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comments on my Plan?
Old 02-14-2008, 09:25 AM   #1
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comments on my Plan?

Does this sound like a reasonable plan, particularly where I split my funds mainly between Fidelity and Vanguard, and set the AA differently for each?

age: 47, single, no debt
need about $35k / year to live on
Hoping to retire sometime this year.

current savings:
  • 560k in a Fidelity 401k of pre-tax and after-tax $$
  • 60k Ameriprise annuity
  • 240k MFs at Ameriprise which I am moving to Vanguard
  • 22k PNC Investements account which I'll move to Vanguard
  • 10k Vanguard account that I just started
  • 110k CDs and savings
Because of age + years of service at my last job, I'm entitled to 'enhanced retirement benefits', meaning I can take my full pension at age 60, or take it earlier with greatly reduced penalties:
  • age 60: 53k/year or 644k lump sum
  • age 55: 42k/year of 556k lump sum
And I'd get something decent from social security at age 67

I also earn a small income from painting (landscapes) - something I intend to do even more of in retirement. But I don't want to figure that income into my plans. If I do well, great. If not, I don't want it to be a financial worry. (The art world can be very fickle).


So, to allocate my savings for my golden years:

Move my 560k Fidelity 401k into an IRA at Fidelity, AA set for growth (80/20?) since I won't need to touch this for some time.

Move Ameriprise and PNC Investements to Vanguard, giving me 272k there. AA set conservative (60/40?) because this is what I live on for the next 7 years, plus the 110k CDs and savings

age 48 to 55: living expenses come from CDs and Vanguard account. I'd be paying my own individual health insurance.

age 55: possibly start taking my pension as single life annuity. (Or I might wait until 60.) Also, my 'enhanced retirement benefits' entitle me to company subsidized health care, so I'd investigate this and see if it's the best option for me.

age 67 onward: I'd have my pension + SS + Fidelity IRA which should have been untouched at this point. And there's also that Ameriprise annuity sitting out there.

I'm still doing a lot of reading on investments, but I think I'm in good shape in the long run, with room to splurge once one a while. As long as I don't screw something up in that age 48 to 55 period. Comments?
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Old 02-14-2008, 09:58 AM   #2
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Joe, it looks like you have thought it out thoroughly.

Is the pension secure? This might influence your decision to take it early or late.

Congratulations.
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Old 02-14-2008, 10:07 AM   #3
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Why bother with Fidelity and Vanguard? Why not just pick one of the two?
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Old 02-14-2008, 10:19 AM   #4
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Is the pension secure? This might influence your decision to take it early or late.
I had asked about that here and my gut feeling is that it's pretty save. Nevertheless, I may take it as a lump sum at 55 or 60, just to be sure. I could actually take a lump sum now at age 47 but it's greatly reduced, so I'd be better off waiting.
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Old 02-14-2008, 10:21 AM   #5
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Why bother with Fidelity and Vanguard? Why not just pick one of the two?
I've read pros and cons here about investing all one's funds in one company vs 2 and opinions seem to go either way. I decided to go with the 2 so I can compare their features, website ease of use, etc. Maybe later I'll settle on one.
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Old 02-14-2008, 10:47 AM   #6
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Originally Posted by JoeDreaming View Post
I've read pros and cons here about investing all one's funds in one company vs 2 and opinions seem to go either way. I decided to go with the 2 so I can compare their features, website ease of use, etc. Maybe later I'll settle on one.
I use both and take advantage of Fidelity Spartan funds for their low ER. I also like having a local Fido office if I need a little hand holding , which I did when I was separating my pre and post tax money in my 401(k).
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Old 02-14-2008, 12:54 PM   #7
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Since its valentine's day, I have to ask... what happens if DW comes along?
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Old 02-14-2008, 01:30 PM   #8
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Since its valentine's day, I have to ask... what happens if DW comes along?
Remember, he's dreaming here.

Seriously though, Joe I think you've done an excellent job! But a minor curious question is, does the $35k cover rent, or a house. In other words, how much do you have to worry about housing expenses to change?
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Old 02-14-2008, 01:40 PM   #9
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As long as I don't screw something up in that age 48 to 55 period. Comments?
Don't get married,or if you do, make sure she has the same LBYM philosophy..........
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Old 02-14-2008, 06:53 PM   #10
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Since its valentine's day, I have to ask... what happens if DW comes along?
Then she better be FIRE'd too!

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Originally Posted by myself View Post
...Joe I think you've done an excellent job! But a minor curious question is, does the $35k cover rent, or a house. In other words, how much do you have to worry about housing expenses to change?
I own my house, no mortgage, so housing expenses won't change. Actually I don't expect that my expenses will change much at all, other than individual medical insurance - that should be my only big new expense and I have that covered in the $35k.
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Old 02-14-2008, 08:49 PM   #11
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Have you looked into converting the larger IRA to a Roth between now and age 59.5?

If you are single, withdrawing 35k leaves you in 25% bracket for single. You are at very bottom (base is $31,850, cap is $77,100). This gives you $77100-$35000=$42100 of room in 25% bracket to convert the traditional (taxable) IRA to a Roth. In about 13 years you could have the whole thing in a Roth, and never pay taxes on it again from age 60 going forward.

In addition 5 years after the first conversion, you would be able to withdraw the deposits from the Roth.

So after age 59.5, it's possible you would only be paying taxes on the pension, and not paying taxes on the Roth portion.

In addition, the 53k/42k pensions will lose about 1/3 of their earning power between now and then to inflation. They are not as big as they appear (relative to 35k need).
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Old 02-15-2008, 06:49 PM   #12
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Have you looked into converting the larger IRA to a Roth between now and age 59.5?...
Thanks, jIMOh. No I hadn't considered that yet, but the way you put it, it sounds like a good option. Thanks - that's the sort of advice I'm hoping for.

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In addition, the 53k/42k pensions will lose about 1/3 of their earning power between now and then to inflation. They are not as big as they appear (relative to 35k need).
Well that's a little depressing, but hopefully I won't have depleted too much of my savings yet and those investments will be able to grow again, once I start tapping into my pension.
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Old 02-21-2008, 06:55 PM   #13
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Update: my Fidelity 401K has just been converted to a Fidelity IRA, my Ameriprise funds are on their way to Vanguard (only a $50 account closing fee).

Here's the AA I'm thinking of - what do you think?

-------------------------------------
For the long term:
Fidelity IRA, $537k total:
  1. 21% stock in my former employer (don't want to trade this just yet, as the company may be bought out and stock might shoot up)
  2. 7% FBIDX Fidelity US Bond
  3. 16% FDGRX Fidelity Growth Company
  4. 9% FLTMX Fidelity Intermediate Municipal Income
  5. 19% FFNOX Fidelity 4-in-1 Idx
  6. 19% FSMKX Fidelity Spartan 500 Idx
  7. 9% FIEUX Fidelity Europe
results in:
  • 3.61% Cash
  • 64.27% U.S. Stock
  • 13.28% Foreign Stock
  • 16.64% Bonds
  • 2.21% Other
-----------------------------------------
For more immediate needs over the next 7 years until I start collecting a pension at age 55 (or later):

Vanguard, $350k total:
  1. 17.14% VBMFX Vanguard Total Bond Mkt Idx
  2. 5.71% VFIIX Vanguard GNMA
  3. 5.71% VGSIX Vanguard REIT Idx
  4. 11.43% VGTSX Vanguard Total International Stock
  5. 8.57% VNJTX Vanguard NJ Long-term Tax Exempt
  6. 17.14% VTSMX Vanguard Total Stock Mkt Idx
  7. 5.71% VTMSX Vanguard Tax Managed Small Cap
  8. 28.57% cash - VMMX money mkt + bank CDs
results in:
  • 29.44% cash
  • 28.22% U.S. Stocks
  • 11.23% Foreign Stock
  • 30.84% Bonds
  • 0.21% Other
I'm on a steep learning curve here, so if this is really screwed up, please say so! Most of this has not been put into place yet, as some funds are still in transit.
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Old 02-21-2008, 07:05 PM   #14
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One should NOT use a municipal bond fund in an IRA. May I suggest that you do not select funds at all at first. Instead simply write down an investment policy statement -- something like:

I would like to have E% equities, B% bonds/fixed income, R% to be real estate and C% cash.
Of my equities, I would like them to be D% domestic stocks and F% foreign stocks.
Of my equities, I would like them to be L% large cap and M% mid/small cap.
Of my equities, I would like V% to be value, G% to be growth.
Of my fixed income, I would like I% to be intermediate and S% to be short term, and T% to be TIPS.

Then after you have all that, one can select not only the funds, but all which accounts to hold all these.
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Old 02-21-2008, 07:17 PM   #15
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Looks to me you could accomplish your desired mix with less funds. For example, you can pretty much do the same thing with Fidelity's 4 in 1 fund on the Fidelity portion. But looks like you have obtained a balanced mix with everything you show. I might add a natural resource or commodity fund in addition to what you have.
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Old 02-21-2008, 07:17 PM   #16
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Also for tax-efficiency, you want to use your IRA for the bonds, the fixed income, the GNMA, the REITs, small cap value. You want to put into the taxable account the large cap index funds, the international index funds, then other index funds. You will end up paying almost no taxes with such a scheme.
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Old 02-21-2008, 08:13 PM   #17
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So you are contemplating having in excess of $100k in stock in your former employer? Maybe I am a nasty, cynical, GenX job-hopper, but I have yet to work for a company I would be willing to hold that much stock in (and I have been an employee at a company where the largest holder is Warren Buffet of Berkshire Hathaway fame).

You are taking way too much single name risk for someone your age so close to retirement. I have that much exposure to a single name, but I am 13 years younger and cotinue to dump more cash into the kitty and will eventually sell down that position (and I don't work for them). Chop the employer stock to no more than $50k, even if its the best investment since Christ was a child.
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Old 02-22-2008, 08:43 AM   #18
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One should NOT use a municipal bond fund in an IRA. May I suggest that you do not select funds at all at first. Instead simply write down an investment policy statement -- something like:

I would like to have E% equities, B% bonds/fixed income, R% to be real estate and C% cash.
Of my equities, I would like them to be D% domestic stocks and F% foreign stocks.
Of my equities, I would like them to be L% large cap and M% mid/small cap.
Of my equities, I would like V% to be value, G% to be growth.
Of my fixed income, I would like I% to be intermediate and S% to be short term, and T% to be TIPS.

Then after you have all that, one can select not only the funds, but all which accounts to hold all these.
Thanks, LOL, I have a good idea of what I want in equities/bonds, but not a very good feel for how I want those split domestic / foreign / large cap / small cap / etc, other than that I need some diversity. But I'll give this more thought, and I'll get rid of that municipal bond fund in the IRA.

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Looks to me you could accomplish your desired mix with less funds. For example, you can pretty much do the same thing with Fidelity's 4 in 1 fund on the Fidelity portion. But looks like you have obtained a balanced mix with everything you show. I might add a natural resource or commodity fund in addition to what you have.
Wow, you're right aboout that 4-in-1 FFNOX fund, and it looks like a well performing fund, with very low expense ratio of 0.08. Even though it looks like a good fund for me, I'm wondering if it makes sense to put everything into 1 fund, or is it safer to spread across a range of funds?

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Also for tax-efficiency, you want to use your IRA for the bonds, the fixed income, the GNMA, the REITs, small cap value. You want to put into the taxable account the large cap index funds, the international index funds, then other index funds. You will end up paying almost no taxes with such a scheme.
But if my taxable account is for my immediate needs, is it good to have all equities there? I'm hoping to retire soon at the young age of 47 or 48, and won't have a pension income until 55, so the taxable account is where my income would be coming from. Doesn't that need bonds/fixed for stability?

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So you are contemplating having in excess of $100k in stock in your former employer? Maybe I am a nasty, cynical, GenX job-hopper, but I have yet to work for a company I would be willing to hold that much stock in...
I know what you mean, but here's the situation: I'd been at the same job for 25 years. For the first 20 years or so, all company matching contributions to the 401k were in company stock. It was a great stock and was doing incredibly. And since it was free money, I took a chance in leaving it alone. Then bad things happened, and the stock was suddenly worth about 1/3 of it's former value. At this point, the company let us take matching contributions in something other than company stock, so I made that change, but was still hoping my existing stock would go up a bit in value again. I think there is a good chance that company will be bought out soon, and I'm hoping that gives the stock a little boost again. I guess that qualifies as the sin of market timing, but I'll take the risk a little bit longer on this. (And it pays good dividends).
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Old 02-22-2008, 08:53 AM   #19
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I would like to have E% equities, B% bonds/fixed income, R% to be real estate and C% cash.
Of my equities, I would like them to be D% domestic stocks and F% foreign stocks.
Of my equities, I would like them to be L% large cap and M% mid/small cap.
Of my equities, I would like V% to be value, G% to be growth.
Of my fixed income, I would like I% to be intermediate and S% to be short term, and T% to be TIPS.
LOL,

This seems like a hugely important step, but how in the heck do you decide on the allocation? I mean, if you get it wrong doesn't it really affect your return and risk profile? Instead of just saying "I would like" x% equities and x% bonds, shouldn't you copy some tested portfolio that actually works?

Are there some tested portfolios out there out there that are actually working that people like me could copy? I'm going through the same process as JoeDreaming, so that's why I ask.
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Old 02-22-2008, 09:19 AM   #20
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LOL,

This seems like a hugely important step, but how in the heck do you decide on the allocation? I mean, if you get it wrong doesn't it really affect your return and risk profile? Instead of just saying "I would like" x% equities and x% bonds, shouldn't you copy some tested portfolio that actually works?

Are there some tested portfolios out there out there that are actually working that people like me could copy? I'm going through the same process as JoeDreaming, so that's why I ask.
How: You go read some books. In the end though, you have to pick based on your the risk level you can tolerate and your desired return.

There is an entire asset allocation tutorial with links to things to read, links to model portfolios to copy, and links to tools to use. You gotta read: Asset allocation tutorial? Then why not post questions in that thread?
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