Author Topic: Can you please help straighten out my portfolio?  (Read 1246 times)

cannotWAIT

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Can you please help straighten out my portfolio?
« on: July 31, 2021, 04:11:46 PM »
Hi all,

I would be grateful for your advice on how I should be invested. There is so much I donít know! I got divorced three years ago and until that point had been the spouse with no involvement in our finances. Except for the Index 500 shares, the assets allocated to me were all managed funds that had been languishing for years, so, with my very rudimentary understanding of personal finance, I rolled those all into target retirement funds.

Iím 55 and am planning to quit in no more than two years and go to CoastFIRE, maybe as soon as the end of the fall semester if I can get a good remote job lined up. I think I will need to keep earning about $18K until Iím 67 so that I can qualify for an ACA plan and not get bumped down to Medicaid. My expenses are right around $18K so this plan conveniently means that I wonít need to invade my savings in any significant way until at Iím at least 59-1/2.

I own my house (~$300K) and car, and have no debt. My salary is currently 72K.


Traditional IRA

Vanguard 500 Index Admiral       76,605
Vanguard Target Retirement 2030    260,166
T.Rowe Price Retirement 2030   30,666

Roth IRA

Vanguard Target Retirement 2030   69,972

401(a) (through TIAA)

Vanguard Target Retirement 2030   34,066

Taxable

T.Rowe Price Retirement 2030    96,920
Cash               15,000

TOTAL               583,395



1) It appears that I cannot make additional contributions to the 401(a) beyond the 6.97% employee contribution/9.255 employer contribution.

2) I am confused as to whether I should be using a traditional or Roth IRA. Help?

3) My employer also offers 403(b), Roth 403(b), and 457(b) plans. Would it make sense to move some of the taxable savings to one of these? Please explain the consequences to me as if I know nothing.

4) Vanguard Target Retirement 2030 is currently at about 65/35 stocks/bonds. With the Index 500 shares, do I have too much in stocks for this stage of my life? 

5) cfiresim indicates that a rising equity glidepath should make a big difference for meóso if Iím planning to liquidate bonds first, shouldnít I move the target retirement funds into separate equity/bond funds? And if so, which ones?

6) Should I keep that $15K in cash or somewhere else? I was holding it in cash as an emergency fund but honestly the money just piles up in my checking account due to my low expenses so Iím not sure I really need this.

7) Anything else I should know?

Thank you so much!

maizefolk

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Re: Can you please help straighten out my portfolio?
« Reply #1 on: July 31, 2021, 04:34:30 PM »
1) It appears that I cannot make additional contributions to the 401(a) beyond the 6.97% employee contribution/9.255 employer contribution.

That'd be consistent with the 401(a) plans I've run into. From the mix of savings types you have access to can I take a wild guess that you're at a university?

2) I am confused as to whether I should be using a traditional or Roth IRA. Help?

If you're planning to live on $18K in expenses in retirement, my advice would be to save in a traditional IRA and get the tax break now while you're paying taxes on a salary of ~$70k/year instead of paying taxes now and avoiding taxes when you're retired and living on $20K/year.

3) My employer also offers 403(b), Roth 403(b), and 457(b) plans. Would it make sense to move some of the taxable savings to one of these? Please explain the consequences to me as if I know nothing.


You cannot directly move taxable savings into any of these accounts. But you can do it indirectly by contributing a LOT to these accounts and selling your taxable savings to cover any gap between your remaining take home pay and your expenses. I would avoid the Roth 403b for the same reason I'd advise against a Roth IRA above, but if you're paying significant income tax in your paycheck right now, contributing a funds to your 403b/457 may make sense. 457 plans have a nice perk which is that you can withdraw the money even before age 59 1/2.

4) Vanguard Target Retirement 2030 is currently at about 65/35 stocks/bonds. With the Index 500 shares, do I have too much in stocks for this stage of my life? 

Perhaps, but people who are closer to your age/outlook may have better, stronger opinions.

I tend to worry more about inflation than traditional recessions and right now you have more than enough saved to cover $18k/year even with a reasonably sized recession, so I'd tend to still lean towards a more stock heavy mix like what you currently have. But it also depends on how confident you are that your $18k will remain relatively stable into retirement or if you'll need more eventually.
5) cfiresim indicates that a rising equity glidepath should make a big difference for meóso if Iím planning to liquidate bonds first, shouldnít I move the target retirement funds into separate equity/bond funds? And if so, which ones?

6) Should I keep that $15K in cash or somewhere else? I was holding it in cash as an emergency fund but honestly the money just piles up in my checking account due to my low expenses so Iím not sure I really need this.

It's close to a year's worth of your expenses. I have the same problem of letting cash pile up. Not a short term fix, but if you set up bigger automatic savings in 403b/457 plans, it'll reduce the issue of cash piling up and I find it psychologically much easier to have money automatically going into the market each month than trying to decide when to sweep a bunch of cash out of my checking account and invest it.

Radagast

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Re: Can you please help straighten out my portfolio?
« Reply #2 on: July 31, 2021, 04:41:13 PM »
To avoid dealing with quotes I'll put things in BLUE
Hi all,

I would be grateful for your advice on how I should be invested. There is so much I donít know! I got divorced three years ago and until that point had been the spouse with no involvement in our finances. Except for the Index 500 shares, the assets allocated to me were all managed funds that had been languishing for years, so, with my very rudimentary understanding of personal finance, I rolled those all into target retirement funds.

Iím 55 and am planning to quit in no more than two years and go to CoastFIRE, maybe as soon as the end of the fall semester if I can get a good remote job lined up. I think I will need to keep earning about $18K until Iím 67 so that I can qualify for an ACA plan and not get bumped down to Medicaid. My expenses are right around $18K so this plan conveniently means that I wonít need to invade my savings in any significant way until at Iím at least 59-1/2.

I own my house (~$300K) and car, and have no debt. My salary is currently 72K.


Traditional IRA

Vanguard 500 Index Admiral       76,605
Vanguard Target Retirement 2030    260,166
T.Rowe Price Retirement 2030   30,666

Roth IRA

Vanguard Target Retirement 2030   69,972

401(a) (through TIAA)

Vanguard Target Retirement 2030   34,066

Taxable

T.Rowe Price Retirement 2030    96,920
Cash               15,000
I think a target date fund would be a bad choice in taxable. It will move to a high bond percentage and pay a lot of dividends which are taxed. Put taxable money in stocks, and in savings bonds. Savings bonds defer taxes on interest, and in any case are much better investments right now. I would recommend loading up as many of these as you can. Consider both I and EE (EE for money you intend to keep in bonds for 20 years).

TOTAL               583,395
sounds like you have it made, financially!


1) It appears that I cannot make additional contributions to the 401(a) beyond the 6.97% employee contribution/9.255 employer contribution.

2) I am confused as to whether I should be using a traditional or Roth IRA. Help?
If you expect lower taxes in retirement than now, use traditional. I think that seems like a good assumption, and you have plenty in Roth and taxable to get you through to 59.5
3) My employer also offers 403(b), Roth 403(b), and 457(b) plans. Would it make sense to move some of the taxable savings to one of these? Please explain the consequences to me as if I know nothing.
Not an expert. Tax advantages are good, but often the investment options in these are terrible.
4) Vanguard Target Retirement 2030 is currently at about 65/35 stocks/bonds. With the Index 500 shares, do I have too much in stocks for this stage of my life? 
I think Target Retirement ends with too much in bonds. It might make more sense to use a 3-fund portfolio equally split between US stocks, international stocks, and bonds. Use Total Market instead of S&P500, even though the difference is small
5) cfiresim indicates that a rising equity glidepath should make a big difference for meóso if Iím planning to liquidate bonds first, shouldnít I move the target retirement funds into separate equity/bond funds? And if so, which ones?
A rising equity glide path is not as useful for CoastFIRE. It is intended for people with a hard and sharp end date. Either way, look for the less expensive ones. You probably want intermediate term or total market bond funds. And savings bonds as much as possible!
6) Should I keep that $15K in cash or somewhere else? I was holding it in cash as an emergency fund but honestly the money just piles up in my checking account due to my low expenses so Iím not sure I really need this.
Keep enough in checking to always make ends meet, invest the rest. It's still there, but it's just invested so that it moves up and down and mostly up. And if you end up with I saving bonds, then an E-fund is totally unnecessary and redundant after a year.
7) Anything else I should know?
Definitely!
Thank you so much!

cannotWAIT

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Re: Can you please help straighten out my portfolio?
« Reply #3 on: July 31, 2021, 05:27:06 PM »
457 plans have a nice perk which is that you can withdraw the money even before age 59 1/2.

Everything I've read about this online agrees with you, but the TIAA website, under Distributions, says this: "Your employer will typically allow you to withdraw funds once you've reached 70Ĺ." But if I quit and roll it over to something else (what?) then maybe that changes?

A rising equity glide path is not as useful for CoastFIRE. It is intended for people with a hard and sharp end date.

Can you explain more about this? Admittedly I was running these calculations when I was having a fit of wanting to retire immediately, but I don't understand why deferring withdrawals would change the effect of shifting more to equities over time.



maizefolk

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Re: Can you please help straighten out my portfolio?
« Reply #4 on: July 31, 2021, 05:37:04 PM »
457 plans have a nice perk which is that you can withdraw the money even before age 59 1/2.

Everything I've read about this online agrees with you, but the TIAA website, under Distributions, says this: "Your employer will typically allow you to withdraw funds once you've reached 70Ĺ." But if I quit and roll it over to something else (what?) then maybe that changes?

No, don't roll it into something else. Usually you can roll 457s into 403b or IRAs but then it loses the magical penalty-free withdrawal at any age property. My guess is that either:

1) TIAA's online documentation for 457s is not very good. I have my 403 and 457 accounts with them, and yet their online calculator won't work for me because it says I'm not allowed to save as much in tax deferred accounts each year as I actually AM saving with them each year ($19,500 403b plus an additional $19,500 in the 457).

2) The 70 and 1/2 cutoff is when you can withdraw money while you're still working for the same employer and they're not telling you about the rules once you quit (and again have poorly documented it).

Given how much business TIAA does with universities and schools it's been shocking to me how poorly their website understands how 403b and 457 plans interact.

Radagast

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Re: Can you please help straighten out my portfolio?
« Reply #5 on: July 31, 2021, 11:54:17 PM »
A rising equity glide path is not as useful for CoastFIRE. It is intended for people with a hard and sharp end date.

Can you explain more about this? Admittedly I was running these calculations when I was having a fit of wanting to retire immediately, but I don't understand why deferring withdrawals would change the effect of shifting more to equities over time.
Suppose you retire and the market crashes 50% over the next year. That would be pretty rough on a 4% withdrawal. But what if it went up 10% the first year, and crashed 50% the next year? Rough, but not as rough. What if it went up 10% per year for seven years, and then crashed 50% on the eighth year? That wouldn't matter at all!

The point of the rising equity glide path is to help what is called "sequence of returns risk," described above. If you have a regular income that covers all your expenses, then you aren't exposed much to sequence of returns risk. You can just OMY until things recover. So you could just keep, for example, a 25% constant bond allocation. Especially as worst case SS seems likely to cover a large part or all of your expenses.

Dicey

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Re: Can you please help straighten out my portfolio?
« Reply #6 on: August 01, 2021, 03:24:52 AM »
Lots of good advice upthread. Here are some thoughts from a 63-year-old's perspective.

I was single until I was 54 and earned roughly what you do. I always believed my retirement would be fully self-funded and saved accordingly. I lived in a higher COLA, but my single person townhome was $390k in 2001, so similar to yours, though I've always been a fan of having a mortgage, so I never prepaid it. I was also like you and accumulated cash beyond my automatic savings, because I enjoyed the game of spending less than my paycheck, no matter how much I was sending directly to savings first.

I've been FIRE since 2012 when I got married, but DH has continued to work and we've earned money on our side gig, so I've yet to tap any investments, but as DH edges toward retirement later this year, I've been thinking hard about some of the choices made along the way.

First, I would label that lovely $300k house a "B-o-n-d", then put everything else into equities. At the very least, put all new monies 100% into stocks.

I never did this, because conventional wisdom doesn't offer this advice, which makes conventional wisdom way too conservative IMO. This is especially important for a woman not making an insanely high income who is quite likely to live a very long time in retirement and doesn't want to worry about how she's going to feed herself.

As part of this strategy, I would keep an slightly larger EF. I'd kick it to 20k or even 25k. I would do so to offset the potential volatility of a stock heavy portfolio. The small opportunity cost would be more than offset by market gains, using all of the stock market history as a guide. If the market tanks, you could avoid making any withdrawals for a year or even two with careful planning and frugal living. This would be enough to smooth the ride as the markets recover, which they always do.

I'm tickled to be the first on this thread to suggest the lovely Mr. JL Collins NH's "A Simple Path to Wealth". Read the blog for free and order the book from your library.

One more thing: I understand why you'd be reluctant to do this, but mortgage rates are dropping again. In your shoes, I'd be sorely tempted to take out a cheap-ass 30 year fixed mortgage on the house and invest it in the stock market. It would be a big boost to your retirement savings and you could always pay it off when you fully retire.

Oh, and the creator of cFIREsim is a forum member, which tickles me.

MustacheAndaHalf

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Re: Can you please help straighten out my portfolio?
« Reply #7 on: August 01, 2021, 09:36:18 AM »
Traditional IRA
Vanguard 500 Index Admiral       76,605
Vanguard Target Retirement 2030    260,166
T.Rowe Price Retirement 2030   30,666
You could save on "expense ratios" of you reallocate that money.  An expense ratio is the annual fee, a percentage, charged by each fund.  Often, funds charge more than similar funds - pocketing the difference?  I like to view funds at a 3rd party site, which has less incentive to hide what people pay.

For example, the T.Rowe Price Retirement 2030 charges 0.58% per year, while Vanguard Retirement 2030 charges 0.14%.  So T.Rowe Price's expense is about 4x higher than Vanguard's for a similar fund.
https://www.morningstar.com/funds/xnas/trrcx/quote
https://www.morningstar.com/funds/xnas/vthrx/quote


One of the lowest expense ratios are found in passive index funds, like S&P 500 funds.  Vanguard's S&P 500 charges 0.03% per year, which is extremely low.  But you should also diversify with total international and total bond funds, both of which have slightly higher expenses (VXUS 0.08%, BND 0.035%).  I like ETFs, I used the ETF version, but the mutual funds are similar.
https://www.morningstar.com/etfs/xnas/vxus/quote
https://www.morningstar.com/etfs/xnas/bnd/quote

If you go with something like 50% S&P 500, 10% Total International (VXUS), and 40% Total Bond (BND) ... you wind up with an expense ratio of 0.037%.  I like to use morningstar.com because it's free and has info for a large number of funds.

Rosy

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Re: Can you please help straighten out my portfolio?
« Reply #8 on: August 02, 2021, 06:23:07 AM »
Lots of good advice upthread. Here are some thoughts from a 63-year-old's perspective.
SNIP....

First, I would label that lovely $300k house a "B-o-n-d", then put everything else into equities. At the very least, put all new monies 100% into stocks.

I never did this, because conventional wisdom doesn't offer this advice, which makes conventional wisdom way too conservative IMO. This is especially important for a woman not making an insanely high income who is quite likely to live a very long time in retirement and doesn't want to worry about how she's going to feed herself.

As part of this strategy, I would keep an slightly larger EF. I'd kick it to 20k or even 25k. I would do so to offset the potential volatility of a stock heavy portfolio. The small opportunity cost would be more than offset by market gains, using all of the stock market history as a guide. If the market tanks, you could avoid making any withdrawals for a year or even two with careful planning and frugal living. This would be enough to smooth the ride as the markets recover, which they always do.

One more thing: I understand why you'd be reluctant to do this, but mortgage rates are dropping again. In your shoes, I'd be sorely tempted to take out a cheap-ass 30 year fixed mortgage on the house and invest it in the stock market. It would be a big boost to your retirement savings and you could always pay it off when you fully retire.

Every word - seconded by this woman:). Sort it all out then take action - your future self will thank you.

BicycleB

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Re: Can you please help straighten out my portfolio?
« Reply #9 on: August 02, 2021, 01:39:20 PM »
Great advice on this thread!

As another person in the 50+ group, I suspect that your low expenses mean much of your future cost can actually be covered by Social Security payments, depending on your (and possibly your ex-spouse's) earnings. If you haven't already, get estimates from Social Security's website as to your expected payout. The bond suggestions from Radagast (mix of i bonds and Series EEs) are super for filling in much or all of the remaining gaps.

Which has the effect that, after having enough bonds to approximately ensure your basic costs are covered, the rest should probably all be in stock. Because you have nothing to lose, yet stocks usually provide the best long term return. Even in downturns they'll provide something.

Personal experience - it's much easier to get a mortgage now while you're working. I wish I'd gotten a bigger one before FIREing. If it's not your style, I understand, but financially you're likely to gain advantage if you use the "cash out" (the borrowed money) to buy stocks! That said, you could quit now as is and be fine, and your continued plan for work gives you a fatter safety layer still. So if you prefer to be debt free, your way will still work wonderfully.

PS. If you ever get bored at work, or just want to plan for contingencies, maybe look more closely at ACA and Medicaid requirements. In my own case, I have too much assets for Medicaid, so I need to keep my income up to get ACA. Are you planning to work so long because of a similar reason?

I ask because in my state, it's relatively easy to show enough income to get ACA. I haven't had a job in years. By converting the necessary amount (about $13,000 let's say) from a traditional 401k or traditional IRA into a Roth IRA, I produce the $13,000 that keeps me above the state's Medicaid cutoff. If you learn your state's cutoffs, you might find that your existing retirement accounts can be deployed so that you don't have to work at all. A benefit of the carefully calibrated income is that you can have your ACA premiums at or near zero after the federal ACA tax credit. Doing something of this sort is why I am assuming you don't need to work at all going forward unless you choose to.
« Last Edit: August 02, 2021, 04:12:16 PM by BicycleB »

FLBiker

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Re: Can you please help straighten out my portfolio?
« Reply #10 on: August 05, 2021, 11:06:42 AM »
First, I would label that lovely $300k house a "B-o-n-d", then put everything else into equities. At the very least, put all new monies 100% into stocks.

Thanks for this -- I've never thought about it this way.  We're 90/10 stocks to bonds, and I kind of hate the bond portion (but DW is more conservative than I).  I always exclude the house from our Net Worth calculations, but thinking of it as a bond kind of makes sense -- basically, I'm thinking of my AA as Equities / (Bonds / Cash / Emergency Fund / CDs / Home Equity).  If I do that, we're much closer to 80/20 or maybe even 70/30.

Oh, and for OP -- I personally am a big fan of 457bs, but I've been told there is a lot of variation between different providers.  I have a governmental one, and we can withdraw money from it as soon as we leave employment at any age without penalty, which is really cool.

cannotWAIT

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Re: Can you please help straighten out my portfolio?
« Reply #11 on: September 01, 2021, 10:36:22 PM »
Okay, I have been digesting this information and am ready to start making some changes. Incredibly, in the one single month since I first posted, I have gone from 583K to 601K! I thought quitting at the end of the semester was a stretch goal but now it's looking more probable than not. Amazing.

-BicycleB, yes, I have looked at ACA plans and I have to earn at least $17,903 (139% of the federal poverty level) in order to stay off of Medicaid. I think that under Medicaid expansion eligibility for the ACA is based on income and is not means tested, so I could qualify for it, but I'm assuming that the range of providers will be narrower. I need to look into this more closely. I have some finicky medical needs so it really matters for me.

-Dicey, I like the idea of keeping a larger amount of cash and then being more aggressive with my other investments. I stopped my automatic contributions and am letting the cash pile up for a couple of months (although it pains me to do it with the market going like this--but if I'm really going to quit then I think I have to get everything in place for a possible downturn). Once I have $25K I will restart the contributions and this time put them into VTSAX, and tonight I changed my 401(a) to put all new contributions in a more aggressive target retirement fund.

--I cannot mortgage my house, though! I'm emotionally stuck at the base of Maslow's pyramid and having a guaranteed roof over my head is huge for me.

-I would like to move the T.Rowe Price money over to Vanguard for the lower expense ratio. I had no idea it was so high. Dumb, I know, but I was starting from almost zero. Is there any way to do that without having the money out of the market for a long time? I feel like it took a couple of weeks to do previous rollovers.

EliteZags

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Re: Can you please help straighten out my portfolio?
« Reply #12 on: September 02, 2021, 12:29:38 PM »
"new contributions in a more aggressive target retirement fund."

just making sure you are aware how heavy in international most target retirement funds are, many (myself included til last year) don't realize many of them can be up to 30% and end up heavier in international than they intend to be

I started transitioning out of target dates last year and into my own mix of indexes, lower fees that way as well

JJ-

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Re: Can you please help straighten out my portfolio?
« Reply #13 on: September 02, 2021, 02:48:24 PM »
"new contributions in a more aggressive target retirement fund."

just making sure you are aware how heavy in international most target retirement funds are, many (myself included til last year) don't realize many of them can be up to 30% and end up heavier in international than they intend to be

I started transitioning out of target dates last year and into my own mix of indexes, lower fees that way as well

I think 30% of portfolio of international stocks is not against any international diversification recommendations. If you are at 30-35% bonds and 60-65% stocks, an international allocation of 30% in international in the portfolio puts just under half the stock allocation in the foreign bucket to protect against volatility in the US market. If you are at 10% international allocation, either of total or of stocks, it does little to diversify against domestic equities risk.

I do agree with earlier posts suggesting to get out of TDF though especially with the retirement date of the fund approaching. You don't want to have to keep constantly adjusting retirement fund based on where you are. It's much easier to replicate the concept of the TDF with a handful of index funds.