All Encompassing Investment and Financial Planning Thread for the Surly 99.5%

[UTGrad98 2210]

I always thought the best time to have life insurance was when you were making all your money. After you have made the bulk of it,  you don't need it anymore. Life insurance in my eyes was always money for my family if I didn't have the time to provide it for them. Now it makes no sense for me to get it. Plus I've seen too many 48 hours mysteries to ever get more than a few 100k on a policy. 

[Nice Guy Eddie 13295]

On 2/16/2024 at 7:42 AM, Neonmoon said:

True, the internet bubble hurt some people, like my dad. 

I can appreciate that someone (Gen Z, Millennial) today feels like they've missed out on a hot stock market over the last decade. I know because that is what I felt like from 95-99 when the worst year was +20%. I had some money in the stock market but my working career was still newish and I didn't have an opportunity to put much money into the market. 

In your younger days, it's just about getting money into the the market. The time to reap the rewards is later.

[Dbeasy 14756]

2 hours ago, Trey3216 said:

I mentioned Life insurance as one of several options for non-market cash reserves and he didn't take kindly to it.  You pretty much hit my argument on the head, but to each their own.  

No, it wasn’t the life insurance. The issue is that you told a poster that 3 years of cash reserves is all you have to do to never run out of money, but you provided no other context.

You left that person believing that’s all there is to it. It is not all there is to it and you’ve never once admitted that you were misleading or incomplete in your advice.

And just when the question arises of whether you could be trusted, you promoted insurance, which more often than not is not a good choice for many people. 

[Reagan1k 3002]

1 hour ago, Trey3216 said:

1) You'll always have it.  You could calculatingly spend your assets down because when you die, your family will replenish assets with LI cash.

2) It doesn't factor into assets for children applying to college on FAFSA.  

3) You can utilize the cash (via loan) to yourself at anytime with no application.  Pretty convenient during high interest rate environs.  You could take a car loan right now for 4.8-5% from yourself rather than 8+ from the bank right now.   (Had a business client loan his business $250k for equipment purchases from his life policy a few months back at 5%...bank wanted 9%...saved himself tens of thousands of dollars)

4) in the event you were to have some sort of life threatening chronic or terminal illness (cancer, dementia, etc) you can access the death benefit while you're still alive to pay for medical care rather than have to use assets

5) It can't be taken in a lawsuit.  OJ has a shit ton of money because much of his estate was in life insurance.  

...In reality, once you are retirement age it more or less becomes asset insurance.  You protect your assets, your nest egg, via the benefits of the policy.  The cash value of the policy is yours to use freely, when there's cash available.   

 

It's not for everyone, but it can BE A PIECE OF A WELL ROUNDED STRATEGY.  It is not the only strategy, nor is being completely dependant upon the market and hoping for permanently good health and timing your exit from the workforce just right.   

It's a tool - nothing more nothing less.  When used properly in the right situation to solve the proper problem, it is highly effective and has enormous benefits.  When used in the wrong application, it's akin to trying to cut down a tree with a screwdriver.

Investing in hedge funds and fine art is ridiculous for a 20-something with a 5-figure income and 4 kids, but that doesn't mean those don't have a place for someone else.

The stigma associated with cash value life insurance is associated with certain salespeople and how/where they sell it, but that doesn't mean its a bad product.

[Reagan1k 3002]

1 hour ago, Skipper said:

Just curious - what is a scenario where life insurance as an "investment" actually makes sense?  I had always heard pretty much a ripoff in all but very specific circumstances but never understood what those circumstances would be.

For me personally - with no dog in the fight.....I firmly believe in the power of properly funded permanent insurance when the need is there.  But, I would never call it an investment and don't consider it as such.  It also has no benefit and may even be detrimental to most. 

It's a funding vehicle for certain situations and a flexible asset I can use to my advantage - but again...it isn't an investment for me and in my mind.

I'm a business owner and have seen how it works, how it works for me and what it did for my predecessors over my 35 year tenure and the company's 80 year life.  It's a fantastic tool for me to use in planning and funding certain obligations....both professionally and personally.  It is also a horrible tool for one of my shop guys to buy when he's barely able to even fund his 401(k) to grab my matching dollars.

I control an ESOP, and I must plan for buying out certain employees at their death or in retirement - whichever comes first.  I fund that obligation with permanent life insurance.  If they retire prior to them dying, I use the cash in the policy (that protected me from the liability of them dying early) to pay them off via a loan and I have negligible cost to access those funds.  When they die, I recoup all of my premiums, their buyout, and then some.  All the while I was protected from an unfunded obligation in their early years for pennies on the dollar.  My working capital was protected.

I have a close friend with a handicapped daughter.  He peels off a fraction of his estate annually and funds a permanent policy that will take care of her at his death, without disinheriting her siblings.  He spends 1-2 percent of his estate anually on those premiums.  His estate and the other children will get that spend back at his death (with a multiplier) and his disabled daughter will have perpetual care.

It's an asset class and not an investment in my mind.

Two things can be true at the same time.  

[Trey3216 15308]

17 hours ago, Dbeasy said:

No, it wasn’t the life insurance. The issue is that you told a poster that 3 years of cash reserves is all you have to do to never run out of money, but you provided no other context.

You left that person believing that’s all there is to it. It is not all there is to it and you’ve never once admitted that you were misleading or incomplete in your advice.

And just when the question arises of whether you could be trusted, you promoted insurance, which more often than not is not a good choice for many people. 

I apologize, truly, for the missing context.   Wasn't trying to mislead anyone.  Sorry I didn't clearly define the guardrails.  The vast majority of my business is in portfolio management, life insurance is a tool that CAN be integrated into a full strategy for SOME people.  It is not for everyone, correct.  Which is why I listed it as 1 of several mechanisms.  Nowhere was I saying that was the best or only way to go.  Anyway, cheers.  I'm not on here having a meeting with anyone, which is a completely different thing than merely offering some concepts that have shown to work for a lot of people in my book of business.  Have a good day.  

[StassneyHorn 6429]

Let’s argue about variable annuities next

[midtown 3334]

As somone who has been in the business for well over 30 years. I've seen everything and more than 99% of people in the business. There is some good info on here and some not so good.

I'll just say. There is a a reason insurance is sold on commission

Edited February 21 by midtown

[Celery Man 20568]

talk to me about ditching long held single stocks that have grown to a state where they are intolerably risky

i mean really this is probably not a stock question as much as a psychology thing about attachment and loss aversion, but I dunno. I invested a fairly smallish amount in a single company early in my career and... reviewing my portfolio again the other day made me realize how much it has grown and how it represents wayyy too much of my overall wealth for a single stock. but i don't really want to sell it because that's my boy, we've been through so much.

any of y'all been burned? this doesn't feel like a stonks question since i've held it for 16 years

[Reagan1k 3002]

2 hours ago, Celery Man said:

any of y'all been burned? this doesn't feel like a stonks question since i've held it for 16 years

Often, it's not so much the risk of being completely burned as it is the opportunity cost of better market returns with diversification.

A family member is a good case study I try and always remember.

She held T as her sole equity position prior to the break-up and then held the collective basket of entities for +50 years until her death - hanging on to that step-up in basis for dear life.

Had the taxes been paid at any point and the balance simply invested in the S&P 500, the value would have been 10x at her death.

She let a fear of taking gains and paying taxes dictate the investment decision instead of being just one facet of the decision.

Would I invest X% of my assets in this today is the question everyone wakes up to, whether they realize it or not.

If I wouldn't buy it today, why do I still own it is an interesting question to ask about any portfolio holding.

[Celery Man 20568]

Actually I guess that’s relevant  - I’m stupid about tax stuff, this is in a Roth though. I could sell it and buy different things with it in the Roth and not have any tax implications right?

[BehoId, The Underminer! 11510]

thinking of buying some raw land, funded in part by a 50k loan from my 401k.  never done it before, seems too good to be true.  the cost of the loan appears to be about $135 in fees.  i pay back the loan plus 10% interest to my 401k.  i of course just end up with that interest myself back in my 401k.  right now 401ks are super high and i'd guess a bit of slowdown, so its a good time to take money out of one anyway.  am i looking at this wrong?

[SydneyCarton 47297]

21 hours ago, BehoId, The Underminer! said:

thinking of buying some raw land, funded in part by a 50k loan from my 401k.  never done it before, seems too good to be true.  the cost of the loan appears to be about $135 in fees.  i pay back the loan plus 10% interest to my 401k.  i of course just end up with that interest myself back in my 401k.  right now 401ks are super high and i'd guess a bit of slowdown, so its a good time to take money out of one anyway.  am i looking at this wrong?

Where do you want to buy raw land? And for any purpose, or just to have land?

Edited April 11 by SydneyCarton

[BehoId, The Underminer! 11510]

objection.  nonresponsive.

[Archer 474]

On 4/10/2024 at 12:16 PM, BehoId, The Underminer! said:

thinking of buying some raw land, funded in part by a 50k loan from my 401k.  never done it before, seems too good to be true.  the cost of the loan appears to be about $135 in fees.  i pay back the loan plus 10% interest to my 401k.  i of course just end up with that interest myself back in my 401k.  right now 401ks are super high and i'd guess a bit of slowdown, so its a good time to take money out of one anyway.  am i looking at this wrong?

If you leave your job or get fired it must be paid back immediately or is considered a withdrawal with penalties and taxes, that is one downside. 

[ChickenSandwich 9760]

Question:

My parents, both 75, are looking for a financial advisor in Houston. They spoke with someone referred to them and were given a fee structure but have nothing to compare it to. They are not big time (firmly middle class) and are afraid the FA might be too “big” for them. 
 

Can anyone give me a ball park of what the fees would look like?

 

*Understand more info may be needed 

Edited April 16 by ChickenSandwich

[Nice Guy Eddie 13295]

35 minutes ago, ChickenSandwich said:

Question:

My parents, both 75, are looking for a financial advisor in Houston. They spoke with someone referred to them and were given a fee structure but have nothing to compare it to. They are not big time (firmly middle class) and are afraid the FA might be too “big” for them. 
 

Can anyone give me a ball park of what the fees would look like?

 

*Understand more info may be needed 

1% of assets under management (AUM) is frequently quoted as a standard fee. There are different opinions out there about this fee structure, and people feel strongly about their opinions.

Some people opt for what is effectively an advisor flat fee, or $/hr advised. Then you or your parents may have to perform the actual transactions with the brokerage account.

[Trey3216 15308]

18 hours ago, Nice Guy Eddie said:

1% of assets under management (AUM) is frequently quoted as a standard fee. There are different opinions out there about this fee structure, and people feel strongly about their opinions.

Some people opt for what is effectively an advisor flat fee, or $/hr advised. Then you or your parents may have to perform the actual transactions with the brokerage account.

That's somewhat standard.  However, most advisors will have a graduated fee schedule (automated) where it's 1% for the first X #of $$'s and then scaled down to where the comprehensive fee is somewhere in the .4-.6% as you get over $1mm in assets.  Others also break it down further to where if it's a fully Fixed Income portfolio, the flat AUM fee starts at a lower fee schedule as well.    

[ChickenSandwich 9760]

21 minutes ago, Trey3216 said:

That's somewhat standard.  However, most advisors will have a graduated fee schedule (automated) where it's 1% for the first X #of $$'s and then scaled down to where the comprehensive fee is somewhere in the .4-.6% as you get over $1mm in assets.  Others also break it down further to where if it's a fully Fixed Income portfolio, the flat AUM fee starts at a lower fee schedule as well.    

Is the percentage commission charged for the income they produce each year or simply the size of the account regardless?

[Trey3216 15308]

2 minutes ago, ChickenSandwich said:

Is the percentage commission charged for the income they produce each year or simply the size of the account regardless?

An AUM fee is based on assets.  It's an annual fee.  Commissions aren't charged in a fee based platform.   Any changes made are made to help the client either avoid more losses or to grab better gains.  Whereas commissions based advisors are making changes that while they may help the client, the advisor is also receiving a commission on both the sale of the old asset and the purchase of the new one.  

[Nice Guy Eddie 13295]

For those self managing your retirement funds, do you put much into bond funds? I know the conventional wisdom is to put more and more into bond-like safer investments as you move closer to retirement but the returns have been anemic for a generation now.  Talk me out of just placing 100% in equities with enough cash to withstand multi year downturns?

[DaysOff 7682]

I turn 58 this year, and I'm 90/10 and will probably stay there until my dirt nap. Every monte Carlo simulation agrees.

[Larry T. Spider 1740]

I’m 41, self manage, and have nothing in bonds. Not sure I ever will. My goal is to have a draw rate low enough that I feel safe keeping it in index funds. I will also have social security, TRS pension from 15 year in ed, and investment properties.  Don’t really see where bonds would help me.

[CleverNickname 1281]

In our 401k/403b/457/Roths we are 99% in Vanguard Target Retirement 2040 Fund or a similar target fund (fuck Empower). We could probably be more equity tilt, since she has TRS (and can do social security, since AISD pays in, so no WEP) and I have ERS. Both are effectively non-COLA fixed coupon bonds. Both Rule of 80, 2.3%; both eligible ~2032, age ~52.  Might switch to a 2050 target fund, but if you look 2040 is like 90/10 and the 2050 is like 91/9 this far out. Both have pretty good international exposure - to our detriment this year. In retirement, travel 2 years, then see about part-time employment. She could be a permanent sub (get Sept/Oct and May off for prime National Park time), and I could probably get a new statey gig. Maybe I would sub with her. Or just dig holes.

We can probably retire at 52 (2032) and live solely on my pension, and bank her pension. Gov't FIRE. Do a 457 withdrawal if we really needed it early (no < 59.5 penalty) but mostly use SS as a COI kicker on our state pensions down the line. Draw on 403b when the inflation eats the pension income into a lower tax bracket pr RMDs start. Roths are house money for grandkids or just inheritance. Would like to downsize the house, depends on where kids land and put down roots. If that's out of state, sell the ranch (51ac, optimistically 300k, yeah right) and buy a new tract to putter on. I want to move to the Western Slope, but I know will probably end up near a kiddo helping with childcare. Might last a little longer than 2032, depends on how much the 529s have packed for the college. Realistically it might be more rational to take the golden ring, and then come back and grind as a retire-rehire in a lesser position. More time for our sex cult, thank you Hims. Less stress, the same or more annual pay.

I know a thing or two about life insurance. Been around it about 20 years. There are only 2 products I tell my friends to consider: 20 year term life or 30 year term life. Twenty if your spouse works and yall have a start on retirement savings, definitely buy 30 if they SAH or your kids are more than 5 years apart. Buy em just before you have kids, ideally before you get fat and blood pressure spikes. But never variable life, whole life, variable annuity, indexed linked life, universal life, CDA, etc. Straight immediate annuity if inheriting a windfall, maaaaybe. I bet the higher interest rates means there are some better offers now. The last 10 yrs of zeros had been hard on life insurer actuaries. For a while you couldn't even really purchase a COLA adjusted immediate. Fwiw immediate annuity quotes are a good way to ballpark the value of a pension. I think they are a great was to think about safe withdrawal rates too. Those actuaries probably smarter than me on selecting reasonable variables for PV or FV calculations. In theory a deferred annuity should make sense, and yet they never do. Seems everyone gets cold feet and buyers remorse, and the surrender chargers have bite.

 

[bborange 9851]

I don't have any bonds, but I do have a 5 year CD ladder.   I run about 75/25 equities/CD-Cash.   Each year I wait to retire, I will reinvest the CD that matures that year to a 5 year CD to still have a 5 year ladder in place.    

[Dbeasy 14756]

13 hours ago, DaysOff said:

I turn 58 this year, and I'm 90/10 and will probably stay there until my dirt nap. Every monte Carlo simulation agrees.

I’m not sure what assumptions go into your Monte Carlo model but there is a massive library of data out there showing that a mix of bonds with stocks performs best on the Monte Carlo simulations. I’ve literally run hundreds of scenarios and found the same thing as a double check.

To make sure we are speaking the same language, I’m talking about what percent of scenarios fail.  While obviously a 90/10 portfolio will produce the best average returns over time, it will also have a higher percentage of failures. You don’t want a portfolio that has too high a percent chance of failure. How high is too high? There is a lot of debate over that. I prefer less than 10%. 

Once in retirement, the 60/40 portfolio is often recommended because it performs best on Monte Carlo simulations.  While bonds have historically been bad the last ten years plus, right now they aren’t bad because you can get 4%+. As a counter weight to major deep stock declines that’s pretty good. 

Some people drop to 50/50 early in retirement to reduce sequence of returns risk. With currently elevated stock prices that’s not a bad idea. 

[txduck87 972]

objection.  nonresponsive.

Had a 5 hour deposition yesterday so this hits close to home.

[Mr. Drummond 2161]

My parents have 3+M all in stock market   They are 80.    I have tried to talk them out of keeping it all in there, but they dont ever touch the stocks unless they want a new car or something like that.    They have no bills, they dont go anywhere and have multiple pensions, SS, dividend income.      Good for me and my sister i suppose.    But it's just asking for trouble.

[Dbeasy 14756]

29 minutes ago, Mr. Drummond said:

My parents have 3+M all in stock market   They are 80.    I have tried to talk them out of keeping it all in there, but they dont ever touch the stocks unless they want a new car or something like that.    They have no bills, they dont go anywhere and have multiple pensions, SS, dividend income.      Good for me and my sister i suppose.    But it's just asking for trouble.

I forgot to mention that this is the key question. If you never have to touch the funds invested, for any reason, then going much higher with stock percentages will perform better on Monte Carlo analysis.

However if you have to withdraw more than ~3% ish every year, then having a decent percentage in bonds helps lower the chance of running out of money. 

[Muny_Tex 285]

Tax strategy question as we approach the mid-year mark:

Objective is to limit/reduce Federal AGI to largest degree possible by leveraging investment/retirement contributions. 

I am normal W2 (with employer-sponsored 401k), and wife earns $ part-time on 1099 (no job-specific retirement plan).  My only other income/cap gains this year will be from high-yield savings, CDs, and T-Bills.

Current plan is as follows:

--I will max 401k contributions at annual limit of $23,000

--I will max HSA contribution to family limit of $8,300; by virtue of my high-deductible health plan

--I will contribute additional $7,000 (max) to Traditional IRA (not Roth); mainly for sake of reducing taxable income.  P.S. Feel free to roast me for being within the $123K earnings limit for Trad IRA deductions, as I know this forum is primarily for 7-figure elite.

--Wife will contribute $7,000 (max) to her own Traditional IRA; for same reasons as above

--I will also make series of 529 contributions, but understand these will be non-deductible for federal income calculation

With exception of charitable donations, am I correct that the $45,300 outlined above is the only tax-deductible options available for this situation?  

 

[Parliament 13997]

On 5/23/2024 at 6:51 AM, Nice Guy Eddie said:

For those self managing your retirement funds, do you put much into bond funds? I know the conventional wisdom is to put more and more into bond-like safer investments as you move closer to retirement but the returns have been anemic for a generation now.  Talk me out of just placing 100% in equities with enough cash to withstand multi year downturns?

None.  My plan is to dollar-cost average my withdrawals. 

[StassneyHorn 6429]

23 hours ago, Muny_Tex said:

Tax strategy question as we approach the mid-year mark:

Objective is to limit/reduce Federal AGI to largest degree possible by leveraging investment/retirement contributions. 

I am normal W2 (with employer-sponsored 401k), and wife earns $ part-time on 1099 (no job-specific retirement plan).  My only other income/cap gains this year will be from high-yield savings, CDs, and T-Bills.

Current plan is as follows:

--I will max 401k contributions at annual limit of $23,000

--I will max HSA contribution to family limit of $8,300; by virtue of my high-deductible health plan

--I will contribute additional $7,000 (max) to Traditional IRA (not Roth); mainly for sake of reducing taxable income.  P.S. Feel free to roast me for being within the $123K earnings limit for Trad IRA deductions, as I know this forum is primarily for 7-figure elite.

--Wife will contribute $7,000 (max) to her own Traditional IRA; for same reasons as above

--I will also make series of 529 contributions, but understand these will be non-deductible for federal income calculation

With exception of charitable donations, am I correct that the $45,300 outlined above is the only tax-deductible options available for this situation?  

 

Might check with the company 401k if they allow post tax contributions and then speak to someone smarter than me on back door Roth?

https://www.nerdwallet.com/article/investing/after-tax-401k-contributions

[Muny_Tex 285]

On 5/25/2024 at 7:40 PM, StassneyHorn said:

Might check with the company 401k if they allow post tax contributions and then speak to someone smarter than me on back door Roth?

https://www.nerdwallet.com/article/investing/after-tax-401k-contributions

Thanks for the reply,  I've used back-door Roth in previous years when my income was too high for regular Roth.  However, back-door is not advantageous toward this year's goal of lowering my overall taxable income...since those after-tax contributions (either via post-max 401k or back-door Roth) are not deductible against my AGI.  This is also why I am supplementing 401k Max with Traditional IRA this year instead of Regular Roth, even though I am income-eligible for both.

 

 

Edited May 27 by Muny_Tex

[Dbeasy 14756]

On 5/24/2024 at 8:02 PM, Parliament said:

None.  My plan is to dollar-cost average my withdrawals. 

Given a few really bad 10+ year periods I’m history where stocks declined spectacularly, would you be able to dollar cost average your withdrawals over that time period in such a a way as to not put you on a path to potentially running out of money? There have been a lot of studies showing that would be a problem because you can’t cut spending enough for long enough unless it’s discretionary. 

[Reagan1k 3002]

11 hours ago, Dbeasy said:

Given a few really bad 10+ year periods I’m history where stocks declined spectacularly, would you be able to dollar cost average your withdrawals over that time period in such a a way as to not put you on a path to potentially running out of money? There have been a lot of studies showing that would be a problem because you can’t cut spending enough for long enough unless it’s discretionary. 

Yeah- and that’s where the bonds as mentioned above or some other alternative asset class that doesn’t move lock step with equity will pay off.  You aren’t holding them to meet or exceed your expected long term equity returns, but you can lessen sequence of return risk when withdrawing by having different asset classes from which you pull those funds in certain years.

Having the flexibility to pull fixed income coupon payments and even spend the principal on a maturing bond allows reinvestment of stock dividends into and no or few withdraws from an equity position that’s been hammered so you don’t eat all the seeds you’d need for next year’s crop.

If you aren’t taking planning on taking an income off a portfolio then it’s a mute point, but if you need to siphon off a few percent a year starting in the next 5-10 years, it’s worth seeing how the simulations and probability of success run for you by adding some fixed income vs. staying 100% equity.

You sure as shit don’t want to enter retirement and start immediately pulling from a 100% equity portfolio at the same time the market is in or entering a secular bear phase … and you can’t predict that looking out at your retirement date. 

Emotionally it can feel counterintuitive, but the maths work when withdrawals and sequence of risk enter the chat. 
 

 

[Reagan1k 3002]

12 hours ago, Muny_Tex said:

Thanks for the reply,  I've used back-door Roth in previous years when my income was too high for regular Roth.  However, back-door is not advantageous toward this year's goal of lowering my overall taxable income...since those after-tax contributions (either via post-max 401k or back-door Roth) are not deductible against my AGI.  This is also why I am supplementing 401k Max with Traditional IRA this year instead of Regular Roth, even though I am income-eligible for both.

 

 

I don’t think there’s much left you can do given the stated goal…… but would ask a question - considering this year’s income, your age, and expected career earnings…. Have you looked at the possibility you’d be better off paying the taxes this year if you’ll likely be in a higher bracket later on?  Bracket arbitrage depends on a lot of assumptions but if you have any degree of certainty or a long runway of higher future income ahead, you might be stepping over dollars to pick up dimes this year by going all deductible/ traditional vs. Roth.  Maybe - maybe not- but one does have to consider that.….

Edited to acknowledge there may be some other reason to keep income down besides just paying lower taxes.  That changes the calculations by introducing an outside variable or external need to reduce AGI. 

 

 

Edited May 27 by Reagan1k

[Muny_Tex 285]

On 5/27/2024 at 9:36 AM, Reagan1k said:

I don’t think there’s much left you can do given the stated goal…… but would ask a question - considering this year’s income, your age, and expected career earnings…. Have you looked at the possibility you’d be better off paying the taxes this year if you’ll likely be in a higher bracket later on?  Bracket arbitrage depends on a lot of assumptions but if you have any degree of certainty or a long runway of higher future income ahead, you might be stepping over dollars to pick up dimes this year by going all deductible/ traditional vs. Roth.  Maybe - maybe not- but one does have to consider that.….

Edited to acknowledge there may be some other reason to keep income down besides just paying lower taxes.  That changes the calculations by introducing an outside variable or external need to reduce AGI. 

 

 

Thank you v.much for the insight/perspective.  This is likely a one-time event, as I am trying to optimize excess cash obtained from rental property sales last year....otherwise, I wouldn't be able to stay net positive on bills/overhead/savings at those levels of contribution.

While post-tax augments would typically be the wiser long-term bet for reasons you mentioned, my AGI reduction plan above will make us poor enough (by razor's edge) to qualify for the Earned Income Tax Credit...which should yield ~$10K in immediate ROI via federal + state tax relief plus the corresponding investment benefits...creating a win-win where I then roll that "bonus" money into backdoor Roth and/or 529 supplements.

[blacklab 11818]

I have a few bond funds and over the last few years they've dropped >20% in value. I really don't see how the low returns make any sense if they can drop in value just like a stock.

I'm slowly selling those off and just putting it all in the stock market and high interest savings. My plan is to have about 5 years of spending money in liquid and sell off stock to replenish as needed. If stocks shit the bed I won't sell till I really need to.

I'm really curious what you guys are going to be doing on your retirement. Doing blow off stripper's asses? $1k bottle service at the club? I figure I won't have any debt and currently my bills and food total up around $3-4k per month. Social security should be somewhere in the 2-3k range for me so I'm just going to need to come up with a few grand a month to cover bills and money for vacations and a new car every 10 years or so. If present trends continue with savings and 401k contributions that should be around 1-2% of my invested money per year.

[Trey3216 15308]

On 5/24/2024 at 6:55 PM, Muny_Tex said:

Tax strategy question as we approach the mid-year mark:

Objective is to limit/reduce Federal AGI to largest degree possible by leveraging investment/retirement contributions. 

I am normal W2 (with employer-sponsored 401k), and wife earns $ part-time on 1099 (no job-specific retirement plan).  My only other income/cap gains this year will be from high-yield savings, CDs, and T-Bills.

Current plan is as follows:

--I will max 401k contributions at annual limit of $23,000

--I will max HSA contribution to family limit of $8,300; by virtue of my high-deductible health plan

--I will contribute additional $7,000 (max) to Traditional IRA (not Roth); mainly for sake of reducing taxable income.  P.S. Feel free to roast me for being within the $123K earnings limit for Trad IRA deductions, as I know this forum is primarily for 7-figure elite.

--Wife will contribute $7,000 (max) to her own Traditional IRA; for same reasons as above

--I will also make series of 529 contributions, but understand these will be non-deductible for federal income calculation

With exception of charitable donations, am I correct that the $45,300 outlined above is the only tax-deductible options available for this situation?  

 

If your wife is 1099 and no employees she could start a solo 401k or SEP.   Higher contribution limits than traditional IRA.  

[Nice Guy Eddie 13295]

6 minutes ago, blacklab said:

II'm slowly selling those off and just putting it all in the stock market and high interest savings. My plan is to have about 5 years of spending money in liquid and sell off stock to replenish as needed. If stocks shit the bed I won't sell till I really need to.

I'm really curious what you guys are going to be doing on your retirement. Doing blow off stripper's asses? $1k bottle service at the club? I figure I won't have any debt and currently my bills and food total up around $3-4k per month. Social security should be somewhere in the 2-3k range for me so I'm just going to need to come up with a few grand a month to cover bills and money for vacations and a new car every 10 years or so. If present trends continue with savings and 401k contributions that should be around 1-2% of my invested money per year.

I'm also in the camp of rapidly building my total cash savings. had planned on roughly 3x annual expenses.  I flip flop on investing part of it now while I'm working to get better returns but at the moment I'm cool with 4.5% yield with savings. Note: I'm slightly less than halfway with this goal.

As for what I'm doing in retirement and required income, I struggle with that question. I hate to say it but I've been a bit too much of a retirement spreadsheet guy focusing on the totals and not what I want to do with it. One large expense that I'm considering are extended vacations around the country as in living in _______ for 2-3 months at a time.  Rent furnished places. Align these trips to see certain sports teams/concerts/national parks. Maintain a fulltime home most likely in Texas. This type of lifestyle would obviously wind down as the years go on.

 

[blacklab 11818]

That's our plan for the first year or so. Spend a month or so in Santa Fe, San Diego, LA, SF, Tahoe, Seattle, Chicago, Boston, NYC, DC. Go see every museum and point of interest. Have an RV but air b&b when staying for extended period of time. Probably buy a place in Tahoe or the Rockies after that and split time between there and a small place west of Austin.

[Reagan1k 3002]

1 hour ago, Muny_Tex said:

Thank you v.much for the insight/perspective.  This is likely a one-time event, as I am trying to optimize excess cash obtained from rental property sales last year....otherwise, I wouldn't be able to stay net positive on bills/overhead/savings at those levels of contribution.

While post-tax augments would typically be the wiser long-term bet for reasons you mentioned, my AGI reduction plan above will make us poor enough (by razor's edge) to qualify for the Earned Income Tax Credit...which should yield ~$10K in immediate ROI via federal + state tax relief plus the corresponding investment benefits...creating a win-win where I then roll that "bonus" money into backdoor Roth and/or 529 supplements.

Exactly why I edited the comment.  Lowering current taxes just for the sake of lowering taxes is very different than what you described.  Glad there was some clarification.  Too often, "reducing taxes" is just for the sake of such in a vacuum, and doesn't look at long term ramifications, but you have a plan and a purpose.  Sounds like you need to be dishing advice instead of asking!

[StassneyHorn 6429]

https://www.morningstar.com/news/marketwatch/20240719338/rmd-rules-for-inherited-accounts-are-here-you-may-have-less-time-to-act-than-you-thought

RMD guidance was issued. Posting this as I’m still unsure what this means for beneficiaries that are “adult children” and not minor children. 

[Okie State 3696]

I have no idea what that guidance is trying to say. I inherited an IRA from my grandfather in 2020 and plan to withdraw all of it by 2030. Has that changed? Or is this just guidance going forward?

[blacklab 11818]

hasn't changed.

have to move it all out within 10 years with a minimum each year

here's a calculator to tell you the minimum each year.

https://inherited-rmd-calculator.web.vanguard.com/

 

[Celery Man 20568]

Ok, I'm sure this is the same ground that's been covered a ton in this thread but still -

I recently ended my relationship with a former employer and rolled over a 401k with a couple hundo into my Fidelity account where I have everything else, and that wound up leading to a bunch of discussions. I've been self directed for the most part, I have a few single stocks (a little bit of google and amazon, a little bit of apple that turned into a lot over 15 years) and a couple grand in a mutual fund and a little bit of company stock from the employer before the most recent one but have mostly been in S&P type index funds. No bonds at all, really no international at all, I also went ahead and rolled over my even older 401k into IRAs, and so I have a ton of cash mixed in with the other stuff in about 75% roth and 25% traditional ira. I think I'm going to start going all in on traditional IRA at this point, but generally right now my question is if I should even be entertaining the "let us manage your IRAs for .9%" pitch from Fidelity or if I should just go three fund, and I guess do I really need bonds if I'm not planning on retiring for another 20 years? I know almost nothing about bonds, i've really just been hucking money into retirement without thinking about it too much for my whole career, and I guess at almost 40 now is the time to start thinking more strategically, but I don't want to sit around thinking for too long with all this cash out of the market.

My inclination is to just do what I've been doing but maybe more closely aligned with an actual boglehead three fund approach, not fuck around with paying a fee, I guess I'm looking for validation that that is wise and I'm not failing to think about some aspect of things that i haven't thought about yet, and maybe some bond talk although I think there was some up thread that I'm going to go find.

Edited July 24 by Celery Man

[Wally Fairway 5490]

26 minutes ago, Celery Man said:

Ok, I'm sure this is the same ground that's been covered a ton in this thread but still -

I recently ended my relationship with a former employer and rolled over a 401k with a couple hundo into my Fidelity account where I have everything else, and that wound up leading to a bunch of discussions. I've been self directed for the most part, I have a few single stocks (a little bit of google and amazon, a little bit of apple that turned into a lot over 15 years) and a couple grand in a mutual fund and a little bit of company stock from the employer before the most recent one but have mostly been in S&P type index funds. No bonds at all, really no international at all, I also went ahead and rolled over my even older 401k into IRAs, and so I have a ton of cash mixed in with the other stuff in about 75% roth and 25% traditional ira. I think I'm going to start going all in on traditional IRA at this point, but generally right now my question is if I should even be entertaining the "let us manage your IRAs for .9%" pitch from Fidelity or if I should just go three fund, and I guess do I really need bonds if I'm not planning on retiring for another 20 years? I know almost nothing about bonds, i've really just been hucking money into retirement without thinking about it too much for my whole career, and I guess at almost 40 now is the time to start thinking more strategically, but I don't want to sit around thinking for too long with all this cash out of the market.

My inclination is to just do what I've been doing but maybe more closely aligned with an actual boglehead three fund approach, not fuck around with paying a fee, I guess I'm looking for validation that that is wise and I'm not failing to think about some aspect of things that i haven't thought about yet, and maybe some bond talk although I think there was some up thread that I'm going to go find.

IMO - due what you are comfortable with, unless it is reckless (individuals stocks, ultra concentrated funds, stonks, etc) . Also, make sure you don't have excessive overlap in funds, schedule out to holdings to make sure you know the investment overlap).

Unless you need to catch up, it is difficult to get an advisor who can outperform the 1% charge, vs a well structured no cost portfolio of ETFs, CDs, money market, etc. 

On the other hand if you are under of how to properly balance your investments, pick funds/investments, or have to many people hounding you then. 1% or a fee only advise e can be with the piece of mind

[blacklab 11818]

Would love to hear other's opinions on bonds but I'm 100% against them and plan on keeping everything in stocks and two years of living expenses in liquid form. I'm mid 50's and planning on retiring in 4 years. 

The reason I'm anti bond is they can go down in value just like stocks.

Here's a bond fund I inherited a while back. It's lost ~20% of it's value over the last 4 years. Yes it spits out dividends, but if I needed to sell I'd be down a bunch right now.
The whole sales pitch on bonds is while only a 1-5% return you won't lose value. Well that's not true at all.
I'd rather average 7% and take the lumps of the ups and downs of the stock market.

I do plan on keeping 2+ years of expenses in cash/liquid, and slowly dribble out money each month to keep it flush. If the market tanks I'll just stop withdraws for a few months till it gets back to a more normal level. With the house and car paid off and the kids out of the house I really don't see us spending much more than SS is bringing in and hope the interest on the cash will cover most things. My uncle that I inherited this bond fund from used this plan, and had the same amount in his Vanguard account when he died 2 years ago that was in it when he retired 20 years ago. Around 5% of his money was in bonds, the rest was in stocks, mainly s&p 500 funds. 

 

[GoneFission 2]

24 minutes ago, blacklab said:

Would love to hear other's opinions on bonds but I'm 100% against them and plan on keeping everything in stocks and two years of living expenses in liquid form. I'm mid 50's and planning on retiring in 4 years. 

The reason I'm anti bond is they can go down in value just like stocks.

Here's a bond fund I inherited a while back. It's lost ~20% of it's value over the last 4 years. Yes it spits out dividends, but if I needed to sell I'd be down a bunch right now.
The whole sales pitch on bonds is while only a 1-5% return you won't lose value. Well that's not true at all.
I'd rather average 7% and take the lumps of the ups and downs of the stock market.

I do plan on keeping 2+ years of expenses in cash/liquid, and slowly dribble out money each month to keep it flush. If the market tanks I'll just stop withdraws for a few months till it gets back to a more normal level. With the house and car paid off and the kids out of the house I really don't see us spending much more than SS is bringing in and hope the interest on the cash will cover most things. My uncle that I inherited this bond fund from used this plan, and had the same amount in his Vanguard account when he died 2 years ago that was in it when he retired 20 years ago. Around 5% of his money was in bonds, the rest was in stocks, mainly s&p 500 funds. 

 

Having bonds is generally seen as a good idea in am efficient portfolio. While the price of the bondsay go down, it really only matters if you plan to sell them in the short or medium term. Another way of looking at it would be something that pays you 5% or so in perpetuity and the price doesn't really matter.

 

The 7% stock return has a lot of volatility to it so the bonds also effectively hedge your returns to the market ups and downs. Volatility really kills returns - if you have 100, it loses 20% one year and gain 20% the next you averaged a 0% return but you lost money from where you started ( you end with 96 in the scenario). Same for a 20% gain then 20% loss (96 of original again). 

 

Wouldn't say to have your entire portfolio in bonds but having a bit definitely has some benefits by reducing the impact of volatility on your portfolio. 

 

Some have said recently to go all bonds but I've never heard a big time investor say to do it and it hasn't played out over long term so so far I've been against it personally- not up for taking that large of risk for something to earn slightly more. 

[blacklab 11818]

Thanks for the feedback.

If it does go down 20% and averages 5% back out now you're only getting 4% of your original money.

After I retire I am going to be selling off a small percentage every year so the price will matter.

I'll probably just leave the 5% or so in bonds and just let my kids deal with it once I'm dead and don't care.