seeking advice, in retirement now

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JohnnyM
Posts: 52
Joined: Sat Feb 14, 2015 10:54 pm

seeking advice, in retirement now

Post by JohnnyM » Mon Jun 15, 2015 4:39 pm

Emergency funds: well over six months of expenses, see below
Debt: none
Tax Filing Status: Married Filing Jointly
Tax Rate: 15-20% Federal?, 7% State?
State of Residence: N.C.
Age: Mr.83 & Mrs.80
Desired Asset allocation: 30% stocks / 70% bonds I assume, see below question
Desired International allocation: 30% of stocks I assume seems reasonable but will take suggestions.

A detailed breakdown within each asset class : I'm pretty sure safe and conservative is the way to go so you can suggest that, see below

Size of current total portfolio $950,000

value his IRA 610K + hisROTH-IRA 340 K
IRA cash 206K + ROTH-IRA cash 81K
% in Cash 34% IRA, 24%ROTH

combined Value
950K

Combined cash 286K
% of Portfolio In Cash 30%

The asset allocation of the above non-cash assets is individual stocks, mostly conservative but maybe 20-30% is a bit on the moderate or aggressive side of "conservative". Which as you probably agree is pretty darn risky. Here's the situation:
- my parents above
-my dad has a background in finance and has done reasonably well with his investments for the last 50 years or so.
-His health has deteriorated and maybe there is three years left. I suppose it could be longer, these days anything is possible. Still being in sound mind, but understanding the mental faculties are going
- now for the past 3-4 months he ( but not mom) has moved into assisted living and so he doesn't have an interest in the computer and managing his investments as he has done for decades; so he has assigned me to "do whatever I think is best". We have been discussing investing for the last five+ years so he trusts me that way.
- Mom is in pretty good health all things considered, and remains living at the house valued at about $200K.
- Because of his new residence in an assisted living facility, the annual budget of expenses for that alone is now about $6 K/month = $72K/year

FY2014 was roughly:
- combined $25K in social security income of which only $13K was taxable. I guess that will stay about the same for 2015.
- also $7K pension income

FY2015 income should roughly be:
$20K Trad. IRA draw #1
$20K Trad. IRA draw#2
$25K Social Security
$6K Pension
= $71K
They will have other typical living expenses of $15-$20K based on previous years, I suppose to be gotten by/from the Roth IRA.
71K +20 K = 81K



Questions:
1. Can you please help me determine what a safe/recommended amount of cash should be in the retirement plan. One should count on a down market lasting how many years, 4 years, 5 years? And you do not like to have to sell stocks in a down market because you need cash, better to have the cash before the market tanks. To repeat the above:
Current cash : 206 +81 = $297K
budget for expenses: $81K/year
297÷81 = 3 .67 years of expenses currently in cash in a retirement plan accounts (but 32K of expenses each year can be met from Social Security + pension income)



2. Yes these individual stocks need to go into something more safe. The only reason you see the 30% of the portfolio in cash today is because he has wisely sold a few of the stocks and not done his typical buying of some new stock with the proceeds from the sale. His investing strategy for the past > 10 years has simply been following, selectively following, a reasonably conservative newsletter that buys individual reasonably conservative stocks. But I would like to buy some index mutual funds that I am hoping you guys can help me out with. What do you think of a 30:70 stocks: bonds asset allocation? Or would you drop down to 20% stocks? I'm pretty sure that almost all portfolios do better historically with at least 20-30% stock position, right? Even in retirement, right? Even in this particular scenario?

3. Can you please make some suggestions of a very few index funds we could buy as the funds to do so become available? You guys have help me out in another thread with my own portfolio. I came to the conclusion that the Vanguard's "Life strategy" funds are good way to go for me and so I am thinking that would be a good fit here as well but would certainly appreciate all comments and further questions

4. Withdrawing the money as indicated above from the various accounts is the way to go I assume? Draw from the Roth IRA is the last resort and as late as possible?

5. Probably the most minor issue/question of mine: In the future, as his newsletter advises the occasional monthly sell of a stock position he holds, I will sell it. Alternatively, instead of waiting for the newsletter to make the "sell recommendation" I could sell them now and just buy the mutual funds, but keep in mind he may not want that just yet. He has mentioned a couple of times that he would like to continue to hold onto a few positions, for example Apple bought cheaply years ago, same thing with IBM & Yahoo so I can't really blame him almost 3; but really only those three stocks so really he would probably be open to selling the others if you really feel that is best but I don't think that this is a big point (selling stocks WHEN the newsletter advises versus selling them BEFORE the newsletter advises; they're fairly conservative and I don't think it will make a big difference in the long run but maybe you guys feel otherwise?

Note: If asked to add additional information, I'll try to use the edit button to add the information to the original post if it makes more sense that way.

Thank you

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BL
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Re: seeking advice, in retirement now

Post by BL » Mon Jun 15, 2015 10:55 pm

I would check with the assisted living to find out how much can be itemized for taxes.
You will learn that many here have no individual stocks at all because of individual risks. A good basic portfolio has only 3 funds:
/wiki/Three-fund_portfolio

The Target Retirement fund is 30:70 with mainly the above funds + int. bond.

I wonder if you are under-estimating the costs of maintaining the home and her expenses. i doubt they will go down much from what the 2 were spending before assisted living, but I could be wrong.

I think the Life Strategy Conservative or Moderate would be fine for the Roth, as I see no need to have cash there.

The idea that you shouldn't have money needed in the next 5 years in stocks makes sense to me. So maybe keep some of that extra cash in 1+% CDs or high return savings account (if possible) might be an idea. You don't know what is needed in the next few years. Maybe going through the checkbook might give you a better idea of routine expenses at home. The costs will rise if your father needs to be in a nursing home, for example.

They should be able to have income of nearly 100k (maybe more if they itemize) before they leave the 15% tax bracket for 25%. That would include RMDs, 85% of SS, Capital Gains, dividends (I don't see any listed-do the individual stocks have dividends that could be converted to cash?) . The rest could come from cash and perhaps tax-free Roth funds if you want to try to keep down taxes.

retiredjg
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Re: seeking advice, in retirement now

Post by retiredjg » Tue Jun 16, 2015 2:58 pm

I think you need to get a better understanding of your parents income and how their taxes work. And I wonder if RMDs got overlooked.

1) You need to figure their tax bracket. Since you have mentioned 15 to 20%, you may think that is a tax bracket, but there is no such tax bracket as 20%. Find their tax return and compare their taxable income, line 43 on form 1040, to this chart to determine their last tax bracket. Use the same chart to estimate if this next year, the tax bracket may change.

http://moneychimp.com/features/tax_brackets.htm

2) Last year, only about 50% of their SS was taxed. This year, that will very likely go up to 85% of their SS. Just know that is coming and it is because of the extra income from the IRAs. The amount of SS that is taxed depends on the amount of other income they have.

3) It appears to me that you didn't report any RMD income from His Traditional IRA of $610k. Are you familiar with RMDs? Since you didn't report it and since so little of the SS was taxed, I wonder if the RMD got forgotten and did not get taken. If not, somebody must fix this and the sooner the better before things get really tangled up.

It concerns me that so much of the portfolio is in stocks. Is your plan to exchange everything into a 30% stock/ 70% bond portfolio? Is your father going to be OK with that?

You listed a tIRA ($610k) and a Roth IRA ($340). Is there any money in savings?

JohnnyM
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Joined: Sat Feb 14, 2015 10:54 pm

Re: seeking advice, in retirement now

Post by JohnnyM » Thu Jun 18, 2015 4:54 pm

Thank you very much for your replies.
I like that idea of that basic portfolio of only 3 funds from the Target Retirement fund 30:70, VTINX, here https://personal.vanguard.com/us/funds/ ... IntExt=INT
so that is what I'm going with for their traditional IRA and I will be sure that there is about 5 years of living expenses in the form of "near-cash" as suggested in the form of 1+% CDs entirely in the IRA; I will look and see in what is available from Vanguard and post back with what these are but if anybody knows without me having to go and try to figure all that out I would appreciate it.
As for the Roth IRA, I will go with the Life Strategy Conservative 40:60 with no cash in the Roth IRA

Thanks for the comment about my possibly under-estimating the costs of maintaining the home and my mom's expenses. I will double check that. I should've mentioned that it is a patio home about 10 years old and so there are quarterly dues for all the exterior stuff and my mom is pretty good about taking care of things as they crop up rather than letting them go.

And thanks for all the comments about the taxes. I am going to relay this thread to my brother who is more on top of the taxes right now (really that was just done for immediate convenience, him the taxes and me the retirement plan accounts, from this point forward we will both be fluent in both the taxes in the retirement plan accounts). The two of us staying on top of both the tax situation in the retirement plan accounts is made more possible with the great suggestions from you guys.

Above Yes, my plan to exchange everything into about a 30% stock/ 70% bond portfolio, per my first paragraph above, a little bit of a mix in the sense that the Roth IRA will be Life Strategy Conservative 40:60 with no cash . My father should be OK with that and of course I will verify that before acting. It is going to look like this:
- traditional Roth IRA= 5 years living expenses in cash/near cash CD's1% + the rest in Target Retirement fund 30:70, VTINX
- Roth IRA: Life Strategy Conservative 40:60 with no cash

You asked: " Is there any money in savings?". No, all the caches in the retirement plan accounts as listed in the original post. Quarterly cash is withdrawn from the retirement plan accounts and deposited into the local checkbook account.

Does anyone have any suggestions for the "near-cash" in the form of 1+% CDs from Vanguard (or actually he is at Scottrade), do they actually have "funds", for CDs or whatever?

Looking forward any further comments or questions.

retiredjg
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Re: seeking advice, in retirement now

Post by retiredjg » Fri Jun 19, 2015 6:59 am

At Vanguard, near cash would be one of the short term bond funds or perhaps money market which essentially is cash and which probably will not keep up with inflation.

I don't think Vanguard is the best place to buy CDs - they sell "brokered CDs" and you probably want CDs you can buy at a bank. However moving some of the IRA should not be a terrible inconvenience if you want CDs.

I do not know what is available at Scottrade. I would not hold the Vanguard funds at Scottrade though unless there are free trades. Paying a transaction fee for every trade is a waste of money.

JohnnyM
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Joined: Sat Feb 14, 2015 10:54 pm

Re: seeking advice, in retirement now

Post by JohnnyM » Sat Jun 20, 2015 12:37 pm

Thanks once again. Good to know that CD should be bought at the bank rather than in a brokerage firm.
Just stick with the local bank they do business with for the CDs, or is there a few good banks that may not be local that would make more sense?
CDs at the bank, I think they have 3 months 6 months 9 months etc., I want only 3 month?

For the 5 years of living expenses in "near cash", you mentioned CDs or short-term bond funds. Do you guys consider these two vehicles the same?
In this situation, you like a combination of all three vehicles: 1-cash, 2-CDs, 3-short-term bond funds?
If yes what is a good allocation/percentage of the "near cash" of all three?

I don't have much experience in bonds; short-term you mean 90 day?
Can you make a suggestion of some appropriate "short-term bond funds" found at Vanguard, I did search Vanguard and got about 252 possible funds?

" I would not hold the Vanguard funds at Scottrade though unless there are free trades. Paying a transaction fee for every trade is a waste of money." The transaction fees are $7 per trade. There are about 17 stocks that over the next year or so will get sold the proceeds of which will either stay in cash, or a single purchase of the Vanguard fund mentioned in this thread. Other than that, just the typical annual rebalancing. That isn't too bad is it? Just want to be sure I'm not missing something. And I definitely would like to know if any of you guys feel strongly that I should move the accounts over to Vanguard if that is going to be significant. But as I say in about 1-2 years, there's going to be very little activity. You say holding the Vanguard target funds and short-term bond Vanguard funds at Vanguard will be significantly cheaper than at Scott trade? I'm all for that so let me know.

retiredjg
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Re: seeking advice, in retirement now

Post by retiredjg » Sat Jun 20, 2015 1:23 pm

JohnnyM wrote:Just stick with the local bank they do business with for the CDs, or is there a few good banks that may not be local that would make more sense?

Here's the thing about CDs. You are talking about money in IRA. You could actually have to open an IRA account at the place you want the CDs. IRAs are somewhat portable, but you don't want to be moving them all the time so you need to find a bank or credit union that will be convenient and that you are willing to stay at for at least awhile.

About buying CDs, you get the best deals by using online banks and moving from bank to bank every once in awhile. As you can see, this is in direct opposition to what I said above about the hassle of moving an IRA frequently. If you check around and find a place that you think will work out for awhile, go there. I know that is not very helpful, but it is the best I can do. If you go to Bankrate.com and look for CDs for a week or so, you'll get an idea of how it works. Be sure you notice the rating on the various institutions and maybe bypass the ones who have the least financial stability.

CDs at the bank, I think they have 3 months 6 months 9 months etc., I want only 3 month?

A 3 month CD is not going to pay jack squat. You should be considering something longer term. Look up "CD ladder" and consider doing that.

For the 5 years of living expenses in "near cash", you mentioned CDs or short-term bond funds. Do you guys consider these two vehicles the same?

They are not the same. A CD can't lose value that I know of. A short term bond fund can although it should not be much and that will be made up because it will start paying more in dividends. A short term bond fund is the safest bond fund you can buy. It also pays the least but it has more of a chance of keeping up with inflation than a money market fund does.

In this situation, you like a combination of all three vehicles: 1-cash, 2-CDs, 3-short-term bond funds?
If yes what is a good allocation/percentage of the "near cash" of all three?

This is just personal preference. I probably would not hold any of these - just the target fund at 30% stocks/70% bonds would suit me. But I know that some people like to have a several year buffer of cash.


I don't have much experience in bonds; short-term you mean 90 day?
Can you make a suggestion of some appropriate "short-term bond funds" found at Vanguard, I did search Vanguard and got about 252 possible funds?

Short term bond funds usually refer to bonds that have a maturity of less than 4 or 5 years. Go to this site, click on bonds (panel on the left side) and look at the 9 red boxes. Pick the box in the upper left corner (short term, high quality) and the box just below it (short term, medium quality). These will be the short term bonds you should choose from. Don't pick a tax-exempt bond.

https://investor.vanguard.com/mutual-fu ... funds-list

I would probably pick the first one on the list - Short Term Bond Index - because that is the fund that should contain the broadest number of different things.

" I would not hold the Vanguard funds at Scottrade though unless there are free trades. Paying a transaction fee for every trade is a waste of money." The transaction fees are $7 per trade. There are about 17 stocks that over the next year or so will get sold the proceeds of which will either stay in cash, or a single purchase of the Vanguard fund mentioned in this thread. Other than that, just the typical annual rebalancing. That isn't too bad is it? Just want to be sure I'm not missing something. And I definitely would like to know if any of you guys feel strongly that I should move the accounts over to Vanguard if that is going to be significant. But as I say in about 1-2 years, there's going to be very little activity. You say holding the Vanguard target funds and short-term bond Vanguard funds at Vanguard will be significantly cheaper than at Scott trade? I'm all for that so let me know.

Nobody can answer this for you. I might pay $7 once a year if I really wanted to stay at Scottrade. I think you will have to pay that $7 at least 17 times just to sell that stock and one more time to buy the short term bond and again each time you buy the Target Fund. However, I don't even know if Scottrade sells the Vanguard short term bonds or the Vanguard Target Retirement funds. You'll have to ask them and when you do, find out about the fees.

Is there an annual fee for holding the tIRA? The Roth IRA? For buying and selling any funds?

If it were me, I would move everything to Vanguard because I understand Vanguard and I know they will not surprise me with any fees. There would be no fees to buy and sell Vanguard funds and no fee to hold the IRAs if you accept electronic notifications. Scottrade may be just as good (except for the $7 trades), but I have no experience there so I can't suggest you use it or not use it.

derosa
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Re: seeking advice, in retirement now

Post by derosa » Sat Jun 20, 2015 1:48 pm

LIfestrategy option is a good one. Don't have to worry about allocation - that decision is made for you already. If you wanted to go for a slightly more conservative 30/70 you could always do it yourself with 2 funds - total stock and total bond. If purchases are made they allocation is set.

You could have any dividends and cap gains directed to a money market account(s) in place of being reinvested. Depending on the amounts that would be a start on the cash flow side. That way there would be less selling when needed, All depends on the amount of course. Typically are paid in quarterly distributions but all funds are different.

I think you need to determine the cost basis of the individual stocks before doing any selling. Depending on the stock and the length of time held and their performance simply selling to sell could generate a potentially large tax bill. If there are some that could be sold at a loss that would balance a sale with a gain.

Not sure there is aneed to have severalyears of cash. Might plan to keep some assets in cash or cds. But let dividends and cap gains be directed to cash accounts over the years.

JohnnyM
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Re: seeking advice, in retirement now

Post by JohnnyM » Sun Jun 21, 2015 9:08 pm

More good information from you guys, thanks.

As for the cash, I am going to:
- keep 5 years expenses in cash/near cash; two years in actual cash kept in the traditional IRA +3 years in "near cash" in the form of a CD ladder consisting of a 1-year CD, 2 year CD, 3-year CD, I am going to start with the 1 year CD just to be safe, as you guys say expenses could go up for a nursing home or something unforeseen.
- As for the location of the CDs I'm probably just going to go with the local bank where they have their checking account which I believe is Wells Fargo or Bank of America and I assume you guys agree that either one of those two institutions are sound and stable? I will have him open up a traditional IRA account there and then make the transfer of cash from the Scottrade IRA to the local bank IRA and then buy the CD ladder at the local bank.

BL asked above: "dividends (I don't see any listed-do the individual stocks have dividends that could be converted to cash?)"
Yes many of those stocks have dividends and I know that they are all reinvested right now. Am I correct that we can contact Scott trade & have my dad fill out a form that would start directing dividends to a cash/MM account instead of being reinvested? The idea being to get the "5 years expenses in cash/near cash" from that instead of selling as derosa mentions?

As stated in question #1 in my original post "between the two accounts there is already $286K = 3.67 years of expenses currently in cash in a retirement plan accounts (but 32K of expenses each year can be met from Social Security + pension income). Now that I revisit that fact, and the estimation of $81K annual expenses, is the following reasonably accurate:
if $81K of annual expenses will be met by $32K Social Security&Pension, then 81-32 = $49K extra cash/near cash per year is what is needed, so if I want 5 years expenses in cash then really what I need is 49 x 5yrs = $245K in cash/near cash in the traditional IRA. Is my thinking reasonable in this regard?
Yes, I want the cash to be in the traditional IRA; from my original post: IRA cash $206K + ROTH-IRA cash $81K = $286K. So I want to get that cash in the traditional IRA towards the $245K range, it is shy about $39K. The cash in the Roth IRA will be invested in the target fund or life strategy fund but not until we approach the traditional IRA getting the $245K. Does all this make sense you guys?

retiredjg, thanks for posting that link and specifying that bond fund you like! You also said "A short term bond fund can lose value although it should not be much and that will be made up because it will start paying more in dividends. A short term bond fund is the safest bond fund you can buy. It also pays the least but it has more of a chance of keeping up with inflation than a money market fund does."
So instead of the 3 years expenses in a CD ladder that I mentioned above, why not put the 3 years expenses in this short-term bond fund? And once a year at the annual re-balancing, sell "1 year's worth of expenses = $49K" of that short-term bond fund and keep it in cash? That should do better than a CD? It seems easier than opening another account at the local bank for the CD ladder? Or maybe this isn't a good idea because it's more risky than a CD ladder?

derosa wrote "I think you need to determine the cost basis of the individual stocks before doing any selling. Depending on the stock and the length of time held and their performance simply selling to sell could generate a potentially large tax bill. If there are some that could be sold at a loss that would balance a sale with a gain."
Thanks for reminding me about all that, geez I forgot because I'm used to my own retirement accounts and I'm not in retirement so there's no tax implications when selling. Assuming you guys agree with me that at this time about all I want to do insofar as "the cash for expenses" is get that cash in the traditional IRA towards the $245K range, it is shy about $39K, let's say $40K to keep the numbers simple. What would be the ideal way to achieve that? Find 2 or more stocks, all held over 12 months, and sell part/all of one/some at a loss and the other(s) at an equal gain, the total about $40K. Whatever you have me do, it should be pretty easy because there are 16 or 17 stocks in that account, I bet all of them are held > 1 year.

radiowave
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Re: seeking advice, in retirement now

Post by radiowave » Sun Jun 21, 2015 9:54 pm

Here's a handy web site to check current CD rates:

http://ratebrain.com/cd-rates
SatuMedia Wiki: /wiki/Main_Page

BarbK
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Re: seeking advice, in retirement now

Post by BarbK » Sun Jun 21, 2015 10:12 pm

Regarding itemization of taxes from assisted living: I'm sure he is in AL because it is medically necessary so all of it should be a qualified medical expense. (keep records) Because he is older than 65, the allowed deduction will be that amount over 7.5% AGI.

So if their AGI is 80K,
7.5% is 6K
and his AL is 72K, he should be able to include 66K for itemization (plus whatever else they can itemize - property taxes, health insurance premiums, etc).

I went through this with my mom when she was in AL;

Taxes really should not be a concern.

BarbK
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Re: seeking advice, in retirement now

Post by BarbK » Sun Jun 21, 2015 10:28 pm

derosa wrote:I think you need to determine the cost basis of the individual stocks before doing any selling. Depending on the stock and the length of time held and their performance simply selling to sell could generate a potentially large tax bill. If there are some that could be sold at a loss that would balance a sale with a gain.


It's in an IRA - unless he had a non-deductible IRA, all of it will be taxed upon withdrawal.

JohnnyM
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Re: seeking advice, in retirement now

Post by JohnnyM » Mon Jun 22, 2015 7:28 am

Thanks radioawave & barbk !
Anybody have an opinions re :
instead of the 3 years expenses in a CD ladder that I mentioned above, why not put the 3 years expenses in this short-term bond fund? And once a year at the annual re-balancing, sell "1 year's worth of expenses = $49K" of that short-term bond fund and keep it in cash? That should do better than a CD? It seems easier than opening another account at the local bank for the CD ladder? Or maybe this isn't a good idea because it's more risky than a CD ladder?

BarbK
Posts: 210
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Re: seeking advice, in retirement now

Post by BarbK » Mon Jun 22, 2015 8:26 am

A couple of things:

1. Do you have POA?

2. It was mentioned earlier that there was doubt RMDs were taken.
You can easily check his Scottrade Account tax statements online. He should have a 1099R.
He accumulated a large Roth balance so someone was on the ball for that, it's hard to imagine that RMDs would be forgotten.

3. For your CD/ST bond, confirm that taxes won't be an issue, have you considered withdrawing the yearly budget $ needed, and putting it in a taxable MM account (such as AllyBank almost 1%) and leave the rest in a ST bond fund within the IRA. Use the $ from the MM throughout the year. That way any fluctuation in NAV of the ST bond fund will produce more shares when price is down, etc.

retiredjg
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Re: seeking advice, in retirement now

Post by retiredjg » Mon Jun 22, 2015 9:47 am

JohnnyM wrote:- As for the location of the CDs I'm probably just going to go with the local bank where they have their checking account which I believe is Wells Fargo or Bank of America and I assume you guys agree that either one of those two institutions are sound and stable? I will have him open up a traditional IRA account there and then make the transfer of cash from the Scottrade IRA to the local bank IRA and then buy the CD ladder at the local bank.

You could see if Scottrade has "direct" CDs as opposed to "brokered" CDs. As I understand it, a direct CD would be like one you get at a bank. These are just words I've seen discussed here - I don't know if they are actually the right terminology. If Scottrade has such a thing, you would not have to open an new IRA account.


As stated in question #1 in my original post "between the two accounts there is already $286K = 3.67 years of expenses currently in cash in a retirement plan accounts (but 32K of expenses each year can be met from Social Security + pension income). Now that I revisit that fact, and the estimation of $81K annual expenses, is the following reasonably accurate:
if $81K of annual expenses will be met by $32K Social Security&Pension, then 81-32 = $49K extra cash/near cash per year is what is needed, so if I want 5 years expenses in cash then really what I need is 49 x 5yrs = $245K in cash/near cash in the traditional IRA. Is my thinking reasonable in this regard?

Your thinking seems right if the estimates are right. However, since this is a new situation, expenses may not be what you expect. But if you only have 4 years in cash instead of 5 years in cash, that will become evident as the first and second years pass. You can make adjustments then.


Yes, I want the cash to be in the traditional IRA; from my original post: IRA cash $206K + ROTH-IRA cash $81K = $286K. So I want to get that cash in the traditional IRA towards the $245K range, it is shy about $39K. The cash in the Roth IRA will be invested in the target fund or life strategy fund but not until we approach the traditional IRA getting the $245K. Does all this make sense you guys?

As above, I don't think you need to be all that precise about this. Time will show what is really needed. You have a lot of buffer built in already. I would not worry about $39k.


retiredjg, thanks for posting that link and specifying that bond fund you like! You also said "A short term bond fund can lose value although it should not be much and that will be made up because it will start paying more in dividends. A short term bond fund is the safest bond fund you can buy. It also pays the least but it has more of a chance of keeping up with inflation than a money market fund does."
So instead of the 3 years expenses in a CD ladder that I mentioned above, why not put the 3 years expenses in this short-term bond fund? And once a year at the annual re-balancing, sell "1 year's worth of expenses = $49K" of that short-term bond fund and keep it in cash? That should do better than a CD? It seems easier than opening another account at the local bank for the CD ladder? Or maybe this isn't a good idea because it's more risky than a CD ladder?

I do not know if it will do better than a CD, but it is more convenient to have money in one place and I believe the risks to be similar. And I'm not even sure I'd keep the cash. A short term bond fund is close enough to cash for me, but you need to suit yourself.

Edit: One reason to put some money in cash is to avoid $7 trades every month or every time he needs money. If you are going to stay at Scottrade and if you are going to use Vanguard funds, I would put a year's worth into cash every year - in some kind of account that does not require a $7 trading fee for each transaction. I don't know enough about what is available at Scottrade to help.


derosa wrote "I think you need to determine the cost basis of the individual stocks before doing any selling. Depending on the stock and the length of time held and their performance simply selling to sell could generate a potentially large tax bill. If there are some that could be sold at a loss that would balance a sale with a gain."
Thanks for reminding me about all that, geez I forgot because I'm used to my own retirement accounts and I'm not in retirement so there's no tax implications when selling. Assuming you guys agree with me that at this time about all I want to do insofar as "the cash for expenses" is get that cash in the traditional IRA towards the $245K range, it is shy about $39K, let's say $40K to keep the numbers simple. What would be the ideal way to achieve that? Find 2 or more stocks, all held over 12 months, and sell part/all of one/some at a loss and the other(s) at an equal gain, the total about $40K. Whatever you have me do, it should be pretty easy because there are 16 or 17 stocks in that account, I bet all of them are held > 1 year.

All this money is in IRA, isn't it? If so there won't be any capital gains associated with selling. Cost basis is not relevant. There will be tax when you take money out of the tIRA.

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Re: seeking advice, in retirement now

Post by JohnnyM » Mon Jun 22, 2015 8:22 pm

1. Do you have POA? No I do have authorization to perform the trades. My mom is still around and she would "take over" the retirement plan accounts upon his death, she has no experience in such matters we are discussing here, which is another good reason for getting the portfolio in a fashion described in this thread (away from individual stocks and into a nice conservative approximately 30:70 ratio with plenty of years living expenses in "cash"). My dad has reasonable mental faculties and as soon as I get everything in this thread answered, I will present it to him and I suspect he will agree, as mentioned he probably wants to hold onto 3 of those stocks that he bought so cheaply I can't really blame him. I will look up the percentage of the portfolio that they consist of and also his purchase price as well as today's price because you may have some very good suggestions.

2. It was mentioned earlier that there was doubt RMDs were taken.
You can easily check his Scottrade Account tax statements online. He should have a 1099R.
yes he definitely took an RMD as he has since age 70.5 or whatever.

3. For your CD/ST bond, confirm that taxes won't be an issue, have you considered withdrawing the yearly budget $ needed, and putting it in a taxable MM account (such as AllyBank almost 1%) and leave the rest in a ST bond fund within the IRA. Use the $ from the MM throughout the year. That way any fluctuation in NAV of the ST bond fund will produce more shares when price is down, etc.
thanks Barb, that is, what I was hinting at in my prior post. Keep enough cash for one year or more, but let's say that he is comfortable with "5 years expenses in cash/near cash" which makes me comfortable for various reasons, and I know it will make my mom and my siblings comfortable that we are taking a safe conservative approach. I have experience and knowledge with stocks and CDs and money markets, but no experience with bonds. Hence my question if the short-term bonds were considered "near cash" in this situation, where we want "about 5 years living expenses in cash/near cash". Barb I would like to know your opinion if you feel short-term bonds are pretty darn close to "near cash". I am thinking: have 2 years expenses in cash + 3 years expenses in short-term bonds (instead of a CD ladder), and then annually convert/sell one year expenses of the short-term bonds into cash to maintain the "2 years expenses in cash"? Does this sound good or any of you guys like something a little better because I appreciate all your suggestions?

" That way any fluctuation in NAV of the ST bond fund will produce more shares when price is down, etc." NAV = net asset value ( from Wikipedia, aren't I smart), but do you have a link where I can learn more about what you speak of or if it is easier for you to explain it in a few sentences even better, I need more education about bonds obviously.

retiredjg, that's a great suggestion about checking with Scott trade for direct/non-brokered CDs or whatever they're called, that would certainly be great if they have such a thing, I agree to keep it at Scott trade if possible. And thanks for the comment about the figures, and for your comment about what I just mentioned to Barb about short-term bonds being close enough to "near cash", big help! Yea you hate to see too much cash sitting around losing to inflation, at least try to make a little bit with some vehicle that is "near cash". And yes all this money is in 2 retirement accounts, one is a traditional IRA and one is a Roth IRA, you can reference my original post for the figures and percentages including how much is currently in cash. I kind of forgot that things just get taxed when it is withdrawn, not necessarily if there is a capital gain from a sale, that is what you are saying, right?
And to repeat the overall gist here is:
- get him away from those individual stocks and more towards a very simple 30:70 portfolio
- have about 5 years living expenses in cash/near cash (I am just so unfamiliar with bonds)

I feel I'm wrapping this up with just a few more replies from you guys. Sincere thanks !

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Re: seeking advice, in retirement now

Post by BL » Mon Jun 22, 2015 10:39 pm

I am not sure you should choose short-term bonds when neither you nor your father understand them. What is the cash in now, a money market fund?

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Re: seeking advice, in retirement now

Post by retiredjg » Tue Jun 23, 2015 5:58 am

JohnnyM wrote: I kind of forgot that things just get taxed when it is withdrawn, not necessarily if there is a capital gain from a sale, that is what you are saying, right?

Correct.

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Re: seeking advice, in retirement now

Post by JohnnyM » Tue Jun 23, 2015 6:53 am

BL wrote:I am not sure you should choose short-term bonds when neither you nor your father understand them. What is the cash in now, a money market fund?


Yes, a MM in the two Retirement Plan accounts. My dad understands bonds, he's just not utilized them much over his investing career but he is all for moving to a more conservative portfolio now. I do appreciate your comment. I am learning more about bonds, I want to get your guys opinions re "short term bonds for the 5 years living expenses in cash/near cash" is not too aggressive, say for years #3,4,5 (beyond the actual cash for years #1 & maybe #2 or part of year#2)

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Re: seeking advice, in retirement now

Post by BL » Tue Jun 23, 2015 7:51 am

I believe most of us responding here are familiar with Vanguard funds but not Scottrade funds and costs. You may not be able to get the Vanguard funds discussed here, or they may be expensive. Perhaps the V ETFs might be cheaper, in which case perhaps a total stock and a total bond would be an adequate substitute for the single V fund. Paying for cashing in one or two ETFs once a year might be worth the not moving. There may also be cost-free total stock and bond index funds available. I really have no clue. Here is a link to the 3-fund portfolio in funds and ETFs at some other places (not Scott) that might give you an idea:
/wiki/Three-fund_portfolio

(The 3-fund covers most of what is in the single funds such as Life Strategy. Most here don't think the 4th fund, international bond, is worth buying separately). I have read that John Bogle doesn't think international is required, either, so leaving that out would simplify withdrawals when there is a cost involved where you locate the accounts.

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Re: seeking advice, in retirement now

Post by JohnnyM » Thu Jul 02, 2015 3:25 pm

BL, thanks for the reply and for waiting, I have been away a few days

I believe most of us responding here are familiar with Vanguard funds but not Scottrade funds and costs. You may not be able to get the Vanguard funds discussed here, or they may be expensive.
To place a buy order at Scott trade for VASIX (that 20:80 Vanguard income life strategy) & a few other Vanguard Life Strategy funds, there's a $17 transaction fee compared to the $7 transaction for most stock trades at Scottrade. If the account is over at Vanguard, how much would Vanguard charge to buy the VASIX fund? But once the portfolio is as ultimately planned, I guess it is not going to make a big difference because there will not be a lot of activity, just getting another year's worth of expenses from whichever Vanguard frond into a years worth of expenses in cash.

Perhaps the V ETFs might be cheaper, in which case perhaps a total stock and a total bond would be an adequate substitute for the single V fund.
Good suggestion because that Vanguard Total Stock Market ETF (VTI) is the usual $7/trade as are the Vanguard Total Bond Market ETF (BND) & Vanguard Total International Stock ETF (VXUS)
But with the ETF's there is no option to direct dividends & gains to either cash account vs. re-invest.
Is that the nature of ETF or I just need to get a form at Scottrade? Either way it is a good point because that is one of the issues in this situation, so that cash needed for expenses can be drawn from a cash account instead of having to execute a trade costing between $7- $17 at Scottrade


Paying for cashing in one or two ETFs once a year might be worth the not moving.
Probably what my dad will say. He will probably also say the same thing about the $17 fee for the life strategy fund, we are talking 1 to 2 times a year as you say.

There may also be cost-free total stock and bond index funds available. I really have no clue. Here is a link to the 3-fund portfolio in funds and ETFs at some other places (not Scott) that might give you an idea:
/wiki/Three-fund_portfolio
(The 3-fund covers most of what is in the single funds such as Life Strategy. Most here don't think the 4th fund, international bond, is worth buying separately). I have read that John Bogle doesn't think international is required, either, so leaving that out would simplify withdrawals when there is a cost involved where you locate the account.

That is interesting that you say that about international bonds because that was my first thought when I looked at those life strategy funds. My brief education indicated that I (both me and my dad) really just want US bonds or bonds denominated in US currency. But then I thought to myself surely the guys at Vanguard who are some of the best in the business must have a good reason for putting international bonds in. So you reconfirm my initial impression which was no great insights by me but just what I read.

Does anyone else have opinions about international bonds?
Does anyone consider it a negative? I wouldn't think so if the Vanguard guys are putting them in their?

Yet based on the above fees at Scottrade we are talking about:
$17 for the life strategy fund, which includes international bonds, doesn't require annual rebalancing, and allows dividends and gains to be directed into a cash account
Or
$7 x 3 for the "3-fund" = $21 plus I will have to do the annual rebalance which is no great chore but the life strategy fund does this for you all the time, but it will be another trade fee of $7 per trade, and I cannot direct dividends & gains into a cash account which is relevant in this situation.

The life strategy fund seems better, no?

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Re: seeking advice, in retirement now

Post by retiredjg » Thu Jul 02, 2015 3:37 pm

I don't think the international bonds are a "must have". I also don't think they will do any harm.

You pay nothing for buying or selling a Vanguard product at Vanguard. If you can keep the trades to a minimum and if you like Scottrade, I don't think a move to Vanguard is necessary.

The answer would be different if you needed 10 or 20 trades a year.

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Re: seeking advice, in retirement now

Post by BL » Thu Jul 02, 2015 6:27 pm

The life strategy fund seems better, no?

Yes, I think so. It is simpler, rebalances itself, and I believe it works better than ETFs because it deals with dollar amounts rather than whole shares, and perhaps a simpler way to deal with distribution money.

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Re: seeking advice, in retirement now

Post by JohnnyM » Fri Jul 03, 2015 9:28 am

Thanks for the replies.
This thread has been going on so long I forgot about the other choice of VTINX, that Vanguard target fund of 30:70, which is actually the ratio I want instead of the life strategy options of either 20:80 or 40:60. VTINX also has a trade fee of $17 which as I mentioned I don't think it's going to be a big deal because of the infrequency of trading. It also has a portion in international bonds.
Aside from the stock to bond ratio, I see very little difference between the 70:30 target fund VTINX & and the 20:80 life strategy fund VASIX,, or am I missing something like a lower cost or other advantages/disadvantages of one or the other?
https://personal.vanguard.com/us/funds/ ... IntExt=INT
https://personal.vanguard.com/us/funds/ ... IntExt=INT

I mentioned long-ago in a post above about selecting 60:40 life strategy VSMGX for the Roth IRA account, and the VTINX 30:70 target fund for the traditional IRA account.
Remember
- that the Roth IRA will be fully invested,
- whereas the traditional IRA will be the account which holds plenty of cash or "near cash" to be withdrawn as needed for living expenses.
-The Traditional IRA comprises about 65% of the total portfolio (& probably dwindling each year as cash is withdrawn)
- the Roth IRA comprises about 35% of the total portfolio.

For the situation, ages 83 and 80, if you are handling things, you guys would rather keep a
30:70 or a
20:80 or a
combination of a 30:70 in the traditional IRA and a 40:60 in the Roth IRA or
am I over-thinking over-analyzing etc.
If I like the 20:80 or 30:70, just get the 30:70 target fund or the 20:80 life strategy in both accounts?
I have no problem getting two life strategy funds of 20:80 and 60:40 to approximate a 70:30 if you think that is sound.

I'm about ready to pull the trigger with something definitive here, thanks to you guys for all the help. I'll await further replies & hopefully be done with this thread unless I run into some little detailed questions about the buying and selling, the CD ladder etc.
Last edited by JohnnyM on Fri Jul 03, 2015 3:34 pm, edited 1 time in total.

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Re: seeking advice, in retirement now

Post by BL » Fri Jul 03, 2015 12:46 pm

I do think you are over-thinking, but that is fine. You should be convinced before you start to move things. I hear this expression here often: "There are many roads to Dublin." You have several reasonable paths from which to choose. Also, since there are no tax concerns, you are able to change later if you must. Just don't get the mind-set of changing your funds often.

The risks I see are:
1. stock market crashes just when money is needed and they don't have the time to wait for recovery. This calls for low end of stock %.

2. Inflation goes crazy. This is a risk of too much in bonds now even though they will catch up eventually. Higher stock % and the inflation bonds in TR Income may help some there.

If I recall, you plan to have some 2 years worth of cash in tIRA. So you could have the same fund in both places but the cash would reduce the risk in the tIRA. I would watch for potential increased medical costs so you have necessary cash available as needed.

I might even go with LS 40/60 in both with the extra cash. You could always reduce the tIRA later to TR 30/70 if needed. Or make them both 30/70 to have some inflation bonds (they haven't done well lately with low inflation, but then that is how they work.) Ok, one of each if you can't make up your mind! TR 2010 is ~35/65 and decreases automatically to the 30/70 in ~5 years, just to mess up your thinking!

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Re: seeking advice, in retirement now

Post by JohnnyM » Wed May 11, 2016 5:45 pm

May 2016 update:
My dad passed away a couple months ago. Since my last posting I have handled all the retirement plan accounts as indicated above, but to save you from having to reread:
- both the traditional IRA and the Roth IRA accounts contain only 2 funds, Vanguard life strategy 60:40 and Vanguard life strategy 20:80 to achieve the desired 30:70 for the entire portfolio, the Roth IRA is fully invested,
- all those individual stocks in the retirement plan have been sold, except both accounts still hold one individual stock up over 100% since it was purchased a few years ago, they will both be sold eventually and I am not worried about either of those 2 individual stocks.
-the traditional IRA also holds about $36K in cash, I determined that to be part of the "5 years of expenses for my mom" when considering her sources of income and some " cash" accounts I have discovered, more about this cash below.
- If anyone does go up and reread through this thread: yes I am on top of traditional IRA RMD, and taxes are not an issue as someone stated above.

Here's the new information I am hoping to get some help with. If you'd like me to start a new thread I can or a moderator can create a new thread but I think it's best here in case anyone wants to go look at something above.

- My mom's annual expenses are about $9-10K, let's just say $11K
- of course some new expense can pop-up such as maintenance at the patio home or getting a new used car etc. The most significant new expense would be she requires assisted living (as mentioned above that would be about $6K per month as it was for my dad but she seems far from that now).
- The two retirement plan accounts total about $850K, so my mom will be fine.
- the IRA RMD is about $35K, so more than likely my mom will have quite a bit of money accumulating each year, 35K less 11K = $24K, what's the best thing to do with this each year? That is a slightly more distant question than my more immediate questions below regarding all the cash currently in a checking account, but I just as well ask to get that rolling and of course it may affect your questions and suggestions to me.
- Until my dad died I really didn't have a pressing need to go and look at all the accounts like I do now since she is all alone and never did much of the finances. She is fine with me and my 3 siblings helping her. All the trust is there, and I tell my siblings that no single kid will be an added name on any account (checking a money market accounts etc., obviously not the retirement plan accounts), always have 2 kids as an added name on any account and all 4 of us kids always knows what is going on in the various accounts, which overall is uncomplicated.

So now that I have had to go and look at all a various accounts beyond the 2 retirement plan accounts (which was how this thread originally started & was about, as well as some other relevant concepts like "having 5 years in cash", etc.), I find the following "cash-like assets".
-money market, $17K, earning a ridiculously low 0.03%, about 0.41 per month
- money market, $6K; earning a ridiculously low percent, and who 2 money markets talking these amounts, just something left over from over a decade ago etc.
-24 month CD, $20K earning a very low percent, $2.85 per month
- the above three accounts total $43K, they were all closed and moved into her checking account in hopes of doing something a little more reasonable than 0.03%.
- there was already $26K in the checking account so 26+43 = $70K sitting in a checking account.

- So the cash on hand right now is 70 checking account +36 IRA =$106K cash
- the FY2016 RMD of $35K has already happened (were planning for my dad on a quarterly basis etc.), And there is the income from Social Security $1,300/month for the rest of the year + pension income $275/mo totaling $1,575/month

- I want to stick with the idea of "5 years living expenses in cash" for my 82 year-old mom. As mentioned, about $11K per year, maybe you guys suggest I bump it up for some unforeseen expense like a used car or whatever; if her health goes down quickly I will repost at that time but that appears to be no time soon however I'm always open to any comments.

So what to do with this cash?
- Cash in now IRA $36K?
- Invest in the 30:70 two Vanguard funds (probably just one of those funds). Or better to leave it there or some portion?
- cash in a local checking account, $70K?
- My thought was to put it in the highest earning money market account I can find which is not too good of a rate? Does anyone have a link for the highest earning money market account if that is the suggestion? Transferring money from an account quarterly is not a hassle to do, she has been doing quarterly transfers when my dad was around, and there are 4 kids to help her stay on top of that. On the other hand we don't need to hassle trying to earn the measly money market rates, could just as well leave 1 year expenses in the checking account. I'm open to your suggestions. In the posts above prior to this May 2016 update, there was mention of a CD ladder, short-term bond fund, etc. I haven't forgot about those excellent suggestions but since I have added a little new information, perhaps your suggestions and comments and questions to me may be slightly different

Remember, assuming her health remains good which I believe it will, the IRA RMD and other sources of income should be more than double her expenses year after year so this will be an ongoing issue of "where to put the cash".

My mom is all set to move the cash into a better earning money market compared to what she was getting so she is on board. Opening the account at Vanguard would not be a problem either, it could be partly their short-term bond fund +the rest in their money market or CD or whatever you guys suggest. I do not think she will have a problem with a single account with two or three vehicles (cash + CD + short-term bond fund) over at Vanguard. As money "accumulates year after year" (hopefully), it can go from her checking account into this Vanguard account, maybe every six months to" re-balance that Vanguard account with the excess cash".

Thanks in advance for any questions, comments, suggestions

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Re: seeking advice, in retirement now

Post by BL » Thu May 12, 2016 12:56 am

My sympathies to you on the loss of your father.

I think convenience is a great thing at that age, but if you are managing her CDs, etc., then an online bank or credit union might be worth using. First I would check all local banks and credit unions to see if they might have better rates for CDs, savings, or money market accounts. Then look at bankrate.com to see what kind of rates you can get and decide if it is worth the trouble or would you rather just deal with Vanguard. I understand Ally bank savings account used by a number of SatuMedia is about 1% so that is not shabby, but only you can decide if it is worth dealing with.

If she gives to charities, she might consider having IRA brokerage make a check directly to charities from her IRA, this would count as her RMD without owing taxes and without raising AGI (such as if she were in AL or nursing home and deducting amounts over 10% of AGI.) Google QCD(qualified charitable distribution) for info. She may be a bit into the 25% tax bracket when she has to file Single, so this would help reduce taxes if she doesn't itemize deductions.

Even though she is in good health that can change in an instant. I have seen it happen with many of my friends her age and realize it could happen to myself. On the other hand, she might be able to live independently or with some assistance for many years. Becoming acquainted with what kinds of assistance is available could be worthwhile to know in advance. Perhaps you have had some experience already.

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Re: seeking advice, in retirement now

Post by JohnnyM » Sat Nov 12, 2016 10:16 am

Nov. 2016 update:
Thank you BL for your reply.

This post is asking about my age 81 mom gifting to her 8 kids and related tax consequences.

There are quite a few questions here so it may be easiest for you if you just quote me in your reply and add your answers right after my questions?

I will repost the relevant figures to save anyone from having to reread the above posts.
I am aware of the gifting limits of $12K-$14K per person but I don't believe we are talking these maximum amounts at this time. But taxes are relevant because her desire to gift could require withdrawing beyond the traditional IRA's RMD; perhaps you will suggest for her to withdraw from the Roth IRA? I do get confused when it comes to tax planning, which account to draw from, and how it can alter one's tax brackets etc., so that's one reason I'm asking for your comments and opinions.

My first thought was: "is gifting even a good idea, why not let the 2 retirement plan accounts grow (hopefully) & each kid would inherit more." On the other hand, my age 81 mom makes the point that she does not anticipate using up her roughly $1.175Million assets (figures and environments posted below) and two of her kids "can use the money for medical expenses and all the other kids age 50's can use the money now". Many angles and things to consider here. One of which is you may have to count on people living to age 90-100 these days so a gotta be careful "gifting your money away"

If you'd like me to start a new thread I can or a moderator can create a new thread but I think it's best here in case anyone wants to look at something in prior posts.

- My dad passed away earlier this year, mom is age 81, living at home by herself, still drives the car, slowing down physically quite a bit in the last one year though, overall in reasonably good health considering, but that can change quickly.
- She has Medicare and a supplemental insurance policy (between the two those were excellent for my dad, my parents paid next to nothing for an unbelievable amount of care).

INCOME & EXPENSES
Mom's annual income: $54K (IRA's RMD $35K + $16K Social Security + $3.4K pension).
Her annual expenses are about $11K. So if she remains in good health she will have about $43K accumulating each year, 54K less 11K = $43K "beyond expenses".
Clearly if gifting to the 8 kids is a good idea in your opinions then obviously some of that gifting can come from this roughly $43K each yr. (The FY2016 RMD of $35K has already happened).

ASSETS
- car, Year2003 let's say $5K
-Life insurance $11K, enough to bury her etc.
- stuff inside her house, nothing really valuable, over-insured for, just stuff that will go to the kids eventually
- Checking account $11-15K, about one year's expenses, when/if it dwindles down it will get replenished from the money market mentioned below
-money market, $50K, this will be drawn down to replenish the above checking account,
- taxable account $34K harbor funds ticker symbol HAINX,
- House $200K, a patio home, Homeowners Association, etc
-Roth IRA $341K beneficiaries are the 8 kids
-Traditional IRA $550K beneficiaries are the 8 kids, FY2016 RMD is $35K & has bumped her up into a new higher tax bracket verses FY2015 when she had my dad's medical expense deductions.
- (both the traditional IRA and the Roth IRA accounts contain only 2 funds, Vanguard life strategy 60:40 and Vanguard life strategy 20:80 to achieve the desired 30s:70b for the entire portfolio. There is enough cash in the traditional IRA + the local non-retirement plan money market for 5 years living expenses. )
-$1.175M is the total of the above 50+34+200+341+550

My mom's will was drawn up by an estate attorney and it looks good, a trust is created upon her death, two of the kids are trustees & one of the kids is the executor.
1- since the $341K+ $550K two retirement plan accounts have stated beneficiaries there is no probate when the kids inherit, right? And
2- the $200K house also will not go through probate, because the way the Will is structured/reads ("my trustee shall not be required to file an inventory or accounting with the probate court having jurisdiction over this will, shall serve without bond and shall not be required to qualify as trustee before the clerk of Superior Court in any county in the state of …") means that the two kids who are the trustees and/or the one kid who is the executor can just sell the house and distribute the proceeds among the 8 kids, right?

8 kids, all aged 50s or close enough

Concerns or questions hoping to get your feedback on:
1 - avoiding estate tax, seems to be a nonissue as far as I can tell, the estate is not worth more than the $5.4 million exclusion. Please let me know if I'm in error. Http://forbes.com/sites/ashleaebeli ... 658ceb6a7c

2 - Is it wise for her to start gifting money? The 2 main assets are the 2 retirement plan accounts, $341K+ $550K . Best not to gift & let them grow (hopefully)? On the other hand she wants to start gifting now "while the kids can use it".

3- Any suggestions on dollar amounts? I haven't researched "gifting amounts" specifically but I am familiar with the " 4% safe withdrawal rate should never run out of money" concept (4%SWR). I assume that includes gifting because I never see any mention of what money is used for but certainly withdrawing from different accounts has different tax consequences. Am my correct to that the 4% SWR generally starts with an individual age 65 goes into age 80s+? Can anyone provide a link where I can learn more about this, hopefully one that has charts with dollar amounts and this age 81. I see this /wiki/Safe_withdrawal_rates which states in part:
The study produced a number of conclusions, including:
• Withdrawal periods longer than 15 years dramatically reduced the probability of success at withdrawal rates exceeding five percent.
• Bonds increase the success rate for lower to mid level withdrawal rates, but most retirees would benefit with at least a 50 percent allocation to stocks.
• Retirees who desire inflation-adjusted withdrawals must anticipate a substantially reduced withdrawal rate from the initial portfolio.
• Stock-dominated portfolios using a 3 to 4 percent withdrawal rate may create rich heirs at the expense of the retiree's current standard of living.
• For a payout of 15 years or less, a withdrawal rate of 8 to 9 percent from a stock-dominated portfolio appears sustainable.[1][2]

To repeat figures in this particular situation: age 81 and $1.175M from ( (50 cash +34 taxable account +200 house) + (341+550 index funds 30s: 70b) ). I am thinking (and would appreciate your comments on my thoughts) :
- 4% would clearly be safe $1.175 x 0.4 = $47K less $11K expenses = $37K can be gifted unless some is needed for taxes as is the case this year for the first time; this is super conservative I assume?
- I would think that to use a 6% SWR is even safe? Or maybe even higher? But I would like your comments. I could be missing all kinds of things.

Can anyone please mention any good gifting strategies generally speaking that you like? Or what gifting strategies do you like in this situation?


If she wants to start gifting them what account is wisest to draw from?

1- Gift from the traditional IRA ($550K)
2- Gift from the ROTH IRA ($341K)- this seems to make the most sense to me but you guys always give comments that makes me more comfortable with my decision to change my thought process altogether.
3- Gift from a combination of both the traditional IRA & ROTH
4- Gift from the taxable account ( $34K )
5- One of the above and or start converting from the traditional IRA to the ROTH

If she starts to gift "a lot" from the traditional IRA then her tax liability will go way up. On the other hand, the more the traditional IRA grows the more the kids will be taxed on because when it is inherited the kids owes income tax when they withdraw ; not a horrible problem.


Does converting from the traditional IRA into her ROTH make any sense? I would not think so? But maybe I am missing something? I assume that she can convert at her age? There's so many things to consider that I get confused and I don't want to goof.

Either each year she can take a certain amount of money out of the traditional IRA, pay the tax on it, and what is left over after taxes, gift to the kids; this does not seem wisest.
or
She can take the same certain amount of money out of the traditional IRA, pay the tax on it, and convert it to the Roth IRA, and hopefully it grows a little bit more, then hopefully the kids will inherit a larger Roth-IRA. This option preserves "her" money should she live to age 100 (but it doesn't meet her desire to "start giving to the kids while they can use it"). This does not seem wisest
or
She can start gifting out of the existing Roth IRA right now to save all the taxes. This seems the most wise.
Or
Some combination of the above, (convert some to the Roth and pay the taxes + gift some out of the Roth now since it will not be a taxable event).

Do you have any other insights or strategies you would like to share? It's quite probable I'm missing quite a bit here.

- - - -
Two less important & somewhat unrelated quick questions:

1- That $34K taxable account non-retirement plan account . I would assume it is best for her to specify the 8 kids as beneficiaries instead of just making a part of the estate (there is no designated beneficiary on it now)? Or makes no difference because the way that the Will is structured (a trust is created upon her death and the assets to not go through probate etc.). Seems to me specifying the beneficiaries makes everything simpler but then again maybe you have comments?

2- I found this article :
Inheriting Retirement Accounts: Legal Overview
http://alllaw.com/articles/nolo/wil ... ounts.html
by Mary Randolph, J.D.; no need to go to that link if you don't want to, my only question is that in the article she states: " How many beneficiaries were named. If there's more than one, special rules apply." But she makes no explanation beyond that. If anyone knows off the top of your head what she is talking about what me know, otherwise I can research it more. This issue is not a big deal.


Thanks in advance for any questions, comments, suggestions

retiredjg
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Re: seeking advice, in retirement now

Post by retiredjg » Sat Nov 12, 2016 10:32 am

I don't think you can have "beneficiaries" on a taxable account. Could be wrong about that though.

I've heard of a TOD designation (transfer on death) although I don't know how it works. Or the account can be joint with another person.

I'd suggest putting the executor's name on the account. The executor may need cash to do the work. If there is anything left, the extra could just go to the executor as "payment". It's a tough job that takes a lot of time and energy.

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BL
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Re: seeking advice, in retirement now

Post by BL » Sat Nov 12, 2016 12:02 pm

Looks like she has about 5k each for 8 kids left over from RMD. How much more is she looking for?

I think the Harbor fund in taxable would be a good choice to start cashing in. She has 40% international stock in IRAs, how much more international does she want? To be honest, I would be a little afraid of this one and might start cashing in some depending on taxes.

If your father died this calendar year, she would file taxes as Married filing jointly for this year only. Then the brackets would drop in half with Single filing from now on. This might be the year to take advantage of Capital Gains or some Roth conversion if desired. Some trial 1040 tax program might be worthwhile to check on taxes.

I would be tempted to consider the cash in tIRA the same as 20/80 LS, and might put it all into that for simplicity.

As for withdrawal rates, another way might be to use RMD % as a guideline. (The 4% usually includes inflation increases as well, not a constant 4%.)

I see Long Term Care (nursing home costs) as the big unknown in all this planning. Ten years in a nursing home can derail most portfolios.

I wonder what will be left to go into this trust.

JohnnyM
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Re: seeking advice, in retirement now

Post by JohnnyM » Sun Nov 13, 2016 1:53 pm

Thanks to everyone for your help.

retiredjg
"I don't think you can have "beneficiaries" on a taxable account. I've heard of a TOD designation (transfer on death) although I don't know how it works."
Correct it is a TOD.
" Or the account can be joint with another person. I'd suggest putting the executor's name on the account. The executor may need cash to do the work. If there is anything left, the extra could just go to the executor as "payment". It's a tough job that takes a lot of time and energy." Excellent idea and that is what I will do IF my mom for some reason wants to hang onto it and not do as BL suggested which is to go ahead and cash in on it/ sell it. And the only reason I mention that is because she has mentioned to me several times that my dad told her to "use that account last & it has done well over the years" and she really doesn't know why he told her that and so it's quite possible she will resist my suggestion to sell it and of course I will not try to convince her to the contrary if she has her mind made up, will instead just add the executor's name to the account.
Am I correct that if she goes add-the-executor-route instead of the sell it route that the executor will have a tax liability for his income? I would think so but maybe they make special exceptions in the tax code?


BL " Looks like she has about 5k each for 8 kids left over from RMD. How much more is she looking for?" She really has no idea and because she is aware that she does not have the financial savvy to make the right decision she asked me several times. I went over the maximums of $12K per year (believe it is $14K now), but added she has to be careful to not cut herself short etc. so she mentioned "$6K" without any concept of SWR etc., she probably just halved the $12K. So to answer your question she really has no idea of an appropriate amount but the concept is that she would like her kids to use it now in their 50s rather than 60s -70s

"I think the Harbor fund in taxable would be a good choice to start cashing in."
Okay, unless someone chimes in to the contrary, I will do just that. So glad I asked because as you can see from my post on 11/12/2016 I thought you guys would tell me to start gifting from the ROTH-IRA.
"She has 40% international stock in IRAs, how much more international does she want? To be honest, I would be a little afraid of this one and might start cashing in some depending on taxes."
Another great point, I never looked at it that way.
"If your father died this calendar year, she would file taxes as Married filing jointly for this year only. Then the brackets would drop in half with Single filing from now on." I really appreciate everyone's comments regarding taxes because it is not my field and you guys are helping me so much in this area.

"This might be the year to take advantage of Capital Gains or some Roth conversion if desired." When you say "this year", you mean FY 2017 because she will be a lower bracket, not FY 2016 when she is filing jointly, or do I misunderstand? And the same applies for your suggestion to cash in on the international stocks/ harbor funds, if she wants to sell them she should do that in 2017 not 2016?
Unrelated to the Harbor Fund taxable acct, since she wants to start gifting, I would think that she should gift whatever amount she wants to starting now during FY 2016, do you agree? My thought process was always that if someone quite elderly wants to gift then they should do so in the amount that they deem appropriate every fiscal year (helping them avoid stupidly high gifting amounts and avoid running out of money); my reasoning being that if or when their health suddenly goes downhill and there remains only about 3 years of life left, then each one of those final years that individual would most certainly probably want to (at the very least) gift the maximum allowable by the tax code; is my thinking sound on this? If death is near, gift to the maximum? We do not consider my mom 3 years from dying otherwise I would not be asking about gifting amounts.


" Some trial 1040 tax program might be worthwhile to check on taxes". Will do. But the suggestions from you guys up to this point are:
- gift from the taxable account, THEN the tIRA unless some tax planning calculations proved it would be advantageous to gift (some also?) from the ROTH ?
- And do so starting in FY2017,
- if she feels compelled to gift in FY 2016 then that can be handled from the $50K MM + $15K local checking + excess RMD; we are mid-November today, so FY 2017 is near.


"I would be tempted to consider the cash in tIRA the same as 20/80 LS, and might put it all into that for simplicity. " Okay, the cash in the tIRA is only $35K, I look at all the "cash" in the money market 50K+ checking account 14K+ tIRA 35K as about 5 years expenses 11K/year x 5yr = 55K, each calendar year at the rebalancing would bring some cash from the tIRA into the local MM and/or checking accounts, actually just the RMD will exceed what is needed. Should expenses suddenly rise, she would sell some positions in the tIRA to maintain the "new" 5 years cash amount. Does any of this change your mind about your suggestion, and am I correct that you are suggesting I take this $35K cash in the tIRA and buy the 20/80 LS VASIX instead? Sure makes sense to me, she is in good health and the 20/80 LS is quite conservative; let me know if I misunderstand.

"As for withdrawal rates, another way might be to use RMD % as a guideline. (The 4%SWR usually includes inflation increases as well, not a constant 4%.)". OK, I believe that you are asking me to consider that the $35K RMD is 3% of the total assets of1.175M, ; and if 4% SWR is very likely to be conservative/work at this late age 81, then she/we could probably comfortably consider 4% or 5% to be okay? Do you guys like my reasoning on this?

"I see Long Term Care (nursing home costs) as the big unknown in all this planning. Ten years in a nursing home can derail most portfolios." Very true.

"I wonder what will be left to go into this trust." Very little, just the inside contents of the house. Speaking of the house, no one commented on my question about the trust:
the $200K house also will not go through probate, because the way the Will is structured/reads ("my trustee shall not be required to file an inventory or accounting with the probate court having jurisdiction over this will, shall serve without bond and shall not be required to qualify as trustee before the clerk of Superior Court in any county in the state of …") means that the two kids who are the trustees and/or the one kid who is the executor can just sell the house and distribute the proceeds among the 8 kids, right?

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BL
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Re: seeking advice, in retirement now

Post by BL » Sun Nov 13, 2016 6:11 pm

First of all, I was talking about 2016 as she will never be in a lower tax bracket, AFAIK. She will be in the MFJ
(married filing Jointly) for the last time this year. She can have income to the top of her 15% tax bracket of $98,500, but after 2016 that bracket is reached with about $50,550 income. After that she will be paying around 25% for money over ~$49,550. I used Standard Deduction + over 65 increase, plus 4,050 personal exemption. If she itemizes that would be in place of SD.
Here are the tax brackets for 2016:
https://irs.com/articles/projected-us-tax-rates-2016

I don't know how close to 98,500 she is this year with extra withdrawals for AL, and selling stocks in taxable, if any, after 1/2 step up in joint account stocks. This would be the year to sell up to top of 15% bracket, if possible. 85% of her SS would probably taxed at her bracket. Whether this would allow selling taxable funds or possibly converting tIRA to Roth, I don't know. If you have a tax consultant that would run possibilities, or use a tax program, that could be useful.

I would think about giving at end of year by dividing up what is left over from RMDs and SS. Are the dividends/CGs in taxable distributed to her each quarter/year? May as well as she pays the tax either taking it or reinvesting. Maybe gifting shouldn't be "guaranteed" every year, but as looking at what is left over. (We actually did this one year, but will not for a few years again. Don't want to do it regularly, as we want to be sure we won't need help if LTC is needed for an extended time.)

Here is chart for RMD % distributions:
https://irs.com/articles/projected-us-tax-rates-2016

Please don't take my suggestions, or anyone else's anonymous response as more than a suggestion which gives you a few more ideas to consider. I like to see multiple responses because everyone comes from a different set of experiences, most of us do not know each other at all, so if we come to the same conclusion that may be helpful.

Inheriting Roth is great. There would be no taxes but requirements to withdraw RMDs; still it could extend that money tax-free for quite a while. Inheriting taxable is fine, because step-up means no taxes for the heirs up to that date. Inheriting the trad. IRA has more complications, more rules to follow, and you have to withdraw RMD and pay tax on that each year. Still a nice thing to have.

JohnnyM
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Re: seeking advice, in retirement now

Post by JohnnyM » Sun Nov 13, 2016 7:19 pm

I don't know how close to 98,500 she is this year with extra withdrawals for AL,
Actually she went just about $1000 over the RMD of $35K, so her income will be very close to my aforementioned $54K

and selling stocks in taxable, if any, there has been no selling anything in the taxable account or any account

after 1/2 step up in joint account stocks. This is the first I've heard of 1/2 step up so I went here /wiki/Step-up_in_basis
that $34K taxable account believe it or not is only in her name and has been since inception ( I think she got it when her parents died, all moot I suppose)


I don't understand where the $98,500 comes in (even after reading SatuMedia.wiki)? Do you mean $75,300 ? If indeed you mean $98,500, that is fine and then I know it is a tax preparation/deduction etc. issue that I am missing which I will learn with the accountant .
Taxable Income Tax Rate
$0—$18,550 10%
$18,551—$75,300 $1,855 plus 15% of the amount over $18,550
$75,301—$151,900 $10,367.50 plus 25% of the amount over $75,300
$151,901—$231,450 $29,517.50 plus 28% of the amount over $151,900

This would be the year to sell up to top of 15% bracket, if possible.
You mean add to her income in the form of selling that taxable account so that her income is $75,300, right, (or is it $98,500)?
85% of her SS would probably taxed at her bracket. Whether this would allow selling taxable funds or possibly converting tIRA to Roth, I don't know. If you have a tax consultant that would run possibilities, or use a tax program, that could be useful. I will certainly do just that.

I would think about giving at end of year ...this shouldn't be "guaranteed" every year, but as looking at what is left over...Don't want them expecting anything regular, ...
That paragraph is excellent. Great people skills/people management so to speak. And common sense. Maybe every second or third year "when there is some leftover"

Please don't take my suggestions,...I like to see multiple responses ...
I know exactly what you mean, and I ALWAYS hope for multiple people to reply.

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BL
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Re: seeking advice, in retirement now

Post by BL » Sun Nov 13, 2016 9:21 pm

JohnnyM wrote:I don't know how close to 98,500 she is this year with extra withdrawals for AL,
Actually she went just about $1000 over the RMD of $35K, so her income will be very close to my aforementioned $54K

and selling stocks in taxable, if any, there has been no selling anything in the taxable account or any account

after 1/2 step up in joint account stocks. This is the first I've heard of 1/2 step up so I went here /wiki/Step-up_in_basis
that $34K taxable account believe it or not is only in her name and has been since inception ( I think she got it when her parents died, all moot I suppose)

Ok, no step-up in basis if it was in her name. I believe his half gets stepped up if owned jointly in a non-community-property state. Moot point since she did not sell in taxable.

I don't understand where the $98,500 comes in (even after reading SatuMedia.wiki)? Do you mean $75,300 ? If indeed you mean $98,500, that is fine and then I know it is a tax preparation/deduction etc. issue that I am missing which I will learn with the accountant .
Taxable Income Tax Rate
$0—$18,550 10%
$18,551—$75,300 $1,855 plus 15% of the amount over $18,550
$75,301—$151,900 $10,367.50 plus 25% of the amount over $75,300
$151,901—$231,450 $29,517.50 plus 28% of the amount over $151,900
I added Standard Deduction MFJ (12,600) + over 65 increase (2* 1250), + (2*4,050) personal exemption to 75,300 to get 98,500 AGI. For single it would be 37,650 taxable income for 15% + SD of 6,300 + 1550 increase for over 65 + 4,050 exemption = 49,550 AGI. So next year she will be into the 25% bracket with the amount above that, and CG would be taxed at 15% next year compared to 0% this year if she sells some in taxable with CGs.

This would be the year to sell up to top of 15% bracket, if possible.
You mean add to her income in the form of selling that taxable account so that her income is $75,300, right, (or is it $98,500)?
She could if there would be a benefit worth the tax. As mentioned above, CGs (look up her Capital gains in the fund) that don't push her AGI over 98,500 would be taxed at 0% this year because she files MFJ (also see Tax Gain Harvesting in Wiki) or 15% in the future filing Single. She could even sell and then buy something like total US stock market(very tax-efficient) or even the same balanced fund she has elsewhere. She doesn't need to do it, unless she wants to gift more or wants kids to inherit more Roth by her converting if children are in a higher tax bracket (still her choice), or possibly lower her future RMDs by converting and have more tax-free Roth available. So two different suggestions here: Tax Gain Harvesting and/or Roth conversion.

85% of her SS would probably taxed at her bracket. Whether this would allow selling taxable funds or possibly converting tIRA to Roth, I don't know. If you have a tax consultant that would run possibilities, or use a tax program, that could be useful. I will certainly do just that.

I would think about giving at end of year ...this shouldn't be "guaranteed" every year, but as looking at what is left over...Don't want them expecting anything regular, ...
That paragraph is excellent. Great people skills/people management so to speak. And common sense. Maybe every second or third year "when there is some leftover"

Please don't take my suggestions,...I like to see multiple responses ...
I know exactly what you mean, and I ALWAYS hope for multiple people to reply.

JohnnyM
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Re: seeking advice, in retirement now

Post by JohnnyM » Fri Dec 02, 2016 4:01 pm

December 2016 update
1- the taxable account was liquidated, because from solely a tax perspective, it made good sense.
2- in so far as my questions and your replies about "gifting", I think my mom now has a good handle on that and so I am not requesting additional comments on that at this time.

3- The other suggestion you guys made about getting some help from a CPA to run some trial tax returns to see how much my mom can ALSO withdraw from the tIRA and still not get into the next higher tax bracket this FY2016 while she is able to file married jointly (all future years will be filing single) revealed the following results:

My mom can also withdraw an additional $20,000 from the tIRA and still not get into the next higher tax bracket this FY2016

For 2016 she is in the 15% tax bracket. If all she is taking out in future years (FY2017 and beyond ) is her Social Security and tIRA RMD and $5k in pension, she will likely still be in the 15% bracket.
On the other hand, if she has a year without a ton of medical expenses, it could push her into the 25% bracket; and this is the crux of the matter which I will elaborate on below.

So I don't know if it makes sense to pull more out of her IRA as this would make the tax due earlier. But if she takes it out FY 2016, it would definitely be in the 15% bracket.

$2,824 Federal Tax from the $15K in capital gains mentioned in #1 above taxable account liquidation
$6,049 Federal Tax if take $20k more from the tIRA
-----------
$3,225 Projected Additional tax due from taking out an additional $20k in tIRA Distributions.

-----------
$3,225 / $20,000 = 16 % effective tax on additional tIRA amount. This is is slightly greater than the 15% rate due to the additional income reducing the deductible medical expenses.
This same effect would also happen in the future. So think of her 15% bracket as really being 16% in reality.

To repeat a phrase above, "On the other hand, if she has a year without a ton of medical expenses, it could push her into the 25% bracket". Understand that the medical expenses this year (used in the projections) were $22.8K, all but $2K was for my now deceased dad, not my mom, $2K was for mom. So the 2 questions/issues are:
1-what you anticipate her health to be and for how long? Answer: I expect her health and medical expenses in 2017 to not be too different than 2016, I can probably say the same thing for another 2-3 years; but at age 81 you never know, but that is my best guess.
2- does she need or want the $20K from the tIRA to do the gifting? Answer: no
3-if she does not need the $20K for gifting what would be the reason to withdraw it if she's not going to use or gift it? Answer: the only reason would be if she could invest it in something like a taxable account and make more than 16% she's going to pay in taxes - extremely unlikely especially in the necessary conservative asset class. You guys agree with this? I'm not missing something about the fact that she could pay only 16% in taxes now instead of the definite 25% in taxes in some future date or something else I am missing? If it makes more sense to take up the $20K from the tIRA and start a taxable account then we can certainly do that. Remember, the taxable account just liquidated was not in a good asset class for her, and there was a desire by her for gifting; furthermore in future years, assuming she remains in good health, and assuming there is no more gifting, she will have an income far beyond her expenses of about $30K per year and I don't see just parking that in a checkbook or 1% money market-that kind of money is going to be invested probably in the same asset class but it'll just have to be a taxable account. My point is, establishing a new taxable investing account may be happening in the next 12-18 months anyways.

Thanks in advance for any comments.

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BL
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Re: seeking advice, in retirement now

Post by BL » Fri Dec 02, 2016 10:59 pm

Good job getting rid of the taxable fund while in 15% tax bracket so capital gains are taxed at 0%. You could buy an index fund like total stock market or a balanced fund if you prefer in taxable as you accumulate too much fixed income.

If you are asking if you should withdraw more than needed or wanted just because she is in the 15% bracket, I think the answer is no.
If you have a good reason, this is the year to do it.

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Re: seeking advice, in retirement now

Post by jj » Fri Dec 02, 2016 11:22 pm

As the effective tax rate for this extra $20,000 IRA withdrawal is only 16% it makes sense to me to make this a Roth conversion, if she has decided against gifting it. Next year, filing single, she will be in the 25% marginal bracket, barring health issues increasing the medical deduction. It's unsure what her marginal bracket will be in the future.
...it is madness to risk losing what you need in pursuing what you simply desire. Warren E. Buffett

JohnnyM
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Re: seeking advice, in retirement now

Post by JohnnyM » Sat Dec 03, 2016 11:01 am

Thanks for those two replies.
Those are my two points as well; on one hand I say no need to withdraw or convert that extra $20K, on the other hand, this will be her one opportunity to do a Roth conversion in this bracket- which will be THE ONLY WAY it will exit the tIRA (not used, not gifted, only converted).

BL and others, what say ye about the Roth conversion?

To repeat a few of the relevant factors:
age 81
I goofed by $1,200 on the aforementioned figures (so converting to the Roth IRA is even more attractive/ less costly?)
$2,824 Federal Tax if Take the $15k in capital gains less $1,200= $1,624
$6,049 Federal Tax if Take a total of $60k in Pension for the year. ($20k more) less $1,200= $4,849

$3,225 Projected Additional tax due on $20k in additional IRA Distributions. less $1,200= $2,025

- Checking account $11-15K, about one year's expenses, when/if it dwindles down it will get replenished from the money market mentioned below; but as long as she remains healthy her income will far exceed her expenses
-money market, $50K, this will be drawn down to replenish the above checking account,
- House $200K,
-Roth IRA $341K (is 38% of the two Retirement Plan accounts)
-Traditional IRA $550K is 62% of the two Retirement Plan accounts)
There is enough cash in the traditional IRA + the local non-retirement-plan accts for 5 years living expenses. )
-$1.09M is the total of the above 50+200+341+55.

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BL
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Re: seeking advice, in retirement now

Post by BL » Sat Dec 03, 2016 2:34 pm

I don't see that 20k will reduce the future RMDs enough to bother with. You could play with tax programs to check "what-ifs" if you like. Is she going to continue to be in the 15% tax bracket, unless huge medical bills come up? If in same bracket, I just don't see any advantage, except for slight advantage for heirs.

Maybe it is time she starts spending on herself. What might make her happy? Looks like she can afford to spend some on herself and it is getting late to get that done. Lots of SatuMedia have trouble switching from saving to spending as well, myself included, but a nice vacation, car, furniture, or whatever she might enjoy, could be worthwhile.

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Re: seeking advice, in retirement now

Post by JohnnyM » Sat Dec 03, 2016 2:48 pm

I don't see that 20k will reduce the future RMDs enough to bother with.
I agree.
You could play with tax programs to check "what-ifs" if you like. Is she going to continue to be in the 15% tax bracket, unless huge medical bills come up?
No, that is the issue, 2016 will be her LAST YEAR in the 15% bracket married filing jointly because hereafter she is filing single (unless a lot of medical expenses push her back into the 15% bracket) BL, does this change your mind about converting to the Roth?
Mom's annual income: $54K (IRA's RMD $35K + $16K Social Security + $3.4K pension)

If in same bracket, I just don't see any advantage, except for slight advantage for heirs.
I agree. I suppose I can reason that it could advantage her to have more compounding in the Roth and she ended up using all of the Roth-how likely is that!

Maybe it is time she starts spending on herself. What might make her happy?
She's been talking about a new couch for a few months now-seriously. Her traveling days are over. But I think in FY 2017 she is going to start seeing the money accumulate (even though it may not be until December for the 35K RMD, at which time she can spend it it will be time to invest in a taxable account.
Looks like she can afford to spend some on herself and it is getting late to get that done. Lots of SatuMedia have trouble switching from saving to spending as well, myself included, but a nice vacation, car, furniture, or whatever she might enjoy, could be worthwhile.
Yes furniture as you say. She enjoys going out to eat more the kids, stuff like that, she's admitted she does not know how to spend, but she doesn't have regrets

JohnnyM
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Re: seeking advice, in retirement now

Post by JohnnyM » Mon Jul 10, 2017 4:48 pm

t-IRA's RMD deadline of 12/31/2017 is approaching and there is no need for the money to meet any expenses. So it will be invested in a taxable account. This will be a new taxable account at Vanguard.
I suppose what I am looking for is whatever is most tax efficient for my 82-year-old mom? And, an asset allocation that meets what she has determined is appropriate for her, which is about 30s: 70b although in the range of 40s: 60b is acceptable as there is plenty of cash on hand to meet more than a 5 years living expenses and should significant new medical expenses arrive then we would go to more cash by liquidating this new taxable account, and if she could no longer stay at home then the sale of house would generate plenty of cash.

The portfolio is 58%t-IRA and 42% Roth IRA

The portfolio now is 44s: 64b, by way of 2 positions VSCGX 40s:60b, and, VTINX 30s:70b

The RMD represents about 3% of the total portfolio.

Could you guys make any suggestions of the what you think would be the best tax efficient index fund. I think it would be best to select just a single position, keep in mind that she may be doing this every December for a few more years.
It could be Vanguard's total stock market fund, or their 50:50 fund, or a 60s: 40b. I'm thinking something that is a little aggressive because it can be as far as I can tell, and something that is simple at tax time but please point out anything you would consider.

Second question: the t-IRA is composed of both cash in excess of the RMD + both the VSCGX 40s:60b, and the VTINX 30s:70b. Would you take out the RMD from the cash(I would not think so, I think the cash is cash to be used in an emergency) or both of those positions evenly or just one of those positions & which one, I could really use coaching on this?

Thank you

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BL
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Re: seeking advice, in retirement now

Post by BL » Tue Jul 11, 2017 11:21 am

Just some ideas:
Perhaps total stock market and an intermediate term muni bond in taxable.
Both are tax-efficient and simple.

Munis could be sold with minimum tax cost (possibly a bit of capital gain or loss) if cash is needed rather than paying 25% to get extra cash out of IRA.

Muni would pay out non-taxable dividends (unless her MAGI is used for some benefits which add in muni dividends.)

Maybe consolidate the two balanced funds in IRA for simplicity and just add to TSM in taxable until balanced. There is enough international in LS or Target that I wouldn't worry about adding that to taxable. I like the idea of having a bit of Tips in target income, although either would be fine.

I think medical deductibles now have a 10% of AGI requirement for everyone.

JohnnyM
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Re: seeking advice, in retirement now

Post by JohnnyM » Tue Jul 11, 2017 4:39 pm

Thanks BL,
When you say " an intermediate term muni bond in taxable", these would be OK?
Vanguard Intermediate-Term Bond Index Fund, VBIIX
https://personal.vanguard.com/us/funds/ ... IntExt=INT

admiral shares are VBILX
https://personal.vanguard.com/us/funds/ ... IntExt=INT

Vanguard Intermediate-Term Corporate Bond Index Fund Admiral Shares (VICSX)
https://personal.vanguard.com/us/funds/ ... IntExt=INT
(or one of the other two is probably better I assume?)


Vanguard Total Stock Market Index Fund Admiral Shares(VTSAX)
vs.
the ETF version Vanguard Total Stock Market ETF (VTI)
have no difference with respect to tax simplicity/complexity I assume ?

Thanks again

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BL
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Re: seeking advice, in retirement now

Post by BL » Tue Jul 11, 2017 5:47 pm

JohnnyM wrote:Thanks BL,
When you say " an intermediate term muni bond in taxable", these would be OK?
Vanguard Intermediate-Term Bond Index Fund, VBIIX
https://personal.vanguard.com/us/funds/ ... IntExt=INT

admiral shares are VBILX
https://personal.vanguard.com/us/funds/ ... IntExt=INT

Vanguard Intermediate-Term Corporate Bond Index Fund Admiral Shares (VICSX)
https://personal.vanguard.com/us/funds/ ... IntExt=INT
(or one of the other two is probably better I assume?)


Vanguard Total Stock Market Index Fund Admiral Shares(VTSAX)
vs.
the ETF version Vanguard Total Stock Market ETF (VTI)
have no difference with respect to tax simplicity/complexity I assume ?

Thanks again
This is the one I was referring to:
Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX)

There is no tax on dividends but may yield less dividends than TBM.

I don't use ETFs but they are essentially the same. You must buy by share rather than a dollar amount.

JohnnyM
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Re: seeking advice, in retirement now

Post by JohnnyM » Tue Jul 11, 2017 6:03 pm

So glad I asked. You are highly appreciated.

radiowave
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Re: seeking advice, in retirement now

Post by radiowave » Tue Jul 11, 2017 10:10 pm

+1 on VWITX, it does generate between 2-3% of dividends so there is another source of cash which you could reinvest or pull off for a CD or other uses. These do count towards AGI for tax purposes.
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JohnnyM
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Re: seeking advice, in retirement now

Post by JohnnyM » Wed Jul 12, 2017 6:01 pm

Thank you very much radiowave, your effort to reply & share means a lot to me.

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BL
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Re: seeking advice, in retirement now

Post by BL » Thu Jul 13, 2017 9:49 am

A muni would not directly count toward AGI, as it goes on line 8b on the 1040 tax form, but it could make more SS taxable if she is not paying tax on 85% of her SS already as it is used in the Modified AGI for calculating taxable part of SS.

This might be a reason to stick with just Total Stock Market in taxable since she has so much cash elsewhere.

JohnnyM
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Re: seeking advice, in retirement now

Post by JohnnyM » Tue Aug 08, 2017 5:19 pm

I hope I am not overanalyzing but I have a question about my choice of funds in my mom's retirement plan accounts.
To save you trouble of re-reading the above information, what we ended up doing was achieving about a 30s: 70b portfolio by use of purchasing two different funds in the two different retirement plan accounts as follows:
VSCGX 40s:60b more aggressive (in both the tIRA and and the Roth IRA accounts)
VTINX 30s:70b less aggressive (only in tIRA).

(but if you want to review prior posts in this thread for detailed information you need to go to my posts dated May 11, 2016 and prior, posts after that are not really related to THIS question, but I don't think you need that information because this question is "a general concept" type of question),

My question relates to what to do in a prolonged down stock market. We want to have cash on hand for about 5 years of living expenses which we have (in excess actually). That is based on her living expenses TODAY when she is in reasonably good health which we project and hope for during the next few years. If her health went downhill today and it was quite certain that it would remain that way, I would sell some of the positions to get more years of new/higher living expenses in cash; that is fine today because today is not a "down" stock market.

What if her health suddenly deteriorated during a "down" stock market? A health condition not being "only a few months to live" but more like "this could be an expensive next 2-3 years of medical costs ".

I would want to do the same thing, get more cash on hand in the event that the stock market continued to tank I assume?

But her only two positions are significantly weighted in stocks. That got me thinking that perhaps a single bond index fund position would be what you want to sell during a tanking stock market, is my thinking sound? That in a long bad stock market, while you are in retirement, and all of a sudden your living expenses rise significantly, one is better off selling ONLY bonds which are not tanking instead of selling stocks (obviously) or selling funds like she has which contain 30-40% stocks?

FWIW or if it influences your opinion, it is probably time to re-balance the accounts anyways because the portfolio is closer to 37s:58b (rest is cash) instead of the desired 30s: 70b.

If my thinking is sound about "selling only bonds in a prolonged down stock market to raise cash for living expenses", do you recommend I sell some of the 2 index funds mentioned above? And only in the tIRA, but I suppose a case can be made having some bonds in the Roth IRA in certain circumstances? If yes what single bond fund would do the trick? And future re-balancing is kind of complicated again because of the stock+bond positions of the index funds. So COMPLETELY sell those other two index funds ( VSCGX 40s:60b & VTINX 30s:70b) and just get one stock index fund position (or maybe two stock index fund positions if it is wise to weight it with some small cap or whatever, no idea, I would consider your opinions over mine since I don't have that much experience designing portfolios "in retirement", I am not yet retired myself so my experience is designing portfolios for "not yet retired"). Those Vanguard funds are over at Scottrade unfortunately because I really didn't see much activity other than annual RMD and the occasional re-balancing so you get hit with $17 per trade.


Maybe I am overanalyzing here; in a down stock market you just sell some of the index fund that has more bonds in it?

I guess I didn't think through everything?

Thanks

bloom2708
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Re: seeking advice, in retirement now

Post by bloom2708 » Tue Aug 08, 2017 6:26 pm

There is no way to get to 30/70 (overall) with the two funds you listed:

VSCGX 40s:60b more aggressive (in both the tIRA and and the Roth IRA accounts)
VTINX 30s:70b less aggressive (only in tIRA).

The only way would be $0 in 40/60 and all money in 30/70 fund. That can't work.

You could get to 30/70 by doing 50% 40/60 + 50% 20/80.

So the portfolio must be between 30/70 and 40/60. (I see 37/63 which makes sense)

Withdrawing from the 40/60 bucket would move the overall mix of stocks/bonds closer to 30/70. So that is where cash would be generated from.

Exchange the remaining 40/60 fund for VTINX to get to 30/70
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

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