Cash out 401K [?]

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Topic Author
skeeter9000
Posts: 6
Joined: Wed Aug 19, 2020 11:53 am

Cash out 401K [?]

Post by skeeter9000 »

I have a measly 250K in my traditional 401K at the ripe age of 52. Salary is at 157K (reduced because of Covid)

I have a strong sense that the market will take a big dip in the near future.

I realize it is a HUGE gamble and contradictory to so much advice but...

Is it feasible to consider cashing out now while the market is peaking (in my opinion)

Then buy back when/if it dips over the next coming months?

I know that I will pay 10% plus my tax rate, so would lose roughly 33%

But if I can recover 25% or more, I figured I'd be ahead of the game because my investment will now be tax free and I can re-invest however I want for the next 20 years or so...

I realize this is an aggressive idea, but does it have any merrit?

Thank you!


EDIT PER REQUEST FOR MORE DETAILS:

Annual 401l contribution is maxed out at 25K

401K Allocation

31564D807
FIAM INX TD 2030
67K

APHMX
ARTISAN MID CAP INST
59K

FXAIX
FID 500 INDEX
60K

31564D807
FIAM INX TD 2030 Y
25K

AVFIX
ABF SM CAP VAL R5
20K

Retirement Target - Late 60s (15-20 years)

Zero Dependents.

Zero Debt.

Minimal other financial cash assets. Looking to buy a home.
Last edited by skeeter9000 on Wed Aug 19, 2020 2:00 pm, edited 2 times in total.
runner3081
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Re: Cash out 401K [?]

Post by runner3081 »

Not in this forum. Don't time the market.

Probably worse, is to touch your 401k
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AlabamaPaul
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Re: Cash out 401K [?]

Post by AlabamaPaul »

If you're that nervous, most 401K's offer something similar to a "cash" account, so you wouldn't need to Cash It Out...
inverter
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Re: Cash out 401K [?]

Post by inverter »

Hyperchicken
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Re: Cash out 401K [?]

Post by Hyperchicken »

skeeter9000 wrote: Wed Aug 19, 2020 12:02 pm ... I figured I'd be ahead of the game because my investment will now be tax free and I can re-invest however I want for the next 20 years or so...
Can you not in your 401(k)?
Topic Author
skeeter9000
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Joined: Wed Aug 19, 2020 11:53 am

Re: Cash out 401K [?]

Post by skeeter9000 »

AlabamaPaul wrote: Wed Aug 19, 2020 12:22 pm If you're that nervous, most 401K's offer something similar to a "cash" account, so you wouldn't need to Cash It Out...
This sounds like an optimal solution. If I could pull out now with a safe haven and then re-invest in 6 months or so. Is there a name for that type of account?
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AlabamaPaul
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Re: Cash out 401K [?]

Post by AlabamaPaul »

Is this a 401k at an old employer? If not, many 401k's do not allow in service withdrawals before age 59 1/2. If it does allow withdrawals, why not do it as a Roth Conversion?...
7eight9
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Re: Cash out 401K [?]

Post by 7eight9 »

skeeter9000 wrote: Wed Aug 19, 2020 12:35 pm
AlabamaPaul wrote: Wed Aug 19, 2020 12:22 pm If you're that nervous, most 401K's offer something similar to a "cash" account, so you wouldn't need to Cash It Out...
This sounds like an optimal solution. If I could pull out now with a safe haven and then re-invest in 6 months or so. Is there a name for that type of account?
Stable Value Fund
I guess it all could be much worse. | They could be warming up my hearse.
TimeTheMarket
Posts: 170
Joined: Fri Jan 25, 2019 8:49 am

Re: Cash out 401K [?]

Post by TimeTheMarket »

"I have a strong sense that the market will take a big dip in the near future."

Is this the same sense that failed to tell you in February that the market was about to go down the toilet?

"I realize it is a HUGE gamble and contradictory to so much advice but..."

Are you in the habit of ignoring advice from people who have done well in the area in which you're asking for advice?

"Is it feasible to consider cashing out now while the market is peaking (in my opinion) "

Sure. If you're right.

"Then buy back when/if it dips over the next coming months?"

Yes, if you're right.

"I know that I will pay 10% plus my tax rate, so would lose roughly 33%"

This alone tells me you have a very limited understanding of your 401k (namely, you don't realize you can just sell your equities and buy money market or bonds, which won't crash with a stock market plunge). Given this level of understanding of your investment why do you feel so confident the market will crash soon?

"But if I can recover 25% or more, I figured I'd be ahead of the game because my investment will now be tax free and I can re-invest however I want for the next 20 years or so..."

The math is true.

"I realize this is an aggressive idea, but does it have any merrit?"

Some merit, but not very much. But you knew that going in.

People doing what you do is very common. Sometimes it works out and you can pat yourself on the back. Generally it doesn't.

At your age, your income (which hints at your spend-rate, given where your investments are), and your current net worth you need to be careful and not play silly games like this.

Max your 401k this year and find another $20k to put into a brokerage account and buy an index fund like VTSAX. Do the same thing each year until you retire. You can't afford to screw up with a terrible gamble like this if it goes south because you'll be out of time. You can do what I said and end up with $1M at the age of 62.
Username is not serious :)
TimeTheMarket
Posts: 170
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Re: Cash out 401K [?]

Post by TimeTheMarket »

skeeter9000 wrote: Wed Aug 19, 2020 12:35 pm
AlabamaPaul wrote: Wed Aug 19, 2020 12:22 pm If you're that nervous, most 401K's offer something similar to a "cash" account, so you wouldn't need to Cash It Out...
This sounds like an optimal solution. If I could pull out now with a safe haven and then re-invest in 6 months or so. Is there a name for that type of account?
Yeah it's called an "I really wish I had not done that" account.
Username is not serious :)
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ruralavalon
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Location: Illinois

Re: Cash out 401K [?]

Post by ruralavalon »

Welcome to the forum :) .

skeeter9000 wrote: Wed Aug 19, 2020 12:02 pm I have a measly 250K in my traditional 401K at the ripe age of 52. Salary is at 157K (reduced because of Covid)

I have a strong sense that the market will take a big dip in the near future.

I realize it is a HUGE gamble and contradictory to so much advice but...

Is it feasible to consider cashing out now while the market is peaking (in my opinion)

Then buy back when/if it dips over the next coming months?

I know that I will pay 10% plus my tax rate, so would lose roughly 33%

But if I can recover 25% or more, I figured I'd be ahead of the game because my investment will now be tax free and I can re-invest however I want for the next 20 years or so...

I realize this is an aggressive idea, but does it have any merrit?

Thank you!
.
$250 k is not "measley" and age 52 is not "ripe". You are far ahead of most of of your peers.

What you propose very risky. You have to be spot on twice, when you exit the market and when you reenter. That's almost impossible to do.

Don't take anything out of your 401k. There is no benefit in the paying the income tax and 10% penalty.

Don't even go to cash inside your 401k. Continue your regular contributions to the 401k plan every pay period.

If very anxious about market or economic conditions, then instead consider a change in asset allocation to move towards safer investments.

How much do you contribute annually to the plan? What funds do you use? Please give fund names, tickers, expense ratios, and amounts in each fund.

About how long until expected retirement? Will you be eligible for a significant pension in addition to Social Security? Do you have any debt? If so what types, amounts, and interest rates? Do you have any dependents? Do you have other accounts like IRAs?

This will help us make suggestions for you.

Please simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
skeeter9000
Posts: 6
Joined: Wed Aug 19, 2020 11:53 am

Re: Cash out 401K [?]

Post by skeeter9000 »

TimeTheMarket wrote: Wed Aug 19, 2020 12:39 pm "I have a strong sense that the market will take a big dip in the near future."

Is this the same sense that failed to tell you in February that the market was about to go down the toilet?
Snarkiness aside, thanks very much for the feedback. Much appreciated. I will definitely look into investing in an indesx fun such as VTSAX on an anual basis. Yes, my 401k knowledge is limited, as is evident.
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KingRiggs
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Location: Indiana

Re: Cash out 401K [?]

Post by KingRiggs »

TimeTheMarket wrote: Wed Aug 19, 2020 12:39 pm "I have a strong sense that the market will take a big dip in the near future."

Is this the same sense that failed to tell you in February that the market was about to go down the toilet?

"I realize it is a HUGE gamble and contradictory to so much advice but..."

Are you in the habit of ignoring advice from people who have done well in the area in which you're asking for advice?

"Is it feasible to consider cashing out now while the market is peaking (in my opinion) "

Sure. If you're right.

"Then buy back when/if it dips over the next coming months?"

Yes, if you're right.

"I know that I will pay 10% plus my tax rate, so would lose roughly 33%"

This alone tells me you have a very limited understanding of your 401k (namely, you don't realize you can just sell your equities and buy money market or bonds, which won't crash with a stock market plunge). Given this level of understanding of your investment why do you feel so confident the market will crash soon?

"But if I can recover 25% or more, I figured I'd be ahead of the game because my investment will now be tax free and I can re-invest however I want for the next 20 years or so..."

The math is true.

"I realize this is an aggressive idea, but does it have any merrit?"

Some merit, but not very much. But you knew that going in.

People doing what you do is very common. Sometimes it works out and you can pat yourself on the back. Generally it doesn't.

At your age, your income (which hints at your spend-rate, given where your investments are), and your current net worth you need to be careful and not play silly games like this.

Max your 401k this year and find another $20k to put into a brokerage account and buy an index fund like VTSAX. Do the same thing each year until you retire. You can't afford to screw up with a terrible gamble like this if it goes south because you'll be out of time. You can do what I said and end up with $1M at the age of 62.
Engrave this post in bronze.
Advice = noun | Advise = verb | | Roth, not ROTH
Topic Author
skeeter9000
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Re: Cash out 401K [?]

Post by skeeter9000 »

ruralavalon wrote: Wed Aug 19, 2020 12:44 pm
$250 k is not "measley" and age 52 is not "ripe". You are far ahead of most of of your peers.

Please simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.
Thank you for that fresh perspective! it's really nice to hear something positive as I am pretty nervous (as I should be) about where i am at.

I updated my original post per your request. Does that give you some perspective? I'm all-in on stocks as I've been pursuing a growth strategy.

Thanks again for any feedback.
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Nate79
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Re: Cash out 401K [?]

Post by Nate79 »

How will you know when to get back in? This is the common problem when people think they can time the market.

Go for it. There are a lot of similar threads going on right now. You may be right or you may be wrong. Do you feel lucky?
BogleMelon
Posts: 2515
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Re: Cash out 401K [?]

Post by BogleMelon »

So not only you want to time the market successfully twice, but also to make more money than the amount you would pay in penalties+tax+future taxes going forward on capital gains (since the money will never get back again in the 401K).
If you want to gamble and time the market, you can still do that within your 401K account. You can exchange your stock funds with money market fund, stable value fund, or even some kind of bond fund that is available to you in your plan.
No need at all to take out your money and pay heavy penalty, taxes and lose your 401K spot forever to gamble. Not saying that this is the ultimate correct thing to do. Unless there is something that makes you think that you know better about the market more than everyone else.
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather
Topic Author
skeeter9000
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Joined: Wed Aug 19, 2020 11:53 am

Re: Cash out 401K [?]

Post by skeeter9000 »

Thank you, yes. It's clear to me now that if I do want to (gasp!) time the market, it would make much more sense to reallocate using the vehicles available within the 401K. Perhaps, as you say, some bonds to weather the likely storm. I really do think the S is gonna hit the F within the next 3-6 mos.
njdealguy
Posts: 166
Joined: Wed Jul 26, 2017 8:15 am

Re: Cash out 401K [?]

Post by njdealguy »

Learned a big lesson earlier this year trying to time the market, converted all of my 401k allocation to the cash account within the plan in beginning of March when S&P was around 3130 then after the market bottomed on March 23rd kept assuming we were in a dead cat bounce that will turn (and reading articles on marketwatch/fool that seemed to assure sky would fall) and after it never did ended up buying back in around end of May with S&P at around 3050.

So even though was lucky enough to buy back in before hitting back to the level I got out, gained not even 3% out of this which could have been a nearly 40% gain had I successfully recognized March 23rd perfectly.
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ruralavalon
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Location: Illinois

Re: Cash out 401K [?]

Post by ruralavalon »

skeeter9000 wrote: Wed Aug 19, 2020 1:44 pm
ruralavalon wrote: Wed Aug 19, 2020 12:44 pm
$250 k is not "measley" and age 52 is not "ripe". You are far ahead of most of of your peers.

Please simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.
Thank you for that fresh perspective! it's really nice to hear something positive as I am pretty nervous (as I should be) about where i am at.

I updated my original post per your request. Does that give you some perspective? I'm all-in on stocks as I've been pursuing a growth strategy.

Thanks again for any feedback.
It is good to see that you are debt free.

It is good to see that you make the maximum annual employee contribution of $25k to your 401k. Keep it up. With perhaps 15-20 years to retirement that's another $375k to $500k, plus a lot of time for portfolio growth from capital gains and dividends.

Here are calculators you can use to estimate the range possible outcomes by the time of retirement:
1) www.firecalc.com; and
2) www.i-orp.com.

What are the expense ratios charged on the funds you are currently using in your 401k account?

What bond funds are offered in your employer's 401k plan? Please give fund names, tickers and expense ratios. Is there a Stable Value fund offered in your employer's 401k plan, if so what interest rate is paid, and is the rate guaranteed?

You are very heavy in stocks. FIAM Index Target Date 2030 looks like around 85-90% stocks, so you are more than 95% stocks overall. Because you are anxious it would be well to look at less volatile investments in your 401k account.

EDIT: I am puzzled about why you list FIAM INX TD 2030 twice, once at $67k and again for $25k.
Last edited by ruralavalon on Wed Aug 19, 2020 4:38 pm, edited 3 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Johm221122
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Re: Cash out 401K [?]

Post by Johm221122 »

You need an investment plan. Especially an asset allocation that meets your " need, ability and willingness to take risk"
You should have no fear. Your asset allocation doesn't meet your willingness to take risk. Simply dial down the risk till you have no fear. There is nothing wrong with say 60% stocks and 40% fixed income or even 50% stocks.
retiredjg
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Re: Cash out 401K [?]

Post by retiredjg »

skeeter9000 wrote: Wed Aug 19, 2020 12:02 pm Is it feasible to consider cashing out now while the market is peaking (in my opinion)

Then buy back when/if it dips over the next coming months?
Seems like such a reasonable idea doesn't it? Nearly every investor goes through this kind of thinking. The trouble is that it does not work very well. Most people end up losing money. This has been shown time and time again.

Many people can figure out a good time to get out of the market. The problem is that humans are notoriously bad at getting back in the market. They either don't stay out long enough or the stay out too long. Either way, you lose money.

For example, let's say you buy back in when/if it dips over the next coming months. You want to buy in at the lowest point, right? What if you buy back in too soon and things keep going down? What if you buy back in too late and you missed the low?

What happens is that people get out of the market and then sit there. People got out in 2008 and STILL have not put their money back in because now...."the market is too high".

I realize this is an aggressive idea, but does it have any merrit?
No. I'm sorry to sound harsh, but this is about the worst possible thing you can do.

Pick a a portfolio that has a risk level you can stick with in the good times and the bad times. Then stick with it in the good times and the bad times.

Trying to time the market is a very good way to lose money. Lots of money.
ZWorkLess
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Re: Cash out 401K [?]

Post by ZWorkLess »

This is an absolutely terrible idea. Absolutely awful. Don't do it.

Choose an allocation you can feel comfortable with. Maybe that's 40/60. Maybe it's 50/50.

But, whatever it is, you need to be able to NOT BLINK during market corrections. You need to find a way to do that, or you really shouldn't be in the market at all. Maybe you'd be better off with buying some investment real estate instead. The stock market isn't for everyone. If you can't leave your investments alone when they go south, you aren't going to make money in the market and/or you're going to suffer a lot more stress than it's worth.

I'm your age, and I'm comfortable with 80/20, but I know me, and I know I don't blink when things get crazy. I've been in the market for 20+ years and I know myself. I "trust the market" or maybe I just "trust that the market is better at predicting the market than I could ever be" is a better way to put it. Whatever the reason, I know that although I might get a little bit of a stomach ache when the markets really tumble, I. Just. Wait. It. Out. And, it always comes back. So, the next tumble isn't as painful, even though my account balances are ever higher (thus more to lose) and our retirement horizon is ever shorter. Thus, I know I'm OK with the 80/20 for now. Even so, I'm still using a Target Date fund for the bulk of the money that slowly ramps down our stock percentage over time, and once we get within 5 years of retirement, I'll probably move some of my non-Target Date money (100% stock index) into the Target Date to be more conservative, especially if those stomach aches get more pronounced in future stock market tumbles.

Maybe you'd be well served by reading a book or two on reasonable investment strategies. Maybe more education would give you more confidence and help avoid those stomach aches, and especially help you avoid doing really stupid things.
GMT-8
Posts: 190
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Re: Cash out 401K [?]

Post by GMT-8 »

According to today's Google search, in 2019:

average salary in America is $50,000
average 401(k) account has $90,000
median 401(k) account has $22,000

You have triple the salary and triple the 401(k) of the average household -- don't blow it and become the median.

We are throwing ice water on your idea so you don't mess up.

Leave it alone and thank God or your lucky stars that you are so far ahead of the pack.

Best,

GMT
muffins14
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Re: Cash out 401K [?]

Post by muffins14 »

What did you do in February and March?
TimeTheMarket
Posts: 170
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Re: Cash out 401K [?]

Post by TimeTheMarket »

skeeter9000 wrote: Wed Aug 19, 2020 1:27 pm
TimeTheMarket wrote: Wed Aug 19, 2020 12:39 pm "I have a strong sense that the market will take a big dip in the near future."

Is this the same sense that failed to tell you in February that the market was about to go down the toilet?
Snarkiness aside, thanks very much for the feedback. Much appreciated. I will definitely look into investing in an indesx fun such as VTSAX on an anual basis. Yes, my 401k knowledge is limited, as is evident.
I struggle to post without snarkiness. It's just part of me now. I hope you stay in, and I hope that if the market does crash you still realize why it was necessary to stay in, because then when it inevitably gets back to, and then beats, its all-time high again as it always has you will be good for it.

There are many here richer than either of us will ever be who have an almost cult like devotion to staying in the market. It works. It's hard to believe something so simple does work, but occasionally life really is that easy.
Username is not serious :)
Topic Author
skeeter9000
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Re: Cash out 401K [?]

Post by skeeter9000 »

Huge thanks to everyone for the helpful advice. It's very much appreciated.

I just want to say that I get that buy and hold makes sense. Truly. I am considering this from an opportunistic standpoint not one of fear. BUT, I totally get the risks. If I do anything it would be to shift some funds to a lower risk vehicle just in the short term...and not be greedy about when to get back into a more stock-weighted portfolio.

On a related note, If you're going to be in the market for another 15 -20 years, doesn't a strongly stock-weighted portfolio make the most sense? Understanding there will be dips of course. Thanks again!
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dogagility
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Re: Cash out 401K [?]

Post by dogagility »

skeeter9000 wrote: Wed Aug 19, 2020 11:02 pm Huge thanks to everyone for the helpful advice. It's very much appreciated.

I just want to say that I get that buy and hold makes sense. Truly. I am considering this from an opportunistic standpoint not one of fear. BUT, I totally get the risks. If I do anything it would be to shift some funds to a lower risk vehicle just in the short term...and not be greedy about when to get back into a more stock-weighted portfolio.

On a related note, If you're going to be in the market for another 15 -20 years, doesn't a strongly stock-weighted portfolio make the most sense? Understanding there will be dips of course. Thanks again!
There is no "opportunity" here, as you've expressed it.

Since your investment time frame is long, your proposed short term move from stocks to a "safer" vehicle is a very bad idea. If there is a significant decrease in stocks this year, history shows this is very likely to rebound completely within at most 5 years.

However, there is a better chance (given the market's history and people consistently claiming "this time is different" when it is not) that stocks will continue to increase in value.

If you are worried about your portfolio, you need to consider changing your stock:fixed income asset allocation for the long(er) term. Here's one tool to help: https://personal.vanguard.com/us/FundsInvQuestionnaire

Timing the market will fail.
All children spill milk. Learn to smile and wipe it up. -- A Farmer's Wife
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ruralavalon
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Re: Cash out 401K [?]

Post by ruralavalon »

skeeter9000 wrote: Wed Aug 19, 2020 11:02 pm Huge thanks to everyone for the helpful advice. It's very much appreciated.

I just want to say that I get that buy and hold makes sense. Truly. I am considering this from an opportunistic standpoint not one of fear. BUT, I totally get the risks. If I do anything it would be to shift some funds to a lower risk vehicle just in the short term...and not be greedy about when to get back into a more stock-weighted portfolio.
Do not make asset allocation changes for the short-term. Don't try to be opportunistic.

There is still the timing issue about when to get back into the market. It's no more possible to predict the right entry point than it is to predict a good exit point.

In my opinion for the long-term you could use a less stock heavy portfolio than you seem to have.

Is your 401k your only account? It would help to know -- what bond funds are offered in your employer's 401k plan? Please give fund names, tickers and expense ratios. Is there a Stable Value fund offered in your employer's 401k plan, if so what interest rate is paid, and is the rate guaranteed? I am puzzled about why you list FIAM INX TD 2030 twice, once at $67k and again for $25k.

skeeter9000 wrote: Wed Aug 19, 2020 11:02 pmOn a related note, If you're going to be in the market for another 15 -20 years, doesn't a strongly stock-weighted portfolio make the most sense? Understanding there will be dips of course. Thanks again!
At age 52, retiring in 15-20 years, no debt, no dependents I suggest an asset allocation around 70% stocks 30% bonds. Adding bonds can significantly reduce risk. Graph, "An Efficient Frontier: the power of diversification". Please see:
1) Wiki article Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk";
2) Wiki article, "Asset allocation";
3) Morningstar (8/20/2019), "The Best Diversifiers for Your Equity Portfolio"; and
4) White Coat Investor (9/23/2016), "In Defense of Bonds".


If your only account is your 401k, then switching everything in your 401k to FIAM Index Target Date 2030 looks like it would get you an asset allocation about 80/20.

Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk. Pick an asset allocation that suits your long-term ability, willingness and need to take risk, and then stay the course.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
rhoms33
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Re: Cash out 401K [?]

Post by rhoms33 »

The chart below shows how $10,000 invested in the S&P 500 index, for the 20-year period of 1999 through 2018, would have performed under various scenarios.

Image
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LilyFleur
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Re: Cash out 401K [?]

Post by LilyFleur »

At your income level and with no debt, what is the maximum you could be saving every year?

I think your savings rate would be better to focus on than timing the market.
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