Author Topic: Retiring Soon; Asset Allocation Question  (Read 2676 times)

GM404

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Retiring Soon; Asset Allocation Question
« on: February 06, 2014, 10:00:41 AM »
So here is my situation: I am 42 years old and about to retire from the military and retire FOR GOOD. My pension will be in the neighborhood of 30K a year net. I have no debt (to include 2 homes) and my current spending is about 20K a year (11K fixed expenses and 8-9K variable that have been averaged over last 3 years). One home I have has a rental income of 13K year net.  I have an IRA that is mostly large-mid cap stocks that has a value of 130K and last yearís dividends were just shy of 7K. That being said, I have 70K liquid I would like to put to work for me and I am curious where the mustachians out there might like to do in my position? Oh yes, I am married but no kiddos...so no college funding requirements there.

I like the idea of some the higher dividend income REITS (Like DOC and SNH) but since I already have good income with a rental property and it makes up a good chuck of my current portfolio,  I donít know that this is the wisest idea.

Summary:

Income:  50K
Expenses: 20K
IRA Value: 130K
R/E Holdings: 450K

Amount to invest: 70K

soccerluvof4

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Re: Retiring Soon; Asset Allocation Question
« Reply #1 on: February 06, 2014, 11:13:58 AM »
Congratulations on your retirement and thank you for your service!!

Personally, i would put into Vanguard index funds.  Go to there website and you can by the funds or ETF's comparables at the lowest cost.

I myself do a 4 index approach in VTSAX, VGSLX and VBTLX for Bonds and I am in the one for Reits as well but cant think of the letters off hand. You can fit the portfolio/risk as you see fit.

Good Luck!

GM404

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Re: Retiring Soon; Asset Allocation Question
« Reply #2 on: February 06, 2014, 06:15:07 PM »
It's been a pleasure (for the most part) serving my country. I have been VERY lucky that I have had a "job" that I have really enjoyed, especially the last 5 years.

Thanks for the info...I do already have about 8K in VYM that has been pretty good to me. :)

Congratulations on your retirement and thank you for your service!!

Personally, i would put into Vanguard index funds.  Go to there website and you can by the funds or ETF's comparables at the lowest cost.

I myself do a 4 index approach in VTSAX, VGSLX and VBTLX for Bonds and I am in the one for Reits as well but cant think of the letters off hand. You can fit the portfolio/risk as you see fit.

Good Luck!

Nords

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Re: Retiring Soon; Asset Allocation Question
« Reply #3 on: February 06, 2014, 08:05:26 PM »
So here is my situation: I am 42 years old and about to retire from the military and retire FOR GOOD. My pension will be in the neighborhood of 30K a year net. I have no debt (to include 2 homes) and my current spending is about 20K a year (11K fixed expenses and 8-9K variable that have been averaged over last 3 years). One home I have has a rental income of 13K year net.  I have an IRA that is mostly large-mid cap stocks that has a value of 130K and last yearís dividends were just shy of 7K. That being said, I have 70K liquid I would like to put to work for me and I am curious where the mustachians out there might like to do in my position? Oh yes, I am married but no kiddos...so no college funding requirements there.

I like the idea of some the higher dividend income REITS (Like DOC and SNH) but since I already have good income with a rental property and it makes up a good chuck of my current portfolio,  I donít know that this is the wisest idea.

Summary:
Income:  50K
Expenses: 20K
IRA Value: 130K
R/E Holdings: 450K
Amount to invest: 70K
Congratulations!  I think you're ready to buy a boat... or maybe an airplane. 

Just kidding.  But welcome to the club:  I think you have a "green waste" problem.

Here's the issue:  you're heavily invested in bond-like assets.  Your $30K military pension is the equivalent of a portfolio of I bonds, and at today's 1.38% interest rate (http://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm) you have an equivalent principal of $2.17M.  Better still, your income is permanently adjusted for inflation so there's none of this longevity debate about present-value discounting or real/nominal values.

You have a rental property-- another bond-like asset that keeps pace (more or less) with inflation while (when intelligently managed) throwing off a steady stream of cash.  Maybe it's the equivalent of a corporate bond, maybe it's a junk bond.  Either way it's a fairly high-yield asset.

You're effectively already managing a portfolio of ~$2.75M and you're asking us how to invest another 2.5%-- "just" $70K-- beyond that.

Even "worse", you apparently really suck at spending money.  If you keep up this lifestyle then a year from now you won't have $70K to invest-- it'll be $100K.  In two years, $130K.  That "beep beep beep" noise you hear?  It's another green waste truck backing up to your driveway, getting ready to dump its load.

What do you do with money that you don't need?  Do you make it rain at the Pink Pussycat, do you donate it to charity, do you bet it all on red, or do you put it in a FDIC-insured CD?  Damned if I know-- but the first two make me uncomfortable because I might "need" the money someday.  For something.  I'm not sure what.

I don't have a pat answer for this problem.  Please tell me what solution works for you so that I can try it out in our family.

Here's some ideas:
- Pick a type of investing that you're curious about and put some money into it.  Our "green waste" is invested in a small-cap stock index ETF and some shares in a few startup companies.  The former has done well and the latter will need another decade before we close the books on the performance record.  In the meantime, I feel as if I've put the money to work in a relatively fiduciary manner, and I'm pretty sure that I won't be tempted by startups anymore.
- If you're interested in more rental properties, then put the cash into CDs until you find a deal.  You may have to enlist the help of a great realtor or property manager to find a bargain, and it may take 2-3 years, but you'll eventually find it.  If you're not already doing so, you could read up on this at BiggerPockets.com and RealData.com.
- If you're feeling fulfilled at landlording with one property, then put your cash into a different type of REIT like commercial properties.
- If you just want to make a decision and be done with it, then put it into an low-expenses passive equity index fund.  Growth or dividend or sectors probably doesn't make much difference-- just pick what you're happy with and whatever helps you sleep at night.

Or you could go buy another longboard and apply for a 90-day Thailand tourist visa.  That's what my spouse and I plan to try next.

By the way, here's some practical considerations:
- If your IRA is a conventional IRA, then consider converting it to a Roth a little every year.  This will avoid the requirement to take RMDs later (from money you don't need).  If you do this after you retire then you'll already be in a very low tax bracket and you can convert $10K-$20K per year-- up to the top of the 15% (or even 25%) personal income tax brackets.  In a decade or so your military pension and rental/dividend/interest income will already push you near the top of the 15% bracket.
- You don't mention your TSP account.  In your later 50s or 60s you may want to roll that over to a conventional IRA and convert it to a Roth IRA.  I'd do it after your IRA account conversion (and a decade or two before RMDs) because the TSP has such a low expense ratio.
- Your spouse should consider signing up for the maximum SBP.  She doesn't need much of your money either, but she'd have an inflation-fighting annuitized income stream after you're gone. 
- If you haven't already done this about six times, go back over your expenses to see whether you've missed something.  You want to look for replacement vehicles, a new roof, or other huge capital expenses.  If you can't find any then maybe you want to create some, like a fantasy vacation or an extended cruise.  You might find that you want to loosen up the purse strings a little, and it's always good to make sure that you've covered all your known expenses first.