Help my wife choose her retirement allocation

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Topic Author
mavenleek
Posts: 60
Joined: Tue Apr 11, 2017 10:31 am

Help my wife choose her retirement allocation

Post by mavenleek »

Hi,

My wife (30 years old) started a new job early this year and she is saving about 15% of her income into a pre-tax contribution to a 401k. Her employer offers a generous match with a cap at 5000$ per year. With the 15% she will cap her 401k to the maximum 18K contribution per year.

When I'm looking at the allocation, the money is invested each month into JPM SMRTRET 2050 R5 (JTSIX). The expense ratio is very high (0.79%) so I'm wondering if I should go with a manual allocation. She has the following options:

http://i.imgur.com/fDqjazK.png
http://i.imgur.com/20Nz3tg.png

What do you think of this allocation?

45% FID 500 INDEX INST (FXSIX)
15% FID EXT MKT IDX PR (FSEVX)
30% FID INTL INDEX INS (FSPNX)
10% FID LT TR IDX PR (FLBAX)

She has also 4K invested on FEZ and 6K on VGK on a taxable investment account.

Last but not least she has also about 33K on an IRA (managed by betterment) with the following allocation:
http://i.imgur.com/Hw9NOpf.png

Thanks for your inputs!
Last edited by mavenleek on Thu May 25, 2017 10:34 am, edited 1 time in total.
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Nate79
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Location: Delaware

Re: Help my wife choose her retirement allocation

Post by Nate79 »

Absolutely go with the low cost index funds. Looks like she has access to very low ER funds.
aspiringlawyer
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Joined: Fri Apr 07, 2017 10:06 am

Re: Help my wife choose her retirement allocation

Post by aspiringlawyer »

What's your current asset allocation? Do you include your wife's investments when setting that allocation? If so, I would look at all of your and her accounts and then plan that allocation accordingly. The funds you've chose are definitely the right ones because they have the lowest ERs available in her 401k but how do the percentages you've chosen work into the larger investment strategy for you two?
samorris74
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Joined: Mon Jan 23, 2017 5:31 pm

Re: Help my wife choose her retirement allocation

Post by samorris74 »

Personally, I would use the FXSTX bond fund instead of the one you chose. I also use a similar allocation for 90/10 stock bond split but for US stocks I personally think that a 48% S&P 500 12% extended market is more close to a Total Market fund if that is what you are looking for. As far as Betterment, I also have money with them in both taxable and retirement accounts and I am working on moving it over to Vanguard as I would rather just save money on fees.
WL2034
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Re: Help my wife choose her retirement allocation

Post by WL2034 »

Looks good -- great options in that 401k. Betterment seems fine as far as robo-advisers go. I suppose the question is does she feel she needs the robo-adviser? Especially since it's an IRA so you're not even getting the auto-TLH benefit. Another option would be fidelity go robo-adviser instead of betterment because I imagine it would be easier to switch into self-directed investing in the future without moving the money. Or she could just move it to Vanguard/Fidelity/Schwab now for low cost investing. Or perhaps move to Merrill Edge and use Vanguard ETFs, which would qualify for an account bonus and other BoA benefits as the account grows. Good luck!
Topic Author
mavenleek
Posts: 60
Joined: Tue Apr 11, 2017 10:31 am

Re: Help my wife choose her retirement allocation

Post by mavenleek »

aspiringlawyer wrote:What's your current asset allocation? Do you include your wife's investments when setting that allocation? If so, I would look at all of your and her accounts and then plan that allocation accordingly. The funds you've chose are definitely the right ones because they have the lowest ERs available in her 401k but how do the percentages you've chosen work into the larger investment strategy for you two?
I have about 35K on a taxable account on betterment with a somewhat similar asset allocation (95% stocks, 5% bond). Technically I don't have a 401k because I work for a foreign company on a foreign contract (I'm an expat living in the US). So that's why I can't really take into consideration my retirement because we have a complicated setup.

I'm more concerned by her allocation as I want her to maximize tax savings (maxing out 401k & HSA) and having a low fee 401k.
Topic Author
mavenleek
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Joined: Tue Apr 11, 2017 10:31 am

Re: Help my wife choose her retirement allocation

Post by mavenleek »

samorris74 wrote:Personally, I would use the FXSTX bond fund instead of the one you chose. I also use a similar allocation for 90/10 stock bond split but for US stocks I personally think that a 48% S&P 500 12% extended market is more close to a Total Market fund if that is what you are looking for. As far as Betterment, I also have money with them in both taxable and retirement accounts and I am working on moving it over to Vanguard as I would rather just save money on fees.
I might move the money out of betterment at some point but I value the convenience of betterment regarding rebalancing, tax loss harvesting and investing every month.

What's the difference between FXSTX and FLBAX?
samorris74
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Re: Help my wife choose her retirement allocation

Post by samorris74 »

What's the difference between FXSTX and FLBAX?[/quote]

FXSTX had a lower expense ratio and tracks the same index as the Vanguard Total Bond fund. FLBAX is more long term bond fund. Either is probably fine. I was just sharing which one I would go with.

I thought you said the 33k was in an IRA at Betterment? They do not perform tax lost harvesting on IRAs to my knowledge. I do like the convenience of Betterment. You pay about 82.50 a year for that convenience though.
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ruralavalon
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Location: Illinois

Re: Help my wife choose her retirement allocation

Post by ruralavalon »

mavenleek wrote:Hi,

My wife (30 years old) started a new job early this year and she is saving about 15% of her income into a pre-tax contribution to a 401k. Her employee offers a generous match with a cap at 5000$ per year. With the 15% she will cap her 401k to the maximum 18K contribution per year.
That's a nice employer match, she is fortunate.

But the employer match does not count toward the $18k limit. $18k is the limit for employee contributions, so she could increase her contributions if she is able and wants to do so.

mavenleek wrote:When I'm looking at the allocation, the money is invested each month into JPM SMRTRET 2050 R5 (JTSIX). The expense ratio is very high (0.79%) so I'm wondering if I should go with a manual allocation. She has the following options:

http://i.imgur.com/fDqjazK.png
http://i.imgur.com/20Nz3tg.png

What do you think of this allocation?

45% FID 500 INDEX INST (FXSIX)
15% FID EXT MKT IDX PR (FSEVX)
30% FID INTL INDEX INS (FSPNX)
10% FID LT TR IDX PR (FLBAX)
The expense ratio of 0.79% on the target retirement funds is too high.

What are the expense ratios charged in her 401k for the index funds you listed? The expense ratios charged in a 401k are sometimes different than the expense ratios charged to the general public for the same fund, so we can't just look them up. You can simply add this to your original post using the edit button, so that all of your information is in one place.

I also suggest using Fidelity U.S. Aggregate Bond Index Fund Institutional (FXSTX) ER 0.04% instead, for broader and a lower expense ratio.

She has also 4K invested on SPDR Euro Stoxx ETF, FEZ, ER 0.29% and 6K on Vanguard FTSE Europe ETF, VGK, ER 0.10% on a taxable investment account.

Last but not least she has also about 33K on an IRA (managed by betterment) with the following allocation:
http://i.imgur.com/Hw9NOpf.png

Thanks for your inputs!
Last edited by ruralavalon on Thu May 25, 2017 10:48 am, edited 2 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
mavenleek
Posts: 60
Joined: Tue Apr 11, 2017 10:31 am

Re: Help my wife choose her retirement allocation

Post by mavenleek »

Thanks for your inputs.

If you click on these links you can see what funds she has access to and the expenses ratio:

http://i.imgur.com/fDqjazK.png
http://i.imgur.com/20Nz3tg.png
Topic Author
mavenleek
Posts: 60
Joined: Tue Apr 11, 2017 10:31 am

Re: Help my wife choose her retirement allocation

Post by mavenleek »

samorris74 wrote:What's the difference between FXSTX and FLBAX?
FXSTX had a lower expense ratio and tracks the same index as the Vanguard Total Bond fund. FLBAX is more long term bond fund. Either is probably fine. I was just sharing which one I would go with.

I thought you said the 33k was in an IRA at Betterment? They do not perform tax lost harvesting on IRAs to my knowledge. I do like the convenience of Betterment. You pay about 82.50 a year for that convenience though.[/quote]

Thanks, I will look more closely at the FXSTX

She has an IRA with 33K and about 15K in a "Safety Net". Also both of our accounts are linked to maximize the tax lost harvesting and investment of dividends in the most tax efficient way.

For the time being I'm happy to pay for the convenience and their service.
bloom2708
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Re: Help my wife choose her retirement allocation

Post by bloom2708 »

It might have been stated, but match dollars do not count toward your $18k limit.

If you put in $13k and they match $5k, that totals $18k, but you could still put in another $5k.

My company matches 50%. I put in $18k, they put in $9k. The match does count toward the overall $53k maximum pre/post tax.
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ruralavalon
Posts: 26297
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Location: Illinois

Re: Help my wife choose her retirement allocation

Post by ruralavalon »

mavenleek wrote:Thanks for your inputs.

If you click on these links you can see what funds she has access to and the expenses ratio:

http://i.imgur.com/fDqjazK.png
http://i.imgur.com/20Nz3tg.png
Sorry, I was looking at the links and editing my post while you were posting.

I also suggest using Fidelity U.S. Aggregate Bond Index Fund Institutional (FXSTX) ER 0.04% for the bond fund, because of its broader diversification and lower expense ratio.

The long-term bond fund will carry more risk, and will suffer more from any increase in interest rates when that occurs.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
mavenleek
Posts: 60
Joined: Tue Apr 11, 2017 10:31 am

Re: Help my wife choose her retirement allocation

Post by mavenleek »

Thanks again for your inputs. I went with the following allocation:

Stock Investments Large Cap FID 500 INDEX INST 48%
Stock Investments Mid-Cap FID EXT MKT IDX PR 12%
Stock Investments International FID INTL INDEX INS 30%
Bond Investments Income FID US BOND IDX IS 10%
clip651
Posts: 1582
Joined: Thu Oct 02, 2014 11:02 am

Re: Help my wife choose her retirement allocation

Post by clip651 »

mavenleek wrote:
She has an IRA with 33K and about 15K in a "Safety Net". Also both of our accounts are linked to maximize the tax lost harvesting and investment of dividends in the most tax efficient way.
Tax loss harvesting is not possible within an IRA. Trades can be made back and forth when things go up and down (or for any other reason) within an IRA, and there are no tax consequences of the trading.

So either you are misunderstanding what Betterment is offering for an IRA, or they are performing needless trades within an IRA to attempt to harvest losses that cannot be harvested due to account location.

You also have to watch out for wash sales among the various accounts you and your wife have. Perhaps that is what you mean by the accounts being linked to maximize tax loss harvesting (in the taxable account)???
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