Retirement planning advice

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Topic Author
Cavalier
Posts: 2
Joined: Wed Jul 10, 2019 3:22 pm

Retirement planning advice

Post by Cavalier » Wed Jul 10, 2019 3:28 pm

Hi there everyone. Seeking retirement recommendations as to where and what percentages to allocate 401k, HSA and Roth IRA. I've paid off my home and owe nothing on my vehicle but have zero funds saved for retirement. I'm absolutely green to investing but have read a handful of books, including Bogelheads a few times. I don’t carry debt and have no intention to ever carry it.

My employers 401k reads:
“30% of employee annual deferral amounts up to 8% of your eligible plan compensation. That means thirty cents on the dollar is paid into the plan by the company for each dollar of compensation you deferred, up to 8% of your Plan Compensation. Deferrals beyond the 8% level have not been matched. Any match declared is payable only to those employees on the payroll as of December 31st for the calendar year in question.”

I read this as they match 8% - I don't quite understand why the 30% statement is made? On the enrollment forms, they ask if I elect to “auto-rebalance” and how often (annual, quarter). Do you recommend this?

My employer has an HSA that I am able to invest with (details below)

I opened a Fidelity Roth IRA ages ago, but only have $50 dollars in it now.

My salary is $80k, plus potential $40k annual bonus. I usually meet 50%-100% bonus.
I'm comfortable putting away at least $2,000/month for retirement savings and leaning towards aggressive investing. I'll increase retirement contributions when I receive my bonus.

Info:
Emergency funds: 6 months
Debt: Zero debt. Own home and vehicle
Tax Filing Status: Single
Tax Rate: 24% Federal, 4.95% State
State of Residence: IL
Age: 41
Non-emergency cash: $20k @ 2.0%. I add what I can, when I can to this account. It’s also my new car fund that I intend to purchase in ~4 more years.

Desired Asset allocation: Not Sure? Thinking 80/20%
Desired International allocation: Not Sure? Thinking 20%

I'd like your recommendations on what Fidelity funds to select for my Roth IRA and what funds from the list below for my 401k and HSA. Also, what percentages would you suggest for each fund? Additionally, what order should I focus my contributions - max out 401k, HSA and then Roth IRA last?

Available 401k Funds through Securian Financial:
Minnesota Life General Account
Advantus Money Market .16%
Metropolitan West Total Return Bd Admin .29%
Columbia Contrarian Core .45%
Wellington Disciplined US Equity .37%
Advantus S&P 500 Index .04%
Ivy Large Cap Growth .5%
Janus Opportunistic Growth .4%
T. Rowe Price Large Cap Growth .35%
Schwab Fundamental US Large Company Idx .25%
T. Rowe Price Large Cap Value .35%
Disciplined Growth Mid Cap Growth .57%
American Century Equity Income R6 .58%
Vanguard Extended Market Idx Adm .08%
T. Rowe Price Small Cap Stock .67%
Ivy Small Cap Growth .67%
Perkins Small Cap Value .6%
TIAA-CREF International Eq Idx Instl (-.06%)
Vanguard LifeStrategy Cnsrv Gr Inv .11%
Vanguard Life Strategy Growth Inv .12%
Vanguard LifeStrategy Moderate Gr Inv .11%



Available HSA Funds:
All Vanguard Target Funds .15
American Funds Growth and Income GAIHX .34
American Funds Moderate Gr and Income BLPDX .39
American Funds Conservative Gr and Inc INPDX .31
Vanguard Total Stock Market Index VITSX .04
Vanguard Mid Cap Index VIMAX .05
Vanguard Small Cap Index VSMAX .05
Vanguard Total International Stock Index VTIAX .11
Vanguard Total Bond Market Index VBTLX .05
T. Row Price US Large Cap Core RCLIX .59
Vanguard Strategic Equity VSEQX .17
Goldman Sachs Small Cap Eq Insights GCSIX .84
MFS International Value MINIX .73
Oppenheimer Developing Markets ODVIX .87
Calvert Short Duration Income CDSIX .51
Dodge and Cox Income CDSIX .51
PIMCO Income PIMIX .74
PIMCO Inflation Response MultiAsset PIRMX 1.22
Fidelity Instl. Money Market Govt Portfolio FRGXX .14

I greatly appreciate everyone’s input and am very thankful this community exists!

Please let me know if I need to provide additional info.
Last edited by Cavalier on Wed Jul 10, 2019 4:23 pm, edited 2 times in total.

delamer
Posts: 8180
Joined: Tue Feb 08, 2011 6:13 pm

Re: Retirement planning advice

Post by delamer » Wed Jul 10, 2019 4:17 pm

For every dollar that you put into the 401(k), your company will put in 30 cents. But only up to 8 percent of your salary.

So in your case, if you put 8% of your $80,000 salary into the 401(k) that would be $6400/annually. Your company would put in $1920 (6400 times .3). If you put in 9% of your salary, that would be $7200/annually from you. But your company still would only contribute $1920.

Alternatively, if you contribute 5% of your salary that would be $4000/annually. And your company would contribute $1200 (4000 times .3).

So if you don’t contribute at least 8%, you are giving away part of the company match. Basically, missing out on free money.

(Note that these numbers change if you are allowed to contribute some of your bonus.)

And remember that your income taxes will decline once you start contributing to the 401(k). For each $1 that you contribute, you’ll reduce your tax bill by 29 cents.

At your age with no retirement savings, I would save as much as possible — the maximum by law in the 401(k) is $19,000/annual.

I’d suggest the LifeStrategy Moderate Growth fund for the 401(k) for now: https://investor.vanguard.com/mutual-fu ... rview/0914

Since this is an all-in-one fund so rebalancing by you isn’t needed.

An 80% stock allocation is aggressive for some in their 40’s who is new to investing. Once you’ve had time to do more research, you could use to the index funds if you decide you are comfortable being more aggressive than the Moderate Growth fund.

Good luck.

Chris K Jones
Posts: 212
Joined: Sat Jan 20, 2018 6:54 pm

Re: Retirement planning advice

Post by Chris K Jones » Wed Jul 10, 2019 4:36 pm

Welcome to Bogleheads. I hope you will find some answers here. You are a bit behind, so I would suggest aggressive saving. Definitely maximize 401 k first. Then I probably would do HSA. Then Roth. Some might reverse order and do Roth before HSA though. I would invest aggressively with lowcost index funds. The S&P fund in your 401 k might be a good bet, but I dont really know Advantus. Check it out. In your HSA, the Vanguard total market and Vanguard total bond would be my choices. I probably would aim for 80 or even 100% stocks if you can stomach the ride. It might be that you end up with all of 401 k in stocks (prob Advantus SP fund) and some or all of HSA in Total Bond fund. Hope this helps. Best wishes.

rossington
Posts: 71
Joined: Fri Jun 07, 2019 2:00 am
Location: Florida Suncoast

Re: Retirement planning advice

Post by rossington » Wed Jul 10, 2019 4:43 pm

Just curious: Does
up to 8% of your Plan Compensation
mean 8% of the salary or 8% of the 19k max?
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

delamer
Posts: 8180
Joined: Tue Feb 08, 2011 6:13 pm

Re: Retirement planning advice

Post by delamer » Wed Jul 10, 2019 4:45 pm

rossington wrote:
Wed Jul 10, 2019 4:43 pm
Just curious: Does
up to 8% of your Plan Compensation
mean 8% of the salary or 8% of the 19k max?
Salary, and possibly bonus.

User avatar
FiveK
Posts: 7020
Joined: Sun Mar 16, 2014 2:43 pm

Re: Retirement planning advice

Post by FiveK » Wed Jul 10, 2019 5:06 pm

See Investment Order for some thoughts on prioritization.

As for specific funds, first decide what Asset allocation you want - there is no "correct" answer. If your desired AA matches one of the LifeStrategy funds, that could be a good choice. Otherwise, see Three-fund portfolio - Bogleheads for the types of funds you might want, and select the lowest cost ones from your choices.

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Watty
Posts: 16535
Joined: Wed Oct 10, 2007 3:55 pm

Re: Retirement planning advice

Post by Watty » Wed Jul 10, 2019 5:14 pm

Are there any target date funds in the 401k that you might not have listed?
Cavalier wrote:
Wed Jul 10, 2019 3:28 pm
My employers 401k reads:
“30% of employee annual deferral amounts up to 8% of your eligible plan compensation. That means thirty cents on the dollar is paid into the plan by the company for each dollar of compensation you deferred, up to 8% of your Plan Compensation. Deferrals beyond the 8% level have not been matched. Any match declared is payable only to those employees on the payroll as of December 31st for the calendar year in question.”
That is very odd the way that is phrased so it would be good to ask your HR department to explain it. It is very different than any plan I have heard about.

What makes it so odd is that for someone to get the full 8% match they would need to contribute a about 26.7% of their wages to get the 8% match. (26.7*.3=8.01)

The problem is that there is a "catch 22" since if you are under 50 you can only contribute $19K to a deductible 401k so if you make more than about $70k you could not contribute enough to get the full 8% match.

Some companies allow employees to also make after tax 401k contributions so they may be doing something "creative" with that to let the executives take advantage of the match to do a Mega Backdoor Roth.
https://www.bogleheads.org/wiki/After-tax_401(k)
It would be worth digging into the plan some to see if you could somehow take advantage of that.

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Duckie
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Joined: Thu Mar 08, 2007 2:55 pm

Re: Retirement planning advice

Post by Duckie » Wed Jul 10, 2019 6:38 pm

Cavalier wrote:Desired Asset allocation: Not Sure? Thinking 80/20%
At the age of 41 you should have more bonds, so I recommend an AA of 70/30.
Desired International allocation: Not Sure? Thinking 20%
That is reasonable. 20% of 70% is 14% in international.
I'd like your recommendations on what Fidelity funds to select for my Roth IRA and what funds from the list below for my 401k and HSA.
The best options in a Fidelity Roth IRA are:
  • FSKAX Fidelity Total Market Index Fund (0.015%) -- Complete US stocks
  • FTIHX Fidelity Total International Index Fund (0.06%) -- Complete international stocks
The best options in your 401k are:
  • Advantus S&P 500 Index .04% -- Large caps, 80% of US stocks
  • Vanguard Extended Market Index .08% -- Mid/small caps, 20% of US stocks
  • TIAA-CREF International Equity Index .06% -- Developed markets, 75% of international stocks
  • Metropolitan West Total Return Bond .29% -- US bonds
  • or one of the Vanguard LifeStrategy funds
The best options in your HSA are:
  • Vanguard Total Stock Market Index VITSX .04 -- Complete US stocks
  • Vanguard Total International Stock Index VTIAX .11 -- Complete international stocks
  • Vanguard Total Bond Market Index VBTLX .05 -- US bonds
Also, what percentages would you suggest for each fund?
See below.
Additionally, what order should I focus my contributions - max out 401k, HSA and then Roth IRA last?
Contribute to all of the them, although that order is reasonable.
______________________

The following two examples of a retirement portfolio have an AA of 70% stocks, 30% bonds, with 20% of stocks in international. That breaks down to 56% US stocks, 14% international stocks, and 30% bonds. At the end of 2019 you could have something like:

Portfolio #1

401k at Securian Financial -- $8K -- 46%
29% (N/A) Advantus S&P 500 Index Fund (0.04%)
7% (VEXAX) Vanguard Extended Market Index Fund Admiral Shares (0.07%)
10% (MWTNX) Metropolitan West Total Return Bond Fund Administrative Class (0.29%)

Roth IRA at Fidelity -- $6K -- 34%
20% (FSKAX) Fidelity Total Market Index Fund (0.015%)
14% (FTIHX) Fidelity Total International Index Fund (0.06%)

HSA at ?? -- $3.5K -- 20%
20% (VBTLX) Vanguard Total Bond Market Index Fund Admiral Shares (0.05%)

My comments:
  • This is more complicated but also more precise.
  • This put all international in the Roth IRA because your best 401k international option is only developed markets.
  • This puts 100% of the HSA in bonds for two reasons. One, it is much cheaper than your 401k bond option and two, if you ever do need the HSA for medical expenses, bonds don't crash like stocks do. Your 401k will grow much faster than your HSA so soon most of your bonds will be in the 401k anyway.
  • In general it's better to put assets with higher expected growth (stocks) in Roth accounts and assets with lower expected growth (bonds) in pre-tax accounts. That's because you've already paid the taxes in the Roth accounts so future growth is tax-free. So avoid putting bonds in the Roth IRA.
Portfolio #2

401k at Securian Financial -- $8K -- 46%
46% (VASGX) Vanguard LifeStrategy Growth Fund (0.12%)

Roth IRA at Fidelity -- $6K -- 34%
34% (FXFIX) Fidelity Freedom Index 2030 Fund Investor Class (0.12%)

HSA at ?? -- $3.5K -- 20%
10% (VITSX) Vanguard Total Stock Market Index Fund Institutional Shares (0.04%)
10% (VBTLX) Vanguard Total Bond Market Index Fund Admiral Shares (0.05%)

My comments:
  • This is much simpler, although you have to work around the balanced funds' allocations.
  • Having bonds in the Roth IRA because of the target-date fund isn't best but it is easier. And sometimes easy trumps best.
Something to think about.

HomeStretch
Posts: 800
Joined: Thu Dec 27, 2018 3:06 pm

Re: Retirement planning advice

Post by HomeStretch » Wed Jul 10, 2019 7:22 pm

Watty wrote:
Wed Jul 10, 2019 5:14 pm
Cavalier wrote:
Wed Jul 10, 2019 3:28 pm
My employers 401k reads:
“30% of employee annual deferral amounts up to 8% of your eligible plan compensation. That means thirty cents on the dollar is paid into the plan by the company for each dollar of compensation you deferred, up to 8% of your Plan Compensation. Deferrals beyond the 8% level have not been matched. Any match declared is payable only to those employees on the payroll as of December 31st for the calendar year in question.”
That is very odd the way that is phrased so it would be good to ask your HR department to explain it. It is very different than any plan I have heard about.

What makes it so odd is that for someone to get the full 8% match they would need to contribute a about 26.7% of their wages to get the 8% match. (26.7*.3=8.01)
The match language is oddly worded. It will be interesting to hear how HR explains it to OP.

I interpreted it to mean the company will match 30% of the employee’s deferral up to an 8% max employee deferral (not an 8% max match). So if the employee elects to defer 8% or more of compensation as defined by plan, the max company match is 30% of 8% or 2.4% of compensation.

Topic Author
Cavalier
Posts: 2
Joined: Wed Jul 10, 2019 3:22 pm

Re: Retirement planning advice

Post by Cavalier » Sun Jul 21, 2019 4:04 pm

Thank you everyone for the help. I greatly appreciate it.

I'm going to follow Portfolio #1, provided by Duckie.

Question:
For the 401k, how/why did we get to 7% for (VEXAX) Vanguard Extended Market Index Fund Admiral Shares.

Also, if I'd like to play around with different allocation scenarios between 401k, IRA and HSA - is their a calculator that exists where I can input various percentages/data across the different retirement accounts? Or how does the math work out when allocating between different accounts?

For example, If I wanted to have an AA of 75/25%, what would those percentages look like in the 401k?

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Duckie
Posts: 6678
Joined: Thu Mar 08, 2007 2:55 pm

Re: Retirement planning advice

Post by Duckie » Sun Jul 21, 2019 4:29 pm

Cavalier wrote:For the 401k, how/why did we get to 7% for (VEXAX) Vanguard Extended Market Index Fund Admiral Shares.
500 Index is 80% of US stocks and Extended Market is 20%. If the total for both is 36% then 20% of 36% is 7.2%, rounded to 7%. If you want to make things simpler you could skip Extended Market and just have 36% 500 Index.
Also, if I'd like to play around with different allocation scenarios between 401k, IRA and HSA - is their a calculator that exists where I can input various percentages/data across the different retirement accounts?
None that I know of. I just figure it myself.
Or how does the math work out when allocating between different accounts?

For example, If I wanted to have an AA of 75/25%, what would those percentages look like in the 401k?
Changing the AA changes more than the 401k. If you want 75% stocks, 25% bonds, with 30% of stocks in international, that breaks down down to 53% US stocks, 22% international stocks, and 25% bonds. You could have:

401k at Securian Financial -- $8K -- 46%
33% (N/A) Advantus S&P 500 Index Fund (0.04%)
8% (VEXAX) Vanguard Extended Market Index Fund Admiral Shares (0.07%)
5% (MWTNX) Metropolitan West Total Return Bond Fund Administrative Class (0.29%)

Roth IRA at Fidelity -- $6K -- 34%
12% (FSKAX) Fidelity Total Market Index Fund (0.015%)
22% (FTIHX) Fidelity Total International Index Fund (0.06%)

HSA at ?? -- $3.5K -- 20%
20% (VBTLX) Vanguard Total Bond Market Index Fund Admiral Shares (0.05%)

First I placed the 25% bonds: 20% in the HSA and 5% in the 401k. Then I put the 22% international in the Roth IRA and filled in the remainder with US stocks. Then I took the 41% left over in taxable and split it 80/20 for US stocks.

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scubadiver
Posts: 959
Joined: Sun May 04, 2008 9:48 pm

Re: Retirement planning advice

Post by scubadiver » Sun Jul 21, 2019 9:46 pm

You have gotten some good advice already and I do not have anything to add to that other than my encouragement. While the fact that you currently have no retirement savings puts you behind by the standards of this forum, you do own a home clear and free and have no other debt to speak of, so congrats on that! Moreover, you're young still and have plenty of time to recover if you follow through with the advice you have received above.

Good luck and welcome to the forum!

Scubadiver

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