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Need advice on retirement plan @48
Old 04-25-2017, 10:19 PM   #1
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Need advice on retirement plan @48

Hi all - First post here and have already been learning a lot just by "lurking" around in the last few days

Quick intro here:
- 48 years old, DH is 53, no children;
- Current NW is 4m, 2.7m in taxable accounts and 1.3m in various tax advantaged accounts (IRAs, 401Ks);
- Home is all paid for and no debt;
- A small COLA that DH will be eligible for in 10 years;
- Both have SS, and plan to take till we are 70
- Current spending level is 45K per year but post retirement spending is estimated at 90K mainly due to buying private insurance, increased travel spending and some contingency;

Our current plan is to:
- Move to a 50/48/2 Equity/Bond/Cash asset allocation in preparation for our retirement.
- Put all the equity part and a small bond ETF in taxable account and the taxable advantaged account will be all bond ETF.
- Our retirement will mainly be funded from dividend/interest from our taxable account between RE and eligible for pension/IRAs. My current estimate is that we will need 3.5-4% yield from the taxable amount in order to fund spending without dipping into principal for the next dozen years;

We currently have a large cash position due to original plan to buy some real estate (scratched that plan) and 401K rollover. I am a bit concerned buying into the current high stock market and buy into bond ETFs given the rising interest rate. Currently plan to dollar average into these positions in the next 1-2 years.

My questions for this group (which seems to be quite financial savvy):
1. Are we ready for retirement? (I assume yes);
2. Is our asset allocation and where we plan to put the equity/bond in taxable/tax-advantaged accounts right?
3. Where would you recommend to deploy the cash in equity and bond? We have some existing position in VOO/VYM (stock) and BIV (bond). But it seems that combined yield of VOO/VYM is not sufficient to get to the 3.5% yield, which we hope to support our spending in the next 15-18 years before pension/SS/IRAs.
4. Any holes/additional thoughts on this plan? Since we have no children, our priority is to have the money last till the very end in the event we need high cost care. We are not concerned leaving large sum in the end.

Your input is greatly appreciated.
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dont count on soc security
Old 04-25-2017, 10:58 PM   #2
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dont count on soc security

if they pass the means test, you 2 are getting zero, ur the enemy(im in the same boat), this 3.5-4 % are u including the tax liability? dont forget ur pulling all this 90k for 6 years strictly from ur cash or ur post tax account so ur definitely hitting the principal for a while,
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Old 04-26-2017, 06:08 AM   #3
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My situation for spending and NW is very close to yours and I RE'd last month, so I would say you are ready too. If you want to spend $90K off of $4M NW that is only 2.25%, which is good. If you pull all of that from the taxable until you are 59.5 that is OK. If you have a lot of cash then you do not need to worry too much about the yield on your investments, you already have the cash. The AA is whatever you are comfortable with. Personally, I am at 61% equities but plan to reduce slowly to 55% if the market continues to rise. On reinvesting the cash, I would go ahead and put in half of what you want to equities and average in the rest. On holes in the plan, have you covered taxes?
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Taxes included in the 90K spending
Old 04-26-2017, 09:16 AM   #4
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Taxes included in the 90K spending

Yes, taxes are factored in the 90K. Assuming that we will pay lower taxes given the income will be mostly from dividend from the taxable accounts.
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Old 04-26-2017, 09:17 AM   #5
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I would not have most of your equities in taxable and all bond etf in tax advantaged.

I would rather have a split ( whatever you are comfortable with) of equities and a muni fund in a taxable account and an equity index fund plus a bond fund (or etf) in tax advantaged.

This allows you to tax loss harvest in your taxable account or re-balance in your tax advantaged account with no tax consequence for a particular year.
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Old 04-26-2017, 09:30 AM   #6
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With 4 M in liquid assets and 90k spend rate, you should have absolutely zero financial concerns.

Look at it the simple way - $4,000,000 assets / $90,000 spend per year = 44.4 yrs. So with zero return on your assets and zero social security income and zero COLA pension, your assets would last for 44.4 years. According to quick estimate, you have a 2% chance of both living that long.

If you have any discomfort, run any situation you want in Firecalc (FIRECalc: A different kind of retirement calculator). You probably won't be able to come up with a realistic situation where you run out of money. Great position to be in. Congrats.

Go with whatever asset allocation you are comfortable with....won't hurt your success rate. You are a good candidate for converting $$ from your traditional IRA/401k to ROTH accounts to minimize taxes. If that matters to you, running I-ORP (https://www.i-orp.com/ORPparms.html ) will provide guidance on how much conversion each year may be reasonable.

Edit: Run a quick Firecalc case with $4m assets, 90k/yr spend over 44 yrs, 50% equities and rest bonds / cash, no social security, COLA pension or other income. Results = 100% success (no surprize), can spend $137,129 / yr with 95% success rate. You can play with the input but this gives you an idea of how well off you are.
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Old 04-26-2017, 09:43 AM   #7
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Quote:
Originally Posted by Whisper66 View Post
With 4 M in liquid assets and 90k spend rate, you should have absolutely zero financial concerns.

Look at it the simple way - $4,000,000 assets / $90,000 spend per year = 44.4 yrs. So with zero return on your assets and zero social security income and zero COLA pension, your assets would last for 44.4 years. According to quick estimate, you have a 2% chance of both living that long.

If you have any discomfort, run any situation you want in Firecalc (FIRECalc: A different kind of retirement calculator). You probably won't be able to come up with a realistic situation where you run out of money. Great position to be in. Congrats.

Go with whatever asset allocation you are comfortable with....won't hurt your success rate. You are a good candidate for converting $$ from your traditional IRA/401k to ROTH accounts to minimize taxes. If that matters to you, running I-ORP (https://www.i-orp.com/ORPparms.html ) will provide guidance on how much conversion each year may be reasonable.

Edit: Run a quick Firecalc case with $4m assets, 90k/yr spend over 44 yrs, 50% equities and rest bonds / cash, no social security, COLA pension or other income. Results = 100% success (no surprize), can spend $137,129 / yr with 95% success rate. You can play with the input but this gives you an idea of how well off you are.
Yes - I have run he I-ORP and it looks like the success rate is 98-100, so pretty high. Our main lack of courage to pull the trigger is not so much the NW, but
a) from the financial side - having the AA and investment decisions made to support passive income life style, which sort of far away from both strategy and implementation perspectives, as we just started thinking about this. The uncertainty in healthcare is also a concern;
b) from the non-financial side - emotional readiness, esp. still in my 40s....While we like travel, I think there is only so much travel you can do and we are sort of home bodies too.
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Old 04-26-2017, 09:45 AM   #8
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Another way to look at it....if you spend only 90k/yr, you only need a starting portfolio value of 2.63M to have 95% success rate. That leaves you HUGE amount ($1.37M = 4-2.63) to cover any high cost care you need later in life.

Anyway you look at it, you are in very, very strong position.
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Old 04-26-2017, 09:50 AM   #9
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Originally Posted by MrLoco View Post
I would not have most of your equities in taxable and all bond etf in tax advantaged.

I would rather have a split ( whatever you are comfortable with) of equities and a muni fund in a taxable account and an equity index fund plus a bond fund (or etf) in tax advantaged.

This allows you to tax loss harvest in your taxable account or re-balance in your tax advantaged account with no tax consequence for a particular year.
That is interesting. I have always subscribed to the more tax efficient investments in taxable accounts and vice versa in the tax-advantaged accounts and have not thought about your approach before. I also plan on converting TIRAs to Roth over the next dozen years or so while our tax rate is relatively low before SSN/IRA withdrawal take place, will this have any impact on your mixed approach?
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Old 04-26-2017, 09:51 AM   #10
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Originally Posted by Prague View Post
a) from the financial side - having the AA and investment decisions made to support passive income life style, which sort of far away from both strategy and implementation perspectives, as we just started thinking about this. The uncertainty in healthcare is also a concern;
Your plan to use just interest / dividends, social secuirty and COLA are great if you want to leave a huge legacy to kids or a good cause. If you are planning for your own needs, it is overly restrictive so you can loosen up if you wish. As far as health concerns, just pull aside an amount you think would cover your needs and live off the rest (see related post with my quick calc)


Quote:
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b) from the non-financial side - emotional readiness, esp. still in my 40s....While we like travel, I think there is only so much travel you can do and we are sort of home bodies too.
Yes, this is the tougher concept. I can't help you there....my mode of thinking doesn't really understand these concerns. I retired 2 years ago and love every second of it....even though I'm typically just doing what I used to do on weekends. A little extra travel but not much. Everyone is different. Many others can help in this area.
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Old 04-26-2017, 10:06 AM   #11
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Originally Posted by Whisper66 View Post
..........Yes, this is the tougher concept. I can't help you there....my mode of thinking doesn't really understand these concerns. I retired 2 years ago and love every second of it....even though I'm typically just doing what I used to do on weekends. A little extra travel but not much. Everyone is different. Many others can help in this area.
I can't understand the worry about keeping one's self occupied. It is not like you have two choices - work or travel. But, as you say, everyone is different.
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Old 04-26-2017, 10:57 AM   #12
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That is interesting. I have always subscribed to the more tax efficient investments in taxable accounts and vice versa in the tax-advantaged accounts and have not thought about your approach before.
Mr. Loco brings up a good point. See Boggleheads article on where to place tax efficient vrs non-efficient assets.
https://www.bogleheads.org/wiki/Tax-...fund_placement

Personally, our taxable accounts are almost all in cash, tax free municipal bond funds and individual stocks that we intent to hold long term and collect dividends on (dividends are tax advantaged). Our less efficient assets are in our Roth or IRA accounts.
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john bogle spoke about this
Old 04-26-2017, 04:13 PM   #13
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john bogle spoke about this

Quote:
Originally Posted by Whisper66 View Post
Mr. Loco brings up a good point. See Boggleheads article on where to place tax efficient vrs non-efficient assets.
https://www.bogleheads.org/wiki/Tax-...fund_placement

Personally, our taxable accounts are almost all in cash, tax free municipal bond funds and individual stocks that we intent to hold long term and collect dividends on (dividends are tax advantaged). Our less efficient assets are in our Roth or IRA accounts.
put the bonds in tax deferred
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