Hello Bogleheads,
I appreciate all the advice I've gained from this forum over the years! I’m looking forward to reading your responses
Emergency funds: 3 months
Debt:
Mortgage 200k (30 year at 2.625%) bought home in 2020.
CC paid off monthly
Tax Filing Status: Married Filing Jointly
Tax Rate: 12% Federal, 6.8% State
Annual Income: ~120k
State of Residence: Minnesota
Age: Both 34; 2 young children
Desired Asset allocation: 95% stocks / 5% bonds
Desired International allocation: 20% of stocks
Approximate portfolio size 200K without Pensions
His Pension Contributions ~45K
Her Pension (No longer contributing) ~18k
Current retirement assets
His 403b ($600 match per year) ($5/Month Fee)
8.23% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (.04%)
3.93% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) (.11%)
2.98% Vanguard Total Bond Market Index Fund (VBTLX) (.05%)
His Roth IRA at Vanguard
37.36% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (.04%)
6.93% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) (.11%)
His HSA
9.64% Vanguard 500 Index Fund Admiral Shares (VFIAX) (.04%)
His VEBA
1.63% Vanguard 500 Index Fund Admiral Shares (VFIAX) (.04%)
Her 457b
3.18% Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX) (.02%)
Her Roth IRA at Vanguard
11.52% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (.04%)
6.89% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) (.11%)
Her 401a
.95% Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX) (.02%)
Taxable (Joint Account)
6.75% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (.04%)
Contributions
New annual Contributions ~33.5K
$6600 his 403b ($600 employer match)
$8000 her 401a (10% of salary employer contribution, 5% mandatory employee contribution)
$3250 her 457b (also specify any employer matching contributions)
$6000 his Roth IRA
$6000 her Roth IRA
$3650 his HSA
Questions:
1. DW is no longer contributing to her pension due to a job reclassification. Should she roll her pension (roughly 18k) into a retirement plan? The pension estimate is $5800 per year at age 66.
2. If we roll the pension, which account would be best? Options include: 401a, 403b, tIRA, rIRA. I think we could roll all or most of it into a Roth IRA and remain in the 12% tax bracket.
3. Roth vs Pre Tax accounts. Currently we are able to stay in the 12% federal tax bracket so I like putting money into Roth but understand it all depends on our marginal tax rate. I see this increasing hence the preference for Roth. Does this make sense for us?
4. Anything else I should be considering?
Portfolio Review - Pension Rollover?
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Re: Portfolio Review - Pension Rollover?
That looks very high for a benefit at age 66.snipesbaskin wrote: ↑Tue Jul 05, 2022 2:25 pm
Questions:
1. DW is no longer contributing to her pension due to a job reclassification. Should she roll her pension (roughly 18k) into a retirement plan? The pension estimate is $5800 per year at age 66.
I am presuming it is not CPI indexed?
You can work out what that pension would cost now as an SPIA annuity at age 66. Various checkers on the web.
Then (x/18000)^(1/32)-1 would give you the % pa return implied in that.
Once you have that calculation you can compare that rate of return to what you might get on a portfolio.
Say we assume inflation will be 3% pa over that time period.
Stocks might return 4% real so say 7% pa. Bonds 1% real or 4% pa. A 60-40 portfolio then might return 5.8% pa (before expense ratios).
You could compare that to the assumed return.
Re CPI indexation:
- if it is CPI indexed then don't worry about inflation. You could use 1% real for bonds and 4% real for stocks. That's fairly conservative.
Overall, the lump sum is small enough (ie pension benefit) that it's probably better to have the lump sum money & not have to worry about that paperwork for the next 34 years-- keeping track of that pension. Also if it is not CPI indexed, then that's a lot of inflation risk to take on, whereas a portfolio of 60% stocks and 40% TIPS bonds should almost certainly beat inflation over that time horizon.
Survivor benefit on the pension does make it somewhat more attractive (the more so if the survivor is a female spouse due to longer life expectancies).
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- Joined: Mon May 24, 2010 9:12 am
Re: Portfolio Review - Pension Rollover?
1. Roll
2. tIRA
3. Roth
2. tIRA
3. Roth
Re: Portfolio Review - Pension Rollover?
If me, I'd:snipesbaskin wrote: ↑Tue Jul 05, 2022 2:25 pm
1. DW is no longer contributing to her pension due to a job reclassification. Should she roll her pension (roughly 18k) into a retirement plan? The pension estimate is $5800 per year at age 66.
2. If we roll the pension, which account would be best? Options include: 401a, 403b, tIRA, rIRA. I think we could roll all or most of it into a Roth IRA and remain in the 12% tax bracket.
3. Roth vs Pre Tax accounts. Currently we are able to stay in the 12% federal tax bracket so I like putting money into Roth but understand it all depends on our marginal tax rate. I see this increasing hence the preference for Roth. Does this make sense for us?
4. Anything else I should be considering?
3. Yes to Roth's, if for no other tax reason than the "last one standing" filing as single will not stay in the 12% bracket.
2. tIRA and if/as you still have 12% room left, then convert it to Roth, slowly if necessary to stay within the 12%.
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- Posts: 4
- Joined: Fri Jul 01, 2022 11:25 am
Re: Portfolio Review - Pension Rollover?
Thank you for the response. The pension doesn't appear to be CPI indexed. There is a 1.5% COLA post retirement. I crunched the numbers and got a 4.8% pa return using your formula above. I feel more confident about moving forward with the rollover at this point.Valuethinker wrote: ↑Tue Jul 05, 2022 4:46 pmThat looks very high for a benefit at age 66.snipesbaskin wrote: ↑Tue Jul 05, 2022 2:25 pm
Questions:
1. DW is no longer contributing to her pension due to a job reclassification. Should she roll her pension (roughly 18k) into a retirement plan? The pension estimate is $5800 per year at age 66.
I am presuming it is not CPI indexed?
You can work out what that pension would cost now as an SPIA annuity at age 66. Various checkers on the web.
Then (x/18000)^(1/32)-1 would give you the % pa return implied in that.
Once you have that calculation you can compare that rate of return to what you might get on a portfolio.
Say we assume inflation will be 3% pa over that time period.
Stocks might return 4% real so say 7% pa. Bonds 1% real or 4% pa. A 60-40 portfolio then might return 5.8% pa (before expense ratios).
You could compare that to the assumed return.
Re CPI indexation:
- if it is CPI indexed then don't worry about inflation. You could use 1% real for bonds and 4% real for stocks. That's fairly conservative.
Overall, the lump sum is small enough (ie pension benefit) that it's probably better to have the lump sum money & not have to worry about that paperwork for the next 34 years-- keeping track of that pension. Also if it is not CPI indexed, then that's a lot of inflation risk to take on, whereas a portfolio of 60% stocks and 40% TIPS bonds should almost certainly beat inflation over that time horizon.
Survivor benefit on the pension does make it somewhat more attractive (the more so if the survivor is a female spouse due to longer life expectancies).
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- Posts: 4
- Joined: Fri Jul 01, 2022 11:25 am
Re: Portfolio Review - Pension Rollover?
Thanks! I am planning to go this route now.
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- Posts: 4
- Joined: Fri Jul 01, 2022 11:25 am
Re: Portfolio Review - Pension Rollover?
Thanks, we will open a tIRA account. I haven't performed Roth conversions but it seems pretty straight forward and I like that strategy.RetiredAL wrote: ↑Tue Jul 05, 2022 7:46 pmIf me, I'd:snipesbaskin wrote: ↑Tue Jul 05, 2022 2:25 pm
1. DW is no longer contributing to her pension due to a job reclassification. Should she roll her pension (roughly 18k) into a retirement plan? The pension estimate is $5800 per year at age 66.
2. If we roll the pension, which account would be best? Options include: 401a, 403b, tIRA, rIRA. I think we could roll all or most of it into a Roth IRA and remain in the 12% tax bracket.
3. Roth vs Pre Tax accounts. Currently we are able to stay in the 12% federal tax bracket so I like putting money into Roth but understand it all depends on our marginal tax rate. I see this increasing hence the preference for Roth. Does this make sense for us?
4. Anything else I should be considering?
3. Yes to Roth's, if for no other tax reason than the "last one standing" filing as single will not stay in the 12% bracket.
2. tIRA and if/as you still have 12% room left, then convert it to Roth, slowly if necessary to stay within the 12%.