Boy Scout on a panty raid

[ThinkBig]

I am writing the CR forum as I was recently laid off due to restructuring after a very long career with one company. I didn’t see the proverbial ax coming. My dilemma, and hence this initial posting before the forum, is the sudden realization that I am as organized for this stage of my life as a Boy Scout on his first panty raid. My goal is to clean the slate and move towards a 100% 4x25 PP in both tax/no tax accounts.

I am an unemployed, 55 year old single male, with no debt, that might not seek another full-time job. My portfolio is 7 figures with a 75% tax/25% no tax breakdown. Presently my taxable account is 8% Cash, 50% VAIPX (tips), and 18% 4x25 PP (IAU, VTI, VGSH, and TLT). The No Tax accounts are comprised of 2% Roth (4x25 PP) and 23% Cash in a new Rollover IRA. All my funds are with Vanguard.

I need some help splitting up my assets between my tax/no tax accounts for the long haul. Do I treat the taxable bucket as one 4x25 PP and the Rollover IRA as another or since I’ll be living off the dividends/rebalancing, do I move the new non-dividend paying gold ETF to the no tax account?

I never like walking away from a jigsaw puzzle before it’s completed, especially when it is my own, and that’s why I am reaching out to you for help.

Thank you.

[AdamA]

Sorry to hear about your job...but congrats on having 7 figures saved. 

My advice would be:

(1) Put your long term bonds in the no tax account. 

(2) The rest can go in the taxable account. 

(3) Maybe consider I-bonds for the cash portion (tax deferred interest).

I'm sure others will have good ideas, but this seems like the simplest way and is pretty tax efficient.

[MediumTex]

I would place enough of each PP asset in tax-deferred accounts (including Roth) so that you will have some assets to sell in the event you hit a rebalancing band.

Beyond that, and especially if you are going to be moving into drawdown mode, I don't think it matters that much how you set it up to start with.

As you move forward, there will also be tax loss harvesting opportunities with your taxable accounts to help offset taxable gains in those accounts.

I would also look into doing some kind of part time work that you enjoy.  It will create a small stream of income (if not more) and will give you something to do with your time and energy.  A $10,000 annual income from part-time work adds a "phantom" $100,000 to your net worth if you are aiming to get a 10% return on your assets.

[KevinW]

Welcome to the forum.

Generally it's simpler and cheaper to lump all your accounts into one big PP.  It makes for fewer transactions and fewer things to keep track of.

I prefer the approach suggested in "Fail Safe Investing" which is to prioritize sheltering your assets in the following order: cash, bonds, stock, gold.  My one tweak is to hold some emergency reserve cash in a liquid taxable account.  If you were to follow this recipe, holding say 5% as emergency cash, you'd have

tax-deferred: 20% cash, 5% bonds
taxable: 20% bonds, 25% stock, 25% gold, 5% emergency cash

Between Roth and traditional IRAs, I try to put the higher-return assets in the Roths to maximize the tax benefits.  Bonds have higher expected returns than cash.  So I would allocate your accounts as

Traditional IRA: 20% short term treasury fund (cash), 3% TLT
Roth: 2% TLT
Taxable: remaining assets

You may want to consider holding some assets at a different firm to diversify counterparty risk.

Keeping this in perspective, though, the exact choice of funds and their placement is kind of a minor detail that doesn't make a tremendous difference.  Any reasonable plan is probably fine.

[LifestyleFreedom]

A small stream of income from part-time work has advantages (if you are up to doing part-time work).

The income means you don't have to draw on your investments for some or all of your living expenses, so your investments have a longer time to grow.  You may also be able to delay drawing on Social Security, which will make your benefits larger when you do begin drawing.

Earned income qualifies you to make contributions to a retirement plan (such as an Individual Retirement Account).  There can be a lot of discussion about whether a person near retirement should contribute to a tax-advantaged account (or at least the type of account -- Traditional or Roth), but I'm one of those who believes it's the right thing for me to do (and I go for a Roth whenever I can).

If you make enough income from part-time work, you may have a surplus over what you need for living expenses and would then be able to add money to your investments.

One advantage of having enough investment income to live on (and retire or semi-retire early) is that you can be very  picky about the part-time work you choose to do.

[MediumTex]

BTW, you probably want to elect COBRA continuation coverage for the full 18 months that you are eligible.

It will cost a lot, but not as much as it would cost you to get individual policies on yourself/spouse.

Is your spouse still working?  If so, and she has benefits, that simplifies things a bit.

[ThinkBig]

Adam 1226, Medium Tex, KevinW, and Lifestylefreedom,

For the last several weeks I’ve been franticly looking in the portfolio haystack for the needle and within one and half hours you guys have handled me the farmer’s daughter. I thank you.

I now intend to look for a part-time work, made the jump and signed up for Cobra last week, and luckily for me my employed girlfriend possesses that lovely feminine helplessness which we so often hear about but so rarely encounter.

Thank you, you’re all in my will and I’ll post again when the dust settles.

[6 Iron]

ThinkBig,

Sorry to hear of your job loss. It sounds like you are headed in the right direction financially, but I suspect your biggest challenge will be forging a new life, focus, and to some extent, identity in the wake of your unexpected job loss. I hope that you can find a passion, either through part-time work, or new activities. This has been one of the greatest challenges for some retired partners of mine, and they were theoretically expecting and planning for the transition.

Good luck. And for what it's worth, the merit badge for panty raids was always the most coveted.

[AdamA]

Keeping this in perspective, though, the exact choice of funds and their placement is kind of a minor detail that doesn't make a tremendous difference.  Any reasonable plan is probably fine.

Definitely true.  As long as you follow the general plan of the HB PP, the smaller details aren't that important.  

The one thing that comes up a lot, though, is that whereas taxable vs. nontaxable fund isn't terribly important, things like nontreasury cash funds vs. treasury cash funds (T-bills, treasury only money markets, etc), are a little bit important in terms of credit risk, so don't misinterpret.  Also make sure you know what you're getting with any ETF or mutual fund you decide to use (especially for gold).  

For the last several weeks I’ve been franticly looking in the portfolio haystack for the needle and within one and half hours you guys have handled me the farmer’s daughter. I thank you.

I felt the same when I started my PP.  Let us know how everything goes.
Best of luck!