Advice on Vanguard $$ - where to move it?

[pb4uski]

This is an interesting idea!

Question: At what point is my income "low"? Do I have to wait until the end the year when taxes are due to prove I have no income? Because for the next four months I'll have no income at all. After that, I'll have the pension, and 14 months after that, I'll have social security. But those four months of no income - is that enough to have "low" taxes? How is this figured?

I'm sorry to bother you all what are probably really basic questions, and you folks have been so patient with me! Thank you!

If it were me I would begin with your last year's tax return, then replace your 2018 earnings from working with your 2019 earnings from working and see if there are any other adjustments that need to be made to estimate what your 2019 income will be.... similarly if you used the standard deduction then it will be $12,200 for 2019. So essentially you're doing an estimate of what your 2019 tax return will show for taxable income without any 403b withdrawals or Roth conversions.

The top of the 12% tax bracket for 2019 is $39,475 for a single. Your withdrawal or Roth conversions would be the excess of $39,475 over the amount you calculated in the prior paragraph. Since you worked for 2/3 or so of this year, you my already be in the 22% tax bracket.... in which case there may not be any benefit.

If you have a tax preparer you may want to talk with them about your calculations for 2019, 2020 and beyond and see what tax bracket you are in.

If your pension benefit grows if you defer taking it you might consider deferring your pension and SS for a couple years and use those years to do some low tax-cost withdrawals and/or Roth conversions. So for example, if you lived off savings in 2020 and deferred your pension and SS, your income would be really low and you could do a significant amount of withdrawals or conversions and pay very little tax.

 

[RetMD21]

+1 Stay put for now and take some time to learn some of the basics about asset allocation and tax strategies like those pb4uski mentioned. These matters are not very complicated but they can be a little daunting until you develop a base level of knowledge. Once you are a comfortable with the basics you can consider things like moving to a couch potato portfolio or Roth conversions. Vanguard offers a number of training resources online and this board offers a ton of info although it may be a little difficult to parse initially. But, as potto points out you are in a decent place and can take it slow.

A lot of us here are very interested in investing. We could suggest books and internet links but practically speaking, you are fine. The difference between the 2025 fund and the 2020 fund is not much. If you want simple just stick with what you have and the bond allocation will gradually increase. Or switch to the 2020. It doesn't much matter.

Generally the idea is that you select the fund for the year you will retire and achieve the desired conservative allocation at that point so maybe you should have been in the 2020 fund all along.

 

[CindyBlue]

If it were me I would begin with your last year's tax return, then replace your 2018 earnings from working with your 2019 earnings from working and see if there are any other adjustments that need to be made to estimate what your 2019 income will be.... similarly if you used the standard deduction then it will be $12,200 for 2019. So essentially you're doing an estimate of what your 2019 tax return will show for taxable income without any 403b withdrawals or Roth conversions.

The top of the 12% tax bracket for 2019 is $39,475 for a single. Your withdrawal or Roth conversions would be the excess of $39,475 over the amount you calculated in the prior paragraph. Since you worked for 2/3 or so of this year, you my already be in the 22% tax bracket.... in which case there may not be any benefit.

If you have a tax preparer you may want to talk with them about your calculations for 2019, 2020 and beyond and see what tax bracket you are in.

If your pension benefit grows if you defer taking it you might consider deferring your pension and SS for a couple years and use those years to do some low tax-cost withdrawals and/or Roth conversions. So for example, if you lived off savings in 2020 and deferred your pension and SS, your income would be really low and you could do a significant amount of withdrawals or conversions and pay very little tax.

Thank You!
My pension doesn't grow and I can't defer it, as far as I know. I will definitely talk to my tax lady and let her know the rough calculations I've made so far about my "earnings" for next year. I think that using the 403b rather than the Social Security and/or savings is a really good thing to think about!

 

[target2019]

Cindy,
Does your 403b give you access to more Vanguard funds then have been mentioned here?
It may benefit you in retirement to eliminate the additional fees in those target funds by simple picking one or two funds with extremely low fees.

 

[CindyBlue]

Not sure if I have access to more funds at Vanguard...I never thought to ask about it until I started reading the advice you all are so kind as to be giving me. I will ask around! Thank you!

 

[WEBERD12]

We have had good safe returns with their 500 Index Fund. If you want to possibly grow your money, look at companies generating "5G" products. Parnasus (sic) is another good 500 index fund we are in and doing well with TDAmeritrade.

 

[rick55]

Hi Cindy,
Target 2019 touched on my questions regarding your 403b. My wife has her 401k thru vanguard, and she has limited funds available to her. Our plan is to roll over her 401k when she retires in a few months to a vanguard IRA so she has all that vanguard has to offer.

For example, we use Wellington and Wellesley in our roths and in my rollover IRA, but its not available in her 401k. We also use Primecap Oddessy Growth purchased thru vanguard, and short term and medium term investment gradebond funds, not available to her.

 

[2177V]

Having just retired this past June (wow, still can't believe it!) I am hoping for some advice about my Vanguard 403b account.
Now to the question (I hope I am asking it correctly, but I don't really know much about it!)
My 403b is currently in a "20-25" fund which I was told is a "sliding retirement type fund" for someone retiring in 2025. This fund is 65% stocks and 35% bonds, I was told by the nice gal at Vanguard. She also told me I could move it to a "20-20 fund," which is 55% stocks and 45% bonds, i.e., more conservative.
Any advice for me as to whether should I leave my 403b in the "20-25" fund, or move it to the "20-20" fund?

Given a choice between 65%/35% portfolio and 55%/45% portfolio, I recommend the more conservative 55%/45% portfolio for the following reasons:
1. You are retired and you are no longer young who have the years remaining to recover from a market crash.
2. Most economists are now predicting a recession within 12 and 24 months. This additional risk means you should become defensive.
3. What are your primary objective? Is it capital preservation which is designed to prevent loss or is it equity appreciation which is design to maximize growth which also involve higher risk.

I was in a 60/40% portfolio before I decided to switch to 100% treasuries because I decided that I made enough money during the 10 years bull market and switched to a capital preservation strategy. This was a personal decision on my part. You should also make a personal decision based on your objective and your risk tolerance.

 

[CindyBlue]

Thank you so much everyone! I have called Vanguard, and am trying to figure out what they said (smile!) I can move it to a more conservative account - right now, according to them, I'm on a sort of sliding retirement account that moves my money into more conservative accounts as the years pass, ending when I'm 67, I think. I would like to move it to one that ends up at the most conservative account by the time I'm 65 (next year.)

 

[RockLife]

CindyBlue, I think you are getting a lot of good , well intentioned advice but in my opinion, you really don't need to change anything. The target fund you are in is a solid choice and requires no action on your part. You could move money around from tax-deferred (your 403b) to taxable to improve your tax situation but in the big picture that is only nibbling at the edges. Trying to do too much may just cause you needless anxiety. You are in reasonably good shape with your pension, SS, and 403b. The enemy of a good plan is insisting on the perfect plan. I would just leave things be and try to relax. You've earned a good retirement now go out and enjoy it.

Superb comment.

 

[2177V]

A side note of possible negative interest rates: I know someone in Japan who decided to rent a large safe deposit box at a bank and placed hard currency in the safe deposit box. He was charged a fee for the safe deposit box but this fee was smaller than the negative interest rates. In addition, banks tend to go bankrupt....so if the bank goes bankrupt and cannot pay their depositors, then at least he still have access to his safe deposit box.

I agree with his reasoning since banks will definitely suffer during a negative rate environment. He also mentioned some corporate bonds in Japan are now charging negative rates for their corporate bonds. We live in interesting times.

 

[Koolau]

I agree with pb4uski that getting some low-tax money out of the 403(b) could be a good move, now that your income is low. I like Roth conversions, myself. Once in the Roth, they should never be taxed - even the increases. Once you reach 70 1/2 you are forced to take money out of the 403(b) (I think rules are same as 401(k)) and you pay at your current top rate of taxation - with (almost) no way out of it (I'm THERE now - thankfully was able to get a lot out of 401(k) and ALL out of tIRAs before 70 1/2.)

Sorry, this was supposed to be about asset allocation, but I think the investment vehicle (for future tax planning) is almost as important. But YMMV.

 

[CindyBlue]

Superb comment.

I agree, RockLife. Plus, I have to stop worrying so much about things I cannot control...at least I have to try (smile!)