Those three TRP funds do qualify as "low expense" but the TRP's Total US Stock is 5x more costly than Van's TSM at 0.04%. TRP's Total Int'l Stock and Total US Bond are both about 2.5x more costly than Van's Total Int'l Stock at 0.12% and Van's Total US Bond at 0.05%.a.Option 1: stay at TRP but change to low expense TRP funds.
i.Suggestions
1.Total Equity Market Index POMIX S&P Total Market Index 0.20%
2.International Equity Index PIEQX MSCI EAFE Index 0.29%
3.QM US Bond Index- I Class TSBLX Barclays US Aggregate Bond Index 0.12%
For future contributions, can I set it to do my autobuy to buy from 3 different funds according to my asset allocation percentages? Or do I do the math based on my contribution amount myself? This is more a technical Q about TRP so if anyone happens to know, I’d appreciate it.
b.Option 2: change all to VG low expense funds
i.Is the robo-advisor worth it?
ii.Is it okay to just go with VG target retirement 2045 VTIVX 0.08%?
52% total market index, 32.9% international stock, about 15% bonds. (This is riskier than is recommended for my age, no? I could also choose a Target retirement date 2035 fund VTHRX 0.08%, which is about 70% stock, 30% bond, 1% short term reserves; or Target retirement date 2040 fund VFORX 0.08%, which is about 77% stocks, 22% bonds, 1% short term reserves)
I would go with option 2 unless there's some fund you're looking for that Vanguard does not have (and that you can't buy without a transaction fee). The robo-advisor is probably not worth the cost. If you're here on this board, then you can likely figure things out yourself (with help from board members) and save the fees to magnify your compound earnings.
Have you made an estimate of what your expenses will be in retirement and when you'd like to retire? Technically you have no need for portfolio income since pension+SS covers your entire salary, which is usually enough, but again scrubbing expenses in retirement may suggest you do need some portfolio income as well (see the question about pension being fixed or having annual increases to keep pace with inflation in your question about the tax-deferred annuity).Next, I want to figure out how much more I would need to supplement what I already have invested.
a.My current best estimate of my pension payout is possibly $6-7k monthly (subject to fed tax). Still obtaining more information on this, and also will be taking steps to do a service buyback and increase my years of service, which should increase my payout. (Some of my current cash will go towards this.)
b.Estimate from social security according to SSA.gov calculator running my current income: $3,063/mo (poss taxed), but the calculator seems very… simple. It doesn’t account for future earning increases, which I do expect contractually, nor past years of much lower earnings. Is this calculator a reliable estimate? And should I calculate for retirement assuming that SS will definitely still be available/funded in 20+ years?
c.So on top of that, my current IRA holdings—which are modest, but still -I’m feeling more like perhaps I don’t need to supplement very much. But at the same time, I’ve also been thinking that maybe I should not use current expenses to estimate retirement needs. There are many reasons why I can expect my expenses to go up later in life (higher health care costs, greater freedom to travel) and in the short-term, I expect my expenses to go up (aging pets, the possibility I might move). Should I be basing my calculation of my future needs using an Estimated Future Budget?
As an example, let's say you think you'll spend 100% of your current salary in retirement, so that's $107K. You get $72K/yr from the pension and $36K/yr from SocSec, so your pension and SS already exceed your expenses ($108K income vs $107K spending). Your expenses in retirement typically go down initially (house is paid off, no commuting cost to work), but may go up earlier in retirement (lots of "go go" years traveling) and later in retirement (specialty medical care, retirement community costs, nursing home costs, etc.), so it's worth looking at ways to better estimate your spending in retirement over time.
As noted before, IF there was a shortfall between your estimated retirement spending and Pension+SS, then your portfolio would have to cover that. Let's, for the sake of example, say that was $50K/yr. If you retire at 65 and plan to live to 95, that's a 30-year span so the 4% rule and the 25X multiplier (1/.04) are applicable: $50K/yr x 25 = $1.25M (today's dollars), which is the size of the portfolio you need at retirement. If you retire early and have a 40-year span that's 3.5% and 28.6X multiplier ($1.43M); you retire later and a 25-year span that's 4.5% and 22.2X multiplier ($1.11M).
The word "annuity" is always a red flag to me, because there are lots of bad ones (although there are good ones too, like Multi-Year Guaranteed Annuity and Single Premium Immediate Annuity). Annuities typically don't have a cost of living adjustment (COLA) so they lose purchasing power over the multiple decades you'll live in retirement. Speaking of lost purchasing power, SocSec does have COLAs, but does your pension? If not, that's where your portfolio income will be of use.3.If I still need to or want to supplement these three funding options, it turns out I have access to a 401(k) with the City of NY, a 457(b), and a 403(b). (Thankfully y’all pushed me to investigate!) I am most interested in the 403(b) Tax-Deferred Annuity. Any red flags there?
i.I can put money into this TDA either as Roth or not. Is one obviously better for my situation?
ii.I can choose from 7 low-cost fund options (combinations thereof). The fund options all seem basically fine, like common index funds (they have names like “US Equity Fund” and “International Equity Index Fund”), but I think that the best one sounds like the Fixed Return Fund. I would get a guaranteed rate of 8.25% with zero fees/expenses. That sounds pretty good, right?
iii.Since the max allowed for a TDA is so much higher (so high I cannot hope to meet it any time soon), should I actually stop investing into my existing IRAs—no matter where they end up—and contribute solely to this from now on? (I suppose this relates to the first question; whether I should put the money here as Roth or not.)
The Trad vs Roth choice is described in the Wiki; you don't have a tax-deferred vehicle now, so that might make sense, but work through the decision process in the Wiki.
I would get a guaranteed rate of 8.25% with zero fees/expenses. That sounds pretty good, right? -- if it sounds too good to be true, then it is. 8.25% is likely the current rate but it will not be guaranteed indefinitely; it's probably guaranteed for a certain period like 1 year or 3 years; you need to read the fine print. Barring some miracle risk-free investment returning 8.25% (not likely true), then you'll want to put the majority of your bonds in your tax-deferred account (Trad 401K or 403B) and hold the stocks in a Roth 401K/403B/IRA.
Given your seemingly covered by pension and SS, then you could certainly divert some funds to near-term goals. HYSA is very safe. You could consider Certificates of Deposits (CDs) and Money Market Funds as well, the latter are paying just over 5% and are very liquid while a CD ties up your money for a term. I'd recommend a taxable account with Van, Fido, or Schwab (you already have a retirement acc't at Van) and just put the money in a money market fund like:4.If it turns out I don’t need to invest more for retirement, then I’d possibly like to invest for near-term uses such as moving. Because this is for near-term uses, I would definitely be more risk averse about these funds disappearing. Currently savings are in a high-yield savings account at 4.5%. Is my best option for this a taxable brokerage account? Or should I consider something safer?
Vanguard Federal Money Market Fund (VMFXX) - 5.28% yield
Vanguard Treasury Money Market Fund (VUSXX) - 5.29% yield
Vanguard New York Municipal Money Market Fund (VYFXX) - 3.08% yield (but tax-free in your state)
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Congratulations on having such a good pension and expected SocSec benefit! That very likely frees up some of your retirement savings for nearer-term objectives! Do check with your HR group about whether the pension is constant for life or is adjusted annually for inflation.
Statistics: Posted by bonesly — Wed Feb 28, 2024 7:59 pm