Author Topic: Overly Complicated Retirement Fund Allocation - Simplify?  (Read 1294 times)

CalBal

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Overly Complicated Retirement Fund Allocation - Simplify?
« on: January 24, 2018, 02:33:45 PM »
Hello smart Mustachians!

I have started looking into my retirement accounts to see what I can do to simplify my investment strategy. I've read the old posts about VTSAX, VBTLX, and VGSLX and am wondering if I should just completely simplify to these funds or do something else. Each of the funds/accounts I currently have were opened at different times, under different conditions, so please try to refrain from face punching... I didn't know a lot in the past (and still don't). I look forward to your insights!

My 401k is employer sponsored and is through Wells Fargo. We do have some choice as to what our portfolio looks like, but I have mine simply set to "Moderate (Balanced Growth)" = mid cap stocks 14%, bonds 15%, balanced/lifestyle 42% (no idea what that is really), international stock 15%, large cap stock 14%. I've had the same allocation since I opened the account ~ 7 years ago. My 5-year personal rate of return is 9.5% (not bad I suppose). I'm not sure what I am paying in fees, but I guess I don't have much of a choice since I have to pick something that the company offers... I have $242,000 in my 401k.

In addition to the 401k I have several accounts open with Vanguard ($91,851 total), as follows:

Account   Fund Symbol   Fund                                                                                                   Amount
Roth IRA   VBIAX           Vanguard Balanced Index Fund (0.07% cost basis)                                  $21,031
           Large cap stocks (60.45%)   $12,713
           medium duration bonds (39.55%)   $8,318
           VTIAX           Vanguard Total International Stock Index Fund (0.11% cost basis)                 $20,102
           foreign large blend (20% emerging/40% europe/30% pacific/7% North Am)   
           VTSAX   Vanguard Total Stock Market Index Fund (0.04% cost basis)                                 $29,014
           Large cap stocks   
Traditional IRA                   money market                                                                                 $5,500
Taxable investment acct   VFIFX   Vanguard Target Retirement 2050 Fund (0.16% cost basis) (89.95% stocks/10.05% bonds)   $16,204
           Vanguard Total Stock Market Index Fund Investor Shares (53.70%)           $8,702
           Vanguard Total International Stock Index Fund Investor Shares (36.20%)   $5,866
           Vanguard Total Bond Market II Index Fund Investor Shares* (7.10%)   $1,150
           Vanguard Total International Bond Index Fund Investor Shares (3.00%)   $486

When I total them all up (not including the $5,500 in the money market account, still to be allocated), I get

total stocks   total bonds   total
$76,397           $9,954           $86,351
88.47%           11.53%   

Given that I have admiral shares in my Roth IRA (nice cost basis for those) but not in VFIFX, should I get rid of VFIFX and put all of the taxable account stuff in 1 (or 2) accounts if I can manage enough $ to get admiral shares? (I don't recall the limit - maybe $10,000 for the index funds that I have?) I don't really remember why I picket a target fund for that account instead of just an index fund. Should I ditch one or more of the funds in the Roth IRA and invest in fewer funds? I obviously can't withdraw money from that account, but I could move it around.

I just opened the Traditional IRA this year for 2017 but haven't allocated the funds yet. Should I front load 2018 and try to get into an index fund at the admiral shares level there right off the bat too?

In addition, should I have more money in safer funds (more in bonds, in particular)? I am 42 yo but am thinking of either semi-retiring either very soon (job burnout, considering a lower paying career - I have a case study over in the case studies forum), or sticking with it for 3-5 years and then not looking for another job (at least not right away). All of my Vanguard funds are rated either 4 or 5 on their 1-5 risk scale, presumably because they are primarily stock (+ the international stocks), and I am wondering if that is a little too risky for me right now.

Thanks for reading this far, any advice would be welcome!!

sokoloff

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Re: Overly Complicated Retirement Fund Allocation - Simplify?
« Reply #1 on: January 24, 2018, 03:09:04 PM »
In addition, should I have more money in safer funds (more in bonds, in particular)? I am 42 yo but am thinking of either semi-retiring either very soon (job burnout, considering a lower paying career - I have a case study over in the case studies forum), or sticking with it for 3-5 years and then not looking for another job (at least not right away). All of my Vanguard funds are rated either 4 or 5 on their 1-5 risk scale, presumably because they are primarily stock (+ the international stocks), and I am wondering if that is a little too risky for me right now.
I'm of the opinion that you might have the opposite problem: not enough investments in long-term (equities). (Neither your 401K holdings nor your FICA eligibility were detailed in this thread enough to know.)

You're 42; you're likely to live 40-50 more years. You have ~$330K invested now; 4% of that is a hair over $13K/yr of potential income per year, assuming you buy into the 4% SWR idea. Can you live on $13K/yr, including buying housing and health insurance? Maybe part time work or a downshift career will give you health insurance (and crucially, additional income).
« Last Edit: January 24, 2018, 03:11:46 PM by sokoloff »

CalBal

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Re: Overly Complicated Retirement Fund Allocation - Simplify?
« Reply #2 on: January 24, 2018, 04:05:35 PM »
I'm of the opinion that you might have the opposite problem: not enough investments in long-term (equities). (Neither your 401K holdings nor your FICA eligibility were detailed in this thread enough to know.)

You're 42; you're likely to live 40-50 more years. You have ~$330K invested now; 4% of that is a hair over $13K/yr of potential income per year, assuming you buy into the 4% SWR idea. Can you live on $13K/yr, including buying housing and health insurance? Maybe part time work or a downshift career will give you health insurance (and crucially, additional income).
Hi @sokoloff, thanks for responding! That's what I am likely intending to do, a downshift to a less lucrative but also less stressful career (with health insurance). $13,000 is not enough with my mortgage, but the current situation can't continue. However, on the case studies thread, a number of folks have made me realize I have plenty of FU money to downshift comfortably, even to possibly just let the 401k ride until 59.5. I have equity in a house (not paid off but with a reasonable mortgage and rate). (At my current rate of payoff it will be paid off in 12 years, but I would likely will sell and move to a lower COLA if I quit my current job (either immediately or somewhere down the line). If moving to a lower COLA, if I bought another house, my rent/mortgage would be considerably lower, might even be able to buy outright and have no mortgage.)

In terms of FICA eligibility, do you mean the payout I expect from SS down the line? I'd have to try to figure that out.

In my current 401k allocation, I located the allocation mix. It is broken down as 15% bonds/85% stocks (with the Morningstar style box in parens):
15% Bonds in Wells Fargo Core Bond I (high-interim)
42% Balanced/Lifestyle, broken into:
     14% American Funds American Balanced R6 (large-growth)
     14% First Eagle Global I (large-blend)
     14% T. Rowe Price Capital Appreciation (large-growth)
28% Domestic Stock, broken into:
     14% Mairs & Power Growth Inv (large-blend)
     14% TIAA-CREF Instl Mid-Cap Value Inst (mid-value)
15% International Stock in Franklin Mutual Quest R6 (large-value)

So combining 401k + vanguard accts, the allocation is approximately 86% stocks and 14% bonds. However, I can't control the 401k allocations very easily*, whereas I can with the Vanguard funds.

*(That's not strictly true, there are other mixes I could choose, and can directly invest in the funds themselves, but they all have fees associated with them an my impression is that the pre-mixed funds (Aggressive, Balanced (which is what I have) and Conservative) have lower fees that trying to pick manually. I could be wrong though.)
« Last Edit: January 24, 2018, 04:17:20 PM by CalBal »

sokoloff

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Re: Overly Complicated Retirement Fund Allocation - Simplify?
« Reply #3 on: January 24, 2018, 04:45:12 PM »
Well, the good news is that the minute you quit your current job, you can rollover your 401K into a rollover IRA and control the investments as much as you want. I have one rollover at ETrade and DW and I have several rollovers at Vanguard.

Yes, that's what I meant about FICA eligibility. There's an online calculator for it (at the SSA, where you actually log in and they pull up your records). That calculator is limited in some ways (I think it assumes you'd keep working at last year's salary), but you can at least get an idea of what you're looking at for FICA. I'm a couple years older than you and I expect that at least 80% of projected benefits will be available when we retire and quite likely 95% or more.

CalBal

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Re: Overly Complicated Retirement Fund Allocation - Simplify?
« Reply #4 on: January 24, 2018, 05:15:17 PM »
Well, the good news is that the minute you quit your current job, you can rollover your 401K into a rollover IRA and control the investments as much as you want. I have one rollover at ETrade and DW and I have several rollovers at Vanguard.

Definitely planning on it. :)

Yes, that's what I meant about FICA eligibility. There's an online calculator for it (at the SSA, where you actually log in and they pull up your records). That calculator is limited in some ways (I think it assumes you'd keep working at last year's salary), but you can at least get an idea of what you're looking at for FICA. I'm a couple years older than you and I expect that at least 80% of projected benefits will be available when we retire and quite likely 95% or more.

Interesting. This is what the SSA tells me. I wasn't really considering it since it is so far away and who knows what is going to happen. (Also it is super weird to see the whole earnings history!)

At full retirement age (67):   $2,522 a month
At age 70:     $3,140 a month
At early retirement age (62):     $1,719 a month

(I would add that my parents are 70 this year and waited until age 70 to start withdrawing. They've been retired for 6 and 8 years. They are in very good shape financially, unless something ridiculous happens. So eventually, I will probably have a decent inheritance as well, though I'm not banking on it.)