Portfolio Assessment

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Topic Author
mike2468
Posts: 72
Joined: Wed Jan 30, 2019 6:55 am

Portfolio Assessment

Post by mike2468 »

My wife and I are planning to retire on our birthdays in April of 2023.

Debt: $0
Tax filing: MFJ
Tax Rate: 12% federal, state of TN.
Current age: Myself 55, wife 57.

Allocation: 55% stock of which 30% is in international and 45% bonds consisting of intermediate and short term bonds, stable value and cash. We plan on living on $40K per year adjusted for inflation. We plan on taking my wife's SS at 62 since hers is the lower of the two of us. My SS we plan on delaying past my age of 62. She will receive a $160 per month pension at age 65 for driving a school bus for 11 years. I will take my pension at age 65 of $700 per month with 100% survivorship to my wife when I die at age 85 for sure. Our strategy is to stay in the 12% or lower tax bracket to take advantage of AHC subsidies, Roth conversions, tax free LTCG in taxable account, etc.

Current retirement assets: $1.3M

Taxable: $447,632
25.8% FSKAX (Fidelity Total US Market Index)
5.1% FTIHX (Fidelity Total International Index)
3.9% FUMBX (Fidelity Short Term Treasury Bond Index)

Tax Free: $435,220
11% FSKAX (Roth IRA)
10.6% FTIHX (Roth IRA)
4.4% FXNAX (Fidelity US Bond Index) (Roth IRA)
1.7% FXNAX (HSA)
6.2% $80K of house equity once sold.

Tax Deferred: $405,276
14.7% FXNAX (Rollover IRA)
12.3% VBTLX (Vanguard Total Bond Market) (403b)
4.1% Stable Value (403b & 401k)
0.4% FXNAX (Inherited IRA)

New annual contributions:
$54K (His and hers max 401k) (All going into stable value funds)
$14K (His and hers max Roth IRA) (All going into equities)
$9,300 (His and hers max HSA) (All going into intermediate bond fund)

I appreciate your thoughts and ideas on this plan.
Thanks, Mike
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

Re: Portfolio Assessment

Post by delamer »

A lot depends on your wife’s SS benefit.

You’ll have to withdraw roughly $200,000 of your assets to cover your expenses until your wife starts Social Security.

Then you’ll have to withdraw another [($40,000 minus wife’s SS) times 5 years] until your pension starts.

Then you’ll have to withdraw another [($40,000 minus $9,0000 minus wife’s SS) times 5 years], if you hold off on your SS until age 70.

My guess is that once your SS starts, you won’t need to make any withdrawals.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Topic Author
mike2468
Posts: 72
Joined: Wed Jan 30, 2019 6:55 am

Re: Portfolio Assessment

Post by mike2468 »

Thanks delamer. Does your senario consider the dividends and capital gains that I estimate I am receiving now of around $22K per year?
Thanks, Mike
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

Re: Portfolio Assessment

Post by delamer »

mike2468 wrote: Tue May 17, 2022 3:18 pm Thanks delamer. Does your senario consider the dividends and capital gains that I estimate I am receiving now of around $22K per year?
Thanks, Mike
I consider those withdrawals from your accounts, since they could be reinvested.

BTW, it looks like your overall asset allocation is about 50/50 which is fine.

My one caution is that I wonder if a couple currently savings almost $80,000/year can live comfortably on $40,000/year in retirement? Just make sure your $40,000 in expenses is realistic.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Brucie
Posts: 85
Joined: Mon Aug 03, 2015 12:56 pm

Re: Portfolio Assessment

Post by Brucie »

I think you have clearly paid attention and planned well.

A few thoughts.
1. I wouldn't retire next year for sure. Maybe the market recovers, and you are in a better position next year, but if not a year or a few years more employment would ease any stress.

2. Your allocation looks a little conservative to me. especially your new contributions to a stable fund vs. stocks. You never know but stocks are down, and we all hope to buy low.

3. I don't see any I Bonds in your portfolio, in my opinion the only free lunch out there in investments.

Happy you live in Tennessee, me too, no state income tax to worry about.

Brrucie
HomeStretch
Posts: 11419
Joined: Thu Dec 27, 2018 2:06 pm

Re: Portfolio Assessment

Post by HomeStretch »

Retirement in April 2023 seems reasonable assuming $40k is a solid number that includes income taxes, healthcare and periodic expenses such as a new vehicle. A $40k annual distribution from a $1.3 million portfolio is a 3.1% withdrawal rate. That rate will (edit - typo) decrease once SS and pension benefits start.
Last edited by HomeStretch on Tue May 17, 2022 10:44 pm, edited 1 time in total.
student
Posts: 10763
Joined: Fri Apr 03, 2015 6:58 am

Re: Portfolio Assessment

Post by student »

I think the portfolio is fine. But I worry about whether now is a good time to retire given high inflation. It seems that there is no much room for errors.
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

Re: Portfolio Assessment

Post by delamer »

student wrote: Tue May 17, 2022 10:15 pm I think the portfolio is fine. But I worry about whether now is a good time to retire given high inflation. It seems that there is no much room for errors.
You have to expect that over a 20 to 30 year retirement that there will be stock market crashes, periods of higher inflation, and that assorted other financial stresses/calamities will occur.

If your retirement plan rests on a calamity-free scenario, then you need a new plan.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
student
Posts: 10763
Joined: Fri Apr 03, 2015 6:58 am

Re: Portfolio Assessment

Post by student »

delamer wrote: Wed May 18, 2022 8:35 am
student wrote: Tue May 17, 2022 10:15 pm I think the portfolio is fine. But I worry about whether now is a good time to retire given high inflation. It seems that there is no much room for errors.
You have to expect that over a 20 to 30 year retirement that there will be stock market crashes, periods of higher inflation, and that assorted other financial stresses/calamities will occur.

If your retirement plan rests on a calamity-free scenario, then you need a new plan.
While it is true that over a 20 to 30 year retirement that there will be stock market crashes, sequence of events matters and the size of portfolio matters. I would rather be on the conservative side.
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

Re: Portfolio Assessment

Post by delamer »

student wrote: Wed May 18, 2022 8:54 am
delamer wrote: Wed May 18, 2022 8:35 am
student wrote: Tue May 17, 2022 10:15 pm I think the portfolio is fine. But I worry about whether now is a good time to retire given high inflation. It seems that there is no much room for errors.
You have to expect that over a 20 to 30 year retirement that there will be stock market crashes, periods of higher inflation, and that assorted other financial stresses/calamities will occur.

If your retirement plan rests on a calamity-free scenario, then you need a new plan.
While it is true that over a 20 to 30 year retirement that there will be stock market crashes, sequence of events matters and the size of portfolio matters. I would rather be on the conservative side.
I’m not sure what you mean by “the size of the portfolio matters” other than the obvious point that the less you need to withdraw to sustain your lifestyle, the better position you are in.

My husband retired the month before the Covid pandemic began shutting down the economy and life-as-we-knew-it. It certainly brought the time vs. money tradeoff into sharp focus. If he’d retired even a couple months earlier, we could have gotten in one of the international trips that I was so looking forward to.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
student
Posts: 10763
Joined: Fri Apr 03, 2015 6:58 am

Re: Portfolio Assessment

Post by student »

delamer wrote: Wed May 18, 2022 10:57 am
student wrote: Wed May 18, 2022 8:54 am
delamer wrote: Wed May 18, 2022 8:35 am
student wrote: Tue May 17, 2022 10:15 pm I think the portfolio is fine. But I worry about whether now is a good time to retire given high inflation. It seems that there is no much room for errors.
You have to expect that over a 20 to 30 year retirement that there will be stock market crashes, periods of higher inflation, and that assorted other financial stresses/calamities will occur.

If your retirement plan rests on a calamity-free scenario, then you need a new plan.
While it is true that over a 20 to 30 year retirement that there will be stock market crashes, sequence of events matters and the size of portfolio matters. I would rather be on the conservative side.
I’m not sure what you mean by “the size of the portfolio matters” other than the obvious point that the less you need to withdraw to sustain your lifestyle, the better position you are in.

My husband retired the month before the Covid pandemic began shutting down the economy and life-as-we-knew-it. It certainly brought the time vs. money tradeoff into sharp focus. If he’d retired even a couple months earlier, we could have gotten in one of the international trips that I was so looking forward to.
Yes. That's what I meant. A 3% withdrawal rate is tight from my perspective and the $40k yearly expense does not leave much room to adjust. This together with the current economic situation worry me. I agree that it is a time vs money tradeoff.
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

Re: Portfolio Assessment

Post by delamer »

student wrote: Wed May 18, 2022 11:05 am
delamer wrote: Wed May 18, 2022 10:57 am
student wrote: Wed May 18, 2022 8:54 am
delamer wrote: Wed May 18, 2022 8:35 am
student wrote: Tue May 17, 2022 10:15 pm I think the portfolio is fine. But I worry about whether now is a good time to retire given high inflation. It seems that there is no much room for errors.
You have to expect that over a 20 to 30 year retirement that there will be stock market crashes, periods of higher inflation, and that assorted other financial stresses/calamities will occur.

If your retirement plan rests on a calamity-free scenario, then you need a new plan.
While it is true that over a 20 to 30 year retirement that there will be stock market crashes, sequence of events matters and the size of portfolio matters. I would rather be on the conservative side.
I’m not sure what you mean by “the size of the portfolio matters” other than the obvious point that the less you need to withdraw to sustain your lifestyle, the better position you are in.

My husband retired the month before the Covid pandemic began shutting down the economy and life-as-we-knew-it. It certainly brought the time vs. money tradeoff into sharp focus. If he’d retired even a couple months earlier, we could have gotten in one of the international trips that I was so looking forward to.
Yes. That's what I meant. A 3% withdrawal rate is tight from my perspective and the $40k yearly expense does not leave much room to adjust. This together with the current economic situation worry me. I agree that it is a time vs money tradeoff.
I don’t see 3% as tight, especially given that it will go down substantially once their pensions and Social Security are being drawn.

Whether $40,000 is realistic, only the OP knows.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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HMSVictory
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Location: Lower Gun Deck

Re: Portfolio Assessment

Post by HMSVictory »

One thing that is jumping out at me is you have your entire allocation in each account. I find it much easier and more simple to hold as few funds as possible in each sub account (taxable, Roth, traditional IRA, HSA). I would hold all of your stock allocation in your Roth accounts. I would hold your entire bond allocation in your pre tax accounts. Your taxable account can hold stocks and any leftover bonds and cash for your allocation. You may not be able to move your taxable account around due to tax implications but you can shift everything else and I would. Simple is beautiful.

I think your international allocation is high. I prefer 20% of equities to be international and I'd prefer you to be 70/30 stock to bond but I understand if this is too much volatility for you to sleep well at night.

Most people spend less as they age in retirement (go go years, slow go and no go). I hope you get a lot of the go go years but don't skimp out on enjoying them out of fear. I see no problem at all spending 5% of the portfolio (not adjusted for inflation) per year and stepping it down as you age and the SS starts rolling in. If you portfolio earns zero over the next 15 years you will still have $400k at full SS age and have all your expenses covered by SS. I am willing to bet US Stocks and Bonds will not return zero over the next 1.5 decade.
Stay the course!
Topic Author
mike2468
Posts: 72
Joined: Wed Jan 30, 2019 6:55 am

Re: Portfolio Assessment

Post by mike2468 »

delamer wrote: Tue May 17, 2022 3:32 pm
mike2468 wrote: Tue May 17, 2022 3:18 pm Thanks delamer. Does your senario consider the dividends and capital gains that I estimate I am receiving now of around $22K per year?
Thanks, Mike
I consider those withdrawals from your accounts, since they could be reinvested.

BTW, it looks like your overall asset allocation is about 50/50 which is fine.

My one caution is that I wonder if a couple currently savings almost $80,000/year can live comfortably on $40,000/year in retirement? Just make sure your $40,000 in expenses is realistic.
$40K in expenses will be a pay raise for us. My biggest expense in life has been savings. I started with a $1 a day in my IRA. Right now we put 61% of my wife's salary in her 401k and 39% of my salary in my 403b. I never made a lot of money ever in my career. I just received a $5/hr raise last month but that is not going to keep me working. You only have so much time and you never know when it ends.
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