I plan on using the settlement fund for annual support distributions to my daughter, as well as annual RMDs. Combined these are significant essential distributions and I want to minimize risk for at least the next 3 years. My first thought is I could tell Pralana that there are 2 IRAs when in fact there is only one. Good idea? Better ideas?
I might be missing the nuances, but you could create a Asset class called "Settlement" as part of your tax deferred space in advanced portfolio modeling / asset allocation / mode 2 portfolio allocation
@jkandell Thank you! I don't know anything about that. I'll look into it.
@marziale994 Thinking more, maybe my suggestion was overkill, and you might just be able to use the defaults. When you say "settlement" do you mean you have the whole tax-deferred account in a MM? Do you mean you have a large account and are just using the settlement part as a way to pay RMDs and your daughter?
Either way, you might just be able to keep assets as they are default, but let Pralana know the overall asset allocation of your tax-deferred account (including the settlement portion) into MM (the settelement part?), Bonds, Stocks. Pralana will handle the RMDs automatically, and you could set up a scheduled withdrawal from that account out of the system to pay your daughter's paycheck. In other words, there might not be a reason to segment off part of the tax-deferred account on its own.
@jkandell Thanks for your additional thoughts, very helpful and I appreciate it! Actually I was just beginning to think I might get away with Simple Portfolio Modeling, but you put me on the path to look into either. Up till now it was all so straightforward that I didn't worry about it.
Until a few days ago, my settlement account (VMFFX) was negligible. Now that I have an additional significant essential expense (on top of RMDs which aren't a huge hit) every year, I've decided to set aside enough in the settlement account to cover my daughter without fear of withdrawing her expenses & the RMD during a fierce bear market for at least the next 3 years. So as of a couple days ago, the settlement account is about 27% of the total assets in my IRA. The remaining 73% is almost all VOO.
I thought I might set up another IRA just to contain the settlement funds, mainly to ease using Pralana, since it all nets out the same. But that won't work because Pralana doesn't allow Scheduled Withdrawals from specific IRA accounts, but rather combines all the IRAs together. It was just a thought.
I have to dig further but I think I might be able to make it work with Simple Portfolio Modeling. I just have to get familiar with asset allocation (up till now 100% of my investments have been in S&P 500 indices of one flavor or another). It'd be nice if Pralana was granular enough to track actual fund and/or stock/bond symbols, but since that's not happening I'll just need to get familiar with the innards of VMFFX.
Anyway, this is all new to me, because of my 100% S&P 500 up till now, so I'll keep digging and will probably ask for more advice on the way.
Thanks!
PS: On reflection I'm thinking I probably should have set aside the amount I'm setting aside now in VMFFX or something similar regardless of whether new expenses came up. Had been 100% S&P 500 or equivalent for the past couple decades. At my advanced age probably a good idea to cushion that stock exposure. Wasn't nervous before because my income covered my expenses so could ride out whatever bear market came along. Now I have to reevaluate and feeling glad I did.
PS: On reflection I'm thinking I probably should have set aside the amount I'm setting aside now in VMFFX or something similar regardless of whether new expenses came up. Had been 100% S&P 500 or equivalent for the past couple decades. At my advanced age probably a good idea to cushion that stock exposure. Wasn't nervous before because my income covered my expenses so could ride out whatever bear market came along. Now I have to reevaluate and feeling glad I did.
Having heard what you just said, I would definitely work out that big picture (what asset allocation do you want now that you're retired?) before getting into the weeds with setting up "sub accounts" for your daughter.
My advice is to stick with three asset classes: stocks/bonds/MM (and what Pralana calls "cash").
You should get all your funds into Pralana (simple or advanced) using those simple assets, and all your anticipated income (social security/pensions) and then do a monte carlo run and historical run to see where you'll land with your current allocation.
Just entering that beginning data takes awhile the first time, to be honest.
@jkandell I appreciate what you're saying but I think I may have misled you into thinking I don't have a clue! 😀
My 100% stock allocation, mainly S&P 500, for decades, was a deliberate decision. My reasoning was I had either work income or Social Security to cover expenses and could ride out whatever happened to the market. Delayed SS till age 70 because my investments could easily carry me over the 6 years after retirement. Fortunately my aggressive all stock approach has more than tripled the value of my investments since I retired.
I look at SS in itself as a kind of super bond to 'balance' my portfolio, with COLA to boot, with the bonus that it's enough to cover my expenses. That's because I live below my means and have been since I've been able to do so. Now I'm 74 and it's all been fine, fortunately. And it would be no matter what the market did.
Been using Pralana since several years before my retirement to help lay this all out, and it's worked very well.
But now I have the complication that it's not only myself I'll be supporting, and will likely be doing that until my daughter inherits. I haven't permanently landed on VMFXX, so I'll continue thinking about the best place to park funds to carry us over a bad bear market. Of course it could all go south and the 99%, including me, could be raising turnips and potatoes for food in community gardens. Have to be practical, make best plans possible considering our own financial situations. I'm not going to fund 20 years by selling the S&P 500 out of my IRA but I'll do what I can. Considering our current environment, 3 years seems to hit the spot.
OTOH, one never knows. That's why I think it's a good idea to build a safe harbor separate from 100% stocks at my age. Still, I have a Roth & a taxable account that combined have more value than my IRA, so I'm still heavily into an aggressive 100% S&P 500 portfolio.
My whole problem now is I've for the first time moved off 100% stocks and have to figure out the best way to model that in Pralana.
After looking a little more closely at how it works, it's beginning to look like I'll use Advanced Portfolio Modeling, Mode 1. Still have to dig.
Thanks!
@marziale994 “ I appreciate what you're saying but I think I may have misled you into thinking I don't have a clue! 😀 ”
You did! 🙂
I agree that Social security is a kind of “super bond”: guaranteed, inflation adjusted, and goes till i die. An annuity that covers longevity risk. And a robust ss certainly does allow you take more risk with the rest if your portfolio!
One reason I’ve encouraged Pralana to build in a “lifetime balance sheet” (which includes npv of ones salary and pension and ss and the portfolio on the one side, and npv of all your estimated expenses on the other, aka “funded ratio”) is to highlight that fact.
From that total lifetime perspective, your career is also a type of bond (though not as “super”); and the npv of your human capital diminishes as you approach retirement. So maintaining the very same overall risk tolerance now requires more safe assets to compensate. In other words, you’re being perfectly consistent with finance theory.
Vfmxx is certainly a safe choice, though its duration might be shorter than when you intend to spend it. You might alternatively consider the lifestrategy income fund or the target retirement income fund if you wanted a bit more diversification of that safe bucket. I personally include TIPs in my safe portion since inflation can reduce my vfmxx to negative real returns. I bought a TIPs ladder in my ira account at vanguard, but most just use TIPs funds.
Regarding Pralana, i admit i still don’t grasp your struggle. In my eyes it’s easy to demarcate part of one’s ira to vfmxx or any other asset in either mode 1 or 2. In any case you seem to be solving this.
I will look at the alternatives to VMFXX that you suggested, thank you!
