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Would appreciate comments - close to relative ER, concerned about risk
Old 01-16-2018, 08:14 AM   #1
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Would appreciate comments - close to relative ER, concerned about risk

Good morning - I've been doing a lot of reading about creating bond tents, developing glide paths, etc. for those nearing retirement. I am planning to retire next year, 2019, and I am concerned about any significant market corrections between now and then - when I'll have more a lot more time to refine a withdrawal strategy, fine tune my expenses, etc. Right now, I am busy downsizing, packing, wrapping up my career, etc.

So basically, I am looking for a strategy to protect what I have between now and then and after that, I will work on withdrawals and AA tweaking.

I have been rebalancing from equities to bonds, maybe I have overdone it?

Where I am now:

TAXABLE:

cash - $80K
I-Bonds - $145K
CDs - $60K
International Stock Market Index - $215K
VTSAX (Total Market) - $80K

NON TAXABLE/TAX DEFERRED

Federal Govt TSP Plan:

G Fund (bonds)- $700K
C Fund (broad index) $25K
S Fund (small caps) $25K

Roth IRA - Total Market Index - $75K
REIT Index - $75K

HSA Account - Total Market Index - $20K


I am retiring after only 10 years of federal service at the minimum retirement age - (to get the health insurance), so my pension will be reduced by a 20% discount for retiring before age 62, my annual federal pension will be only about $12K a year. In order to get the health insurance, there is also a requirement to take an immediate pension.

I am eligible, but have not yet begun to draw, another private sector pension, currently worth about $800/month and rising every year until I reach 65. That pension is well funded, secure.

Social Security currently calculated to be about $1,850 when I reach 62 and of course, more if I take it later.

I am anticipating annual expenses of a minimum of $50K - $55K. If it turns out I can spend more, I will be happy to do that LOL. I do not have plans to leave any legacy. I do not own a home, I currently rent, so looking at buying a retirement home somewhere - debating a mortgage versus using assets.

Thanks if you've made it this far in reading, LOL. I would truly appreciate any outside views, recommendations or comments on my situation.
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Old 01-16-2018, 08:57 AM   #2
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Have you run your plan through FireCalc? It's a good first "sanity check."

Oh, also, congrats!
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Old 01-16-2018, 09:26 AM   #3
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Welcome to the forum. Do you have a strategy regarding asset allocation? At first glance I noticed that you have a large portion of your taxable holdings in an international index fund ($215K), and only $80K in the US market. As part of your preparation for RE I would determine what percentage of your holdings will be equities vs fixed income, and what percentage of your equity holdings will be domestic vs international. That will help you to position your portfolio properly for the long term.

Based on your overall total savings of $1.5M, $50K annual expenses only represents 3.33%. With your pension and SS the withdrawal rate will be reduced significantly, so I think your overall position is very solid.

You don't state your age so I can't determine how many years until you begin collecting, but assuming it's within the next five years or so I think you will be just fine.

Congratulations!
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Old 01-16-2018, 09:32 AM   #4
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At first glance, it seems doable. $55k is about a 3.7% straight withdrawal rate. A tad high for someone REing, but not crazy. And, that doesn't include the pension you get or social security, so actual SWR is lower. We would need to know your age to do a deeper dive. I would want to have a bit more growth opportunity though. you are currently 34.3/456.3/9.3 stocks/bonds/cash, which is extremely conservative. Anyway, I guess this is my way of saying, yes, I think you overdid it a bit.


One question I have is on the social security. It looks a bit high considering that you are retiring early. Did you make sure to include $0 income in the years until retirement? Only reason I ask is because I am fairly well compensated and when I do the same calculation on the social security site, I get a lower monthly number due to the years of no earnings.
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Old 01-16-2018, 10:05 AM   #5
Confused about dryer sheets
 
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Hi all, thanks

I am 57.

One question I have is on the social security. It looks a bit high considering that you are retiring early. Did you make sure to include $0 income in the years until retirement? Only reason I ask is because I am fairly well compensated and when I do the same calculation on the social security site, I get a lower monthly number due to the years of no earnings.
I'm currently in my 36th year of working full time, so I have met the 35 year requirement. I ran the numbers again and they are closer to $1750 based on retirement at age 58.5. Thank you.
Yes, I also think I have overdone it with the bond fund. I guess my concern is that any other change will be made in a taxable account, triggering gains that will be taxed - unless I look inside the Roth.
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Old 01-16-2018, 10:08 AM   #6
Confused about dryer sheets
 
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As part of your preparation for RE I would determine what percentage of your holdings will be equities vs fixed income, and what percentage of your equity holdings will be domestic vs international. That will help you to position your portfolio properly for the long term.
Yes, I am looking various studies for developing AA in the years after retirement - the early years and later years. Maybe I am panicking, but now that the date to leave my job is real to me, I am concerned about preservation in light of a possible downtown, as I believe I am now in the reddest part of the red zone.
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Old 01-16-2018, 10:08 AM   #7
Confused about dryer sheets
 
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Have you run your plan through FireCalc? It's a good first "sanity check."

Thank you. I need to do this to help refine my SWR.
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Old 01-16-2018, 10:12 AM   #8
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Quote:
Originally Posted by LaurenLuna View Post
I guess my concern is that any other change will be made in a taxable account, triggering gains that will be taxed - unless I look inside the Roth.
I assume in your TSP plan you can change investments, right? One concern to consider is that if/when interest rates start to creep up, your bond funds will lose value.
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Old 01-16-2018, 10:36 AM   #9
Confused about dryer sheets
 
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That particular fund is a guaranteed bond fund for government employees. My understanding is that it does not lose principal. The name of it is the G Fund, if you are interested in looking into it.
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Old 01-16-2018, 10:48 AM   #10
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Holy smoke, $700K in the G Fund after only 10 years? Oh I get it - you had it in the stock funds and then cashed out because you're retiring.

Quote:
Originally Posted by LaurenLuna View Post
Good morning - I've been doing a lot of reading about creating bond tents, developing glide paths, etc. for those nearing retirement. I am planning to retire next year, 2019, and I am concerned about any significant market corrections between now and then - when I'll have more a lot more time to refine a withdrawal strategy, fine tune my expenses, etc. Right now, I am busy downsizing, packing, wrapping up my career, etc.

So basically, I am looking for a strategy to protect what I have between now and then and after that, I will work on withdrawals and AA tweaking.

I have been rebalancing from equities to bonds, maybe I have overdone it?

Where I am now:

TAXABLE:

cash - $80K
I-Bonds - $145K
CDs - $60K
International Stock Market Index - $215K
VTSAX (Total Market) - $80K

NON TAXABLE/TAX DEFERRED

Federal Govt TSP Plan:

G Fund (bonds)- $700K
C Fund (broad index) $25K
S Fund (small caps) $25K

Roth IRA - Total Market Index - $75K
REIT Index - $75K

HSA Account - Total Market Index - $20K


I am retiring after only 10 years of federal service at the minimum retirement age - (to get the health insurance), so my pension will be reduced by a 20% discount for retiring before age 62, my annual federal pension will be only about $12K a year. In order to get the health insurance, there is also a requirement to take an immediate pension.

I am eligible, but have not yet begun to draw, another private sector pension, currently worth about $800/month and rising every year until I reach 65. That pension is well funded, secure.

Social Security currently calculated to be about $1,850 when I reach 62 and of course, more if I take it later.

I am anticipating annual expenses of a minimum of $50K - $55K. If it turns out I can spend more, I will be happy to do that LOL. I do not have plans to leave any legacy. I do not own a home, I currently rent, so looking at buying a retirement home somewhere - debating a mortgage versus using assets.

Thanks if you've made it this far in reading, LOL. I would truly appreciate any outside views, recommendations or comments on my situation.
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Old 01-16-2018, 09:23 PM   #11
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Your plan seems doable, but if it were me, I would look for ways to reduce my annual expenses a bit, so that I could reduce my SWR (just to be on the safe side). If you could do that, it would allow you to keep a fairly high % of your investments in the G fund, and thus avoid taking on more risk. That is basically what I have done, as a retired fed. employee, and it works for me. I tend to be more conservative than most, though.
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Old 01-17-2018, 05:55 AM   #12
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You have done very well to date. Congratulations.

A few things come to mind. Your overall AA is approx. 33/67....equities /fixed income. Your risk tolerance is most likely low. MAybe go to a 40/60 AA?
Since International equities have had a good run recently after lagging for so many years...shift a little over to domestic equities?

Your pensions and SS at age 62 will total $2,650.
MAybe take the pensions at age 62 and delay SS until FRA? Live off withdrawal from taxable investments.

My one concern would be buying the house down the road. Is a mortgage payment figured into the annual expenses of $50-55,000?
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Old 01-17-2018, 07:52 AM   #13
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Assuming you are single? You look just fine. One note on the SS part and years - I could be wrong but I think I've read that Fed Service does not count toward SS credit years. But that could just be specific things, and either way would not impact your Yes/No on RE.

With your HI benefit, and small pensions, you have plenty of wiggle room. I'd probably figure in the housing/living situation before you finalize your date, if not actually buying somewhere, at least having a bit firmer idea.

Congrats and welcome!
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Old 01-17-2018, 11:16 AM   #14
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Are you subject to WEP due to your government pension? That could reduce your SS income.
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Old 01-18-2018, 03:17 AM   #15
Confused about dryer sheets
 
Join Date: Dec 2017
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Since International equities have had a good run recently after lagging for so many years...shift a little over to domestic equities?

I keep eyeballing that. What has held me back, thus far, is triggering capital gains taxes, since that chunk is in a taxable account.

My one concern would be buying the house down the road. Is a mortgage payment figured into the annual expenses of $50-55,000?

This is something of a minor wild card. I've been debating about buying a home out right vs taking on a mortgage and the timing of that mortgage - i.e. whether I have to take it out while I still have earned income. The area I am looking at has a very low cost of living - nice homes under $200K. Of course there's an inverse relationship - property taxes there are higher than most parts of the US...the upside is it's a college town/tourist area in the summer. Many people seem to set up a small apartment in their homes for extra cash - very lucrative rental rates as far as I can tell.

MAybe take the pensions at age 62 and delay SS until FRA? Live off withdrawal from taxable investments. This is on the table, yes.

Are you subject to WEP due to your government pension? That could reduce your SS income. I am not sure what WEP is?

I am one of the younger feds, lol. My SS is not impacted by my federal employee compensation.

I am retiring under the MRA + 10 rule, so according to most, a short timer lol.
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