Portfolio review
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Portfolio review
Emergency funds: 6 months’ expenses in cash. Roth IRA if necessary, eligible to withdraw penalty-free from old 403b if necessary, $100,000 borrowable from old 401k and current 403b combined (yes, loan from old 401k is allowed; I know it’s a rare feature).
Debt: $300k mortgage on $1M home, 3.375% fixed (13 years left) non-deductible (Standard Deduction, but that could of course change)
Tax Filing Status: Married Filing Jointly
Tax Rate: 22% Federal with no applicable phaseouts under current law
9ish% State (non-deductible – Standard Deduction)
Ages: both 60ish
Desired Asset Allocation: 50% stocks / 50% bonds
Stock portion is 30% TSM, 6% Small Value, 11% Intl non-EM, 3% EM
Total portfolio $2.3M
Current retirement assets
I can access pretty much all Fidelity and Vanguard funds.
Taxable
1% undeveloped island property in the American wilderness
His 401a
2% Midcap index (0.02)
His Roth 403b
1% S&P 500 index (0.02)
His pre-tax 403b
4% S&P 500 index (0.02)
His old 401k
3% Vanguard TIPS fund (0.07)
5% Vanguard Total International Stock (0.1)
His old 403b
7% Vanguard Total Bond (0.04)
6% Vanguard Small Cap Value (0.06)
6% Stable Value (0.33)
3% Vanguard Emerging Markets (0.10)
His HSA
1% Small Cap Index (0.06)
His Roth IRA at Vanguard
1% Total Stock Market Index (0.04)
His Rollover IRA at Vanguard
25% Total Stock Market (0.04)
24% Intermediate Term Bond Index (0.07)
5% TIPS fund (0.07)
3% International Explorer (0.39)
1% Total International Stock Market (0.11)
Her SIMPLE IRA at Vanguard
1% International Explorer (0.15)
Her Traditional IRA at Vanguard
1% Total International Stock Index (0.14)
Contributions
New annual contributions
$26,000 his 403b ($4,000 match)
$5,000 his 401a ($20,000 match) *Employee contribution is counted as 403b but not subject to the $26,000 limit so I'm calling it 401a
$6,000 his HSA ($1,000 match)
$1,000 her SIMPLE IRA
This portfolio probably appears like it needs consolidation, but I have retained the old 401k and 403b because they provide access to excellent institutional ERs, a Stable Value fund, the ex-employee loan feature, and some state tax advantages. I rolled three other employer plans into the Rollover IRA, just to prove I’m not a baroque investor.
Questions:
1. I plan to retire in a decade. There’s a lot of precedent at my employer for going part time at the sunset. Since the bottom half of my income is barely taxed, that is attractive. Obviously, I’d also like to do Roth conversions in those later years, too (until recently, our marginal rate had always been over 40%, so Roth wasn’t attractive). My nominal plan (subject to many unknowns) is to take a 2-month unpaid sabbatical in 2025, go to 60% part time in 2028, and retire in 2031. Basically, the (happy) circumstances are that I love my job and the vacation time and wilderness travel it affords, and we love our century-old house and decade-old garden and my 15 minute commute, but we live in a very high cost of living area with very high property and income taxes. That means we have a basic tradeoff, the extremes being a) work long and enjoy the work and home or b) retire earlier and be forced to move to a cheaper house in a cheaper area. Any comments on that? I had never thought seriously about retirement until very recently. We get about five weeks of wilderness adventure and lots of grandchildren time every year. Life feels pretty perfect.
2. When I refinanced two years ago I figured if the rate ever became unattractive I’d just pay down the mortgage rather than incur refinancing costs again. However, getting enough cash to do that immediately would require unattractive options like reducing 403b contributions, selling the land, withdrawing from the Roth IRA, or drawing from the emergency cash and leaning more on the other listed options in an emergency. So I think I’ll just ride it out for a year, accumulate some more cash, and look at paydown again this time next year, accepting the risk that today’s lower rates may be gone by then. Is that irrational?
Debt: $300k mortgage on $1M home, 3.375% fixed (13 years left) non-deductible (Standard Deduction, but that could of course change)
Tax Filing Status: Married Filing Jointly
Tax Rate: 22% Federal with no applicable phaseouts under current law
9ish% State (non-deductible – Standard Deduction)
Ages: both 60ish
Desired Asset Allocation: 50% stocks / 50% bonds
Stock portion is 30% TSM, 6% Small Value, 11% Intl non-EM, 3% EM
Total portfolio $2.3M
Current retirement assets
I can access pretty much all Fidelity and Vanguard funds.
Taxable
1% undeveloped island property in the American wilderness
His 401a
2% Midcap index (0.02)
His Roth 403b
1% S&P 500 index (0.02)
His pre-tax 403b
4% S&P 500 index (0.02)
His old 401k
3% Vanguard TIPS fund (0.07)
5% Vanguard Total International Stock (0.1)
His old 403b
7% Vanguard Total Bond (0.04)
6% Vanguard Small Cap Value (0.06)
6% Stable Value (0.33)
3% Vanguard Emerging Markets (0.10)
His HSA
1% Small Cap Index (0.06)
His Roth IRA at Vanguard
1% Total Stock Market Index (0.04)
His Rollover IRA at Vanguard
25% Total Stock Market (0.04)
24% Intermediate Term Bond Index (0.07)
5% TIPS fund (0.07)
3% International Explorer (0.39)
1% Total International Stock Market (0.11)
Her SIMPLE IRA at Vanguard
1% International Explorer (0.15)
Her Traditional IRA at Vanguard
1% Total International Stock Index (0.14)
Contributions
New annual contributions
$26,000 his 403b ($4,000 match)
$5,000 his 401a ($20,000 match) *Employee contribution is counted as 403b but not subject to the $26,000 limit so I'm calling it 401a
$6,000 his HSA ($1,000 match)
$1,000 her SIMPLE IRA
This portfolio probably appears like it needs consolidation, but I have retained the old 401k and 403b because they provide access to excellent institutional ERs, a Stable Value fund, the ex-employee loan feature, and some state tax advantages. I rolled three other employer plans into the Rollover IRA, just to prove I’m not a baroque investor.
Questions:
1. I plan to retire in a decade. There’s a lot of precedent at my employer for going part time at the sunset. Since the bottom half of my income is barely taxed, that is attractive. Obviously, I’d also like to do Roth conversions in those later years, too (until recently, our marginal rate had always been over 40%, so Roth wasn’t attractive). My nominal plan (subject to many unknowns) is to take a 2-month unpaid sabbatical in 2025, go to 60% part time in 2028, and retire in 2031. Basically, the (happy) circumstances are that I love my job and the vacation time and wilderness travel it affords, and we love our century-old house and decade-old garden and my 15 minute commute, but we live in a very high cost of living area with very high property and income taxes. That means we have a basic tradeoff, the extremes being a) work long and enjoy the work and home or b) retire earlier and be forced to move to a cheaper house in a cheaper area. Any comments on that? I had never thought seriously about retirement until very recently. We get about five weeks of wilderness adventure and lots of grandchildren time every year. Life feels pretty perfect.
2. When I refinanced two years ago I figured if the rate ever became unattractive I’d just pay down the mortgage rather than incur refinancing costs again. However, getting enough cash to do that immediately would require unattractive options like reducing 403b contributions, selling the land, withdrawing from the Roth IRA, or drawing from the emergency cash and leaning more on the other listed options in an emergency. So I think I’ll just ride it out for a year, accumulate some more cash, and look at paydown again this time next year, accepting the risk that today’s lower rates may be gone by then. Is that irrational?
Re: Portfolio review
You could look into a no-cost refi and can definitely shave a bunch off your payment with a refi without having to dip into unattractive options you mention.
Have you run calculations in RPM or i-ORP to see the value of doing some Roth conversions along the way to mitigate a likely high RMD pushing you into a high tax bracket down the road>
Have you run calculations in RPM or i-ORP to see the value of doing some Roth conversions along the way to mitigate a likely high RMD pushing you into a high tax bracket down the road>
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Re: Portfolio review
Mortgage rates are at historical lows. Have you checked 10/15-year fixed rates online for no-cost refinancing to see if you can do better than your current 3.375% rate? Check the recent posts in the BH mega refinancing thread for lender suggestions.
Your HSA balance is low (~$23k) and your 2021 planned contribution is $6k. Your maximum 2021 HSA contribution for family coverage is $7.2k plus a $1k catch-up each for you and spouse at age 55+. Consider increasing your HSA contribution to $9.2k (taking employer $1k contribution into account) and using the account in retirement to pay healthcare costs/Medicare premiums.
Note: spouse would need to open a separate HSA account to for spouse’s $1k catch-up contribution. Fidelity offers low-cost HSAs.
Your HSA balance is low (~$23k) and your 2021 planned contribution is $6k. Your maximum 2021 HSA contribution for family coverage is $7.2k plus a $1k catch-up each for you and spouse at age 55+. Consider increasing your HSA contribution to $9.2k (taking employer $1k contribution into account) and using the account in retirement to pay healthcare costs/Medicare premiums.
Note: spouse would need to open a separate HSA account to for spouse’s $1k catch-up contribution. Fidelity offers low-cost HSAs.
Last edited by HomeStretch on Sun Jan 10, 2021 8:57 am, edited 1 time in total.
Re: Portfolio review
Since OP employer matches 1K, that reduces amount OP can add to HSA by that amount. You are right though, can go upto 9.2-6-1=2.2k more could be added.HomeStretch wrote: ↑Sun Jan 10, 2021 7:54 am Your HSA balance is low (~$23k) and your 2021 planned contribution is $6k. Your maximum 2021 HSA contribution for family coverage is $7.2k plus a $1k catch-up each for you and spouse at age 55+. Consider increasing your HSA contribution to $9.2k and using the account in retirement to pay healthcare costs/Medicare premiums.
Note: spouse would need to open a separate HSA account to for spouse’s $1k catch-up contribution. Fidelity offers low-cost HSAs.
Also, OP why use Int Explorer when you could use a lower cost VG Emerging Mkts Index fund?
Last edited by tenkuky on Sun Jan 10, 2021 8:11 am, edited 1 time in total.
Re: Portfolio review
1. 10 years is a very long time in our age bracket (early 60s). I started to do detailed, long term retirement planning at age 58, I was “outa’ there” by 62. Health issues can easily intervene, but so can the flow of time and life. Perfect will probably not last and you need to be prepared to be flexible.
One side note: open a Roth for her “today”. Do a $1000 Roth conversion from her tIRA. It takes 5 years of Roth ownership for all funds to be qualified - that is- no taxes on anything so get that clock started. This is a simplification, once the account is qualified there is no need to keep track of any tax matters: gains on conversions, etc. All the assets in the account tax free.
One side note: open a Roth for her “today”. Do a $1000 Roth conversion from her tIRA. It takes 5 years of Roth ownership for all funds to be qualified - that is- no taxes on anything so get that clock started. This is a simplification, once the account is qualified there is no need to keep track of any tax matters: gains on conversions, etc. All the assets in the account tax free.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: Portfolio review
Thanks. I don't use those calculators but I certainly understand the issue and have done some modeling. I have a lot of experience with RMDs and conversions from trustee work for elderly peopletenkuky wrote: ↑Sun Jan 10, 2021 7:50 am You could look into a no-cost refi and can definitely shave a bunch off your payment with a refi without having to dip into unattractive options you mention.
Have you run calculations in RPM or i-ORP to see the value of doing some Roth conversions along the way to mitigate a likely high RMD pushing you into a high tax bracket down the road>
We were ineligible for Roth IRAs in the early days and then our marginal rate was insane throughout the decade we had kids in college and the phaseouts were killing us, so having any Roth at all is a new thing.
Given volatility in the tax code, flexibility in my retirement glide path, the possibility of moving to a lower tax state (one that exempts rollovers would be nice), the possibility of RMD relief (either temporary such as has already happened, or permanent), and my experience in doing tax-free conversions late in the owner's life, I'm anticipating the issue without taking any steps just yet. It's not paralysis by analysis. I did switch to Roth 403b contributions for 2020 but now I've switched back to pre-tax to accumulate cash while maxing employer match. 2020 felt like the last best year for going all-Roth.
My philosophy is to postpone taxation and then not rend my garments in despair if we end up so wealthy our RMDs put us in a high bracket. That said, within four years I'll need a Roth conversion/retirement timing strategy.
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Re: Portfolio review
Thanks. On the first, I am maxing HSA, as you suspected. I just ballparked the numbers. My employer's numbers don't exactly match what you show; I'll look into it. Their explanation is always inscrutable, but I am maxing it.tenkuky wrote: ↑Sun Jan 10, 2021 8:07 amSince OP employer matches 1K, that reduces amount OP can add to HSA by that amount. You are right though, can go upto 9.2-6-1=2.2k more could be added.HomeStretch wrote: ↑Sun Jan 10, 2021 7:54 am Your HSA balance is low (~$23k) and your 2021 planned contribution is $6k. Your maximum 2021 HSA contribution for family coverage is $7.2k plus a $1k catch-up each for you and spouse at age 55+. Consider increasing your HSA contribution to $9.2k and using the account in retirement to pay healthcare costs/Medicare premiums.
Note: spouse would need to open a separate HSA account to for spouse’s $1k catch-up contribution. Fidelity offers low-cost HSAs.
Also, OP why use Int Explorer when you could use a lower cost VG Emerging Mkts Index fund?
I recall debate about International Explorer from a decade ago when I was active here. At that time, I concluded it was ok, but I'll revisit the topic. Thank you.
Re: Portfolio review
I'm interested in buying the island. I suppose you canoe out to it and camp, right? Is one of the neighboring islands for sale?
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Re: Portfolio review
I am not surprised.Bob's not my name wrote: ↑Sun Jan 10, 2021 8:21 amI polled the neighbors and they were unanimous they don't want you there.
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Re: Portfolio review
Good advice. Unpredictability is exactly why I'm not rushing into Roth conversions. If I lose my job tomorrow, I'll have lots of years for low-tax Roth conversions. If I die tomorrow, my wife has enough to live on and she would surely move to a smaller house in a lower tax state almost immediately. In unrelated news, she's always leaving roller skates on the stairs.David Jay wrote: ↑Sun Jan 10, 2021 8:11 am 1. 10 years is a very long time in our age bracket (early 60s). I started to do detailed, long term retirement planning at age 58, I was “outa’ there” by 62. Health issues can easily intervene, but so can the flow of time and life. Perfect will probably not last and you need to be prepared to be flexible.
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Re: Portfolio review
Thanks, good catch as I missed the employer contribution. I’ll edit my post.tenkuky wrote: ↑Sun Jan 10, 2021 8:07 amSince OP employer matches 1K, that reduces amount OP can add to HSA by that amount. You are right though, can go upto 9.2-6-1=2.2k more could be added.HomeStretch wrote: ↑Sun Jan 10, 2021 7:54 am Your HSA balance is low (~$23k) and your 2021 planned contribution is $6k. Your maximum 2021 HSA contribution for family coverage is $7.2k plus a $1k catch-up each for you and spouse at age 55+. Consider increasing your HSA contribution to $9.2k and using the account in retirement to pay healthcare costs/Medicare premiums.
Note: spouse would need to open a separate HSA account to for spouse’s $1k catch-up contribution. Fidelity offers low-cost HSAs.
Re: Portfolio review
I re-read your original post. You didn't mention disability or life insurance, or umbrella (if someone else steps on the roller skates ).Bob's not my name wrote: ↑Sun Jan 10, 2021 8:31 am If I die tomorrow, my wife has enough to live on and she would surely move to a smaller house in a lower tax state almost immediately. In unrelated news, she's always leaving roller skates on the stairs.
You covered on all those?
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Re: Portfolio review
Yes. Effectively self-insured on life, as discussed later in the thread. But I have the other two.
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Re: Portfolio review
"island property" wasn't intended to mean "island" However, I have long admired the whole-island properties in Thousand Islands, Maine, etc.
In any case, island lots in the wilderness yoyo in valuation by a factor of five. Right now it's at about 40% of the valuation in 2008 but it's 2X the valuation in 2010!
Re: Portfolio review
Ahh by island you mean no road and util access? Do you visit the property? I know it’s not generally a bogleheads investment recommendation but I’m interested in a small allocation to land. Two requisites I have are sustainable water source and doesn’t get hot.Bob's not my name wrote: ↑Sun Jan 10, 2021 9:41 am"island property" wasn't intended to mean "island" However, I have long admired the whole-island properties in Thousand Islands, Maine, etc.
In any case, island lots in the wilderness yoyo in valuation by a factor of five. Right now it's at about 40% of the valuation in 2008 but it's 2X the valuation in 2010!
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Re: Portfolio review
The island has utilities and water. There are seasonal cabins on the other lots. But it's a stone's throw from protected land so it's a low population area.
Re: Portfolio review
Hi Not-Bob. So nice to see you.
You plan to work till near RMD time and you already have over $2 million in tax-deferral if I added it up right. You don't mention either a pension or SS but I suspect something will be happening with one or both of those.
That makes it seem like Roth 403b now at 22% would be a good choice. It seems to me you may never be in a lower tax bracket.
I think you have a lot more experience at doing/modeling this than I do, but that's what jumped out at me.
Enjoyed your thread.
You plan to work till near RMD time and you already have over $2 million in tax-deferral if I added it up right. You don't mention either a pension or SS but I suspect something will be happening with one or both of those.
That makes it seem like Roth 403b now at 22% would be a good choice. It seems to me you may never be in a lower tax bracket.
I think you have a lot more experience at doing/modeling this than I do, but that's what jumped out at me.
Enjoyed your thread.
Link to Asking Portfolio Questions
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Re: Portfolio review
Thanks. Yes, 22% is good but the high state tax makes it 31%. I can't think of any states we'd move to with a higher income tax (the west coast is out of the question). As noted, I did follow the Roth course last year, when the tax rate was certain.
Also, I'd like to increase cash on hand and I need to contribute $18,000 to the 403b to get the full match so Roth 403b would require $26,000 of gross income to meet that threshold. I looked that up after posting. Hadn't thought about being prisoner of a terrific employer match. I'll consider whether it makes sense to cut 403b contributions back to $18,000 for a few years to accumulate cash. We'd still be saving $30,000 + employer $24,000 = $54,000 in retirement plans.
Also, I'd like to increase cash on hand and I need to contribute $18,000 to the 403b to get the full match so Roth 403b would require $26,000 of gross income to meet that threshold. I looked that up after posting. Hadn't thought about being prisoner of a terrific employer match. I'll consider whether it makes sense to cut 403b contributions back to $18,000 for a few years to accumulate cash. We'd still be saving $30,000 + employer $24,000 = $54,000 in retirement plans.