42 with $125k cash and mediocre retirements - thoughts?

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BanditKing
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42 with $125k cash and mediocre retirements - thoughts?

Post by BanditKing »

I’ve been really neglecting my retirements/investments for far too long and while I have managed to build up a solid nest egg of cash, my money isn’t working for me like it should. I’m meeting with an FA this next week and while I am sure he will have a plan, I thought it would make sense to get some other thoughts as well, especially what to do with my cash. I know some of my fund choices in my 401k and Roth are foolish and that will be corrected coming out of this (so be gentle on these)


Age: 42
Salary: $75,000 base plus sales commission (2011: $45k / 2012: $75k / 2013: $65k[est])
Cash Emergency Fund: Overfunded - $125k cash (see below)
Debt: Car Loan - $31k @ 0.9% - $530/mo / Mortgage $162k @ 4.625% - $1381/mo including PMI and Escrow. No Credit Card Debt. No Student Loans. No consumer loans.
State of Residence: Wisconsin
Tax Bracket: 25% Fed / 6.50% State
Tax Filing Status: Single
Family Status: Single. No Children. One cat.
Desired Asset Allocation: I’d guess around 70% stocks / 30% bonds (advice?)

Cash Savings:
$50,000 at SmartyPig earning 1%
$75,000 in USAA Savings account (earning bupkiss)
$5,000 in checking (average)

Current Retirement Assets:
(Total: approximately $100k not including pension). Dormant accounts are from when I was a state employee 5 years ago and are no longer being contributed to. It makes sense to leave the pension to purr until I reach retirement age, especially in the case I ever go back to working for the state. The 403b could probably be rolled-over somewhere, or just left as is.

Vanguard Roth IRA: $50,600
  • 74.2% Vanguard Target Retirement 2035 Fund (VTTHX) (0.18%)
    25.8% Vanguard International Growth Fund Investor Shares (VWIGX) (0.49%)
Vanguard IRA: $4.7k current (Just my 2013 Contribution of $4100 so far with plans to max and backdoor into Roth
  • 100% Vanguard Target Retirement 2035 Fund (VTTHX) (0.18%)
Fidelity 401k: $37.5k
  • 100% Fidelity Freedom 2035 Fund (FFTHX) (0.81%)
  • Available funds for 401k:
    • American Beacon Large Cap Value Fund Investor Class (AAGPX) (0.97%)
      Fidelity Growth Company Fund (FDGRX) (0.90%)
      Spartan 500 Index Fund - Institutional Class (FXSIX) (0.05%)
      Fidelity Low-Priced Stock Fund - Class K (FLPKX) (0.68%)
      Morgan Stanley Institutional Fund Trust Mid Cap Growth Portfolio Class A (MACGX) (0.96%)
      American Beacon Small Cap Value Fund Investor Class(AVPAX) (1.28%)
      Wasatch Small Cap Growth Fund (WAAEX) (1.26%)
      American Funds Capital World Growth and Income Fund Class R-4 (RWIEX) (0.80%)
      Fidelity Diversified International Fund - Class K (FDIKX) (0.84%)
      Fidelity Balanced Fund (FBALX) (0.58%)
      Fidelity Freedom 2035 Fund (FFFAX) (0.81%) [Other target date funds as well, with similar expenses)
      Fidelity Government Income Fund (FGOVX) (0.45%)
      PIMCO Total Return Fund Institutional Class (PTTRX) (0.46%)
      Managed Income Portfolio Class 1 (0.71%)
[/list]

TIAA-CREF 403b: $4.7k (Spread across several funds – dormant)
State of WI Employee Trust Fund (Pension): $37k cash out value (dormant).

Other accounts:

529:
  • Niece (age 7): $8700 in target age fund
    Nephew (age 4): $4200 in target age fund
Contributions:
$5500 annual into IRA/ROTH
Have been doing 6% (to get 3% match) into 401k – have dramatically increased (maxed at 50%) for rest of 2013 (which may come close to annual max depending how long it takes to kick in) and expect to max in 2014.
$150/mo to each 529 account ($75 every other week to each)

Thoughts:
I am not one to sell in a panic. During 2008, I kept contributing as always.

For an emergency fund, I’d like to have about $15k ready-cash for a 3 to 4-month fund, with another $15k semi-liquid available in something that can be accessed readily in 3-6 months. I have credit I can dip into if need be in larger emergency.

I will also maintain about a $15k “fun and hobby” fund to cover larger and perhaps loosely planned events such as vacations (planning Burning Man in 2014), large purchases (say, a new computer or that mid-life crisis motorcycle), or non-emergency home repairs and updates. I know the rule is save now, fun later, but this is important to me to have this kind of flexibility (some recent life events have prioritized this).

That will leave me with about $80k-ish in cash that needs to go somewhere that is not tax-advantaged. I’m thinking a simple 3-fund approach (35% stocks / 35% International / 30% Bonds) with 50% upfront (40k) and then 5% (4k) every month for 10 months. In addition, I’d also put in whatever I would normally have saved as well (so that 4k would probably be more like 7k a month or so). ETFs or Mutuals? ETFs vs Admiral? Mixed?

In 2014 I will max my 401k and IRA/Backdoor-Roth. I’ll continue the two 529s at $1800/yr for each. This is a secret savings for them that I’ll tell them about when they reach 16. I also will use my medical flex spending account to take care of all my anticipated medical expenses (probably about $1200).

Is there (numerically) any reason to pay off the car and/or to dump a crapton into the mortgage? Cashflow-wise it’s nice, but not sure what the numbers say. Personally I hate my house and feel like it’s an anchor and a money pit. A huge part of me would like to dump it and just rent a duplex and not worry about maintenance and such. It also has the benefit of making me more mobile should I want to think about moving (not likely, but right now house and job are what holds me here, so flexibility is nice).
Last edited by BanditKing on Sun Nov 10, 2013 2:53 pm, edited 2 times in total.
Johm221122
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by Johm221122 »

Welcome to forum
Kind of long post, I don't see current 401 choices
Thicker symbols are hard to keep track of, please use fund names
I feel the same way about house if your considering selling/downsizing I agree if feasible
Good luck, hope this bumps you up
John
camaro327
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by camaro327 »

I'm confused :confused , why are we doing a backdoor roth on 65K of salary? Or is this due to fluctuations in earnings?

Also as the previous poster noted, fund names helps a bunch.
Carl53
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by Carl53 »

Pay down your mortgage at least enough to get rid of the PMI. You may need to do it prior to whenever the PMI amount is set for next year, probably next month but might be this month. Personally I'd pay down more as 4.6% is not too bad of a return when compared to your 1% accounts.

Your Fidelity target 2035 fund has a not so great 0.81% ER according to Fidelity. See if there are any better choices. Even with that I agree that it is prudent to max out your 401k as you are deferring 31% in taxes.

Your Vanguard target 2035 fund is certainly a simple choice with an excellent ER. It already has 25% international stocks and a little international bonds.
Swampy
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by Swampy »

At 42, you have the luxury of time on your side to educate yourself. Unfortunately, you are more likely to fall prey to an unscrupulous financial advisor who stands to make commissions selling you unsuitable products.

Take a couple of months to educate yourself on the benefits of low cost index funds. FORGET actively managed funds and individual equities - they're for suckers.
Why do I say this? Because I was one for decades!

Next, educate yourself on how much risk and exposure you can really take. More risk equals more risk - period. Been there, done that. I was 100% in equities and got creamed.
Bonds are there for a reason, they're stabilizing to the overall portfolio. I wouldn't recommend more than 50-60% in equities for you AFTER you've established what an adequate 6-9 month emergency reserve fund should be.

Go to Vanguard's website and check out their funds. Then dollar cost average your cash over the next 12-18 months into 2-3-4 funds. There is a three fund portfolio recommended here on Bogleheads http://www.bogleheads.org/wiki/Three-fund_portfolio

I'll admit, for years I thought Bogle, Vanguard and indexing was a scam and a mediocre investing strategy. I was wrong. I was caught up in the money managers and financial advisors hype and BS. Going for last year's top performer and the excitement of hitting a home run. It didn't work. My returns were FAR BELOW AVERAGE. Average is better.

Oh, I got the excitement alright, they got the money.

Dull and boring is good. Want excitement? Go skydive or go to the race track and bet $5.

You can also never go wrong prepaying a mortgage if it allows you to sleep better at night. Just add $100-300 to the principal every month and watch your balance plummet.
If I have seen further, it was by standing on the shoulders of giants.
tibbitts
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by tibbitts »

camaro327 wrote:I'm confused :confused , why are we doing a backdoor roth on 65K of salary? Or is this due to fluctuations in earnings?
Maybe OP amended the post after you read it, but he clearly stated well over $100k annual income.
tibbitts
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by tibbitts »

You need to say what type of FA you're visiting: fee for service, commission, etc. If, like most, the FA is compensated much the same way you are, approach it as you would a business deal: make sure the FA can feed you more business profit than you'll be feeding him. For the most part, he'll have to disclose to you what he'll be making money on and how much, but you won't have to disclose the equivalent to him. So you'll have an advantage.
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BanditKing
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by BanditKing »

camaro327 wrote:I'm confused :confused , why are we doing a backdoor roth on 65K of salary? Or is this due to fluctuations in earnings?
I am partially commissioned, so my total salary for 2013 will be around $145k.
Topic Author
BanditKing
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by BanditKing »

The FA I am visiting is a flat fee, and is actually being paid for by my parents. They decided all the kids should be set up with an FA and it's being billed back to them. I figured it couldn't hurt to visit with someone.

I guess I'm indirectly paying for it out of inheritances. :)
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market timer
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by market timer »

What I would do:
1. Save at least $50K/year for retirement: $5.5K Roth, $17.5K 401K, $27K other (includes mortgage repayment)
2. Pay off mortgage using $130K cash savings + $30K from regular monthly savings (about one year)
3. Open HELOC to serve as emergency fund
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BL
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by BL »

BanditKing wrote:The FA I am visiting is a flat fee, and is actually being paid for by my parents. They decided all the kids should be set up with an FA and it's being billed back to them. I figured it couldn't hurt to visit with someone.

I guess I'm indirectly paying for it out of inheritances. :)
It would be interesting to know what investments the FA is suggesting and also what company he/she represents. You could compare with comments from (mostly) unbiased comments here concerning what was suggested. If he truly never handles investments or gains from their sales, then he may be a fiduciary and work for you instead of himself.
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englishgirl
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by englishgirl »

My initial thoughts:

1. Pay off your car loan with some of the savings. There's no point investing the money when you're paying interest on a loan needlessly. Yes, 0.9% is low, and if you didn't have extra cash washing around, I'd not recommend working hard to pay it off. But you have money sitting around earning bupkiss plus are paying on a loan. When you set up your new savings accounts (EF + fun/hobby), my recommendation would be to have a third saving account, for a new car. Pay your car payment (well, maybe not $530, but whatever will get you to your desired next car purchase in an appropriate amount of time) into that account, and then you'll be able to pay cash for the next vehicle and not have to take out a loan. I wouldn't dump money into the mortgage if you hate the house. Has the value recovered enough that you'd consider selling it now?

2. List out your 401k options including the expense ratios. Also, can you list out the fund names of the funds you currently own? Most of us don't have the tickers memorized and don't want to spend the time looking them up.
Sarah
denovo
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by denovo »

Woohoo. Always a pleasure to give a recommendation to a fellow cat owner (as long as you didn't declaw the poor fellow)

It's a good sign that you do not have any consumer or credit card debt. Some more tight-fisted Bogleheads may have twitched a little bit when they say the 32k car loan, because that means you bought a car a car that cost at least 32k , but you only live once. I don't think that's the worst thing on Earth. Couple questions/comments.

1. 70/30 is on its face reasonable for your age, but it would be good to know what your behavior was in the past to see how you handle risk,volatility . During the 2007-2009 crash did you diligently contribute to your retirements funds and invest in stocks, or did you do any panic selling or stop contributing?

2. The rate on a 15 year fixed right now is about 3.33. If you have at least decent equity in your home , i.e. at least 25 percent , get a ball-park estimate value of your home value on Zillow, you should refinance. You can get rid of escrow and pmi and reduce your monthly payments. It'll help if your credit score is 740 plus, you can check your score for free on creditkarma.com. I would recommend filling out a form and getting a mtg quote through mtgprofessor.com. I and a lot of people on this site have had good experiences dealing with loan companies through that site.

3. I agree you should have an EF of at least 3-5 months. It looks your income is somewhat volatile because you are in a sales job and part of your income is from commissions so I think liquidity is important

4. I wouldn't pay off the car loan, but refi the bank loan. That debt is relatively cheap, and liquidity is valuable. You can contribute $17,500 a year to your 401k and $5,500 a year into your IRA trad every year. That should be your minimum goal every year, and I think it's easily doable given your income and lack of dependents.

5. I would not agonize over the house. As long as you are not underwater, a home shouldn't weigh you down if you feel like you want to move for better job prospects. That's also a good reason to maintain liquidity if you are in a situation where you have to pay for two places while you are in the process of moving before you sell.

6. Roll over the 403b to a traditional IRA. Whats the deal with your pension, how does it have a cash value? Generally a pension is usually just a promise to pay X money at retirement age.
"Don't trust everything you read on the Internet"- Abraham Lincoln
wander
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by wander »

englishgirl wrote:My initial thoughts:

1. Pay off your car loan with some of the savings. There's no point investing the money when you're paying interest on a loan needlessly.
+1.

First thing first, get rid the PMI.
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BanditKing
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by BanditKing »

Hey all

Thanks for all the feedback. Looks like there’s as many opinions and strategies as there are people on these boards, and all are often valid.

A few updates and some information.

I did meet with the FA I mentioned. It was Ameriprise. He had some recommendations on rebalancing my 401k and Roth/IRA, and threw a lot of magic numbers at me along with a big blue folder of blah blah blah. My gut isn't getting a good feeling about it. He kept pitching the flat-fee (again paid by my parents, they've been with Ameriprise forever), but hasn't revealed where he wants to put my money once I hand it to him (except to say ETFs and municipals to minimize tax exposure) and what additional compensation he’s getting from whom for doing that. I know he gets commissions and kickbacks, but the lack of disclosure and obfuscation is telling. I’m in sales – I feel I’m being pitched and served.

As for some other information requests from people here:

My house has an approximate value of $180k or so per my estimate and Zillow’s confirmation. At the height of the bubble it was about $240k, (I purchased at $220k) so while not underwater, I’m still feeling the effects. It seems a good idea to pay down my mortgage at least to the level of getting rid of my PMI. To get down below 80% LTV, I’d have to pay in about $20k. It seems a good idea to do this via a 15-year Fixed refinance, if I can keep the closing costs minimal. This will lock me into a better rate and get me out from the PMI.

I know many consider the car loan a must-go. I’m comfortable with it for the time being. I know many here would prefer paying cash for cars, and I probably will on the next round. I keep cars for a while, so I’ll probably have at least 3 to 5 years without a car payment, and I’ll sock money at that point into a “cash-for-car” bucket. There is also a good chance in a couple years I’ll get fed up with the payment and pay it off, but for now I’m ok with it.

My pension has a listed cash value because I could cash it out (with penalty) right now, and that value calculates the defined benefit if I wait until retirement age (currently 62) to draw. In today’s dollars, if I wait until 62, the pension would pay about $800/mo. That cash value also has a 2x death benefit on it if I was to die before 62. Basically, though, I’ll just ignore the pension for now and let it do its thing.

For my Fidelity 401k, here is the list of what is available for me:
  • Available funds for 401k:
    • American Beacon Large Cap Value Fund Investor Class (AAGPX) (0.97%)
      Fidelity Growth Company Fund (FDGRX) (0.90%)
      Spartan 500 Index Fund - Institutional Class (FXSIX) (0.05%)
      Fidelity Low-Priced Stock Fund - Class K (FLPKX) (0.68%)
      Morgan Stanley Institutional Fund Trust Mid Cap Growth Portfolio Class A (MACGX) (0.96%)
      American Beacon Small Cap Value Fund Investor Class(AVPAX) (1.28%)
      Wasatch Small Cap Growth Fund (WAAEX) (1.26%)
      American Funds Capital World Growth and Income Fund Class R-4 (RWIEX) (0.80%)
      Fidelity Diversified International Fund - Class K (FDIKX) (0.84%)
      Fidelity Balanced Fund (FBALX) (0.58%)
      Fidelity Freedom 2035 Fund (FFFAX) (0.81%) [Other target date funds as well, with similar expenses)
      Fidelity Government Income Fund (FGOVX) (0.45%)
      PIMCO Total Return Fund Institutional Class (PTTRX) (0.46%)
      Managed Income Portfolio Class 1 (0.71%)
[/list]

Happy to provide whatever information people may be interested in.
Last edited by BanditKing on Sun Nov 10, 2013 2:38 pm, edited 1 time in total.
dickenjb
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by dickenjb »

BanditKing wrote:I did meet with the FA I mentioned. It was Ameriprise.
Be afraid. Be very afraid. Do not give this guy a dime until you do a Google search of this board and read of other's experiences with Ameriprise.
Topic Author
BanditKing
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by BanditKing »

Yea, that was my gut feeling too.
Topic Author
BanditKing
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by BanditKing »

Apologies for bumping, but I'd like to in order to hear any thoughts on what do with my Fidelity 401k (fund lineup listed above).
denovo
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by denovo »

Before you can allocate assets, you need to consider your risk tolerance, 1. 70/30 is on its face reasonable for your age, but it would be good to know what your behavior was in the past to see how you handle risk,volatility . During the 2007-2009 crash did you diligently contribute to your retirements funds and invest in stocks, or did you do any panic selling or stop contributing?

Or to put in another way with a 70.30. stock bond ratio it would not be unprecedented for the value of your portfolio to drop 35 percent. Would you be tempted to stop contributing to your 401k in such a situation, or even worse, sell your stocks? Sometimes it works best with numbers, imagine your 200k portfolio fell to 130k, how would you react?
"Don't trust everything you read on the Internet"- Abraham Lincoln
midmoder
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by midmoder »

If you want informed recommendations for your 401k options, you need to pay attention to the information on how to post such a request:

http://www.bogleheads.org/forum/viewtop ... f=1&t=6212

Case in point: You need to include the expense ratio for each fund and in spite of several requests, you haven't provided this. Also, throughout this thread, several responders have asked you to include fund names in your original post (you include only tickers, forcing people who might want to help you to look them up). You haven't provided this either. Expense ratios should be provided as well.

The people on this forum want to view your portfolio as a whole, which means they want to consider what you already have invested and in what, before they can advise you on your 401k choices.
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BanditKing
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by BanditKing »

midmoder wrote:If you want informed recommendations for your 401k options, you need to pay attention to the information on how to post such a request:
My apologies, I didn't realize I could edit my original posting. I've updated it with more-complete fund information.

To answer an asked question, during 2007-2009, I continued my contributions as always. I didn't sell or move anything. I'd term my risk tolerance as moderately aggressive at this point, with some concern on whether this current market can hold. So I'd say 70/30 to 60/40 stock/bond would likely be appropriate ratios.
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Toons
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by Toons »

Post too long for me :happy .All I know is my eyes were like lasers on numbers below
Debt: Car Loan - $31k @ 0.9% - $530/mo / Mortgage $162k @ 4.625%

Cash Savings:
$50,000 at SmartyPig earning 1%
$75,000 in USAA Savings account (earning bupkiss)
$5,000 in checking (average)

You know what I'm thinking :happy :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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BanditKing
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by BanditKing »

I think what my plan is as follows:
  • Establish $30k Emergency Fund
    Establish $15k Large Expenses Fund
    Set aside $20k to pay down the mortgage under 80% and refinance to a 15 year without PMI. (excess invested after done)
    Use the remaining $60k for investing
Thus I end up with a $40k 401k, a $55k ROTH, and a $60k Taxable bucket to put elections into. If I think of a goal of ~65/35 stocks/bonds split, this equates to about $100k for stocks and $55k for bonds. Figure aiming for about 20% international stocks as a round number.

I spent the weekend reading the Boglehead’s Guide book twice and playing with some numbers on asset allocations. I also paid particularly close attention to this Wiki page:

http://www.bogleheads.org/wiki/Asset_al ... e_accounts

With my 401k, the available funds are not that great from a cost standpoint, so if I read the wiki correct, the recommendation would be to use the S&P Index Fund (0.05%) instead, along with a small-cap fund to make up what the S&P doesn’t cover.

Question: If I fill my 401k with the S&P fund, then I start to get a little confused how to allocate into the Roth. One wiki page said that bonds should first go into the 401k (which is full) and then into the Roth, while another implied the Roth should be filled with things likely to increase in value to save the capital gains later. Are these hard-and-fast rules or just general guidelines?

I pushed a bunch of numbers around and came up with the following. In each account fund, I tried to do at least $10k to hit Admiral pricing. Numbers are rounded, but you get the idea. Perhaps it’s a silly allocation, but some idea of what I’m missing on a first pass would be appreciated, especially since I'm confused by the above.

401k:
  • 100%/$40,000: Spartan 500 Index Fund - Institutional Class (FXSIX) (0.05%)
Roth:
  • 18.2% / $10,000: Vanguard Small-Cap Index Fund Admiral Shares (VSMAX) (0.10%) [to balance the S&P Index in 401k]
    22.7% / $12,500: Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) (0.10%)
    22.7% / $12,500: Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares (VTAPX) (0.10%)
    18.2% / $10,000: Vanguard REIT Index Fund Admiral Shares (VGSLX) (0.10%)
    18.2% / $10,000: Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (0.05%)
Taxable:
  • 16.67% / $10,000: Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX) (0.20%)
    25.00% / $15,000: Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares (VTAPX) (0.10%)
    25.00% / $15,000: Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (0.05%)
    33.33% / $20,000: Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) (0.16%)
I really appreciate everyone's thoughts. :)
midmoder
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by midmoder »

BanditKing,

I'm bumping this post hoping you get better replies than mine. However, here is what I can tell you:

1) Within each account in your post above, you have totaled percentages to 100. Instead, the percentages should total 100 across ALL your accounts. Then it's easy to see if your 70/30 allocation is being met by your choices. (Re-read that Asking Portfolio Questions post)

2) Read the wiki post on tax-efficient fund placement, http://www.bogleheads.org/wiki/Principl ... _placement. You want to avoid bond funds in taxable accounts.

Your 401k is set -- the Spartan fund is undoubtedly your best choice by far. This leaves your Roth for your 30 percent bond allocation. As you noted, generally it would be better to have non-bond funds in your Roth, but some times it can't be helped. I think this is one of those times.
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BL
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by BL »

Thus I end up with a $40k 401k, a $55k ROTH, and a $60k Taxable bucket to put elections into. If I think of a goal of ~65/35 stocks/bonds split, this equates to about $100k for stocks and $55k for bonds. Figure aiming for about 20% international stocks as a round number.
Here is one possibility:

401k: $40k S&P500

Roth: $55k bonds

Taxable: 20k Total International, 40k Total stock market

(If you put $10k into I-Bonds, you could replace 10k in Roth bonds with either small cap or Extended Market and decrease TSM to 30k in taxable.)
stlutz
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by stlutz »

What you have is very reasonable and a good plan. A couple of thoughts:

--You really don't need a separate REIT fund. The advice for doing that came from an earlier time when REITs were not a part of the major indices. Now they are, so you get REIT exposure through your 500, TSM, and Smallcap funds.

--The recommendation to hold bonds only in a tax-advantaged account also came from an earlier time when rates were much higher that today. Right now, bonds make more sense in taxable. Of course, this can and will change again.

Personally, I would hold all of the bond money from the taxable account in Int. Term Tax Exempt and all of the bond money from the IRA in TIPS, and get rid of Total Bond. That doesn't really change the risk at all, reduces the number of funds, and is more tax-advantageous.
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frugaltype
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by frugaltype »

tibbitts wrote:
camaro327 wrote:I'm confused :confused , why are we doing a backdoor roth on 65K of salary? Or is this due to fluctuations in earnings?
Maybe OP amended the post after you read it, but he clearly stated well over $100k annual income.
I misread that too. same boat as camaro327.
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frugaltype
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by frugaltype »

Toons wrote:Post too long for me :happy .All I know is my eyes were like lasers on numbers below
Debt: Car Loan - $31k @ 0.9% - $530/mo / Mortgage $162k @ 4.625%

Cash Savings:
$50,000 at SmartyPig earning 1%
$75,000 in USAA Savings account (earning bupkiss)
$5,000 in checking (average)

You know what I'm thinking :happy :happy
It's been a long time since I had a mortgage (I dumped all my bonuses into mine in addition to the required payments), but I used calculator and found that about half of the OP's monthly payments are interest... I knew mortgages involved hefty interest payments; I guess I'd forgotten. I know where I'd throw some money...
JimmyJammy
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highest yields in retirement funds?

Post by JimmyJammy »

A good discussion here for everyone.

So, the rule for allocation is to put your *highest yielding* stuff in the retirement accounts right? Whether they be stock or equity funds.

Or, is there a reason one favor a bond fund over a stock/equity fund even if it's yielding less?

This post on the wiki definitely helps: http://www.bogleheads.org/wiki/Principl ... _placement

Obviously high yield bonds and REITS should go in the tax-sheltered retirement. But since more ordinary bonds are yielding so little right now, it doesn't seem like it matters where they go.
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BanditKing
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by BanditKing »

Thanks for some additional thoughts. I've read and digested a lot over the last week, including a lot of conflicting advice, and I think this is the AA I'm settling in on. My eventual goal is leaning more to a 65/35 split at this point. All numbers below are rounded and percentages are of the total portfolio.

401k (29.4%):
  • 29.4%/$50,000: Spartan 500 Index Fund - Institutional Class (FXSIX) (0.05%)
    NOTE: By the time I execute, I'll have another roughly $10k in the 401k, so I account for that here even though I listed $40k above
Roth (35.4%):
  • 5.9% / $10,000: Vanguard Small-Cap Index Fund Admiral Shares (VSMAX) (0.10%) [to balance the S&P Index in 401k]
    5.9% / $10,000: Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) (0.10%)
    11.8% / $20,000: Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares (VTAPX) (0.10%)
    5.9% / $10,000: Vanguard REIT Index Fund Admiral Shares (VGSLX) (0.10%)
    5.9% / $10,000: Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (0.05%)
Taxable (35.2%):
  • 11.8% / $20,000: Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX) (0.20%)
    5.9% / $10,000: Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (0.05%)
    17.6% / $30,000: Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) (0.16%)
Final allocation:
  • Stocks (70.5%) [GOAL: 65%]
    • Domestic: 47.0% [GOAL: 38%]
      International: 17.6% [GOAL: 20%]
      REIT: 5.9% [GOAL: 7%]
    Bonds: (29.5%) [GOAL: 35%]
    • Total Bond Index / Intermediate T-E: 17.7% [GOAL: 23.3%]
      TIPS: 11.7% [GOAL: 11.7%]
My thinkings:
1) Advice on what to put into the Roth seems pretty split, so I split the difference and put 50% into Stocks/REIT and 50% into Bonds/TIPS. Anything over the $60k I am anticipating will go into bonds since i'm overall light in that area.
2) I put $10k of TSM into taxable space to have a big enough of bucket for admiral shares as I add more stocks.
3) I'm initially a little light on Bonds, Internationals and REIT compared to my target AA, but I'll be able to balance that out fairly quickly (just a few months) with contributions more-directed towards those categories until I'm more in the 65/35 ballpark overall and my sub-categories are more in line.
4) I might do I-Bonds still (researching), so if I choose to do that I'll reduce TIPs accordingly and bump up my other bonds in Roth.

Question:
1) Is there any value to doing my small cap via Vanguard Tax-Managed Small-Cap Fund Admiral Shares (VTMSX) (0.14%) in taxable space? This might be a question outside the scope of this thread, however my goal to balance S&P in my 401k could eventually outpace my ability to contribute to my Roth, so I can see having that small-cap bucket in taxable space. I'm a little confused about how valuable a Tax-managed stock fund might be verses, say, Vanguard Small-Cap Index Fund Admiral Shares (VSMAX) (0.10%). Maybe it's not really a big difference in the end?.
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ruralavalon
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by ruralavalon »

Here is another idea for you to look at, which gives you your desired asset allocation, is a bit less complex, and which should work better long term given that most of your continuing contributions will be to the 401k.

The PIMCO bond fund in the 401k is an excellent bond fund, nisiprius on PTTRX , and using it in the 401k solves the problem of getting the 35% bond allocation you want without using up all of the space in the Roth IRA or trying to put bonds in the taxable account. Using the PIMCO bond fund in the 401k also helps you adhere to the desired asset allocation in the future, in light of the fact that most of your future contributions will be in the 401k.

All percentages and dollar amounts are rounded off, so will not add up exactly.

401k (29%; $50k; add $17.5k/yr plus match)
17%, $29k, Spartan 500 Index Fund - Institutional Class (FXSIX) (0.05%)
12%, $20k, PIMCO Total Return Fund Institutional Class (PTTRX) (0.46%)

Roth IRA (35%; $60k; add $5.5k/yr)
05%, $09k, Vanguard Extended Market Index Fund Investor Shares (VEXMX)(0.28%)
[to balance the S&P Index in 401k]
23%, $40k, Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) (0.10%)
07%, $12k, Vanguard REIT Index Fund Admiral Shares (VGSLX) (0.10%)

Taxable (35%; $60k)
15%, $26k, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (0.05%)
20%, $34k, Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) (0.16%)


If you have any questions about the above, just ask.

I hope that this helps.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
jasg
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Re: 42 with $125k cash and mediocre retirements - thoughts?

Post by jasg »

Twenty two years ago, I was you. Now at 64, I am comfortably retired and married. House and car paid off only a small HELOC for debt.

One thing that I wish I had done earlier deals with my dormant TIAA account. After ignoring it for over 30 years, I realized that it offered low fee (institutional class) index funds (both TIAA & Vanguard) and free, local advisors - along with unique investment opportunities like TIAA Traditional and Real Estate. I found that I was able to open a new supplemental account and decided to use them instead of Fidelity and Vanguard.

So, my IRA and 401k are both being rolled into the new 403b where I have established a Three Fund Portfolio + TREA.
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