Is it time for me to get my 401K out of the stock market?

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nguy44
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Is it time for me to get my 401K out of the stock market?

Post by nguy44 » Sat Jan 06, 2018 11:54 am

With the recent market run, and my retirement to occur within the next few months, I'm debating if it is time for me to stop investing in the market within my 401K.

Currently, my 401K is a little over $1.4M. Its current allocation is 42% stocks, 58% bonds.

My bond allocation is all in a stable value fund. The principle is guaranteed. The average annual return as been just over 3%, and a yearly return has never been lower than 2.75%.

If I shift all of my 401K money into that fund, with a 3% return, it will generate 42,000 annually.

I will also have a pension (non-COLA 73K annually). My non-401K investments that currently generate around $12K in dividends, and $380K in cash that is my "sleep well at night" buffer for not having to touch investments before I plan to take SS (I will be 60 this year and currently plan to wait until my FRA).

I am projecting generous retirement expenses for DW and I, including taxes and health care, to start at $125K annually.

If I do this, just the guaranteed 401K income, my pension, and current dividends would cover over 90% of anticipated expenses. We could choose to live a more generous lifestyle, since we will have to start doing something with the 401K principle, (but it would be much more controlled knowing the amount will not change due to the market). So... do I really need to keep investing my 34 year old 401K in equities? Maybe I should declare victory and get my 401K out of the market at this point.

Your thoughts?

livesoft
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Re: Is it time for me to get my 401K out of the stock market?

Post by livesoft » Sat Jan 06, 2018 11:59 am

Nope. It is not time for you to get your 401K out of the stock market. You can still declare victory though.
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herpfinance
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Re: Is it time for me to get my 401K out of the stock market?

Post by herpfinance » Sat Jan 06, 2018 12:02 pm

livesoft wrote:
Sat Jan 06, 2018 11:59 am
Nope. It is not time for you to get your 401K out of the stock market. You can still declare victory though.
+1.

It would be unwise to leave the stock market entirely, but it's sensible to re-consider your willingness, ability, and need to take risk given that you have almost reached your goals (if I'm reading your post correctly).
"The intelligent investor is a realist who sells to optimists and buys from pessimists" - Benjamin Graham

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eye.surgeon
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Re: Is it time for me to get my 401K out of the stock market?

Post by eye.surgeon » Sat Jan 06, 2018 12:05 pm

Reduce your equities if you feel uncomfortable with your risk level but you should always have some stocks. An adage attributed to John Bogle is to keep your AA between 75/25 and 25/75 throughout your life, adjusted according to age and risk tolerance. Maybe it's time for you to be 25/75 given your concerns.
Last edited by eye.surgeon on Sat Jan 06, 2018 12:08 pm, edited 1 time in total.
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Re: Is it time for me to get my 401K out of the stock market?

Post by Jags4186 » Sat Jan 06, 2018 12:08 pm

Are you also going to receive Social Security? If so you have ample funds and have no need to take risk. You could move everything to the stable value fund to sleep well at night if thats what you desire. However, it's likely best to keep a small amount in equities, perhaps 20%, if not for you for your heirs. You can invest that money as if you had a much longer time horizon (i.e. your heirs lives, not yours). Another option to consider is purchasing a SPIA to get you to the point of income you desire and then you can invest the remainder more aggressively. Since your income needs would be covered you'd have no need to be conservative.

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Re: Is it time for me to get my 401K out of the stock market?

Post by herpfinance » Sat Jan 06, 2018 12:09 pm

eye.surgeon wrote:
Sat Jan 06, 2018 12:05 pm
Reduce your equities if you feel uncomfortable with your risk level but you should always have some stocks. An adage attributed to John Bogle is to keep your AA between 75/25 and 25/75 throughout your life, adjusted according to age and risk tolerance.
Wouldn't that be an adage to Benjamin Graham?

Otherwise, I agree entirely with that notion.
"The intelligent investor is a realist who sells to optimists and buys from pessimists" - Benjamin Graham

H-Town
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Re: Is it time for me to get my 401K out of the stock market?

Post by H-Town » Sat Jan 06, 2018 12:18 pm

3% might be close to beat inflation and bring your real growth to 0%. But that would be unwise to get out of equity entirely. As long as your portfolio is well diversified, different asset classes will behave differently and should be able to bring you to 3-6% nominal growth with low volatility. What this means is that you might be able to get another 42,000 if you're able to structure a well diversified portfolio that includes equity.

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Watty
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Re: Is it time for me to get my 401K out of the stock market?

Post by Watty » Sat Jan 06, 2018 12:24 pm

nguy44 wrote:
Sat Jan 06, 2018 11:54 am
So... do I really need to keep investing my 34 year old 401K in equities? Maybe I should declare victory and get my 401K out of the market at this point.
The problem that you may not have actually won yet since there is a realistic chance that one of you could live to be over 100 so you have up a 40+ investing horizon and your pension is not inflation adjusted.

When you have enough that you could put everything into individual TIPS and be OK then it could be a reasonable choice just do that.

Since you will likely have a lot more expenses in the early years of retirement having more conservative portfolio could make sense, but not 0% stocks since that would leave you with a lot of inflation risk. When interest rates go up the value of your bonds will go down too.

You also need so international exposure just to cover the risk of having all your investments in the US.

There is also a non-zero chance that TIPS or Social Security will run into trouble over the next 40 years so having some diversification is good.

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Re: Is it time for me to get my 401K out of the stock market?

Post by 2comma » Sat Jan 06, 2018 12:29 pm

I wouldn't do anything because of the recent market whatever except rebalance back to my chosen AA. As I was reaching retirement age I backed off to 35/65. I didn't want to loose out on my chance to retire early, I'd made it and it doesn't bother me that I left some money on the table. A little later in retirement I'll probably increase my AA but it will be because my circumstances changed not because of the market. I think it is very hard to imagine how you'll react if the market takes a sharp dive and the Great Recession taught me I wasn't as brave as I thought I was. I think you've got your AA close when you just don't care what the market is doing any more.
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Re: Is it time for me to get my 401K out of the stock market?

Post by whodidntante » Sat Jan 06, 2018 12:32 pm

I would not put everything I have into a stable value fund. You have to understand who is making the guarantee, and if you think they'll be able to keep the promise during the next black swan. Also, the fund might have the ability to limit redemptions whenever someone who isn't you deems it necessary.

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Re: Is it time for me to get my 401K out of the stock market?

Post by BolderBoy » Sat Jan 06, 2018 12:36 pm

nguy44 wrote:
Sat Jan 06, 2018 11:54 am
So... do I really need to keep investing my 34 year old 401K in equities? Maybe I should declare victory and get my 401K out of the market at this point.
Victory, yes. But if you pull your 401k out of equities how will that money keep up with inflation?
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

delamer
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Re: Is it time for me to get my 401K out of the stock market?

Post by delamer » Sat Jan 06, 2018 12:37 pm

Agree with the above comments. Also since your pension is non-COLA and such a big portion of your retirement income, you will need to compensate for that over time. Seems that keeping some portion of your assets in stock is a good way to do that.

Two other thoughts:

1) What are the taxable investments that are yielding dividends? Don’t look at just your 401(k) in isolation, consider the taxable as part of your allocation.

2) If you predecease your wife, what happens to your pension? With a typical 50% survivor benefit, she will take a big hit in income and her expenses may not go down commensurately. So you need to make provisions for her standard-of-living, which may mean growing your 401(k) and/or taxable with a diversified stock allocation.

rkhusky
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Re: Is it time for me to get my 401K out of the stock market?

Post by rkhusky » Sat Jan 06, 2018 12:56 pm

The Gov’t TSP target date funds settle at 20/80. This is the lowest I would go with a good pension. Vanguard has shown that 10/90 is safer than 0/100. And that would be considering all your investments, including the cash, as one big pot.

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Re: Is it time for me to get my 401K out of the stock market?

Post by Katietsu » Sat Jan 06, 2018 10:05 pm

Whatever you do, you should be fine. But with that much in cash and pension, your equities seem to already be a small part of your future available pot for spending. Seems like you might be in the right ballpark already.

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dwickenh
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Re: Is it time for me to get my 401K out of the stock market?

Post by dwickenh » Sat Jan 06, 2018 10:09 pm

Katietsu wrote:
Sat Jan 06, 2018 10:05 pm
Whatever you do, you should be fine. But with that much in cash and pension, your equities seem to already be a small part of your future available pot for spending. Seems like you might be in the right ballpark already.
+1 Exactly my thoughts based on your other assets.
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

Agggm
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Re: Is it time for me to get my 401K out of the stock market?

Post by Agggm » Sat Jan 06, 2018 10:42 pm

nguy44 wrote:
Sat Jan 06, 2018 11:54 am
With the recent market run, and my retirement to occur within the next few months, I'm debating if it is time for me to stop investing in the market within my 401K.

Currently, my 401K is a little over $1.4M. Its current allocation is 42% stocks, 58% bonds.

My bond allocation is all in a stable value fund. The principle is guaranteed. The average annual return as been just over 3%, and a yearly return has never been lower than 2.75%.

If I shift all of my 401K money into that fund, with a 3% return, it will generate 42,000 annually.

I will also have a pension (non-COLA 73K annually). My non-401K investments that currently generate around $12K in dividends, and $380K in cash that is my "sleep well at night" buffer for not having to touch investments before I plan to take SS (I will be 60 this year and currently plan to wait until my FRA).

I am projecting generous retirement expenses for DW and I, including taxes and health care, to start at $125K annually.

If I do this, just the guaranteed 401K income, my pension, and current dividends would cover over 90% of anticipated expenses. We could choose to live a more generous lifestyle, since we will have to start doing something with the 401K principle, (but it would be much more controlled knowing the amount will not change due to the market). So... do I really need to keep investing my 34 year old 401K in equities? Maybe I should declare victory and get my 401K out of the market at this point.

Your thoughts?
Stick with around 25% of your total networth in diversified stocks at minimum. Too much less and you're lying to your self.

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Re: Is it time for me to get my 401K out of the stock market?

Post by surfstar » Sat Jan 06, 2018 10:56 pm

You have a pension + a lot of cash. You need to keep some in equities, IMO.

"25-75% in equities"

aristotelian
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Re: Is it time for me to get my 401K out of the stock market?

Post by aristotelian » Sun Jan 07, 2018 7:18 am

It may be time, not because of market conditions but because you no longer have the need, willingness or ability to take risk.

The one problem with a stable value approach is that if you spend that money eventually you will end up with the same principal yielding less and less real dollars due to inflation. However, since it sounds like you will be well covered by pension and SS plus non-401k investments, this may not be a concern.

Do you have an Investment Policy Statement that says what kind of allocation you want as you approach retirement?

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Re: Is it time for me to get my 401K out of the stock market?

Post by Sandi_k » Sun Jan 07, 2018 1:51 pm

Recent research says that you do best if you start retirement with 20-40% stocks, and gradually increase stock ownership halfway through your expected retirement term. They call it a "rising equity glidepath" - and there has been a lot of discussion about this strategy.

So if you start with 30/70%, and increase 2.5% for 16 years, you'll be 70/30, and have avoided Sequence of Return catastrophic failure.

The article is by Wade Pfau and Michael Kitces, both well-respected retirement researchers:

https://www.onefpa.org/journal/Pages/Re ... 0Path.aspx

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Re: Is it time for me to get my 401K out of the stock market?

Post by obgraham » Sun Jan 07, 2018 10:54 pm

I think you should leave well enough alone. There's nothing wrong with 40/60 like yours. Aiming for $125k annually you are in very good shape. (73k pension, ~20k SS, and a nice pot of 1.8mil in reserve). Your stock portion will help counter inflation.

Retire, and start to spend your money. That's what it's for.

nguy44
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Re: Is it time for me to get my 401K out of the stock market?

Post by nguy44 » Mon Jan 08, 2018 8:24 am

Thanks every for the responses. Perhaps you have "walked me back from the ledge" :happy .

For now I'll leave things are they are, and perhaps only considering additional rebalancing to something less than 40/60 at my next planned examination (I consider rebalancing - but do not always do it - it once a quarter, not trying to time the market).

To clarify 2 questions that were asked:
1) What are the taxable investments that are yielding dividends? Don’t look at just your 401(k) in isolation, consider the taxable as part of your allocation.
These are primarily stock/bond mutual funds and a few individual stocks/ETFs. I can tweak this as well to get more dividend yield, but for now I am just letting this ride. I was looking first at my 401K since that is the largest part of my portfolio.
2) If you predecease your wife, what happens to your pension? With a typical 50% survivor benefit, she will take a big hit in income and her expenses may not go down commensurately. So you need to make provisions for her standard-of-living, which may mean growing your 401(k) and/or taxable with a diversified stock allocation.
This is a good point. She would get 75% of the pension, 56K. She thinks she will be fine with this, and with SS her income would be around $73K outside of our savings/investments. This more than covers the basic expenses that would not change in my absence (the $125K is a generous "wants" budget, our "needs" are a little more than half of that). Also she would now be taxed at a higher rate on 401K withdrawals. So the advice about keeping some in the market for this purpose is good.

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Re: Is it time for me to get my 401K out of the stock market?

Post by indexonlyplease » Mon Jan 08, 2018 8:55 am

Leave it the way it is.

Live off penson and savings and take investments when you need to purchase stufff above your monthly income. This way it just sits and grows until you need it. This is what I am doing and after one year of retirement have not touch investments.

I would just think make sure my portfolio is good and easy to manage. This is what I have done in the past year with the help of the Bogleheads.

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Re: Is it time for me to get my 401K out of the stock market?

Post by indexonlyplease » Mon Jan 08, 2018 8:57 am

obgraham wrote:
Sun Jan 07, 2018 10:54 pm
I think you should leave well enough alone. There's nothing wrong with 40/60 like yours. Aiming for $125k annually you are in very good shape. (73k pension, ~20k SS, and a nice pot of 1.8mil in reserve). Your stock portion will help counter inflation.

Retire, and start to spend your money. That's what it's for.
+1 so true

When we are savers for so many years it is hard to become spenders.

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Re: Is it time for me to get my 401K out of the stock market?

Post by sco » Mon Jan 08, 2018 12:56 pm

indexonlyplease wrote:
Mon Jan 08, 2018 8:57 am
obgraham wrote:
Sun Jan 07, 2018 10:54 pm
I think you should leave well enough alone. There's nothing wrong with 40/60 like yours. Aiming for $125k annually you are in very good shape. (73k pension, ~20k SS, and a nice pot of 1.8mil in reserve). Your stock portion will help counter inflation.

Retire, and start to spend your money. That's what it's for.
+1 so true

When we are savers for so many years it is hard to become spenders.

I'd leave it exactly like it is, provides some inflation protection for your 30-40 year retirement. YOu have plenty of bonds already. I guess you could go down to to 20-30% stocks if you can't physically sleep, but I wouldn't..

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Re: Is it time for me to get my 401K out of the stock market?

Post by triceratop » Mon Jan 08, 2018 6:40 pm

This topic is now in the Personal Investments section.
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