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Time to go it on my own....
Old 03-17-2010, 07:48 AM   #1
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Time to go it on my own....

This is a bit long, but advice would be appreciated. I have finally talked myself into going it by myself for the rest of my investing future (almost). Planning on retiring in 15 months from teaching and will just be turning 54. This is what I currently have in finances without getting too detailed. Just in the process of trying to sell our house here in the UK, so money from here is a close estimate.
  • $300,000 in TSP retirement
  • $290,000 from UK house/accounts
  • $52,000 Edward Jones various funds (about $18k ROTH)
  • $25,000 Janus- Global Tech+Orion ($15k ROTH)
  • $15,000 cash
  • Govt health into retirement
Figure on getting back to Spokane and fixing that house up (paid for with a renter in it) I will have close to $700,000 in the above places, I should be adding at least $50,000 of my own money to savings/funds by quitting time. Yes…I am assuming the market will be higher at that time which is always just an assumption. If it goes down I can’t quit.

Question 1- I am about to start putting money into Vanguard instead of Edward Jones, the guy who I have dealt with is a good guy and he told me straight up where he would be getting his money from if I invested with them. He even offered to help me if I wanted to go in another direction and invest elsewhere…..little hand holding if you wish. Being a lazy bugger, I just plan on sticking most of the $290,000 in 3-4 of the basic Vanguard Index funds….the usual simple mix of Total Stock, Total Bond, etc. Because I still plan to be fairly aggressive to keep what we have growing (we hope). I was likely to not break it into even 25% sections but to weight it slightly more towards the stocks. Our spending plan is for no more than $48,000 a year…..currently spending in the $30,000 range and plan low $40’s with the $48,000 average in case of the usual things that come up unplanned. I will have a pension that will be mid $16K a year (not inflation adjusted until I hit 62) before taxes at 54. 2 years later the SS supplement should bring me around another $1000 a month until 62. I plan on taking SS at 62 and my wife (UK) will be eligible for 50% of mine 3 years later (estimated $2100 month for both of us). Any suggestions on most of that $290,000 with Vanguard? Likely about $200,000 to start with.

Question 2- I kind of feel like an idiot for asking this….but I haven’t seen any real good (and very simple and short) directions on how and when to keep shuffling the money from stocks down eventually to CD type things and then onwards to cash. Is there a basic…simple explanation for this anywhere? Nice and short timeline of what should be sold first through to last. I should be in a low tax bracket once I retire. After reading 4 Pillars …..Bogleheads……Work less Live more.. etc…. I pick up more each time I look at them, but I guess I am looking for a short simple explanation that will stick in my tiny little brain (and the guy I work with who I have now converted to putting his money into Vanguard (or Fidelity etc) rather than the guy he is paying back in the US). I had been trying to get him to stop giving more to his finance guy…lent him the Boglehead book and he came back ready to go the Vanguard way or similar with Fidelity/Schwab etc.

I am even considering (again) buying a rental for a little under $200k that I could look after…..just not sure I have the rental mentality needed…..

Jeez I wish I had started saving seriously earlier……..
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Old 03-17-2010, 12:32 PM   #2
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It sounds to me like you are headed in the right directions, as far as your investments are concerned. I am no investment guru, but I have almost never invested anywhere but with Vanguard and the TSP and so far, so good. You can put any percentage of your Vanguard holdings in any fund you like, and I like (and hold) the Total Stock Market Index and Total Bond Market Index that you mentioned.

Personally I elected to have the dividends and/or LTCG from my Vanguard stock and bond funds deposited in my Vanguard money market fund. Then one can move these to one's bank via EFT. I haven't sold any funds at all for income (but I have Wellesley which sheds a lot of dividends). If I needed more income, rebalancing would dictate to me what is sold or bought - - I would just take it from my money market fund and then rebalance.

Right now I simply rebalance once a year and at other times as needed. So, this has resulted in selling small amounts of various funds and buying others with the proceeds. I rebalance in early January and at other times if my asset allocation gets way off (for example, in 2008 I rebalanced several times during the market crashes). Or, one can just rebalance once a year.

I am not sure if the above answered your questions or not, but if not maybe someone else will.
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Old 03-17-2010, 12:56 PM   #3
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Thanks W2R, I was eyeing the Wellesley....if for no other reason than I will have that 2 year space between my starting out with just a pension at 54 to getting the SS Sup. added to that at 56 and I wouldn't mind something coming in.....going to have to live cheaply for 2 years or take a part time job which I can live with. We are taking a bit of a chance as it is quitting this early (if the market were to fall hard in the first few years), but luckily we can live reasonably cheaply and after most of a year of checking our outgoing money...right now $2000 a month is no problem for us if something doesn't come up...probably the occasional trip (like back here to the UK for a visit). Just having trouble cutting the Umbilical cord and going it on my own.
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Old 03-17-2010, 01:09 PM   #4
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It sounds to me like you are positioned pretty well. Once you get the supplement, you will have $16K+$12K = $28K to live on without even touching your dividends.

Although you would like $42K you also mention that you are living on $30K right now - - which leaves only $2K/year that is absolutely necessary from your dividends, or $14K/year to reach $42K/year.

Right now I do not have SS yet, and no supplement. So, from the TSP I am withdrawing (via the equal monthly payment option) the amount that I plan to withdraw for the rest of my life, plus an extra amount for the four years until I claim SS at age 66. For me, this extra amount is equal to half my anticipated SS payment but that is really more than I need anyway.

Not to say that this is the best way to handle the gap between ER and SS, but I just thought you'd be interested to know how someone else is handling it.

Oops! Frank just called and is picking me up in a few minutes. Got to run! Great discussion, though.
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Old 03-17-2010, 01:53 PM   #5
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Yes, this is the stuff I am needing to figure out in the next year. Putting the money into savings/mutual funds etc is simple (although the best funds/mix is questionable) or somewhat so. But once I sign the papers and am no longer working......the best way to take the money out.... and at what times.... from which accounts first..... do I ladder some CD's..... do I go for the dividends..... there doesn't seem to be a good check list to follow so I don't even have to think (which is what I ideally want....in my perfect little world). I am sure there are plenty of folks on this site with the experience/knowledge that could take my situation (if it was them....different needs for different folks of course) and just make a check list and time line and SHAZZAM....a plan. That's one of the reasons I have been using the Edward Jones guy.....a little back up hand holding. I figure I gave him a decent amount of money he can give me some advice,.....and he can knock me in the head if I try something stupid and he has kind of offered to do so (not the head knocking). But it gives me somebody more knowledgable than me to bounce ideas off of and shoot holes in bad plans and can give me options I wouldn't have thought of. Now if I can just get my wife through the immigration process without having a heart attack........
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Old 03-17-2010, 02:27 PM   #6
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(back after lunch)

I forgot to mention that my dividends on my taxable account last year came to about 2.9% of the 1/1/2010 value of that account, or so, I think (?). I am at Frank's right now and my records are at home.

Anyway, that percentage was with my 45:55 (stocks: bonds) asset allocation for my entire portfolio, including approximately 30% Wellesley (VWIAX), 20% total stock market (VTSAX), 13% international (VFWIX), and the rest bonds. The share prices naturally skyrocketed during 2009, so the dividends were a higher percentage of the 1/1/2009 amount than the 1/1/2010 amount.

My TSP is all in "G Fund" bonds. So, even with withdrawing extra from my TSP for the next four years along with all the dividends, my withdrawal rate is still under 3.5% of my 1/1/2010 portfolio value, including taxable and TSP. Being of a fairly conservative mindset, 3.0%-3.5% is the range of SWR at which I feel comfortable.

Now that I have it all set up, I don't have to think all that much. To further that goal (not thinking! ), I withdrew all of the 2009 dividends on 1/4/10, and put them in savings in my bank. I can just "pay myself" (from savings to checking) once a month. My TSP payments and tiny pension are automatic. So, voila! No thinking required. I do keep close tabs on my account and how all the funds are doing, but mostly because of my own insecurity and Scrooge-like fascination with money.

If you truly do not want to think at all, you could follow UncleMick's lead and put it all in a Target Retirement fund at Vanguard.
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Old 03-17-2010, 02:45 PM   #7
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Bear in mind that you don't want non tax exempt bonds in a taxable account. So funds like Wellesley are best kept in tax advantaged accounts.
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Old 03-17-2010, 03:11 PM   #8
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I might be wrong (and just a bit more ignorant than I want to be), but I was thinking I would have to push my money into a bit more aggressive allocation. Like a recent poster who was after a "safe 8%" return (I wish) I am after a "kind of safe 6-7%" return (all money included). I didn't think I would be able to leave my TSP in the G fund after I get out....right now I am taking a lot of risk and am sitting at 10%G, 15%F, 45%C and 30%S which I am going to back off on if this run keeps going up a bit more. The G fund even in a G friendly market is lucky to get 5% and last I checked it had moved up to 3.5% or so. If I end up sitting on most of $700k when I quit.....and keep a year or two of cash/savings/easy to get my hands on money handy......then in my weeee little head I am trying to get 6+% out of everything to offset things above the pension/SS..... I don't even count my wife's measly UK pension that she will eventually get at 65 or so, something like 1500 Pounds a YEAR if she is lucky. But.....that just about pays our bills for a month so I will take anything I can get. It "seems" like I should be ok, but.............
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Old 03-17-2010, 03:14 PM   #9
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As far as getting at your income and dividends, you've done the right thing going to Vanguard as they make it easy. You can have them pay all dividends or proceeds of sales etc into a Vanguard MM or your bank account. I plan to keep 1 year of expenses in my bank account and either do a 4 year CD ladder and fund it with income and dividends from my vanguard accounts or maybe just use Total Bond Market Index which isn't as safe as the CD approach, but certainly gives a better return an in that case I'd probably keep 2 years of expenses in the bank.
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Old 03-17-2010, 03:18 PM   #10
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The mechanics of moving money from your portfolio to your MMF for daily/monthly use can be either straightforward or complex - depends on you. It caused me some consternation when I first dealt with it too.

IIRC, Bob Clyatt recommended that all dividends flow into the MMF. At the beginning of the year, rebalance & move enough money to the MMF to meet the year's expenses. You need to do the rebalance & move at the same time if you want to minimize transactions.

Some people are more comfortable with 2, 3 4 years of cash. That's up to you, but the mechanics are the same.

You could ladder your cash in CDs. I keep about 6 mo. in the MMF and about 1 1/2 years in vanguard ST Bond fund (VFSTX). We are working part-time this year and our earnings are going into the same MMF.
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Old 03-17-2010, 03:21 PM   #11
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You could always roll your TSP over into a Vanguard IRA, I suppose, if you are not as crazy about "G Fund" as I am. But then I believe you would not be able to withdraw from that account until you are 59 1/2 years old without penalty or without doing 72t withdrawals. Still, it's an option.
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Old 03-17-2010, 03:28 PM   #12
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Unlike almost everyone else who has responded, I'm not particularly thrilled with mutual funds. I think they are a snake's nest - I own some, but I know I can get bitten there just as easily as anywhere else.

I've moved on to more specific investments. I'm not risk-averse, just know that going in. I now have mostly dividend-paying utility stocks (mostly utilities) averaging 7% or more on my cost, some corporate bonds that mature in a year or two that I bought to yield an average of 7% or so, and some mutual funds for some exposure to world markets. I'm trying to get a return that is livable.

I've taken some hits, but over all I'm doing very well. Retiring in June or July of this year. I watch this stuff DAILY and vigilantly.

Is it just the peace of mind that makes you prefer the mutual funds? Fund managers vary widely in ability to produce good results. Or is it the easy diversification? I used to have a lot more in mutual funds (thanks to limited 401k options) but have moved the money out to a self-directed IRA.

I also inherited some bond mutual funds - they are yielding around 6% I think. I don't have the details at work where I am now. (Theoretically I'm working ).
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Old 03-17-2010, 03:42 PM   #13
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I need to make some decisions about the TSP.....I figured I couldn't touch that money until I was 59.5 until that E Jones guy said there was that 72t loophole although you have to commit to at least a 5? year withdrawl action I think. I still don't think I should need to touch it until then anyway. But....you guys are giving me a few ideas that are clearing things up a little bit on the withdrawl side of things. thinker25...the utility things I know nothing about...one of my (many) problems. Unless something changes (and it might in retirement), I just don't want to spend tons of time keeping up to date on things. Comes back to the keeping things simple and easy that I mentioned earlier. If anybody else has some ideas (keep it simple) I take all the advice I can get and filter through to find the stuff that makes me comfortable.
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Old 03-17-2010, 05:31 PM   #14
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Quote:
Originally Posted by F4mandolin View Post
I need to make some decisions about the TSP.....I figured I couldn't touch that money until I was 59.5 until that E Jones guy said there was that 72t loophole although you have to commit to at least a 5? year withdrawl action I think.
My understanding is that there is no penalty with TSP distributions if you take them as "substantially equal payments over your life expectancy" or as an annuity, no matter what your age. I retired at 51 (and have not touched my TSP funds yet) but when you retire they send you information about the various payment options. Of course, you may not want to withdraw funds initially, but you can start the equal payments or roll into an IRA at anytime.
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Old 03-18-2010, 08:19 AM   #15
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Mandolin:

You can view the TSP G fund as a very good cash alternative. By law, G can't lose and gains equivalent to the average of 4+ year Treasuries. Once you get your basic equity/bond allocations set, move an additional couple of years expenses into the G fund as a cash repository. Keep your taxable funds in equities and, like others said have the dividends go to a sweep MMF. Then, each year you can evaluate portfolio performance, pull expenses (dividends plus some equities from taxable) and rebalance.

If your equities did well you can sell some to round out the next year's expenses. If not, you have to evaluate whether you want to tap bonds for expenses or whether things are down enough that you want to tap cash (how to fine tune that last decision is still troubling to me). If you want to tap cash, sell some equities in taxable for the expenses and buy a matching amount of the C fund in your TSP using G fund "cash" (in a bad year this total might include both equities sold and dividends pulled). You have effectively (although not exactly given tax considerations, etc) moved cash from TSP to taxable and equities from taxable to TSP.
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Old 03-18-2010, 11:24 AM   #16
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I agree with the "thinker". Why not just buy some good dividend paying stocks for the domestic equity component. Never owned an equity fund in my life. (MER's too high in Canada).Do they have ETF's (exchange traded funds) in the US? Good luck.
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