Help [with portfolio]

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Topic Author
lucky12431
Posts: 7
Joined: Tue Mar 19, 2019 5:49 pm

Help [with portfolio]

Post by lucky12431 »

Hey fellow investors.

I just turned 55 in January, and plan on retiring in a year. I will receive a pension( Part A) of $3,300 per month when I retire. I have a 401k with about $ 700k, and a small HSA fund, worth about 45k. As of right now, I have my 401k between 2 funds. A balanced Pool Fund, and a Vanguard fund - VINIX. The funds my union offers, are not what, I want to invest in when pull the plug. My plan is to roll my 401k over to Vanguard.

Plus I owe 200k on my house which will be paid off in 5yrs.

Looking for any advise on how I should balance my portfolio, and set up a game plan. My plan is to take SS at 62.

Thanks,
Jerry
delamer
Posts: 17458
Joined: Tue Feb 08, 2011 5:13 pm

Re: Help [with portfolio]

Post by delamer »

A key factor in setting up your portfolio is how much money you’ll need to withdraw to cover your expenses in retirement.

What will your expenses be before and after the mortgage is paid off (including income taxes)?

Do you have a Social Security estimate?
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Topic Author
lucky12431
Posts: 7
Joined: Tue Mar 19, 2019 5:49 pm

Re: Help [with portfolio]

Post by lucky12431 »

My mortgage is $2,700 per month. My other bill total $1,500 per month. My SS at 62 will around $2,000 per month. I just need to supplement my income, from 56 to 62.
JOEVANDAL
Posts: 66
Joined: Sun Feb 24, 2019 7:01 pm

Re: Help [with portfolio]

Post by JOEVANDAL »

what is your current income?
lakpr
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Joined: Fri Mar 18, 2011 9:59 am

Re: Help [with portfolio]

Post by lakpr »

If these are your only savings, I am sorry to say that you don't have enough to retire in a year.

Your monthly expenses = $2700 + $1500 = $4200, your pension pays $3300, so a shortfall of $900 per month = $10,800 per year. Round it up to $11K per year, and you need at least 3.5 years to tide you over until you reach age 59.5 = $38.5K, or $66k to carry you until age 62 when your social security kicks in.

Your choice is to come up with savings of $38.5K between now and next year when you plan to retire, or simply postpone your retirement until you reach age 59.5. Withdrawing funds from 401k will carry a penalty of 10% before age 59.5.

Before someone points it out: there is a way to withdraw funds from 401k without penalty, it's called Rule of 55, but if you are rolling over the funds from your 401k to a roll over IRA this rule does not apply. There is also 72(t) distribution, which requires substantially equal withdrawals from your 401k, but once you elect this option you cannot change your 401k withdrawals in the future. That could affect your IRMAA premiums, and also make your Social Security taxable. Would your pension also cause the "Windfall Elimination Provision" to kick in?
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Wiggums
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Joined: Thu Jan 31, 2019 7:02 am

Re: Help [with portfolio]

Post by Wiggums »

lakpr wrote: Wed Mar 20, 2019 8:07 am If these are your only savings, I am sorry to say that you don't have enough to retire in a year.

Your monthly expenses = $2700 + $1500 = $4200, your pension pays $3300, so a shortfall of $900 per month = $10,800 per year. Round it up to $11K per year, and you need at least 3.5 years to tide you over until you reach age 59.5 = $38.5K, or $66k to carry you until age 62 when your social security kicks in.

Your choice is to come up with savings of $38.5K between now and next year when you plan to retire, or simply postpone your retirement until you reach age 59.5. Withdrawing funds from 401k will carry a penalty of 10% before age 59.5.

Before someone points it out: there is a way to withdraw funds from 401k without penalty, it's called Rule of 55, but if you are rolling over the funds from your 401k to a roll over IRA this rule does not apply. There is also 72(t) distribution, which requires substantially equal withdrawals from your 401k, but once you elect this option you cannot change your 401k withdrawals in the future. That could affect your IRMAA premiums, and also make your Social Security taxable. Would your pension also cause the "Windfall Elimination Provision" to kick in?
I agree & Very good response.
"I started with nothing and I still have most of it left."
delamer
Posts: 17458
Joined: Tue Feb 08, 2011 5:13 pm

Re: Help [with portfolio]

Post by delamer »

I am not sure why the other posters are so pessimistic...

You need about $1,000 per month or $12,000 per year from 56 to 62. So that is roughly $72,000 total from your portfolio. And that doesn’t take into account that your mortgage will be paid off before 62. After 62, you won’t need to withdraw anything from your portfolio.

If you roll your 401(k) to a Vanguard IRA, you can use the IRS Rule 72(t) to withdraw the money and avoid any tax penalty. Here is further information: https://www.bogleheads.org/wiki/Substan ... c_payments

Getting back to your original question, there are 2 different approaches that you can take regarding your portfolio. Some people who don’t need to withdraw very much from their portfolio go with a conservative approach (low on stocks) because they feel they don’t need to take unnecessary risk. Other people feel the opposite — since they aren’t dependent on their portfolio to cover expenses, why not take more risk (high on stocks) to grow the portfolio for heirs, charity, or to cover extraordinary expenses.

There is no right answer.

Here are some suggestions for portfolios. You can change the weighting of the components based on the risk you decide to take: https://www.bogleheads.org/wiki/Lazy_portfolios

(These commments assume you are single with no dependents. If you have a spouse or anyone else who will need income if you die first, then your planning needs to take that into account.)
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Topic Author
lucky12431
Posts: 7
Joined: Tue Mar 19, 2019 5:49 pm

Re: Help [with portfolio]

Post by lucky12431 »

JOEVANDAL wrote: Tue Mar 19, 2019 11:43 pm what is your current income?
About 200K.
Topic Author
lucky12431
Posts: 7
Joined: Tue Mar 19, 2019 5:49 pm

Re: Help [with portfolio]

Post by lucky12431 »

lakpr wrote: Wed Mar 20, 2019 8:07 am If these are your only savings, I am sorry to say that you don't have enough to retire in a year.

Your monthly expenses = $2700 + $1500 = $4200, your pension pays $3300, so a shortfall of $900 per month = $10,800 per year. Round it up to $11K per year, and you need at least 3.5 years to tide you over until you reach age 59.5 = $38.5K, or $66k to carry you until age 62 when your social security kicks in.

Your choice is to come up with savings of $38.5K between now and next year when you plan to retire, or simply postpone your retirement until you reach age 59.5. Withdrawing funds from 401k will carry a penalty of 10% before age 59.5.

Before someone points it out: there is a way to withdraw funds from 401k without penalty, it's called Rule of 55, but if you are rolling over the funds from your 401k to a roll over IRA this rule does not apply. There is also 72(t) distribution, which requires substantially equal withdrawals from your 401k, but once you elect this option you cannot change your 401k withdrawals in the future. That could affect your IRMAA premiums, and also make your Social Security taxable. Would your pension also cause the "Windfall Elimination Provision" to kick in?

Even with 700k in my 401k?
Topic Author
lucky12431
Posts: 7
Joined: Tue Mar 19, 2019 5:49 pm

Re: Help [with portfolio]

Post by lucky12431 »

Wiggums wrote: Wed Mar 20, 2019 8:14 am
lakpr wrote: Wed Mar 20, 2019 8:07 am If these are your only savings, I am sorry to say that you don't have enough to retire in a year.

Your monthly expenses = $2700 + $1500 = $4200, your pension pays $3300, so a shortfall of $900 per month = $10,800 per year. Round it up to $11K per year, and you need at least 3.5 years to tide you over until you reach age 59.5 = $38.5K, or $66k to carry you until age 62 when your social security kicks in.

Your choice is to come up with savings of $38.5K between now and next year when you plan to retire, or simply postpone your retirement until you reach age 59.5. Withdrawing funds from 401k will carry a penalty of 10% before age 59.5.

Before someone points it out: there is a way to withdraw funds from 401k without penalty, it's called Rule of 55, but if you are rolling over the funds from your 401k to a roll over IRA this rule does not apply. There is also 72(t) distribution, which requires substantially equal withdrawals from your 401k, but once you elect this option you cannot change your 401k withdrawals in the future. That could affect your IRMAA premiums, and also make your Social Security taxable. Would your pension also cause the "Windfall Elimination Provision" to kick in?
I agree & Very good response.
Even with 700k in my 401k?
Topic Author
lucky12431
Posts: 7
Joined: Tue Mar 19, 2019 5:49 pm

Re: Help [with portfolio]

Post by lucky12431 »

:sharebeer
delamer wrote: Wed Mar 20, 2019 1:27 pm I am not sure why the other posters are so pessimistic...

You need about $1,000 per month or $12,000 per year from 56 to 62. So that is roughly $72,000 total from your portfolio. And that doesn’t take into account that your mortgage will be paid off before 62. After 62, you won’t need to withdraw anything from your portfolio.

If you roll your 401(k) to a Vanguard IRA, you can use the IRS Rule 72(t) to withdraw the money and avoid any tax penalty. Here is further information: https://www.bogleheads.org/wiki/Substan ... c_payments

Getting back to your original question, there are 2 different approaches that you can take regarding your portfolio. Some people who don’t need to withdraw very much from their portfolio go with a conservative approach (low on stocks) because they feel they don’t need to take unnecessary risk. Other people feel the opposite — since they aren’t dependent on their portfolio to cover expenses, why not take more risk (high on stocks) to grow the portfolio for heirs, charity, or to cover extraordinary expenses.

There is no right answer.

Here are some suggestions for portfolios. You can change the weighting of the components based on the risk you decide to take: https://www.bogleheads.org/wiki/Lazy_portfolios

(These commments assume you are single with no dependents. If you have a spouse or anyone else who will need income if you die first, then your planning needs to take that into account.)
:sharebeer
lakpr
Posts: 11612
Joined: Fri Mar 18, 2011 9:59 am

Re: Help [with portfolio]

Post by lakpr »

The 401k funds are locked up until age 59.5, unless you want to pay 10% penalties and income taxes. If you are withdrawing $66000 to $72000 in income from your 401k, that is easily $6600 to $7700 in penalties, and at a minimum 12% in taxes = $7300 to $8500 in taxes.

I did say / admitted that you can choose to leave your funds within 401k, and withdraw based on Rule of 55. But that requires that your plan actually supports that rule; I was told the plans do not have to offer that flexibility.
delamer
Posts: 17458
Joined: Tue Feb 08, 2011 5:13 pm

Re: Help [with portfolio]

Post by delamer »

lakpr wrote: Wed Mar 20, 2019 5:23 pm The 401k funds are locked up until age 59.5, unless you want to pay 10% penalties and income taxes. If you are withdrawing $66000 to $72000 in income from your 401k, that is easily $6600 to $7700 in penalties, and at a minimum 12% in taxes = $7300 to $8500 in taxes.

I did say / admitted that you can choose to leave your funds within 401k, and withdraw based on Rule of 55. But that requires that your plan actually supports that rule; I was told the plans do not have to offer that flexibility.
The OP specifically said that he is planning to transfer the 401(k) funds to an IRA at Vanguard, at which point he can implement the Rule 72(t) to avoid tax penalties. What his 401(k) does or doesn’t allow is irrelevant.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
lakpr
Posts: 11612
Joined: Fri Mar 18, 2011 9:59 am

Re: Help [with portfolio]

Post by lakpr »

delamer wrote: Wed Mar 20, 2019 6:59 pm
lakpr wrote: Wed Mar 20, 2019 5:23 pm The 401k funds are locked up until age 59.5, unless you want to pay 10% penalties and income taxes. If you are withdrawing $66000 to $72000 in income from your 401k, that is easily $6600 to $7700 in penalties, and at a minimum 12% in taxes = $7300 to $8500 in taxes.

I did say / admitted that you can choose to leave your funds within 401k, and withdraw based on Rule of 55. But that requires that your plan actually supports that rule; I was told the plans do not have to offer that flexibility.
The OP specifically said that he is planning to transfer the 401(k) funds to an IRA at Vanguard, at which point he can implement the Rule 72(t) to avoid tax penalties. What his 401(k) does or doesn’t allow is irrelevant.
I mentioned that too in my reply to OP. Yes he can choose Rule 72t distributions but then the withdrawal amounts are more or less set in stone. You can’t adjust the withdrawals as needed, which along with the pension amounts and SS for both (both OP and spouse are same age) puts them at a high marginal tax bracket.
delamer
Posts: 17458
Joined: Tue Feb 08, 2011 5:13 pm

Re: Help [with portfolio]

Post by delamer »

lakpr wrote: Wed Mar 20, 2019 7:13 pm
delamer wrote: Wed Mar 20, 2019 6:59 pm
lakpr wrote: Wed Mar 20, 2019 5:23 pm The 401k funds are locked up until age 59.5, unless you want to pay 10% penalties and income taxes. If you are withdrawing $66000 to $72000 in income from your 401k, that is easily $6600 to $7700 in penalties, and at a minimum 12% in taxes = $7300 to $8500 in taxes.

I did say / admitted that you can choose to leave your funds within 401k, and withdraw based on Rule of 55. But that requires that your plan actually supports that rule; I was told the plans do not have to offer that flexibility.
The OP specifically said that he is planning to transfer the 401(k) funds to an IRA at Vanguard, at which point he can implement the Rule 72(t) to avoid tax penalties. What his 401(k) does or doesn’t allow is irrelevant.
I mentioned that too in my reply to OP. Yes he can choose Rule 72t distributions but then the withdrawal amounts are more or less set in stone. You can’t adjust the withdrawals as needed, which along with the pension amounts and SS for both (both OP and spouse are same age) puts them at a high marginal tax bracket.
There are only set until he reaches 59.5. And if he needs to pay his bills, then he needs to pay taxes on the withdrawals.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
lakpr
Posts: 11612
Joined: Fri Mar 18, 2011 9:59 am

Re: Help [with portfolio]

Post by lakpr »

delamer wrote: Wed Mar 20, 2019 7:17 pm
lakpr wrote: Wed Mar 20, 2019 7:13 pm
delamer wrote: Wed Mar 20, 2019 6:59 pm
lakpr wrote: Wed Mar 20, 2019 5:23 pm The 401k funds are locked up until age 59.5, unless you want to pay 10% penalties and income taxes. If you are withdrawing $66000 to $72000 in income from your 401k, that is easily $6600 to $7700 in penalties, and at a minimum 12% in taxes = $7300 to $8500 in taxes.

I did say / admitted that you can choose to leave your funds within 401k, and withdraw based on Rule of 55. But that requires that your plan actually supports that rule; I was told the plans do not have to offer that flexibility.
The OP specifically said that he is planning to transfer the 401(k) funds to an IRA at Vanguard, at which point he can implement the Rule 72(t) to avoid tax penalties. What his 401(k) does or doesn’t allow is irrelevant.
I mentioned that too in my reply to OP. Yes he can choose Rule 72t distributions but then the withdrawal amounts are more or less set in stone. You can’t adjust the withdrawals as needed, which along with the pension amounts and SS for both (both OP and spouse are same age) puts them at a high marginal tax bracket.
There are only set until he reaches 59.5. And if he needs to pay his bills, then he needs to pay taxes on the withdrawals.
My impression was that you have to stick to the 72t rule distribution amounts at least until the life expectancy age of the person. I just now googled this again; it seems that once you elect this option, you have to stick to it until at least 5 years are elapsed, or the person reaches age 59.5, whichever is later. I didn’t know that.

With this information, yes agreed that there is nothing preventing the OP from retiring tomorrow.
Topic Author
lucky12431
Posts: 7
Joined: Tue Mar 19, 2019 5:49 pm

Re: Help [with portfolio]

Post by lucky12431 »

lakpr wrote: Wed Mar 20, 2019 7:23 pm
delamer wrote: Wed Mar 20, 2019 7:17 pm
lakpr wrote: Wed Mar 20, 2019 7:13 pm
delamer wrote: Wed Mar 20, 2019 6:59 pm
lakpr wrote: Wed Mar 20, 2019 5:23 pm The 401k funds are locked up until age 59.5, unless you want to pay 10% penalties and income taxes. If you are withdrawing $66000 to $72000 in income from your 401k, that is easily $6600 to $7700 in penalties, and at a minimum 12% in taxes = $7300 to $8500 in taxes.

I did say / admitted that you can choose to leave your funds within 401k, and withdraw based on Rule of 55. But that requires that your plan actually supports that rule; I was told the plans do not have to offer that flexibility.
The OP specifically said that he is planning to transfer the 401(k) funds to an IRA at Vanguard, at which point he can implement the Rule 72(t) to avoid tax penalties. What his 401(k) does or doesn’t allow is irrelevant.
I mentioned that too in my reply to OP. Yes he can choose Rule 72t distributions but then the withdrawal amounts are more or less set in stone. You can’t adjust the withdrawals as needed, which along with the pension amounts and SS for both (both OP and spouse are same age) puts them at a high marginal tax bracket.
There are only set until he reaches 59.5. And if he needs to pay his bills, then he needs to pay taxes on the withdrawals.
My impression was that you have to stick to the 72t rule distribution amounts at least until the life expectancy age of the person. I just now googled this again; it seems that once you elect this option, you have to stick to it until at least 5 years are elapsed, or the person reaches age 59.5, whichever is later. I didn’t know that.

With this information, yes agreed that there is nothing preventing the OP from retiring tomorrow.

Except I need my 1000 hrs to receive my 25 yrs. Then I can retire w/o any pension penalties. I will be able to withdraw my 401k too.
JOEVANDAL
Posts: 66
Joined: Sun Feb 24, 2019 7:01 pm

Re: Help [with portfolio]

Post by JOEVANDAL »

I would work at least 3 more years and make sure the house Is paid off before I retire.
lakpr
Posts: 11612
Joined: Fri Mar 18, 2011 9:59 am

Re: Help [with portfolio]

Post by lakpr »

*** deleted **** :oops:
I am getting senile, confusing one poster to another!
Last edited by lakpr on Fri Mar 22, 2019 2:42 am, edited 1 time in total.
delamer
Posts: 17458
Joined: Tue Feb 08, 2011 5:13 pm

Re: Help [with portfolio]

Post by delamer »

lakpr wrote: Thu Mar 21, 2019 9:31 pm
JOEVANDAL wrote: Thu Mar 21, 2019 9:13 pm I would work at least 3 more years and make sure the house Is paid off before I retire.
Glad you took this decision.

By then you would be age 58. Instead of invoking Rule 72t at that time, if you can scrounge up additional $18k over and above paying off the house, you can use those $18k for shortfall expenses from retirement to age 59.5 you will be golden.

Another tactic you could pursue is to take a 401k loan just before you retire, you will get until October 15 of next year to repay that loan. By that time you will be 59.5 any way...

Or perhaps take a HELOC and draw on that until 59.5.

Possibilities, possibilities....
He is not the OP.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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