Portfolio Review - Planning for Retirement 10 yr out

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Topic Author
go2run
Posts: 159
Joined: Wed Mar 08, 2017 12:34 pm

Portfolio Review - Planning for Retirement 10 yr out

Post by go2run »

Hi fellow BH's,

**NOTE: Updated figures based on current status and posted a few new questions. My wife has changed jobs and we're still looking ahead and trying to plan things out. Many of the points made originally were around retirement expenses. Given that we are 10 yr out, we're trying to set ourselves up by balancing pre- and post-tax accounts and planning for future withdrawal strategies.**

It's been a few years since finding my way to this forum. I've learned quite a bit and implemented much of the BH's philosophy in our portfolio planning and execution. We are looking to retire in about 10-yr and would appreciate a sort-of sanity check to what we have set-up as well as some thoughts for future planning considerations. Thank you in advance for your review and input.

Emergency funds: Yes, three months of expenses

Debt: Mortgage - $60,317 @ 3.875%, maturity date = 9/1/42, no other debt (CC paid off monthly and no large future expenses planned in the near future i.e. car)

Tax Filing Status: Married Filing Jointly

Tax Rate: 24% Federal, 4.95% State

State of Residence: IL

Age: Both 44

Desired Asset allocation: 75% stocks / 25% bonds
Desired International allocation: 20% of stocks / 50% of bonds

Current Portfolio: $3.4M

Current retirement assets

Taxable
0.05% Money Market Cash
3.5% Extended Market Index (VEXAX) (0.06%)
10.8% Total Stock Market Index (VTSAX) (0.04%)
1.5% Alibaba (BABA) – Purchased Dec 2020
0.3% Antero Resources (AR) - Purchased Apr 2021

His 401k- Roth
3.0% US Growth Index (0.02%)
- Company match: $1/$1 up to 4% + annual employer contribution of 3% (by March 31 each year)

His Roth IRA at Vanguard
9.2% Total International Stock Index (VTIAX) (0.11)
17.1% Total Stock Market Index (VTSAX) (0.04%)

Her Roth IRA at Vanguard
5.5% Total International Stock Index (VTIAX) (0.11)
1.8% Total Stock Market Index (VTSAX) (0.04%)

Her 457 (Tax Deferred)
5.7% Vantagepoint 500 Stock Index (0.24%)
Company match No

His Rollover IRA at Vanguard (prior Traditional 401k Rollover)
13.3% Total Bond Market Index (VBTLX) (0.05%)
8.8% Total International Bond Index (VTABX) (0.11%)
11.9% Total Stock Market Index (VTSAX) (0.04%)

Her Rollover IRA at Vanguard (prior Traditional 401k Rollover)
7.6% Total Bond Market Index (VBTLX) (0.05%)

Utah 529
0.46% Age-Based Global Fund

Contributions

New annual Contributions
$27,850 his Roth 401k (includes EE and employer contributions)
$19,000 her 457
+$10,500 her Voluntary Additional Contribution (guaranteed 7% return per year); after tax contribution, taxed on interest only
$50,000 taxable
*Unable to contribute directly to Roth IRA due to income limits

Available funds

Funds available in his 401(k)
Target Date Funds (0.055%)
US Broad Market Index (0.029%)
S&P 500 Index (0.016%)
US Growth Index (0.02%) – tracks Russell 1000 Growth Index
US Value Index (0.034%) – tracks Russell 1000 Value Index
Mid Cap Index (0.029%) – tracks S&P Mid Cap 400 Index
Small Cap Index (0.045%) – tracks Russell 2000 Index
Developed Markets Index (0.066%) – tracks MSCI EAFE Index (International)
Total International Index (0.079%) – tracks MSCI ACWI ex-US Index (International)
Emerging Markets Index (0.145%) – tracks MSCI Emerging Markets Index (International)
Inflation Protected Index (0.039%) = tracks Barclays US TIPS Index
Total US Aggregate Bond Market Index (0.043%) – tracks Barclays US Aggregate Bond Index
Balanced Index Allocation (0.027%) – tracks S&P 500 (60%) and US Aggregate Bond Index (40%)

Funds available in her 457
**Removed funds from old 457 plan - typical fund expenses for index style funds ranged from 0.24-0.3%

Fidelity 500 Index (0.02%)
iShares MSCI EAFE Intl Index (0.04%)
Fidelity US Bond Index (0.03%)
Balanced Funds - Blackrock LifePath Index (typical fee 0.16%)

IMRF Pension (her)
@55, expected annual pension ~$50,600; pension increases 3% annually

Questions:
1. We feel like we are behind on 529 contributions. We intend on providing 4-yrs education expense for each of our 2 kids (ages 14 and 16). Our focus has been to fund our retirement first. Since we’re short, we’re planning on funding through cash flow or what is in taxable. Is it appropriate to sell shares of taxable funds up to the limit where NIIT kicks in so as to “reset” the cost basis? With her new position, our W2 wages will be near the NIIT income threshold.

2. Her 457 Plan - We're debating on whether we should roll this over to her new 457 plan or roll it over into her VG Rollover IRA. A prior thread regarding 457 vs 403b made us think about this as lakpr pointed out some good benefits with a 457 if considering early retirement. The fund options in the new 457 plan are TONS better, so we're leaning towards rolling it over into her new 457 plan. The plan also has a Roth version. We have it set-up to contribute pre-tax dollars but are debating the Roth version.

3. Mortgage, we checked on refinancing a year ago but with the fees to refi, the pay back wasn’t justified. We originally were making additional payments each month, but we stopped that a couple of years ago and invested the cash flow instead. We still think that is the appropriate thing to do.

4. Any thoughts, feedback comments for future planning over the next 10 years before we retire. We think we’re in pretty good shape but would appreciate an “outsider” view. We’re concerned with the Rollover IRA balances for being able to do future back-door Roth IRA contributions. His 401k does allow rollover contributions from former employer’s tax-qualified retirement plans. We are planning do convert what we can from Traditional to Roth in the in-between years prior to RMD's hitting but we will still have very large Traditional IRA balances which will lead to large RMD's. For this reason, I am contributing to my Roth 401k and am inclined to have my wife contribute to her Roth 457. Thoughts?

Thank you in advance for your review and thoughts/input.
Topic Author
go2run
Posts: 159
Joined: Wed Mar 08, 2017 12:34 pm

Re: Portfolio Review - Planning for Retirement 10 yr out

Post by go2run »

Sorry, I originally posted this in Feb '21 and received a few replies about retirement expenses. I meant to edit the original post but messed that up and thought I was deleting the reply to that post vs the entire post/thread itself.
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Raspberry-503
Posts: 955
Joined: Sat Oct 03, 2020 6:42 am

Re: Portfolio Review - Planning for Retirement 10 yr out

Post by Raspberry-503 »

Your employer will contribute up to 7% of your salary to you 401(k)? Wow!
PowderDay9
Posts: 1001
Joined: Fri Oct 12, 2018 12:29 pm

Re: Portfolio Review - Planning for Retirement 10 yr out

Post by PowderDay9 »

3. The mortgage is only $60k and since it's such a small portion of your $3.4M portfolio, it's not making much of a difference either way. Personally, I'd pay this off over the next year or two for simplicity. You have 25% in bonds and they aren't paying you enough interest to cover your mortgage interest rate so why leverage?

4. Your comments focused on your large traditional balances but you also have 35% (over $1M) in Roth, which is a lot as well. If your plan is to retire at 54, I'd consider switching back to traditional contributions now. There's a lot of factors involved though. What's your plan for health insurance between 54 and 65? That may determined how much Roth conversions you choose to do in those years. It might be worth doing some high level long-term modeling on the Roth conversions. You probably won't be above the 24% bracket in retirement, but if you think you'll be above this then your Roth contributions now would make sense.

You're in a great financial position. Congrats!
Topic Author
go2run
Posts: 159
Joined: Wed Mar 08, 2017 12:34 pm

Re: Portfolio Review - Planning for Retirement 10 yr out

Post by go2run »

PowderDay9 wrote: Mon May 17, 2021 10:48 pm 3. The mortgage is only $60k and since it's such a small portion of your $3.4M portfolio, it's not making much of a difference either way. Personally, I'd pay this off over the next year or two for simplicity. You have 25% in bonds and they aren't paying you enough interest to cover your mortgage interest rate so why leverage?

4. Your comments focused on your large traditional balances but you also have 35% (over $1M) in Roth, which is a lot as well. If your plan is to retire at 54, I'd consider switching back to traditional contributions now. There's a lot of factors involved though. What's your plan for health insurance between 54 and 65? That may determined how much Roth conversions you choose to do in those years. It might be worth doing some high level long-term modeling on the Roth conversions. You probably won't be above the 24% bracket in retirement, but if you think you'll be above this then your Roth contributions now would make sense.

You're in a great financial position. Congrats!
Thank you for the feedback.

For her 457 Plan, we are planning on rolling the funds over from the old 457 to her new 457 plan. The fund fees are tons better in the new plan and we like the benefits of the 457 plan when considering early retirement. We like the idea having options between taxable, t-IRA, Roth IRA, and the 457.
Topic Author
go2run
Posts: 159
Joined: Wed Mar 08, 2017 12:34 pm

Re: Portfolio Review - Planning for Retirement 10 yr out

Post by go2run »

go2run wrote: Mon May 17, 2021 12:35 pm 1. We feel like we are behind on 529 contributions. We intend on providing 4-yrs education expense for each of our 2 kids (ages 14 and 16). Our focus has been to fund our retirement first. Since we’re short, we’re planning on funding through cash flow or what is in taxable. Is it appropriate to sell shares of taxable funds up to the limit where NIIT kicks in so as to “reset” the cost basis? With her new position, our W2 wages will be near the NIIT income threshold.
Anyone have any thoughts about taxable withdrawal strategies for future education expenses?
daheld
Posts: 1368
Joined: Wed Sep 13, 2017 8:14 am
Location: Midwest US

Re: Portfolio Review - Planning for Retirement 10 yr out

Post by daheld »

You're obviously in great shape overall. If it were me, I'd also go ahead and knock out the mortgage, just for peace of mind. It's a tiny portion of your portfolio to pay it off. Between your retirement savings and the pension, I cannot imagine you'll have trouble covering expenses in retirement. It's obviously dependent on your lifestyle, but you're going to have enough to be comfortable.

Only thing I would mention that I didn't see discussed yet is healthcare. What's your plan in retirement to bridge til you qualify for Medicare? It can be quite costly.
HomeStretch
Posts: 11419
Joined: Thu Dec 27, 2018 2:06 pm

Re: Portfolio Review - Planning for Retirement 10 yr out

Post by HomeStretch »

go2run wrote: Wed May 19, 2021 7:29 am
go2run wrote: Mon May 17, 2021 12:35 pm 1. We feel like we are behind on 529 contributions. We intend on providing 4-yrs education expense for each of our 2 kids (ages 14 and 16). Our focus has been to fund our retirement first. Since we’re short, we’re planning on funding through cash flow or what is in taxable. Is it appropriate to sell shares of taxable funds up to the limit where NIIT kicks in so as to “reset” the cost basis? With her new position, our W2 wages will be near the NIIT income threshold.
Anyone have any thoughts about taxable withdrawal strategies for future education expenses?
As you plan to pay for some/all college expenses for your 2 kids over the next 2-8 years, consider contributing to IL Brightside 529 accounts for the state income tax deduction (up to $20k per year for MFJ in IL) and tax free growth.

The best strategy is to figure out how much you can contribute to each child’s education and communicate it to them so they can consider that as part of the college selection process. Use the 529 account funds, Taxable dividends and cash flow to fund your share of college costs.
PowderDay9
Posts: 1001
Joined: Fri Oct 12, 2018 12:29 pm

Re: Portfolio Review - Planning for Retirement 10 yr out

Post by PowderDay9 »

go2run wrote: Wed May 19, 2021 7:21 am Thank you for the feedback.

For her 457 Plan, we are planning on rolling the funds over from the old 457 to her new 457 plan. The fund fees are tons better in the new plan and we like the benefits of the 457 plan when considering early retirement. We like the idea having options between taxable, t-IRA, Roth IRA, and the 457.
I missed that you had a substantial pension at 55. Knowing that, I think you're doing the right thing by funding Roth over traditional.

Have you considered retiring earlier than 10 years?
Topic Author
go2run
Posts: 159
Joined: Wed Mar 08, 2017 12:34 pm

Re: Portfolio Review - Planning for Retirement 10 yr out

Post by go2run »

HomeStretch wrote: Wed May 19, 2021 10:05 am
go2run wrote: Wed May 19, 2021 7:29 am
go2run wrote: Mon May 17, 2021 12:35 pm 1. We feel like we are behind on 529 contributions. We intend on providing 4-yrs education expense for each of our 2 kids (ages 14 and 16). Our focus has been to fund our retirement first. Since we’re short, we’re planning on funding through cash flow or what is in taxable. Is it appropriate to sell shares of taxable funds up to the limit where NIIT kicks in so as to “reset” the cost basis? With her new position, our W2 wages will be near the NIIT income threshold.
Anyone have any thoughts about taxable withdrawal strategies for future education expenses?
As you plan to pay for some/all college expenses for your 2 kids over the next 2-8 years, consider contributing to IL Brightside 529 accounts for the state income tax deduction (up to $20k per year for MFJ in IL) and tax free growth.

The best strategy is to figure out how much you can contribute to each child’s education and communicate it to them so they can consider that as part of the college selection process. Use the 529 account funds, Taxable dividends and cash flow to fund your share of college costs.
That is a good suggestion regarding the IL Bright Start 529 account. We can recognize some immediate state tax savings with contributions. We are an open family about finances and we have been working to ensure our kids are educated on personal finance topics. Our intention is to pay a good portion for their college expenses but we are approaching it in the sense that they need to find scholarship and aid opportunities. They need to have ownership, accountability and skin in the game when it comes to investing in their future.
Last edited by go2run on Wed May 19, 2021 7:13 pm, edited 1 time in total.
Topic Author
go2run
Posts: 159
Joined: Wed Mar 08, 2017 12:34 pm

Re: Portfolio Review - Planning for Retirement 10 yr out

Post by go2run »

PowderDay9 wrote: Wed May 19, 2021 10:38 am
go2run wrote: Wed May 19, 2021 7:21 am Thank you for the feedback.

For her 457 Plan, we are planning on rolling the funds over from the old 457 to her new 457 plan. The fund fees are tons better in the new plan and we like the benefits of the 457 plan when considering early retirement. We like the idea having options between taxable, t-IRA, Roth IRA, and the 457.
I missed that you had a substantial pension at 55. Knowing that, I think you're doing the right thing by funding Roth over traditional.

Have you considered retiring earlier than 10 years?
We have...that is part of the plan with my wife going to full time to bump up her Final Rate of Earnings (FRE) that goes into the pension calcs. At 55, she'll have 20 yrs of service credit. This difference in pension of her retiring at 50 vs 55 is $32,000 vs $50,600 annual pension. With that, I think I should be the one to retire earlier! :happy
HomeStretch
Posts: 11419
Joined: Thu Dec 27, 2018 2:06 pm

Re: Portfolio Review - Planning for Retirement 10 yr out

Post by HomeStretch »

go2run wrote: Wed May 19, 2021 4:58 pm … Our intention is to pay a good portion for their college expenses but we are approaching it in the sense that they need to find scholarship and aid opportunities. They need to have ownership, accountability and skin in the game when it comes to investing in their educational future.
Certainly encourage your kids to make a good college choice, to apply for academic/sports scholarships and to work to help pay for college expenses. With your income/assets, the only financial “aid” they will likely qualify for are unsubsidized student loans co-signed by you that start accruing market-rate interest immediately. The total loan amount is capped at a fairly low amount compared to the cost of school.

Consider helping as much as you are able to (without jeopardizing your retirement) even if you work a bit longer than 10 more years so your kids don’t graduate with a crushing student debt load. It’s certainly a personal choice as to how much to pay towards college costs, but I have seen some of my kids’ friends absolutely crushed under a load of debt (even for state schools).
Topic Author
go2run
Posts: 159
Joined: Wed Mar 08, 2017 12:34 pm

Re: Portfolio Review - Planning for Retirement 10 yr out

Post by go2run »

HomeStretch wrote: Wed May 19, 2021 5:29 pm
go2run wrote: Wed May 19, 2021 4:58 pm … Our intention is to pay a good portion for their college expenses but we are approaching it in the sense that they need to find scholarship and aid opportunities. They need to have ownership, accountability and skin in the game when it comes to investing in their educational future.
Certainly encourage your kids to make a good college choice, to apply for academic/sports scholarships and to work to help pay for college expenses. With your income/assets, the only financial “aid” they will likely qualify for are unsubsidized student loans co-signed by you that start accruing market-rate interest immediately. The total loan amount is capped at a fairly low amount compared to the cost of school.

Consider helping as much as you are able to (without jeopardizing your retirement) even if you work a bit longer than 10 more years so your kids don’t graduate with a crushing student debt load. It’s certainly a personal choice as to how much to pay towards college costs, but I have seen some of my kids’ friends absolutely crushed under a load of debt (even for state schools).
Thanks and I agree 100% with your comments and perspective. We have put our retirement funding first and feel a little underprepared in this area. I paid 100% of my college expenses and my wife had 4 years paid for by her parents. We've been talking all the above with our oldest (junior in HS) and know that we won't leave her with a mountain of debt when it's all said and done.
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