The fund he is currently using in his 401k, T. Rowe Price Retirement 2050 Fund (TRRMX), has an expense ratio of 0.72%, which is high in my opinion.reeko0530 wrote: ↑Sat Dec 08, 2018 12:54 pmThanks. This is gonna sound bad. So all your suggestions about moving to a traditional Ira, is that staying with t Rowe? And then within that choosing the vanguard options? I think I can choose those even with the 401k as well? Sorry still a beginner here.Ben Mathew wrote: ↑Fri Dec 07, 2018 1:32 pmIf they can tolerate some risk, I would strongly encourage including stocks. Let's say you start with 40% now and glide down to 20% at age 100. Assuming 1.5% real bond return and 5% real stock return, they could draw $12,000/year (today's dollars) and be left with $11,862 at age 100. (Here's the spreadsheet I used to calculate this.) The odds that this plan will work out is good. But if returns are lower than expected and the money runs out early, they will need to dip into home equity. The value of their home would determine how much of a cushion they have to tolerate portfolio underperformance.reeko0530 wrote: ↑Fri Dec 07, 2018 2:37 amIf I want to better insulate his 401k against lets say a 60-70% correction which is rumored to occur within the next year or two, would 20 percent in stocks and 80 percent in bonds insulate them the most? But then I read also that if the fed rate raises, bonds go down so its like a viscous circle with everything i am reading. I am not sure if i should change it to 40/60, 30/70, or 20/80. I know I want to keep some in the stocks to hopefully fight inflation.
Once you pick the stock and bond percentages (asset allocation), the only thing left to do is stick with the plan and not second guess yourself or the markets. There's always something going on--market corrections, Fed does something with interest rates, trade wars, real wars, and so on. Neither you nor your parents need to think about any of this stuff. Financial markets are continually listening to news and correcting prices (by the nanosecond!), so there is no need for you to be involved. Your only job is to stick to the plan. Rebalance back to your planned asset allocation once a year or so. If the portfolio underperforms, try to cut costs. There is really nothing else to do. Trying to parse the news and time the market does more harm than good. This is the one area in life where slacking off and not paying attention is good for you.
I would move the money to a traditional IRA at Vanguard to simplify everything and make it easy to invest in low cost Vanguard index funds. You can create a great portfolio using just three funds (see three fund portfolio on the Bogleheads Wiki):Then the next question is with T Rowe Price, which bond and stocks do I then shift into? If I stop with the Target 2020, I must make custom selections. I have never chosen stocks so if I chose 30% stocks, do i put 20 percent in US and 10 in foreign? Any good solid stocks to choose from on the list from T Rowe? Thanks for any help. This has been so informative and I have probably spent about 12 hours today alone reading about retirement and stocks. There is just so much to do and learn, and then the difficulty is I am a third party trying to do this for someone else.
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)
Let's say you decide on 40% stock : 60% bonds. Of the stock portion, you could go with roughly half in international if you want to reflect global market cap. Some like to tilt towards the U.S. more. You don't have to get this exactly right. Let's say you decide to allocate your stocks to 2/3 US and 1/3 international. That means 27% of your portfolio goes into US and 13% into international. So you have:
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX): 13%
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX): 27%
Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX): 60%
It's really as easy as that.
Try to approach it differently. Risks are a part of life. If you do your best to help your parents, then you should be at peace with yourself, even if the market tanks. Ajit Jain of Berkshire Hathaway said that one of the things he liked about working for Warren Buffett is that Buffett is really good about decoupling decisions and their outcomes. If Ajit made a good decision, but the outcome was bad because of bad luck, Buffett was alright with it. It's hard to achieve Buffett's level of rationality and equanimity, but it's something we can all aspire to.The fear of making a mistake and then being responsible for my parents possible demise is a tough burden.
We don't know what other funds are offered in the 401k plan. If the other funds are also higher expense it will be a good idea to rollover the 401k to an IRA at a low cost provider like Vanguard or Fidelity.
In my opinion the 1) rollover decision, 2) the fund firm to use, and 3) the mutual funds to use, are not the top priority for decision at this point, with just 3 weeks till he retires at year end.
In my opinion the more urgent priorities are:
1) buying health insurance for her;
2) getting a solid number for their retirement expenses; and
3) getting the exact number for their Social Security benefits.