "felt" about the poor performance of bond funds in 2022.

It's just not useful to know about "tilts" in your and her accounts, when giving investment advice.

You did not mention the upcoming need for RMDs. One option at TIAA is to order proportional withdrawals from all assets, which allows access to illiquid TIAA Traditional, and tends to maintain your then-current Asset Allocation.

[RaulSDuke]

Everyone has to decide how much they want to disclose, but you did not really answer the Asset Allocation question. We don't know (this is a made-up answer) that your wife has 75% of her 403(b) in CREF Stock VA, and 25% in a liquid version of TIAA Traditional. It would also be useful to know how you "felt" about the poor performance of bond funds in 2022.

It's just not useful to know about "tilts" in your and her accounts, when giving investment advice.

You did not mention the upcoming need for RMDs. One option at TIAA is to order proportional withdrawals from all assets, which allows access to illiquid TIAA Traditional, and tends to maintain your then-current Asset Allocation.

I'm looking a closer now and my earlier "estimates" were a bit off:

She is at the RMD stage in TIAA... we are withdrawing and our plan is to try to maintain a 30K/yr withdrawal with a target of 20 years. The funds are being withdrawn proportionally from all assets. This may seem odd now, but we started withdrawing two years ago at which time the fund was below $500,000. After $60,000 in withdrawals the balance was sitting at about $650,000 around the end of last year... so we really can't complain about where it is sitting right now. I do not pay enough attention to bond markets to offer a cogent thought on 2022 performance. My rudimentary understanding is that bonds offer predictability, diversification and temper volatility in a fund.

The current balance on my wife's TIAA account is @ $600K with the following breakdown:
1% in CREF Stock R3 (QCSTIX) (about $5500 alone in a legacy retirement plan)
8% in CREF Stock R4 (QCSTFX)
9% in the TIAA Traditional
7% in Vanguard Balanced Index Fund (VBAIX)
66% in Vanguard Institutional Index Fund Institutional Plus (VIIIX)
9% in Vanguard Extended Market Index Fund Institutional Plus (VEMPX)

Her State Plan Has $200,000 in VIIIX and $46,000 in VBAIX
My State Plan has a total of $437,000, all in VBAIX

So across all assets:
46% in Vanguard Institutional Index Fund Institutional Plus (VIIIX)
41% in Vanguard Balanced Index Fund (VBAIX)
13% in the other miscellaneous TIAA funds above

[crefwatch]

She is at the RMD stage in TIAA... we are withdrawing and our plan is to try to maintain a 30K/yr withdrawal with a target of 20 years. The funds are being withdrawn proportionally from all assets. This may seem odd now, but we started withdrawing two years ago at which time the fund was below $500,000. After $60,000 in withdrawals the balance was sitting at about $650,000 around the end of last year... so we really can't complain about where it is sitting right now. I do not pay enough attention to bond markets to offer a cogent thought on 2022 performance. My rudimentary understanding is that bonds offer predictability, diversification and temper volatility in a fund.

The current balance on my wife's TIAA account is @ $600K with the following breakdown:
1% in CREF Stock R3 (QCSTIX) (about $5500 alone in a legacy retirement plan)
8% in CREF Stock R4 (QCSTFX)
9% in the TIAA Traditional
7% in Vanguard Balanced Index Fund (VBAIX)
66% in Vanguard Institutional Index Fund Institutional Plus (VIIIX)
9% in Vanguard Extended Market Index Fund Institutional Plus (VEMPX)

Her State Plan Has $200,000 in VIIIX and $46,000 in VBAIX
My State Plan has a total of $437,000, all in VBAIX

So across all assets:
46% in Vanguard Institutional Index Fund Institutional Plus (VIIIX)
41% in Vanguard Balanced Index Fund (VBAIX)
13% in the other miscellaneous TIAA funds above

I think you are saying that you are taking more than required RMDs now and will not mind when they get larger (because the statutory amount is not under her control ... ) because you intend (why?) to empty her TIAA accounts in 20 years. Have you sketched out your tax and IRMAA costs over those 20 years?

One reason I hoped to learn more about her holdings is that CREF Stock and CREF Equity Index in R3 and R4 units are an excellent deal for two useful accounts, one with substantial foreign stock and the other all US stock. I get the idea that the Vanguard imprimatur is very important to you (?) I also wanted to find out if she uses TIAA Traditional, and counts it as "Fixed Income/Bonds". You didn't say if she has withdrawal restrictions on TIAA Traditional. However, unlike BND or the bond part of VGAIX, TIAA Traditional does not go down when prevailing interest rates go up.

Another issue is your (unknown) risk tolerance. (There are online questionnaires that deliver an allocation based on answering some questions, that can be helpful, if not decisive.) In 2022, stock funds and bond funds both went down at the same time, which some people felt they were promised would not happen. I'm not "recommending" any particular allocation, but have you heard of "Your age in Bonds"? If you feel you have "enough", your bond allocation may be too low.

[RaulSDuke]

She is at the RMD stage in TIAA... we are withdrawing and our plan is to try to maintain a 30K/yr withdrawal with a target of 20 years. The funds are being withdrawn proportionally from all assets. This may seem odd now, but we started withdrawing two years ago at which time the fund was below $500,000. After $60,000 in withdrawals the balance was sitting at about $650,000 around the end of last year... so we really can't complain about where it is sitting right now. I do not pay enough attention to bond markets to offer a cogent thought on 2022 performance. My rudimentary understanding is that bonds offer predictability, diversification and temper volatility in a fund.

The current balance on my wife's TIAA account is @ $600K with the following breakdown:
1% in CREF Stock R3 (QCSTIX) (about $5500 alone in a legacy retirement plan)
8% in CREF Stock R4 (QCSTFX)
9% in the TIAA Traditional
7% in Vanguard Balanced Index Fund (VBAIX)
66% in Vanguard Institutional Index Fund Institutional Plus (VIIIX)
9% in Vanguard Extended Market Index Fund Institutional Plus (VEMPX)

Her State Plan Has $200,000 in VIIIX and $46,000 in VBAIX
My State Plan has a total of $437,000, all in VBAIX

So across all assets:
46% in Vanguard Institutional Index Fund Institutional Plus (VIIIX)
41% in Vanguard Balanced Index Fund (VBAIX)
13% in the other miscellaneous TIAA funds above

I think you are saying that you are taking more than required RMDs now and will not mind when they get larger (because the statutory amount is not under her control ... ) because you intend (why?) to empty her TIAA accounts in 20 years. Have you sketched out your tax and IRMAA costs over those 20 years?

One reason I hoped to learn more about her holdings is that CREF Stock and CREF Equity Index in R3 and R4 units are an excellent deal for two useful accounts, one with substantial foreign stock and the other all US stock. I get the idea that the Vanguard imprimatur is very important to you (?) I also wanted to find out if she uses TIAA Traditional, and counts it as "Fixed Income/Bonds". You didn't say if she has withdrawal restrictions on TIAA Traditional. However, unlike BND or the bond part of VGAIX, TIAA Traditional does not go down when prevailing interest rates go up.

Another issue is your (unknown) risk tolerance. (There are online questionnaires that deliver an allocation based on answering some questions, that can be helpful, if not decisive.) In 2022, stock funds and bond funds both went down at the same time, which some people felt they were promised would not happen. I'm not "recommending" any particular allocation, but have you heard of "Your age in Bonds"? If you feel you have "enough", your bond allocation may be too low.

There are obviously some nuances to this that I have left out, but suffice it to say that the “30k” per year draw provided what we consider a baseline for planning (contingencies like death, major illness, etc.). We will very likely reduce withdrawals to RMD (as we are currently doing with the State tax sheltered funds) when I start drawing SS and pension. Yes, the tax implications are part of our consideration and we have decisions to make over the next 5 years about how best to balance our income sources. IRMAA should not be an issue.

I think the current market triggered us to consider the tax sheltered funds detailed above. So I would say we are much less risk-tolerant now than we have been through the past few downturns. As I’m sure is apparent, we are not particularly well-versed in the nuances of investing, so we are looking for feedback on which funds offer the potential for modest growth with some buffer against the swinging tides of the market.

Again… thank you for taking the time to respond.