Hi, I could use some help and reassurance...

[MercyMe]

A big hello to everyone on this incredible forum!

My spouse and I have lived well below our means since we got married nearly three decades ago. In recent years we've saved more than 70% of our income and now we're starting to feel a bit too frugal. We're in our early 50's and in good health. So much of life has passed us by while we've been working long hours running a small business that we both hate and love. We've been largely self-guided in our investments for the last decade, and I developed a strong interest in retirement planning several years ago. Like many, I've used FireCalc, Flexible Retirement Planner, Fidelity, i-ORP, and a host of spreadsheets to work on our goals, risks, and progress.

We want to retire at the end of 2023. Our current nest egg looks like this...

Taxable $3,119,000
VTIAX $360,000
VTSAX $335,000
VTMSX $147,000
Cash $1,160,000
CD's $573,000 (at roughly 3%)
MYGA's $504,000 (at roughly 3%)
i-Bonds $40,000

Tax Free $71,000
VTSAX $31,000 (HSA) - we were a little late to this party
VTSAX $40,000 (Roth) - a bit late on this as well

401k $1,710,000
VBTLX $590,000
VWIAX $1,120,000


Current Total Assets: $4,900,000 - not including our business
Remaining 2022 and 2023 Paychecks/Business Withdrawals: $800,000
After-Tax Net Amount from Sale of Our Business: $1,100,000 (will be sold before retirement)

Total EOY 2023 Assets: $6,800,000 (+/- any market gains/losses)

Age at EOY 2023: 52 (both of us)
Debt: None
Children: None
Other Sources of Income: None
Combined Social Security at 70: $62,000 (though we use $40k in our planning)
Plan to Die with: $ZERO (otherwise, assets will go to a local charity)
Life Expectancy: 85 him/87 her (but planning for 92 for us both)

Current Status
New 401k contributions are currently going into a money market fund, and remaining salary money is currently going into bank accounts and MYGA's. Our IPS calls for dollar cost averaging into VTSAX (in the taxable account) and VWIAX (in the 401k) but we're a bit too uncomfortable with that at this time. You might be wondering what is the point of having an IPS if we're not going to follow it. I don't know what to say. We're just too close to retirement to risk much in a very strange market. Like many others, we've taken a bit of a beating this year.

Current Average Annual Spending (based on 9 years of keeping track)
Essential: $55k per year including ACA health insurance
Discretionary: $15k
Donations: $10k

Planned Retirement Spending
(first 28 years, age 53 to 80)
Essential: $55k per year including ACA health insurance/Medicare
Discretionary: $45k
Donations: $10k
Taxes: $25k
Fudge Factor: $10k
Total: $145k

Once we reach 80 years of age, we estimate that our discretionary spending will drop by $30k.


Miscellaneous Info
We have not counted the value of our home in the total assets listed above. The value of the house is $700k and we plan to use this toward self insuring LTC. As you can tell by our 27% stocks - 50% bonds - 23% cash allocation, we tend to be extremely conservative. We do plan to do a good bit of Roth conversions right after we retire.

Questions
1. I'm sure some would have plenty of concern about our low risk AA, but we're not overly worried about it. However, we are a bit unsure of our mutual fund mix. We would like to add a REIT fund to the 401k (we can do that since we are the plan admins), but are unsure if now is a bad time to invest in a REIT. If not, which one and what percent of our assets should go in there?

2. We don't have any TIPS funds. What funds should we be looking at, what percentage of assets should be in TIPS, and in what account?

3. What are we doing wrong?

Here is our Firecalc entry. I'm pretty sure I got it entered correctly, but if anyone finds a mistake, I'd welcome and appreciate suggestions.

 

[SevenUp]

We want to retire at the end of 2023. Our current nest egg looks like this....

Given the nest egg, the first question that comes to minds is "why not retire now?"

We're just too close to retirement to risk much in a very strange market. Like many others, we've taken a bit of a beating this year.

Not with the cash, CDs, and MYGAs, unless you count losing to inflation. One can make a very reasonable case that now is a good time to move some of those into long term stock investments.

As you can tell by our 27% stocks - 50% bonds - 23% cash allocation, we tend to be extremely conservative.

Nothing wrong with that per se, but there are multiple types of risk, including loss of purchasing power while holding cash and bonds if inflation goes high.

We would like to add a REIT fund to the 401k (we can do that since we are the plan admins), but are unsure if now is a bad time to invest in a REIT. If not, which one and what percent of our assets should go in there?

I'd choose a stock fund (that will likely include some REITs anyway) before a pure REIT, but that's one non-expert's opinion.

3. What are we doing wrong?

Hard to tell anyone with ~$5 million investable that they are doing anything "wrong".

 

[Gumby]

I use VGSLX for REIT investment, so I can spread the risk.

 

[Franklin]

Given the nest egg, the first question that comes to minds is "why not retire now?"

Not with the cash, CDs, and MYGAs, unless you count losing to inflation. One can make a very reasonable case that now is a good time to move some of those into long term stock investments.


Nothing wrong with that per se, but there are multiple types of risk, including loss of purchasing power while holding cash and bonds if inflation goes high.

I'd choose a stock fund (that will likely include some REITs anyway) before a pure REIT, but that's one non-expert's opinion.

Hard to tell anyone with ~$5 million investable that they are doing anything "wrong".

Don't worry, you are GOLDEN! I normally don't opine on these questions but this one was easy. Congrats, now worry about who or what you leave your legacy to?? Ive found that keeping your stash is as hard as making it. You got more than enough....... but keep it protected!! Well done.

 

[Retireby45ish]

Echo the post above. Very easy one to say you are Golden given size of egg vs spend. And with SS you are sub 2% WR over your lifetime.

I would also echo the sentiment that you can be more aggressive putting some of the cash into stocks for the long run.

Enjoy the last 1.5 years of unwinding the business! And, coming from another frugal person, treat your self a bit…you deserve it.

 

[MercyMe]

Thank you for the comments. I've not yet found a retirement planning software that says we couldn't retire. At this point, my biggest concerns are the first two questions I posted...

1. I'm sure some would have plenty of concern about our low risk AA, but we're not overly worried about it. However, we are a bit unsure of our mutual fund mix. We would like to add a REIT fund to the 401k (we can do that since we are the plan admins), but are unsure if now is a bad time to invest in a REIT. If not, which one and what percent of our assets should go in there?

2. We don't have any TIPS funds. What funds should we be looking at, what percentage of assets should be in TIPS, and in what account?

 

[OldShooter]

Yes, golden. I especially like the planned increase in spending after retirement. Those of us who have run businesses know how the demands of the business keep us from spending on the fun stuff.

... We don't have any TIPS funds. What funds should we be looking at, what percentage of assets should be in TIPS, and in what account? ...

TIPS are funny things, kind of like those trick pictures where you can see two different things -- the old woman and the young woman. (https://www.livescience.com/63645-optical-illusion-young-old-woman.html)

The investment view of TIPS is really that they are not very good investments except in times of high inflation. Most debates here focus on that.

The inflation hedge view of TIPS, which DW and I share, is that the difference between TIPS yields and conventional govvie yields is the insurance premium we pay for inflation protection. But ... I think inflation protection is only there if a major portion of a portfolio is in TIPS. IOW, go big or go home. What difference could a 5% TIPS position possibly make in a portfolio? In our case, we have gone fairly big. Almost all of our fixed income tranche is in TIPS, the 2s of 26, that we bought in 2006/7 shortly after we retired. Our rationale was that we didn't need optimum income to support our lifestyle and that the major financial risk to our retirement was a recurrence of the1970s/1980s inflation.

No one can tell you which view of TIPS you should take. I would only say that putting only a small fraction of your portfolio in TIPS is not a very good strategy if you're looking for a hedge.

 

[Exchme]

I would not change a thing. Simplicity is it's own quality, you have plenty of money and "good enough" diversification now. Keeping it simple gives you the best chance to continue to handle it yourself for many years to come.

 

[cyber888]

You can retire now with that much asset - 2 people with no kids .. spend as much as you want

 

[ERD50]

Quote:
As you can tell by our 27% stocks - 50% bonds - 23% cash allocation, we tend to be extremely conservative.

... Nothing wrong with that per se, but there are multiple types of risk, including loss of purchasing power while holding cash and bonds if inflation goes high. ....

Yes, historically 27% in stocks hurts portfolio success. In FIRECalc, the results go from a $2.7M minimum end with the 25/75 entry, goes up to $3.5M @ 30/70, and over $4.9M @ 40/60 (NOTE: A long reported and standing bug in FIRECalc is that when the lowest ending value is greater than the starting value, it reports the starting value instead of the ending value. You'll see the min ending value "stuck" at the starting value. At that point, you can only try to read the lowest line at the end.).


OP:

In recent years we've saved more than 70% of our income ...

... Hard to tell anyone with ~$5 million investable that they are doing anything "wrong".

Well, if they were making $5M a year, and saving 70%, and "only" had $5M investible, that would be a sign they were doing something wrong! (just kidding!)

-ERD50

 

[target2019]

Questions
1. I'm sure some would have plenty of concern about our low risk AA, but we're not overly worried about it. However, we are a bit unsure of our mutual fund mix. We would like to add a REIT fund to the 401k (we can do that since we are the plan admins), but are unsure if now is a bad time to invest in a REIT. If not, which one and what percent of our assets should go in there?

2. We don't have any TIPS funds. What funds should we be looking at, what percentage of assets should be in TIPS, and in what account?

3. What are we doing wrong?

1. REIT adds complexity. I'm not sure it will change the outcome. No one can say for sure.

2. "TIPS have the same tax-efficiency as their treasury bond equivalents; however, since taxes need to be paid annually on the inflation component, which isn't received until the bond matures or is sold, this cash flow problem creates an additional reason to hold individual TIPS (as opposed to a fund) in a tax-advantaged account." ref: https://www.bogleheads.org/wiki/Tax-efficient_fund_placement

3. Not wrong on your part, but I'd probably be in some stage of getting out of the rat race. Maybe transition over next 1-3 years?

 

[viking111]

Great.

Deleted old post.

You are doing great. Good Luck with Everything.

 

[Gumby]

It is often the case when people first come on this board that they have been flying solo in thinking about retirement. The vast majority of the population does not think about it at all and they have no one to talk to about their hopes and dreams and fears. So when they first post, we may think their concerns odd or exaggerated. But that's because we have been members of this like minded community and have had the benefit of discussing our concerns with others who will consider them seriously at the least and who have likely faced and conquered them. So I try to cut our new posters some slack. I strongly advise that others do the same.

 

[viking111]

It is often the case when people first come on this board that they have been flying solo in thinking about retirement. The vast majority of the population does not think about it at all and they have no one to talk to about their hopes and dreams and fears. So when they first post, we may think their concerns odd or exaggerated. But that's because we have been members of this like minded community and have had the benefit of discussing our concerns with others who will consider them seriously at the least and who have likely faced and conquered them. So I try to cut our new posters some slack. I strongly advise that others do the same.

I agree. I was like that. Still am sometimes.

I apologize. Deleted old post.

 

[RobbieB]

You guys have nothing to worry about. Go ahead and execute your plan. Maybe even early -

 

[Vacation4us]

I don’t see anything wrong with you AA. You have enough and don’t want to risk your stash. Why do you want to add a REIT? I wouldn’t bother.

Enjoy the fruits of your labor. Welcome to ER.

 

[MercyMe]

I would also echo the sentiment that you can be more aggressive putting some of the cash into stocks for the long run.

I'd choose a stock fund (that will likely include some REITs anyway)...

Thank you all! When you say "stocks", are you referring to a stock fund or individual funds? Either way, what do you recommend?

 

[MercyMe]

I don’t see anything wrong with you AA. You have enough and don’t want to risk your stash. Why do you want to add a REIT? I wouldn’t bother.

Enjoy the fruits of your labor. Welcome to ER.

Thank you! To answer your question, I'd repeat what Gumby wrote about which is to spread the risk.

 

[OldShooter]

Thank you all! When you say "stocks", are you referring to a stock fund or individual funds? Either way, what do you recommend?

I think we are all referring to low cost index funds like Vanguard Total Stock Market Index Fund and Vanguard Total International Stock Index Fund or, alternatively, Vanguard Total World Stock Index Fund.

Here are a couple of good reads for you:

"The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/ (This is Bill's first book; read it before reading his second one.)


"The Bogleheads Guide to Investing" by Taylor Larimore et al https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/0470067365

 

[target2019]

Thank you all! When you say "stocks", are you referring to a stock fund or individual funds? Either way, what do you recommend?

Most long time posters here are referring to US Total Stock Market funds at their institution. This page explains what are equivalent funds at each of the major institutions. There are tables near the bottom of the page which explain the mutual fund and ETF versions. https://www.bogleheads.org/wiki/Three-fund_portfolio

These are large institutions you may be familiar with:
iShares Core S&P Total Market ETF (ITOT)
US Broad Market ETF (SCHB)
SPDR Russell 3000 ETF (THRK)
Vanguard Total Stock ETF (VTI)

And there are many other equivalents, which depend on where you're investing (such as Schwab, etc.) I happen to use VTI at Schwab, for example, so you're not necessarily liimited to your brokerage's "house funds."

You should also note that there are differences between investing in U.S. index funds and international ones. So reading a simple book, or using on-line education you have access to can help immensely. As with all subject matter today, it often will fell like you cannot find the key learnings in complicated books, internet sites, and anonymous posts.

A resource not mentioned often is your own banking and investing company web sites. There may be a short course or introduction to investing and finance.

Good luck with your search. Sorry about the long post.

 

[ERObjd]

i don't know any 52 yr olds who are doing better than you guys, the list would be a short one, plus I would guess, given your income levels, that at some point when you take your SS it would be maxed out as well which is about $3,350 at full retirement age currently , but since you are only 52, max SS will likely be over 4k a month in 10 years with colas.

 

[pacergal]

Welcome to the forum.
You have done a great job saving for retirement, you can retire any time!
The books listed by Oldshooter are very good, recommend reading them.

 

[pb4uski]

....1. I'm sure some would have plenty of concern about our low risk AA, but we're not overly worried about it. However, we are a bit unsure of our mutual fund mix. We would like to add a REIT fund to the 401k (we can do that since we are the plan admins), but are unsure if now is a bad time to invest in a REIT. If not, which one and what percent of our assets should go in there?

2. We don't have any TIPS funds. What funds should we be looking at, what percentage of assets should be in TIPS, and in what account?

3. What are we doing wrong?

Here is our Firecalc entry. I'm pretty sure I got it entered correctly, but if anyone finds a mistake, I'd welcome and appreciate suggestions.

1. I'd skip the REIT... between your other holdings you probably some real estate exposure aready and there is an argument that real estate is in a bubble with much lower demand for office space due to more remote work, etc.

2. If I was going to invest in TIPs I would buy individual TIPs and not a TIPs fund. Easy to do and you have more control.

3. I found a problem in FIRECalc. On the last tab, click on the radio button just to the left of Spending Level near the bottom of the Investigate Tab and then click on Submit. You need to open up the spigot and spend more... you worked hard and saved and invested well, now enjoy it. There is a poster here named RobbieB who can teach you a thing or two.

 

[Phroig]

I agree, skip the REITs. You could consider munis in the taxable account - perhaps a ladder of individual bonds for now, and then simplifying to something like VWALX once we get to stable rates.

 

[MercyMe]

I think we are all referring to low cost index funds like Vanguard Total Stock Market Index Fund and Vanguard Total International Stock Index Fund or, alternatively, Vanguard Total World Stock Index Fund.

Here are a couple of good reads for you:

"The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/ (This is Bill's first book; read it before reading his second one.)

"The Bogleheads Guide to Investing" by Taylor Larimore et al https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/0470067365

Thank you. I've read 30+ books investing within the last few years thanks to our local library. Ferri, Bogle, Larimore, Zweig, Brennan, Malkiel, etc. That is largely why we have the investments we have.

I've not yet read Coffee House Investor yet. Thanks again.