Good luck!Emergency funds: yes, 6 months in bank account
No Debt
Tax Filing Status: Married Filing Jointly
Tax Rate: Federal-35%, State–5% (Federal will decrease to 24% in 2025)
State of Residence: Ma
My age: 67; Wife 64
Have always self managed investments (have Fidelity exec services but use mainly for technical questions)
Desired asset allocation: Stocks–65%; Bonds-35%
Desired International allocation: 15% of stocks (current 5-10% but plan to increase)
Approximate size total portfolio: $5M ($3.7M pre-tax; $1.3M post tax in brokerage accounts)
His Company 401k*
Vanguard Federal Money Market - $140,810.17
World Dev Index Fund - $271,401.39
US Bond Index - $342,210.16
Russel Small Cap IDX - $531,175.96
S&P 500 Index - $1,594,662.23
Total - $2,880,259.91
His Company 401k Brokerage*
Cash - $13,113
BRKB - $46,341
Total - $59,454
* (No expense ratio provided as Fidelity uses “in-house” identifiers and not industry ones for a company administered plan we had to select from; will need to call and find out expenses)
His Fidelity Brokerage Account(post-tax)
Fidelity MM - $379,618 (expense .42%)
FSKAX - $721,246 (expense .02%)
Total - $1,100,864
Husband/Wife Joint Vanguard Brokerage Account(post-tax)
VTSAX - $249,846 (expense .04)
His Pension (No COLA, major firm in S&P)
Lump Sum - $514k or
Monthly - $3k per month (100% survivor benefit – leaning this way as wife’s side has strong longevity genes, my side not so much
Her Accounts(all pre-tax)
Fidelity IRA – Total $418,221
FSKAX - $67,200 (expense .02%)
Money Market A/C - $351,021 (expense .42%)
Vanguard IRA – Total $401,554
VTSAX - $321,329 (expense .04)
VEXRX - $80,225 (small cap fund; expense .34%)
Other Info
• We have a $1.2M paid for house that we will likely downsize from at TBD time in future. We have 4 grown children all into their careers but none married. I extended my career several years as their college and post college educational expenses were considerable.
• I stopped working last year after 45 years and severance package ends in about 6 weeks. Deferred payments will distribute over the next two years, alleviating the need from dipping into portfolio until 2027.
• Plan to file for my SS towards end of 2027 when I turn 70. Calculate it will be ~$5k per month
• Wife is working part time ($15k per year) and will probably do so for another year or two. She will likely file for SS when she stops working and estimate it will be $2k per month.
Questions
I have been reading various Boglehead posts/responses on retirement and have gained tremendous insight from them (thank you!). The accumulation phase seems much easier than the phase I'm entering, so I still have a number of questions am hoping this forum can weigh in on:
Plan to make a decision in coming weeks on how to take my pension. It would be $514k lump sum or $3k a month (no COLA) for life and, assuming I go first, the same amount for DW's lifetime. I like the idea of having that $10k guaranteed income a month when I turn 70 (our 2 SS totaling $7k + the $3k pension). However, don’t like the idea that if we were in a sudden accident in year 1 of pension, there would be nothing for the estate (but I guess that is the way these work).
You can overthink this. Your pension value is relatively small compared to your portfolio size and social security value and the difference between the two options is even smaller. Make the best decision you can and move on.
Used the TPAW tool with wife living to 97, me 85 and with $10k ceiling/$6.5k floor on monthly withdrawals starting in 2027. Added 24k per year for first 5 years for travel & potential lumpy items. It seemed to work out OK over the various percentiles (except the 5th percentile return starts to go lower during my wife’s last years). Did similar in the FireCalc tool and out of its 122 cycles had a success rate of 99.2%. Used the Fidelity tool too, which said in significantly below average markets would end up with $3.8M in account and in average market end up with $12M. Doing these exercises has given me a measure of comfort, but given my inexperience wondered if these estimates sound reasonable to Bogleheads?
Well, the results are the results. Your withdrawal numbers are conservative for your portfolio size, $10k monthly is a 2.4% annual withdrawal rate from a 5M portfolio. No worries here.
No Roth money currently as we have $3.7M in 401k/IRA money and $1.3M in brokerage funds. Recognize that when RMDs kick in down the road these will be significant. Used AARP RMD calculator and see when DW’s RMD’s start in 2036 we will begin to breach the 212k-266k IRMAA tier. Not as concerned as whether its Roth or 401k money left in the estate (understand Roth would be cleaner/easier for inheritors). Do Bogleheads see major benefits of backdoor conversions to lower our future AGI, IRMAA, etc.?
Given the size of your portfolio and your age you may not lower your RMDs very much. In your situation it looks unlikely that you will spend all your IRA savings. You might consider using QCDs to lower your realized RMD income to stay below the IRMAA threshold. That will depend of course on your desired spending.
Any suggestions on current allocations particularly on money market/bonds allocation, specifically as to whether more bonds/cash should be in taxable or not taxable accounts?
You have a good deal of experience and are running a simple, low cost portfolio. You might reduce your taxable income a little by shifting shifting some of the cash in taxable to stocks. I might be in a similar position as you are regarding my family and I feel good about having a decent mound of cash/bonds in my taxable account. At a minimum, ensure it is in a treasury-based instrument and free of MA taxes
I have my wife on COBRA but will need to bridge her medical coverage next year for 6-7 months until she turns 65. Any suggestions besides ACA as I heard those plans quite expensive if you report significant income?
I think you will find insurance plans offering similar coverage will have unsubsidized premiums in the same ballpark, unless your employer is subsidizing your COBRA. You can check for yourself on the MA health plan website.
On withdrawals, I have read general advice is withdraw from taxable accounts first, then non-tax. Does that seem appropriate in my situation? Also, for those who have been in the decumulation phase awhile, I sense I will struggle with withdrawals after getting so used to just saving and watch assets grow over the decades - any tips?
Well, you don't really have any low income gaps that provide good opportunities for reducing RMDs (severance then SS then RMD in rapid succession). So you may want to draw from both to level out taxes. Modeling it with a year by year spreadsheet (e.g. RPM, pralana, others that people talk about) might help. Most people feel weird about no longer saving and watching the money go out, but it doesn't take that long to get used to it. Your portfolio may well keep growing despite your withdrawals, so either way I don't think you will struggle much.
Open to any other suggestions and many thanks – Harry
Statistics: Posted by desiderium — Sat Jan 18, 2025 5:39 pm