Portfolio while retired

Retirement
1

I retired this year due to company downsizing. I am 62 so have 3 years before Medicare kicks in. I will need to take some distributions for the next three years to ave enough income.

I converted my company 401k to an IRA (Fidelity) and it is currently being managed by them. (High Dividend stock strategy) . I am getting uncomfortable with that strategy and want to self direct my portfolio. (Will save on fees and I like the set it and forget it style) I am looking at the 3 fund strategy ( mutual funds 1. S&P 500, 2. International 3. Bonds)

This strategy seems to be used for those not yet retired but is it good for us that are retired?

Is there another mutual fund strategy that is better for use in retirement?

Ideas?

2

For starters, use ETFs instead of Mutual Funds due to lower costs and greater trading flexibility.

I don’t think anyone here knows your personal situation well enough to provide guidance. Do you need lots of income from the portfolio for your retirement ? Can you afford the level of risk that the S&P500 is sure to bring ?

3

I will need to use IRA funds for the next 3 years until I hit 65. At that point I hope to reduce what I take from the IRA and live off pension and social security.

I am starting to look at ETFs. Still need to research so I understand them better

4

As Butler indicated, it would be helpful for you to provide more information about your assets for more informed responses. Include your current allocation stocks, bonds and cash, your asset locations (tax deferred accounts, Roth accounts, taxable accounts), how much additional annual income you need since retiring etc.
There is no perfect portfolio. The three fund strategy of low-cost index including a Total Stock Market (or S&P 500), a Total Bond Market and a Total International Market fund is a very good portfolio. The three-fund portfolio is fine to continue during retirement. If your pension is sizable than you can consider assuming more risk in your holdings.
The decumulation (retirement) phase of life is much more complicated than the asset accumulation phase. Asset allocation is relatively simple. During retirement there are additional issues including tax considerations, possible Roth conversions, deciding on whether to take an annual pension or payout. Consider getting input from an hourly fee financial advisor to provide input for these additional issues.

5

Thanks for the reply. I think I will do as you suggested and reach out to an advisor for help to dig through all the nuances of a good retirement strategy. Its been a bit crazy since the company downsized and threw a wrench in my original plans. Now its trying to figure out how to adjust and keep moving ahead. Thanks again!!

6

I retire in 5.5 months… I can’t wait.

I can’t speak for Mutual Fund families other that Schwab’s, but their fees are extremely low, about the same as their ETFs… practically zero…. SWPPX their S&P500 Mutual Fund, 0.02% expenses, so if you have $1,000,000 that’s $200 per year. I’m guessing Vanguard is similar.

ETFs trade like stocks, so here are some ETF “gotchas” - don’t place a “market order” overnight for an ETF. You might get a very bad price on your buy or sell. It’s best hygiene to use “limit orders” where you choose your buy or sell price.

Also, little boutique ETFs can have high bid-ask spreads, which can create a lot of losses from “trade friction”.

If you’re not going to be a trader, and if you find very low-fee Mutual Funds, you could stick with them, or just selectively have one type or the other.

The International allocation is going to be very key going forward, also bonds and cash. Don’t make the typical Boomer mistake (disclosure - I am a Boomer, well, Generation Jones) of thinking they’re still 40, that Reagan is still President, and therefore they should be all or mostly US stock.

US stock market returns are forecast by a wide variety of organizations - Vanguard, Research Affiliates, by measures like the Buffet Indicator, Price-to-Book ratio, Price-to-Sales ratio, and many more (I have a dashboard… behind a paywall, I can’t share it) to be LOW SINGLE DIGITS over the next decade… maybe keeping up with Inflation. International should do somewhat better.

Everyone is out there screaming “USA USA USA! The S&P 500 is awesome”, well er, uh, guys, the non-US basket of stocks (ETFs VEU or VXUS) is whipping SPY year-to-date, and this outperformance is new, it may be the start of a new trend. US stocks are richly valued, exUS not so much, it’s like overpaying for a house, it may be a great house, but if you overpay when you buy it you automatically suppress your future returns because you will sell it someday… you can’t eat your house, right?

If you have a big IRA, like over $1 million, you may want to do Roth conversions. My IRA is large, and getting larger every day (a good problem), so I’m deferring Social Security to 70, and using the low-income years to intentionally Roth convert up to my Medicare IRMAA MAGI limit, so I don’t get killed by massive IRMAA fees after I have to take RMDs at 75. I think in ten years I can gradually but significantly reduce the IRA and have all Roth eventually. Then I have the flexibility to… move to a high tax State, with all-Roth, it would not matter. Vermont, for example. Oregon. Also several foreign countries recognize US Roths as tax-free. France, for example. The Baltic States, Canada, UK, Malta. Living in Europe and not getting killed with taxes could be cool.

7

I would add that any money you definitely need in the next 3 years should be in savings, not investments. Try money market funds or Treasury funds or something where you won’t lose your money in a hypothetical stock or bond pullback, correction, or full-on market crash.

2 Likes
8

That makes a lot of sense. That will definitely ease some tension for a while.

Thank you

9

This is good reasoning. Consider getting tax paid on pre-tax funds because when it comes time you will have RMD to take and to pay tax on. If you are able to work your way into the Zero tax bracket because all is Roth, it would be cool. There is, however, another way to un-tax some!

That way is called Qualified Charitable Distribution. You must of course know and follow the Rulez, but this can help a lot. You can take some (possibly all) of your RMD and give it away to charitable organizations. You did not pay tax on it and neither will your charity. Current limit on QCD is $108k per year. Don’t be like late wife who wanted to take her RMD and not give it away. Paid tax on it and still did not take it with her. :rofl:

With this provision out there, I would suggest intentionally leaving some in traditional IRA just so you can give it away!

1 Like
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Oh yes! I’m going to QCD also!

11

so you will be drawing Social Security before your full retirement age? 67 is the new age for full benefits.

12

Yes. I know it will be less then if Ai wait but I need it now for living expenses

13

That isn’t quite right. 67 in government speak is the “Full” retirement age.That means you can work and they won’t reduce your SS check. But every year you wait up till 70 you gain roughly 8% more in your check. In real language I consider that the “full” retirement age. At age 70 there is no longer a reason to not take SS.

Me? I took mine at 62. I figured if I followed Clarks advice to wait to 70 I would die at 69.9 years old!