Course Corrections Needed?
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Course Corrections Needed?
Just wondered if looking on track for (semi?) retirement @ age 55-57 and/or if there are any moves you would advise now with our portfolio to realize that goal. This is very much high-level overview but built with Boglehead principles in mind.
Single income (52 years old)
- Current Portfolio 70/30 (equity/bonds)
Retirement Accounts
- Total value across accounts is low seven figures (IPS = invest each year maximum allowable in IRAs > Roth conversion; hit “all sources” maximum contribution for 401k each year and also take advantage of catch-up).
- 401k in low cost 2030 target fund; Roths in VTI
Taxable Accounts
- Total value mid six figures (ibonds, EE, VTI and VEU)
Corp Pension
- $~3500 per month @ 60 years (multiple permutations of taking pension at various ages)
Corp Stock
- Current value of unvested company stock mid six figures
Debt
- Mortgage mid six figures @ 3.6%
Single income (52 years old)
- Current Portfolio 70/30 (equity/bonds)
Retirement Accounts
- Total value across accounts is low seven figures (IPS = invest each year maximum allowable in IRAs > Roth conversion; hit “all sources” maximum contribution for 401k each year and also take advantage of catch-up).
- 401k in low cost 2030 target fund; Roths in VTI
Taxable Accounts
- Total value mid six figures (ibonds, EE, VTI and VEU)
Corp Pension
- $~3500 per month @ 60 years (multiple permutations of taking pension at various ages)
Corp Stock
- Current value of unvested company stock mid six figures
Debt
- Mortgage mid six figures @ 3.6%
Last edited by a32Jun1966 on Thu Jun 24, 2021 6:10 pm, edited 5 times in total.
- retired@50
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Re: Course Corrections Needed?
Welcome to the forum.a32Jun1966 wrote: ↑Wed Jun 23, 2021 7:47 pm ...
Desired annual after-tax income in retirement
~$120k
...
Thank-you.
Do you really mean by the above statement that you hope to spend $120,000 per year?
If we back out the pension of $3,500 per month, that covers $42,000, which would mean you'd need $78,000 per year from your portfolio...???
Or am I misunderstanding the situation?
Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
Re: Course Corrections Needed?
Can you explain this more clearly?
Mortgage $680k @ 3.6% (25 year left; planning for 10% reduction each year (x4) until retirement at ~55-57 years.
Does the $120K include your P&I for the mortgage?
Post-tax expenses are good to know, but your total expenses including taxes and pre-Medicare health insurance premiums are key.
You basically have three incomes stages in retirement:
Pre-pension
Pension but pre-Social Security
Pension & Social Security
Figure out how much you need from your portfolio in each stage to cover your expenses (which will vary too) to estinate the nest egg you’ll need to start retirement.
Mortgage $680k @ 3.6% (25 year left; planning for 10% reduction each year (x4) until retirement at ~55-57 years.
Does the $120K include your P&I for the mortgage?
Post-tax expenses are good to know, but your total expenses including taxes and pre-Medicare health insurance premiums are key.
You basically have three incomes stages in retirement:
Pre-pension
Pension but pre-Social Security
Pension & Social Security
Figure out how much you need from your portfolio in each stage to cover your expenses (which will vary too) to estinate the nest egg you’ll need to start retirement.
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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Re: Course Corrections Needed?
Thank-you for your reply. I am likely being overly cautious that I would need that amount. But I am thinking I would have to absorb some amount of mortgage into that (even if I refi at a lower balance at some point). And correct, I would need $78k from the portfolio to add to that so I would be aligned with your thinking.retired@50 wrote: ↑Wed Jun 23, 2021 8:14 pmWelcome to the forum.a32Jun1966 wrote: ↑Wed Jun 23, 2021 7:47 pm ...
Desired annual after-tax income in retirement
~$120k
...
Thank-you.
Do you really mean by the above statement that you hope to spend $120,000 per year?
If we back out the pension of $3,500 per month, that covers $42,000, which would mean you'd need $78,000 per year from your portfolio...???
Or am I misunderstanding the situation?
Regards,
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- Joined: Wed Jun 23, 2021 6:12 pm
Re: Course Corrections Needed?
Thank-you for your reply. I was thinking the 120 would need to account for remaining P&I even if I were to refi with a lower balance at some point. And I am planning to take ~ 10% off the remaining balance for the next four years (rather than put those $ into the market) in order to get to a more reasonable amount heading into retirement. Hope that is a bit clearer.
Re: Course Corrections Needed?
Have you calculated how much Social Security to expect and what age you might take it?a32Jun1966 wrote: ↑Wed Jun 23, 2021 7:47 pm Debt
Mortgage $680k @ 3.6% (25 year left; planning for 10% reduction each year (x4) until retirement at ~55-57 years. Refi? Paydown from taxable to get sub-jumbo then refi or stay the course?)
Desired annual after-tax income in retirement
~$120k
I don't think your portfolio can support your desired post tax annual income in retirement let alone early retirement.
Any chance you can downsize your house and get out from a under mortgage completely? The numbers are still tight but if you could eliminate this debt while simultaneously growing your total portfolio they start to look more doable.
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Re: Course Corrections Needed?
I would pull from taxable to refi the mortgage to a 15 year conforming, with enough negative points to make it zero cost. You should be able to find a rate at about 2.75% with enough lender credits to cover the costs. Check Amerisave and LoanDepot. Rather than directing $30,000 a year into taxable, I'd make paying off the mortgage a top priority and make sure it is paid off before you retire. That will take considerable pressure off the need to draw from your portfolio.a32Jun1966 wrote: ↑Wed Jun 23, 2021 7:47 pm
Debt
Mortgage $680k @ 3.6% (25 year left; planning for 10% reduction each year (x4) until retirement at ~55-57 years. Refi? Paydown from taxable to get sub-jumbo then refi or stay the course?)
What I would like to do is use taxable funds and another (part-time?) job to bridge from retirement to start using 401k balances at 62. What is the best strategy to manage the mortgage debt though? What course corrections would you advise? Thank-you.
I'd plan to delay taking social security until 70 to maximize that retirement income stream: viewtopic.php?t=102609
It's unclear to me if you're counting the $500K of unvested company stock as part of your portfolio. That's a big chunk of money that could carry you through several years of early retirement spending. I would not count on drawing down any more than 4% a year from your retirement assets.
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Re: Course Corrections Needed?
Thank-you. No, I am not counting the unvested company stock in my portfolio mix of 70/30. I am tracking that separately (thinking as it vests I can throw that at the mortgage too). Or would you suggest to use an appropriate amount from taxable now to pay down the mortgage yet leave enough as an emergency fund? Yes, I have looked online and would plan to take SS later.Outer Marker wrote: ↑Wed Jun 23, 2021 10:14 pmI would pull from taxable to refi the mortgage to a 15 year conforming, with enough negative points to make it zero cost. You should be able to find a rate at about 2.75% with enough lender credits to cover the costs. Check Amerisave and LoanDepot. Rather than directing $30,000 a year into taxable, I'd make paying off the mortgage a top priority and make sure it is paid off before you retire. That will take considerable pressure off the need to draw from your portfolio.
I'd plan to delay taking social security until 70 to maximize that retirement income stream: viewtopic.php?t=102609
It's unclear to me if you're counting the $500K of unvested company stock as part of your portfolio. That's a big chunk of money that could carry you through several years of early retirement spending. I would not count on drawing down any more than 4% a year from your retirement assets.
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Re: Course Corrections Needed?
Thank-you. Yes, I did look at my projected SS and would look to take that @ 70. Right now with the house we are ok where we are.wetgear wrote: ↑Wed Jun 23, 2021 9:59 pmHave you calculated how much Social Security to expect and what age you might take it?a32Jun1966 wrote: ↑Wed Jun 23, 2021 7:47 pm Debt
Mortgage $680k @ 3.6% (25 year left; planning for 10% reduction each year (x4) until retirement at ~55-57 years. Refi? Paydown from taxable to get sub-jumbo then refi or stay the course?)
Desired annual after-tax income in retirement
~$120k
I don't think your portfolio can support your desired post tax annual income in retirement let alone early retirement.
Any chance you can downsize your house and get out from a under mortgage completely? The numbers are still tight but if you could eliminate this debt while simultaneously growing your total portfolio they start to look more doable.
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Re: Course Corrections Needed?
As long as you can do so without incurring large capital gains, I'd pull enough from taxable to refi to a conforming rate, but no more. Put new money towards the mortgage vs. buying frothy equities or low yielding bonds in taxable. Continue to max out your tax deferred accounts.a32Jun1966 wrote: ↑Wed Jun 23, 2021 10:26 pm ...would you suggest to use an appropriate amount from taxable now to pay down the mortgage yet leave enough as an emergency fund? Yes, I have looked online and would plan to take SS later.
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Re: Course Corrections Needed?
There is no unified Boglehead view on managing mortgage debt.a32Jun1966 wrote: ↑Wed Jun 23, 2021 7:47 pm What I would like to do is use taxable funds and another (part-time?) job to bridge from retirement to start using 401k balances at 62. What is the best strategy to manage the mortgage debt though? What course corrections would you advise? Thank-you.
In your shoes I would liquidate all stock holdings from taxable (VTI, VEU), and use them against your mortgage. If this causes your 70/30 AA to go off balance, increase equity holdings in IRA slightly to compensate. Refinance to a lower rate. Going forward, after maxing retirement accounts, make paying back the mortgage your top priority, so that you can retire debt-free.
And the logic behind this is: I'm in the camp which thinks that holdings bonds (yielding ~1%) and at the same time having a mortgage (interest ~3%) is simply losing arbitrage.
This is just my $0.02, others may disagree.
25% VTI | 25% VXUS | 12.5% AVUV | 10% AVDV | 2.5% VWO | 25% BND/SCHR/SCHP
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Re: Course Corrections Needed?
I agree that paying down the mortgage expeditiously and getting rid of it prior to retirement is a very good idea. However, it is not an emergency and OP does not need to eliminate all of his stock holdings in taxable to do so. Current mortgage is $680K, and, I believe OP needs to get it down to $548K to qualify for conforming, i.e. $132,000 shortfall. Cashing in more than that would be unwise, triggering unnecessary additional capital gains tax, and trading equities for paying off what is now a 2.75% 15 year mortgage loan. In this case, you're swapping (likely) higher yielding equities for low yield mortgage debt, not bonds for mortgage (which I agree is a good idea). Finally, agree that applying new after-tax money to the mortgage after maxing retirement accounts, and retiring debt-free, is the way to go.ivgrivchuck wrote: ↑Wed Jun 23, 2021 11:14 pm In your shoes I would liquidate all stock holdings from taxable (VTI, VEU), and use them against your mortgage. If this causes your 70/30 AA to go off balance, increase equity holdings in IRA slightly to compensate. Refinance to a lower rate. Going forward, after maxing retirement accounts, make paying back the mortgage your top priority, so that you can retire debt-free.
And the logic behind this is: I'm in the camp which thinks that holdings bonds (yielding ~1%) and at the same time having a mortgage (interest ~3%) is simply losing arbitrage.
This is just my $0.02, others may disagree.
Re: Course Corrections Needed?
I think a few of us are confused by the way this was presented. If you edit your original post in this format with all the details you'll likely get better and more complete advice: viewtopic.php?f=1&t=6212
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Re: Course Corrections Needed?
Yes, agree, and you've convinced me to take the path of refi to a conforming loan now and deploy after-tax to there. Thank-you.Outer Marker wrote: ↑Thu Jun 24, 2021 5:28 am
I agree that paying down the mortgage expeditiously and getting rid of it prior to retirement is a very good idea.
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Re: Course Corrections Needed?
Got it. Thank-you.delamer wrote: ↑Wed Jun 23, 2021 8:31 pm
Post-tax expenses are good to know, but your total expenses including taxes and pre-Medicare health insurance premiums are key.
You basically have three incomes stages in retirement:
Pre-pension
Pension but pre-Social Security
Pension & Social Security
Figure out how much you need from your portfolio in each stage to cover your expenses (which will vary too) to estinate the nest egg you’ll need to start retirement.