As Retired@50 noted, it's hard to suggest a change when you don't know your target asset allocation (AA), but we can make suggestions to simplify your portfolio (reduced from 24 holding down to 12) while maintaining the current AA "as is." That "as is" AA is 53/40/7 with 20% of stocks in international. Cutting the number of holdings in half is good, but 12 still feels like "too many" to manage easily; ideally you'd want total holdings of 3-6 funds over 5 accounts max, but that would require consolidating accounts (e.g., moving His 401a into a His IRA and Her Annuity into Her Trad IRA would help simplify further, if those moves are even possible).1. Obviously I need to combine a bunch of small investments into fewer funds. I'd like specific suggestions for the IRA bond funds and equities funds.
Your Current layout has a Wash Sales issue with Van 500 Index (VOO) in Taxable and Nuveen S&P-500 Index in His IRA. In the Proposed layout I've suggested that you sell VOO in taxable and re-invest the proceeds in VTI to avoid that issue, but there is a tax cost to do so (you'll probably owe capital gains tax on the sale of VOO), so consider whether than makes sense or if you want to accept the risk of the wash sale issue (IRS penalties and back-taxes owed with interest in the very unlikely event of an audit).
You also have a lot of high-cost funds highlighted in yellow with expense ratios in red. These were all eliminated in the proposed layout since Costs Matter.
A template spreadsheet (not your data) to do this kind of assessment and rebalance planning is linked below.
Asset Allocation Sheet
AA Current and Proposed
Do you have an estate plan in place? Are these annuities transferrable to heirs or charities? Something to ask the plan admin about. On the topic of no clue regarding asset allocation, I'll reiterate Retired@50's suggestion...Desired asset allocation: Haven't a clue
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2. I have no idea what ratio of equities to bonds/annuities would be best. We don't plan on annuitizing any of the TIAA annuities or the Fidelity annuity since we don't need more income right now.
Control Your Risk
1) Read the Wiki article for Assessing Risk Tolerance, take the Vanguard Investor Questionnaire, then tailor the asset allocation (AA) that was recommended by the quiz based on your knowledge of your personal risk tolerance having read the Wiki article.
2) Alternatively (or in addition to), ask "How much of a drop in portfolio value as a % of total value can I handle?" cut that % in half to get standard deviation, then lookup that std. dev. on the X-Axis of the chart below, and finally scan up to see what AA that corresponds to. As an example, if you can only stomach a -24% drop in portfolio value, that's a ±12% std. dev, which corresponds to an AA of 60/40. The return you get is an average and you'll get what you get with your unique sequence of returns (there's a lot of variance in outcomes due to the associated volatility of stocks so it probably will NOT be the average, but something more or less).
a. For a long time-frame (>10 years) AAs below 20% stock are dominated (red dots) by another AA with similar risk but higher reward (blue dots).
b. The dotted line represents a hypothetical linear risk-reward from 100% stocks down to 100% bonds; the historical risk-reward curve has an improvement for risk-adjusted return due to the lack of correlation between stocks & bonds.
Long-term care (LTC) costs are a wildcard... it's easily as high as $15K/month and probably more in some places and that will likely increase from now until the time you need it at a rate faster than the CPI index. It's never too late to look at long-term care insurance policies, but you have to make an evaluation of self-funding vs paying a high premium (due to being in your early 80s vs early 60s). Still worth shopping around to see if there's something worthwhile or to know you're better off self-funding LTC.3. My goal is to have enough to fund immediate long term care for him and probably ultimately for me and I'd love to have money left for my two sons to inherit.
The guidance in Tax-Efficient Fund Placement is that Roth accounts and Taxable accounts should ideally be 100% stocks. I think it's fine to have your year's worth of spending in a MMF in Taxable, just for easy access, but that money would no longer be counted in your investment portfolio (it's going to be spent within 12 months so just remove that line from your AA spreadsheet).4. What should I be investing taxable accounts in, given that all the IRA income is taxable.
You currently have CDs, VMFXX, I-Bonds, and SGOV in Taxable (in addition to VOO and VTI). You could take 1-2 year's worth of expenses, less the dollar-value of the I-Bonds, and set that aside in VMFXX as your spending cash (no longer part of your investment portfolio). Invest the rest of it in VTI (sell VOO to add to VTI so you can avoid wash sale issue discussed earlier). Make sure your you elect to defer taxes until redeemed for your I-Bonds in your TreasuryDirect accounts (the I-Bonds still count towards your investment portfolio under the "bonds" column as they are tax-efficient in Taxable as long as you elected to defer taxes until cashed out).
If you can comfortably cash-flow the memory care from income sources, then you could certainly reduce the 3y cash buffer down to 2y or even 1y. I would probably always keep a 6m cash buffer (i.e., start with 1y and if it gets down to 6m add another 6-12m by selling stocks & bonds to replenish the buffer). I'm not an advocate of the "bucket strategy" to try and use cash to cushion market down-turns, but some do that and hold 3-7y of cash (however long they think a bear market might persist is the size of their cash bucket).5. Should I be keeping the amount of cash I have, which is roughly enough for 3 years memory care in Tucson. Should I keep excess income from RMDs in cash or invest and if so, in what? If I fund a significant portion of memory care out of income rather than savings, then should the savings that is cash be invested?
You should probably cash out as an insurance product isn't a good "investment" to pass to heirs. It likely does not matter how the annuity is invested (stocks, bonds or cash) as it's likely all taxed as ordinary income when you take withdrawals, but check with your insurance agent or look at a 1099 from a prior withdrawal year to see how it was classified (ordinary income vs capital gain/loss). If you can direct how the funds within the annuity are invested, I would put it into an S&P-500 just to lower than expense ratio compared to the Fidelity VIP funds (I guess VIP means pay extra for 3 letters in front of the fund name?). Since it's an actual annuity/insurance product (I assumed this was a retirement account like TIAA Traditional Annuity), you might have no choice about how it's invested (couldn't pick a low-cost index if you wanted to), so again check with your insurance agent.6. The fidelity annuity was purchased years ago with $50,000 in inherited funds; there have been a few withdrawals but not lately (don't need more income!). I believe I have to make some choices in a few years; can I just keep rolling it over into another annuity to pass on to heirs?
Since you don't need more income, I would also check with the agent about cashing out the annuity and any surrender charges/penalties for doing so (can probably cash out surrender-free when it's due to rollover). Re-invest the proceeds into VTI in Taxable as stocks are good to pass on to heirs (they will get a step up in basis), whereas an annuity that you don't need is likely something to get out of as it's probably not transferrable to heirs (could check with the insurance guy, but just get out when there's little-to-no added cost to get out).
Statistics: Posted by bonesly — Sun Jan 12, 2025 5:49 pm — Replies 4 — Views 320