Intro and questions

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GRS159
Posts: 2
Joined: Fri Oct 06, 2017 1:09 pm

Intro and questions

Post by GRS159 » Wed Oct 11, 2017 7:33 am

Hello. First post. Really appreciate the forum and associated learning tools. I recently learned that after turning 60 I was eligible to extract funds from my company 401k to invest elsewhere. Because many of the expense ratios on the company plan are high compared to Vanguard, I have defunded much of the company 401k and rolled it over into a VG account. I'm considering a retirement VG target retirement fund - suggestions welcomed. Summation below...if I've missed any pertinent details, please ask.

Emergency Fund: Yes
Debt: 30,000 Home mortgage - 3.625% IR. 8,800 Auto loan - 2% IR.
Tax Filing Status: Married
Federal Tax Rate: 28%
State of Residence: Washington - 0%
His Age: 60
His Pension est. ~ $2400 - $3100/mo. depending on retirement date
Wife's Age: 57
Her Pension ~ $2500/mo.
Desired Asset Allocation: 60% Bonds / 40% Stocks
Desired International stock allocation: 20 - 25%
Desired International bond allocation: 12%

Current approximate retirement portfolio: High 6 figures.

Current Retirement assets
Taxable (His)
9% Scottrade - in order of predominance - all are long term holdings:
POSKX - Primecap Odyssey Stock Fund
AAPL - Apple Inc.
DE- Deere & Company
DIS - Disney
USB - U.S. Bancorp
MTCH - Match Group Inc.
CGNX - Cognex Corporation
BUD - Anheiser-Busch Inbev SA
CBOE - CBOE Holdings Inc.
SBUX - Starbucks Corporation
TMUS - T-Mobile US Inc.
PI - Impinj Incorporated
Total unrealized capital gain ~ 22,000

6% TIAA CREF
TIERX - International Equity Fund Retail Class - exp. ratio .78
TIOSX - International Opportunities Fund - exp. ratio 1.10
TLISX - International Small-Cap Equity Fund - exp. ratio 1.11
Total unrealized capital gain ~ 4,000

His 401K
25% Vanguard IRA (was new account - just funded and uninvested)
As of 10/16/17:
VBTLX total bond market - 60%
VTSAX total stock market - 30%
VTIAX total int. stock index -10%

1% John Hancock - (recently depleted to fund VG account)
Company contributes 3% - split in thirds:
JH Multimanager Balanced Lifestyle Portfolio - JILBX 1.05% exp. ratio
EuroPacific Grownt Fund - RERFX 1.09% exp. ratio
T. Rowe Price Spectrum Inc. - RPSIX 1.14% exp. ratio

His Roth IRA - Scottrade
6% Cash

Her 401k
53% TIAA CREF (Ticker/expense ratio N/A)

Contributions
New annual contributions
12,000 his 401k (employer contribution additional 3000)
6,000 her 401k contribution (not sure on matching)
? his Roth (should I continue to fund this? If so, at max?)

Questions
1. Should I immediately invest all of the funds available in the Vanguard IRA, or reinvest over time? If over time...what percent at what interval (monthly, quarterly, etc)?

2. Should I continue to fully fund the Roth, partially fund the Roth, or simply put those available funds into the regular IRA
Last edited by GRS159 on Tue Oct 17, 2017 8:08 am, edited 4 times in total.

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in_reality
Posts: 4216
Joined: Fri Jul 12, 2013 6:13 am

Re: Intro and questions

Post by in_reality » Thu Oct 12, 2017 5:04 am

Hi and welcome,
GRS159 wrote:
Wed Oct 11, 2017 7:33 am

Desired Asset Allocation: 60% Bonds / 40% Stocks<br/>
Desired International stock allocation: 20 - 25%<br/>
Desired International bond allocation: 12%<br/>
<br/>
Current approximate retirement portfolio: High 6 figures.<br/>

Current Retirement assets
Taxable
15% cash<br/>
7% TIAA CREF<br/>
TIERX - International Equity Fund Retail Class - exp. ratio .78
TIOSX - International Opportunities Fund - exp. ratio 1.10
TLISX - International Small-Cap Equity Fund - exp. ratio 1.11
These are too expensive for me. In taxable you should have access to much lower cost funds.

I haven't looked at their performance but it's rare for a fund to continue outperformance by enough to cover those costs.

If you have capital gains and can't sell, you can at least turn of dividend reinvestment. Any maybe you could sell some lots after a loss.


GRS159 wrote:
Wed Oct 11, 2017 7:33 am
His 401K
25% Vanguard IRA (new account - just funded and uninvested)<br/>

1% John Hancock - (recently depleted to fund VG account)
Company contributes 3% - split in thirds:
JH Multimanager Balanced Lifestyle Portfolio - JILBX 1.05% exp. ratio
EuroPacific Grownt Fund - RERFX 1.09% exp. ratio
T. Rowe Price Spectrum Inc. - RPSIX 1.14% exp. ratio
<br/>
His Roth IRA - Scottrade
6% Cash<br/>

Her 401k
53% TIAA CREF (Ticker/expense ratio N/A)<br/>
For the 401ks, what are your options? Don't you have a low cost S&P500 fund?

I would look for the lowest cost 401k fund(s) and use that. Then I would plan my IRA, ROTH, and taxable holdings (because you have more fund choices there) to reach my target AA.

GRS159 wrote:
Wed Oct 11, 2017 7:33 am
Contributions

New annual contributions
12,000 his 401k (employer contribution additional 3000)<br/>
6,000 her 401k contribution (not sure on matching)<br/>
? his Roth (should I continue to fund this? If so, at max?)<br/>

GRS159 wrote:
Wed Oct 11, 2017 7:33 am
Questions
1. Should I immediately invest all of the funds available in the Vanguard IRA, or reinvest over time? If over time...what percent at what interval (monthly, quarterly, etc)?<br/>
I would do so immediately, especially if the money transferred from the 401k was invested before moving it to the IRA. Why take money out of stocks and wait to put it back in?
GRS159 wrote:
Wed Oct 11, 2017 7:33 am
2. Should I continue to fully fund the Roth, partially fund the Roth, or simply put those available funds into the regular IRA
I am not sure which way works best for you. Roths are nice because you won't be forced to take an RMD you don't want. I suspect I'd use a regular IRA to reduce my taxes and instead maybe incur some capital gains taxes to get out of the higher cost funds in taxable. I generally create different files in TurboTax (using the prior year of course but it's a good ballpark) to see how things would work out.
[60% US _ 26% DEV _ 14% EM] | (-16% LC _ +8% MC _ +8% SC) | [47% FND/VAL _ 40% MKT _ 7% MOM _ 6% REIT] | (+/- 5% or *25% rebalancing bands)

GRS159
Posts: 2
Joined: Fri Oct 06, 2017 1:09 pm

Re: Intro and questions

Post by GRS159 » Thu Oct 12, 2017 8:37 am

Hello in_reality...thanks for your reply.

Regarding the Taxable 7% TIAA CREF, you wrote:
These are too expensive for me. In taxable you should have access to much lower cost funds.

I haven't looked at their performance but it's rare for a fund to continue outperformance by enough to cover those costs.

If you have capital gains and can't sell, you can at least turn of dividend reinvestment. Any maybe you could sell some lots after a loss.
I agree, the ER's are high, and there are lower cost funds. I purchased these in late Aug. for international exposure. Currently no losses to sell.
For the 401ks, what are your options? Don't you have a low cost S&P500 fund?

I would look for the lowest cost 401k fund(s) and use that. Then I would plan my IRA, ROTH, and taxable holdings (because you have more fund choices there) to reach my target AA.
For my 401k, yes, there is 500 Index Fund JFIVX @ .63 ER, which is the lowest ER available to me with this account. For wife's 401k, I don't know, but I'll investigate.
GRS159 wrote: ↑
Wed Oct 11, 2017 5:33 am
Questions
1. Should I immediately invest all of the funds available in the Vanguard IRA, or reinvest over time? If over time...what percent at what interval (monthly, quarterly, etc)?<br/>

I would do so immediately, especially if the money transferred from the 401k was invested before moving it to the IRA. Why take money out of stocks and wait to put it back in?
Yes, it was invested, but 33% was the RPSIX bonds. As far as why wait, some think market is currently fully valued, but I know the adage about market timing. My Vanguard choice will be more heavily weighted to bonds, closer to 60%.
I am not sure which way works best for you. Roths are nice because you won't be forced to take an RMD you don't want. I suspect I'd use a regular IRA to reduce my taxes and instead maybe incur some capital gains taxes to get out of the higher cost funds in taxable. I generally create different files in TurboTax (using the prior year of course but it's a good ballpark) to see how things would work out.
Thanks, I had not thought about depleting the taxable account to increase IRA contributions.

User avatar
in_reality
Posts: 4216
Joined: Fri Jul 12, 2013 6:13 am

Re: Intro and questions

Post by in_reality » Thu Oct 12, 2017 8:57 am

GRS159 wrote:
Thu Oct 12, 2017 8:37 am

Yes, it was invested, but 33% was the RPSIX bonds. As far as why wait, some think market is currently fully valued, but I know the adage about market timing.
Yeah, I get that.

At current valuations we are expecting maybe 3% real. So if inflation is 2%, you can buy the stocks next year for 5% higher. That's how I look at it.

Sure they could crash, but they could crash two years from now after you waited to buy them at 5% higher. And your 60% in safe assets means it's pretty unlikely you'd have to sell at distressed prices. Doesn't it?

At the end of the day, the right decision is the one you are comfortable with.

That said, it feels to me like maybe your recent international purchase was because they've been going up recently and that gives you confidence. Have you been maintaining the same international allocation?

Anyway, post back with alternatives from your 401ks. Also, can you get anything in your taxable account or is it limited to TIAA CREF offerings? If so, what are the alternatives. Moving taxable assets isn't difficult if it makes sense to go someplace for better funds such as what you did for the 401k to IRA move.
[60% US _ 26% DEV _ 14% EM] | (-16% LC _ +8% MC _ +8% SC) | [47% FND/VAL _ 40% MKT _ 7% MOM _ 6% REIT] | (+/- 5% or *25% rebalancing bands)

SimplicityNow
Posts: 210
Joined: Fri Aug 05, 2016 10:31 am

Re: Intro and questions

Post by SimplicityNow » Thu Oct 12, 2017 10:52 am

Welcome to the forum. In answer to your question regarding investing it all at once or over time there have been hundreds of threads on this forum covering the same topic.

Here are a few.

viewtopic.php?t=193825

viewtopic.php?t=180926

viewtopic.php?t=123543

There are hundreds more.

Investing in a lump sum has been shown (and you can google the studies on your own if you want to read them) to yield slightly better long term results then dollar cost averaging (DCA). DCA's big advantage is its psychological benefit and to allay the fear we have that as soon as we purchase a large amount the market will drop.
At the end of the day there isn't a huge difference and either way is fine. Pick one and do it.

The other argument people make is if you are transferring funds from one place to the other (to lower costs) and those other funds were already invested why would you DCA then back in? That reeks to me a little bit of market timing.

If you are unsure I would use a suggestion made on the boards (I think it was from Livesoft) to invest 50% of it at once and then the other 50% monthly over a 6 - 12 month period. I wouldn't delay it longer then that.

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ruralavalon
Posts: 11281
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Intro and questions

Post by ruralavalon » Thu Oct 12, 2017 11:01 am

Welcome to the forum :)

In my opinion it was a very good idea to do an in-service rollover from the Hancock 401k to the Vanguard IRA.

GRS159 wrote:
Wed Oct 11, 2017 7:33 am
Debt: 30,000 Home mortgage. 8,800 Auto loan.
What are the interest rates on these loans? If the interest rates are high then paying off the debt may be a good "investment".

Please simply add any new information to your original post using the edit button, it helps a lot if all of your information is in one place.

GRS159 wrote:Age: 60
Wife: 57
Desired Asset Allocation: 60% Bonds / 40% Stocks
Desired International stock allocation: 20 - 25%
Desired International bond allocation: 12%
In my opinion your desired asset allocation is within the range of what is reasonable. But in my opinion an international bond allocation is unnecessary and probably not helpful.

GRS159 wrote:Taxable
15% cash
7% TIAA CREF
TIERX - International Equity Fund Retail Class - exp. ratio .78
TIOSX - International Opportunities Fund - exp. ratio 1.10
TLISX - International Small-Cap Equity Fund - exp. ratio 1.11
What fund company is the taxable account currently with? What low expense ratio funds are currently available in this account? Please give fund names, tickers and expense ratios. Please simply add this to your original post using the edit button.

In my opinion the 15% cash needs to be invested, rather than just sitting there giving a negative real return net of inflation.

What is the unrealized capital gain in those international funds? Please simply add this to your original post using the edit button. In the long-run it may be worth selling those funds and suffering the one-time tax liability to save on the expense ratios every year.

You could consider moving this account to a low cost provider like Vanguard, and have expense ratios about 1% lower.

You could also consider depleting this account to enable increased contributions to the two 401ks.

GRS159 wrote:His 401K
25% Vanguard IRA (new account - just funded and uninvested)<br/>

1% John Hancock - (recently depleted to fund VG account)
Company contributes 3% - split in thirds:
JH Multimanager Balanced Lifestyle Portfolio - JILBX 1.05% exp. ratio
EuroPacific Grownt Fund - RERFX 1.09% exp. ratio
T. Rowe Price Spectrum Inc. - RPSIX 1.14% exp. ratio
Instead I suggest investing his 401k in John Hancock VIT 500 Index (JFIVX) ER 0.63%.

I suggest investing the Vanguard IRA soon in:
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%;
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%; and
Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) ER 0.05%.

A target retirement fund, or some other balanced fund, could be a good idea if the other accounts will also be invested in a balanced fund. The main advantage of a target retirement fund is that it is a single fund all-in-one portfolio, requiring no attention or management from the investor.

That advantage is lost if a target retirement fund is combined with regular mutual funds, it just makes it harder to keep track of your asset allocation.

If you want to use a balanced fund in every account, then you could consider Vanguard LifeStrategy Moderate Growth Fund (VSMGX) (60/40 allocation) in the tax-advantaged accounts, and Vanguard Tax-Managed Balanced Fund (VTMFX) (50/50 allocation) in any taxable account.

GRS159 wrote: His Roth IRA - Scottrade
6% Cash
In my opinion the 6% cash needs to be invested rather than just sitting there giving a negative real return net of inflation.

I suggest rolling the Scottrade Roth IRA over to a Vanguard Roth IRA, for easy access to their many low cost mutual funds.

GRS159 wrote:Her 401k
53% TIAA CREF (Ticker/expense ratio N/A)
What funds is she using in her 401k? What other funds are offered in her 401k? Please give fund names, tickers and expense ratios. Please simply add this to your original post using the edit button.

GRS159 wrote:Questions
1. Should I immediately invest all of the funds available in the Vanguard IRA, or reinvest over time? If over time...what percent at what interval (monthly, quarterly, etc)?
I suggest immediately reinvesting the money in the Vanguard IRA. Investing in a lump sum works out better about 2/3 of the time. For a pdf of a Vanguard paper on the subject Google "Dollar-Cost Averaging Just Means Taking Risk Later".

GRS159 wrote:2. Should I continue to fully fund the Roth, partially fund the Roth, or simply put those available funds into the regular IRA?
You are in the 28% tax bracket. Are you eligible to make deductible contributions to a traditional IRA?

Do either of your 401ks permit Roth 401k contributions?

Will either or both of you eligible for a significant pension?

Please simply add this to your original post using the edit button.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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