Emergency funds: check
Debt: One auto loan at 5.25%. We do not carry credit card balances and do not currently have a mortgage.
Tax Filing Status: MFJ, starting in TY 2019 (we's gettin' married!!)
Tax Rate: 12% (I think; somewhat hard to estimate given tax law changes but we each make about $40k annually)
State of Residence: NC
Age: 26 (him) and 29 (me)
Current Retirement Assets
401(k) (His) [was contributing 10%; company match 10%]
- 100% Vanguard Target 2060 (no ticker) (0.08%)
- Current value: ~30k
- 90% Fid 500 Index (FXIAX) (0.015%)
- 5% Fid US Bond Index (FXNAX) (0.025%)
- 5% Vanguard Target 2055 (no ticker) (0.08%)
- Current value: ~20k
***We were provided with information from 2013. He asked about getting an updated document and was told they could only get that for him after he enrolled (???). This makes zero sense to me, but it's not my job so it's not my headache. We've decided to proceed as if this information is accurate and hasn't changed, and will make changes once we get the updated info if necessary.***
I've already narrowed down the options into the ones I would recommend for him - now it's just a question of if he should use them at all. I was planning on suggesting one stock fund and one bond fund, with a preference for index funds, and the two I've selected have the lowest expense ratios of everything they offer.
His new employer will offer a 3% match, plus an additional flat amount for him contributing anything at all (he doesn't know how much that amount is). There is a 0.65% administrative charge added to all of these expense ratios.
- Dreyfus Bond Market Index (DBIRX) (0.41%) [1.06% total]
- Dreyfus S&P 500 Index (PEOPX) (0.51%) [1.16% total]
The other option I could suggest to him would be opening a Traditional IRA through Vanguard. I'm looking at very similar options (1 index fund, 1 bond fund) but with much lower expense ratios. These funds have a minimum of $3k to open so we would probably roll over a portion of his current 401(k) balance to meet that minimum. Or possibly all of his 401(k) balance.
- Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) (0.05%)
- Vanguard 500 Index Fund Admiral Shares (VFIAX) (0.04%)
1. Given the higher fees and lower employer match, what sort of contribution makes the most sense? We'd be putting away a max of about 10% of his income, whichever division we go with, so about $4k. I've come up with the following options but I'm not so good at doing the math to figure out which one is ideal.
- He contributes 3% to his 403(b) to maximize his employer match, then contributes the rest into a Traditional IRA
- He contributes nothing to his 403(b) and puts it all in an IRA, because the savings on fees would outweigh the value of the employer contributions
- Either of the above, but we increase my 401(k) contributions instead of using a Traditional IRA for him
3. If the expense ratios we were given are no longer correct (which, let's face it, they probably aren't), what would be the point where the best decision would change? By that I mean, if it's currently worth contributing to the 403(b), how high could the fees get before it was no longer worth it? Or, vice versa, if it's not worth contributing, how low would they have to get to make it a good choice?
4. I'm a relatively aggressive investor; he is more risk averse - and he's been feeling especially squirrelly about the market right now. Since these are his retirement funds, not mine, I'm thinking about recommending about 1/3 bonds, 2/3 stocks to him. That's probably a bit overly conservative given his age, but I think he'd be nervous with a stock-heavier portfolio. But is there a strong case to be made for a different allocation? I'm happy to recommend something else if so; I think he'll take my advice on the ratio as long as it's not too out there (e.g., I know he would veto 100% stocks... and I think he'd veto 50% bonds, too).
Thanks in advance for any advice!