Poke holes in our plan! Newbie here, need advice.

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luv2gs
Posts: 6
Joined: Thu Jun 21, 2018 1:48 pm

Poke holes in our plan! Newbie here, need advice.

Post by luv2gs » Thu Jun 21, 2018 2:44 pm

Hi,
Long time lurker here, first post. Would love some advice from seasoned bogleheads on our plans. Details are below:

Married filing jointly (both age 40), 1 child age 14
Gross income current: $105K but this will go up to $120K in a couple months, 22%tax bracket

Current net income: $6100 (after all pre-tax deductions to 403Bs, health insurance, etc.)
Minus monthly expenses: $3000 (debt free except house, low mortgage payment)
Minus monthly automated savings: $2100 (2 Roths, 529 contribution, and Money Market account)
Surplus left for investing: $1100 (expect it to be around $2100 after pay increase)

Current account balances:
403Bs (combined) $219K --still plenty of space in each person's plan to contribute more.
My balance 40k in TIAA 2040, .59%ER

His balance 179k in TIAA customized portfolio. Approximately 83% equities, 4%real estate, 7% fixed income, 1% multi asset, 5% guaranteed.

**note, I also have a defined benefit pension plan

Vanguard roths, not through employer (combined): $131K
My balance $79k in 2040 fund, 85 equities/15 bond
His $51k in 2045, 90/10
Max out each year

529: $40K

$34K, emergency fund

Investment choices for 403 B in TIAA:

CREF equity index account, .30%
Vanguard Explorer fund admiral, .32%
CREF growth account, .32%
CREF stock account, .37%
CREF global equities account, .40%
American funds europacific growth, .53%
TIAA CREF large cap value fund, .55%
TIAA CREF small equity fund, .56%
TIAA CREF mid cap value fund, .56%
TIAA CREF Intl equity fund, .64%
TIAA CREF real estate securities, .66%
TIAA real estate account, .79%
--additional offerings at much higher rates

CREF inflation linked bond account, .31%
JP morgan short duration bond fund class, .30%
CREF bond market account, .37%
--addiitonal offerings at much higher rate

CREF social choice account, .33%
TIAA lifecycle 2040, .59%
2050, .60%
2045, .60%
2055, .60%
--additional lifecyles that are much too near or far from our retirement



Plan:
--For excess funds: we cannot decide whether to put more into our 403Bs or to open a taxable Vanguard account. The 403B options are not the worst and there is plenty of space, but we like the flexibility of the taxable account. We could use the money to supplement the 529 or possibly as additional retirement. The 403B wouldn't change our bracket (though it would reduce some tax) since the spread in each bracket is pretty big right now.
--I think we would draw from our Roth last, in hopes of leaving a tax free legacy for our son. I hope to retire ~60 with my pension income and my husband would keep working till 65 (that's his plan right now, he loves his work). I don't anticipate , then, having to draw from any accounts before 65. Would it be crazy to move the Roths from target date funds to all index if we don't plan to pull $ out there first? Giving it more time to grow and in an aggressive way?
--We don't plan to put more in the 529. If we continue to save at our same rate in that account, we'd be able to cover about 60-75% of total costs. We could cash flow the rest, or pull from that taxable account , if we open one.
--We've no interest in paying off our house. The rate is low and it's not our forever home. We'd love to move within the next 5 years (same locale, different house). The taxable account could be used toward the new house, as well.

I'd love any thoughts. We've got the disciplined savings part down, but we are still on the "education" part in terms of really learning more about investments, etc. :happy
Last edited by luv2gs on Fri Jun 22, 2018 7:58 am, edited 7 times in total.

ExitStageLeft
Posts: 799
Joined: Sat Jan 20, 2018 4:02 pm

Re: Poke holes in our plan! Newbie here, need advice.

Post by ExitStageLeft » Thu Jun 21, 2018 4:42 pm

Welcome to the forum! Congrats on getting yourselves where you are financially. As you noted, that takes some discipline.

If it were purely an economics analysis, increasing the 403b contribution would likely win out. Since you've got a specific need and a specific time frame, then you should start building that downpayment. Many threads along this line recommend putting the downpayment money in an appropriately risk-free holding, even one FDIC insured.

For the remainder of your assets, you could perhaps benefit from a complete portfolio review. This forum thread describes how to format your query for the best response.

We can offer suggestions as to how to invest your Roth IRAs, but since we don't know how the remainder of your assets are allocated it isn't going to serve you well. Your question about having all stocks in your Roth is very astute, as you are seeing the benefits of tax-efficient fund placement.

A tax-efficient portfolio will have bonds and other tax-inefficient holdings in the 403b accounts while Roth and taxable accounts hold nothing but equities. Since all target date funds have some bond holdings, you can increase your portfolio efficiency by doing your own allocation. If you give us the details of your portfolio we can offer some advice.

luv2gs
Posts: 6
Joined: Thu Jun 21, 2018 1:48 pm

Re: Poke holes in our plan! Newbie here, need advice.

Post by luv2gs » Thu Jun 21, 2018 6:44 pm

Thanks for the response! I have updated my post to include some additional info.

rkhusky
Posts: 5397
Joined: Thu Aug 18, 2011 8:09 pm

Re: Poke holes in our plan! Newbie here, need advice.

Post by rkhusky » Thu Jun 21, 2018 6:56 pm

In order to provide recommendations, we would need to see the choices available in your 403b plans and their ER's (at least for the lowest price options). The ER of the 2040 fund looks expensive, but hard to tell how it compares to other choices.

radiowave
Posts: 1773
Joined: Thu Apr 30, 2015 5:01 pm

Re: Poke holes in our plan! Newbie here, need advice.

Post by radiowave » Thu Jun 21, 2018 7:02 pm

Hi, welcome to the forum.

Some things to consider:

- do you have an emergency fund? if not, consider having about 6 months in liquid funds to cope with things like job loss, major unexpected expenses, etc. You can accomplish this with high yield savings accounts, e.g. Ally Bank is currently 1.65% for savings, and CDs (Ally is 2.30 % for 1 year).

- Its not clear from your post how you are contributing to your Roth IRAs. If you are maxing these out each year, $5,500 each, and you are maxing out your tax deferred 401k funds, two things to consider. 1. add a 403b tax deferred account for each of you to the max tax deferred; or 2. start a taxable account and accumulate US domestic total stock funds like the Vanguard VTSAX and possibly a total international fund for taxable. If you don't have a taxable brokerage fund, the three most recommended are: Vanguard, Fidelity, and Schwab.

- you may want to post your actual current funds for more feedback. The high ER at TIAA may not be optimum, post the available funds and we can provide some alternative. For asset allocation, consider your entire portfolio acroll all accounts. Genrally, you have your bond portion of your portfolio in your tax-deferred, and stock/international in your taxable and Roth accounts.
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page

Compound
Posts: 604
Joined: Mon May 26, 2014 1:32 pm

Re: Poke holes in our plan! Newbie here, need advice.

Post by Compound » Thu Jun 21, 2018 7:03 pm

I’d suggest putting the additional monies into the 403b vehicle. I would assume you will retire into a lower tax bracket and would thus come out ahead. Since you don’t really have any short term or medium term need for the funds, I fail to see the logic of bypassing using a tax advantaged account. If you post what funds are available to you in the 403b, you may get some help on finding cheaper funds than you’re currently invested in.

ExitStageLeft
Posts: 799
Joined: Sat Jan 20, 2018 4:02 pm

Re: Poke holes in our plan! Newbie here, need advice.

Post by ExitStageLeft » Thu Jun 21, 2018 7:36 pm

Your overall bond allocation in your portfolio looks to be in the ballpark of 10% . At this stage in your investing careers you should consider a much higher bond allocation, perhaps 25% or 30%. Having a defined benefit pension can provide some income security to justify a little more risk, but you really ought to be have at the very least a 20% fixed income portfolio.

For maximal tax efficiency and portfolio simplicity, the lazy three-fund portfolio is just about perfection. When you have multiple accounts with various providers it becomes challenging at times finding a close match between the funds available in a plan and the ideal indexed fund it is meant to emulate.

Both the Vanguard and TIAA target date funds have about 1/3 of equities in international stocks. If you strive for a 75/25 asset allocation, that is 75% equities and 25% bonds, you could match the international bond allocation of the target date funds by having 33% of stocks be international. Thus your ideal lazy portfolio might consist of:

50% total US stock market index fund
25% global stock market ex-US index fund
25% total bond index fund

That would be the starting point of building a three-fund portfolio. You would then look to have the bond portion in the 403b accounts and try to find an affordable bond fund that fits. Then you start filling the remainder of the 403b and Roth accounts with decent index funds with low expense ratios.

luv2gs
Posts: 6
Joined: Thu Jun 21, 2018 1:48 pm

Re: Poke holes in our plan! Newbie here, need advice.

Post by luv2gs » Thu Jun 21, 2018 7:55 pm

There are 60+ choices with in our TIAA account. I get googly eyes looking at it at just went with the target fund for myself to just set and forget. Wii try to post all the options available soon.

radiowave
Posts: 1773
Joined: Thu Apr 30, 2015 5:01 pm

Re: Poke holes in our plan! Newbie here, need advice.

Post by radiowave » Thu Jun 21, 2018 9:30 pm

luv2gs wrote:
Thu Jun 21, 2018 7:55 pm
There are 60+ choices with in our TIAA account. I get googly eyes looking at it at just went with the target fund for myself to just set and forget. Wii try to post all the options available soon.
Are there any low expense ratio (ER) funds say < 0.20%? What is the ER for the target date fund?
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page

luv2gs
Posts: 6
Joined: Thu Jun 21, 2018 1:48 pm

Re: Poke holes in our plan! Newbie here, need advice.

Post by luv2gs » Fri Jun 22, 2018 7:59 am

Post updated to show investment choices, thanks to everyone so far!

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