Course Corrections Needed?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
a32Jun1966
Posts: 11
Joined: Wed Jun 23, 2021 6:12 pm

Course Corrections Needed?

Post by a32Jun1966 »

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%
Last edited by a32Jun1966 on Thu Jun 24, 2021 6:10 pm, edited 5 times in total.
User avatar
retired@50
Posts: 12707
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Course Corrections Needed?

Post by retired@50 »

a32Jun1966 wrote: Wed Jun 23, 2021 7:47 pm ...
Desired annual after-tax income in retirement
~$120k
...
Thank-you.
Welcome to the forum. :happy

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
delamer
Posts: 17348
Joined: Tue Feb 08, 2011 5:13 pm

Re: Course Corrections Needed?

Post by delamer »

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.
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
a32Jun1966
Posts: 11
Joined: Wed Jun 23, 2021 6:12 pm

Re: Course Corrections Needed?

Post by a32Jun1966 »

retired@50 wrote: Wed Jun 23, 2021 8:14 pm
a32Jun1966 wrote: Wed Jun 23, 2021 7:47 pm ...
Desired annual after-tax income in retirement
~$120k
...
Thank-you.
Welcome to the forum. :happy

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,
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.
Topic Author
a32Jun1966
Posts: 11
Joined: Wed Jun 23, 2021 6:12 pm

Re: Course Corrections Needed?

Post by a32Jun1966 »

delamer wrote: Wed Jun 23, 2021 8:31 pm 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?
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.
wetgear
Posts: 859
Joined: Thu Apr 06, 2017 10:14 am

Re: Course Corrections Needed?

Post by wetgear »

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
Have you calculated how much Social Security to expect and what age you might take it?

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.
Outer Marker
Posts: 4360
Joined: Sun Mar 08, 2009 8:01 am

Re: Course Corrections Needed?

Post by Outer Marker »

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 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.
Topic Author
a32Jun1966
Posts: 11
Joined: Wed Jun 23, 2021 6:12 pm

Re: Course Corrections Needed?

Post by a32Jun1966 »

Outer Marker wrote: Wed Jun 23, 2021 10:14 pm
a32Jun1966 wrote: Wed Jun 23, 2021 7:47 pm
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.

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.
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.
Topic Author
a32Jun1966
Posts: 11
Joined: Wed Jun 23, 2021 6:12 pm

Re: Course Corrections Needed?

Post by a32Jun1966 »

wetgear wrote: Wed Jun 23, 2021 9:59 pm
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
Have you calculated how much Social Security to expect and what age you might take it?

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.
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.
Outer Marker
Posts: 4360
Joined: Sun Mar 08, 2009 8:01 am

Re: Course Corrections Needed?

Post by Outer Marker »

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.
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.
ivgrivchuck
Posts: 1670
Joined: Sun Sep 27, 2020 6:20 pm

Re: Course Corrections Needed?

Post by ivgrivchuck »

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.
There is no unified Boglehead view on managing mortgage debt.

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
Outer Marker
Posts: 4360
Joined: Sun Mar 08, 2009 8:01 am

Re: Course Corrections Needed?

Post by Outer Marker »

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.
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.
wetgear
Posts: 859
Joined: Thu Apr 06, 2017 10:14 am

Re: Course Corrections Needed?

Post by wetgear »

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
Topic Author
a32Jun1966
Posts: 11
Joined: Wed Jun 23, 2021 6:12 pm

Re: Course Corrections Needed?

Post by a32Jun1966 »

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.
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.
Topic Author
a32Jun1966
Posts: 11
Joined: Wed Jun 23, 2021 6:12 pm

Re: Course Corrections Needed?

Post by a32Jun1966 »

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.
Got it. Thank-you.
Post Reply