Portfolio questions for 68 year old retiree

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Topic Author
Boston33
Posts: 9
Joined: Fri Jul 30, 2021 10:00 am

Portfolio questions for 68 year old retiree

Post by Boston33 »

Thank you to all in advance for the help:

Debt: none

Tax Filing Status: Single

Tax Rate: 22% Federal, 0% State

State of Residence: reside outside of U.S. Only pay Federal tax

Age:68

Desired Asset allocation: 90% stocks / 10% bonds


Approximate size of your total portfolio:

1.2 million



Current retirement assets: Income property nets 40,000 per year

Pension ( it has a COLA) : 10,500 per month

I do not yet receive Social Security as I am waiting till 70 yrs.old


Taxable:

SWKXX Schwab California Muni Money Fund

375,951.00

SWTSX Schwab Total Stock Market. 89,509.00

Cash 39,358.00

Total 504,819.00


401k:


SWTSX. Schwab Total Stock Market. 368.115.00

ETF QQQM Ivestco Nasdaq 100 ETF 13,512.00

Cash 9,579.00


Total 391,207.00



457:

SWTSX Schwab Total Stock Market. 292,842.00

SWVXX. Schwab Value Advantage 770.00

Cash 28,391.00


Total 322,004.00



Schwab total: 1,218,030.00

1. I sold my house in 2019 and placed the profits into the California Muni Money Fund (SWKXX). I now wish to retain 100,000.00 (~10% ) in a bond fund and invest the rest into the Total Stock Fund. Which bond fund should I use for this investment?


2. I do not feel comfortable investing a lump sum into the Total Stock Market fund. Can someone suggest a strategy for investing into the fund over time?


3. Is it worth converting to a Roth?

Thank you
dbr
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Joined: Sun Mar 04, 2007 8:50 am

Re: Portfolio questions for 68 year old retiree

Post by dbr »

The default suggestion (not a "should") for a bond fund would be a total stock market index fund. But at 90/10 there are dozens of options that aren't going to be much different in outcome as far as you can tell ex ante. There is some academic theory that the best pairing for a high stock allocation is long term Treasuries, but I would not suggest doing that until you understand the idea and what to expect.

As to suggestions for gradual transitions in asset allocation, I am convinced that being uncomfortable with making the investment at once is a symptom that you are not really sure of your asset allocation. Otherwise it is certainly possible to change over at some rate that you would find comfortable. There is no particular strategy here.
chassis
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Re: Portfolio questions for 68 year old retiree

Post by chassis »

What are your annual living expenses?

What is the value of the real estate, and do you have a loan against it?

2. Lump sum. To do otherwise is timing the market. Stocks are going up in the medium and long term. Buy now.

3. Don’t do Roth conversions, it’s not a good investment. In fact for many people you are worse off by doing Roth conversions. Search this site and the FIRE site for discussion ad nauseum.
02nz
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Joined: Wed Feb 21, 2018 2:17 pm

Re: Portfolio questions for 68 year old retiree

Post by 02nz »

On Roth conversions: model your taxes for when SS and RMDs start. I suspect you're going to be paying higher than 22% marginal. Tax rates revert to pre-TCJA rates in 2026. And if there's a chance you'll return to the U.S. (to a state with income tax), that will increase your taxes then. I think it almost certainly makes sense to convert to the top of the 22% bracket, and possibly go into the 24% bracket.
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Eagle33
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Joined: Wed Aug 30, 2017 3:20 pm

Re: Portfolio questions for 68 year old retiree

Post by Eagle33 »

Any good bond funds in your tax-deferred accounts? You can exchange $100k of SWTSX Schwab Total Stock Market to that bond fund in one of your tax-deferred accounts, then buy $100k of SWTSX in taxable using your cash.
Topic Author
Boston33
Posts: 9
Joined: Fri Jul 30, 2021 10:00 am

Re: Portfolio questions for 68 year old retiree

Post by Boston33 »

Thanks to all the replies:

What are your annual living expenses? ~100,000

What is the value of the real estate, and do you have a loan against it?

~800,000. No loans
dbr
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Joined: Sun Mar 04, 2007 8:50 am

Re: Portfolio questions for 68 year old retiree

Post by dbr »

You could avoid worrying about bonds by just investing in 100% stocks. Inevitably there will be cash slushing around as part of the waxing and waning of cash flow, but each 1% of $1M is already $10,000 sitting somewhere.

The real question to be answered is what objective do you have for your investments and your real estate? If you own the place where you live that also affects scenarios for long term planning. Is your pension inflation indexed or provided with a COLA?

I'm still pretty sure that if you are nervous about investing lump sum, then a 90/10 asset allocation can't be even remotely what you really want. Think of this as a rubber meets the road test.
Topic Author
Boston33
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Re: Portfolio questions for 68 year old retiree

Post by Boston33 »

The real question to be answered is what objective do you have for your investments and your real estate? Do you mean to maximize total worth of the investments or to maximize monthly withdrawals or payments?

Is your pension inflation indexed or provided with a COLA? COLA

Thank you
dbr
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Joined: Sun Mar 04, 2007 8:50 am

Re: Portfolio questions for 68 year old retiree

Post by dbr »

Boston33 wrote: Sat Jul 31, 2021 8:19 am The real question to be answered is what objective do you have for your investments and your real estate? Do you mean to maximize total worth of the investments or to maximize monthly withdrawals or payments?

Is your pension inflation indexed or provided with a COLA? COLA

Thank you
Right. When a person appears to have pensions and other income that exceeds planned spending then they have no need at all to have any assets to invest except perhaps as a reserve for some unexpected extreme need for a lot of money. Withdrawals don't come into the question because your income exceeds your spending and you will be adding to your assets at a steady rate. A COLA'd pension means you don't have inflation risk to your income, so there is really less than zero concern for your investments.

So the asset allocation question depends on what you want the investments to do. If you want to grow maximum wealth by the time you die you should put all the money in stocks, though the the results will also be most uncertain then. If you want minimum uncertainty in what you have but are happy with little or no growth, then all the money should be put in bonds, perhaps TIPS to remove inflation uncertainty. An option, if you are inclined to support good causes, is to start giving the money away or put it in donor advised funds. A reserve might still need to be kept but you also have $800k in real estate for that.

Those are some of the thoughts a person might have about one's objectives for the investments.
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Watty
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Re: Portfolio questions for 68 year old retiree

Post by Watty »

Are you a US citizen? If not there there are ridiculous US non-resident alien estate taxes that you need to worry about and likely get expert estate planning advice on that.
Boston33 wrote: Fri Jul 30, 2021 10:35 am 1. I sold my house in 2019 and placed the profits into the California Muni Money Fund (SWKXX). I now wish to retain 100,000.00 (~10% ) in a bond fund and invest the rest into the Total Stock Fund. Which bond fund should I use for this investment?


Since you no longer live in California I do not see any reason to use a California muni fund.

Interest rates are so low that if you just put the $100K into a total bond bund it would only generate a bit more than $1,000 a year in interest so it would not be a significant tax problem with owning it in a taxable account.
Boston33 wrote: Fri Jul 30, 2021 10:35 am 2. I do not feel comfortable investing a lump sum into the Total Stock Market fund. Can someone suggest a strategy for investing into the fund over time?
You could just move 1/12th of the money each month for a year.

The bigger question is that 90% stocks is extremely aggressive for someone who is almost 70. You have a large pension so you are basically investing the money for whoever will inherit it some day so I would look at look at using an asset allocation that would be appropriate for them.
Boston33 wrote: Fri Jul 30, 2021 10:35 am 3. Is it worth converting to a Roth?
The federal tax rates are schedule to revert to the old higher tax rates in 2026 if there are no tax law changes. This means that the 12, 22, and 24 will revert to 15, 25, and 28.

If you were living in the US then doing Roth conversion to the top of the 22 or even 24% tax bracket could likely make sense but even in the best case you would only be saving around 6% if you doing Roth conversion in the 22% tax bracket prevents you from making withdrawals at 28% later.

To me a 6% savings, which is not guaranteed, is not enough incentive to pay taxes possibly decades before I need to.

I would not do Roth conversion unless you are planning on returning to the US and would also need to pay state taxes when you return.

A huge question to look into is if doing the Roth conversion would help whoever inherits it someday. I don't have clue how that would work if they live outside the US.
Topic Author
Boston33
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Joined: Fri Jul 30, 2021 10:00 am

Re: Portfolio questions for 68 year old retiree

Post by Boston33 »

Thank you dbr and Watty for the replies. They put things in a new perspective.

I can live outside the U.S. for now because of dual citizenship. My living expenses will likely increase going forward.

Mr. Watty, you mention a 90/10 assest allocation as being extremely aggressive. What would you suggest?

Thanks again to you both.
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Watty
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Re: Portfolio questions for 68 year old retiree

Post by Watty »

Boston33 wrote: Sat Jul 31, 2021 7:10 pm Mr. Watty, you mention a 90/10 assest allocation as being extremely aggressive. What would you suggest?
When looking at what asset allocation to use I like to look at target date funds to see what they use.

For comparison the Vanguard 2020 fund is about 46% stocks and 54% bonds and the percentage of stocks will decline over time.

https://investor.vanguard.com/mutual-fu ... olio/vtwnx

Different companies use different asset allocations for their 2020 fund so there is not anything magically right about that exact number but being a long way from that is that red flag that you are being pretty agressive if that money will be used for your retirement.

If the money will likely be used for some other purpose then up could use the Vanguard Lifestrategy funds to see how they describe different asset allocations.

https://investor.vanguard.com/mutual-fu ... trategy/#/
Topic Author
Boston33
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Joined: Fri Jul 30, 2021 10:00 am

Re: Portfolio questions for 68 year old retiree

Post by Boston33 »

Thank you Watty for the suggestion. I like this idea : look at target date funds to see what they use.

Because of my pension and the rental property income stream I feel I can take more risk in my asset allocation.

And I am waiting to take Social Security at 70 years old.
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