Pension Plus 457 Plan

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Topic Author
erome
Posts: 14
Joined: Wed Jan 15, 2020 5:07 pm

Pension Plus 457 Plan

Post by erome » Fri Jan 17, 2020 10:44 am

Hello All,
I need a little advice concerning investment in my 457 plan. Here is my situation: 56 years old and have been employed at a public college for almost 28 years. Each month my employer deducts money for the state-run pension plan, which I'm confident will be available to me in when I'm ready to retire (unsure of retirement date, but no earlier than 6 years from now). In addition to the mandatory pension deduction, I've been investing in a state-run 457 plan for 28 years. My understanding is the state agency that administers the pension plan is responsible for the 457 plan; therefore, it is free of charge for state employees. I've never seen any evidence of fees being taken from my contributions, so I have no reason to doubt this claim. We have limited options as to what to invest in with this plan; I'm split between the S&P 500 index and a bond fund. Currently I'm at 75% of the total account value in the S&P fund. Given, I'm not really looking to this fund as a major source of retirement income (pension is generous, plus my wife has a pension also and we both will get Social Security), should I have more/all the 457 money invested in the S&P 500 fund? What will I do with the 457 money? Leave it to my daughter, so I would like it to be a much as possible.

Thanks in advance for your insight.
DS

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iceport
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Re: Pension Plus 457 Plan

Post by iceport » Fri Jan 17, 2020 12:03 pm

Welcome to the forum, erome.

I browsed into your post because I also have a pension and a 457b plan. However, I don't think you've provided enough information for me to attempt a responsible, specific recommendation. Some idea of pre- and post-retirement income and tax rates would be helpful, as would knowing any other fund options available in the 457b plan. Does your 457b allow Roth contributions? If you will have two generous pensions and are primarily investing your savings to benefit your daughter, I wonder whether it would make sense to use Roth accounts.

A more complete snapshot of your overall financial picture — as outlined here — would also help.
"Discipline matters more than allocation.” ─William Bernstein

EdLaFave
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Re: Pension Plus 457 Plan

Post by EdLaFave » Fri Jan 17, 2020 12:05 pm

Is it fair to say this post could have been condensed into, "I'm confident my pension and SS will cover all of my living expenses and my portfolio will pass to my heirs untouched, what should the asset allocation be?"

I'll just accept your premise without question and assume you'll never need the money in your portfolio. I'd invest my portfolio in 100% stocks because they have the largest expected return and because your heirs won't be touching it for a long time, maybe 50 years?

Ultimately this is a personal choice and people will disagree with my personal choice.

Betterself
Posts: 54
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Re: Pension Plus 457 Plan

Post by Betterself » Fri Jan 17, 2020 1:27 pm

Do you have a spouse that may claim your pension or inherit your 457?

I have some 457/401k that will 100% pass to my spouse but my pension will go to my kids. In my case, I always invest in those target date funds.

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SkierMom
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Re: Pension Plus 457 Plan

Post by SkierMom » Fri Jan 17, 2020 1:45 pm

Betterself -- I too have a 457 + pension. How will your kids inherit the pension? Do you have them listed as beneficiaries, and if so is the pension in perpetuity or up until, say age 24 or something?

My philosophy has been to look at our investments holistically. My pension is effectively functioning as a conservative counter-balance to equities. We have 90% equities in the 457 account.

Betterself
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Re: Pension Plus 457 Plan

Post by Betterself » Fri Jan 17, 2020 1:52 pm

I guess we are lucky as our state lawmakers never figure the loophole out. AKA not too many people claim that benefit.

chevca
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Re: Pension Plus 457 Plan

Post by chevca » Fri Jan 17, 2020 2:02 pm

If it ain't broke, don't fix it. :happy

I think 75/25 is perfectly reasonable for a long term account to be left for your daughter. Never know, you may need to dip into it yourselves some time.

geospatial
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Re: Pension Plus 457 Plan

Post by geospatial » Fri Jan 17, 2020 3:35 pm

Double-check the fine print or contact the state agency that administers the 457 plan to confirm the management fee situation. It might be listed somewhere but is lumped in with the expense ratio such that you'd never see an active deduction in any of your statements.

I also support the idea of contributing to a Roth 457 option if available and if you believe your pensions will cover your expenses. You can roll it over to a Roth IRA when you retire and not be required to take RMDs from it later on.

Locard
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Re: Pension Plus 457 Plan

Post by Locard » Fri Jan 17, 2020 4:03 pm

Hello, we are in a somewhat similar situation. It sounds like your 457 plan is a government plan. One option down the line is to roll it into a Roth IRA, just something to consider. I am a little more conservative with my 457 ( Tgt date 2030 fund that is 65/35 ish) as I will possibly tap into it starting at age 50 when I plan to retire from my state job, but only as a last resort. As far as fees go I pay 25bps over what the underlying funds charge plus a $100 fee per year. My plan lets me choose from a few vendors so that is how they are paid.

retire2022
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Re: Pension Plus 457 Plan

Post by retire2022 » Fri Jan 17, 2020 6:51 pm

erome wrote:
Fri Jan 17, 2020 10:44 am
Hello All,
I need a little advice concerning investment in my 457 plan. Here is my situation: 56 years old and have been employed at a public college for almost 28 years. Each month my employer deducts money for the state-run pension plan, which I'm confident will be available to me in when I'm ready to retire (unsure of retirement date, but no earlier than 6 years from now). In addition to the mandatory pension deduction, I've been investing in a state-run 457 plan for 28 years.

My understanding is the state agency that administers the pension plan is responsible for the 457 plan; therefore, it is free of charge for state employees. I've never seen any evidence of fees being taken from my contributions, so I have no reason to doubt this claim.

It would be helpful to post the link to your plan, most plans have a website, the reason being it is good to have another set of eyes to verify it your statement is true.

We have limited options as to what to invest in with this plan; I'm split between the S&P 500 index and a bond fund. Currently I'm at 75% of the total account value in the S&P fund.

Asset Allocation question for age and risk, I suggest you use this AA questionnaire: https://personal.vanguard.com/us/FundsInvQuestionnaire

Given, I'm not really looking to this fund as a major source of retirement income (pension is generous, plus my wife has a pension also and we both will get Social Security), should I have more/all the 457 money invested in the S&P 500 fund?

If you have a pension, and depending on how far you are away from RMD, you could be at a higher tax bracket retired at 72 than while you are working. And you could have reduced Social Security and be subject to IRMMA rules.

What are your other options offered in your 457 plan?

please post those choices you are interested and include full fund names and symbols and expense ratio.

Also you can transfer from 457 to Vanguard at separation of service, see IRS Publication 590a page 22 https://www.irs.gov/pub/irs-pdf/p590a.pdf


What will I do with the 457 money? Leave it to my daughter, so I would like it to be a much as possible.

Thanks in advance for your insight.
DS
Op see my responses in red above

retiredjg
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Re: Pension Plus 457 Plan

Post by retiredjg » Sat Jan 18, 2020 8:42 am

erome wrote:
Fri Jan 17, 2020 10:44 am
Hello All,
I need a little advice concerning investment in my 457 plan. Here is my situation: 56 years old and have been employed at a public college for almost 28 years. Each month my employer deducts money for the state-run pension plan, which I'm confident will be available to me in when I'm ready to retire (unsure of retirement date, but no earlier than 6 years from now). In addition to the mandatory pension deduction, I've been investing in a state-run 457 plan for 28 years. My understanding is the state agency that administers the pension plan is responsible for the 457 plan; therefore, it is free of charge for state employees. I've never seen any evidence of fees being taken from my contributions, so I have no reason to doubt this claim. We have limited options as to what to invest in with this plan; I'm split between the S&P 500 index and a bond fund. Currently I'm at 75% of the total account value in the S&P fund. Given, I'm not really looking to this fund as a major source of retirement income (pension is generous, plus my wife has a pension also and we both will get Social Security), should I have more/all the 457 money invested in the S&P 500 fund? What will I do with the 457 money? Leave it to my daughter, so I would like it to be a much as possible.

Thanks in advance for your insight.
DS
My suggestion is that you probably need to stop contributing to the 457 plan unless it has a Roth option.

There will be two pensions and two SS income streams. You don't need the money in the 457 but you will eventually have to take some as required minimum distributions. RMDs increase your taxable income and it might even be a higher rate that you are paying now. This can be avoided.

The 457 looks like it could already be quite large (but this needs to be verified). If it is large, your savings would probably be better placed into Roth IRA, Roth 457, or a taxable investment account. This will be better for you in your old age and with the new tax laws from a few months ago will likely be better for your daughter as well.

I'm saying all of this based on a hunch not supported by complete information. If you want to get a better analysis, we would need to know more. Does your wife also have tax-deferred accounts? How large? Still contributing? Your tax bracket? Your estimate of your tax bracket just based on the two pensions? Things like that.


As for how you invest the money, since this is money you don't need, you can afford to invest it for your heir(s) which might mean investing it more aggressively than if you planned to use the money for yourself.

Topic Author
erome
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Joined: Wed Jan 15, 2020 5:07 pm

Re: Pension Plus 457 Plan

Post by erome » Tue Jan 21, 2020 12:48 pm

All,
I would like to thank you all for taking the time to respond to my original post. I've just now had a chance to get back and read the comments, and I do want to provide more detailed information as requested. Unfortunately, that may take a little time. I do have answers to some questions asked:
1. the web page for the plan is https://www.rsa-al.gov/uploads/files/RS ... marked.pdf (page 1 of the handbook indicates the plan has no fees)
2. this plan doesn't have a Roth option
3. my wife will claim my pension at my death (457 plan will go to daughter)
4. I may retire at 62 (6 more years - 34 years teaching)
4. my wife is already retired and taking her teacher retirement pension; not currently drawing from her 457 plan

I'll get more specific responses to post-retirement income and tax rates, etc a bit later.

Thanks for all the input given so far.

elderwise
Posts: 254
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Re: Pension Plus 457 Plan

Post by elderwise » Tue Jan 21, 2020 3:24 pm

Betterself wrote:
Fri Jan 17, 2020 1:52 pm
I guess we are lucky as our state lawmakers never figure the loophole out. AKA not too many people claim that benefit.
@Betterself, I did not get what you mean by claim? the 457 is the employees, and so is the pension..not sure I get it..

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arcticpineapplecorp.
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Re: Pension Plus 457 Plan

Post by arcticpineapplecorp. » Tue Jan 21, 2020 3:35 pm

erome wrote:
Fri Jan 17, 2020 10:44 am
Hello All,
I need a little advice concerning investment in my 457 plan. Here is my situation: 56 years old and have been employed at a public college for almost 28 years. Each month my employer deducts money for the state-run pension plan, which I'm confident will be available to me in when I'm ready to retire (unsure of retirement date, but no earlier than 6 years from now). In addition to the mandatory pension deduction, I've been investing in a state-run 457 plan for 28 years. My understanding is the state agency that administers the pension plan is responsible for the 457 plan; therefore, it is free of charge for state employees. I've never seen any evidence of fees being taken from my contributions, so I have no reason to doubt this claim. We have limited options as to what to invest in with this plan; I'm split between the S&P 500 index and a bond fund. Currently I'm at 75% of the total account value in the S&P fund. Given, I'm not really looking to this fund as a major source of retirement income (pension is generous, plus my wife has a pension also and we both will get Social Security), should I have more/all the 457 money invested in the S&P 500 fund? What will I do with the 457 money? Leave it to my daughter, so I would like it to be a much as possible.

Thanks in advance for your insight.
DS
wow. that's great. my 457b plan has fees of mostly 0.08% on all funds and a $24/year administrative fee, but your plan is great:
No Fees!

Unlike other funds, there are no administrative, membership, investment, transaction, sales or commission fees for participating in the RSA-1 Deferred Compensation Plan. All the money you defer and all investment earnings are placed into your account and invested by RSA-1...

The stock portfolio is invested in an S&P 500 Index Fund, which consists of 500 large capitalization stocks...

Investments under the STIF option could include high-quality money market securities, U.S. Treasury bills or notes, and U.S. government agency notes with a maturity of one year or less.

source: https://www.rsa-al.gov/uploads/files/RS ... marked.pdf
nothing wrong with those funds!
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

infotrader
Posts: 294
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Re: Pension Plus 457 Plan

Post by infotrader » Thu Jan 23, 2020 12:58 pm

It is very difficult to offer advice without a whole picture.
If your wife has a tax deferred balance, you may consider do roth conversion from that account while you still contribute to your 457.

Topic Author
erome
Posts: 14
Joined: Wed Jan 15, 2020 5:07 pm

Re: Pension Plus 457 Plan

Post by erome » Thu Jan 23, 2020 3:09 pm

Thank you to all the people who responded to my original post. I'll certainly take your suggestions under consideration as I begin to think more about my eventual retirement. The questions below have largely been answered, but I include them again in case someone wants to provide more input.

Here are some of the details I previously failed to provide:

1. Emergency fund - 5 months
2. No debt of any kind
3. My job is secure (tenured educator); wife just retired
4. Tax filing status: married filing jointly
5. Tax rate: 22% fed and 5% state (Alabama)
6. My age: 56, wife: 54
7. Current allocation in 457b: 75% S&P 500 index fund and 25% bond fund https://www.rsa-al.gov/rsa-1/asset-allocation/
8. Taxable account value - none.
9. My deferred compensation plan (457b) - 225K in account; no Roth option with this plan
10. Her 457b plan is currently held by the Retirement Systems of Ala and continues to slowly grow; 10k in account
11. No fees associated with this plan as it is administered by the state retirement system; page 1 indicates no fees https://www.rsa-al.gov/uploads/files/RS ... marked.pdf
12. My pension: 215K in the account; at retirement (6 years at earliest, but probably more like 10) I expect approximately 65-70% of my working salary each month
13. Wife already receiving teacher pension.
14. We expect Social Security later.
15. Neither of us have a Roth.


Question: Given the pension and Social Security will be meeting most of our retirement income needs, do I need to put a greater percentage of the 457 plan into the S&P 500 index fund (see no. 7)? If possible, I would like to let my daughter inherit that money.
Question: Given what I have in the 457 plan, should I stop contributing to it and open a Roth instead?
Question: If I need to open a Roth, would a target retirement fund be better than the S&P 500 index fund?

PhrugalPhan
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Re: Pension Plus 457 Plan

Post by PhrugalPhan » Thu Jan 23, 2020 4:37 pm

It looks like the Alabama 457 b plan has a Roth option. Given you have a decent 457b balance and you should now have a lower income with your wife retired, I would recommend contributing to the Roth option of the 457b plan. If your pensions are as good as you say, it is very likely when RMDs hit your marginal tax rate will be the same or higher than it is today. And if this money is passed along to your daughter, she will thank you for doing it this way.

I am in a very similar situation with a slightly smaller pension, but with a larger taxable 457b balance. A few years ago I realized I will have higher taxes when RMDs hit than today, so I have been doing near 100% Roth contributions for the last 3 years, and have 3 more years to go until I can get my pension. I also plan on doing conversions before age 72, but I doubt I will be able to keep ahead of the account balance growth, unless I go up into a higher tax bracket during conversions.

As an aside, if you want to avoid even more taxes down the road, look into a "Final 3 year Catch Up" rule. You should have access to this. I have that with my 457 plan, and am starting to use it this year. It is allowing me to put money I would have normally put into my brokerage account and instead super-size my Roth contributions. This year I will have over $40k of Roth contributions, and I am ok with paying the taxes now as it will be worse later anyway.

retiredjg
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Re: Pension Plus 457 Plan

Post by retiredjg » Fri Jan 24, 2020 9:00 am

erome wrote:
Thu Jan 23, 2020 3:09 pm
5. Tax rate: 22% fed and 5% state (Alabama)
9. My deferred compensation plan (457b) - 225K in account; no Roth option with this plan
10. Her 457b plan is currently held by the Retirement Systems of Ala and continues to slowly grow; 10k in account
It appears that the two of you have a total of $235k in tax-deferred accounts. If that is correct, there is no "need" to avoid future tax-deferred contributions. This is a change from my opinion above when it appeared that your tax-deferred accounts might become too large.

In the 22% tax bracket, there is a good chance you can each contribute directly to Roth IRA. The AGI limit this year (before the phase out) is $196k. Now is a good time to get a Roth IRA started for each of you to get the 5 year qualification clock started.

If you have the space in the 22% bracket, I'd contribute $6k to His and Her Roth IRAs and put the rest of your savings into His 457b.


Question: Given the pension and Social Security will be meeting most of our retirement income needs, do I need to put a greater percentage of the 457 plan into the S&P 500 index fund (see no. 7)? If possible, I would like to let my daughter inherit that money.
This depends entirely on how you feel when you see your account start to disappear. The current allocation of 75% stocks is plenty aggressive in my opinion. It could be more aggressive if you want and if it did not bother you to see it drop during the market downturns.

Question: Given what I have in the 457 plan, should I stop contributing to it and open a Roth instead?
I think you should be making some Roth contributions even if you do continue to contribute to the 457. It is good to have both pre-tax and post-tax money in retirement. If you are very near the top of the 22% tax bracket, you may not be able to reduce your 457 contributions a lot and stay in that bracket.

My suggestion is to contribute as much as you can to Roth IRAs while staying in the 22% bracket and to put any other savings into the 457b.

Question: If I need to open a Roth, would a target retirement fund be better than the S&P 500 index fund?
Either would be good.

Admiral
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Re: Pension Plus 457 Plan

Post by Admiral » Fri Jan 24, 2020 12:15 pm

We also have pension and 457. Currently all 457 new contribs are Roth, 8-10 years from retirement (likely).

I agree with the posts above. I would also add that the lack of any taxable account OR Roth account makes me a little nervous. What is your plan for lumpy expenses in retirement? Big trip? New roof? Car? Will your pension payments cover all your daily expenses AND leave you with money left over? Is your EF enough to cover you for the next 20 years?

What you want to avoid is having to withdraw $ from your pre-tax account for large expenses, as this (combined with other income) could conceivably push you into the next marginal bracket. I would def recommend that you not only open a Roth but also consider a taxable account (how large would depend on your comfort level). This would also allow you to tax loss harvest in the future if the market tanks.

Another poster has mentioned that Alabama's 457 offers a Roth option. I would look into it.

retire2022
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Re: Pension Plus 457 Plan

Post by retire2022 » Fri Jan 24, 2020 12:45 pm

All, the original poster had posted a link to their plan https://www.rsa-al.gov/uploads/files/RS ... marked.pdf , and unfortunately no where I was able to locate using the "find" function on Acrobat Reader on the RSA-1 plan indicating key word: "Roth 457"

While I am not speaking on behalf of OP, we can see there is no Roth 457 for this plan, the trade off there is no annual custodian fee.

OP I suggest you contact the plan administrator with written request to consider Roth 457 Option on your behalf as well as other co-workers. My plan did not implement Roth option until years after the IRS rule came out for plan administrators to implement.

Further googling, I did not see word "Roth 457" in RSA-1 amended plan see for yourself: https://www.rsa-al.gov/uploads/files/45 ... nded-1.pdf

The Op should also consider Roth Conversion upon separation of state service, here are calculators to get an idea how to do so:

https://www.schwab.com/ira/understand-i ... conversion

RMD calculator this may be outdated due to SECURE ACT nevertheless it will give you an idea

https://www.schwab.com/ira/understand-i ... lators/rmd

Topic Author
erome
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Joined: Wed Jan 15, 2020 5:07 pm

Re: Pension Plus 457 Plan

Post by erome » Fri Jan 24, 2020 4:27 pm

Many thanks to all for the advice. I communicated with the 457b plan administrator office today (Retirement Systems of Alabama), and specifically asked if a Roth option was available for the deferred compensation plan. The answer was no. I like the suggestion of lobbying for a Roth to be provided. Based on the consensus of posters, I'll be setting up a Roth with Vanguard in the coming days for me and my wife. Though I'm confident the pension and SS will cover our monthly needs, I do see the wisdom of setting up a taxable account.

Topic Author
erome
Posts: 14
Joined: Wed Jan 15, 2020 5:07 pm

Re: Pension Plus 457 Plan

Post by erome » Fri Jan 24, 2020 4:27 pm

Many thanks to all for the advice. I communicated with the 457b plan administrator office today (Retirement Systems of Alabama), and specifically asked if a Roth option was available for the deferred compensation plan. The answer was no. I like the suggestion of lobbying for a Roth to be provided. Based on the consensus of posters, I'll be setting up a Roth with Vanguard in the coming days for me and my wife. Though I'm confident the pension and SS will cover our monthly needs, I do see the wisdom of setting up a taxable account.

retiredjg
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Re: Pension Plus 457 Plan

Post by retiredjg » Fri Jan 24, 2020 5:03 pm

erome wrote:
Fri Jan 24, 2020 4:27 pm
Many thanks to all for the advice. I communicated with the 457b plan administrator office today (Retirement Systems of Alabama), and specifically asked if a Roth option was available for the deferred compensation plan. The answer was no. I like the suggestion of lobbying for a Roth to be provided. Based on the consensus of posters, I'll be setting up a Roth with Vanguard in the coming days for me and my wife. Though I'm confident the pension and SS will cover our monthly needs, I do see the wisdom of setting up a taxable account.
This sounds like you think a Roth IRA and a taxable account are the same thing.They are not.

It may not be what you meant though.

Topic Author
erome
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Joined: Wed Jan 15, 2020 5:07 pm

Re: Pension Plus 457 Plan

Post by erome » Sat Jan 25, 2020 10:22 am

I realize a Roth is designed as a retirement fund, and a taxable fund doesn't grow tax-free, but can be used at any time. Based on some comments, I see the wisdom of having some money in a fund that can be used for bigger unexpected expenses.

Topic Author
erome
Posts: 14
Joined: Wed Jan 15, 2020 5:07 pm

Re: Pension Plus 457 Plan

Post by erome » Thu Mar 05, 2020 1:02 pm

Since my last post, I've visited this forum many times in an effort to become better educated on the topic. I've made some changes to existing funds, and have plans to open new ones. I would like to ask for some feedback on the changes I plan to make, as I attempt to supplement the pensions and Social Security we will have. I'm thinking this portfolio needs to be made simpler by going with individual funds instead of the target and lifestyle funds. What do you think about my proposed funds?

Current Funds
457b - at this point 67% in S&P 500 Index and 33% in bond index (funds administered by state of Alabama - see above)
Roth (him) - Vanguard target retirement 2030 75/25 (recently opened)
Roth (her) - will open at Vanguard within 3 months
taxable - VSMGX (lifestyle moderate growth) 60/40 (opened 2 years ago, but very little money in fund now due to unexpected expense)

Proposed Funds
457b - have to keep this one because I'm still working. It holds S&P 500 Index and a domestic bond index fund. No Roth option available.
Roth (him) - VTIAX Total International Stock Index
Roth (her) - VTABX Total International Bond Index
taxable - VTSAX Total Stock Market

The 457b isn't maxed out (6600/yr deferred to account), but both Roths will be fully funded. Taxable will be funded as the budget will allow.
Feedback about the percentage allocated to each proposed fund would be appreciated.

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ruralavalon
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Location: Illinois

Re: Pension Plus 457 Plan

Post by ruralavalon » Thu Mar 05, 2020 2:13 pm

erome wrote:
Fri Jan 17, 2020 10:44 am
Hello All,
I need a little advice concerning investment in my 457 plan. Here is my situation: 56 years old and have been employed at a public college for almost 28 years. Each month my employer deducts money for the state-run pension plan, which I'm confident will be available to me in when I'm ready to retire (unsure of retirement date, but no earlier than 6 years from now). In addition to the mandatory pension deduction, I've been investing in a state-run 457 plan for 28 years. My understanding is the state agency that administers the pension plan is responsible for the 457 plan; therefore, it is free of charge for state employees. I've never seen any evidence of fees being taken from my contributions, so I have no reason to doubt this claim. We have limited options as to what to invest in with this plan; I'm split between the S&P 500 index and a bond fund. Currently I'm at 75% of the total account value in the S&P fund. Given, I'm not really looking to this fund as a major source of retirement income (pension is generous, plus my wife has a pension also and we both will get Social Security), should I have more/all the 457 money invested in the S&P 500 fund? What will I do with the 457 money? Leave it to my daughter, so I would like it to be a much as possible.

Thanks in advance for your insight.
DS
erome wrote:
Tue Jan 21, 2020 12:48 pm
All,
I would like to thank you all for taking the time to respond to my original post. I've just now had a chance to get back and read the comments, and I do want to provide more detailed information as requested. Unfortunately, that may take a little time. I do have answers to some questions asked:
1. the web page for the plan is https://www.rsa-al.gov/uploads/files/RS ... marked.pdf (page 1 of the handbook indicates the plan has no fees)
2. this plan doesn't have a Roth option
3. my wife will claim my pension at my death (457 plan will go to daughter)
4. I may retire at 62 (6 more years - 34 years teaching)
4. my wife is already retired and taking her teacher retirement pension; not currently drawing from her 457 plan

I'll get more specific responses to post-retirement income and tax rates, etc a bit later.

Thanks for all the input given so far.
erome wrote:
Thu Jan 23, 2020 3:09 pm
Thank you to all the people who responded to my original post. I'll certainly take your suggestions under consideration as I begin to think more about my eventual retirement. The questions below have largely been answered, but I include them again in case someone wants to provide more input.

Here are some of the details I previously failed to provide:

1. Emergency fund - 5 months
2. No debt of any kind
3. My job is secure (tenured educator); wife just retired
4. Tax filing status: married filing jointly
5. Tax rate: 22% fed and 5% state (Alabama)
6. My age: 56, wife: 54
7. Current allocation in 457b: 75% S&P 500 index fund and 25% bond fund https://www.rsa-al.gov/rsa-1/asset-allocation/
8. Taxable account value - none.
9. My deferred compensation plan (457b) - 225K in account; no Roth option with this plan
10. Her 457b plan is currently held by the Retirement Systems of Ala and continues to slowly grow; 10k in account
11. No fees associated with this plan as it is administered by the state retirement system; page 1 indicates no fees https://www.rsa-al.gov/uploads/files/RS ... marked.pdf
12. My pension: 215K in the account; at retirement (6 years at earliest, but probably more like 10) I expect approximately 65-70% of my working salary each month
13. Wife already receiving teacher pension.
14. We expect Social Security later.
15. Neither of us have a Roth.


Question: Given the pension and Social Security will be meeting most of our retirement income needs, do I need to put a greater percentage of the 457 plan into the S&P 500 index fund (see no. 7)? If possible, I would like to let my daughter inherit that money.
Question: Given what I have in the 457 plan, should I stop contributing to it and open a Roth instead?
Question: If I need to open a Roth, would a target retirement fund be better than the S&P 500 index fund?
erome wrote:
Thu Mar 05, 2020 1:02 pm
Since my last post, I've visited this forum many times in an effort to become better educated on the topic. I've made some changes to existing funds, and have plans to open new ones. I would like to ask for some feedback on the changes I plan to make, as I attempt to supplement the pensions and Social Security we will have. I'm thinking this portfolio needs to be made simpler by going with individual funds instead of the target and lifestyle funds. What do you think about my proposed funds?

Current Funds
457b - at this point 67% in S&P 500 Index and 33% in bond index (funds administered by state of Alabama - see above)
Roth (him) - Vanguard target retirement 2030 75/25 (recently opened)
Roth (her) - will open at Vanguard within 3 months
taxable - VSMGX (lifestyle moderate growth) 60/40 (opened 2 years ago, but very little money in fund now due to unexpected expense)

Proposed Funds
457b - have to keep this one because I'm still working. It holds S&P 500 Index and a domestic bond index fund. No Roth option available.
Roth (him) - VTIAX Total International Stock Index
Roth (her) - VTABX Total International Bond Index
taxable - VTSAX Total Stock Market

The 457b isn't maxed out (6600/yr deferred to account), but both Roths will be fully funded. Taxable will be funded as the budget will allow.
Feedback about the percentage allocated to each proposed fund would be appreciated.
What is the current size of your 457 account?

What fund choices are offered in your employer's 457 plan? In particular what are the choices for bond funds?

Have you decided on a desired asset allocation? Do you want to stay with 75/25, or do you want more aggressive? (Either would be reasonable in my opinion, given your pensions and Social Security.)
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
erome
Posts: 14
Joined: Wed Jan 15, 2020 5:07 pm

Re: Pension Plus 457 Plan

Post by erome » Thu Mar 05, 2020 3:45 pm

The 457b is at 229K, and my wife has a smaller one with approximately 13K in it. Given the state retirement system administers the account (their terminology) it is free of fees, but limited to either an S&P 500 index fund or a bond fund. I can find little information about current investments the bond fund has; however, a 2018 asset allocation link is provide by the state. https://www.rsa-al.gov/rsa-1/asset-allocation/
As for the asset allocation, I'm leaning to 75/25 at the most.

Thanks

azianbob
Posts: 299
Joined: Tue Jan 15, 2019 6:53 pm

Re: Pension Plus 457 Plan

Post by azianbob » Thu Mar 05, 2020 5:57 pm

If you really have no need for it, I would recommend 100% sp500.

If you guys have income that qualifies for a Roth, you guys should open up one ASAP. Then, you should contribute the full amount for you and your wife, and invest all in SP500 funds. Then your wife should start to convert her 457 into a rollover IRA, and then start converting it slowly into the Roth, trying to stay in your current tax bracket, and hopefully finish the conversion prior to your retirement. You should also open up a Roth IRA and start funding it. Once you retire, you should then roll your 457 into a rollover IRA and then convert it into the Roth before RMDs are due. Then you can leave both Roth IRAs for your daughter.

If your income is too high to qualify for a Roth IRA, your wife probably has to roll over her 457 into a rollover IRA, then convert the whole balance into a Roth immediately (and pay taxes on it on the current year). She then can start doing backdoor Roth contributions into it. You should stop paying into the 457, and start doing backdoor Roths now. Once you retire, you should then roll your 457 into a rollover IRA and then convert it into the Roth before RMDs are due. Then you can leave both Roth IRAs for your daughter.

Someone already mentioned it, but if you don't convert to Roth, you will have to start making RMD withdrawals, which will result in more annual taxes you pay.

The other option is you withdraw thr 457s when its time for RMDs, pay tax on it, and create an after tax account and deposit the money there and buy sp500 again and then leave that after tax account for your daughter. However I think a Roth account is better for her as she pays no tax when she withdraws the money.

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