Retirement Income Strategy?

[ItsTime]

Hi All,

Great reviewing the informative posts throughout the site. I am on the verge of moving from the corporate world and into FIRE.

In terms of setting up my portfolio for income in retirement, I am evaluating several scenarios including a bucket strategy. Although I have been self directed, I am considering hiring a financial advisor to help optimize/allocate my investments for a life of FIRE. I am not great with taxes so can definitely use some help.

That said, I would like to know if anyone has suggestions on how they evaluated their retirement investment income portfolio and if they hired a professional. I am 100% in Vanguard so planning to build my retirement income portfolio with Vanguard only available funds.

Thanks in advance for any thoughts!

 

[pb4uski]

Have you had Vanguard do a retirement plan for you? They used to do a free one for Flagship members IIRC and I had a couple of the free ones done. Pretty basic but confirmed my plan.

How old are you? and your SO, if applicable? What percentages of yout total nestegg are taxable (savings, brokerage accounts and the like), tax-deferred (traditonal IRAs and 401ks, etc) and tax-free (Roth IRAs, HSAs, etc).

You can build a sensible portfolio with as few as a couple Vanguard funds, though Vanguard uses four funds for their retirement funds.

Broadly, its preferable to have fixed income in tax-deferred and domestic equities in taxable or tax-free and international equities in taxable (to get the foreign tax credit, which goes to waste in tax-deferred or tax-free accounts).

 

[sengsational]

It would be surprising if many of the respected members here would suggest hiring someone because it's thought that you can do better, after expenses, with DIY.

What I've noticed is that the shift from spending out of a paycheck vs spending out of savings makes people in your shoes uneasy. But no need; the difference between doing it perfectly and fumbling through it is pretty small. Certainly smaller than paying some annual "assets under management" percentage.

You pick an asset allocation target and stick to it. Pull from after tax first. Fill-up the low tax brackets with Roth conversions (that's talked about a lot, but it's fairly small potatoes). The IRS will get it's share, and it's fun to make some moves to reduce that share, but if you don't get it perfectly, it's not a big deal.

 

[jebmke]

I have kept it simple. We also have 100% at Vanguard. We view the entire portfolio as a whole and manage to an asset allocation. I try to manage reported income to optimize taxes over the long haul. But I also don't over-analyze it because in my view, the future regarding both income and tax rates is pretty fuzzy so spending too much time with spurious precision is time better spent enjoying my retirement.


I'm not a big fan of buckets.

 

[ItsTime]

Thanks all for the replies as your feedback as already help validate some of my thinking around over complicating and over thinking the whole process.

Additional Details:
I am 52 and my wife is 50 so no tapping the tax advantage accounts for another several years.
Total portfolio total is a little north of $3M:
Taxable Account - $1.7M ($1.46M Index Funds / $240K money market)
Tax Advantage - IRA/401(k) - $1.32M

Goal is to withdrawal $7K a month and to be within a 15% tax bracket.

 

[OldShooter]

Re buckets, AA, SWR, etc. IMO there is no "right" way. These are different ways of looking at the same thing and each way has the potential to provide some insight. So use them all.

In our case, when the market is down our fixed income tranche starts to look a lot like a bucket. In more normal times, AA is useful. The only test I make is to make sure that our AA leaves enough in the near-in bucket to cover several years of a down market.

Despite all the energy expended here on the subject of SWR, I don't think that anyone's withdrawal rate over a period of years is anywhere near level.

 

[RunningBum]

A lot of the information I put in this thread applies to you as well.

https://www.early-retirement.org/fo...s-about-capital-gains-105391.html#post2479733

If you're trying for an ACA subsidy, it will be vital to keep taxable income (MAGI) under 400% FPL. If not, you want to try to keep cap gains and Q Divs from being taxed by keeping all taxable income (incl CGs and QDivs) under the 12% bracket, but it's not a cliff to avoid like the ACA subsidy is.

Consider doing Roth conversions for any space in the 12% bracket (or under the ACA subsidy cliff) you don't use for living expenses. If it's possible try to convert all tIRA/401K money, less what you might use for direct charitable giving. When you start taking SS, you'll find you'd rather not be taking other income if you can, to limit how much of your SS is taxed. Lookup the term "SS Tax Hump" or "SS Tax Torpedo". It's hard to predict whether and how much it'll hit you, but I'd say anything you can convert at 12% now is almost certainly better than what you'll face in the future.

 

[pb4uski]

Thanks all for the replies as your feedback as already help validate some of my thinking around over complicating and over thinking the whole process.

Additional Details:
I am 52 and my wife is 50 so no tapping the tax advantage accounts for another several years.
Total portfolio total is a little north of $3M:
Taxable Account - $1.7M ($1.46M Index Funds / $240K money market)
Tax Advantage - IRA/401(k) - $1.32M

Goal is to withdrawal $7K a month and to be within a 15% tax bracket.

So your WR is a very modest 2.8% [($7k*12)/$3.02m] so you have no worrise about running out of money.... and access is not an issue since you have so much in taxable accounts.

Depending on the basis of your taxable accounts that you will be withdrawing from your tax income will likely be a lot lower than your withdrawal... especially if you are redeeming cash-like instruments for spending, but less so if you are selling appreciated shares.

At that level of spending there are two important things to be aware of and think through.... 0% qualified dividends and LTCG and Roth conversions to take advantage of your low tax bracket.

Are the taxable account assets that you will be living on cash, bonds or equities?

If you are not managing income for ACA subsidies and had no other income, you could have as much as $104,800 of qualified dividends, LTCG or Roth conversions in 2020 and pay between $0 and $9,208 (8.8%) in federal tax... likely much less than when you deferred that income... so you're a winnah! Also, likely less than you would pay later once SS and RMDs start, so you're a winnah again!

BTW, you can do Roth conversions at any age, you don't have to be 59 1/2 or older.

 

[davebarnes]

"I am considering hiring a financial advisor to help optimize/allocate my investments for a life of FIRE"
Why?
You can DIY.
Read here + Bogleheads + Humble Dollar.

 

[The Cosmic Avenger]

I am 52 and my wife is 50 so no tapping the tax advantage accounts for another several years.
Total portfolio total is a little north of $3M:
Taxable Account - $1.7M ($1.46M Index Funds / $240K money market)
Tax Advantage - IRA/401(k) - $1.32M

Goal is to withdrawal $7K a month and to be within a 15% tax bracket.

Well, you could do SEPP/72t withdrawals, but with more than half of your money in a taxable account, you certainly don't need to. We only have about 1/6 of our funds in pretax accounts and almost half in our 401(k)s, so I am researching doing SEPP for the most basic expenses (since there's no flexibility, I figured that's the best approach) and then supplementing that with withdrawals from the taxable account and then our Roth IRAs.

 

[RunningBum]

Well, you could do SEPP/72t withdrawals, but with more than half of your money in a taxable account, you certainly don't need to. We only have about 1/6 of our funds in pretax accounts and almost half in our 401(k)s, so I am researching doing SEPP for the most basic expenses (since there's no flexibility, I figured that's the best approach) and then supplementing that with withdrawals from the taxable account and then our Roth IRAs.

In the OP's case, since they have plenty in taxable, I would use any taxable income space to do Roth conversions rather than SEPP withdrawals. I'd much rather have the money growing tax free in a Roth than a taxable account. I'd also open that Roth account sooner rather than later to start the 5 year window.

 

[Perryinva]

All good advice. What funds is the OP currently in?

 

[ItsTime]

Ditto, all good advice!

In terms of my taxable account, I have the following breakdown of the $1.7M:
Vanguard Total Stock Market Index Fund - $1.1M
Vanguard Total International Stock Market Index Fund $360K
Vanguard Prime Money Market - $240K

I have been in these funds for over two decades so a fair amount of appreciation during this time.

Thanks all for the input, so helpful!

 

[pb4uski]

It sounds lke you'll have plenty of room for 0% LTCG and/or low tax cost Roth conversions for many years.

 

[RunningBum]

Great choices! Yeah, I'll bet you've got a lot of appreciation there!

 

[SecondCor521]

You've already got a lot of great advice on this thread.

Regarding hiring a professional, I think you can do it yourself for both lower cost and better results. But I would also add that most people who call themselves investment professionals have little to no training, knowledge, or experience with retirement planning.
The most you might find is someone who can take all your numbers, stick them into their proprietary retirement software, and spit out some pretty graphs that boil down to a simplistic analysis of if you'll be OK or if you're in some retirement red zone. (You aren't.)

I want way more than that simple binary output. I want to model my SS, tax rates, IRMAA adjustments and more 22 years in the future to decide how big of a Roth conversion to do this fall. I want to figure out how much financial aid my kids would lose next year if I Roth convert additional money to see if that makes sense. I want to know if spending $21 a month more is worth it to open an HSA and max that out for the next 15 years. I want people to check my tax thinking if it's OK to withdraw from an ESA and contribute to a 529 and get the tax deduction at the state income level. I want to know what people here think about taking a trip to Europe next spring.

Not to brag or be arrogant, but those kinds of advanced questions are answered here everyday by very sharp people who have knowledge and personal experience with these topics, as well as the soft skills side of things - like worrying about health care when we're older, or aging parents, or colonoscopies (Get one for you and your wife if you haven't already. Also same thing on Shingrix for both of you.) Heck, most of us even have a sense of humor.

 

[mrfeh]

Hi All,

Great reviewing the informative posts throughout the site. I am on the verge of moving from the corporate world and into FIRE.

In terms of setting up my portfolio for income in retirement, I am evaluating several scenarios including a bucket strategy. Although I have been self directed, I am considering hiring a financial advisor to help optimize/allocate my investments for a life of FIRE. I am not great with taxes so can definitely use some help.

That said, I would like to know if anyone has suggestions on how they evaluated their retirement investment income portfolio and if they hired a professional. I am 100% in Vanguard so planning to build my retirement income portfolio with Vanguard only available funds.

Thanks in advance for any thoughts!

https://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit

 

[Markola]

I’ll be a voice for talking with a Vanguard adviser, and only a Vanguard advisor. The accumulation phase for us was as simple showing up for work everyday and automatically saving through payroll plans for 28 years. I left at 54 and found the spending phase entirely different mentally, now that we needed to depend on the portfolio for life. Also, I’m married to a lovely woman who cares not for financial topics except the spending part. I wanted neutral and knowledgeable help to navigate the spending phase discussions with her, without me and my frugal nature controlling everything, which seemed like a fraught future.

For these and many reasons I picked up the phone and we talked with Vanguard Personal Advisors. We liked what we heard about their “Dynamic Spending” approach, which is much more surgical than a blunt 4% Rule, their proprietary software and, of course, how everything meshed perfectly with our Vanguard funds and the Vanguard philosophy. Everything is transparent and in alignment with our interests, and we’ve never been screwed over with a fee we didn’t understand nor sold some insurance product or whatever. VPAS works like the rest of Vanguard, i.e. a co-op in which we are part owners.

I could go on but, in sum, it’s a huge relief to talk with our advisor a couple of times a year to advance a plan that DW and I both are bought into. For any retirement question, Vanguard has a questionnaire to work through and discuss with our assigned advisor to determine a reasonable answer, which goes into our plan. Obviously, I have confidence in this particular system. I know that most others on this board are reflexively against hiring advisors in any form, and some even prefer to be their own accountants and real estate agents and they know as much about insurance and annuities as a trained agent. I do not care to learn all that stuff and my DW does not either, so we couldn’t be happier with our relationship and think we get enormous value from it.

In answer to your question about retirement income strategies, I can endorse that you at least talk with Vanguard Personal Advisor Services about your $3 million, which is a considerable responsibility and nothing to sniff at. Good luck and YMMV.

 

[mickeyd]

Vanguard Prime Money Market - $240K

That's a bunch in cash. PMMF is yielding about .04bps. Why not stash part of it in a CD getting 1.00%+?

 

[ItsTime]

You've already got a lot of great advice on this thread.

Regarding hiring a professional, I think you can do it yourself for both lower cost and better results. But I would also add that most people who call themselves investment professionals have little to no training, knowledge, or experience with retirement planning.
The most you might find is someone who can take all your numbers, stick them into their proprietary retirement software, and spit out some pretty graphs that boil down to a simplistic analysis of if you'll be OK or if you're in some retirement red zone. (You aren't.)

I want way more than that simple binary output. I want to model my SS, tax rates, IRMAA adjustments and more 22 years in the future to decide how big of a Roth conversion to do this fall. I want to figure out how much financial aid my kids would lose next year if I Roth convert additional money to see if that makes sense. I want to know if spending $21 a month more is worth it to open an HSA and max that out for the next 15 years. I want people to check my tax thinking if it's OK to withdraw from an ESA and contribute to a 529 and get the tax deduction at the state income level. I want to know what people here think about taking a trip to Europe next spring.

Not to brag or be arrogant, but those kinds of advanced questions are answered here everyday by very sharp people who have knowledge and personal experience with these topics, as well as the soft skills side of things - like worrying about health care when we're older, or aging parents, or colonoscopies (Get one for you and your wife if you haven't already. Also same thing on Shingrix for both of you.) Heck, most of us even have a sense of humor.

To your point, I have found this site incredibly helpful in just my first couple weeks here. Also, good reminder on the shingles vaccination. I have been putting that one off for months!

 

[ItsTime]

That's a bunch in cash. PMMF is yielding about .04bps. Why not stash part of it in a CD getting 1.00%+?

Well, you inspired me to poke around a bit as I do want immediate access to this cash until I define my retirement portfolio strategy. I just noticed Capitol One has a 360 savings account which is yielding 0.65% so looking into that as an option.

 

[ItsTime]

I’ll be a voice for talking with a Vanguard adviser, and only a Vanguard advisor. The accumulation phase for us was as simple showing up for work everyday and automatically saving through payroll plans for 28 years. I left at 54 and found the spending phase entirely different mentally, now that we needed to depend on the portfolio for life. Also, I’m married to a lovely woman who cares not for financial topics except the spending part. I wanted neutral and knowledgeable help to navigate the spending phase discussions with her, without me and my frugal nature controlling everything, which seemed like a fraught future.

For these and many reasons I picked up the phone and we talked with Vanguard Personal Advisors. We liked what we heard about their “Dynamic Spending” approach, which is much more surgical than a blunt 4% Rule, their proprietary software and, of course, how everything meshed perfectly with our Vanguard funds and the Vanguard philosophy. Everything is transparent and in alignment with our interests, and we’ve never been screwed over with a fee we didn’t understand nor sold some insurance product or whatever. VPAS works like the rest of Vanguard, i.e. a co-op in which we are part owners.

I could go on but, in sum, it’s a huge relief to talk with our advisor a couple of times a year to advance a plan that DW and I both are bought into. For any retirement question, Vanguard has a questionnaire to work through and discuss with our assigned advisor to determine a reasonable answer, which goes into our plan. Obviously, I have confidence in this particular system. I know that most others on this board are reflexively against hiring advisors in any form, and some even prefer to be their own accountants and real estate agents and they know as much about insurance and annuities as a trained agent. I do not care to learn all that stuff and my DW does not either, so we couldn’t be happier with our relationship and think we get enormous value from it.

In answer to your question about retirement income strategies, I can endorse that you at least talk with Vanguard Personal Advisor Services about your $3 million, which is a considerable responsibility and nothing to sniff at. Good luck and YMMV.

Thanks for the feedback and it doesn't hurt to explore their offering. Being a longtime Vanguard investor, I have always been pleased with their services.

 

[pb4uski]

Well, you inspired me to poke around a bit as I do want immediate access to this cash until I define my retirement portfolio strategy. I just noticed Capitol One has a 360 savings account which is yielding 0.65% so looking into that as an option.

Another option, albieit not FDIC insured and with more credit risk in theory, is Dominion Energy Reliability Investment. I haven't pulled the trigger on it yet. It looks like a money market fund that Dominion Energy uses in lieu of issuing commercial paper.

https://investors.dominionenergy.co...on-energy-reliability-investment/default.aspx

Dominion Energy Reliability Investment (DERI) is a program through which can make direct investments in new debt obligations of Dominion Energy. Under this program, Dominion Energy borrows directly from the investor in the form of demand notes. Investors receive a competitive floating rate of interest that may be higher than short-term CDs and money market funds. However, the credit rating of Dominion is slightly lower at BBB.

 

[jazz4cash]

DERI has the following statement on their site:

Relax - your investment is backed by the reliability and financial stability of Dominion Energy.

Considering the dilemma of PGE, I expect these notes to be wiped out if it should happen with Dominion.

I have a bit of the common stock which pays 4.79%. I am very receptive to this sort of corporate note but my risk tolerance is limited to 1-2% of my nest egg. What is your comfort level? I know many would say zero.