Asset Allocation - Help with Retirement Planning

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frugalmama
Posts: 37
Joined: Tue Mar 20, 2018 12:53 pm

Asset Allocation - Help with Retirement Planning

Post by frugalmama » Thu May 17, 2018 12:50 pm

Hi,
I need some help with our investment planning/AA. I hope I did this right....

Emergency funds: 2 months and do not plan on more as DH has an extremely stable main job, use our Roths (contributions) as back up, have multiple sources of income from other job diversification, etc. and feel very comfortable with this. We've had a couple of emergencies and we've never had to dip into the Roth.
Debt: Mortgage will be paid off in 8 years - 4.25%
no credit card debt/school loans
Auto loan 11K 1.85% - pay off in about 4 years
Medical debt 6K 0%
Auto loan 8.5K - I can't locate this rate right now but it is around 1.85% - pay off in 2 years
Once these loans are paid off, the money will go into a car fund, just like I have a tax fund, an insurance fund, etc. (which I also could temporarily pull from in an emergency)

Tax Filing Status: Married Filing Jointly, 10 dependents
Tax Rate: 10% Federal, 0% State
State of Residence: LCOL state
Age: 37, DH 41

Desired Asset allocation: 100% stocks / 0% bonds - eventually I think this might change, but we handle swings very well and it doesn't bother us currently. Exception are the 529 which are in age-based fund allocations.
Desired International allocation: xx% of stocks - not sure I'm thinking eventually 10-20%, but currently only exposure is through S&P500

We are just past the 500K mark in investable assets (excluding the house, etc.) We may eventually sell the house as we would like more room for our kids and move to a less expensive area (House has appreciated a lot).

Current retirement assets
Her Rollover IRA - 2%
100% Vanguard S&P 500 Index Fund.14%

His Rollover IRA - 14%
100% Vanguard Primecap Core Fund .46%

Her SEP - 3%
100% Vanguard Strategic Equity .18%

Her Roth - 18%
61% Vanguard S&P 500 Admiral Shares .04%
23% Vanguard Midcap Growth .36%
16% Vanguard Strategic Equity .18%

His SEP IRA - 28%
67% Vanguard S&P 500 Admiral Shares .04%
33% Vanguard Healthcare Fund .37%


His Roth -13%
49% Vanguard S&P 500 Admiral Shares .04%
21% Vanguard Healthcare Fund .37%
15% Vanguard Mid Cap Growth .36%
15% Vanguard Strategic Equity .18%

2 ESAs - 5%
100% Vanguard S&P 500 Admiral Shares .04%

10 different 529s with College Savings Iowa (will start using in as soon as 2 years but may hold off if can pay in cash) - 17%
100% Aggressive Growth Age Based Balance Funds

Contributions
New annual Contributions
$0 his 457 (no matching)
$0 his 403b (no matching)
$5500 Roth IRA
$5500 Roth IRA
$5-10K (income is not consistent so contributions can fluctuate)

NOTES:
1) I am currently mainly self employed. I will eventually go back to work when our younger kids go to school at an employer full time (and make more), probably have a pension and still work some of my side gigs that I like. I suspect my salary will go entirely to retirement and kids' college as we are very happy with our current standard of living.

2)DH will receive a pension but can't take it until he is about 60. It appears that the pension will cover almost all of our living expenses (or at min if nothing happens perhaps 50-80% if we travel. I am not sure DH will retire at 60 as this is a 2nd career for DH and DH really loves what he is doing. While the pension is currently in great shape to cover benefits, I worry about pensions in general because so many are underfunded, etc. so I feel counting on it alone is a risk. I'm not sure if my worry is unfounded or not.

3)We plan on paying for all our kids' college (Yes, I realize college is expensive).

Questions:
1. How would you allocate based on our portfolio? My DH is not all that excited about selling a lot of stuff at one time and he absolutely does not want to sell Primecap, so that should be ignored.

2. If you have a Roth, SEP, solo 401K, company 401K, company 403B to contribute to, what order would you contribute knowing my situation? I'm thinking I'd be best off to contribute to a solo 401(K) as an employer any excess money as then I have more flexibility in contributions. I previously had contributed to a SEP but I think I'm missing out then by paying both halves of self-employment, right? Or, are we just talking about potentially making larger contributions? I'm confused about the solo 401K option which is how I think I accidentally ended up doing SEPs in other years.

3. If your SEP is for a different business (both schedule C) can you roll them to the solo 401K? (I didn't specify anywhere that I know of what the business was and I had both businesses at the same time but I'm not sure that the 2nd business income covered the 1st businesses income at that point (i.e. I may have done 1 SEP for the total of their 2 incomes). Additionally, am I really supposed to have different SEPs for different schedule Cs?

4. We will definitely be in a higher tax bracket when we retire than we are now. I have read about backdoor Roths and while my income is very low currently and we can contribute to a Roth, I'm confused as to whether I can/or should roll our SEPs to Roths. In general, I expect to be making more tax-deferred contributions when I go back to work full time. If I can roll our SEPs, when should I do that ?- now when I'm in the 10% bracket or after I see where I'm at closer to retirement? I'm concerned about my tax-deferred income being high in retirement with the pension amount factored in so that we jump several tax brackets.

5. If you had this many kids to pay for college would you try to leave what you had in the accounts and cash roll the first kids or the last kids (and roll the remainder to the next kids)? The first kids obviously have the most in their accounts right now. If DH retires in his early 60s, we will have a few years of college to pay for the last one yet.

Thanks in advance for your help!

ExitStageLeft
Posts: 156
Joined: Sat Jan 20, 2018 4:02 pm

Re: Asset Allocation - Help with Retirement Planning

Post by ExitStageLeft » Thu May 17, 2018 2:05 pm

Welcome to the forum!

Hopefully someone with experience in self-employment 401ks will be along to help. I will offer my $0.02 on your asset allocation...

I'm a big fan of the three-fund portfolio, which in your case can be the two-fund portfolio. To approximate that across many accounts might require you to substitute one fund for another, but you can simplify greatly by selecting one low-cost indexed fund and sticking to it. I do suggest putting at least 10% into bonds or other fixed-income funds. The difference in return will be trivial, and it will be a good start on the ultimate retirement allocation you end up with.

The Vanguard S&P 500 or Total Market funds are a great choice. I don't favor a tilt toward small or emeging markets and would recommend settling on one fund investing in it across all your retirement accounts. For any of these accounts, exchanging one fund for another takes all of a few minutes at most. They are in tax-advantaged accounts so there is no worry about capital gains or losses come tax time. If you do want to tilt towards something, I suggest picking one and spelling it out in an Investment Policy Statement. The IPS could also state what your desired bond position is and at what stage in life you'll change it.

frugalmama
Posts: 37
Joined: Tue Mar 20, 2018 12:53 pm

Re: Asset Allocation - Help with Retirement Planning

Post by frugalmama » Fri May 18, 2018 8:52 am

Thank you for your reply ExistStageLeft. I really appreciate it.
ExitStageLeft wrote:
Thu May 17, 2018 2:05 pm
If you do want to tilt towards something, I suggest picking one and spelling it out in an Investment Policy Statement. The IPS could also state what your desired bond position is and at what stage in life you'll change it.
Is there any benefit to spelling it out in an IPS if I completely manage my own portfolio?

I am really confused about the best way to go about continued savings for retirement. Any suggestions on a better way to post this to get some help?

Thanks!

ExitStageLeft
Posts: 156
Joined: Sat Jan 20, 2018 4:02 pm

Re: Asset Allocation - Help with Retirement Planning

Post by ExitStageLeft » Fri May 18, 2018 9:26 am

The IPS isn't just for the benefit of financial advisers. It's a statement that you and your spouse work on together for your benefit down the road. It is intended to be the constant reference point when you are inundated in a sea of financial noise.

ExitStageLeft
Posts: 156
Joined: Sat Jan 20, 2018 4:02 pm

Re: Asset Allocation - Help with Retirement Planning

Post by ExitStageLeft » Fri May 18, 2018 9:41 am

Honestly it looks like you are doing an incredible job saving and planning for your future. If you haven't yet, start to read the Wiki Page. The Boglehead Philosophy page lays it out pretty well. Whether intentionally or not, it appears your investing actions have been very much in line with the Boglehead philosophy. I think you're just missing out on the simplicity aspect, especially that provided by the three-fund portfolio.

I suspect that most forum readers saw that your assets are exclusively with Vanguard and assumed that you are an experienced and informed investor. From the standpoint of low-cost indexed funds they would be right. If you have specific questions about how to go about investing in a solo 401k, you may get a better response rate if you post a new thread specifically asking that question.

frugalmama
Posts: 37
Joined: Tue Mar 20, 2018 12:53 pm

Re: Asset Allocation - Help with Retirement Planning

Post by frugalmama » Mon May 21, 2018 9:21 am

ExitStageLeft wrote:
Fri May 18, 2018 9:41 am

I suspect that most forum readers saw that your assets are exclusively with Vanguard and assumed that you are an experienced and informed investor. From the standpoint of low-cost indexed funds they would be right. If you have specific questions about how to go about investing in a solo 401k, you may get a better response rate if you post a new thread specifically asking that question.

Thank you ExitStageLeft for your help. I *thought* I was relatively experienced and well informed about investments (and minimizing taxes), etc. but then I came here and realized that there were aspects that I've never considered and some things I really don't understand that well. You are right that I unknowingly was already a semi-boglehead - although I've read Bogle on Mutual Funds and other books like Malkiel's A Random Walk Down Wall Street. I go between thinking we are doing well to thinking we are not doing very well in saving for retirement and need to save more. I really appreciate all of the advice this community provides as it gives me a lot to think about.

I will post my other questions in another thread like you suggested. Thank you again.

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