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10 years to go (seeking recommendations)
Old 12-13-2018, 06:49 PM   #1
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10 years to go (seeking recommendations)

Greetings! My wife and I would like to retire in about 10 years. We are in our early/mid-40's now.

Here is our basic overall situation:

55K RothIRA
60K 401K

130K RothIRA
420K 401K

50K REITs, stocks, crypto

(then some reserve cash, not a whole lot -- a few months worth)... Say roughly $715K altogether.

PENSION: ~$1200/mo in 15 years (at age 55 for me)


We are debt free (house and cars paid off). We do have 1 daughter, and thankfully we are all fairly healthy. Our daughter will be ready for college also in about 10 years.


Before taxes, we're at about $215K combined income now. Since paying off the house, we've now maxed out both our 401K contributions (we've set my wife at 20% contribution to accelerate her 401K, since she's slightly older and will reach 55 about 5 years before I do).

Last year I converted all our mutual funds into ETFs (with a few exceptions). I'm not sure yet if that was a good idea.


The spread of our RothIRA/401K is altogether approximately: 10% bonds, 15% foreign/emerging markets, then the 75% rest is largely US stocks. Within the stock allocation, I did two main categories: broad index and sectors. Within the sectors category, there is obviousy some overlap with the index funds, but I tried to focus more on small and mid caps.

While another "2008" could hit anytime, I'm not too concerned about it since those seem to recover within 2-3 years. But I am gradually increasing the balance of bonds.


My questions are:

- Is an advisor from Personal Capital worth it? I believe their cost is 0.95%? My concern was they seem to want to take at least 200K (basically the RothIRAs) into their own account. They boast a high retention (>97% I think) and say you can cancel anytime, but it's going to be some time moving accounts around (and associated fee's, maybe weeks to settle?). But they try to balance things with the portion under their control, relative to whatever else you've declared as having.

- Our home isn't bad, but not really an ideal retirement home. I would like to relocate eventually. Is it worth to considering buying land now? Our home as it is now is ~$5000/year in property taxes. I'd have to pay property taxes on land too, such as if I bought 2-5 acres further out of town?

- At what point is your own "corporation" worth considering? Are there tax-savings to this? If we've maxed out RothIRA, 401K, HSA -- what might be a better place to put $50K? Is sponsoring or buying/building a business feasible, or is that more of a 6-figures-to-get-started thing?

- My wife is very concerned about health care costs, if we were to try to retire earlier (or at least before our daughter finished college). Obviously a critical procedure or cancer would probably wipe anybody out. But for the more typical maintenance and prescription type health care, is $1200/mo feasible? (I know it all depends where you live -- but in general, private health care isn't like $10,000 a month?)

- Is it possible to kind of "coast" between 50-55 (using 72t?), then pension becomes available at 55, then RothIRAs become available at 59.5? Then SS becomes available at 62?


Thank you!
Steve
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Old 12-13-2018, 07:23 PM   #2
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(then some reserve cash, not a whole lot -- a few months worth)... Say roughly $715K.

Is that a typo?
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Old 12-13-2018, 07:36 PM   #3
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(then some reserve cash, not a whole lot -- a few months worth)... Say roughly $715K.

Is that a typo?
$715k is the sum of the amounts listed above the $715k. the 401k, etc.
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Old 12-13-2018, 07:47 PM   #4
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Originally Posted by voidstar View Post
....My questions are:

- Is an advisor from Personal Capital worth it? I believe their cost is 0.95%? My concern was they seem to want to take at least 200K (basically the RothIRAs) into their own account. They boast a high retention (>97% I think) and say you can cancel anytime, but it's going to be some time moving accounts around (and associated fee's, maybe weeks to settle?). But they try to balance things with the portion under their control, relative to whatever else you've declared as having.

- Our home isn't bad, but not really an ideal retirement home. I would like to relocate eventually. Is it worth to considering buying land now? Our home as it is now is ~$5000/year in property taxes. I'd have to pay property taxes on land too, such as if I bought 2-5 acres further out of town?

- At what point is your own "corporation" worth considering? Are there tax-savings to this? If we've maxed out RothIRA, 401K, HSA -- what might be a better place to put $50K? Is sponsoring or buying/building a business feasible, or is that more of a 6-figures-to-get-started thing?

- My wife is very concerned about health care costs, if we were to try to retire earlier (or at least before our daughter finished college). Obviously a critical procedure or cancer would probably wipe anybody out. But for the more typical maintenance and prescription type health care, is $1200/mo feasible? (I know it all depends where you live -- but in general, private health care isn't like $10,000 a month?)

- Is it possible to kind of "coast" between 50-55 (using 72t?), then pension becomes available at 55, then RothIRAs become available at 59.5? Then SS becomes available at 62?


Thank you!
Steve
I would say that you are better doing it yourself... you can do your own research on asset allocation or take a cue from the AA used by various retirement date funds... tho those vary between each other somewhat. Decide what AA you want when you retire in 10 years and then develop a plan to get from A to B... between contributions and repositioning.

I wouldn't do the land... a lot can happen in 10 years and raw land is just another expense.

I don't see any advantage to a company... just invest money beyond what you can invest tax-deferred in a taxable account in international equities, and then domestic equities once international equities bucket is full... you'll get the foreign tax credit and preferential rates on qualified dividends and LTCG.

Visit helthsherpa.com to get an idea on today's health insurance costs where you live or plan to live in retirement.

While you might do 72t for money needed between 55 and 59 1/2, since you have 10 years of runway you could plan to build taxable account funds for that period of time. Another strategy is to cash-out refinance the home that you will be in from 55 to 59 1/2 and live off of the cash out... then pay it donw once you have penalty free access to tax-deferred money.
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Old 12-13-2018, 07:50 PM   #5
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Originally Posted by pb4uski View Post
$715k is the sum of the amounts listed above the $715k. the 401k, etc.

That makes a bit more sense.
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Old 12-14-2018, 01:01 AM   #6
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pb4uski, thanks for the suggestions!

I've done OK myself so far -- in terms of at least having a possibility to retire early (not guaranteed yet, many things still have to go right).

I screwed up a little bit by not becoming a little more "investment disciplined" a tad sooner (like at age 24 instead of 29). But such is how the masses are taught -- to be "disciplined consumers" which does become very addicting. I am still an avid consumer -- but fortunately never had credit card debt. I tend to consume what I have left over, so I developed the disciple to force the investments first (out of sight, out of mind works!).

I was also fortunate to have a mother-in-law willing to retire a tad early and help watch our daughter. I see a lot of coworkers who have to deal with expensive daycare, I imagine it's quite draining. Most people don't want to retire early just so they can watch kids, but it sure was a true blessing in our case.



I'm certainly no stock market guru, but I've come to appreciate the ~150 years of trends. I do think it's possible too many people or organizations have borrowed money to buy into the market, artificially inflating prices. e.g. Take a loan at 1%, put into a market making even just 4% -- good deal, but that has to back fire eventually. Everything becomes so oversold, no more buyers, loans have to be paid -- things crash. But I have no specific insight on if that's happened (at individual or corporate levels) -- I'm sure it has happened to some extent. Regardless, that's just one facet to all the possible things that could be going on -- crypto is another facet. Pools of buyers are reduced, if people would rather sink money into crypto speculation. But I trust the trends, where it seems that whatever catastrophe disrupts the market, at the worst it's 2-3 years to wait for a recovery (and all the better if you continue to buy in gradually during a decline -- if you're able to do so). But in general, the market is an upward trend, just absolutely don't buy in all at once.


I'm still learning Growth vs Value stocks -- I have all my current dividends set to re-invest. But eventually there comes a point where you want to try to live off the dividends, right? Is that a point where you ween off of total market index funds, and target specific stocks exclusively? (or dividend focused ETFs)? It just doesn't seem clear cut, so I guess in general everyone just has a mix of both.


Do sector specific funds only make sense if you're going to play the calender rotation game? (i.e. selling sectors at certain seasons in the year, and buying back into other sectors at other historically favorable months?). Does anyone really do that?
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Old 12-14-2018, 04:46 AM   #7
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Quote:
I would say that you are better doing it yourself... you can do your own research on asset allocation or take a cue from the AA used by various retirement date funds.
+1 No FA that charges a % of assets. That is a huge portion of the WR that you need every year. Perhaps fee only, or free one from FIDO.

Quote:
I wouldn't do the land... a lot can happen in 10 years and raw land is just another expense.
Been there, done exactly that. Just wait.

Quote:
I don't see any advantage to a company.
+1

Quote:

Visit helthsherpa.com to get an idea on today's health insurance costs where you live or plan to live in retirement.
+1

Quote:

72t
No input.

Quote:

Do sector specific funds only make sense if you're going to play the calender rotation game? (i.e. selling sectors at certain seasons in the year, and buying back into other sectors at other historically favorable months?). Does anyone really do that?
No rotation, no timing. Hold the indexes at your AA.
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Old 12-14-2018, 06:18 AM   #8
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.... Do sector specific funds only make sense if you're going to play the calender rotation game? (i.e. selling sectors at certain seasons in the year, and buying back into other sectors at other historically favorable months?). Does anyone really do that?
Probably not anybody here... most of us just invest in the broad market... though some people may use sector funds for some tilts here and there.

I did look at the impact of buying sector funds at the beginning of each year in proportion to the market and then rebalancing at the end of each year... effectively getting a rebalancing benefit by selling sectors that have appreciated more than the market as a whole and buy sectors that have appreciated less than the market as a whole... based on historical information that strategy would add 10-20 bps (0.1%-0.2%) to returns vs just holding the market. I concluded that it wasn't worth the effort.
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Old 12-14-2018, 08:28 AM   #9
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Originally Posted by voidstar View Post
...

I'm still learning Growth vs Value stocks -- I have all my current dividends set to re-invest. But eventually there comes a point where you want to try to live off the dividends, right? Is that a point where you ween off of total market index funds, and target specific stocks exclusively? (or dividend focused ETFs)? It just doesn't seem clear cut, so I guess in general everyone just has a mix of both....
I'd suspect that most investors here have zero to maybe a very small % in individual stocks. Diversification is important, easy and cheap with broad-based index funds.

There are some posters who seem to like dividend paying stocks/funds. But every time I run the numbers, I can't find any advantage to them. Recently, when a 'pro-dividend' poster was shown this data, they essentially said they didn't want to talk about it. I don't understand that attitude, and I have never seen any data from the pro-dividend crowd to show any advantage, and there may be a slight disadvantage.

So "no" IMO, in retirement, pick an AA you are comfortable with, put in a (very) few broad-based index funds (not sectors!), have any distributions go to an account for spending, and if needed, sell a bit to fill out the rest. Use the selling to bring your AA back in line if needed.

-ERD50
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Old 12-14-2018, 09:56 AM   #10
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.... But eventually there comes a point where you want to try to live off the dividends, right?...
No, not right. I and many others on this forum take a total return approach... so share appreciation is an integral part of return.

This paper is a bit dated but still relevant. https://personal.vanguard.com/pdf/s352.pdf
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Old 12-14-2018, 01:33 PM   #11
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While you might do 72t for money needed between 55 and 59 1/2, since you have 10 years of runway you could plan to build taxable account funds for that period of time. Another strategy is to cash-out refinance the home that you will be in from 55 to 59 1/2 and live off of the cash out... then pay it donw once you have penalty free access to tax-deferred money.
I never thought of this! It gives me hope
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Old 12-14-2018, 02:04 PM   #12
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Sounds like you're on your way!

You have an annual income of $215K, but have only saved about 3.3 x that, by your mid 40s? I'd seriously look at your budget, and figure out a way to ramp up your savings. If you don't, and only save ~$36k annually, I don't think you'll be able to maintain your current lifestyle on SS, pension income of $1,200, and 3-4% withdrawals from what might only be ~$1.2M.
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Old 12-14-2018, 02:27 PM   #13
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Agree on no advisor. Also agree about not buying land - plans change. If daughter says she's moving to "X" you may want to follow.

The one thing missing is discussion about current/planned expenses in retirement. Also, what do you plan to put towards college. Having that detail is very important to deciding whether you can retire.

We are currently mid-50's (no kids on healthplan). We pay $1k/mo + deductible up to $6750/person. So if we both got cancer the most out of pocket per year should be around $26k if we stay in network.
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Old 12-14-2018, 03:13 PM   #14
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Thanks all!

So broad market funds we have include (I think these are all Growth oriented; but my question is that are these examples of broad indexed funds? can something become too broad?)

MGK, VIGAX
IUSG
MLRRX, VMGMX (these are only options available in one of the 401K's)
QQQ, PXLG, IWP
(then a general S&P Index)

Personal Capital shows an overall category of funds, but are there any recommended software/web tools to show more specific overlap of funds?


Is there a term for more "surgical" ETFs within a sector? For example, ARKK (with 36 holdings) did well for me this past year (probably since Tesla thankfully got turned around a bit, at least for now). Or is still a tech sector fund?
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Old 12-14-2018, 04:28 PM   #15
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You have an annual income of $215K, but have only saved about 3.3 x that, by your mid 40s? I'd seriously look at your budget, and figure out a way to ramp up your savings. If you don't, and only save ~$36k annually, I don't think you'll be able to maintain your current lifestyle on SS, pension income of $1,200, and 3-4% withdrawals from what might only be ~$1.2M.

That is a fair observation! FWIW, I'm just 40, my wife is 45. The house we have is all electric (high utility bills), which is another reason I'd like to relocate -- to a single story that is more efficient. But I am thinking of looking into one of those Solar Programs, since we do absolutely get tons of sunlight.


But your comment made me recall something else! My wife also has a second home -- kind of a long story about that. I'm inclined to share it, because if some young lady comes across this thread, it may give them something to think about:

Before we got married (12 years ago), my wife actually disclosed to me that her aunts and uncles advised her to make me sign some agreement that I couldn't take that home from her if we later separated. She was upfront about that, and while it did kind of hurt my feelings at the time, I never took it as an offense -- her extended family didn't know me well then and it was probably prudent advise (and they are lawyers!).

But she never made me sign any such thing. Because of that -- I've made it a point to never pry or ask about that house. We've known each other since 1996, and just zero-chance of separation -- a rare partnership these days, I'm told.

A few years ago, I did make a comment to her once that she didn't seem to be saving as much as she ought to be. I wasn't trying to be critical, it really was just a casual observation. A few weeks later, she made a point in telling me they (she and her brother) had refinances that house, and that now her brother was making full payments on it.

I felt lousy, since I was too dumb to put 2 and 2 together sooner and realize she had been paying for that house for their parents (and some of their bills). That absolutely accounts for why her 401K is a bit smaller than you'd expect. Legal issues aside (on who exactly owns the house and all that), that effectively gives her another ~$200K of assets -- or another way to view it: we could sell our home any time, and immediately still have a place to live. Again, I don't pry into the specific details -- it's her and her brothers' deal, and if it happens to benefit us later, that's just an extra bonus that none of our current portfolio decisions accounted for. But since her brother took over, her 401K portions are growing faster now.


My point to young ladies is that there is wisdom in kind of having a backup plan -- not so much for selfish reasons (like in case your soulmate turns into a beast), but as a real backup. Young men might have good intentions, but mistakes can be made in trying to "provide for the family". For example, for my first (real) job, I had a $5000 signing bonus -- instead of buying Apple stock in 2002, I thought the best way to use that money was a turbocharger upgrade for my car! (ah, our priorities before having kids...) There are worse mistakes or mishaps. As another example, years later, we had one of our cars stolen -- right from our garage. Insurance did help, but it was still a financial set back for us. A real worse mishap might be a spouse that gambles too much (Vegas style), or gets too careless about credit cards. (apologies if this all sounds stereotypical -- reverse the roles/pronouns as appropriate).

And keeping this backup "secret" is the point -- out of sight. Be it another bank account or a very trusted relative, or a whole house Any reasonable spouse can't consider the lack of disclosure as a lie or lack of trust. But it has to be a real piggy bank locked up. (but perhaps not cash or jewelry)


While I'm at it, another story my father tells: when my parents were a young couple, they had some neighbor kids that burned down my parents barn destroying 5 cars inside of it (no insurance, total loss). He could never prove it was those kids. A setback indeed.



BACK TO THE ORIGINAL POINT: Yes, $1.2M would be tight, but I think we're a little better positioned than the numbers say (maybe closer to $2M, so not like even an order of magnitude off). I do think in addition to a more complete $36K 401K match contribution, we will also be increasing our savings in other ways (HSA and stock/REIT purchases). Not sure if we'll entirely reduce spending -- we spend a lot for our daughter and her cousins; but thanks for the advise, we'll try to look into it further (more prudent house upgrades to reduce utility bills, better planned vacations, etc).
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Old 12-14-2018, 05:18 PM   #16
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The one thing missing is discussion about current/planned expenses in retirement. Also, what do you plan to put towards college. Having that detail is very important to deciding whether you can retire.

All good points.

My interest in land is that I'd like to do astronomy work when retired, so being aware from city lights would be nice. You can actually do astrophotography within the city (as I do now, dsoresearch.com), but it just takes longer and needs more expensive filters. By taking longer to collect the sensor data, that leads to more limited ability to compile larger mosaics (less consistent results that are harder to stitch together). Sorry, off topic But got it, interest and feasibility can change (e.g. maintenance on over 1 acre can be a drag), advise is to wait and assess in 10 years.


And yes, college hasn't been forgotten about. We're ok with community colleges, and would encourage staying in-state (Texas) rather than out of state tuition. But that's just based on our own personal experience, where we both started with community colleges. Either way, cost per credit is rising. She's a good kid, I'm sure part of it will be subsidized by AP credits and financial aid. And if we stay exactly where we are at now, she'd have a couple good college options and avoid living on-campus expenses (if that works for her). Good point, since $100,000 there might just be in tuition, let alone books, equipment, possible rent, etc.
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