Portfolio and SWR Strategy help for recently retired couple

[spartan]

Hello Bogleheads,

My wife and I recently retired and after a lifetime of work and living beneath our means we are excited to be
moving to our next chapter in life. My son convinced me that the greater risk for us was retiring too late. We have
some things that we like to do, that you can only do until age 70-75 and we don't have any expensive tastes or habits.
I have learned so much from this community and I am always blown away by the spirit of helping others that is so
common here. In regards to our situation, I think that a withdrawal rate around 2.5% would be fine to get us to our
social security ages. I am not obsessed with spending every last penny and would actually prefer to leave a nice chunk
of money to my heirs in the most tax advantaged way possible. I am concerned that I could be missing some obvious
(to retirement experts) information. I should also add that I have trust issues when it comes to paid financial planners.
So I want to thank in advance anyone gracious enough to help educate us and point us to good resources.

Emergency Funds: 5 K

Debt: None

Tax Filing Status: Married Filing Jointly

Tax Rate: Federal= 13.8% State= 4.25%

State of Residence: MI

Age: Husband (59.75) retired at 55; Wife (58) retired recently

Desired Asset Allocation: 60% Total Us Stock Index, 20% International Stock Index, 20% US Bond Index

Real Estate: Home value~ 400-450K
Cottage value~ 120-150K

Income: Husband's Pension (32,200 w/ a 3% annual cola)

Health Insurance: Paid by Employer

Annual Expenses: 33 K (last estimated in ~2018)

Social Security Estimates from 62-70: (husband) 1983/2100/2252/2440/2628/2818/2985/3201/3491
(wife) 1721/1833/1955/2118/2281/2444/2476/2672/3031

Retirement Accounts: ~1.4 M

Husband: Fidelity Roth Ira (3.1%) invested in individual stocks
-WFC, MKC, KHC, EVLV

Fidelity 403 B rollover (18.7%)
-(1%) BRK.B
-(3.0%) Fidelity US Bond Index FXNAX (.03%)
-(3.8%) Fidelity Total International Index FTIHX (.06%)
-(10.9%) Fidelity Total Market Index FSKAX (01%)

Wife: Fidelity Roth Ira (2.7%) invested in individual stocks
-BRK.B, DOW, MKC, RSG, XOM, CHRA, EVLV

Fidelity 403 B (75.5%)*
-(14.9%) Vanguard Total Bond Market Index VBTIX (.03%)
-(22.8%) Vanguard Extended Market Index VEMPX (.06%)
-(22.4%) Vanguard Institutional Index VIIIX (.02%)
-(15.4%) Vanguard Total International Stock Index VTSNX (.07%)

1.*{While employed her choices were limited by the employer plan, but we have since opened a BrokerageLink
account with Fidelity, we haven't sold the employer plan funds and moved it into the BrokerageLink account yet.
We would love any advice for how to be out of the market while this occurs, and how to invest the money in the
BrokerageLink account.}

2. We are essentially done with the accumulation phase. I want/need to start to withdrawal approximately 2.5-3 K
a month until we start social security. Our plan was to take this from his accounts and leave hers alone. I am
open to education and advice regarding the nuances of a safe withdrawal strategy coupled with a social security
origination plan.

3. My desired asset allocation of 60% US Stock, 20% International Stock, 20% US Bond is also something I am open to
being educated about.

[dbr]

2. We are essentially done with the accumulation phase. I want/need to start to withdrawal approximately 2.5-3 K
a month until we start social security. Our plan was to take this from his accounts and leave hers alone. I am
open to education and advice regarding the nuances of a safe withdrawal strategy coupled with a social security
origination plan.

The obvious departure from a naive SWR is that the withdrawal rate is greater before taking SS than after so the simple concept does not apply. Any of the usual retirement planners makes allowance for income streams to start or stop at various dates as well as changes to spending at different times or additions or subtractions from the portfolio at a date. See www.firecalc.com for an example.

[dbr]

3. My desired asset allocation of 60% US Stock, 20% International Stock, 20% US Bond is also something I am open to
being educated about.

This chart shows the historical outcomes of different asset allocations while adding or withdrawing money: https://engaging-data.com/visualizing-4-rule/ You can adjust the asset allocations, the withdrawals, the length of time to view, and presentation in nominal or real dollars.

The hope is that you will be shocked at how variable the range of possibilities is given that you will experience one not yet determined path through that past array.

[heyyou]

OP, your current annual income minus your annual savings, is a measure of your current spending, so that is a number to use in the retirement income calculators. Plan to spend from your stock funds and your bond funds, to help rebalance your portfolio back to its target allocation, so you will usually be spending from the recent better performing asset.

We expected to adapt our spending, as our retirement progressed, since we chose the RMD portfolio spending method from Boston College's Center for Retirement Research. https://crr.bc.edu/wp-content/uploads/2 ... 19-508.pdf
It is a slightly variable withdrawal method using your age-based RMD % applied to each recent annual portfolio value, plus spending dividends and interest. That suits me because those annual income variations are adapting our spending to our remaining portfolio value each year, as our retirement progresses. We can see next year's potential spending change, as our portfolio value varies during this year, so there is not a Dec. 31st surprise. Our annual spending amount is seen in January of each year.

When the authors of that method write that it compares well to the standard, that begs the question of "Then why not use the standard method?" The standard is if the new retiree could see all of the next 30 years of portfolio returns, on retirement day! The major criticism of the RMD method, is its lower than 4% starting percentage for retirees who are less than 73 years old, but your portfolio's annual dividends and interest are added to your percentage-based withdrawals every year.

My parents were 1968 retirees who expected to live off of bond income plus two Social Security payments. The high inflation which then occurred, would have led to their portfolio failure if they had blindly followed 30 years of the 4% SWR spending method (that was not even proposed until 1992). Also their high bond allocation, so lower stock allocation, would not have been suitable for 30 years of portfolio longevity.

https://earlyretirementnow.com/
has numerous articles on retirement spending methods.

[spartan]

2. We are essentially done with the accumulation phase. I want/need to start to withdrawal approximately 2.5-3 K
a month until we start social security. Our plan was to take this from his accounts and leave hers alone. I am
open to education and advice regarding the nuances of a safe withdrawal strategy coupled with a social security
origination plan.

The obvious departure from a naive SWR is that the withdrawal rate is greater before taking SS than after so the simple concept does not apply. Any of the usual retirement planners makes allowance for income streams to start or stop at various dates as well as changes to spending at different times or additions or subtractions from the portfolio at a date. See www.firecalc.com for an example.

Thank you so much dbr for this help.

[livesoft]

I'm gonna write: Relax! You got this. Since it does not appear that you have any money in a taxable account it sort of doesn't matter what you do. All withdrawals will come from a tax-deferred account unless you choose to do something to withdraw from the Roth IRA.

If you think there will be a problem being out of the market when doing rollovers, then just do a little at a time and do some double exchanges. I personally do not think there would be any problem being out of the market for a couple of weeks at the present time.

Example:
Sell bond fund, move the cash, then
Use cash to buy stock fund in new place and sell stock fund in old place to raise cash.
Repeat until last cash is moved, then
Use cash to buy bond fund.

BTW, with most assets in a tax-deferred account, I think you could just buy one single target retirement index fund close to your desired asset allocation and be done with it.

[Wannaretireearly]

Congrats on your retirement!
Perhaps look into Roth conversions? I’d try and build up a larger cash position if this route is taken.

[spartan]

OP, your current annual income minus your annual savings, is a measure of your current spending, so that is a number to use in the retirement income calculators.

We expected to adapt our spending, as our retirement progressed, since we chose the RMD portfolio spending method from Boston College's Center for Retirement Research. https://crr.bc.edu/wp-content/uploads/2 ... 19-508.pdf
It is a slightly variable withdrawal method using your age-based RMD % applied to each recent annual portfolio value, plus spending dividends and interest.

When the authors of that method write that it compares well to the standard, that begs the question of "Then why not use the standard method?" The standard is if the new retiree could see all of the next 30 years of portfolio returns, on retirement day! The major criticism of the RMD method, is its lower than 4% starting percentage for retirees who are less than 73 years old, but your portfolio's annual dividends and interest are added to your percentage-based withdrawals every year.

https://earlyretirementnow.com/
has numerous articles on retirement spending methods.

heyyou, I appreciate you educating me. I will use your definition of current annual spending to go back and calculate our actual spending over the last several years and generate an average. I was always frustrated when big lump sums for home maintenance and other odd expenses show up at irregular intervals. That should be very helpful. I love, love the brief on the modified RMD strategy in comparison to the other 3 draw down strategies. I like the way it aims to maximize enjoyment of spending one's assets while guarding against depletion of your resources. I am also diving into the earlyretirementnow information. Bless you for the help!

[WoodSpinner]

OP,

Just be aware that there are a number of Spending strategies out there.

Suggest you take a look in the WIKI for Variable Portfolio Withdrawal (VPW) or Amortized Based Withdrawal .

https://www.bogleheads.org/wiki/Variabl ... withdrawal

https://www.bogleheads.org/wiki/Amortiz ... withdrawal

What I like about these approaches over the RMD method is:
- I want to spend more during my GoGo years than RMD will allow
- It adapts to changing market conditions
- Adapts to spending even a bit more then planned
- Manages new income streams (e.g. SS as they come online)

There is a great SS claiming tool you can check out to plan your strategy:
https://opensocialsecurity.com/

I do think NOW is the time to Re-Implement your portfolio, your Asset Allocation, Retirement Accounts etc.

Personally, I find the restrictions and expenses of a 403B or a 401k generally burdensome so I would roll them all to IRAs. Consolidate to 2 IRAs and 2 Roths for now.

Lastly, I suggest building out a Retirement Policy Statement to help organize your Retirement Goals, Plans and Decisions:
https://www.bogleheads.org/wiki/Retirem ... _statement

Good Luck — I remember the giddy, scary, feeling of seriously Planning for Retirement!

WoodSpinner

[dbr]

Before rolling retirement plans under ERISA protections to individual accounts a person should check the state specific liability protections for non-bankruptcy claims. I think MI is not one of the handful of states where protection is severely limited:

https://www.irafinancialgroup.com/learn ... rotection/

[spartan]

I'm gonna write: Relax! You got this. Since it does not appear that you have any money in a taxable account it sort of doesn't matter what you do. All withdrawals will come from a tax-deferred account unless you choose to do something to withdraw from the Roth IRA.

If you think there will be a problem being out of the market when doing rollovers, then just do a little at a time and do some double exchanges. I personally do not think there would be any problem being out of the market for a couple of weeks at the present time.

Example:
Sell bond fund, move the cash, then
Use cash to buy stock fund in new place and sell stock fund in old place to raise cash.
Repeat until last cash is moved, then
Use cash to buy bond fund.

BTW, with most assets in a tax-deferred account, I think you could just buy one single target retirement index fund close to your desired asset allocation and be done with it.

livesoft, You have no idea how much I appreciate you, Your encouragement and advice are exactly what I needed. Thanks so much!

[spartan]

OP,

Just be aware that there are a number of Spending strategies out there.

Suggest you take a look in the WIKI for Variable Portfolio Withdrawal (VPW) or Amortized Based Withdrawal .

https://www.bogleheads.org/wiki/Variabl ... withdrawal

https://www.bogleheads.org/wiki/Amortiz ... withdrawal

What I like about these approaches over the RMD method is:
- I want to spend more during my GoGo years than RMD will allow
- It adapts to changing market conditions
- Adapts to spending even a bit more then planned
- Manages new income streams (e.g. SS as they come online)

There is a great SS claiming tool you can check out to plan your strategy:
https://opensocialsecurity.com/

I do think NOW is the time to Re-Implement your portfolio, your Asset Allocation, Retirement Accounts etc.

Personally, I find the restrictions and expenses of a 403B or a 401k generally burdensome so I would roll them all to IRAs. Consolidate to 2 IRAs and 2 Roths for now.

Lastly, I suggest building out a Retirement Policy Statement to help organize your Retirement Goals, Plans and Decisions:
https://www.bogleheads.org/wiki/Retirem ... _statement

Good Luck — I remember the giddy, scary, feeling of seriously Planning for Retirement!

WoodSpinner

WoodSpinner, All of this is great education and advice. I am now in the process of researching the Variable Portfolio Withdraw as it may fit our needs best. I am also now in the process of drawing up a detailed Retirement Policy Statement. It is a great way to involve both of us in the goal and decision making...for when things go great...and when things don't. I had a couple of questions. I will look at the SS claiming tool, but if I am not mistaken, if we both claim around 65 our combined benefit would be around 4500 a month. Do you think I should just do a rollover IRA at Fidelity, in the place of the BrokerageLink account? I don't think it affects the liquidity age for us? You definitely nailed the feeling of ambivalence I have during this execution phase of retirement planning.

[stuper1]

Often the best Social Security claiming strategy is for the lower-earning spouse to claim at 62 and the higher-earning spouse to claim at 70.

Check out what opensocialsecurity.com recommends.

If you do it this way, you only have 4 years until all of your base expenses are covered by your pension and your wife's SS payment.

[spartan]

Congrats on your retirement!
Perhaps look into Roth conversions? I’d try and build up a larger cash position if this route is taken.

Wannaretireearly, Thank you my friend. I will look into Roth conversions. I appreciate the advice!

[G12]

Spartan, it looks like you are one month older than me and our wives are both 58, go figure.
That inflation adjusted pension is nice and assuming your employer health insurance is covered until you reach 65? That is nice. I retired just before turning 48, wife retired in 2020, we have been 60/36/4 (4 is cash/near cash/EE and I bonds) as we had a lot of change occurring selling our long time house in ATL and moving to Santa Fe, spend rate has been higher than expected. With your pension you probably don't need to be 80% equity unless you are planning to leave it for your family. If you don't have a home equity line consider getting one as it can come in handy especially if something expensive occurs (like $31k on re-stucco job and roof September 2022) if you don't want to have to sell financial assets at the time. It's also nice to have reached 59.5+ with the added flexibility of being able to access retirement funds without penalty. Good luck.

[WoodSpinner]

OP,

Just be aware that there are a number of Spending strategies out there.

Suggest you take a look in the WIKI for Variable Portfolio Withdrawal (VPW) or Amortized Based Withdrawal .

https://www.bogleheads.org/wiki/Variabl ... withdrawal

https://www.bogleheads.org/wiki/Amortiz ... withdrawal

What I like about these approaches over the RMD method is:
- I want to spend more during my GoGo years than RMD will allow
- It adapts to changing market conditions
- Adapts to spending even a bit more then planned
- Manages new income streams (e.g. SS as they come online)

There is a great SS claiming tool you can check out to plan your strategy:
https://opensocialsecurity.com/

I do think NOW is the time to Re-Implement your portfolio, your Asset Allocation, Retirement Accounts etc.

Personally, I find the restrictions and expenses of a 403B or a 401k generally burdensome so I would roll them all to IRAs. Consolidate to 2 IRAs and 2 Roths for now.

Lastly, I suggest building out a Retirement Policy Statement to help organize your Retirement Goals, Plans and Decisions:
https://www.bogleheads.org/wiki/Retirem ... _statement

Good Luck — I remember the giddy, scary, feeling of seriously Planning for Retirement!

WoodSpinner

WoodSpinner, All of this is great education and advice. I am now in the process of researching the Variable Portfolio Withdraw as it may fit our needs best. I am also now in the process of drawing up a detailed Retirement Policy Statement. It is a great way to involve both of us in the goal and decision making...for when things go great...and when things don't. I had a couple of questions. I will look at the SS claiming tool, but if I am not mistaken, if we both claim around 65 our combined benefit would be around 4500 a month. Do you think I should just do a rollover IRA at Fidelity, in the place of the BrokerageLink account? I don't think it affects the liquidity age for us? You definitely nailed the feeling of ambivalence I have during this execution phase of retirement planning.

Spartan,

That is what I did — lower fees and more flexibility were the key drivers.

Since you are over 59 1/2, you can tap the IRAs/401K without a 10% penalty, but remember it is Income and you need to pay taxes on it.

WoodSpinner

[Wiggums]

Congratulations. You’ve done well.

[William4589]

Congratulations on your retirement.

Maybe this will be helpful, I use the Amortization Based Withdrawal method recommended by Wiillthrill81 (I really miss his posts) when he was posting here on Bogleheads. Wiki Link below. You can go to the bottom of the Wiki page and look for subheading ABW Calculator and download the Excel spreadsheet. It's very easy to use and I update it monthly. You can also indicate a termination balance (for your heirs) too. Something to try out. Best of luck.

https://www.bogleheads.org/wiki/Amortiz ... withdrawal

[spartan]

Often the best Social Security claiming strategy is for the lower-earning spouse to claim at 62 and the higher-earning spouse to claim at 70.

Check out what opensocialsecurity.com recommends.

If you do it this way, you only have 4 years until all of your base expenses are covered by your pension and your wife's SS payment.

stuper1, Awesome resource...thanks a million, or at least potentially many thousands...ha! My original idea was for both of us to claim SS around age 65, thinking that would give us around 4500 a month in benefit and is not in the too distant future. However, your were spot on regarding the "optimal" strategy being, my wife claiming at 62 and 1 month, and me claiming at 70. So, when comparing my "both at 65" to the "optimal" strategy the calculator states that for the "both at 65" claim, that a surviving spouse's benefit would be ~29K, and that under the optimal claim that a surviving spouse would receive ~ 41K. My question is, let's say, we employed the optimal strategy and I died at age 63...would my spouse still receive the 41 K a year?

[spartan]

Congratulations. You’ve done well.

Thank you Wiggums, for the kind words, they mean a lot to me.

[spartan]

Spartan, it looks like you are one month older than me and our wives are both 58, go figure.
That inflation adjusted pension is nice and assuming your employer health insurance is covered until you reach 65? That is nice. I retired just before turning 48, wife retired in 2020, we have been 60/36/4 (4 is cash/near cash/EE and I bonds) as we had a lot of change occurring selling our long time house in ATL and moving to Santa Fe, spend rate has been higher than expected. With your pension you probably don't need to be 80% equity unless you are planning to leave it for your family. If you don't have a home equity line consider getting one as it can come in handy especially if something expensive occurs (like $31k on re-stucco job and roof September 2022) if you don't want to have to sell financial assets at the time. It's also nice to have reached 59.5+ with the added flexibility of being able to access retirement funds without penalty. Good luck.

G12, Respect, on your early retirement! I appreciate the advice on setting up the home equity line of credit. I may do that, in hopes of not having to use it before building back up our emergency fund. I certainly feel your pain regarding expensive home repairs/maintenance as we have had the same disease in the past 5 years. Your 60/36 allocation is US equities, US bond respectively?

[heyyou]

Spartan, I did the delayed SS route, and now I'm very pleased with its inflation buffer on my larger, delayed SS income during this new period of higher inflation. That was just luck, but following the good advice offered here, seems to most often work well. No, I didn't follow-up with a post-event, math comparison of my timing of those two choices.