Newly Retired -- Moving to "investing and spending"
Newly Retired -- Moving to "investing and spending"
I'm new to the group, and new to retirement. The task of switching from "saving and investing" to "investing and spending" is daunting. So far, my wife and I can check most of the boxes:
1. Social security (which we are both delaying one year to age 70 to maximize benefits) plus government pension covers basic living expenses.
2. Pension includes medical benefits in addition to medicare.
3. We both have robust long term care policies with lifetime benefits. [Purchased long ago.]
4. We have bank savings to cover discretionary spending until age 72 when we will begin RMDs from taxable IRA. [Roth IRA is being held as a "legacy asset for children.]. And no debt, desire for second home or relatives with financial needs.
"Fun" money for discretionary spending (mainly travel) will come from two retirement accounts -- taxable brokerage [one-third] and taxable IRA [two-thirds]. Fun money is 3% of principal. [Total current spending minus SS minus pension divided by current principal balance of both retirement accounts.]
My plan is to cover age 72 [2024] to age 82 [2034] with low risk/ low reward "sleep at night" investments--treasuries, 10 year TIPS and MYGAs. This will mostly come from the taxable IRA since RMD at age 72 starts at 3.9%. These safe investments will be about 60% of the IRA. We have no desire for the "fun" of 2020.
However it is not realistic to continue such a low risk plan for more than 10-12 years. So I am looking for lowish risk assets to generate 4-6% over the next 10-12 years in my IRA account [40% of the account]. I've identified two mutual funds which seem to meet this goal:
VWINX (0.22% fee) with a portfolio of bonds and dividend stocks
DODLX (0.52% fee) with a portfolio of global bonds.
I recognize that actively managed funds are contrary to general Bogleheads approach and "past performance is no guarantee of future results." But Wellesley fund has lowish fee and seems appropriate for my goal. And Dodge & Cox analyzes both bonds and currency fluctuations and has historically been earning its fee.
My specific concerns:
1. Comments on my overall plan. Am I missing something?
2. Comments on the specific funds I have identified. Is there a better/safer way to invest 40% of IRA over the next 10-12 years?
1. Social security (which we are both delaying one year to age 70 to maximize benefits) plus government pension covers basic living expenses.
2. Pension includes medical benefits in addition to medicare.
3. We both have robust long term care policies with lifetime benefits. [Purchased long ago.]
4. We have bank savings to cover discretionary spending until age 72 when we will begin RMDs from taxable IRA. [Roth IRA is being held as a "legacy asset for children.]. And no debt, desire for second home or relatives with financial needs.
"Fun" money for discretionary spending (mainly travel) will come from two retirement accounts -- taxable brokerage [one-third] and taxable IRA [two-thirds]. Fun money is 3% of principal. [Total current spending minus SS minus pension divided by current principal balance of both retirement accounts.]
My plan is to cover age 72 [2024] to age 82 [2034] with low risk/ low reward "sleep at night" investments--treasuries, 10 year TIPS and MYGAs. This will mostly come from the taxable IRA since RMD at age 72 starts at 3.9%. These safe investments will be about 60% of the IRA. We have no desire for the "fun" of 2020.
However it is not realistic to continue such a low risk plan for more than 10-12 years. So I am looking for lowish risk assets to generate 4-6% over the next 10-12 years in my IRA account [40% of the account]. I've identified two mutual funds which seem to meet this goal:
VWINX (0.22% fee) with a portfolio of bonds and dividend stocks
DODLX (0.52% fee) with a portfolio of global bonds.
I recognize that actively managed funds are contrary to general Bogleheads approach and "past performance is no guarantee of future results." But Wellesley fund has lowish fee and seems appropriate for my goal. And Dodge & Cox analyzes both bonds and currency fluctuations and has historically been earning its fee.
My specific concerns:
1. Comments on my overall plan. Am I missing something?
2. Comments on the specific funds I have identified. Is there a better/safer way to invest 40% of IRA over the next 10-12 years?
Re: Newly Retired -- Moving to "investing and spending"
Hi! I am retiring in 32 days, so we are looking at investing and spending vs. savings as well. I think I have 400 different approaches I have tried to implement via my overly complex spreadsheet. The one I keep coming back to is so simple (all real dollars):
Total Income + Total Savings - Total Expenses
The reason I like this is I can easily see how I am doing and if I have some extra coin to spend. And I don't need to think of bridges or buckets or anything weird. I just have a single 60/40 portfolio and use this equation. It's conservative because it uses 0% real return, but it's an easy check.
You can read about this in the ABW or TPAW threads.
Total Income + Total Savings - Total Expenses
The reason I like this is I can easily see how I am doing and if I have some extra coin to spend. And I don't need to think of bridges or buckets or anything weird. I just have a single 60/40 portfolio and use this equation. It's conservative because it uses 0% real return, but it's an easy check.
You can read about this in the ABW or TPAW threads.
Consistently sets low goals and fails to achieve them.
Re: Newly Retired -- Moving to "investing and spending"
There is no reason an asset allocation of 40% stocks and 60% fixed income kept rebalanced to target cannot supply 3% of your initial portfolio value increased annually for inflation up to and past age 100. One way to effect a minor sabotage of this is to pay a .5% expense ratio on an investment. The optimum investments would be very low cost total stock and bond index funds. You would also be slightly more secure at 50% stocks. With your spending plan and the chance that stocks may gain more than bonds over the years this may take care of itself.pooser52 wrote: ↑Tue Feb 16, 2021 10:19 am I'm
My plan is to cover age 72 [2024] to age 82 [2034] with low risk/ low reward "sleep at night" investments--treasuries, 10 year TIPS and MYGAs. This will mostly come from the taxable IRA since RMD at age 72 starts at 3.9%. These safe investments will be about 60% of the IRA. We have no desire for the "fun" of 2020.
However it is not realistic to continue such a low risk plan for more than 10-12 years. So I am looking for lowish risk assets to generate 4-6% over the next 10-12 years in my IRA account [40% of the account]. I've identified two mutual funds which seem to meet this goal:
VWINX (0.22% fee) with a portfolio of bonds and dividend stocks
DODLX (0.52% fee) with a portfolio of global bonds.
Note that RMDs are just a transfer of money from tax deferred to taxable accounts and have no relationship to spending. That money can be spent, can be reinvested in part if it exceeds needed spending, or can be supplemented by spending from taxable account assets if it is short of needed spending. Asset allocation should be computed for the entire portfolio across all accounts. As money is spent or moved to different accounts asset allocation targets can be kept by rebalancing. Do we assume all of your assets are in that IRA.
There is nothing necessarily wrong with following an asset allocation path of starting with less in stocks and ending with more in stocks but it is hard to show that there is any special benefit either.
As to VWINX (Vanguard Wellesley), it is a fine fund that has its adherents, but I don't think it accomplishes anything special. You could manage a little less loss to expenses with other funds, but the difference is really minor. The DODLX not so much.
Re: Newly Retired -- Moving to "investing and spending"
Thank you! Very helpful in keeping me grounded. For purposes of my asset allocation, does it matter much whether the "bonds" are invested in "bond funds" as compared to treasuries or MYGAs?
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Re: Newly Retired -- Moving to "investing and spending"
OP,
Not sure that both waiting another year to claim social security is best. If the spouse with the smaller benefit claims now the other can file for a spousal benefit. Spousal benefit would be half of the amount if the the person filing had filed at 66 years old.
Check Mike PIper's social security calculator.
Bear
Not sure that both waiting another year to claim social security is best. If the spouse with the smaller benefit claims now the other can file for a spousal benefit. Spousal benefit would be half of the amount if the the person filing had filed at 66 years old.
Check Mike PIper's social security calculator.
Bear
Re: Newly Retired -- Moving to "investing and spending"
If first order is how much you saved and how much you want to spend, and second order is your allocation across stocks and bonds, then third order is which stocks and which bonds. First order is 10, second order is 3, and third order is 1.
Re: Newly Retired -- Moving to "investing and spending"
You should become familiar with the concept of safe withdrawal rates: https://www.bogleheads.org/wiki/Safe_withdrawal_rates
This may change your thoughts on selecting investments based on some specific return. Also, it’s not clear if your 4% to 6% is total return, dividends/interest only, or price appreciation only. But a plan that is based on achieving a specific return over a specific time period is dangerous, unless you are talking about a CD or bond with a guaranteed return.
All that said, keep 60% in low risk as you plan and put the 40% all in stocks. Plenty of sleep-at-night money plus plenty of growth money.
This may change your thoughts on selecting investments based on some specific return. Also, it’s not clear if your 4% to 6% is total return, dividends/interest only, or price appreciation only. But a plan that is based on achieving a specific return over a specific time period is dangerous, unless you are talking about a CD or bond with a guaranteed return.
All that said, keep 60% in low risk as you plan and put the 40% all in stocks. Plenty of sleep-at-night money plus plenty of growth money.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Re: Newly Retired -- Moving to "investing and spending"
I'm missing a few things here. From the main body of your post your living expenses are covered with the pension + Social Security, so the remaining expenses should be discretionary. So when you write "My plan is to cover age 72 [2024] to age 82 [2034] " are you talking about only discretionary expenses? The 1st paragraph quoted above says you will get this money 1/3rd from taxable and 2/3rds from IRA. The 2nd paragraph says it comes mostly from the IRA. Are they saying the same thing?"Fun" money for discretionary spending (mainly travel) will come from two retirement accounts -- taxable brokerage [one-third] and taxable IRA [two-thirds]. Fun money is 3% of principal. [Total current spending minus SS minus pension divided by current principal balance of both retirement accounts.]
My plan is to cover age 72 [2024] to age 82 [2034] with low risk/ low reward "sleep at night" investments--treasuries, 10 year TIPS and MYGAs. This will mostly come from the taxable IRA since RMD at age 72 starts at 3.9%. These safe investments will be about 60% of the IRA.
One thing to watch out for is a swing to a more aggressive portfolio over the years as you take money out of the safe investments. You may need to periodically rebalance, moving money from your stock investments to your safer investments as the safe ones are drawn down and stock continues to grow, leaving the safe investments as much less than 60% of your portfolio.
Re: Newly Retired -- Moving to "investing and spending"
Welcome to Bogleheads!
If you want a "set it and forget it" approach, you may wish to consider the Vanguard Target Retirement Income Fund (VTINX), ER of 0.12%. Target Retirement Income has returned an average of 5.64% annually since the inception of that fund in October 2003. Now that means that in some years the return will be lower and in some years, higher. In the worst year (2008), the fund declined 10.93%, but in the best year (2009) it gained 14.26%. It has only had three (3) years in its seventeen (17) year history when it has declined but each of the following years it gained significantly. At an allocation of 30/70, the fund is as conservative as it gets while still providing income and growth, so it is well suited for even the most cautious investor. Here is a chart of historical returns for Target Retirement Income: https://investor.vanguard.com/mutual-fu ... ve-returns. You can set up monthly automatic transfers to your checking account in an amount you choose to supplement your pension and social security income. https://investor.vanguard.com/mutual-fu ... view/vtinx
You might also want to consider Vanguard LifeStrategy Conservative Growth Fund (VSCGX), also with an ER of 0.12%, which is allocated 40/60. That has returned an average of 7.11% annually since the inception of that fund in September 1994. Again, you can set up automatic monthly transfers to checking. https://investor.vanguard.com/mutual-fu ... view/vscgx
If you like the "all in one" approach but wish to be more aggressive, there are several other Vanguard LifeStrategy funds (https://investor.vanguard.com/mutual-fu ... estrategy/) as well as Vanguard Balanced Index (VBIAX, 60/40, 0.07% ER).
Congratulations on your retirement!
If you want a "set it and forget it" approach, you may wish to consider the Vanguard Target Retirement Income Fund (VTINX), ER of 0.12%. Target Retirement Income has returned an average of 5.64% annually since the inception of that fund in October 2003. Now that means that in some years the return will be lower and in some years, higher. In the worst year (2008), the fund declined 10.93%, but in the best year (2009) it gained 14.26%. It has only had three (3) years in its seventeen (17) year history when it has declined but each of the following years it gained significantly. At an allocation of 30/70, the fund is as conservative as it gets while still providing income and growth, so it is well suited for even the most cautious investor. Here is a chart of historical returns for Target Retirement Income: https://investor.vanguard.com/mutual-fu ... ve-returns. You can set up monthly automatic transfers to your checking account in an amount you choose to supplement your pension and social security income. https://investor.vanguard.com/mutual-fu ... view/vtinx
You might also want to consider Vanguard LifeStrategy Conservative Growth Fund (VSCGX), also with an ER of 0.12%, which is allocated 40/60. That has returned an average of 7.11% annually since the inception of that fund in September 1994. Again, you can set up automatic monthly transfers to checking. https://investor.vanguard.com/mutual-fu ... view/vscgx
If you like the "all in one" approach but wish to be more aggressive, there are several other Vanguard LifeStrategy funds (https://investor.vanguard.com/mutual-fu ... estrategy/) as well as Vanguard Balanced Index (VBIAX, 60/40, 0.07% ER).
Congratulations on your retirement!
- FelixTheCat
- Posts: 2035
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Re: Newly Retired -- Moving to "investing and spending"
I'm considering retiring but I haven't figured out one thing. How do you withdraw from your account in a tax savvy manner? Do you withdraw from the taxable account first method? Do you withdraw from all accounts proportionally? How do you calculate this information?
Felix is a wonderful, wonderful cat.
Re: Newly Retired -- Moving to "investing and spending"
All things tax are specific and complicated. So you have to examine your situation and devise a best strategy. One planner that addresses some of this is iORP. I am not aware of a customized app that runs some sort of after tax maximum income optimization. There are an awful lot of conditions in a tax return that affect the outcome.FelixTheCat wrote: ↑Tue Feb 16, 2021 4:16 pm I'm considering retiring but I haven't figured out one thing. How do you withdraw from your account in a tax savvy manner? Do you withdraw from the taxable account first method? Do you withdraw from all accounts proportionally? How do you calculate this information?
Usually one delays withdrawing from tax deferred accounts until one is required to because the entire withdrawal there is taxed as ordinary income. Selling taxable investments is mainly harvesting capital gain and already taxed basis, at least for stocks. Any dividends earned in taxable accounts might as well be spent right off as they are taxed no matter what you do.
Some people find themselves in a low tax period after retirement and before Social Security where rollovers to Roth IRAs might make sense.
I would say if you want help with tax optimization you would have to post in exquisite detail for people to see what might be done.
I don't know if people are successful getting tax CPAs or financial planners to address this well in detail.
Re: Newly Retired -- Moving to "investing and spending"
There are a lot of moving parts. For example, in some states there are very favorable tax rates for those over a certain age or for certain retirement income, such as pensions and retirement plan distributions. In other cases, retirees may move from a state with a high tax burden to a state with a much lower tax burden. And then there is the possibility of future changes to tax rates and policies.FelixTheCat wrote: ↑Tue Feb 16, 2021 4:16 pm I'm considering retiring but I haven't figured out one thing. How do you withdraw from your account in a tax savvy manner? Do you withdraw from the taxable account first method? Do you withdraw from all accounts proportionally? How do you calculate this information?
I believe that there are programs, such as i-ORP (https://www.i-orp.com/Plans/index.html), that can help one make those decisions, but IMO for the reasons above (and others) it is impossible to completely and accurately forecast all of the possible tax-efficient strategies for withdrawal in retirement.
Re: Newly Retired -- Moving to "investing and spending"
I agree. Here is a link to it.bearwithbear wrote: ↑Tue Feb 16, 2021 2:31 pm OP,
Not sure that both waiting another year to claim social security is best. If the spouse with the smaller benefit claims now the other can file for a spousal benefit. Spousal benefit would be half of the amount if the the person filing had filed at 66 years old.
Check Mike PIper's social security calculator.
Bear
https://opensocialsecurity.com/
For figuring out you taxes one thing you can do it to use tax software to do a dummy tax return for different scenarios. This will also show you your state taxes. That will of course be using the prior years tax laws so it will be off some but it should be good enough to do basic planning.
Also you should also look at your future budget and taxes three ways, as a couple and as if one of your survives the other.
Re: Newly Retired -- Moving to "investing and spending"
FYI: IRS will be releasing updated RMD tables that apply starting in 2022. The new divisor at 72 is 27.4, which is 3.65% multiplier.pooser52 wrote: ↑Tue Feb 16, 2021 10:19 am My plan is to cover age 72 [2024] to age 82 [2034] with low risk/ low reward "sleep at night" investments--treasuries, 10 year TIPS and MYGAs. This will mostly come from the taxable IRA since RMD at age 72 starts at 3.9%. These safe investments will be about 60% of the IRA. We have no desire for the "fun" of 2020.