Portfolio Review - Early retirement for Spouse
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Portfolio Review - Early retirement for Spouse
Lately thinking about retirement planning as I have another 13 years to retire when I reach MRA 30 years with Fed in November 2034.
Our Annual Expenses are: $185k (tracking since 2016). We are comfortable with that number and thinking that for retirement planning purpose we will assume $200k per year expenses just to give some breather. Also, not counting on any Social Security supplement at 57, but estimating pension of $50k/year for self. Wife doesn't have pension
Questions:
1. Please suggest optimization for my portfolio (with regards to risk). I am unable to come up with asset allocation %
2. Wife wants to retire to spend more time with family (her parents, our kids). She is thinking about retiring in April 2022 after she gets annual bonus. This would essentially mean we need to dip into savings, however I would like to keep contributing to TSP. Any suggestions on how to do this withdrawal from 2022 until 2034? I am thinking we would need to dip into about $70k/year from now until 2034.
3. From 2034 to 2039 until my SS kicks, how to handle withdrawal?
Emergency funds: Three to six months of expenses (indicate if you have this, but it is generally not part of your asset allocation) $100k (Would like to keep it like this for peace of mind and take care of expenses but open to ideas)
Debt: Indicate if you have any debt (credit card, school loans, car loans, mortgage) and the interest rate you are paying on each loan.
Home Loan $630k outstanding at 2.75%
Tax Filing Status: Married Filing Joint
Tax Rate: 24% Federal, 5.75% Virginia
State of Residence: Virginia
Age:44 Self and Spouse 40
Desired Asset allocation: Not sure
Desired International allocation: Not sure
Please provide an approximate size of your total portfolio (as in 50K, 700k, 1.4M, etc.) or as (high four-figures, mid five-figures, low six-figures, etc.). $4.3M
Current retirement assets
Taxable ($1.95M)
Vanguard – VTSAX (100%) - $1M
Fidelity – FSKAX (100%) - $820k – Expense Ratio – 0.015%
TD Ameritrade – VTI (100%) - $36k
SoFi – VTI (100%) - $1k
Cash - $100k (This is Emergency, not counting for investment)
Tax Deferred ($2.35M)
His 401k
TSP (80% C, 20%S) - $1.05M
His Roth IRA at Vanguard
VTSAX - $12k
His Roth IRA at Fidelity
Fidelity – FSKAX (100%) - $26k Expense Ratio – 0.015%
His 401k at T Rowe
STATE STREET S&P 500 INDEX (100%) - $200k – Expense Ratio 0.01%
Her 401k at Merrill
VANGUARD INSTITUTIONAL 500 INDEX (100%) - $100k – Expense Ratio – 0.01%
Her 401k at Fidelity
FXAIX FID 500 INDEX (100%) - $797k - Expense ratio – 0.015%
Her Roll over 401k at Vanguard
VTSAX - 100% - 32k
Her Traditional IRA at Ameritrade ($40k)
Symbol Mkt value
AAPL 3,548.40
TSLA 35,237.95
UAL 569.22
VNQ 1,051.20
Her Roth IRA at Ameritrade ($78k)
TSLA 64,057.00
UAL 809.2
XLV 14,094.00
Not included in the above portfolio of $4.3M:
1. Both kids have fully funded pre-paid Virginia 529 plans
2. Gold About $100k
Contributions
New annual Contributions
$19500 to TSP with approximately $7.5k Match (80%C, 20%S)
$19500 to her Merill 401k approximately $4k match (VANGUARD INSTITUTIONAL 500 INDEX (100%)
$6k to his Vanguard Roth IRA (backdoor) (VTSAX 100%)
$84000 to Vanguard VTSAX 100% (7k per month, split in four weeks, 2k for first three weeks, 1k fourth week of each month)
Our Annual Expenses are: $185k (tracking since 2016). We are comfortable with that number and thinking that for retirement planning purpose we will assume $200k per year expenses just to give some breather. Also, not counting on any Social Security supplement at 57, but estimating pension of $50k/year for self. Wife doesn't have pension
Questions:
1. Please suggest optimization for my portfolio (with regards to risk). I am unable to come up with asset allocation %
2. Wife wants to retire to spend more time with family (her parents, our kids). She is thinking about retiring in April 2022 after she gets annual bonus. This would essentially mean we need to dip into savings, however I would like to keep contributing to TSP. Any suggestions on how to do this withdrawal from 2022 until 2034? I am thinking we would need to dip into about $70k/year from now until 2034.
3. From 2034 to 2039 until my SS kicks, how to handle withdrawal?
Emergency funds: Three to six months of expenses (indicate if you have this, but it is generally not part of your asset allocation) $100k (Would like to keep it like this for peace of mind and take care of expenses but open to ideas)
Debt: Indicate if you have any debt (credit card, school loans, car loans, mortgage) and the interest rate you are paying on each loan.
Home Loan $630k outstanding at 2.75%
Tax Filing Status: Married Filing Joint
Tax Rate: 24% Federal, 5.75% Virginia
State of Residence: Virginia
Age:44 Self and Spouse 40
Desired Asset allocation: Not sure
Desired International allocation: Not sure
Please provide an approximate size of your total portfolio (as in 50K, 700k, 1.4M, etc.) or as (high four-figures, mid five-figures, low six-figures, etc.). $4.3M
Current retirement assets
Taxable ($1.95M)
Vanguard – VTSAX (100%) - $1M
Fidelity – FSKAX (100%) - $820k – Expense Ratio – 0.015%
TD Ameritrade – VTI (100%) - $36k
SoFi – VTI (100%) - $1k
Cash - $100k (This is Emergency, not counting for investment)
Tax Deferred ($2.35M)
His 401k
TSP (80% C, 20%S) - $1.05M
His Roth IRA at Vanguard
VTSAX - $12k
His Roth IRA at Fidelity
Fidelity – FSKAX (100%) - $26k Expense Ratio – 0.015%
His 401k at T Rowe
STATE STREET S&P 500 INDEX (100%) - $200k – Expense Ratio 0.01%
Her 401k at Merrill
VANGUARD INSTITUTIONAL 500 INDEX (100%) - $100k – Expense Ratio – 0.01%
Her 401k at Fidelity
FXAIX FID 500 INDEX (100%) - $797k - Expense ratio – 0.015%
Her Roll over 401k at Vanguard
VTSAX - 100% - 32k
Her Traditional IRA at Ameritrade ($40k)
Symbol Mkt value
AAPL 3,548.40
TSLA 35,237.95
UAL 569.22
VNQ 1,051.20
Her Roth IRA at Ameritrade ($78k)
TSLA 64,057.00
UAL 809.2
XLV 14,094.00
Not included in the above portfolio of $4.3M:
1. Both kids have fully funded pre-paid Virginia 529 plans
2. Gold About $100k
Contributions
New annual Contributions
$19500 to TSP with approximately $7.5k Match (80%C, 20%S)
$19500 to her Merill 401k approximately $4k match (VANGUARD INSTITUTIONAL 500 INDEX (100%)
$6k to his Vanguard Roth IRA (backdoor) (VTSAX 100%)
$84000 to Vanguard VTSAX 100% (7k per month, split in four weeks, 2k for first three weeks, 1k fourth week of each month)
Last edited by AndyJPA2877 on Tue Jul 27, 2021 10:05 am, edited 1 time in total.
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Re: Portfolio Review - Early retirement for Spouse
I'm puzzled by the red passages above. You've been a member of Bogleheads since 2016 and it appears you haven't put enough thought into asset allocation, which is kind of the "first thing" you're supposed to do.AndyJPA2877 wrote: ↑Tue Jul 27, 2021 9:15 am Questions:
1. Please suggest optimization for my portfolio (with regards to risk). I am unable to come up with asset allocation %
Desired Asset allocation: Not sure
Desired International allocation: Not sure
Please provide an approximate size of your total portfolio $4.3M
Based on your holdings, it seems that you are 100% US stock, and virtually nothing else. While that has worked out well in the recent past, it's probably not considered as the risk-adjusted optimal portfolio. In my opinion, Bonds and International stocks should certainly play a role somewhere in your portfolio.
My advice would be to start at the beginning. Take the Vanguard questionnaire on risk tolerance. See what it recommends. You've built a nice sized portfolio, but you also need to think about how you can build in some protection over the next 13 years so your retirement doesn't get derailed if the US stock market has a bad couple of years.
Vanguard questionnaire: https://retirementplans.vanguard.com/VG ... Step=start
Asset Allocation wiki page: https://www.bogleheads.org/wiki/Asset_allocation
Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: Portfolio Review - Early retirement for Spouse
Thanks so much for the feedback. I did try the link sometime before and it gave me 70/30 (Stocks/Bonds), however I am not sure and not able to buy into it. May be that's why I am here to get some different perspectives
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Re: Portfolio Review - Early retirement for Spouse
+1 to adding bonds to your portfolio.
You may want to take a closer look at what your income will look like with a pension, two SS benefits, Taxable account dividends/CG distributions and RMDs at ages 70+. Another 13 years of Traditional TSP contributions/match may push you into a retirement marginal tax rate equal to or greater than your current 24% rate. Consider whether you should change some/all of your employee deferrals from Traditional to Roth.
Your filing status is “married filing separately”. Does that result in a lower tax liability for you than “married filing jointly”?
You may want to take a closer look at what your income will look like with a pension, two SS benefits, Taxable account dividends/CG distributions and RMDs at ages 70+. Another 13 years of Traditional TSP contributions/match may push you into a retirement marginal tax rate equal to or greater than your current 24% rate. Consider whether you should change some/all of your employee deferrals from Traditional to Roth.
Your filing status is “married filing separately”. Does that result in a lower tax liability for you than “married filing jointly”?
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Re: Portfolio Review - Early retirement for Spouse
Thanks homestretch for your thoughts and good catch on tax filing status, it's MFJ and I updated the post...I will do some homework on deferrals from Traditional TSP to Roth TSP and will post back here
Re: Portfolio Review - Early retirement for Spouse
Great work on building such a large amount of wealth at such a young age. If you don't mind me asking, is a lot of that wealth from your wife, or from pre-fed work?
Maybe I'm missing something...Is your plan for both of you to retire, or is it that your wife will retire and you will work 13 years? If the former, how do you get a pension of $50k with 17 years of work? If the latter, what is your salary for those 13 years? If you are sure about the $50k pension, I think it is reasonable to count the pension as a bond, or at least subtract it from the amount you'll need to generate to get the $200k/year of expenses.
Maybe I'm missing something...Is your plan for both of you to retire, or is it that your wife will retire and you will work 13 years? If the former, how do you get a pension of $50k with 17 years of work? If the latter, what is your salary for those 13 years? If you are sure about the $50k pension, I think it is reasonable to count the pension as a bond, or at least subtract it from the amount you'll need to generate to get the $200k/year of expenses.
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Re: Portfolio Review - Early retirement for Spouse
Thank you, I started with nothing and when we got married, it's pretty much my wealth as she came from similar background as mine and had some student loans which we paid off.. The only account from pre-fed days is 401k T Rowe Price which grew to where it is today (about 5 years of contributions + employer match)
The plan is for me to retire at the age of 57 (end of 2034) as that would put me at 30 years of Fed service and wife to retire in 2022. Conservatively estimating 50k/year pension based on current salary, most likely could end up between $60k and $70k
The plan is for me to retire at the age of 57 (end of 2034) as that would put me at 30 years of Fed service and wife to retire in 2022. Conservatively estimating 50k/year pension based on current salary, most likely could end up between $60k and $70k
Re: Portfolio Review - Early retirement for Spouse
Again, you're obviously doing awesome. You must be in the 1% for feds with a high 3 that will allow you to get that high a pension. Given that your salary is that high, I don't think you'll have much of an issue covering the small gap between your take-home and $200k with your large portfolio.
This really leaves your allocation as the major issue...Asset allocation is so specific to the individual and their risk tolerance. Also, you might consider whether you would significantly change your plan if if a bad sequence of events were to occur. Maybe stress test your portfolio, figuring that your portfolio falls in half and takes ten years to recover. Would you be good on $100k/year? Would you work longer?
I think the majority of people would, as mentioned by other posters, view your equity percentage to be quite high. Whatever you decide is the right percentage for you, I would think that you would want to have a glide path over the 13 years of going from more to less equities since your sequence of return risk goes up as you approach retirement and need to pull only from pension + retirement accounts. Finally, I think you should factor in social security to some extent if you really want the most accurate picture. You wouldn't act like you are not going to get your pension, so zero out social security? There are so many unknowns in computing what you have/need, you are probably best to add in what you reasonably think you can get for social security (some take the estimate and discount by 30% for possible changes).
This really leaves your allocation as the major issue...Asset allocation is so specific to the individual and their risk tolerance. Also, you might consider whether you would significantly change your plan if if a bad sequence of events were to occur. Maybe stress test your portfolio, figuring that your portfolio falls in half and takes ten years to recover. Would you be good on $100k/year? Would you work longer?
I think the majority of people would, as mentioned by other posters, view your equity percentage to be quite high. Whatever you decide is the right percentage for you, I would think that you would want to have a glide path over the 13 years of going from more to less equities since your sequence of return risk goes up as you approach retirement and need to pull only from pension + retirement accounts. Finally, I think you should factor in social security to some extent if you really want the most accurate picture. You wouldn't act like you are not going to get your pension, so zero out social security? There are so many unknowns in computing what you have/need, you are probably best to add in what you reasonably think you can get for social security (some take the estimate and discount by 30% for possible changes).
Re: Portfolio Review - Early retirement for Spouse
Looks like you are basically living on your wife’s salary and saving yours.
Does the $185,000 for expenses include federal and state taxes?
What about continuing the TSP contributions? Is that in the $185,000?
It isn’t clear that it would make sense to max the TSP while withdrawing money from your savings to cover expenses. Maybe, but maybe not.
Have you done Social Security estimates for both of you?
You are going to have 4 stages in your financial lives going forward:
1. You work; wife retires.
2. Both retired with your pension only.
3. Both retired with your pension plus wife’s Social Security. (It usually makes sense for spouse with lower benefit to claim at 62.)
4. Both retired with your pension plus both collecting Social Security.
Obviously, portfolio withdrawals will vary a lot for each stage.
You might try i-orp extended and get an estimate of your achievable spend rate: https://www.i-orp.com/Plans/extended.html
Consider putting 10 years of expenses in cash equivalents, at least a couple within taxable. The rest can be in stocks.
Does the $185,000 for expenses include federal and state taxes?
What about continuing the TSP contributions? Is that in the $185,000?
It isn’t clear that it would make sense to max the TSP while withdrawing money from your savings to cover expenses. Maybe, but maybe not.
Have you done Social Security estimates for both of you?
You are going to have 4 stages in your financial lives going forward:
1. You work; wife retires.
2. Both retired with your pension only.
3. Both retired with your pension plus wife’s Social Security. (It usually makes sense for spouse with lower benefit to claim at 62.)
4. Both retired with your pension plus both collecting Social Security.
Obviously, portfolio withdrawals will vary a lot for each stage.
You might try i-orp extended and get an estimate of your achievable spend rate: https://www.i-orp.com/Plans/extended.html
Consider putting 10 years of expenses in cash equivalents, at least a couple within taxable. The rest can be in stocks.
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: Portfolio Review - Early retirement for Spouse
Thank you for the feedback, very helpful. I will play with stress testing my portfolio. Regarding Social Security, I am not factoring it from 57 to 62 but definetly considering it after 62, yet to decide when after 62 I will be taking SS thoughZMonet wrote: ↑Tue Jul 27, 2021 1:02 pm Again, you're obviously doing awesome. You must be in the 1% for feds with a high 3 that will allow you to get that high a pension. Given that your salary is that high, I don't think you'll have much of an issue covering the small gap between your take-home and $200k with your large portfolio.
This really leaves your allocation as the major issue...Asset allocation is so specific to the individual and their risk tolerance. Also, you might consider whether you would significantly change your plan if if a bad sequence of events were to occur. Maybe stress test your portfolio, figuring that your portfolio falls in half and takes ten years to recover. Would you be good on $100k/year? Would you work longer?
I think the majority of people would, as mentioned by other posters, view your equity percentage to be quite high. Whatever you decide is the right percentage for you, I would think that you would want to have a glide path over the 13 years of going from more to less equities since your sequence of return risk goes up as you approach retirement and need to pull only from pension + retirement accounts. Finally, I think you should factor in social security to some extent if you really want the most accurate picture. You wouldn't act like you are not going to get your pension, so zero out social security? There are so many unknowns in computing what you have/need, you are probably best to add in what you reasonably think you can get for social security (some take the estimate and discount by 30% for possible changes).
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Re: Portfolio Review - Early retirement for Spouse
$185k doesn't includes taxes nor it includes TSP contributions. I make $190 k / year and wife makes close to $130k / year, hence the need to withdraw.delamer wrote: ↑Tue Jul 27, 2021 1:50 pm Looks like you are basically living on your wife’s salary and saving yours.
Does the $185,000 for expenses include federal and state taxes?
What about continuing the TSP contributions? Is that in the $185,000?
It isn’t clear that it would make sense to max the TSP while withdrawing money from your savings to cover expenses. Maybe, but maybe not.
Have you done Social Security estimates for both of you?
You are going to have 4 stages in your financial lives going forward:
1. You work; wife retires.
2. Both retired with your pension only.
3. Both retired with your pension plus wife’s Social Security. (It usually makes sense for spouse with lower benefit to claim at 62.)
4. Both retired with your pension plus both collecting Social Security.
Obviously, portfolio withdrawals will vary a lot for each stage.
You might try i-orp extended and get an estimate of your achievable spend rate: https://www.i-orp.com/Plans/extended.html
Consider putting 10 years of expenses in cash equivalents, at least a couple within taxable. The rest can be in stocks.
I haven't done SS estimates but will do based on feedback from this thread.
Regarding maxing TSP contributions while withdrawing money from savings, I was hoping it would help with taxes, but not so sure. At the minimum I would want to do 5% per pay period to get full match
Re: Portfolio Review - Early retirement for Spouse
To state the obvious, income taxes on $185,000 will be significant whether now or in retirement. So it’s important to include them in your expenses estimate.AndyJPA2877 wrote: ↑Tue Jul 27, 2021 2:41 pm$185k doesn't includes taxes nor it includes TSP contributions. I make $190 k / year and wife makes close to $130k / year, hence the need to withdraw.delamer wrote: ↑Tue Jul 27, 2021 1:50 pm Looks like you are basically living on your wife’s salary and saving yours.
Does the $185,000 for expenses include federal and state taxes?
What about continuing the TSP contributions? Is that in the $185,000?
It isn’t clear that it would make sense to max the TSP while withdrawing money from your savings to cover expenses. Maybe, but maybe not.
Have you done Social Security estimates for both of you?
You are going to have 4 stages in your financial lives going forward:
1. You work; wife retires.
2. Both retired with your pension only.
3. Both retired with your pension plus wife’s Social Security. (It usually makes sense for spouse with lower benefit to claim at 62.)
4. Both retired with your pension plus both collecting Social Security.
Obviously, portfolio withdrawals will vary a lot for each stage.
You might try i-orp extended and get an estimate of your achievable spend rate: https://www.i-orp.com/Plans/extended.html
Consider putting 10 years of expenses in cash equivalents, at least a couple within taxable. The rest can be in stocks.
I haven't done SS estimates but will do based on feedback from this thread.
Regarding maxing TSP contributions while withdrawing money from savings, I was hoping it would help with taxes, but not so sure. At the minimum I would want to do 5% per pay period to get full match
Absolutely you want to contribute enough to get the 5% match.
Taxes are tough, since what you want to attempt is to minimize them over your lifetime (and maybe even your heirs’) rather than focusing in paying the least in any given year. But there are so many unknowns that it’s very difficult to project them out past a few years.
There are ways to get at your tax-deferred monies without penalty (except the TSP while you are working) through IRS Rule 72(t). Whether that makes sense in your circumstances, I don’t know.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Re: Portfolio Review - Early retirement for Spouse
You can use Open Social Security to aid in determining your Social Security strategy.AndyJPA2877 wrote: ↑Tue Jul 27, 2021 2:34 pm Thank you for the feedback, very helpful. I will play with stress testing my portfolio. Regarding Social Security, I am not factoring it from 57 to 62 but definetly considering it after 62, yet to decide when after 62 I will be taking SS though