Transitioning to a Portfolio Appropriate for Age 80 and Older

[audreyh1]

I've been dealing with some longevity issues with my retirement portfolio recently, and it's really got me thinking about what kind of portfolio I'm going to be willing to deal with when (if) I reach my 80s.

Am I going to be willing to rebalance every year? Probably not. At some point I'll just want to let it ride figuring with a shorter time horizon it doesn't matter that allocations get out of whack.

Best case scenario is just have distributions sent to some account where I draw my living expenses and be able to leave everything on autopilot. Wouldn't really worry about funds building up in the account.

It's still 24 years away for me, but I've already maintained this retirement portfolio for >16 years and I can guess that simplicity will become increasingly important.

So I'm just thinking about what kinds of eventual transitions I might like to make and how to go about them. And when (at what age) to start the transition.

I figure people here will have lots of thoughts on this topic.

 

[W2R]

I kind of like UncleMick's solution, going full auto with the whole portfolio in a retirement balanced fund.

But I am thinking taxes on the capital gains from selling everything and buying the balanced fund, might be pretty rugged, since I will also be getting RMDs, pension, & SS.

Another solution might be to buy a small SPIA that would be sufficient for expenses. They should be pretty cheap by that age.


As for the age to transition, I don't know but I don't think I'm there yet.

 

[Souschef]

I am 77, and between SS and pensions, we do not have to touch our principal. However, with the RMD's in past years I have been switching them over to taxable accounts.
This year, instead of rolling over most of it, i will be dividing it among our 4 sons. Since my mother lived to 102, I would rather them having it now then 20 or so years in the future.
YMMV

 

[Sunset]

I am slowly going to switch stocks for broad based etf's and mutual funds, my plan is to have perhaps 4 or 5 different etf/mutual funds in total.

Plus merge IRA's and/or collapse the smaller ones totally.

Finally I'll reduce the number of brokerages used, possibly have it all under 1 roof.
Already closed Tradeking as it was small and the login was a big hassle.

 

[audreyh1]

I kind of like UncleMick's solution, going full auto with the whole portfolio in a retirement balanced fund.

But I am thinking taxes on the capital gains from selling everything and buying the balanced fund, might be pretty rugged, since I will also be getting RMDs, pension, & SS.

Another solution might be to buy a small SPIA that would be sufficient for expenses. They should be pretty cheap by that age.


As for the age to transition, I don't know but I don't think I'm there yet.

I was definitely thinking of Uncle Mick!

I don't think I'd buy an SPIA at that age. In fact I'm not sure they'd sell me one. Any SPIA should happen earlier I would think. That's a good question.

Figuring out how to gradually transition to mostly a balanced or target or all in one type fund is a key here. And it had better be with a company with considerable longevity. Or maybe a handful of index funds would be OK and just leave alone and don't worry about rebalancing any more.

 

[papadad111]

You could always buy a deferred annuity now - they seem to be getting more popular now days. Begins to pay at age 80. Buying at age 65, they tend to be fairly inexpensive. You could always wait a few years til interest rates rise and returns on annuities rise too.

Simplicity makes sense. So does a tilt toward more equities now in an AA given the time horizon that you have.

I predict a slew of "late life cycle" funds will be created over the next several years targeting folks with similar needs as the boomer population demographic ages...and worries...about investment simplicity and wanting to remain independent and self managing for as long as possible.

 

[MichaelB]

I don't think I'd buy an SPIA at that age. In fact I'm not sure they'd sell me one. Any SPIA should happen earlier I would think. That's a good question.

One reason to consider an SPIA would be if you you have concerns about cognitive decline and the annuity stream satisfies the cost of living and health care as provided by a third party. Probably not the case for most of us.

 

[rodi]

I've been thinking about this also. Using the unclemick solution (pssst...) is a solid one and one I've been considering.

I had been doing a slice/dice portfolio but have been simplifying to a 3 fund lazy portfolio in my pre-tax accounts. (Note there yet - just making some bigger than necessary moves when I rebalance.) I'm using a total stock index, total bond index, and international equities index. But I'm having trouble giving up some of my smaller indexes to go to these broader ones... Like my tips fund and my dividend equities fund... Maybe my cognitive decline has already started at age 54.

My husband is fearful of the market (which is why I'm in charge of everything but his IRAs). I finally talked him into rolling some of his IRA CDs (yes - he was ALL cash in his IRAs) into Wellesley. He's pleased with the fact it doesn't move down as sharply. I'm pleased that it's a set and forget since he's in charge of those accounts... no nagging necessary on my part, to do anything with the new consolodated IRA account. (Vs 27 different CDs.)

 

[RetireAge50]

Several years ago my mom and dad, now 75 and 81, put everything into Wellesley. I'm 30 years younger and already have started the shift into Wellington.

 

[ejman]

Several years ago my mom and dad, now 75 and 81, put everything into Wellesley. I'm 30 years younger and already have started the shift into Wellington.

This is a simple, elegant solution which is very tempting. I already have 40% of my liquid NW in Wellesley/Wellington (mostly Wellesley). Its very tempting to continue the process. Two Problems:

1) I have a number of actively managed legacy funds in my taxable accounts (from the time that I didn't know any better) with large CG that I'm just reluctant to sell because of the tax considerations. Things are better in the IRAs where 80% of the total is where I want it (Wellesly, Target Retirement Income, and Intermediate Bond Index).

2) I've always followed the "don't put all of your eggs in one basket" approach and although I have full confidence in the integrity of Vanguard and the structure of the W/W funds, I just don't know what I don't know or what the future may hold.

I guess over the next 5 years before RMD's ( I'm 65 now) I'll just slowly sell the legacy funds and switch over to W/W in taxable and perhaps include Target Retirement Income and Balanced Index as well to take care of concern # 2) above. And then leave it all alone for the duration.

 

[Options]

...
I had been doing a slice/dice portfolio but have been simplifying to a 3 fund lazy portfolio in my pre-tax accounts. (Note there yet - just making some bigger than necessary moves when I rebalance.) I'm using a total stock index, total bond index, and international equities index. But I'm having trouble giving up some of my smaller indexes to go to these broader ones... Like my tips fund and my dividend equities fund... Maybe my cognitive decline has already started at age 54...

I was just thinking about this after reading Taylor Larimore's post at BH:

https://www.bogleheads.org/forum/viewtopic.php?f=10&t=88005

I am currently using 4 fund in pre-tax, and tax-managed balanced fund in after-tax. Aside from TSM, TBM, and total international in pre-tax, I too have a tips fund which sometime in the future I'll eliminate. I like Rick Ferri's idea of making changes to a PF at a "glacial" pace, so it won't be for a while.

Given the state of my health, I don't foresee cognitive decline in my future so I'll probably just continue taking the 5 minutes it takes to rebalance when my bands are exceeded for the rest of my life.

 

[unclemick]

I kind of like UncleMick's solution, going full auto with the whole portfolio in a retirement balanced fund.

But I am thinking taxes on the capital gains from selling everything and buying the balanced fund, might be pretty rugged, since I will also be getting RMDs, pension, & SS.

Another solution might be to buy a small SPIA that would be sufficient for expenses. They should be pretty cheap by that age.


As for the age to transition, I don't know but I don't think I'm there yet.

I am still selling/donating to charity a few DRIP plan stocks every year from my early days of ER. Down to 3 or four depending if I keep one.

Also when I went full auto I used mainly tax deferred 401k, IRA, Roth funds so taxes were less(until 70 1/2).

As RMD marches on the after tax excess (not spent by budget) goes into a MM fund for ? - updating our 1922 Craftsman house, lusting for a 1963 silver blue split window Corvette, or a few good stocks or even football tickets.

We still have to figure out a nice way to fire her(wife's) financial planner, how to look at her variable annuity, joint with her brother farm, 401k, IRA, and taxable mutual funds.

heh heh heh - So even though I simplified in 2006(after forty years investing at age 62) I un simplified by getting married.

 

[Corporateburnout]

Currently my portfolio is invested in 9 different index funds. I plan to reduce this to the 3 core S&P 500 Index, Int'l index and US bond index funds over the next couple of years primarily to simplify the process for DW in case I croak before her but also for the same reasons stated by Audreyh1.

Although there are no cognitive problems in my family I may not be too motivated in my 80's to manage and rebalance my investments.

 

[W2R]

UncleMick, thanks, your post is very helpful.

As for marriage, it does come with financial complications sometimes! So, I understand and sympathize. Luckily other happy aspects of marriage can make it worthwhile. Not for me, though, I'm determined to remain single for now.

 

[W2R]

I am currently using 4 fund in pre-tax, and tax-managed balanced fund in after-tax. Aside from TSM, TBM, and total international in pre-tax, I too have a tips fund which sometime in the future I'll eliminate. I like Rick Ferri's idea of making changes to a PF at a "glacial" pace, so it won't be for a while.

Given the state of my health, I don't foresee cognitive decline in my future so I'll probably just continue taking the 5 minutes it takes to rebalance when my bands are exceeded for the rest of my life.

I just have 4 funds in taxable and one in the TSP. It doesn't take long to rebalance, true. But, if I was even just desperately sick and in the hospital, much less confused or a little senile, it might be more than I could handle. Tying my shoes might be more than I could handle.

I suppose that at some point I could hire a professional of some sort to rebalance my funds annually for me. Seems like kind of a silly thing to do, though.

 

[REWahoo]

I suppose that at some point I could hire a professional of some sort to rebalance my funds annually for me. Seems like kind of a silly thing to do, though.

Not at all. I hired the fund managers at Wellesley and Wellington to do mine for me and they've kept my AA perfectly in balance for over a decade. They work pretty cheap too, especially when compared to most "financial professionals".

 

[W2R]

Not at all. I hired the fund managers at Wellesley and Wellington to do mine for me and they've kept my AA perfectly in balance for over a decade. They work pretty cheap too, especially when compared to most "financial professionals".

Ha ha, shame on you!!! (at last, I get to use this "shame on you" emoticon)

I would have to sell all my index funds in taxable accounts to get everything into Wellesley and Wellington, though. I assume there would be some capital gains tax involved if I did that. Maybe that wouldn't be the end of the world.

 

[REWahoo]

You emoticon was a total waste - I have no shame when it comes to investing.

I would have to sell all my index funds in taxable accounts to get everything into Wellesley and Wellington, though. I assume there would be some capital gains tax involved if I did that. Maybe that wouldn't be the end of the world.

I'll bet you could make the transition over a number of years and minimize - if not eliminate entirely - the cap gains taxes.

Not trying to convince you (or anyone) to go the W/W route, just pointing out what has worked for me. And yes, I know you don't feel comfortable having too many of your eggs in one basket, which would be another hurdle you'd have to overcome to do something like this.

 

[W2R]

You emoticon was a total waste - I have no shame when it comes to investing.



I'll bet you could make the transition over a number of years and minimize - if not eliminate entirely - the cap gains taxes.

Not trying to convince you (or anyone) to go the W/W route, just pointing out what has worked for me. And yes, I know you don't feel comfortable having too many of your eggs in one basket, which would be another hurdle you'd have to overcome to do something like this.

I could put half in Wellesley, and half in one of Vanguard's balanced retirement funds.

But then, I'd still have the G Fund in the TSP. So I'd just be going from 5 funds to 3. Still, it would be easier to rebalance.


Too bad about the emoticon being a waste! I had so much fun with it.

 

[REWahoo]

I could put half in Wellesley, and half in one of Vanguard's balanced retirement funds.

But then, I'd still have the G Fund in the TSP. So I'd just be going from 5 funds to 3. Still, it would be easier to rebalance.

Yes, and even if you didn't rebalance between the three, the two VG funds would continue to be balanced individually and limit how far out of whack your portfolio could get, even in the worst case situation.

 

[W2R]

Yes, and even if you didn't rebalance between the three, the two VG funds would continue to be balanced individually and limit how far out of whack your portfolio could get, even in the worst case situation.

And, the G Fund doesn't worry me either. It's guaranteed to never lose share price, and I have it set up on automatic monthly payments of an un-COLA'd amount that should last me until I'm around 95 or so. It is almost like a high interest cash account or even like an un-COLA'd pension. So, even though it is technically a bond fund, I'm not too worried about my bond allocation going down as I withdraw from it.

 

[Animorph]

I think by 70 my taxable accounts will be negligible after years of Roth conversions and the full living expenses load. That should help simplify things. I expect to close my mutual fund accounts held directly with fund companies as part of that process. That will probably consolidate everything into one brokerage.

Also about then I expect to transition into a simpler 4 fund or less portfolio. Maybe even one fund with some automated withdrawals. Suitable for DW to easily handle, though she's good with spreadsheets. Or maybe I'll just leave it as slice and dice but no longer worry about rebalancing targets. Not much complication if it's all tIRA or Roth accounts held in one place.

 

[hnzw_rui]

Interesting discussion. I'm still very, very, very early in the accumulation stage. I won't be able to max out the 18K tax deferred until the next year or two so no taxable investment accounts yet and pretty much starting clean with no pesky tax consequences unlike the case for most here. I'm seeing quite a number of folks on Bogleheads who would like to simplify but can't because they'll be hit by large capital gains taxes. I'm hoping I could get it more or less "right" from the get-go.

Options I'm considering for taxable:

1. 100% Total Stock Market VTSMX (just let it drift/grow, no rebalancing against tax-advantaged accounts)
2. 100% Target Retirement 2040 VFORX 90/10 (same as 457 and Roth for simplicity)
3. 100% LifeStrategy Aggressive Growth VASGX 80/20 (just let it drift/grow, no rebalancing against tax-advantaged accounts)

Leaning towards #1 for tax efficiency although the simplicity of having the same holding (VFORX) in all accounts is tempting.

 

[FIREd]

We are only about halfway to 80 years old, but I have transitioned to a simpler portfolio over the past year. I had fun managing my slice and dice portfolio for many years but I got bored with it. And as I was writing a document to help my wife understand the ins and outs of our portfolio in case of my early demise, I realized that it was way too complex for her to handle (not that she is stupid, but she has no interest in the minutia of such things). That complexity would probably drive her straight into the grip of a financial advisor.

So I reduced our holdings to only 4 broadly diversified Vanguard index funds, in addition to some CDs and i-bonds that are straight forward to understand. I did keep a very small portfolio of stocks for my own amusement - and to keep me from tinkering with the rest.

Once we move to a lower cost of living area next year, the plan is to live on the dividend and interest income generated by our portfolio (not much). All I have to teach her now is how to rebalance once a year.

Down the road, I could see going full auto with a blend fund.

 

[kaudrey]

Interesting discussion. I'm still very, very, very early in the accumulation stage. I won't be able to max out the 18K tax deferred until the next year or two so no taxable investment accounts yet and pretty much starting clean with no pesky tax consequences unlike the case for most here. I'm seeing quite a number of folks on Bogleheads who would like to simplify but can't because they'll be hit by large capital gains taxes. I'm hoping I could get it more or less "right" from the get-go.


Options I'm considering for taxable:

1. 100% Total Stock Market VTSMX (just let it drift/grow, no rebalancing against tax-advantaged accounts)
2. 100% Target Retirement 2040 VFORX 90/10 (same as 457 and Roth for simplicity)
3. 100% LifeStrategy Aggressive Growth VASGX 80/20 (just let it drift/grow, no rebalancing against tax-advantaged accounts)

Leaning towards #1 for tax efficiency although the simplicity of having the same holding (VFORX) in all accounts is tempting.

Hi, I post over at BH as well; I am 47 and one of those who has done quite a bit of simplifying over the years but still has a bunch of legacy funds. I am in the TSP, and I hold 5 funds there (because it is a large part of my portfolio, it helps with my AA), and about 8 funds outside of it. I also have about 10% of my portfolio in stocks, most of which I've owned since the 1990s/early 2000s.

#1 would be my pick for a taxable account; put the bonds in tax-deferred, and go from there. Best of luck!