No, I don't think it's expensive. Vanguard's TDFs are around 0.08% in comparison to the 0.19% your spouse is paying in her 457b, but 401/403/457 plans often (but not always) have higher expenses. Still, anything under 0.30% is acceptable.1. Is the target date fund I am in expensive? Can I do better on my own using one of the Bogleheads lazy portfolio recommendations. I am looking at the two or three portfolio. I want to stay pretty aggressive to try to get growth and grow the nest egg a little more before we go more conservative and try preserving because we are so far behind.
It's not that hard, just a few minutes with a spreadsheet. The image below is something I posted for another member that was holding an asset allocation of 100/0 (all stocks), but they wanted to be 80/20 and asked how to do it tax-efficiently. Some exchanges were made in tax-deferred accounts to add 20% bonds, summed across two Trad IRAs, so no tax consequences, bonds in tax-deferred, and they were set with their rebalance to the new 80/20 AA.2. Is rebalancing something I can do if I keep it simple? Seems complicated.
The spreadsheet I use to do that kind of thing is linked below if you want to play with it. In Excel there is a "goal seek" function so I can tweak things in the proposed section and then use goal-seek to find an exact dollar amount to move that will zero out the Delta between Current and Target. It's very simple/basic so I think anyone could manage this kind of rebalancing effort.
Asset Allocation Sheet
AA Current and Proposed
The TDFs are great if you hold a TDF in all (or at least most) of the retirement accounts, because the AA is auto-rebalanced everywhere, so it's the ultimate in hands-off don't really have to manually rebalance. If you use a 3-Fund Portfolio, then you have more control over the portfolio asset allocation, and for some the control over how much international exposure is what draws them to a 3-Fund composition and away from a TDF, which typically has 40% of stocks in Int'l and 40% of bonds in Int'l as that's the global market capitalization between ex-US and US at 60%. If you're fine with 40% of stocks & bonds in int'l then a Vanguard TDF is a fine choice as it's very easy. If you want less than 40% international exposure and/or you think you'll want to implement Tax-Efficient Fund Placement, then you'll want a 3-Fund portfolio so you can limit Int'l exposure to your target and/or put only stocks in the Roth IRAs and put all your bonds (and some stocks) in the Traditional 457b and/or IRA.3. Vanguard IRAs are currently managed (and the fees are low but...) I want to keep my costs as low as possible so I want to know if with the IRAs should I just put them in Vanguard retirement target date funds or go on my own with one of the lazy portfolios?
I wouldn't change anything until you have a comprehensive plan that both of you understand and agree to. How does your spouse feel about "having enough when you retire" (what's her confidence level and is that based on an analysis her advisor did)? It might be that since most of the accounts are hers, that she knows things will work out but she neglected to tell you, or it could be that she's hoping but doesn't really know.4. Do I leave everything as is? (although it does bother me to pay fees to someone to do something like rebalance when I am a really disciplined person and will do it if I know how).
Knowing if you have enough means estimating your expenses in retirement (including income taxes). If your income from pensions, SocSec, investment portfolio, etc. exceeds your expenses you're set. If there's a projected shortfall, you have to think about ways to fix that (save more, work longer, cut expenses, some mix of all three).
Even without the expenses part, we can make a rough guess at the income part.
He is retired and only gets social security of a few thousand a month.
She will get a pension of about $5500 a month and hopefully social security too of about $2500 monthly.
$2,000/mo (His SS) + $2,500/mo (Her SS) + $5,500/mo (Her Pension) + $1,300/mo (Her Portfolio) = $11,300/mo
The first three components you stated in your post, the estimate for the portfolio is from a Monte Carlo and has a 95% chance of providing more than $1.3K/mo, but it's good to plan for a bad sequence of returns and rejoice when you realize a bigger balance than you planned for (the alternative is planning for a good sequence and having your financial plans wrecked if that doesn't happen).
When I totaled all her retirement accounts I got $225K. When I totaled all the contributions (457b and Roth IRA) I got $38.5K/yr. If we assume she works from age 66 to age 72, and she get's wage raises that increase contributions by +3%/yr, and that the dollar-weighted average expense ratio is 0.20%, then a simple accumulation Monte Carlo gives a range of outcomes like this:
70/30
End-BalPercentile
$466.4K 5th
$591.4K 25th
$687.4K 50th
$817.9K 75th
$1,003.4K 95th
The 5th percentile conservative estimate (95% chance of a better outcome and represents a bad sequence of returns) is $466.K. That's supports a 4% initial withdrawal of $18.7K/yr, which in today's dollars is a purchasing power of $15.6K/yr or $1,300/mo. The image of the Monte Carlo is given below.
This is a rough estimate as working beyond age 70 doesn't increase her SocSec benefit, so she might want to stop 2 years earlier (two less years of contributions and compounding before you start making withdrawals). Also, you both may not want to be 70/30 right up until the day you start withdrawals from the retirement portfolio; a glide-path down is typical like a TDF would do, which will change the projected range of end-balance outcomes.
If you're interested in playing around with the model yourself and have an Excel license, here are the links:
Data and Models I use for Monte Carlo:
NYU Data Set 1928-2017 with Model Fits
Accumulation Monte Carlo <-- model in image above
Withdrawal Monte Carlo
You'll need a MS Excel license; download to your local machine and enable macros (required for the 1,000 random trials and results aggregation).
I'm using my own model as I like to know what's under the hood, but there are other models I like that have public facing website interfaces:
Portfolio Visualizer's Monte Carlo (with distribution modeling rather than the historical returns array),
FiCalc (easy interface, but only historical data array),
and many others here seem to like FireCalc (also historical data, but lots more inputs to tailor to your situation).
Other Considerations
If you pass first, she'll likely be set financially. If she passes first, you'll likely inherit her retirement portfolio, but the pension and SocSec income will both drop. Does she have a term life insurance policy? Is there long term care insurance for either/both of you? I'm sure there are other considerations that go beyond the scope of the investment portfolio that should be considered with an 11-year age gap between spouses and the majority of non-portfolio income attached to a single spouse. Things to think about (and ask your advisor if they're a CFP and not just an investment advisor).
Statistics: Posted by bonesly — Fri Mar 29, 2024 12:25 am — Replies 7 — Views 648