Enderland's journal

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Topic Author
enderland
Posts: 217
Joined: Sat Mar 23, 2013 11:36 am

Enderland's journal

Post by enderland »

Emergency Fund - 6 months cash
Debt: $0
Tax Filing Status: single
Tax Rate: 25% Federal, 8% State
Age: midtwenties
Desired Asset allocation: unknown

Taxable
Roughly $15,000 cash (additional, house savings)

My 401k
Roughly $10,000 in mix of BTC LIFEPATH 2050/2055 Q

My Vanguard Roth IRA
$7,000 Vanguard Target Retirement 2050 Fund (VFIFX, 0.18%)

Contributions
7% to Roth 401k (I am considering making this 10% to standard 401k instead... can't decide if I trust the gov that much over the next 30 years)
10% company match to 401k
$5,500 yearly to Roth IRA
(also maxing an HSA)

401k Options
CHOICE 1-TARGET DATE FUNDS  (exp ratio becoming 0.10% sometime in next few months)
BTC LIFEPATH 2015 0.12%
BTC LIFEPATH 2020 0.12%
BTC LIFEPATH 2025 0.12%
BTC LIFEPATH 2030 0.12%
BTC LIFEPATH 2035 0.12%
BTC LIFEPATH 2040 0.12%
BTC LIFEPATH 2045 0.12%
BTC LIFEPATH 2050 0.12%
BTC LIFEPATH 2055 0.12%
BTC LIFEPATH RET 0.12%
CHOICE 2-PASSIVELY MANAGED FUNDS 
S&P 500 STOCK INDEX 0.01%
SMALL/MID STOCK INDX 0.06%
INT'L STOCK INDEX 0.07%
US TIPS BOND INDEX 0.05%
US BOND INDEX 0.05%
COMMODITY INDEX 0.35%
REAL ESTATE INDEX 0.07%
CHOICE 3-OTHER FUNDS, BROKERAGELINK 
CO STK FUND 0.00%
FID GROWTH CO K (FGCKX) 0.77%
ROBECO LG CAP VALUE 0.40%
LS SMALL/MID CAP 0.70%
HARBOR INTL INST (HAINX) 0.78%
WFA EMRG MKTS EQ I (EMGNX) 1.26%
WF CORE PLUS BOND 0.33%
BLENDED INT. FUND 0.23%

-------
Questions
I am currently weighing the extra work of basically balancing once or twice a year to something like:

50% S&P 500 STOCK INDEX (0.01%)
30% INT'L STOCK INDEX (0.07%)
20% US TIPS BOND INDEX (0.05%)
Last edited by enderland on Mon Mar 24, 2014 9:26 am, edited 4 times in total.
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retiredjg
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Re: [Darn] PBS (pick 401k/Roth IRA funds)

Post by retiredjg »

enderland wrote:Any other suggestions would be greatly appreciated!
Stick with what you like since it will only be about $20 more a year. :D

I'm not knocking low costs. But when you are down in the low regions to begin with, even cutting it in half doesn't amount to much.
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ruralavalon
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Re: [Darn] PBS (pick 401k/Roth IRA funds)

Post by ruralavalon »

Welcome to the forum :) .

Its great to see someone at your age interested in saving and investing.

You have some nice low cost choices already, might as well stick with what you have rather than complicate things.

What would make a big difference would be to increase your savings rate if possible, please see -- http://www.bogleheads.org/forum/viewtop ... 1291908362 .
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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hoppy08520
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Re: [Darn] PBS (pick 401k/Roth IRA funds)

Post by hoppy08520 »

First of all, you should be thanking the Man because you have an incredibly low cost plan, assuming the total fees are what's listed in the fund expense ratios. Your outrage on behalf of others is appreciated.

Unless you don't like the underlying composition of the LifePath funds (have you looked carefully at the component funds that comprise the LifePath funds?) then I would not switch just to save a Jackson.
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bottomfisher
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Re: [Darn] PBS (pick 401k/Roth IRA funds)

Post by bottomfisher »

Questions
I am currently weighing the extra work of basically balancing once or twice a year to something like:

50% S&P 500 STOCK INDEX (0.01%)
30% INT'L STOCK INDEX (0.07%)
20% US TIPS BOND INDEX (0.05%)

as I figure it's not necessarily that much work to rebalance and it would save me most of the exp ratio. PBS has convinced me to stick it back to that man, so to speak. Any other suggestions would be greatly appreciated!
Fortunately,the man has decided not to stick it to you up to this point. So no need to feel compelled to stick it back to the man. The expense ratios of your current funds are very, very reasonable. The man is too busy sticking to others out there. I got the impression that the PBS special was highlighting other less investor friendly fund families and investment vehicles. But your other plan is very popular around here. It's just a matter of whether you want the responsibility of rebalancing per your plan. I don't feel the marginal expense ratio should be the determining factor for you at this time with your current portfolio. Also the target retirement approach may help prevent you from tinkering too much with your portfolio; which many have a propensity to do.
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mhc
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Re: [Darn] PBS (pick 401k/Roth IRA funds)

Post by mhc »

Retiredjg gave you good advice. You should consider what she says.

If you do decide to role your own, which there is nothing wrong with doing that, make sure you use the non-tips bond fund US Bond Index.

I would say once your 401k is $50-100k or greater, then consider using the individual funds. Until then, keep it simple. Focus on learning, saving, living below your means, and enjoying life.
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interplanetjanet
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Re: [Darn] PBS (pick 401k/Roth IRA funds)

Post by interplanetjanet »

enderland wrote:Tax Rate: 25% Federal, 8% State
...
Contributions
7% to Roth 401k (I am considering making this 10% to standard 401k instead... can't decide if I trust the gov that much over the next 30 years)
10% company match to 401k
$5,500 yearly to Roth IRA
(also maxing an HSA)
I agree with the other posters that your fees appear to be quite low.

However, with a 33% marginal tax rate, I would consider the use of Roth over Traditional accounts to be a suboptimal choice. In your position I would probably discontinue Roth IRA contributions and send the money to Traditional 401k contributions instead, assuming that you didn't need the early withdrawal of contributions availability that a Roth IRA can provide.
Topic Author
enderland
Posts: 217
Joined: Sat Mar 23, 2013 11:36 am

Re: [Darn] PBS (pick 401k/Roth IRA funds)

Post by enderland »

Thanks everyone for the comments.
retiredjg wrote:Stick with what you like since it will only be about $20 more a year. :D

I'm not knocking low costs. But when you are down in the low regions to begin with, even cutting it in half doesn't amount to much.
... I feel like a complete idiot for not checking the actual difference in cost each year myself :oops:
ruralavalon wrote:Welcome to the forum :) .

Its great to see someone at your age interested in saving and investing.

You have some nice low cost choices already, might as well stick with what you have rather than complicate things.

What would make a big difference would be to increase your savings rate if possible, please see -- http://www.bogleheads.org/forum/viewtop ... 1291908362 .
Hmmm. I have been considering saving much less for a house downpayment and putting that to my 401k as well. I could probably contribute 25% to my 401k pre-tax if I did this and switched my Roth 401k contribution to pre-tax...

Guess I need to figure out how important purchasing a house is over the next few years. Not too important at the time being, I guess.
hoppy08520 wrote:First of all, you should be thanking the Man because you have an incredibly low cost plan, assuming the total fees are what's listed in the fund expense ratios. Your outrage on behalf of others is appreciated.

Unless you don't like the underlying composition of the LifePath funds (have you looked carefully at the component funds that comprise the LifePath funds?) then I would not switch just to save a Jackson.
Oh, I realize I'm blessed with my 401k options compared to most others here.

It seems the LifePath is basically the 50-30-20 split with about 10% in global real estate instead of bonds. Seems good enough for the time being?

mhc wrote:If you do decide to role your own, which there is nothing wrong with doing that, make sure you use the non-tips bond fund US Bond Index.

I would say once your 401k is $50-100k or greater, then consider using the individual funds. Until then, keep it simple. Focus on learning, saving, living below your means, and enjoying life.
I think I like this strategy. Maybe I'll wait until the 401k is over $100,000 (wow does it feel weird to type that) and use that as a milestone to swap funds around.
interplanetjanet wrote:I agree with the other posters that your fees appear to be quite low.

However, with a 33% marginal tax rate, I would consider the use of Roth over Traditional accounts to be a suboptimal choice. In your position I would probably discontinue Roth IRA contributions and send the money to Traditional 401k contributions instead, assuming that you didn't need the early withdrawal of contributions availability that a Roth IRA can provide.
Bah, this is so difficult for me to decide on :P On the one hand, I'm somewhat cynical about the government really raising tax rates by the time I retire or adding additional fees to 401k's. But on the other hand, I know mathematically I should contribute everything pre-tax if my income stays similar and the lower tax brackets stay similar....
Last edited by enderland on Sat Jun 01, 2013 2:08 pm, edited 1 time in total.
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interplanetjanet
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Re: [Darn] PBS (pick 401k/Roth IRA funds)

Post by interplanetjanet »

enderland wrote:On the one hand, I'm somewhat cynical about the government really raising tax rates by the time I retire or adding additional fees to 401k's. But on the other hand, I know mathematically I should contribute everything pre-tax if my income stays similar and the lower tax brackets stay similar....
Are you saying that you're not cynical about any tax changes that could be made to affect money in Roth accounts? Taxes are at the whim of future legislative changes either way - with a Traditional contribution you get a tax savings right now, while with a Roth...you get a promise of savings off in the future. I'm rather a fan of money in the hand, here. :)

I don't want to get into potential changes in tax law, but it seems extremely likely to me that progressive income tax systems are here to stay (they have been implemented in the considerable majority of developed countries on this planet, anyway). Given this, taxed-at-withdrawal money like that in a Traditional IRA or 401k gives you an extra advantage - if your standard of living during withdrawal must drop due to disability or insufficient investment growth, this is cushioned somewhat by the lower taxes you will face in such a situation. If you face very high growth then you may pay more taxes, but at that point you are doing better than you thought you would anyway; in such a situation I wouldn't mind paying the taxes so much.

That's my take on it, anyway. Another thing to keep in mind is that if you save some money in taxable and retire before RMDs or a pension hit, you have the option to live off of the money in taxable and do Roth conversions of Traditional money at very low tax rates. Your tax bracket in that situation will be very low, because your *income* is low - and income is something you can control to a much greater degree during retirement.
Topic Author
enderland
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Re: [Darn] PBS (pick 401k/Roth IRA funds)

Post by enderland »

interplanetjanet you bring up a really good perspective. Makes it hard for me to justify a Roth 401k...

I guess I might as well switch over my current Roth 401k contributions to pre-tax. Not sure what percentage I want to increase it to, though. At least to 10% since that basically won't affect my budget or paycheck at all :)

Need to spend a bit of time figuring out what goals requiring cash I will have in the next couple years. Still undecided on buying a house - really can't make my mind up whether I want to do this or not.
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retiredjg
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Re: [Darn] PBS (pick 401k/Roth IRA funds)

Post by retiredjg »

enderland wrote:I am currently weighing the extra work of basically balancing once or twice a year to something like:

50% S&P 500 STOCK INDEX (0.01%)
30% INT'L STOCK INDEX (0.07%)
20% US TIPS BOND INDEX (0.05%)
This indicates that you might think an 80/20 stock to bond ratio is appropriate for you. That seems good to me as well since I think most every portfolio needs 20% bonds at a minimum. :happy

If this is the case and if you decide to continue using target type funds, you should exchange what you currently hold to the target funds that contain about 80/20 instead of picking the target fund by the date in the name.

Generally, if you will spend much of your career in the 25% bracket, the combination of traditional 401k and Roth IRA is a good choice. However, if you know your salary will increase substantially in the next few years and you will spend most of your career in a higher bracket, you might want to use some Roth 401k for now and switch to traditional 401k when you hit the 28% bracket. Either way, the amount you save is the most important factor.
Topic Author
enderland
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Re: [Darn] PBS (pick 401k/Roth IRA funds)

Post by enderland »

Alright. I spent some time doing a more detailed budget this weekend and some planning for the next few years and decided to make the following changes:
  • Reduce Roth 401k to 0%
  • 18% personal 401k contribution (about $12,000 year pace)
  • Adjust house down payment savings to $500/month
  • Plan on putting any 2013 bonus towards house savings
Thanks everyone.
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ruralavalon
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Re: [Darn] PBS (pick 401k/Roth IRA funds)

Post by ruralavalon »

Good plan.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
enderland
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Re: [Darn] PBS (pick 401k/Roth IRA funds)

Post by enderland »

enderland wrote:Alright. I spent some time doing a more detailed budget this weekend and some planning for the next few years and decided to make the following changes:
  • Reduce Roth 401k to 0%
  • 18% personal 401k contribution (about $12,000 year pace)
  • Adjust house down payment savings to $500/month
  • Plan on putting any 2013 bonus towards house savings
Thanks everyone.
After all this, switching to 18% traditional 401k from 7% roth and my overly conservative tax estimates in budgeting (lol fail) result in me having about an unaccounted for $500 a month additional, so it looks like I can still keep my house savings about $1,000 a month like I was hoping to.

Guess I can have that cake and eat it too :)

Switching to budgeting off my deposited pay rather than salary makes this whole process so much easier.
Topic Author
enderland
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Re: Enderland's journal

Post by enderland »

Plan for 2014 is to max out my 401k, HSA, and Roth IRA early in the year.

I won't need any of my house savings this year unless something crazy happens so I'm going to front-load all those contributions and then when my 401k contribution hits the limit I'll divert all extra income towards house savings again.
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retiredjg
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Re: Enderland's journal

Post by retiredjg »

Sometimes a company match is done by pay period. If you front load, you may lose the match for the months you don't contribute. You might want to check this before implementing your plan.
Topic Author
enderland
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Re: Enderland's journal

Post by enderland »

retiredjg wrote:Sometimes a company match is done by pay period. If you front load, you may lose the match for the months you don't contribute. You might want to check this before implementing your plan.
Yeah. I should have mentioned this - I definitely do NOT have this problem. I actually emailed our benefit folks and asked :)

Apparently my match is based on what my 401k contribution percentage is, regardless of what I'm able to contribute, and the system automatically stops me from overcontributing (which is actually great). But so long as I leave it at say 50% or something above the match threshold (which is only 6%) any match is calculated using this figure only. So as long as I don't adjust my actual percentage below 6% I'll continue to get the match even after my 401k contributions stop.

Unless, of course, my benefits people lied to me :moneybag
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retiredjg
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Re: Enderland's journal

Post by retiredjg »

Well, I'm sure they would not lie, but mis-communication and mis-understanding on these subjects is rampant. :twisted:

If you do it, I'd be sure to check the account to be sure you really are getting the right amount of match. If not, you could change your plans early in the year and not miss any match. Good luck!

On reading your post a second time, I guess that would not help. Maybe you should stop your contributions for, say, a pay period in February, to see if the match actually does appear even if you don't contribute.
Topic Author
enderland
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Re: Enderland's journal

Post by enderland »

retiredjg wrote:Well, I'm sure they would not lie, but mis-communication and mis-understanding on these subjects is rampant. :twisted:

If you do it, I'd be sure to check the account to be sure you really are getting the right amount of match. If not, you could change your plans early in the year and not miss any match. Good luck!

On reading your post a second time, I guess that would not help. Maybe you should stop your contributions for, say, a pay period in February, to see if the match actually does appear even if you don't contribute.

Well the way it supposedly works is the company match is exclusively based on whatever I set my Fidelity contribution percentage at. As long as my percentage with Fidelity stays above 6%, it doesn't matter if I'm actually contributing or not (as would be the case post-17.5k). Assuming I don't adjust that percentage below 6% it seems the match should always happen.

Unfortunately there isn't really any way to test this other than hitting it. Hopefully I don't end up posting a thread about this situation come June :)
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