Author Topic: Help with asset allocation  (Read 2709 times)

milog

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Help with asset allocation
« on: March 28, 2015, 06:54:17 AM »
Help.  Attached is a snapshot of my holdings in my 401k this is a work related 401K which was offered from my employer and is a Fidelity account.  I'm 55 and have currently left the world of structured employment.    I read the articles where people say you should leave your 401K alone and just take around 4% off the top if needed to help with expenses or what ever.  As you can see in the attached snapshot, I'm currently receiving a crappy return of around 1.7% year to date.  Now I know that I'm really conservative and probably have too much slanted toward bonds.  But I have got to tell you I'm not sure I could stomach a correction, downturn, or some new housing type bubble where some people make tons of money and then leave somebody holding the bag, an empty bag at that.  So if you have any thoughts as to a better mix, I would appreciate it. 

I'm also selling my house, moving to Florida, where there will be no state income tax and I'm considering either cashing out my 401k, paying the taxes, to purchase a home outright.  Now many will say, heavens no.  But really,  I or you will have to pay the taxes at some point anyway and we do not know what the effective rate will be in the future.  If I carry a mortgage and pay tons of interest with no need for the deduction, how will that help.  So  I also have a structured pension which I could take in a lump sum of around 340,000.  or take an annuity of around 1572. per month before taxes.  This amount would pay out to a spouse should I Pass.  Or should I leave the 401K intact and cash out the pension in a lump sum to purchase a home outright.  As you can tell I really would like to cover the housing expense.  I wanted to take 4% off the top and take my pension in annuity but when I spoke to a mortgage broker, he kept telling me that I needed a job before he would extend me a loan.  I thought the proceeds from pension and 401K would be income.  No other concern-able debt.

Thanks to all you helpful Mustachians .


Alex321

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Re: Help with asset allocation
« Reply #1 on: March 28, 2015, 07:27:12 AM »
What will be your source of income?

MDM

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Re: Help with asset allocation
« Reply #2 on: March 28, 2015, 07:32:48 AM »
I'm currently receiving a crappy return of around 1.7% year to date.
Year to date is less than 3 months old.  The S&P 500 index is up 0.10% YTD.  Stock values go up - and stock values go down.  Making a decision based on <3 months returns is...not wise.

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Now I know that I'm really conservative and probably have too much slanted toward bonds.  But I have got to tell you I'm not sure I could stomach a correction, downturn, or some new housing type bubble where some people make tons of money and then leave somebody holding the bag, an empty bag at that.  So if you have any thoughts as to a better mix, I would appreciate it.
First you'll need to define "better" - there just isn't a mix that will give you both consistent and high returns.  How much of each (consistency vs. high returns) do you want?

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I'm also selling my house, moving to Florida, where there will be no state income tax and I'm considering either cashing out my 401k, paying the taxes, to purchase a home outright.  Now many will say, heavens no.  But really,  I or you will have to pay the taxes at some point anyway and we do not know what the effective rate will be in the future. 
Note that if you take a big lump sum, the IRS will take a big lump of taxes - likely a much higher percentage than if you take it out slowly.

milog

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Re: Help with asset allocation
« Reply #3 on: March 28, 2015, 07:47:50 AM »
Ref:  Alex321,

I currently have severance for one year.  But when I land in Florida, I will seek employment and so will my wife.  We are educated and professional and have a work ethic.  Family, weather, and no state income taxes are drawing us to florida and we have lived there before. 

DavidAnnArbor

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Re: Help with asset allocation
« Reply #4 on: March 30, 2015, 08:03:39 AM »
I would rent a place first before you buy because you want to make sure you find a job first. You might have a job far from where you bought a place. Renting gives you some time to understand and experience the area you want to buy before you jump right in.

Maxman

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Re: Help with asset allocation
« Reply #5 on: March 30, 2015, 08:20:34 AM »
What part of Florida do you plan on settling? We live in central Florida and are retired. If I were looking for work though this area is the pits. Most jobs pay 1/2 of what I could get in Maryland. South Florida may be different. It's a great state to retire into because of very low property tax, moderate sales tax, and no income tax.

forummm

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Re: Help with asset allocation
« Reply #6 on: March 30, 2015, 06:22:01 PM »
Your broker is typical. There are some formulas about how your savings can be used to qualify for a mortgage, but it's ridiculously conservative. They really care just about your income, regardless of whether you have enough cash saved to buy 8 houses.

Indexer

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Re: Help with asset allocation
« Reply #7 on: March 30, 2015, 06:57:15 PM »
Ok first you shouldn't cash out a 401k to buy a house.  It just doesn't make sense from an investing OR tax standpoint.
401k:  tax deferred, should grow 6-8% over time.
Mortgage:  tax DEDUCTIBLE interest of probably 3-4%.

Closing the 401k:  You are giving up the tax deferred growth, and taking on a massive amount of taxes that could even bump you a tax bracket... just to avoid paying 4% interest that you get a tax deduction for.

The pension is also probably tax deferred so you probably don't want to take the lump sum unless you are rolling it into the 401k or an IRA.

And many banks CAN do mortgages using your assets instead of income.  They take your assets, assume you annuitized them, and figure what the income would be.  I know a mortgage broker who does this for her clients regularly and she works for a bank that is very big in the SUNshine state.  You can TRUST me on this.  ;)

Now for the asset allocation question here is what I told someone else in a similar topic.
Here is the easiest way to pick your asset allocation.  Look at the follow chart.



The blue on the left is 100% bonds.  The red on the right is 100% stocks.  The number in the middle of each colored bar is the average return, and the number under each colored bar is the worst year.  For most of these portfolios the worst year is 2008.  Look at that number in the bottom right under 100% stocks.

-43.1%  Imagine that happened now, this year.  How would you feel?  Would you sell?  Would you want to sit in cash again?  Would you be tempted to change your portfolio?  If the answer to any of these questions is yes then 100% stocks is not for you.  So move to the left.
-39.0%  This is 90% stocks/10% bonds.  Ask all those questions again.  If the answer to any of them is yes then this isn't for you so move to the left.

You are Goldilocks and these are your 10 bowls of soup.  Find the one that is just the right temperature for you.