Portfolio Review - Nearing Retirement

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Topic Author
BHR40317
Posts: 2
Joined: Tue Nov 26, 2019 2:22 pm

Portfolio Review - Nearing Retirement

Post by BHR40317 » Wed Dec 04, 2019 4:27 pm

First time poster who has been lurking and learning from this forum for a couple of years. Wish I had been lurking longer. Have learned much. Am considering retiring 1st or 2nd quarter 2020.

i-ORP estimates annual income of $176K per year in today's after tax dollars.

FireCalc calculates a 86% success rate (16 cycles fail) to age 95/95.

With expected $750K after tax family inheritance in 10-12 years FireCalc calculates
a 100% success rate.

I have run way too many models. Each indicate that we are not in that bad of condition. I doubt that my dear wife believes the models. Post retirement medical, dental and vision insurance premiums and max out of pockets are all included in expense estimates below.

Would appreciate help in assessing our current retirement financial condition to help us decide when to retire and how to go about managing our retirement nest egg:

Emergency Fund (MMF) $142,589.00
Health Savings Account: $23,500
Debt: None
Tax Filing Status: Married Filing Jointly

Federal Tax Rate: 25%
State Tax Rate: 4%
Local Tax Rate: 2%
Primary Residence: OH
Secondary Residence: FLA

Age (Him/Her) 63/63
Retirement Age (Him/Her) 64/65
His Pension (No COLA) @ 64 with 75% Survivor $69,500
Her Pension (No COLA) @ 65 with 0% Survivor $9,400
His SS @ 66 and 4 months $34,500
Her SS @ 66 and 4 months $26,500

Annual Retirement Income @ 66 and 4 month $139,900

Her Salary until age 65 $60,000

Estimate of Annual Retirement Expenses (Basis current) $156,000
Basic Living (incl primary residence) $67,000
LTC Insurance $4,250
Second Residence $19,750
Discretionary $65,000
Income Taxes not included

Retirement Assets $2,321,000 $2,043,000
Current Asset Allocation: w/ Real Estate w/o Real Estate
Cash (MMF) 30% 33%
US Stocks 30% 34%
Non US Stocks 9% 10%
Bonds 20% 23%
Real Estate 11%

Secondary Residence (Zillow) $278,000

Value -% Exp Ratio
Joint Vanguard (100% Taxable)
Vanguard Prime MM;Inv 1.13% 0.16%
Vanguard Infl-Prot;Inv 0.44% 0.20%
Vanguard Lg-Tm Tx-Ex;Inv 0.15% 0.19%
Vanguard Lg-Tm Trs;Inv 0.05% 0.20%
Vanguard Wellesley;Adm 0.93% 0.15%
Vanguard Health Care;Inv 0.24% 0.37%
Vanguard Windsor;Inv 0.00% 0.31%
Vanguard 500 Index;Adm 0.49% 0.04%

His Fidelity (100% Taxable)
Company Stock 1.08%
Fidelity:Govt Mny Mkt 3.82% 0.42%
Fidelity Muni Money Mkt 0.00% 0.40%

His 401K (14% After Tax Contributions)
Managed Income Fund 24.62% 0.32%
Bond Index Fund 16.59% 0.06%
Intermediate Term Bond Fund 0.00% 0.32%
Large Cap Stock Index Fund 5.82% 0.06%
International Stock Index Fund 7.54% 0.06%
Small Cap Stock Index Fund 3.18% 0.06%
Company Stock Fund 5.53% 0.02%

His SERP Cash Balance 0.20%

His IRA
Jns Hndsn:Balanced;D 0.69% 0.72%
Jns Hndsn:Gro & Inc;D 1.22% 0.77%
Jns Hndsn:Glb Select;D 0.83% 0.86%

Her 401K
Columbia:Ltd Dur Cr;C 0.98% 1.55%
Columbia:Inc Bldr;C 1.08% 1.76%
Columbia:Div Oppty;C 1.13% 1.73%
Ameriprise CASH 1.37%

Her SEP IRA
Jns Hndsn:Mny Mkt;D 0.10% 0.57%
Jns Hndsn:Glb Uncon Bd;D 0.39% 0.98%
Jns Hndsn:Flex Bond;D 0.10% 0.59%
Jns Hndsn:Forty;D 0.34% 0.79%

Her Traditional IRA
Jns Hndsn:Glb Uncon Bd;D 0.98% 0.98%
Jns Hndsn:Flex Bond;D 0.15% 0.59%
Jns Hndsn:Balanced;D 1.96% 0.72%
Jns Hndsn:MC Value;D 2.06% 0.62%
Jns Hndsn:US MV;D 0.29% 0.79%
Jns Hndsn:Forty;D 1.66% 0.79%
Jns Hndsn:Research;D 3.03% 0.73%
Jns Hndsn:Overseas;D 0.24% 0.62%

Her Rollover IRA
Vanguard Prime MM;Inv 0.44% 0.16%
Vanguard Int-Tm Trs;Inv 0.39% 0.20%
Vanguard PrmCp Cre;Inv 2.50% 0.46%
Vanguard Intl Gro;Inv 0.29% 0.45%
Vanguard Energy;Inv 0.88% 0.41%

Her IRA
Vanguard Prime MM;Inv 0.24% 0.16%
Vanguard Int-Tm Trs;Inv 0.15% 0.20%
Vanguard Infl-Prot;Inv 0.59% 0.45%
Vanguard Health Care;Inv 1.66% 0.37%
Vanguard 500 Index;Adm 2.45% 0.04%

Total 100% 0.36%

Questions:

1. We like the simplicity of the 3 Fund approach but as you can see, don't know how to get there. For simplicity, I believe we should consolidate the assets into one brokerage firm as much as possible. I assume Vanguard or Fidelity, but am open to other suggestions. We are reluctant to contract with a financial adviser and pay their fees. Need help determining how to best convert our current portfolio to 3 fund portfolio and go about transferring to one firm?

2. Our current asset allocation is too cash heavy at 33% (this is excluding our emergency fund!). I have been reluctant to begin converting to stocks or bonds with the market being so high. Need help adjusting our asset allocation to something in the range of 40/60 or 50/50 or 60/40 stock bond ratio. How much cash should we keep on hand?

3. Been wondering if we should invest some of the assets in a PIMCO income fund (PONAX) or something similar because of the historical 5% yield? We had a financial adviser suggest PONAX a couple of years ago, but we have done nothing but continue to add to our nest egg. Should we been considering PONAX vs VBTLX becasue of the higher yields?

4. My dear wife wants to better understand where our income will come from post retirement and pre social security? We have been savers and put our kids through college with no debt. We only withdrew dollars from the joint Vanguard account to purchase our second residence a few years ago. I consider our secondary residence part of our retirement nest egg. We have also been saving for our grand kids education through 529 accounts and plan to continue to contribute annually as long as we can afford it.

5. Should we consider converting our 401K and IRA assets to Roth IRAs before we begin RMDs?

retired@50
Posts: 628
Joined: Tue Oct 01, 2019 2:36 pm

Re: Portfolio Review - Nearing Retirement

Post by retired@50 » Wed Dec 04, 2019 5:03 pm

Welcome to the forum.

You've got quite a bit going on and your assets are spread over many accounts. I'm confused by "Her" holdings of a Traditional IRA, a Rollover IRA, and an IRA. I didn't think this was possible. In any event, it also appears that each of these accounts carries a small cash balance. Cash is ill-suited for an IRA account, at least until you intend to withdraw money. This could be one simple consolidation step.

I'd also avoid comparing PONAX to VBTLX. This is an apples to oranges comparison. I realize they both hold bonds, but VBTLX is a total market bond fund that touches all parts of the bond market. PONAX is a short(er) term, lower credit quality fund that has high turnover (472%) and an extremely high expense ratio (1.45%).

To consolidate, I'd suggest getting in touch with Vanguard and work with them to move all accounts that are eligible to be moved from the current custodian(s) to Vanguard. They can help with the process.

Once all assets are at Vanguard, you can enact the 3 fund portfolio using VTSAX (total stock) VBTLX (total bond) and VTIAX (total international stock).

Regards,

ExitStageLeft
Posts: 1631
Joined: Sat Jan 20, 2018 4:02 pm

Re: Portfolio Review - Nearing Retirement

Post by ExitStageLeft » Wed Dec 04, 2019 6:25 pm

Welcome to the forum!
BHR40317 wrote:
Wed Dec 04, 2019 4:27 pm
2. Our current asset allocation is too cash heavy at 33% (this is excluding our emergency fund!). I have been reluctant to begin converting to stocks or bonds with the market being so high. Need help adjusting our asset allocation to something in the range of 40/60 or 50/50 or 60/40 stock bond ratio. How much cash should we keep on hand?
There is no reason not to buy bonds today. For the cash that you would use for stock funds, spend half now on your preferred stock funds, then buy the rest in three equal monthly buys.

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JoeRetire
Posts: 3866
Joined: Tue Jan 16, 2018 2:44 pm

Re: Portfolio Review - Nearing Retirement

Post by JoeRetire » Wed Dec 04, 2019 6:32 pm

BHR40317 wrote:
Wed Dec 04, 2019 4:27 pm
FireCalc calculates a 86% success rate (16 cycles fail) to age 95/95.

With expected $750K after tax family inheritance in 10-12 years FireCalc calculates
a 100% success rate.
Are you comfortable with an 86% success rate?
Retirement Assets $2,321,000 $2,043,000
Does that include the $750k potential inheritance?
Don't be a lemming.

Topic Author
BHR40317
Posts: 2
Joined: Tue Nov 26, 2019 2:22 pm

Re: Portfolio Review - Nearing Retirement

Post by BHR40317 » Wed Dec 04, 2019 6:46 pm

Thanks all for the advice so far.

We’re comfortable with the 86%. The inheritance is not included in the current retirement nest egg. Too get it closer to 100% we will need to more tightly manage our discretionary spending. I will run some some spending scenarios using FireCalc to see the impact.

delamer
Posts: 9299
Joined: Tue Feb 08, 2011 6:13 pm

Re: Portfolio Review - Nearing Retirement

Post by delamer » Wed Dec 04, 2019 7:02 pm

Vanguard offers Personal Advisor Services that will assist you in consolidating your assets and moving toward a basic portfolio.

Here’s more information: https://investor.vanguard.com/financial ... ial-advice

Cost is 0.3% of portfolio value. Schwab and Fidelity offer similar services.

Any of them will do the work of pulling your assets from their current custodians. (This is the case even if you don’t use one of their advisory service.)

On another subject, you should try one of the Social Security calculators like this one: https://opensocialsecurity.com/

It will probably recommend that your wife claim as soon as she retires and that you wait until age 70, in order to maximize your family’s benefits.

It is simple enough to tell your wife where your income will come from post-retirement and pre-Social Security — your savings. Her real question probably is “How much will be have to spend down our savings to cover that period?”

You answer that question by subtracting your pensions from your expenses (including taxes and the 529 contributions) for each year. The difference is what you have to take out of savings for that year. Sum up those annual differences across that period to get the total that you’ll need to withdraw.

HomeStretch
Posts: 2894
Joined: Thu Dec 27, 2018 3:06 pm

Re: Portfolio Review - Nearing Retirement

Post by HomeStretch » Wed Dec 04, 2019 7:22 pm

Agree with simplifying your portfolio (excluding real estate) by moving as many accounts as you can to one low cost brokerage. You can combine His 401k (after retirement) and His IRA into one IRA. Spouse can combine her three IRAs (four if Her SEP IRA is no longer active) into one IRA. When spouse retires, the 401k with high fees can be rolled over into the IRA too.

Agree with using the 3-fund portfolio. Your portfolio includes a lot of funds, some of which are expensive.

Agree with checking your SS claiming strategy. As your pensions do not have COLA, it probably makes sense to maximize the high earner’s SS by claiming at age 70 to maximize the SS benefit which has COLA.

Your expense estimate of $156k does not include income taxes. Be sure to include all expenses (like income taxes and lumpy expenses like new cars) when determining if your portfolio is sufficient to retire.

It may make sense to do Roth conversions before RMDs and SS. Do a spreadsheet by year of income and expenses including taxes. See if Roth conversions will help smooth out your income/taxes/tax rates by year. Your retirement planning including Roth conversion strategy, if any, will be a lot easier to model in a spreadsheet with fewer accounts/holdings.

Also do a sole survivor analysis as your pensions do not have 100% survivor benefits. You may see that Roth conversions are more important in this scenario.

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Duckie
Posts: 6885
Joined: Thu Mar 08, 2007 2:55 pm
Location: California Bay Area

Re: Portfolio Review - Nearing Retirement

Post by Duckie » Wed Dec 04, 2019 10:46 pm

BHR40317 wrote:Need help determining how to best convert our current portfolio to 3 fund portfolio and go about transferring to one firm?
The IRAs can be liquidated to cash and then rolled in trustee-to-trustee transfers. Do one at a time. The more moving parts, the more opportunity for error.
Our current asset allocation is too cash heavy at 33% (this is excluding our emergency fund!). I have been reluctant to begin converting to stocks or bonds with the market being so high. Need help adjusting our asset allocation to something in the range of 40/60 or 50/50 or 60/40 stock bond ratio. How much cash should we keep on hand?
You need cash for an emergency fund and you have $142K already set up there. You do not need cash in the retirement accounts.
We like the simplicity of the 3 Fund approach but as you can see, don't know how to get there. For simplicity, I believe we should consolidate the assets into one brokerage firm as much as possible. I assume Vanguard or Fidelity, but am open to other suggestions.
The following two examples each have an AA of 50% stocks, 50% bonds/cash, with 30% of stocks in international. That breaks down to 35% US stocks, 15% international stocks, and 50% bonds/cash. The first has the IRAs at Vanguard, the second at Fidelity. In a couple of months you could have something like:

Portfolio #1

Joint taxable at Vanguard -- 3%
2% US stock funds
1% US bond/cash funds

His taxable at Fidelity -- 5%
1% Company stock
4% (SPAXX) Fidelity Government Money Market (0.42%)

His 401k -- 63%
19% (N/A) Large Cap Stock Index Fund (0.06%)
44% (N/A) Bond Index Fund (0.06%)

His SERP -- 1%
1% Cash

Her 401k -- 5%
5% (ACUIX) Columbia Dividend Opportunity Fund Class C (1.73%)

His Traditional IRA at Vanguard -- 3% <-- Transfer to Vanguard
3% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)

Her Rollover IRA at Vanguard -- 20% <-- Consolidate all IRAs at Vanguard
5% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)
15% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)

or

Portfolio #2

Joint taxable at Vanguard -- 3%
2% US stock funds
1% US bond/cash funds

His taxable at Fidelity -- 5%
1% Company stock
4% (SPAXX) Fidelity Government Money Market (0.42%)

His 401k -- 63%
19% (N/A) Large Cap Stock Index Fund (0.06%)
44% (N/A) Bond Index Fund (0.06%)

His SERP -- 1%
1% Cash

Her 401k -- 5%
5% (ACUIX) Columbia Dividend Opportunity Fund Class C (1.73%)

His Traditional IRA at Fidelity -- 3% <-- Transfer to Fidelity
3% (FSKAX) Fidelity Total Market Index Fund (0.015%)

Her Rollover IRA at Fidelity -- 20% <-- Consolidate all IRAs at Fidelity
5% (FSKAX) Fidelity Total Market Index Fund (0.015%)
15% (FTIHX) Fidelity Total International Index Fund (0.06%)

My comments/questions:
  • The above assumes Her SEP IRA is former and can be rolled over.
  • I don't know the options in Her 401k so picked the best shown. List her 401k options (fund names, ticker symbols, plan expense ratios) so we can see if there is something better/cheaper.
  • The joint taxable account holds Vanguard funds and should stay at Vanguard because of selling costs even if the IRAs are at Fidelity.
  • I would clean up the two taxable accounts, reducing the number and type of funds, but didn't mess with it above.
  • Her 401k is expensive and should be rolled over as soon as she quits. His 401k is good but I would roll it just to consolidate.
  • Class C funds are load funds. In her 401k does she pay the load or is it waived?
Just some possibilities.

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