Hello Bogleheads, thank you all for so much good advice thus far over the past year as my wife and I try to get our financial life in good order. In the next couple of days to a week, we plan to make our "final" decisions for now on how to allocate all of our investments that we have flexibility to move. I've done so many smart things financially through my life after reading the Bogleheads Guide to Investing, but clearly missed the mark on index and ETF investing to mitigate expenses, which is our "final" step here to move forward with our money smartly allocated and not something I need to regularly manage any longer. With that, here are our details and any and all advice and guidance is welcome. Thank you all again so much, this is truly a great community!!!
Overview:
Age: Male (49), Female (44), no children and would love the last check to bounce, as they say...
State: Colorado
Tax Rate: CO 4.4%, Federal 37% (2024 due to my severance, stock vesting), 35% in a normal year, and 32% (2025 due to my possibly continuing my sabbatical)
Employment Status:
Male - sabbatical, received 1 year lump sum severance in February ($300K), plus vesting of stock equal to ~12 months' salary ($300K). Planning to return to work at a lower price point ~$250K with 25% bonus in 2025 or 2026.
Female - employed at $175K/year.
Tax Filing Status: Married Filing Jointly
Debt: We pay all expenses on credit and pay off every month in full. Both cars paid for. Only debt is primary residence where we owe $1,062,000 over the next 26.5 years of a 30-year fixed mortgage at 2.75%. Equity in the house is approximately $900K.
Emergency Funds: Right now, due to the lump sum severance mentioned above, we have $462K in cash on hand. Minus a small amount in our checking and savings accounts with our bank at 4% interest, the balance is all invested in a series of CD's and a Money Market that is used to "pay us" every two weeks and invest every two weeks simulating my former bi-weekly 401k investment. We are invested at 5.2% in a Money Market, and in CD's ranging from 4.8 to 5.5% that mature every 6 months starting this month, March 25, Sept 25, and March 26. This money is designed to last me until year end 2026 or longer for my sabbatical. I don't intend to be off that long and will immediately invest this money upon starting a new job / maturity of CD's. Prior to investing the balance, I will determine a healthy amount to set aside as an emergency fund, as we do have some major home expenses coming up in the next year or three.
Current/Future Investments: My wife is currently contributing the max allowed to her $401K this year and will continue to do so. Her income plus my "income" is allowing us to invest another $2-3K per month. Upon my return to work, I will also invest the max annual amount to 401K, plus earn LTI from my new company, and be able to invest an additional $2-3K per month conservatively.
Retirement Plan: Our hope (bordering on a plan but not there yet formally) is that we can each retire at 55, so for me 2030 and my wife 2035, where her last 5 years will be as part-time as possible while still providing medical coverage for us both. And I will likely do some part-time consulting during those 5 years to make a few bucks along the way...maybe.
Pension / Social Security: I have a pension with my company, a large Fortune 500 company that should be reliable and dependable to deliver, that will pay me ~$200K per year if I wait until 65, $150K per year if I wait until 60, or $100K per year if I start right away at 55. For Social Security, both my wife and I will likely earn the max SS benefit in terms of earnings, and then the amount will depend on when we start and what the heck happens to SS between now and then.
Expected Asset Allocation, pending your feedback:
- 30% Bonds - not sure how to allocate within this amount, i.e., Corp vs US vs Int'l, etc
- 70% Stocks - 20% International (50/50 between developed and emerging), 50% domestic (after subtracting my sector investments I can't change, 20% Total Market, 20% Large, 10% Small)
Portfolio: (a few ways of looking at it)
- Including everything (including real estate, parents' real estate and investments, but not counting pension and SS dollarizations): $7M
- Including everything my wife and I have, minus inheritance: $4.9M
- Everything my wife and I have, minus real estate ($900K) and cash ($463K) set aside for my "income": $3.7M (this is the number we're using for retirement income planning)
Details (By Category, and in descending value order, not including cash for income and real estate):
- Items below that start with *** are things that cannot be invested differently, for a variety of reasons.
- 27% = His 401K: $1M, with ***$208K in company stock fund with NUA benefit.
- 18% = Her 401K: $655K
- 8% = Her Roth IRA: $283K
- 2% = His Roth IRA: $86K
- <1% = His HSA: $15K
- <1% = Her HSA: $12K
- <1% = ***Her 403B: $6K (annuity that can only be rolled over in 10 equal annual increments, so just leaving here and will draw down once she is retired)
- 10% = His deferred compensation account with Newport $370K (can move this into any number of low expense ratio funds, money gets paid out in various amounts between now and 2045)
- 17% = ***His Taxable Franklin Templeton Mutual Funds $632K (cannot be moved due to enormous capital gains if sold, have minimized everything I could and am taking all dividends in cash to invest in index funds elsewhere)
- DynaTech Fund: $331K
- Growth Fund: $238K
- Rising Dividends: $37K
- Mutual Global Discovery: $26K
- 11% = His Taxable eTrade Brokerage Account: $393K (this is where I moved all the Franklin Templeton funds I could tax loss harvest or sell at a minimal capital gain in the past few years, and this is where all dividends and CG from FrkTemp are being moved to)
- ***Vanguard 500 Index Admiral $66K
- ***Vanguard Smallcap Index Admiral $25K
- Morgan Stanley US Govt MM $298K (to be invested this week in index funds)
- 5% = His Taxable Fidelity Brokerage $200K
- Money Market $150K (to be invested this week in index funds)
- Various stocks with too much gain to sell $50K (plan to hold and harvest losses if possible, or sell at close to no gain and reinvest in index funds)
- <1% = ***Joint Taxable Vanguard Total Stock Market Index Admiral $5K (I just started this to invest my 401k equivalent payments in)
- 1% = Her ESPP with former employer $30K (plan to sell after 12 months have passed since last investment to avoid STCG taxes; will invest in index funds April 2025)
- <1% = His Taxable Former Employer Stock Awards $22K vesting in '25 and '26, will index invest upon receipt
- ***Inheritance Amounts in Generalities:
- Her Parents House divided by 3: $300K
- His Parents House divided by 1: $400K
- Her Parents Bond Investments / 3: $300K
- His Parents Investments: $1M
- Bonds $450K
- Mutual Funds across Growth & Income, Mid-Cap, Global, etc: $550K
Key Points:
Our primary focus right now is just about how to allocate the money we are able to allocate. I want to get everything we have lying flat in the right portfolio allocation and investments within it and then later this year I'm going to do more of a full-blown retirement planning exercise to compare and contrast what this financial situation leads to vs what our retirement expectations look like, but for the purpose of this post, I'm most focused on how to get this money into the right place right away.
As for the total portfolio pie, at our ages I know the right mix would probably be about 55% stocks and 45% bonds. I don't really feel comfortable going that conservative this early so I've thought about going more 70/30 stocks, especially considering ~60% of our potential inheritance investments are currently in bonds.
As I decide on where and how to invest more in bonds to get to these numbers, I'm looking at using all retirement accounts to do so and at the lowest expense ratios possible.
I'm not looking at investing anything in real estate beyond our primary residence as I think that's more than enough, as well as possible inheritance of two properties.
Questions:
1. When deciding on our asset allocation approach, is it appropriate to just ignore real estate, cash, and all inheritance money?
2. If we do decide to go 70/30 on our allocation, how frequently should we rebalance to increase the bond portion, i.e., 1-2% every year, 5-10% every 5 years, etc?
3. I think I know the answer to this, but rather than allocating my 401k pseudo investment every two weeks for the next 2 years, should I just lump sum invest that equivalent amount right now?
4. I believe Total Market index funds are the same as investing in 2-3 across Large, Small, and Mid cap - is there a right or wrong way to do this in terms of choosing a Total Market vs picking 2-3 different funds.
5. Because I have some unmovable money in the tech sector and we have other unmovable money in our former company stock funds that are specific to a second sector, I don't believe I should be investing any of our money in anything else sector specific. The only area I've thought of is as our homeowners insurance premiums soar, in parallel with the stock prices of those companies, I feel like we should invest a small amount in the top ~5 insurance companies to share in the profits we are providing them![:)]( "Smile")
6. Within the areas we have freedom to pick whatever index and ETF funds we want at eTrade, Fidelity, and Vanguard, what does everyone recommend in terms of specific choices? I know Fidelity has some zero expense funds and obviously Vanguard has a slew of great options...
7. Within our international asset category, I'm looking at a 50/50 split between developed and emerging - is that the right approach?
8. Considering only about 55% of our investments are retirement assets, i.e. 401K, Roth, etc, should I be investing all of the taxable investments in growth index funds or should I be looking ahead and thinking maybe I'll want some of that money in income funds in retirement?
9. The approach of paying myself via a money market fund that is funded by maturing CD's over the next 2 years - any different way to approach this? (The ship has likely sailed since I've bought those CD's but just checking.)
Again, thank you all so much for taking the time to read all of this and provide any guidance you may have to help my wife and I get this right.
Overview:
Age: Male (49), Female (44), no children and would love the last check to bounce, as they say...
State: Colorado
Tax Rate: CO 4.4%, Federal 37% (2024 due to my severance, stock vesting), 35% in a normal year, and 32% (2025 due to my possibly continuing my sabbatical)
Employment Status:
Male - sabbatical, received 1 year lump sum severance in February ($300K), plus vesting of stock equal to ~12 months' salary ($300K). Planning to return to work at a lower price point ~$250K with 25% bonus in 2025 or 2026.
Female - employed at $175K/year.
Tax Filing Status: Married Filing Jointly
Debt: We pay all expenses on credit and pay off every month in full. Both cars paid for. Only debt is primary residence where we owe $1,062,000 over the next 26.5 years of a 30-year fixed mortgage at 2.75%. Equity in the house is approximately $900K.
Emergency Funds: Right now, due to the lump sum severance mentioned above, we have $462K in cash on hand. Minus a small amount in our checking and savings accounts with our bank at 4% interest, the balance is all invested in a series of CD's and a Money Market that is used to "pay us" every two weeks and invest every two weeks simulating my former bi-weekly 401k investment. We are invested at 5.2% in a Money Market, and in CD's ranging from 4.8 to 5.5% that mature every 6 months starting this month, March 25, Sept 25, and March 26. This money is designed to last me until year end 2026 or longer for my sabbatical. I don't intend to be off that long and will immediately invest this money upon starting a new job / maturity of CD's. Prior to investing the balance, I will determine a healthy amount to set aside as an emergency fund, as we do have some major home expenses coming up in the next year or three.
Current/Future Investments: My wife is currently contributing the max allowed to her $401K this year and will continue to do so. Her income plus my "income" is allowing us to invest another $2-3K per month. Upon my return to work, I will also invest the max annual amount to 401K, plus earn LTI from my new company, and be able to invest an additional $2-3K per month conservatively.
Retirement Plan: Our hope (bordering on a plan but not there yet formally) is that we can each retire at 55, so for me 2030 and my wife 2035, where her last 5 years will be as part-time as possible while still providing medical coverage for us both. And I will likely do some part-time consulting during those 5 years to make a few bucks along the way...maybe.
Pension / Social Security: I have a pension with my company, a large Fortune 500 company that should be reliable and dependable to deliver, that will pay me ~$200K per year if I wait until 65, $150K per year if I wait until 60, or $100K per year if I start right away at 55. For Social Security, both my wife and I will likely earn the max SS benefit in terms of earnings, and then the amount will depend on when we start and what the heck happens to SS between now and then.
Expected Asset Allocation, pending your feedback:
- 30% Bonds - not sure how to allocate within this amount, i.e., Corp vs US vs Int'l, etc
- 70% Stocks - 20% International (50/50 between developed and emerging), 50% domestic (after subtracting my sector investments I can't change, 20% Total Market, 20% Large, 10% Small)
Portfolio: (a few ways of looking at it)
- Including everything (including real estate, parents' real estate and investments, but not counting pension and SS dollarizations): $7M
- Including everything my wife and I have, minus inheritance: $4.9M
- Everything my wife and I have, minus real estate ($900K) and cash ($463K) set aside for my "income": $3.7M (this is the number we're using for retirement income planning)
Details (By Category, and in descending value order, not including cash for income and real estate):
- Items below that start with *** are things that cannot be invested differently, for a variety of reasons.
- 27% = His 401K: $1M, with ***$208K in company stock fund with NUA benefit.
- 18% = Her 401K: $655K
- 8% = Her Roth IRA: $283K
- 2% = His Roth IRA: $86K
- <1% = His HSA: $15K
- <1% = Her HSA: $12K
- <1% = ***Her 403B: $6K (annuity that can only be rolled over in 10 equal annual increments, so just leaving here and will draw down once she is retired)
- 10% = His deferred compensation account with Newport $370K (can move this into any number of low expense ratio funds, money gets paid out in various amounts between now and 2045)
- 17% = ***His Taxable Franklin Templeton Mutual Funds $632K (cannot be moved due to enormous capital gains if sold, have minimized everything I could and am taking all dividends in cash to invest in index funds elsewhere)
- DynaTech Fund: $331K
- Growth Fund: $238K
- Rising Dividends: $37K
- Mutual Global Discovery: $26K
- 11% = His Taxable eTrade Brokerage Account: $393K (this is where I moved all the Franklin Templeton funds I could tax loss harvest or sell at a minimal capital gain in the past few years, and this is where all dividends and CG from FrkTemp are being moved to)
- ***Vanguard 500 Index Admiral $66K
- ***Vanguard Smallcap Index Admiral $25K
- Morgan Stanley US Govt MM $298K (to be invested this week in index funds)
- 5% = His Taxable Fidelity Brokerage $200K
- Money Market $150K (to be invested this week in index funds)
- Various stocks with too much gain to sell $50K (plan to hold and harvest losses if possible, or sell at close to no gain and reinvest in index funds)
- <1% = ***Joint Taxable Vanguard Total Stock Market Index Admiral $5K (I just started this to invest my 401k equivalent payments in)
- 1% = Her ESPP with former employer $30K (plan to sell after 12 months have passed since last investment to avoid STCG taxes; will invest in index funds April 2025)
- <1% = His Taxable Former Employer Stock Awards $22K vesting in '25 and '26, will index invest upon receipt
- ***Inheritance Amounts in Generalities:
- Her Parents House divided by 3: $300K
- His Parents House divided by 1: $400K
- Her Parents Bond Investments / 3: $300K
- His Parents Investments: $1M
- Bonds $450K
- Mutual Funds across Growth & Income, Mid-Cap, Global, etc: $550K
Key Points:
Our primary focus right now is just about how to allocate the money we are able to allocate. I want to get everything we have lying flat in the right portfolio allocation and investments within it and then later this year I'm going to do more of a full-blown retirement planning exercise to compare and contrast what this financial situation leads to vs what our retirement expectations look like, but for the purpose of this post, I'm most focused on how to get this money into the right place right away.
As for the total portfolio pie, at our ages I know the right mix would probably be about 55% stocks and 45% bonds. I don't really feel comfortable going that conservative this early so I've thought about going more 70/30 stocks, especially considering ~60% of our potential inheritance investments are currently in bonds.
As I decide on where and how to invest more in bonds to get to these numbers, I'm looking at using all retirement accounts to do so and at the lowest expense ratios possible.
I'm not looking at investing anything in real estate beyond our primary residence as I think that's more than enough, as well as possible inheritance of two properties.
Questions:
1. When deciding on our asset allocation approach, is it appropriate to just ignore real estate, cash, and all inheritance money?
2. If we do decide to go 70/30 on our allocation, how frequently should we rebalance to increase the bond portion, i.e., 1-2% every year, 5-10% every 5 years, etc?
3. I think I know the answer to this, but rather than allocating my 401k pseudo investment every two weeks for the next 2 years, should I just lump sum invest that equivalent amount right now?
4. I believe Total Market index funds are the same as investing in 2-3 across Large, Small, and Mid cap - is there a right or wrong way to do this in terms of choosing a Total Market vs picking 2-3 different funds.
5. Because I have some unmovable money in the tech sector and we have other unmovable money in our former company stock funds that are specific to a second sector, I don't believe I should be investing any of our money in anything else sector specific. The only area I've thought of is as our homeowners insurance premiums soar, in parallel with the stock prices of those companies, I feel like we should invest a small amount in the top ~5 insurance companies to share in the profits we are providing them
6. Within the areas we have freedom to pick whatever index and ETF funds we want at eTrade, Fidelity, and Vanguard, what does everyone recommend in terms of specific choices? I know Fidelity has some zero expense funds and obviously Vanguard has a slew of great options...
7. Within our international asset category, I'm looking at a 50/50 split between developed and emerging - is that the right approach?
8. Considering only about 55% of our investments are retirement assets, i.e. 401K, Roth, etc, should I be investing all of the taxable investments in growth index funds or should I be looking ahead and thinking maybe I'll want some of that money in income funds in retirement?
9. The approach of paying myself via a money market fund that is funded by maturing CD's over the next 2 years - any different way to approach this? (The ship has likely sailed since I've bought those CD's but just checking.)
Again, thank you all so much for taking the time to read all of this and provide any guidance you may have to help my wife and I get this right.
Statistics: Posted by Colorado21a — Tue Sep 17, 2024 10:30 am — Replies 3 — Views 264