Simple AA that I can’t second guess

[sayhey24]

I retired in June and had been trying to pare down the number of MFs in our various accounts . We have enough in our taxable account to get us from 58 to 65 and to Medicare although we need to be mindful of ACA limits,we do have a HDHP in place till Jan.
I am a victim of analyzes paralysis and over the years,I have spent many hours reviewing different funds only to freeze up and leave everything the same. For the most part my choices have been fine and are mostly indexed. I just feel like I’m be less prone to monkey with things or at least less worried about it if I get the taxable account in a couch potato mode .....and then adopt a “ LEAVE IT ALONE” mentality. Taxable account is at 55/18/27 cash........too heavy in cash I know.
Anyone have any suggestions or insight on how this worked for you or not

Thanks 24

 

[njhowie]

You sound like you are comfortable with your current allocation and are happy with "Leave it alone". There's nothing particularly wrong with your allocation - being conservative is fine...risk tolerance is important.

With interest rates moving higher, just be sure that the cash portion is working for you and not sitting in a savings/brokerage account earning below 1% - take advantage of high yield alternatives like Vanguard money market, high yield savings accounts, special rate CDs that pop up periodically, and other ways of getting relatively good returns on the cash with no risk. 2% is going to be the new base rate for all high yield savings and money market accounts in the next month or so.

 

[mrfeh]

I retired in June and had been trying to pare down the number of MFs in our various accounts . We have enough in our taxable account to get us from 58 to 65 and to Medicare although we need to be mindful of ACA limits,we do have a HDHP in place till Jan.
I am a victim of analyzes paralysis and over the years,I have spent many hours reviewing different funds only to freeze up and leave everything the same. For the most part my choices have been fine and are mostly indexed. I just feel like I’m be less prone to monkey with things or at least less worried about it if I get the taxable account in a couch potato mode .....and then adopt a “ LEAVE IT ALONE” mentality. Taxable account is at 55/18/27 cash........too heavy in cash I know.
Anyone have any suggestions or insight on how this worked for you or not

Thanks 24

Set it and forget it:https://www.bogleheads.org/wiki/Asset_allocation

Of course, that article refers to your entire portfolio, not just your taxable account. If you sell equities in your taxable account for living expenses, you'll want to buy equities in your tax deferred accounts.

 

[pb4uski]

I am in a similar situation... we are living off of our taxable account.

I think you are too focused on the AA of the taxable account. AA relates to the whole... both taxable, tax-deferred and tax-free... so decide an AA based on your overall appetite for risk.

Then what assets are in what accounts is more a function of tax-efficient placement than AA. See https://www.bogleheads.org/wiki/Tax-efficient_fund_placement

We have a target AA of 60/35/5. The 5% in cash is in an online savings account and is the account that funds our everyday spending. The rest of our taxable AA is in international and domestic equities for tax efficiency (0% tax since we keep our income below the top of the 12% tax bracket). Our tax-free Roth and HSA accounts are all domestic equities. Our 35% fixed income allocation is on our tax-deferred tIRA, along with the balance of equities.

In December, I sell taxable account equities at 0% tax and replenish cash and then I rebalance as needed in the tax-deferred tIRA. During the year, I have an automatic monthly transfer... my retirement "paycheck"... from the online savings account to our local checking account that I use to pay our bills.

 

[mrfeh]

I am in a similar situation... we are living off of our taxable account.

I think you are too focused on the AA of the taxable account. AA relates to the whole... both taxable, tax-deferred and tax-free... so decide an AA based on your overall appetite for risk.

Then what assets are in what accounts if more a function of tax-efficient placement than AA. See https://www.bogleheads.org/wiki/Tax-efficient_fund_placement

We have a target AA of 60/35/5. The 5% in cash is in an online savings account and is the account that funds our everyday spending. The rest of our taxable AA is in international and domestic equities for tax efficiency (0% tax since we keep our income below the top of the 12% tax bracket). Our tax-free Roth and HSA accounts are all domestic equities. Our 35% fixed income allocation is on our tax-deferred tIRA, along with the balance of equities.

In December, I sell taxable account equities at 0% tax and replenish cash and then I rebalance as needed in the tax-deferred tIRA. During the year, I have an automatic monthly transfer... my retirement "paycheck"... from the online savings account to our local checking account that I use to pay our bills.

+1

This would have been my response, but I didn't want to take the time to type this much.

 

[TwoByFour]

Anyone have any suggestions or insight on how this worked for you or not

Thanks 24

Are you asking about the process of simplifying? I went through that many years ago - was 100% equities, all stocks, and wanted to convert to a simple Boglehead type 3-fund portfolio. I found it hard to do until I got somewhat ruthless and just started executing sell orders right and left. I sold I think 40% the first year and 25% the next year and 20% the last year. I have a few items left that I am still slowly getting rid of.

All I can suggest is to decide what you want the end result to look like, look at your capital gains exposure and map out a plan of how to avoid a big tax hit and get to the final configuration. Don't think you need to do it all at once. View the whole thing dispassionately.

I am extremely glad I did it. Far easier to have just a few funds.

 

[HI Bill]

Taxable account is at 55/18/27 cash........too heavy in cash

How many years of expenses does the 27% cash represent? If it's more than 3, then it's too high. I'd suggest this excercise, which I just did yesterday:
Create a small spreasheet showing your asset allocation for each investment class. Then pick a target AA for each investment class. Subtract to find out how far off you are from your goal. Multiply the % difference by your investment total, which will tell you how much over/under you are from your desired AA, and which funds you might want to move. Be very careful selling assets in your taxable account, as they will most likely become taxable events.

My current AA includes: 25% growth, 38% total market, 20% mid cap/value, 5% international, 5% bond, and 6.5% cash (which represents 3 years of base expenses, without travel). It doesn't have to be complicated, but it does need to match your risk tolerance, goals, and cash flow needs.

Consider whether taking tax-deferred account distributions before your RMD age will be beneficial, from a tax perspective. Most often, when RMDs kick in, people have SS income, which then becomes taxable at up to 85%, and your distributions from tax-deferred accounts are taxed as ordinary income.

Good luck!

 

[Midpack]

Isn’t that what Vanguards LifeStrategy, and to a lesser extent Managed Payout and Balanced Funds are designed to do? The only reasons I don’t use them is I want to vary withdrawals and manage rebalancing to optimize tax impact directly, but one day I may give up that flexibility too.

https://investor.vanguard.com/mutual-funds/lifestrategy/#/