Near-Retirement Portfolio Review

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Topic Author
GoPacers
Posts: 2
Joined: Fri Jan 28, 2022 7:21 pm

Near-Retirement Portfolio Review

Post by GoPacers »

Emergency funds: Yes, $55k in savings account. 1 year of expenses.

Debt:
Mortgage = $125k @ 2.625% interest. 4 years left making extra payments. (Home worth $0.5M)
Car Loan = $44k @ 1.5% interest

Tax Filing Status: Single

Tax Rate: 24% Federal, 4.9% State/Local. Federal was 32% in 2021 due to exercising stock options

State of Residence: Indiana

Age: 64

Desired Asset allocation: 50% stocks / 50% bonds? (open for recommendations)
Desired International allocation: 0%? of stocks

Please provide an approximate size of your total portfolio: $1.0M excluding real estate

Current retirement assets

Taxable - Fidelity
16.4% cash (excluding emergency fund)

His 401k current employer at Empower
31% Vanguard Target Retirement 2020 Trust Fund II (VTWNX? - this doesn't say "trust") (.08%)
Company match? 3%

His Stock Options/ESPP at Empower
1.1% ESPP
3.9% Stock Options (next batch coming in addition to 3.9%)

His 401k former employer at Empower
7.6% Putnam Stable Asset Fund. (ticker symbol unknown) (.11%)
10.5% Diversified Bond Fund. (ticker symbol unknown) (.21%)

His pension from former employer
29.4% Pension Fund. $287k Lump sum or $1,526 annuity.
_______________________________________________________________
Note: Total percentage of all the above accounts together (not each account individually) should equal 100%.

Contributions

New annual Contributions
$32000 his 401k (including $5k of match)

Available funds

Funds available in his 401(k) - current employer
2015 through 2065 Vanguard Target Retirement Funds (.08)
Vanguard Target Retirement Income Trust II (.08)
Vanguard Total Bond Market Index Inst (VBTIX) (.035)
Legal & General S&P500 (.01)
Legal & General Russell DC 2000 (.01)
Legal & General AXWI ex US DC (.04)
JPMCB Stable Asset Income Fund (.43)
Blackrock Total Return Bond (.22)
Empower Brokerage
Various other Large/Small cap

Funds available in his 401(k)-former employer
Likely will combine with above 401k, can provide options if needed

I am trying to decide when to retire. Likely will wait until I'm 65 (Sept of this year) for healthcare purposes. I want to consolidate and simplify my portfolio before I retire. My initial thoughts are to consolidate everything I can into my 401k and buy the Target Retirement 2020 fund.

Estimated retirement expenses are $60k/year.


Questions:
1. I have $287k available as a lump sum in an old pension or they will pay me $1,526 as an annuity. Should I move it to my 401k or take the annuity?

2. I recently sold stock options, thus the cash position in my Fidelity taxable account. I need to get this invested again. Taxes were paid in 2021. Any ideas?

3. When should I take social security? My full retirement age is 66.5 and I think my benefit will be reduced if I take it now because I'm still working and exceeding the $52k threshold. The SSA says I can get $2,861 at 64.5 or $3,301 at 66.5.

4. I'm looking for general advice on how to structure my portfolio and how to prepare for retirement. Any tips around taxation, withdrawal strategies, social security, etc.?
chassis
Posts: 2183
Joined: Tue Mar 24, 2020 4:28 pm

Re: Near-Retirement Portfolio Review

Post by chassis »

GoPacers wrote: Fri Jan 28, 2022 9:10 pm Emergency funds: Yes, $55k in savings account. 1 year of expenses.

Debt:
Mortgage = $125k @ 2.625% interest. 4 years left making extra payments. (Home worth $0.5M)
Car Loan = $44k @ 1.5% interest

Tax Filing Status: Single

Tax Rate: 24% Federal, 4.9% State/Local. Federal was 32% in 2021 due to exercising stock options

State of Residence: Indiana

Age: 64

Desired Asset allocation: 50% stocks / 50% bonds? (open for recommendations)
Desired International allocation: 0%? of stocks

Please provide an approximate size of your total portfolio: $1.0M excluding real estate

Current retirement assets

Taxable - Fidelity
16.4% cash (excluding emergency fund)

His 401k current employer at Empower
31% Vanguard Target Retirement 2020 Trust Fund II (VTWNX? - this doesn't say "trust") (.08%)
Company match? 3%

His Stock Options/ESPP at Empower
1.1% ESPP
3.9% Stock Options (next batch coming in addition to 3.9%)

His 401k former employer at Empower
7.6% Putnam Stable Asset Fund. (ticker symbol unknown) (.11%)
10.5% Diversified Bond Fund. (ticker symbol unknown) (.21%)

His pension from former employer
29.4% Pension Fund. $287k Lump sum or $1,526 annuity.
_______________________________________________________________
Note: Total percentage of all the above accounts together (not each account individually) should equal 100%.

Contributions

New annual Contributions
$32000 his 401k (including $5k of match)

Available funds

Funds available in his 401(k) - current employer
2015 through 2065 Vanguard Target Retirement Funds (.08)
Vanguard Target Retirement Income Trust II (.08)
Vanguard Total Bond Market Index Inst (VBTIX) (.035)
Legal & General S&P500 (.01)
Legal & General Russell DC 2000 (.01)
Legal & General AXWI ex US DC (.04)
JPMCB Stable Asset Income Fund (.43)
Blackrock Total Return Bond (.22)
Empower Brokerage
Various other Large/Small cap

Funds available in his 401(k)-former employer
Likely will combine with above 401k, can provide options if needed

I am trying to decide when to retire. Likely will wait until I'm 65 (Sept of this year) for healthcare purposes. I want to consolidate and simplify my portfolio before I retire. My initial thoughts are to consolidate everything I can into my 401k and buy the Target Retirement 2020 fund.

Estimated retirement expenses are $60k/year.


Questions:
1. I have $287k available as a lump sum in an old pension or they will pay me $1,526 as an annuity. Should I move it to my 401k or take the annuity?

2. I recently sold stock options, thus the cash position in my Fidelity taxable account. I need to get this invested again. Taxes were paid in 2021. Any ideas?

3. When should I take social security? My full retirement age is 66.5 and I think my benefit will be reduced if I take it now because I'm still working and exceeding the $52k threshold. The SSA says I can get $2,861 at 64.5 or $3,301 at 66.5.

4. I'm looking for general advice on how to structure my portfolio and how to prepare for retirement. Any tips around taxation, withdrawal strategies, social security, etc.?
1. I like lump sums if the discount rate is even close to fair. The reasons are that a lump sum is heritable and also that most people can earn a better return in a brokerage account than the pension custodian “earns” for you via the annuity. The only way an annuity works is when the distributions are less than the earnings over time. This means the pension custodian is skimming your account to your detriment.

2. SPY if you don’t like to pick individual stocks. Large cap multinational US growth stocks if you do like to pick stocks. Valuations are better now than they have been in recent history.

3. Take it asap. Do the math using the RPM spreadsheet and you will find this is in your interest. It’s a similar concept as the pension. The sooner you get your money out of the government’s hands and into yours, you can steward your own resources to your advantage. No one cares about you more than you do.

4. Avoid Roth conversions because the benefit is nil to most people and nearly nil to those for whom a benefit exists. It’s a needless machination of one’s own accounts. I like to hold several years of living expenses in cash or liquid investments (stock). Do lots of modeling with many good tools available:

RPM spreadsheet
Firecalc
I-orp
Portfoliovisualizer financial goals model
Your own home grown excel spreadsheet
User avatar
pooser52
Posts: 29
Joined: Mon Feb 15, 2021 7:38 pm

Re: Near-Retirement Portfolio Review

Post by pooser52 »

OP-I'm responded to #3 only. Another alternative to "take it as soon as possible" is "take it as late as possible" (age 70). You lose about 4% per year taking early (before full retirement age) and gain 8% per year past full retirement age. And these this is in "real terms," i.e. the increase is actually 8% plus the annual inflation increase. The "breakeven point" for any date you select is around 80 years old. So a lot depends upon your health, life expectancy and desire to help protect against "longevity risk." If me, the 8% increase per year return "for life" was a good investment.
Boatguy
Posts: 233
Joined: Fri Apr 19, 2019 7:54 pm

Re: Near-Retirement Portfolio Review

Post by Boatguy »

Check out opensocialsecurity.com to help you determine your SS strategy. For what it’s worth, I’m in the “wait as long as you can” camp.
fuddbogle
Posts: 200
Joined: Fri Jun 21, 2019 8:35 am

Re: Near-Retirement Portfolio Review

Post by fuddbogle »

I can't tell you exactly what would be your best option but I will tell you what I would do - retire at 65 - then:

Take the pension/annuity
Wait until 70 to draw Social Security - the combination of the annuity and social security at age 70 would cover 100% of expenses. I don't think any other fund you have will grow as fast as your increase in social security from age 65-70.

Put all of the money from your former employer's 401k (Empower) in the Stable value fund (looks like a 2% growth SVF). Between the 180k you would have in there and your annuity - that money will pay your living expenses from 65 to 69.

I would eventually roll all of your ESPP money into an IRA and use that for living expenses from 69 to 70. Or combine this in an IRA with your current 401k and draw out as needed for living expenses. It's the same either way.

I would put all of your current 401k contributions in the Legal & General S&P500 fund.
I would take half of your taxable account and over the course of 2022 invest it in ITOT at Fidelity.

As far as your current 401k - use it whenever and however you wish.
Outer Marker
Posts: 4382
Joined: Sun Mar 08, 2009 8:01 am

Re: Near-Retirement Portfolio Review

Post by Outer Marker »

Recommendations:

1. Put your Fidelity cash (and if necessary a portion of your EF) to work by immediately retiring all debt, including both the mortgage and the car loan. Markets are frothy, and fixed income is paying nothing, so de-leveraging, reducing risk, and owning your home are very attractive going into retirement. With $1M in assets, you really don't need a separate, low yielding emergency fund. You need a generous fixed income allocation in your portfolio.

2. Delay SS until 70. There's no better deal going than earning an 8% annual increase on your benefits for life for each year delayed to 70 beyond FRA. This is the best and simplest explanation of how you can spend more money now and for each and every year of retirement by delaying if you have the assets to carry you until 70. viewtopic.php?t=102609

3. I would not dismiss international equities. They are under-valued relative to US markets, which are at extremely high valuations. You already own them in the Vanguard Target Date funds, so why change course now.

4. Consolidate your old 401K plan into the new one in the same Vanguard Target Date fund.

5. I'd take the annuity vs. lump sum. Having a portion of your income needs secured is a nice feature and decreases pressure on returns from your portfolio.
Topic Author
GoPacers
Posts: 2
Joined: Fri Jan 28, 2022 7:21 pm

Re: Near-Retirement Portfolio Review

Post by GoPacers »

Thanks everyone for the advice. I will think about all of it. Helps tremendously!!!
McDougal
Posts: 557
Joined: Tue Feb 27, 2018 2:42 pm
Location: Atlanta

Re: Near-Retirement Portfolio Review

Post by McDougal »

Welcome to the forum!
Tax filing status is single. Is there a spouse? If so, I would say take SS as late as possible. If you are not married, I would use opensocialsecurity.com as a guide to help decide when to file for benefits.
chance
Posts: 155
Joined: Mon Jun 11, 2007 9:55 pm

Re: Near-Retirement Portfolio Review

Post by chance »

In this market it seems unwise to have 0% international stock. If you look at historic valuations US stocks are significantly overvalued compared to international stocks. Would help to diversify and provide some downside protection to have some international stocks in your stock allocation. Do you really want to bet your retirement on an overvalued US market that may well be in a huge bubble?
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