Unexpectedly "retired" - opinions wanted

[HexadTom]

Hi all, I am 63 and wife is 62. I was disabled in 2005, so I suddenly became "retired early".
Our current portfolio is very heavy in equities for our situation, so I am in the process of restructuring. I would like to hear your opinions on my currently proposed portfolio. I will list it below and then ask some questions.

First, some background:
We have two grown daughters for whom we would like to leave an inheritance.
We live in Bristol, TN/VA; on the Tennessee side of town.
I am drawing Social Security disability.
My wife is still working.
We just refinanced our mortgage. It's now for 12 years, at 2.875%.
I like index funds for equities and active management for bonds.

Now the breakdown of the proposed portfolio :
The total is about $860,000.

In place with no plans to change:
$16,700 1.94% Cash in banks
$29,600 3.44% CDs
$21,000 2.44% I-Bonds
$33,200 3.86% Proprietary balanced fund in 403(b) account
$20,200 2.35% PRPFX - Permanent Portfolio in IRA account

Proposed new portfolio - Major IRA account:
$50,000 5.81% MWTRX - Metropolitan West Total Return Bond
$50,000 5.81% MWCRX - Metropolitan West Unconstrained Bond
$50,000 5.81% VSGBX - Vanguard Short-Term Federal Bond
$50,000 5.81% BOND - Pimco Total Return Bond
$50,000 5.81% GLCB - Wisdom Tree Global Corporate Bond
$50,000 5.81% TGBAX - Templeton Global Bond
$25,000 2.90% VNQ - Vanguard IT Index ETF
$25,000 2.90% VNQI - Vanguard Global ex-US Real Estate ETF

Proposed new portfolio - Taxable account:
$40,000 4.65% TNTIX - Dupree Tennessee Tax-Free Bond
$40,000 4.65% KYN - Kayne-Anderson MLP (common)
$40,000 4.65% GRES - IQ Global Resources ETF
$150,000 17.43% VTI - Vanguard Total Stock Market ETF
$30,000 3.49% VB - Vanguard Small Cap ETF'
$90,000 10.46% VXUS - Vanguard Tl International Stock ETF

Here are some statistics:
8% Cash
35% US Stock
16% Foreign Stock
38% Bonds
2% Other

Morningstar Style Boxes
Stock Bonds
18 23 17 14 00 00
09 12 08 07 15 00
04 05 03 12 12 00

Some questions:
1. Is 38% Bonds about right for our situation?

2. What do you think of including international corporate bonds (GLCB)?

3. What do you think about including international sovereign bonds (TGBAX)?

4. Are GRES (global resource producers index) and KYN (holding MLPs) good choices for diversifying the portfolio?

5. What would you recommend to improve the portfolio?

 

[Lsbcal]

...
Some questions:
1. Is 38% Bonds about right for our situation?

2. What do you think of including international corporate bonds (GLCB)?

3. What do you think about including international sovereign bonds (TGBAX)?

4. Are GRES (global resource producers index) and KYN (holding MLPs) good choices for diversifying the portfolio?

5. What would you recommend to improve the portfolio?

1. I suggest finding the Vanguard questionaire on setting your asset allocation up and answering the few questions there. That will suggest your AA.
2. I don't think you need GLCB if you have BOND. FWIW, I personally just have a few intermediate bond funds and one short term bond fund (BOND, PTTRX, DODIX & VFSUX).
3. I'd just use BOND. Tweedy talks a good talk but their ER's are too high.
4. I'd personally just stick with broad stock index funds. Target your allocation to US large/mid/small. Also target your allocation to US/international. In the international target your large/mid allocation (FWIW, my choices for international are VEU and VINEX).
5. Keep the number of funds/ETF's to a minimum. Favor index funds and stick with low ER's (< 0.2%).

 

[karluk]

Your overall asset allocation strikes me as quite reasonable. My personal objection to this proposed portfolio is that it is unnecessarily complicated. Your "major IRA account" has six bond funds. Add in the bond holdings outside the IRA and you have a remarkably diverse method of getting to your 38% allocation in bonds. In my view either Pimco total return or a bond index fund would do just as well. Your major asset categories of "US stock", "foreign stock" and "bonds" really requires only three different mutual funds or ETFs to be completely diversified. Add in one or two others if you want to place bets on specific market subsectors, and you're done.

 

[pb4uski]

..... Some questions:
1. Is 38% Bonds about right for our situation?

2. What do you think of including international corporate bonds (GLCB)?

3. What do you think about including international sovereign bonds (TGBAX)?

4. Are GRES (global resource producers index) and KYN (holding MLPs) good choices for diversifying the portfolio?

5. What would you recommend to improve the portfolio?
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1. Probably in the ball park but I second Lsbcal's advice to take the Vanguard quiz.
2-3. I like the idea of including international bonds and plan to make them ~20% of my bond allocation once Vanguard comes out with their international bond portfolio.
4. Not sure.
5. I prefer more simple, but what you have isn't all that complex.

 

[Midpack]

1. Probably in the ball park but I second Lsbcal's advice to take the Vanguard quiz.
5. I prefer more simple, but what you have isn't all that complex.

+1. I have a total of 11 equity & bond funds, and I could get by with fewer. I wondered if you had other sources of income such as pensions or annuities, that would be a factor IMO.

One of my top 10 customers (before I retired) was in Bristol VA.

 

[HexadTom]

Thanks all for your opinions.

The MLP fund (KYN), the commodity producers fund (GRES) and the REIT funds (VNQ & VNQI) are there for diversity, dividends & inflation protection.

I know there are a lot of bond funds, but, since these are all actively managed, I prefer not to put all my money with one manager (even Bill Gross).

I should have stated that We will have my disability, her Social Security, and her small pension. These will cover 80% to 90% of our projected needs, so we will not need to withdraw much from our portfolio. When the mortgage is paid off, 12 years, we may not need to draw anything.

 

[Felix Mulier]

HexadTom,
I too was "unexpectedly retired", so I can relate to your situation. It's great to be retired, but it would have been nice to have a few more years' salary to add to the nest egg.

My personal objection to this proposed portfolio is that it is unnecessarily complicated.

+1 IMHO simpler is better.

I like index funds for equities and active management for bonds.

Your index funds are obscured by the sheer number of your holdings. But to simplify, you'll need to be mindful of the tax consequences. If I were you I'd set up a plan to simplify this portfolio over time in a way that minimizes the tax hit. I have used Turbo Tax's "Estimated Taxes and Form W-4 Worksheet" to weigh some scenarios from a tax perspective.

Good luck to you.

 

[FinancialDave]

First, we are missing a little information that would be helpful, such as your goal of cash flow that you expect from these accounts and over how many years. I am retired at 60, with a slightly smaller total, but a couple of pensions, and no bonds to drag down the returns. Since your wife is still working it's hard to know for how long or what you expect to draw out of the accounts. Also unfortunate that you don't have any Roths to be able to adjust your tax rate down.

Despite all the above I would suggest the following small changes. Get rid of the MLP and GRES and replace with 5% VDIGX, put the other 4% or so left over into the VB, to boost up your small-cap allocation.

 

[W2R]

Hi, HexadTom, and welcome to the Early Retirement Forum. I am sorry to hear of your unexpected retirement.

As far as investing philosophy, overall asset allocation (which you asked about), and so on, I have found the books listed on the Bogleheads Booklist to be top notch. I don't think there are any shortcuts that will serve anyone better than reading at least four or five of the books on that list.

 

[rayvt]

Some questions:
1. Is 38% Bonds about right for our situation?

Offhand, I think that in the current market bonds are a very risky asset class. When rates begin to rise, bonds are going to get crushed.
Worse yet, people are piling into bonds and driving prices up, so they'll have even further to fall.
Again, worse yet, people are going to longer and longer durations reaching for yield, and those are going to get crushed even worse.

See, for example:
33 Times, You Poor Dumb Bastards | The Reformed Broker

 

[ESRwannabe]

You probably know this already, but TN has a state income tax on most investments held in a taxable account. Its called the "Hall Tax".

I would suggest that you spend down everything in your taxable account while leaving your retirement accounts alone. Your retirement accounts are not affected by the Hall Tax. I wouldn't take anything out of the retirement accounts until the taxable account is completely drained.

Of course I would suggest you talk with an accountant about it.

For the index funds I have never heard of some of the companies you have listed. I do know that Vanguard is generally the cheapest. You might want to switch everything to Vanguard funds. The expense ratio (ER) on funds is extremely important. Make sure you get the lowest possible that you can while meeting your goals.

 

[HexadTom]

Thanks, everyone for all the suggestions! I'll do some more studying, and probably some portfolio tweaking, before I actually commit.