Just retired after 30 corporate years - And have a question

[Firedafter30]

Hi All,
I just retired and made it through my first non-working week. I worked a few corporate IT jobs over 30 years and finally decided that 30 years was enough.
I have 3 kids and my wife is still working so that makes this a bit easier! So I'm watching the kids this summer while dipping my toe into early retirement.


I don't feel retired - I guess I'm in denial and this just feels like vacation so far. But I think I can get used to it!


I did not really factor in medical insurance into my calculations, but with the wife working, it should work out. I had medical on my job and plan to go on Cobra for now.



My total investments are 1.66 Million, and I've been doing a lot of reading and getting to a basic allocation of 60% stocks, 40% bonds. This is further divided into S&P500, small cap, Intl, and US & Intl bonds funds & etfs - and some Reit.



I have one big issue - I have 18% of my investable assets in one stock (Apple) in my taxable account. It has a large capital gain of 203k. What should I do? Sell all at once, slowly over time, etc?


Thanks for your advice and nice to meet you all.

 

[athena53]

Congratulations, and welcome!

I'm not a financial advisor and we all have different situations but if you regularly donate reasonably large sums to charity this might be a solution over the long run. I bought Comcast during the 80s at a basis of about $2/share and over the years when I wanted to make a donation to a capital campaign I'd donate the stock. Note that this is NOT the same as selling the stock and donating the proceeds. If you give them the stock you get a deduction for the entire amount and no capital gains taxes. Nearly any charity can tell you how to arrange this.

Even if you don't want to decide where to donate right now you can open a Donor-Advised Fund at Fidelity and move shares of it there. You get an immediate tax deduction and then you tell Fidelity when to write checks to charities. (No additional deduction since you already wrote it off when you put it in the Fund.) Bonus: whether the charity knows it came from you is your call. Fidelity can identify you or just say the donor wishes to remain anonymous.

 

[Texas Proud]

I would never want to deal with that much taxable income in a single year, especially with 1 1/2 year of salary (you got the half)... I would sell slowly over time and if your DW plans to retire anytime soon I would do it after she does...


BTW, I think you might be able to get on your DWs insurance... I know that I had spouse loss of insurance due to job loss as a qualifying event...

 

[24601NoMore]

Depends how long your DW plans to work and if you get retiree healthcare or need to go ACA. Cobra will only get you 18 months max..

If ACA is in your future, pull your gains in now or while you are on Cobra, before you have to start limiting your income to 4X FPL to get subsidies. I'm sitting on some gains in a large cap tech stock also, and that's my plan.

Cap gains (LT or ST) count against your MAGI and hence your "cliff" for ACA subsidies.

 

[HI Bill]

I have one big issue - I have 18% of my investable assets in one stock (Apple) in my taxable account. It has a large capital gain of 203k. What should I do? Sell all at once, slowly over time, etc?

Look at the long term capital gains rates to help you decide...for married, filing jointly in 2018, it is: 0% for adjusted gross income <$77.2K; 15% for $77.2-479K. [The 10% rate went away].

If you wait until next year, will your adjusted gross income be less than $77.2K)? If so, wait till then, and start moving it a bit at a time. If you adjusted gross income is going to be greater than $77.2K, then you have to consider the risk of being over-weighted in Apple, and need to consider whether rebalancing, and paying $30.5K all at once would be the best course of action. How many years till your wife retires? I'm planning to fund my first few years of retirement by taking long term capital gains, but staying under the $77.2 cap, thereby paying no fed taxes.

 

[UnrealizedPotential]

Welcome! I can't give you any advice on your Apple stock, but I just wanted to wish you a happy retirement.

 

[24601NoMore]

Look at the long term capital gains rates to help you decide...for married, filing jointly in 2018, it is: 0% for adjusted gross income <$77.2K; 15% for $77.2-479K. [The 10% rate went away].

If you wait until next year, will your adjusted gross income be less than $77.2K)? If so, wait till then, and start moving it a bit at a time. If you adjusted gross income is going to be greater than $77.2K, then you have to consider the risk of being over-weighted in Apple, and need to consider whether rebalancing, and paying $30.5K all at once would be the best course of action. How many years till your wife retires? I'm planning to fund my first few years of retirement by taking long term capital gains, but staying under the $77.2 cap, thereby paying no fed taxes.

I always thought you also took into account the standard deduction, which starting in 2018 is $24K for couples married filing jointly. So, that takes you up to $101K income under which you can realize $0 in LT Cap Gains.

For us, I plan to RE this year and have no W-2 income next year. I'm pushing all my LT Cap Gains into 2019 for this reason, which means I need to "hope" (and pray) my current company stock where I have a lot of held (vested but not sold) RSUs doesn't crash and burn in the meantime.

 

[pb4uski]

I would be very nervous with any more than 5% of my portfolio in a single stock.... there are many stocks that were regarded as solid and then imploded... GE, GM, etc.

I would sell and pay the $30k in tax.... then I would invest the proceeds in a CD ladder that provides your withdrawals and let the rest of your money (60/40) grow.

Or if you prefer not to sell it all at least trim it down to 5%... that will cost you $21k in tax.... same thing with the proceeds though.

Either will reduce your sequence of returns risk and provide better diversification.

 

[Rdub]

I had a lot of Apple over the years. The past 5 years, I would keep it between 5-10% of NW and would harvest (sell) some on a tax efficient basis (LT cap gains only). I retired last year and keep a close eye on the tax impact of all selling. It is one of my biggest expenses. I just harvested some for this year and will wait to harvest again next summer. Mostly because I don’t want the concentration and I have used the funds from selling AAPL to increase my bond holdings as part of my target allocation of 60/40.

 

[Firedafter30]

Thanks all for the comments. Much to think about.

 

[JustCurious]

I would be very nervous with any more than 5% of my portfolio in a single stock....

I agree, and I would take it one step further, I would be very nervous with any more than 0% of my portfolio in a single stock. It's your call, but if it were me, I would sell enough of the Apple stock to get the total down to no more than 5% of your portfolio, and then re-assess, and I would likely ultimately sell it all.

 

[HI Bill]

I always thought you also took into account the standard deduction, which starting in 2018 is $24K for couples married filing jointly. So, that takes you up to $101K income under which you can realize $0 in LT Cap Gains.

Sorry, yes, you are correct...I should have said "Taxable Income". Thank you!

 

[Rianne]

Do you have cash stashed? We offset selling stock/bonds with a % of cash we kept aside for this reason. We won't get medicare for 5 years and have to rely on ACA. I think $61K is limit for income to get some sort of subsidies. It's kind of a crap shoot for HC from year to year.

 

[flintnational]

Welcome to the forum and congratulations on your retirement. As others have mentioned, sell at least some of the apple stock. Personally, I would not hold more than 5% in a single stock. Some go as high as 10%. As part of your AA determine what is the maximum % of a single stock you will hold. It's a good rule to include in your plan.

 

[braumeister]

I agree that 5% of my portfolio is the maximum I would want in any single stock, so I think a plan to start selling the AAPL down to that level is wise. How fast you do that will depend on how you want to recognize that income (mainly LTCG, I guess). So you'll have to start doing trial runs with tax software like TurboTax to see how that will play.

OTOH, I believe that AAPL is probably one of the safest holdings you could have, so a gradual drawdown is very reasonable. Since it also throws off a pretty nice dividend, you're being rewarded for taking it slowly.

I bought my first Apple computer in 1980, and have been a fan ever since.
Every time the stock got severely beaten down and had nothing but negative comments being published about it, I bought as much as I could. I never regretted any of those purchases. Being the nervous sort I am, I always sold it when the gains got to be too much for my comfort level, but I always did it again the next time.

 

[Firedafter30]

Thanks again for the comments. I know I should sell, and I've been reading up on risk and proper allocation. But, I have to admit, I've fallen in love (wink wink). Apple and many techs have been great lately, so its easy to think they will keep going up, or at least stay up.


So its is helpful to read your comments telling me to reduce. I always try to remember the law of stocks (not sure where I heard this). When you think it can't go any higher - it can go higher. And when you think it can't go any lower. It can go (much) lower.

 

[firenow]

Can someone explain me why the 40% bond allocation rather than go full 100% on stocks? International is fine. I know they talk about lowering risk in downtimes but if you don't sell off but stay put do I still need bonds?

I personally feel bonds only slow me down. As long as I don't do the panic sell off during downtimes, an internationall diversified stock only portfolio is much more beneficial in the long run.

 

[HI Bill]

Can someone explain me why the 40% bond allocation rather than go full 100% on stocks? International is fine. I know they talk about lowering risk in downtimes but if you don't sell off but stay put do I still need bonds?

I personally feel bonds only slow me down. As long as I don't do the panic sell off during downtimes, an international diversified stock only portfolio is much more beneficial in the long run.

Bonds tend to smooth out the losses in the down years. The recommendation comes from historic bond yields, an IMHO, I don't think that they are completely valid anymore. If you look at some of the calculators, there is a higher risk of running out of money because if equities tank, you have no cash/bonds to buffer the losses...and you'll end up selling equities at a loss for income, making the losses permanent. "Sequence of returns risk", in short. Yes, in up markets, they'll only slow you down. Up until age 52, I held no bonds, but now that I may retire next year, I bumped my allocation to 10% bonds (most would think this is far too low, but I have a cash bucket in a money market fund and an ESOP fund that doesn't track the stock market very closely).

 

[firenow]

Bonds tend to smooth out the losses in the down years. The recommendation comes from historic bond yields, an IMHO, I don't think that they are completely valid anymore. If you look at some of the calculators, there is a higher risk of running out of money because if equities tank, you have no cash/bonds to buffer the losses...and you'll end up selling equities at a loss for income, making the losses permanent. "Sequence of returns risk", in short. Yes, in up markets, they'll only slow you down. Up until age 52, I held no bonds, but now that I may retire next year, I bumped my allocation to 10% bonds (most would think this is far too low, but I have a cash bucket in a money market fund and an ESOP fund that doesn't track the stock market very closely).

Thanks for explaining. Since 4% is a safe WR that will last you long in retirement, as long as you accumulate 25-33 times your yearly need, should you still worry about putting something in bonds? Let us say the FIRECalc gives 95%+ success with all historical cycles. In that case isn't it better to leave everything in stocks and let it grow much faster? I think your 10% looks good, I just can't believe anything higher will be useful once you have 25-33 times portfolio which most here try to get to.

 

[HI Bill]

Thanks for explaining. Since 4% is a safe WR that will last you long in retirement, as long as you accumulate 25-33 times your yearly need, should you still worry about putting something in bonds? Let us say the FIRECalc gives 95%+ success with all historical cycles. In that case isn't it better to leave everything in stocks and let it grow much faster? I think your 10% looks good, I just can't believe anything higher will be useful once you have 25-33 times portfolio which most here try to get to.

The 4% WR is based on historic values, AND you having a mix of stocks and bonds. FIRECALC assumes, in the Your Portfolio tab, that you have 75% equities and 25% fixed income, unless you change the defaults. For the first 27 years of my career, I only held mutual funds, and no bonds. Year 28, one before I plan to retire, I upped it to 10% bonds.