Author Topic: Just downsized at age 60. Input appreciated.  (Read 3185 times)

ziopfan

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Just downsized at age 60. Input appreciated.
« on: December 14, 2017, 07:28:23 AM »
Loved my job, but am sure I'll love retirement now too even though it came a couple of years earlier than I belatedly thought I had to start planning for. Lucky to have just found this site. 

I've heard about Vanguard funds, but don't yet know much about them or which funds/symbols to choose. Definitely in capital preservation mode, but want some growth too. We (wife, retired) and I have $2.3 million in expensive (dumb) mutual funds that I'd like to move to Vanguard or wherever asap. Was thinking about 65% large U.S. stocks; 15% bonds; and 20% cash (?)

Pension is $54,300 a year (net...after deductions for health premiums, basic insurance, federal tax, and dental insurance, survivor benefit (half)). Our annual expenses are about $90,000 (includes care for a disabled son). We have a savings account (about $20K) that we're currently tapping to supplement the pension, but we'll need to tap a monthly supplement from cash holdings or withdrawals from Vanguard or wherever beyond the pension to meet our spending needs. Other info provided below. I had little experience in finance and know I need to educate myself, but would really appreciate recommendations on which funds to invest in and any other specifics. Thanks in advance.   

Combined IRAs: $280,000
Employer sponsored retirement plans: $720,000
House: $700,000 value (original mortgage $400,000/owe $350,000)
Other property $500,000 (paid for)...produces about $13,000 a year in income after taxes

harvestbook

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Re: Just downsized at age 60. Input appreciated.
« Reply #1 on: December 14, 2017, 09:51:07 AM »
Is this $2.3 million currently in a taxable investment account?

ziopfan

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Re: Just downsized at age 60. Input appreciated.
« Reply #2 on: December 14, 2017, 10:32:37 AM »
About $1.3 million in taxable, expensive mutual funds (about $160,000 in long-term gains) and about $1 million in cash. Thanks.   

acroy

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Re: Just downsized at age 60. Input appreciated.
« Reply #3 on: December 14, 2017, 11:06:18 AM »
Welcome and congratulations!
This is an excellent read at any age/position
http://jlcollinsnh.com/stock-series/

In your position I would lean towards 50/50 equity/bonds, Keep it Simple, and let it ride.

Vanguard site is worth exploring as well.

Good luck!

ziopfan

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Re: Just downsized at age 60. Input appreciated.
« Reply #4 on: December 14, 2017, 04:40:29 PM »
Thanks, acroy. Would you recommend VCLT over VBTLX? TIA.

Radagast

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Re: Just downsized at age 60. Input appreciated.
« Reply #5 on: December 14, 2017, 07:46:32 PM »
Thanks, acroy. Would you recommend VCLT over VBTLX? TIA.
NO. VCLT is actually quite risky, and because it is corporate bonds it often crashes at the same time as the stock market, which makes it doubly risky. It can be appropriate for risk takers in small amounts, but not in your case. In your case I might use an allocation more like:

40% US total stock
30% International total stock*
20% Total bond or intermediate term municipal bond*
10% Rolling 5-year CD ladder, with each maturing CD going to cash for expenses.

*Best in taxable space

I'm not a fan of having more than 50% in bonds, historically that has never been the best solution. I could see directing 10% from international to bonds from my above recommendation, if it makes you feel better.

You might get more and better answers for this question here:
https://www.bogleheads.org/forum/viewforum.php?f=1

powskier

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Re: Just downsized at age 60. Input appreciated.
« Reply #6 on: December 14, 2017, 08:20:15 PM »
About $1.3 million in taxable, expensive mutual funds (about $160,000 in long-term gains) and about $1 million in cash. Thanks.

Congratulations on your stash, especially with "little experience in finance" but 1 million in cash seems like you are leaving a lot of earning power on the side.
Any particular reason for this?

Do you have to wait for a specific time for your pension or could you pull the plug now if you wanted to?

ziopfan

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Re: Just downsized at age 60. Input appreciated.
« Reply #7 on: December 15, 2017, 08:02:12 AM »
Thanks, Radagast. Very helpful. I'm just getting familiar with the Vanguard symbols...you're recommending that I begin by researching the following symbols?

VTSMX (40%)

VGTSX (30%)

VBTLX (20%)


ziopfan

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Re: Just downsized at age 60. Input appreciated.
« Reply #8 on: December 15, 2017, 08:14:27 AM »
Thanks, powskier. No good reason for the cash stash.  I intend to put that cash to work soon now knowing that no one has a crystal ball.

I'm proof that salesmen can make a lot of money and remain ignorant about what to do with it. Now that its no longer coming in, I've belatedly begun to pay attention. Long overdue, but here I am.   

My pension starts soon...details unfolding. 

acroy

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Re: Just downsized at age 60. Input appreciated.
« Reply #9 on: December 15, 2017, 08:18:43 AM »
Thanks, acroy. Would you recommend VCLT over VBTLX? TIA.
Depends on your risk tolerance... VCLT and VBTLX follow the same path, VCLT peaks and valleys are much higher/lower. Note VBTLX is going to include a lot of the same actual bonds as VCLT. VCLT yield is usually about double.

I don't care so much about the net asset value (NAV); I'm buying the yield. The NAV will look scarier (when you log in and check your balance) the balance will go up and down more but the yield (income) should stay consistent. Low NAV only matters if you have to sell it!

ziopfan

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Re: Just downsized at age 60. Input appreciated.
« Reply #10 on: December 15, 2017, 08:21:51 AM »
Thanks, acroy. Appreciate the followup.

aspiringnomad

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Re: Just downsized at age 60. Input appreciated.
« Reply #11 on: December 15, 2017, 08:34:03 AM »
Good advice here. Only thing I'd add is to sell that other property as soon as practicable. $13k a year is an abysmal return (even after tax) on a $500k asset.

ziopfan

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Re: Just downsized at age 60. Input appreciated.
« Reply #12 on: December 15, 2017, 08:37:28 AM »
Thanks, aspiringnomad. Yes, spring can't come soon enough.   

ChpBstrd

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Re: Just downsized at age 60. Input appreciated.
« Reply #13 on: December 15, 2017, 10:50:45 AM »
I agree you should sell the property that is yielding under 3%. Too much risk and hassle for too little yield.

The role of your bonds is to cover expenses during a severe downturn in the price of your equities. 1-2 years of living expenses in bonds could help prevent you from selling your stocks low to pay expenses during a correction. E.g. you'd live off your bonds (and dividends) from 2008-2010 and be a lot better off than if you were forced to sell stock. However, having too much in bonds is risky to the long-term survival of your portfolio, especially if you go long-term and rates rise. I'd recommend an 80/20 equity/bond mix, with only enough cash on hand to pay 3 months expenses.

For the equity portion of your portfolio, VTI maximizes diversification, minimizes expenses (0.04%!), is highly liquid, and has no weird minimum investment or withdraw restrictions. IMO, your whole equity portfolio could be in this one fund.

Look into trusts or custodial accounts for the disabled son. Find a trustworthy CPA you can pay by the hour. Maximize the tax consequences for your support. Consider giving him cash gifts over time to move some income to his name, where the tax rate will be lower.

Bicycle_B

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Re: Just downsized at age 60. Input appreciated.
« Reply #14 on: December 15, 2017, 11:42:00 AM »
Ziopfan, investing wisely is important but so is spending.   Whatever portfolio you decide on, after projecting income as best you can, take care that your spending is within the expected income... maybe with some safety margin.

Is the retirement inflation adjusted?  If not, bear in mind that inflation will reduce its value over time.

Opinions on the best asset allocation vary, and many have good reasoning behind them.  One tool for observing the past result of many different asset allocations is portfoliocharts.com.  The site also has explanations of most of the main investment types, and a set of calculators for projecting returns in various ways. 

As someone linked above, the Bogleheads community has many knowledgeable participants with detailed useful advice on the details and mechanics of investing.  That is their main focus, whereas this blog has investment discussion as a mere adjunct to our focus on achieving life goals cost efficiently so as to be safe and happy within the expected income. 

The 4% rule is one quick and dirty approximation to get in the right ballpark.  A 50-50 stock/bond allocation is perceived as likely to provide safe withdrawals of 4% minus fees, without running out of money for at least 30 years.  Historically, it has had at least a 95% chance to succeed as described.  So after making an allowance for inflation (complex, but say 30% off as a beginning estimate) to your fixed retirement, take 4% of stock/bond investments to get your income.  If your expenses are less than this, you are probably in a safer ballpark once you get your fees down to a dull roar.  If your expenses are more, keep learning and calculate more precisely so that you can make wise decisions about your lifestyle as well as your investments.

Vanguard's advantage is to reduce those fees on the equity (stock) and bond fund investments.  It has a big cost advantage for you compared to most companies.

PS.  Quick and dirty analysis:  If you sell the 500k property with a 30k sales expense, you end up with 1.77M for financial investments.  By 4% rule, roughly enough to provide $70,800.  Using 30% inflation discount on pension, $54,300 x .7 = about $38,500.  So very roughly, $109,300 pretax.  You should calculate your tax situation carefully too.  Are you eligible to draw Social Security when you reach an appropriate age?

It sounds like you are somewhere near the area where you can cover your actual spending, but whether you're above or below will depend on the specifics, so your task is to learn them.  Keep sharing the details to refine the analysis. 

If you conclude that some adjusting of costs will be helpful, you can post a case study of the spending side in the Case Study section. 
« Last Edit: December 15, 2017, 11:56:20 AM by Bicycle_B »

ziopfan

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Re: Just downsized at age 60. Input appreciated.
« Reply #15 on: December 15, 2017, 01:04:39 PM »
Thanks to ChpBstrd and Bicycle_B. Appreciate the thoughtful input.

Radagast

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Re: Just downsized at age 60. Input appreciated.
« Reply #16 on: December 15, 2017, 02:53:22 PM »
I agree you should sell the property that is yielding under 3%. Too much risk and hassle for too little yield.
That is an excellent point! How did I not see the income property line? 13/500 = 2.6%. You should sell that rental property. You would get a better return by paying off the mortgage on the other property, let alone putting it into good investments.

VTSMX (40%)
VGTSX (30%)
VBTLX (20%)
Yes, but with your amount of money it would be admiral shares:
VTSAX
VTIAX
VBTLX

Also possibly VWIUX: intermediate term tax exempt bond fund (for taxable accounts, if your marginal tax rate is greater or equal to 28%, under 2017 tax law).

ziopfan

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Re: Just downsized at age 60. Input appreciated.
« Reply #17 on: December 15, 2017, 05:48:13 PM »
Thanks, Radagast. I checked and like those expense ratios. 




DavidAnnArbor

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Re: Just downsized at age 60. Input appreciated.
« Reply #18 on: December 16, 2017, 07:34:27 AM »
I would be cautious about selling $1.3 million in taxable assets to buy those Vanguard funds. 
You may end up with a huge capital gain. I'd find out first how much those assets appreciated. Then I'd consider the tax implications.

ziopfan

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Re: Just downsized at age 60. Input appreciated.
« Reply #19 on: December 16, 2017, 09:13:10 AM »
Thanks, David. Yes, an important consideration before selling.