Help with Retirement Options & Contributions

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jornsy
Posts: 16
Joined: Tue Jul 10, 2012 4:21 pm

Help with Retirement Options & Contributions

Post by jornsy » Wed Jul 11, 2012 8:33 am

Emergency funds: I have 3-6 months of expenses in laddered CDs (6-months).
Debt: No debt (mortgage paid off, cars paid off, pay full balance of credit cards each month).
Tax Filing Status: Married filing jointly with three kids.
Tax Rate: 15% Federal, 5% State (Illinois).
Age: 48
Desired Asset allocation: 70% stocks/ 30% bonds.
Intl allocation: 20% of stocks


Retirement Accounts


I have been treating each retirement account below as separate accounts, and therefore, each account has its own asset allocation that adds up to 100%. I do this so that when I go to retire, I can withdraw funds from any of the accounts once I reach 59.5. Further down the page I do list all the investments and show the percentage for each investment against my total retirement balance as was suggested.


State Retirement (I have the option to use TIAA-CREF funds too). Balance = $200,000
Fund Name, Ticker Symbol, Exp Ratio, % Total
Fidelity Diversified International, (FDIVX), 0.98, 25
Fidelity Growth Company, (FDGRX), 0.93, 25
Fidelity Low-Priced Stock, (FLPSX), 0.99, 25
Fidelity Real Estate Investment, (FRESX), 0.90, 10
PIMCO Total Return Institution, (PTTRX), 0.47, 15
State Retirement Total = 100%
(I contribute 8% of my salary and the state matches 6.5% to my retirement. I do have the option to go with TIAA–CREF funds if you think the expenses will be lower than Fidelity’s.)


403(b) with Valic. (I’m thinking of rolling over to a Vanguard 403b). Balance = $250,000
Fund Name, Ticker Symbol, Exp Ratio, % Total
Fixed Account Plus n/a, 5
Mid Cap Index Fund, (VMIDX), 0.95, 10
Stock Index Fund, (VSTIX), 0.40, 20
Small Cap Index Fund, (VCSLX), 0.52, 10
International Growth, (VCINX), 1.06, 20
Vanguard Wellington, (VWELX), 0.36, 10
Small Cap Value Fund, (VCSVX), 0.95, 20
Global Strategy Fund, (VGLSX,) 0.68, 5
Valic 403b Total = 100%
(I am not adding to this account right now. I’m thinking of rolling over to a Vanguard 403b so I have more of my assets with one institution and to help lower my expenses.)


457(b) with T. Rowe Price
(I’m contributing $700/month) Balance = $50,000
Fund Name, Ticker Symbol, Exp Ratio, % Total
Columbia Acorn Fund, (ACRNX), 0.76, 20
Investco International Growth Equity, (INVIG), 0.55, 10
Northern Small Cap Value, (NOSGX), 1.36, 20
Vanguard Tot Bond Market Index, (VBTIX), 0.02, 20
Vanguard Institutional Index, (VINIX), 0.07, 30
T. Rowe Price 457b Total = 100%
(I’m contributing $700/month right now. If I rollover my 403b to Vanguard, then I may contribute the $700 to that account)


Roth IRAs (We are contributing $5,000 each to our accounts) Balance = $100,000
Fund Name, Ticker Symbol, Exp Ratio, % Total
Vanguard - Wellesley Income, (VWIAX), 0.28, 50
Vanguard - Balanced Index, (VBIAX), 0.14, 50
Roth IRA Totals = 100%

Total Retirement Accounts Balance = $600,000


Taxable Accounts

Current portfolio in taxable account is six figures. Some of these funds or earnings will help pay for my three kids college education. Kids ages are 15, 13, 10. The rest will used for our early retirement if possible. I do have 529 plans for each kid. $15,000 for 15yr old, $15,000 for 13yr old and $12,000 for 10yr old. I add $100/mo to each account.

Mutual Funds:
Fund Name, Ticker Symbol, Exp Ratio, % Total
Vanguard - Energy Fund, (VGENX), 0.34, 5
Vanguard - Small-Cap Index, (VSMAX), 0.14, 10
Vanguard - Total Stock Market Index, (VTSAX), 0.07, 20
Vanguard - REIT Index Fund, (VGSLX), 0.10, 10
Vanguard - International Explorer, (VINEX), 0.39, 5
Vanguard - Total International Stock Index, (VTIAX), 0.20, 20
Mutual Funds Total 70%

Bond Funds:

Fund Name, Ticker Symbol, Exp Ratio, % Total
Vanguard - Convert Securitie,s (VCVSX), 0.68, 5
Vanguard - Short-Term Bond, (VBIRX), 0.12, 10
Vanguard - Total Bond Market, (VBTLX,) 0.12, 15
Bond Funds Total 30%

Total Taxable = 100%


New Annual Contributions

$10,380 for State Retirement
$8,400 for 457b or 403b
$5,000 for his Roth IRA
$5,000 for her Roth IRA
$3,600 for the kids 529 plans ($1,200 to each child)


Retirement Asset Allocations

State Retirement Balance = $200,000
Fund Name, Ticker Symbol, Exp Ratio, % Total
Fidelity Diversified International, (FDIVX), 0.98, 7
Fidelity Growth Company, (FDGRX), 0.93, 11
Fidelity Low-Priced Stock, (FLPSX), 0.99, 7
Fidelity Real Estate Investment, (FRESX), 0.90, 3
PIMCO Total Return Institution, (PTTRX), 0.47, 4

403(b) with Valic Balance = $250,000
Fund Name, Ticker Symbol, Exp Ratio, % Total
Fixed Account Plus 3
Mid Cap Index Fund, (VMIDX), 0.95, 5
Stock Index Fund, (VSTIX), 0.40, 8
Small Cap Index Fund, (VCSLX), 0.52, 6
International Growth, (VCINX), 1.06, 5
Vanguard Wellington, (VWELX), 0.36, 5
Small Cap Value Fund , (VCSVX), 0.95, 7
Global Strategy Fund, (VGLSX), 0.68, 3


457(b) with T. Rowe Price Balance = $50,000
Fund Name, Ticker Symbol, Exp Ratio, % Total
Columbia Acorn Fund, (ACRNX), 0.76, 2
Investco International Growth Equity, (INVIG), 0.55, 2
Northern Small Cap Value, (NOSGX), 1.36, 2
Vanguard Total Bond Market Index, (VBTIX), 0.02, 2
Vanguard Institutional Index, (VINIX), 0.07, 2


Roth IRAs
Balance = $100,000
Fund Name, Ticker Symbol, Exp Ratio, % Total
Vanguard - Wellesley Income, (VWIAX) , 0.28, 8
Vanguard - Balanced Index, (VBIAX), 0.14, 8

Total of all retirement accounts = 100%


Questions:
1. Should I rollover my 403b from Valic into a new Vanguard 403b account?
2. Should I keep contributing the $700/mo into the 457b (Fidelity) or put the funds into the new Vanguard 403b? I believe Vanguard’s expenses will be lower than Fidelity’s.
3. Should I stop contributing to our Roth IRAs and max out the 403b or 457b?
4. What other advice do you offer for my retirement and/or taxable investments?

bdpb
Posts: 1530
Joined: Wed Jun 06, 2007 3:14 pm

Re: Help with Retirement Options & Contributions

Post by bdpb » Wed Jul 11, 2012 9:36 pm

jornsy wrote: Tax Rate: 15% Federal, 5% State (Illinois).

New Annual Contributions

$5,000 for his Roth IRA
$5,000 for her Roth IRA

Questions:
1. Should I rollover my 403b from Valic into a new Vanguard 403b account?
2. Should I keep contributing the $700/mo into the 457b (Fidelity) or put the funds into the new Vanguard 403b? I believe Vanguard’s expenses will be lower than Fidelity’s.
3. Should I stop contributing to our Roth IRAs and max out the 403b or 457b?
4. What other advice do you offer for my retirement and/or taxable investments?
1. Definitely.
2. Do you have access to Fidelity Spartan funds? If not, use Vanguard, else it doesn't matter much.
3. Yes and no. Are you eligible for deductible IRA contributions? If so, you can save the IL state tax on money you get into your Roth by contributing to deductible IRAs and converting immediately to Roth. You will pay the fed tax, but IL does not tax IRA withdrawals for conversions.
4. You should probably look at your whole portfolio as one and contribute to the lowest cost fund available in each account.
This will allow for tax efficiency and lowest costs.
4. You might consider getting all of your taxable assets into tax advantaged or 529 accounts. This will give better chances for education subsidies. You might save enough in taxable up to the year before FAFSA eligible and then contribute the max to all tax deductible accounts after that. I think withdrawing Roth contributions to make additional tax deductible contributions is FAFSA beneficial, too.
4. Hopefully using IL 529, Vg index funds. There is a state tax deduction for IL 529 contributions. You will want to get everything you plan to spend on college into the 529 before FAFSA eligible.

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Watty
Posts: 14131
Joined: Wed Oct 10, 2007 3:55 pm

Re: Help with Retirement Options & Contributions

Post by Watty » Wed Jul 11, 2012 10:45 pm

3. Should I stop contributing to our Roth IRAs and max out the 403b or 457b?
I doubt that you are likely to ever be in a lower tax bracket and RMD's may one day be an issue so I would go with the Roths.
4. What other advice do you offer for my retirement and/or taxable investments?
You have some REITS and bond funds in taxable accounts. Those should likely be in retirement accounts because of taxes.

If you are still in the 15% federal tax bracket at the end of the year you may want to take enough capital gains to get you to the top of the 15% tax bracket so that you can use the 0% capital gains tax rate that is scheduled to end this year.

Try using the free Morningstar x-ray tool to see you overall allocation. It is hard to see just what you have with so many accounts.

With as many funds as you have you have basically reinvented indexing by having a bit of everything, but your costs are higher. Take a hard look at how your overall holdings in the Morinigstar x-ray tool differ from a few index funds.

Be ruthless about getting out of any fund with an expense ratio above 0.5%. With as many choices as you have you can find lower cost alternatives with about the same investments. In addition to the expense ratio the actively managed funds will have other hidden costs like trading costs. Also look hard at any fund with an expense ratio over 0.2% and only keep them if you can write down a good reason that they are worth the extra expense.

A few questions;

Do you have any financial goals other than retiring?

What age do you want to retire at and what will your monthly cash needs be after any pensions and social security?

Dandy
Posts: 5355
Joined: Sun Apr 25, 2010 7:42 pm

Re: Help with Retirement Options & Contributions

Post by Dandy » Thu Jul 12, 2012 8:52 am

Great job of saving for retirement, education and staying out of debt!!.

There are many others who are better at more specific portfolio advice. I think you are making things more complicated now with the number of funds in order to make things more convenient upon retirement. I would simplify your holdings now by managing them as a whole portfolio. You can fiddle with retirement accounts and withdrawals when the time comes with no tax consequences. It really shouldn't be that hard.

I would look into the TIAA CREF funds - they usually have some good low cost index funds.

I would keep saving as much as possible. You know that curse "May you live in interesting times (something like that). Well we are in interesting times. Pensions, health insurance, jobs, interest rates, employment, education expenses, taxes are all up for major change. Most of the change will probably not be positive. You may be fine and get your children educated but will they get a good paying job with benefits? Will your generous matching contribution and pension survive the economic problems the states are having? Hey, usually things work out - but now is not the time to feel too secure.

That being said you have three children and need to enjoy them. You don't get these years back. It isn't all about money. For me family vacations were a special time that really bonded our family. My adult children are very close to us and always remark how much they enjoyed their childhood and those vacations. Makes me feel that while saving and scrimping at least I had some balance.

jornsy
Posts: 16
Joined: Tue Jul 10, 2012 4:21 pm

Re: Help with Retirement Options & Contributions

Post by jornsy » Thu Jul 12, 2012 9:13 am

Be ruthless about getting out of any fund with an expense ratio above 0.5%. With as many choices as you have you can find lower cost alternatives with about the same investments. In addition to the expense ratio the actively managed funds will have other hidden costs like trading costs. Also look hard at any fund with an expense ratio over 0.2% and only keep them if you can write down a good reason that they are worth the extra expense.

A few questions;

Do you have any financial goals other than retiring?

What age do you want to retire at and what will your monthly cash needs be after any pensions and social security?
I would like to retire in 10 years (age 58) if possible. I will still have one child in college, but hopefully have enough saved to cover the last two years. Otherwise I will retire at age 60 when all kids are done with college.

I will not be eligible for SS because I don't pay into it. My wife will have some SS benefit, but she is not in a high paying job, so it won't be near the max. I need to get my state retirement fund large, because I have to annuitize it when I retire. I hope to get it to $400,000. The 403b will be rolled over into a Vanguard 403b in a few weeks, so I will continue to add $600-700 to that investment. It will be my secondary funding source during retirement. Once the kids are out of college, I will also take dividends and interest from the taxable account to help cover living expenses. We don't live extravagantly, so I believe we can live on $40,000 or less in retirement.

My goals are to enjoy life and be financial free. We are not big travelers, although we do plan on taking a few trips here and there.
I plan to volunteer more around the community and also do more financial literacy presentations and workshops for kids and adults. I may do them for free or else charge a minimal fee to attend.

Thanks for the good advice and information.

YDNAL
Posts: 13774
Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

Re: Help with Retirement Options & Contributions

Post by YDNAL » Thu Jul 12, 2012 9:52 am

jornsy wrote:Retirement Accounts[/b]

I have been treating each retirement account below as separate accounts, and therefore, each account has its own asset allocation that adds up to 100%. I do this so that when I go to retire, I can withdraw funds from any of the accounts once I reach 59.5. Further down the page I do list all the investments and show the percentage for each investment against my total retirement balance as was suggested.
Almost always a mistake to use individual allocations per accounts rather than a unified portfolio to use the best-available funds to diversify and reduce cost.

State Retirement (I have the option to use TIAA-CREF funds too). Balance = $200,000
403(b) with Valic. (I’m thinking of rolling over to a Vanguard 403b). Balance = $250,000
457(b) with T. Rowe Price (I’m contributing $700/month) Balance = $50,000
Roth IRAs (We are contributing $5,000 each to our accounts) Balance = $100,000
Total Retirement Accounts Balance = $600,000
What are the options in the State Retirement account (Fidelity Spartan Funds :?:)

New Annual Contributions

$10,380 for State Retirement (36%)
$8,400 for 457b or 403b (29%)
$5,000 for his Roth IRA (17.5%)
$5,000 for her Roth IRA (17.5%)
Use NEW retirement money to develop an overall and unified portfolio to accepts this money to keep (mostly) balanced
Desired Asset allocation: 70% stocks/ 30% bonds.
Intl allocation: 20% of stocks
Consider this.
  • 33% State Retirement Account (PIMCO Total Return Institutional, (PTTRX), 0.47)
    36% New Money to Total Stock Market-type Fund or combination
    (what are your options with Fidelity and/or TIAA CREF?)


    42% 403b (Stock Index Fund, (VSTIX), 0.40 and Small Cap Value Fund, (VCSVX), 0.95)

    8% 457 (Vanguard Tot Bond Market Index, (VBTIX), 0.02)
    29% New money to VBTIX

    17% Roth IRAs (Vanguard Total International (VTIAX), 0.18)
    35% New money to VTIAX

    100% Total
Dandy wrote:That being said you have three children and need to enjoy them. You don't get these years back. It isn't all about money. For me family vacations were a special time that really bonded our family. My adult children are very close to us and always remark how much they enjoyed their childhood and those vacations. Makes me feel that while saving and scrimping at least I had some balance.
Consider listening to Dandy.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

jornsy
Posts: 16
Joined: Tue Jul 10, 2012 4:21 pm

Re: Help with Retirement Options & Contributions

Post by jornsy » Thu Jul 12, 2012 10:35 am

Consider this.
  • 33% State Retirement Account (PIMCO Total Return Institutional, (PTTRX), 0.47)
    36% New Money to Total Stock Market-type Fund or combination
    (what are your options with Fidelity and/or TIAA CREF?)


    42% 403b (Stock Index Fund, (VSTIX), 0.40 and Small Cap Value Fund, (VCSVX), 0.95)

    8% 457 (Vanguard Tot Bond Market Index, (VBTIX), 0.02)
    29% New money to VBTIX

    17% Roth IRAs (Vanguard Total International (VTIAX), 0.18)
    35% New money to VTIAX


    100% Total
Dandy wrote:That being said you have three children and need to enjoy them. You don't get these years back. It isn't all about money. For me family vacations were a special time that really bonded our family. My adult children are very close to us and always remark how much they enjoyed their childhood and those vacations. Makes me feel that while saving and scrimping at least I had some balance.
Consider listening to Dandy.
Here are my options for Fidelity:
Stock Investments
Large Cap
ABF LG CAP VAL INST
FID CONTRAFUND K
FID FOUR IN ONE IDX
FID GROWTH CO K
HARTFORD CAP APP Y
SPTN 500 INDEX INST
SPTN TOT MKT IDX INS
Mid-Cap
ARIEL FUND
FID LOW PRICED STK K
SPTN EXT MKT IDX ADV
Small Cap
BUFFALO SM CAP STOCK
International
FID DIVERSIFD INTL K
FID WORLDWIDE
SPTN INTL INDEX INS
Specialty
FID REAL ESTATE INVS

Bond Investments
Stable Value
FID MGD INC PORT
Income
PIM TOTAL RT INST
SPTN US BOND IDX IS

I plan on switching my 403b to Vanguard, so I could invest in the 500 index and small-cap value index or else the total market index. Would that work?

If possible, I would like to pass the Roth IRAs on to our children or grandchildren and not have to use them for our retirement. That's why I selected the Vanguard Balanced and the Wellesley Income Funds. I could use the dividends and not touch the capital.

Thank you for more good information and suggestions. I am going to pair down my assets to only having a handful among all the retirement accounts. It makes it more simple for me and easier to keep track of.

jornsy
Posts: 16
Joined: Tue Jul 10, 2012 4:21 pm

Re: Help with Retirement Options & Contributions

Post by jornsy » Thu Jul 12, 2012 10:45 am

Dandy wrote:
That being said you have three children and need to enjoy them. You don't get these years back. It isn't all about money. For me family vacations were a special time that really bonded our family. My adult children are very close to us and always remark how much they enjoyed their childhood and those vacations. Makes me feel that while saving and scrimping at least I had some balance.
I agree with you about enjoying my children. I have been coaching all of them in various sports over the years. We try and go to Florida (Daytona Beach) every spring and just relax on the beach. We drive to Florida, so we have lots of time to play games and talk on our 16 hour drives. We also go up to Wisconsin twice a year to visit family. I am frugal with our money, but never skimp on spending quality time with our kids and family.

I think "balance" is the key to enjoying and living life. Balance between buying things you need versus things you want.

YDNAL
Posts: 13774
Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

Re: Help with Retirement Options & Contributions

Post by YDNAL » Thu Jul 12, 2012 12:18 pm

jornsy wrote:
YDNAL wrote:**** UPDATED WITH NEW INFORMATION JUST PROVIDED BELOW BY jornsy (OP) ****

Consider this.

33% State Retirement Account
22% PIMCO Total Return Institutional, (PTTRX), 0.47
11% SPTN TOT MKT IDX INS
36% New Money to Spartan Tot Mkt Idx Ins

42% 403b
22% Stock Index Fund, (VSTIX), 0.40
20% Small Cap Value Fund, (VCSVX), 0.95)

8% 457
8% Vanguard Tot Bond Market Index, (VBTIX), 0.02
29% New money to VBTIX

17% Roth IRAs
17% Vanguard Total International (VTIAX), 0.18
35% New money to VTIAX

100% Total
Here are my options for Fidelity:
Stock Investments
Large Cap
ABF LG CAP VAL INST
FID CONTRAFUND K
FID FOUR IN ONE IDX
FID GROWTH CO K
HARTFORD CAP APP Y
SPTN 500 INDEX INST
SPTN TOT MKT IDX INS <--- Here's the Spartan Total Stk Mkt I mentioned previously, I updated the suggestion above
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

jornsy
Posts: 16
Joined: Tue Jul 10, 2012 4:21 pm

Re: Help with Retirement Options & Contributions

Post by jornsy » Thu Jul 12, 2012 2:07 pm

Thanks, YDNAL.

I like your idea of reducing the number of funds I'm using with my state retirement, 403b, 457b and Roth IRAs. I will be implementing your ideas and suggestions over the next few months.

Thank you!

jornsy
Posts: 16
Joined: Tue Jul 10, 2012 4:21 pm

Re: Help with Retirement Options & Contributions

Post by jornsy » Tue Jul 31, 2012 4:24 pm

Here is my updated portfolio for retirement accounts:

(Fund/ticker, expense ratio, balance, yearly contribution)
S.U.R.S. Retirement - Fidelity
PIMCO - Total Return Institutional (PTTRX), .46, $90,000, $4,150
Spartan - Total Market Index Fund (FSKTX). .07, 110,000, $6,225

Vanguard - 403b
Vanguard - REIT Index Fund (VGSLX), .10, $50,000, $2,150
Vanguard - Total International Stock Index Fund (VTIAX), .20, $90,000, $2,875
Vanguard - Total Stock Market Index Fund (VTSAX), .07, $110,000, $2,150

State of Illinois DCP - 457b

Vanguard - Total Bond Market Index Fund (VBTIX), .07, $50,000, $1,200

I would like to have a 70/30 split stocks/bonds with 25% international stock mix.

My SURS Retirement (state-IL) has to be annuitized when I retire in 10-15 years in order to receive state health benefits, so that's why I would like to keep it somewhat balanced and stable on its own with those two funds. I can't afford to have it dropped significantly when I near retirement.

Roth IRAs
His - Vanguard - Wellesley Income Fund (VWINX), .25, $50,000, $5,000
Hers - Vanguard - Balanced Index (VBIAX), .10, $50,000, $5,000

Taxable account:

I do have a taxable account that is in the low six figures. This was tax-free money received from a settlement. I plan on using some of the funds (bonds and maybe some stock funds) to help pay for my three kids college expenses, so I don't want to move it all over to the tax-sheltered vehicles (403b, 457b, etc.). I am also using funds from the money market to fund our Roth IRAs each year.

Vanguard - Total Stock Market Index Fund (VTSAX), .07
Vanguard - Total International Stock Index Fund (VTIAX), .20
Vanguard - Short-Term Bond Fund (VBIRX), .12
Vanguard - Total Bond Market Fund (VBTLX). 12
Vanguard - Tax-Exempt Money Market Fund (VMSXX), .17

I am using the same 70/30 split with 25% international mix. I know bonds should not be in the taxable account, but if I am going to use some of the funds for college expenses starting in three years, I thought it might be good to keep some assets in bonds.

With the help from this forum, I have simplified my portfolio tremendously, just look at my original post. Thank you!

Are my investments and logic okay?
Can I do some things differently and/or better?
Am I suppose to include my taxable investments with my tax-deferred investments when looking a my total portfolio and AA?
Any other advice for a newbie?

Thanks!

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hoppy08520
Posts: 2003
Joined: Sat Feb 18, 2012 11:36 am

Re: Help with Retirement Options & Contributions

Post by hoppy08520 » Tue Jul 31, 2012 7:23 pm

jornsy wrote: Am I suppose to include my taxable investments with my tax-deferred investments when looking a my total portfolio and AA?
Normally when you read about asset allocation as it pertains to retirement savings, then we are talking only about assets that you've targeted toward retirement. Money set aside for emergency funds or short- or near-term savings (like a house down payment or college education) shouldn't factor into your retirement asset allocation, and those short/near term savings are often in different saving vehicles that are more liquid depending on the time horizon you need the funds.

Given that you wrote that most or all of what is in your taxable account is likely for education, then I would not count that portion within your retirement AA.

For the money that you are dedicating to education, why not put more of it 529 now instead of $100/month? In the 529 the earnings will compound tax free. In a taxable account, you'll pay taxes on dividends and capital gains when you sell.

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