65 y.o. seeks advise on retirement at 70

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Topic Author
tennisnutdave
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Location: Eastern Massachusetts

65 y.o. seeks advise on retirement at 70

Post by tennisnutdave »

I'm not a financial wizard and would appreciate those more knowlgeable than myself to help. I'm 65 years of age and would care to enable myself to be able to retire at 70.

Bogleheads posting parameters: (2021-04-11)

Emergency funds: $19,000

Debt: $48,750 currently paying down mortgage towards $0 - for 4 to 5 years

Tax Filing Status: Single

Tax Rate: 12% Federal, 5% State

State of Residence: Massachusetts

Age: 65

Desired Asset allocation: 85% stocks / 15% bonds (Vanguard advisor suggested 40% bonds which I never liked - local advisor suggested (because I didn't move at all in 2008) told me that I'm risk tolerant and suggested 15% bonds which I'm much more comfortable with (2018)); consequently my desired allocation.

Desired International allocation: 10% of stocks

size of your current total portfolio
$484,686 includes both ROTH and regular IRA funds
ROTH = $140,000 Fidelity SPAXX Fidelity Government Money Market (transitional holding place)
Rollover = $334,686 Vanguard (regular taxable IRA) expense ratio
VBILX Vanguard Intermediate-Term Bond Index Fund $15,240 4.55%
VBTLX Vanguard Total Bond Market Index Fund $23,940 7.16
VFIAX Vanguard 500 Index Fund $93,691 28.00%
VSCSX Vanguard Short-Term Corporate Bond Index Fund $ 8,337 2.49%
VTABX Vanguard Total International Bond Index Fund $ 8,058 2.41%
VTSAX Vanguard Total Stock Market Index Fund $185,420 0.04%

New annual Contributions - for 2020 ROTH IRA -> $5,000 included in above portfolio

Seems I need to determine how to allocate my ROTH funds at Fidelity, presumably NOT risk adverse because it's ROTH and therefore likely to be drawn from later in retirement.

of recent years income / expences:
Result Expense Income Balance
2016 -$59,254.39 $75,233.46 $15,979.07
2017 -$88,975.01 $60,282.10 -$28,692.91 (I bought a new car with cash)
2018 -$71,386.84 $72,141.55 $754.71
2019 -$75,978.35 $77,993.61 $2,015.26
2020 -$70,933.32 $76,000.70 $5,067.38
Average -$73,305.58 $72,330.28

My expenses will likely go down after paying off my mortgage on my income property on my duplex.
Social Security reports:
At age 70:
$2,634 a month

last year my Pension plan reported:
$553.15 / month @ 70 single life annuity

I'm trying to determine what my best allocations are for my IRA's and how realistic retirement at age 70 really is.

Thank You for your help! :happy
WyomingFIRE
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Re: 65 y.o. seeks advise on retirement at 70

Post by WyomingFIRE »

Are you tracking your expenses?

For all intents and purposes; you are at the goal line so you have to make it work. Since you are 65, HC — a major risk — is effectively managed.

Have you used any of the retirement calculators, such as firecalc?

I think the answer pivots on your annual budget.
Topic Author
tennisnutdave
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Location: Eastern Massachusetts

Re: 65 y.o. seeks advise on retirement at 70

Post by tennisnutdave »

My expenses are being tracked by an open source software package called "Home Bank" and recent years expenses are reported in my post. I expect them to go down after my mortgage is paid off but as explained by my local advisor when I said:

"My health care expenses will go down when I get MediCare" (which I currently have); he responded:

"No, they won't"

I have not used any retirement calculator.

Thanks,
Dave
TravelforFun
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Re: 65 y.o. seeks advise on retirement at 70

Post by TravelforFun »

tennisnutdave wrote: Sun Apr 18, 2021 9:59 pm I'm not a financial wizard and would appreciate those more knowlgeable than myself to help. I'm 65 years of age and would care to enable myself to be able to retire at 70.
In today dollars, let's see. You currently have $485K and are contributing $5,000 a year. If your money grows at a 5% real rate, you would have $685K in savings when you turn 70. This amount should support a withdrawal of $1,712 a month using 3% safe withdrawal rate. With social security benefits and pension, you could spend up to $4,900 a month without worrying about running out of money.

Your AA depends on how risk averse you are but at a minimum you should have 5 years of expenses in bond, money market or CDs.

TravelforFun
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David Jay
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Re: 65 y.o. seeks advise on retirement at 70

Post by David Jay »

I think you are close to meeting your goal. I show about $60,000 in available income at age 70.

What is the principle + interest on your mortgage? If it is more than $900 a month then you can maintain your current spending levels after paying off the mortgage.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
CurlyDave
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Re: 65 y.o. seeks advise on retirement at 70

Post by CurlyDave »

I don't see any income from your income property in there.

I suspect you will be fine when that is included. Also, IMHO a 3% SWR is ultra conservative and 4% is still pretty conservative and would allow some margin on income over expenses.
Topic Author
tennisnutdave
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Re: 65 y.o. seeks advise on retirement at 70

Post by tennisnutdave »

TravelforFun -Thanks for your assistance
I have seen in the past to be very risk tolerant and don't expect that to change in the future.

David - Thanks for your help!
My mortgage is say $48,000 on a duplex worth about $500,000
My taxes on said property are $7,000 a year with insurance of about $1400
Income is currently $3650 per month on the rental units
This whole thing is dicey as real estate values fluctuate, expenses vary, tenants are not predictable, and various things come up.

Hopefully that's a little informative

Thanks,
Dave
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tennisnutdave
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Re: 65 y.o. seeks advise on retirement at 70

Post by tennisnutdave »

Sorry but I forgot to tell David about my mortgage's principle and interest per month:
Principle = $1,336.53
Interest = 177.74
Escrow = 756.70 which covers RE tax and insurance
I'm adding $1,000 a month so that in 4 years (a little more) it'll be paid off
lakpr
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Re: 65 y.o. seeks advise on retirement at 70

Post by lakpr »

What is your mortgage rate, and can you up your contribution to the Roth IRA to $7000 per year maximum allowed before retirement?

As others said above, you are almost close to make it work with the assets you have, a few extra contributions for 5 more years would definitely help. As is being mortgage free by the time you retire.

What is your annual income (reported on your W-2 form)? What is your mortgage rate? Is there room within the 12% bracket to withdraw additional funds from your Traditional IRA up to the top of 12% bracket (currently $53k per year for single filing status) then pay down the mortgage with that extra money?

The reason I suggest that is paying down your mortgage faster this way gives you more effective yield than what bonds are yielding now. With a $48k principal left, you are unlikely to get any good refinance options, and you are not itemizing. So that 3% or 3.5% you are paying on your mortgage is after-tax interest. Meanwhile in your Traditional IRA you are earning 1% or so on the bonds allocation, and that interest is taxable when you withdraw. Why not exchange the two?

Separately, I happen to agree with Vanguard advisor than your local advisor. For a 65 year old, going 15% bonds is ultra aggressive. Your behavior in 2008 is not a useful benchmark, you still had another 15 to 20 years of human capital ahead of you. Now you don't have that luxury, you need to retire in 5 years.

Even if you count your lifetime pension as fixed income, you should have at least 70:30 on the rest of your portfolio.
Carl53
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Re: 65 y.o. seeks advise on retirement at 70

Post by Carl53 »

You appear to be paying about 4.5% interest on your mortgage. It would be great to wipe that out.
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Wiggums
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Re: 65 y.o. seeks advise on retirement at 70

Post by Wiggums »

I am not a big fan of bonds at these levels, but I would encourage you to consider adding another 15% of fixed income. This is important in retirement.

It’s great that you are eliminating the mortgage.

Good luck to you.
jimkinny
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Re: 65 y.o. seeks advise on retirement at 70

Post by jimkinny »

Carl53 wrote: Mon Apr 19, 2021 5:13 am You appear to be paying about 4.5% interest on your mortgage. It would be great to wipe that out.
Yes, it makes no sense to pay an interest mortgage expense while simultaneuosly loaning money (bonds) at a lower interest rate.

You might be a candidate to buy a single premium immediate annuity. An SPIA is an insurance product. You buy it. The insurance company pay returns a portion of your money each month plus a bit of interest plus a mortality credit for life. I am not suggesting buying it now but maybe after you retire. There are a lot of threads discussing the pros and cons of SPIAs so do some reading and see if they are right for you.
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tennisnutdave
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Re: 65 y.o. seeks advise on retirement at 70

Post by tennisnutdave »

The Idea of using bond funds to pay off my mortgage is very interesting (perhaps why I posted here in the first place). If I pay it off then I won't be able to deduct the interest from my gross income on my 1040 but then again I won't be paying the interest in the first place. Sounds worthy of serious consideration!

At my income level I don't know if it's practical to increase annual IRA contribution from 5k to 7k but will look at it.

More immediate actions might include moving my ROTH funds of $140,000 from Fidelity Government Money Market into perhaps the most aggressive portion of investments assuming using ROTH funds for income would be last and non ROTH would be drawn earlier if needed.
I'm considering moving all my Vanguard funds - about 148k - over to Fidelity because their expense ratios are lower than Vanguard and, at Fidelity I'm looking at the following:
----------------------------------------------------------------------------------------------------------------
U.S. Equity, Fidelity only, Large Blend, Large Growth, No transaction fees
Fidelity® Nasdaq® Composite Index Fund FNCMX 0.3500%
Fidelity Large Cap Growth Index Fund FSPGX 0.0350%
Fidelity U.S. Systainability Index Fund FITLX 0.1100%
Fidelity Total Market Index Fund FSKAX 0.0150%
Fidelity 500 Index Fund FXAIX 0.0150%
Fidelity Large Cap Value Index Fund FLCOX 0.0350%
Fidelity ZERO Large Cap Index Fund FNILX 0.0000%
Fidelity ZERO Total Market Index Fund FZROX 0.0000%

U.S. Equity, Fidelity only, Mid-cap Blend, Mid-cap Growth, Mid-cap Value
Fidelity Extended Market Index Fund FSMAX 0.0360%
Fidelity Mid-Cap Index Fund FSMDX 0.0250%
Fidelity Mid Cap Growth Index Fund FMDGX 0.0500%
Fidelity Mid Cap Value Index Fund FIMVX 5.0000%
Fidelity ZERO Extended Market Index Fund FZIPX 0.0000%

International Equity, Fidelity only, No Transaction fees, Index
Fidelity International Sustainability Index Fund FNIDX 0.2000%
Fidelity Emerging Markets Index Fund FPADX 0.0750%
Fidelity Total International Index Fund FTIHX 0.0600%
Fidelity Global ex U.S. Index Fund FSGGX 0.0550%
Fidelity International Index Fund FSPSX 0.0350%
Fidelity ZERO International Index Fund FZILX 0.0000%

Corporate Bond, Emerging Markets Bond Short-Term Bond
Fidelity Short-Term Bond Index Fund FNSOX 0.0300%
----------------------------------------------------------------------------------------
I might want to do more research on "Short-Term Bond" funds but wonder what folks think of my fund choices in general. As I'm a bit of a financial dunderhead specific advise might come in handy (if possible)

People are suggesting I have more exposure to bonds - could be a good idea.

You folks are great :happy
Topic Author
tennisnutdave
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Re: 65 y.o. seeks advise on retirement at 70

Post by tennisnutdave »

When Wiggums suggests "15% fixed income", would he / she be suggesting fund(s) paying dividends like utilities?
Not sure (the financial dunderhead part of me). I lean towards index funds. :happy
dbr
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Re: 65 y.o. seeks advise on retirement at 70

Post by dbr »

tennisnutdave wrote: Mon Apr 19, 2021 7:43 am When Wiggums suggests "15% fixed income", would he / she be suggesting fund(s) paying dividends like utilities?
Not sure (the financial dunderhead part of me). I lean towards index funds. :happy
No, fixed income means debt instruments, meaning bonds and bond funds, and all forms of cash, CDs, savings accounts, etc. Some Treasury bonds, such as I and EE are more like cash. For role in the portfolio fixed income means low risk, low return assets intended to reduce the volatility of the holdings. This comes at the price of lower returns. Dividends have nothing to do with this on either side.
lakpr
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Re: 65 y.o. seeks advise on retirement at 70

Post by lakpr »

tennisnutdave wrote: Mon Apr 19, 2021 7:36 am The Idea of using bond funds to pay off my mortgage is very interesting (perhaps why I posted here in the first place). If I pay it off then I won't be able to deduct the interest from my gross income on my 1040 but then again I won't be paying the interest in the first place. Sounds worthy of serious consideration!
I do not believe you are itemizing in the first place. Per your numbers, you are paying about $7k in property taxes, and an interest of 4.5% * $48,000 = $2183 in annual interest, to a cumulative total of $9,183. Your standard deduction is $12,550 for 2021.

Since your itemized deductions are less than standard deduction, you must have been taking standard deduction at least since 2019 (higher mortgage balance in 2018 MIGHT have put you over the standard deduction threshold).

So in other words, there is no tax benefit to maintaining the mortgage, which is the point I tried to make in my previous response.
tennisnutdave wrote: Mon Apr 19, 2021 7:36 am At my income level I don't know if it's practical to increase annual IRA contribution from 5k to 7k but will look at it.
Why not? By your own numbers, you are paying escrow + principal & interest of about $1500 a month, AND you are adding another $1000 per month for additional principal. OR, you were already spending $2500 on housing not including taxes + insurance. Pay off the mortgage, and direct one such month payment into the Roth IRA.

What is your annual income? You did outline $3650 per month from rentals = $43,800. Is this your sole income?
tennisnutdave wrote: Mon Apr 19, 2021 7:36 am More immediate actions might include moving my ROTH funds of $140,000 from Fidelity Government Money Market into perhaps the most aggressive portion of investments assuming using ROTH funds for income would be last and non ROTH would be drawn earlier if needed.
At Fidelity, please use just these two funds, in a ratio that you are comfortable with. I recommend 80:20
Fidelity Total Market Index Fund FSKAX 0.0150%
Fidelity Total International Index Fund FTIHX 0.0600%


Within your Traditional IRA only (not Roth IRA), if you want bond exposure, I would use the Fidelity Total US Bond Index Fund, ticker FXNAX. Your list does not include this, but it is a standard recommendation on this forum.

But before you do invest in FXNAX, sell any existing bond holdings and pay off the mortgage tomorrow. Same exact risk position as before, you will be exchanging bonds-for-bonds, and reducing your monthly nut by $1500 per month.
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David Jay
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Re: 65 y.o. seeks advise on retirement at 70

Post by David Jay »

tennisnutdave wrote: Sun Apr 18, 2021 11:20 pm Sorry but I forgot to tell David about my mortgage's principle and interest per month:
Principle = $1,336.53
Interest = 177.74
Escrow = 756.70 which covers RE tax and insurance
I'm adding $1,000 a month so that in 4 years (a little more) it'll be paid off
This puts you on track for retirement at age 70 as follows:
2634 Social Security
533 Pension
1514 Principle + Interest (this is actually an expense reduction)
1613 (4% portfolio withdrawal)
6294 Total = $75,500 per year

Safety margins: One can reasonably expect the portfolio to grow over 5 years, and a 4% withdrawal rate is pretty conservative at age 70.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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tennisnutdave
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Re: 65 y.o. seeks advise on retirement at 70

Post by tennisnutdave »

I have no W2 at all as I'm self employed.
Topic Author
tennisnutdave
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Re: 65 y.o. seeks advise on retirement at 70

Post by tennisnutdave »

lakpr - Thank You for your detailed suggestions. I am a self employed (brick and mortar retail) sole proprietor. My accountant helps me submit a full blown 1040 which I believe means itemized deductions. My Schedule C for 2020 says $26,296 business income plus gross rental income of $14,966 plus unemployment income at $10k.

Thanks to all :happy
lakpr
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Re: 65 y.o. seeks advise on retirement at 70

Post by lakpr »

tennisnutdave wrote: Mon Apr 19, 2021 8:48 am lakpr - Thank You for your detailed suggestions. I am a self employed (brick and mortar retail) sole proprietor. My accountant helps me submit a full blown 1040 which I believe means itemized deductions. My Schedule C for 2020 says $26,296 business income plus gross rental income of $14,966 plus unemployment income at $10k.

Thanks to all :happy
This is a total of $51,262 in income, which reinforces my suspicion that you ARE taking standard deduction on your tax return.
For 2020, top of the 12% tax bracket is $40,125; plus $12,400 standard deduction = $52,525 in Adjusted Gross Income.

Your income is less than that.

Even if your suspicion is right and your total deductions (not income) exceeds that $12,400 standard deduction, your tax benefit is only 12%. That 4.5% interest rate that's been mentioned before, even if you are itemizing, is still costing you 4.5% * (1 - 12%) = 3.96% compounded monthly, or approximately 4% yield per year.

If a bank offers you a 4% CD for 5 years, the only condition is that the early withdrawal penalty is rather stiff (1 year interest earned or unearned), you can add to the CD at any time, and the maximum you can invest is capped at $48k -- would you buy it?

If you say you do -- throw every penny you have into paying down your mortgage as fast as possible.
If not, well, at least you know what your opportunity cost is. You are essentially borrowing at 4% and investing it in the market, and need to get at least 4% to pull ahead.
retiredjg
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Re: 65 y.o. seeks advise on retirement at 70

Post by retiredjg »

tennisnutdave wrote: Sun Apr 18, 2021 9:59 pm Tax Rate: 12% Federal, 5% State
With the income you are reporting the last few years, it does not appear you are in the 12% bracket although it is not impossible with high deductions and maybe rental depreciation. However, you might want to check your taxable income again.


Desired Asset allocation: 85% stocks / 15% bonds (Vanguard advisor suggested 40% bonds which I never liked - local advisor suggested (because I didn't move at all in 2008) told me that I'm risk tolerant and suggested 15% bonds which I'm much more comfortable with (2018)); consequently my desired allocation.
I think you should give this asset allocation more consideration. Your need, willingness, and ability to take risk should all be considered when deciding how much risk to take. It appears you are only considering one of these.

It does not appear that you have need to take a lot of risk. It appears you do have a willingness to take a lot of risk. The kicker is the third thing - ability to take risk. I'd suggest that you are exceeding your ability to take risk because of your age and your assets.

If we are hit with a big downturn like 2007, your $485k portfolio could drop to near $225k and not recover for 4 or 5 years. Your ability to retire (or stay in retirement) with only $225k would be in jeopardy. For this reason, it does not appear to me that you have the ability to take as much risk as you are taking, even if you have the willingness to take it.

There comes a time when we all have to realize that it is more important to preserve what we have than to make a lot more. At 65 and only 5 years out, you are there, even if you don't want to be.

It would be different if you were 45 or 55 and had plenty of time to recover. It would also be different if you had way more money than you will ever need.
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tennisnutdave
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Re: 65 y.o. seeks advise on retirement at 70

Post by tennisnutdave »

akpr said:
"This is a total of $51,262 in income, which reinforces my suspicion that you ARE taking standard deduction on your tax return."
Line 12 of my 2020 form 1040 "Standard deduction or itemized deductions (from Schedule A)" says $14.050. Now, I can find no Schedule A in my seemly very competent accountant's 1040. This makes me wonder if akpr isn't correct (except for the amount) about my taking a Standard Deduction.
Line 15 of my 2020 1040 reports $30,453 of "Taxable Income"

retiredjg says:
"With the income you are reporting the last few years, it does not appear you are in the 12% bracket"
I'm not even sure what the heck tax bracket I'm actually in - I just duckduckgo.com'd the question.
----------------------------------------------
It seems unanimous that I should pay off my mortgage which I plan to look into post haste. I still need to get my funds into a specific plan to maximize potential benefit.
Now, it sure looks to me, that respondents to my post are significantly more informed about financial issues than I.
----------------------------------------------
For Instance, lakpr suggested the following:
At Fidelity, please use just these two funds, in a ratio that you are comfortable with. I recommend 80:20
Fidelity Total Market Index Fund FSKAX 0.0150%
Fidelity Total International Index Fund FTIHX 0.0600%

Within your Traditional IRA only (not Roth IRA), if you want bond exposure, I would use the Fidelity Total US Bond Index Fund, ticker FXNAX. Your list does not include this, but it is a standard recommendation on this forum.
-----------------------------------------------
Seems that this specific advice might be advisable leaving me interested in what others might think.
My research in the past led me to the conclusion that bonds are useless. This may have been the case when I was younger and had a 10 or 20 year time frame. I now have a 5 year time frame and am even less informed about bonds than stock funds. Twenty years ago or so I asked a fellow programmer (who seemed very informed and intelligent about stocks) if it was smart for me to be in an index 500 fund. All he said was "boring". I can do boring!

I can assure all that your responses are much appreciated!
Dave
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celia
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Re: 65 y.o. seeks advise on retirement at 70

Post by celia »

tennisnutdave wrote: Sun Apr 18, 2021 10:26 pm "My health care expenses will go down when I get MediCare" (which I currently have); he responded:

"No, they won't"
Maybe your premiums go down or are more predictable, but as we age, we are more likely to have UNEXPECTED health care issues. Just a "trip and fall" can turn into a sprained ankle or brain damage. You can't tell that beforehand. Or you wake up each morning fresh and alert, until one morning, something's different. And it's not just a financial impact. Your mobility, digestion, need to see specialists, and cognitive decline can be impacted. All of these listed consequences can have financial impacts, too, but are not listed as "medical expenses". They are usually more like transportation, food, and senior home care expenses.
retiredjg
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Re: 65 y.o. seeks advise on retirement at 70

Post by retiredjg »

tennisnutdave wrote: Mon Apr 19, 2021 11:16 am It seems unanimous that I should pay off my mortgage which I plan to look into post haste.
No it is not unanimous. You have simply been hearing from people who think that, but not everybody does.

I don't see it this way, but it is a reasonable argument not to hold bonds that are paying you at a lower rate than your mortgage rate. But the solution is not to pay off the mortgage with the bonds. The solution is to pay off the mortgage with stocks and continue to hold bonds....but they are no longer paying you less than you are paying out.

Bonds are for stability and preservation, not for portfolio growth. That said, there are times - even decades - when the bond portion of your portfolio will pay you more than the stock portion.

Seems that this specific advice might be advisable leaving me interested in what others might think.
My research in the past led me to the conclusion that bonds are useless. This may have been the case when I was younger and had a 10 or 20 year time frame. I now have a 5 year time frame and am even less informed about bonds than stock funds.
Bonds or other fixed income assets are what preserve your portfolio in the bad times. It is true they do not pay a lot, but that is not what they are there for. They have a different purpose entirely.
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tennisnutdave
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Re: 65 y.o. seeks advise on retirement at 70

Post by tennisnutdave »

y celia: your healthcare points are well taken and seem quite valid.

retiredjg says about paying off my mortgage: "
I don't see it this way, but it is a reasonable argument not to hold bonds that are paying you at a lower rate than your mortgage rate. But the solution is not to pay off the mortgage with the bonds. The solution is to pay off the mortgage with stocks and continue to hold bonds....but they are no longer paying you less than you are paying out."
-------------------------------------------------
I don't see any reason why I can't pay off my mortgage with stock funds. My more immediate concern, being quite unfamiliar with bond index funds, is the best way to allocate my funds given my particular situation: 65 and looking to retire at 70. Using Fidelity index mutual funds, what is best for me? That would be my question of the day.
-------------------------------------------------
Your seemingly informed advise is much appreciated!
Dave :happy
retiredjg
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Re: 65 y.o. seeks advise on retirement at 70

Post by retiredjg »

Dave, I think we still do not know what your mortgage rate is. Someone gave an estimated number but it may not be correct. Also, without paying extra, how many more payments are there?

Do you live in the duplex or somewhere else?

One thing thing that comes to mind is if you are going to hit an IRMAA tier, which determines how much you pay for Medicare, if you pay off the mortgage. It may not be worth that.
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tennisnutdave
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Re: 65 y.o. seeks advise on retirement at 70

Post by tennisnutdave »

retiredjb, thanks to you for your input.
My Mortgage rate is 4.375% I inquired with some mortgage guy within the last year about lowering this rate. His response was that for an absentee landlord, it's not worth his time or mine to try lowering it. I don't live there but rent in a somewhat neighboring community for $1,000 / per month plus utilities. My cost for MediCare is $439.40 per quarter making my annual MediCare espence $1,757.60 (plus health providers invoices which amounts to $4,221 for the previous 12 months). I am currently unable to log into my mortgage account so I currently can't tell you how many payments are left. I inquired with some mortgage guy within the last year about lowering this rate. His response was that for an absentee landlord, it's not worth his time or mine to try lowering it. I don't live there but rent in a somewhat neighboring community for $1,000 / per month plus utilities. My cost for MediCare is $439.40 per quarter making my annual MediCare espence $1,757.60 (plus health providers invoices which amounts to $4,221 for the previous 12 months). I am currently unable to log into my mortgage account so I currently can't accurately tell you how many more payments for my mortgage there are at the rate they expect my payments (at the extra rate I'm paying it off - a little more than 4 years to go). Note that I've no intention of doing anything but paying down said mortgage at the rate on $1,000 a month. Should I take the advise I've received so far on this forum (which I'm likely to), then I'll have no mortgage at all.

I have no idea what "IRMAA tier" means.

My real interest is that, after I pay off the mortgage, what allocations should I have in my ROTH and regular IRA accounts.

Thanks,

Dave
retiredjg
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Re: 65 y.o. seeks advise on retirement at 70

Post by retiredjg »

tennisnutdave wrote: Mon Apr 19, 2021 6:32 pm I have no idea what "IRMAA tier" means.
If your income goes over a certain amount this year, your Medicare premiums will go up for a year, 2 years from now. This has to be considered in your decision to pay off the mortgage early because it is a cost you are not expecting. For me, it is just over $700 a year so I try to avoid it.

My real interest is that, after I pay off the mortgage, what allocations should I have in my ROTH and regular IRA accounts.
I can give you a suggestion, but it will be tomorrow.
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tennisnutdave
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Joined: Thu Oct 20, 2016 8:31 pm
Location: Eastern Massachusetts

Re: 65 y.o. seeks advise on retirement at 70

Post by tennisnutdave »

retiredjg:
that you respond at all I find encouraging.
Tomorrow is just hunky dory especially as I'm soon to go to sleep.
Thanks,
Dave :happy
lakpr
Posts: 7450
Joined: Fri Mar 18, 2011 9:59 am

Re: 65 y.o. seeks advise on retirement at 70

Post by lakpr »

The IRMAA first threshold occurs at $82k or so of AGI (not taxable income). This may be a non-factor, for your specific circumstance.

If you do keep that threshold in mind, the easiest solution could be to pay down your mortgage half this year and half next year.

With a $44k AGI in 2020, and assuming similar income in 2021, you have room for paying down $36k to $38k in additional mortgage principal per year, without needing to worry about IRMAA.
Sahara
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Joined: Tue Dec 04, 2018 6:21 pm

Re: 65 y.o. seeks advise on retirement at 70

Post by Sahara »

A brief breakdown of the math would be as follows. If you use 48,750 to pay off the mortgage you are left with $426,250
(140,000 + 335,000 - 48,750 = $426,250)

For simplicity's sake let’s say 425,000. To allocate at your desired 85/15/10, you would break it down as follows:

15% Bonds 63,750
85% Stock 361,250
10% of Stock International 36,125
90% of Stock US 397,375

Using the Fidelity funds suggested by lakpr your accounts could look like this:

Roth $140,000
Stock Index FSKAX 103,875
International Index FTIHX 36,125

Traditional = 286,250 (335,000 - 48,750)
Stock Index FSKAX 222,500
Bond index FXNAX 63,750
Katietsu
Posts: 4837
Joined: Sun Sep 22, 2013 1:48 am

Re: 65 y.o. seeks advise on retirement at 70

Post by Katietsu »

Are you comfortable with your Medicare coverage? Just make sure you understand all your options as some of things have a limited window to sign up and the whole thing can be pretty confusing.
retiredjg
Posts: 44008
Joined: Thu Jan 10, 2008 12:56 pm

Re: 65 y.o. seeks advise on retirement at 70

Post by retiredjg »

tennisnutdave wrote: Mon Apr 19, 2021 11:16 am akpr said:
"This is a total of $51,262 in income, which reinforces my suspicion that you ARE taking standard deduction on your tax return."
Line 12 of my 2020 form 1040 "Standard deduction or itemized deductions (from Schedule A)" says $14.050. Now, I can find no Schedule A in my seemly very competent accountant's 1040. This makes me wonder if akpr isn't correct (except for the amount) about my taking a Standard Deduction.
The standard deduction in 2020 for a single 65 year old is exactly $14,050. So I'd agree you are using the standard deduction now. You might have been itemizing deductions in previous years.

Line 15 of my 2020 1040 reports $30,453 of "Taxable Income"
This is in the 12% income bracket, as you thought.
retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: 65 y.o. seeks advise on retirement at 70

Post by retiredjg »

tennisnutdave, if you really want to pay the mortgage off this year, you will need to take at least half of the money from Roth IRA (not rollover IRA) to do it.

If you take $48k from the rollover IRA, that will add $48k to your income and I believe that would put you over the first IRMAA tier (which is in the neighborhood of $87k AGI, not taxable income). That would mean that in 2023, you would pay extra for Medicare (guessing $775 ish) for one year. There is no point in trying to save some interest in a way that causes you to pay more for Medicare.

However, If you take $25k from the rollover IRA and $24k from the Roth IRA, this would only increase your income by $25k. I do not think this would put your income into IRMAA territory as long as income from your retail business does not go up a lot.

However, I think you should check with your accountant to be sure. What concerns me is this. If you pay off the mortgage, your rental income will go up because the interest deduction has gone away. The combination of taking money from the rollover IRA and increasing your rental income may increase your AGI....pushing you into IRMAA territory again. What's the point?

An alternative is to take more from Roth IRA and less from tIRA. Assuming you started your Roth IRA at least 5 years ago, all the money in there is available tax and penalty free.

An additional alternative is to pay some this year and some in January 2022 and the mortgage will be gone.

A final alternative is to continue paying an extra $1k a month as you have been doing. That also lowers how much interest you pay in the long run. But it takes longer to get where you want to go.

It is not clear to me which of these is "best" financially. Your interest payments are somewhat low now and will continue to get smaller with every mortgage payment. By the last few payments, there will be hardly any interest paid at all.
Sahara
Posts: 406
Joined: Tue Dec 04, 2018 6:21 pm

Re: 65 y.o. seeks advise on retirement at 70

Post by Sahara »

Perhaps the strategy could include allocating the $5,000 in retirement contributions to paying down the mortgage?
lakpr
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Joined: Fri Mar 18, 2011 9:59 am

Re: 65 y.o. seeks advise on retirement at 70

Post by lakpr »

Sahara wrote: Tue Apr 20, 2021 7:15 am Perhaps the strategy could include allocating the $5,000 in retirement contributions to paying down the mortgage?
I disagree, rather strongly. Tax deferrals (traditional 401k/IRA) and tax-free (Roth 401k/IRA) are too valuable to be given up in favor of paying down the mortgage. The mortgage can be paid tomorrow if not today, but this tax-advantaged space can never be reclaimed if given up.
retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: 65 y.o. seeks advise on retirement at 70

Post by retiredjg »

Your current portfolio looks like this when you look at what each holding represents in the portfolio rather than by each account.


$474,686 total (all percentages based on this number)

ROTH IRA 28.5% ($140,000) at Fidelity
28.9% SPAXX Fidelity Government Money Market (transitional holding place)


Rollover IRA 70.5% ($334,686) at Vanguard (regular taxable IRA)
3.2% VBILX Vanguard Intermediate-Term Bond Index Fund $15,240 4.55%
5% VBTLX Vanguard Total Bond Market Index Fund $23,940 7.16
19.7% VFIAX Vanguard 500 Index Fund $93,691 28.00%
1.8% VSCSX Vanguard Short-Term Corporate Bond Index Fund $ 8,337 2.49%
1.7% VTABX Vanguard Total International Bond Index Fund $ 8,058 2.41%
39.1% VTSAX Vanguard Total Stock Market Index Fund $185,420 0.04%



You could build a new portfolio like this whether you move the money to Fidelity or not. (Move to Fidelity if you want, but not because their funds are lower cost. The difference in the cost is negligible. If you want a variety of bond funds, I think Vanguard has a wider choice.)


ROTH IRA 28.5% ($140,000)
22.5% Total Stock Index
6% Total International Index


Rollover IRA 70.5% ($334,686) (regular taxable IRA)
40% bonds (such as total bond index)
30.5% Total Stock Index

The funds you listed earlier would be fine except you did not include the total bond index on your list.

I set this up as 60% stocks and 40% bonds because I do not believe that the 85/15 allocation is appropriate for your age and nearness to retirement. Other than the ratios, this is essentially the same portfolio and funds suggested by a couple of other people here.

One of your earlier questions is whether you will have enough to retire. It appears so to me. The known income from the rental, SS, and small pension seems like it would cover a lot of your expenses. The portfolio would provide the rest. Or if you sell the rental and invest the proceeds, more would come from your portfolio. That should be enough as well.
retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: 65 y.o. seeks advise on retirement at 70

Post by retiredjg »

lakpr wrote: Tue Apr 20, 2021 8:58 am
Sahara wrote: Tue Apr 20, 2021 7:15 am Perhaps the strategy could include allocating the $5,000 in retirement contributions to paying down the mortgage?
I disagree, rather strongly. Tax deferrals (traditional 401k/IRA) and tax-free (Roth 401k/IRA) are too valuable to be given up in favor of paying down the mortgage. The mortgage can be paid tomorrow if not today, but this tax-advantaged space can never be reclaimed if given up.
I don't see how it would make any difference since the money to pay off the mortgage would be coming from IRA/Roth IRA anyway.
lakpr
Posts: 7450
Joined: Fri Mar 18, 2011 9:59 am

Re: 65 y.o. seeks advise on retirement at 70

Post by lakpr »

retiredjg wrote: Wed Apr 21, 2021 7:21 am
lakpr wrote: Tue Apr 20, 2021 8:58 am
Sahara wrote: Tue Apr 20, 2021 7:15 am Perhaps the strategy could include allocating the $5,000 in retirement contributions to paying down the mortgage?
I disagree, rather strongly. Tax deferrals (traditional 401k/IRA) and tax-free (Roth 401k/IRA) are too valuable to be given up in favor of paying down the mortgage. The mortgage can be paid tomorrow if not today, but this tax-advantaged space can never be reclaimed if given up.
I don't see how it would make any difference since the money to pay off the mortgage would be coming from IRA/Roth IRA anyway.
The OP is 65 and planning to retire at 70, so he is still able to contribute to IRA/Roth IRA. With that earned income for 5 more years, if the choice comes down to paying the mortgage off faster or contributing to the retirement accounts, I would definitely lean towards contributing to the retirement accounts.
retiredjg
Posts: 44008
Joined: Thu Jan 10, 2008 12:56 pm

Re: 65 y.o. seeks advise on retirement at 70

Post by retiredjg »

I see. Thought you meant something else. That makes sense to me too.
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