Depends on the value of your pensions and how much you're putting into the 401k.
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Retirement-Era |OT| How to Invest For Retirement
- Thread starter TheTrinity
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Here's my rational for why I choose to put my emergency funds in a medium risk index fund:
Vanguard says they usually credit accounts within 2 business days, but since it's an emergency let's just assume a worst case scenario of 1 week to have access to liquid cash. Now, consider the emergencies where you need access to whatever sum of cash where you absolutely need to have it in less than 1 weeks time. I honestly could not think of any.
That's not to say I've left myself completely vulnerable to needing immediate liquidity for an emergency. I still have about 20% stocked away in a savings account that I could access today if needed. But for the rest of the 80% I'm unlikely to touch it for years, so it will at the very minimum continue to appreciate for the index I've chosen and not be at risk at lagging inflation.
And ideally long term, I would have some investments large enough in a non-retirement account that would be able to act as a buffer in an emergency so a true "emergency fund" would no longer be necessary.
When we retire, our pensions combined should roughly bring in around 11k/month before federal taxes. Our pensions are exempt from State, SS, and city tax.
As far as 401k, I really don't know. I just signed up for it and dont remember.
Well first of all, definitely get more info on your 401k.
If you are comfortable on living on 11k/mo, and the pensions are relatively safe, then more might not be necessary.
OP
OP
Our pensions are roughly 70 percent of our salary for the last 3 years.
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Your wife will be bringing her half of that pension, at least ;) And you would be stuck working for a longer time with a pension.
So end of year report, this is where our net worth stands, still loads of green to fill up with flowers...
It wasn't all that good of a year really, living expenses in SoCal are really not helpful...
It wasn't all that good of a year really, living expenses in SoCal are really not helpful...
End of 2017 financial results:
- 48.51% growth in worth for husband and I! A little bit more if it's network since we're paying down mortgage too. We only just started a couple of years ago though, so this isn't BIG MONEY just yet.
- hit about 11% compounded interest overall! Could have been more were we more risky, but I think it's okay.
- went 2k+ over budget in fun money! Haha.. bad. But I also got an increase in pay and will adjust my budget to be a bit more "realistic".
overall I am on track to retire comfortably, but with future markets likely to tank or stagnate a bit at least, who knows! That just means I gotta hoard more, right?...
- 48.51% growth in worth for husband and I! A little bit more if it's network since we're paying down mortgage too. We only just started a couple of years ago though, so this isn't BIG MONEY just yet.
- hit about 11% compounded interest overall! Could have been more were we more risky, but I think it's okay.
- went 2k+ over budget in fun money! Haha.. bad. But I also got an increase in pay and will adjust my budget to be a bit more "realistic".
overall I am on track to retire comfortably, but with future markets likely to tank or stagnate a bit at least, who knows! That just means I gotta hoard more, right?...
Is it better to max out a 401k vs. putting it into a Vanguard investment account? Our 401k has a measly match and I already put in 8%, but that's not 18k. How do I add a lump sum into it? Increase paycheck contribution?
OP
OP
Nice, sounds like a good return if you're saying it's low risk. I think we were about 13% for the year, being mostly in stocks. Would have been higher but the canadian dollar has risen a little bit recently.
What I've heard is you contribute to the 401k until you equal your employer match. Then you max out your IRA. Then you return to contributing to your 401k up to the max allowed.
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Depends on 401K investments. In some scenarios, you may have to put money in a fixed rate over investing in any fund due to very high costs (fee for buying, selling, annual "managing").
Thank you both.
Right now the employer match is measly (1.5%), so I easily surpass it.
Then I max out a Roth IRA.
My issue is after that. The pre-tax income 401k is either manual selections, Vanguard Target funds, or fully managed for .45%. Right now it's easy in a Target fund. Or I can put post-tax income in my Vanguard brokerage account and buy individual or Target funds at the same costs. Writing it out, it seems my question is really pre vs post tax advantages.
If you're maxing out retirement investments and also investing via ordinary brokerage accounts on top of that, it's quite possible you don't need much of an emergency fund, or don't need to keep your emergency fund in cash. The reasons for doing it that way are largely psychological. Personally I see my emergency fund as something akin to insurance--it's a hedge against low-probability events, and while I don't anticipate needing to use it, I appreciate the peace of mind and am willing to pay a sort of insurance premium by forgoing investment returns on that lump of cash.
Really the emergency fund is a lot more important if you're in a paycheck-to-paycheck type of situation, or would need to crack into your retirement savings if an emergency hit.
As far as making lists of possible future emergencies, it's certainly not futile. As long as you're aware that there are "unknown unknowns," that kind of planning can be very useful. We can't plan for everything but that doesn't mean we just throw our hands up and go "oh well I guess it's impossible!"
Really the emergency fund is a lot more important if you're in a paycheck-to-paycheck type of situation, or would need to crack into your retirement savings if an emergency hit.
As far as making lists of possible future emergencies, it's certainly not futile. As long as you're aware that there are "unknown unknowns," that kind of planning can be very useful. We can't plan for everything but that doesn't mean we just throw our hands up and go "oh well I guess it's impossible!"
Stupid question time.
I got approved for a Roth IRA account with Vanguard in late December, and today, I put the full $5,500 into their Target Retirement 2050 fund (VFIFX).
As I understand it, this still falls under the 2017 tax year since it's before April 17th, 2018. If I wish to go ahead and contribute $5,500 for the 2018 tax year, can I go ahead and do that right now, or is there some other step that I need to do first in order to differentiate that this next $5500 is for the next tax year rather than the current tax year?
I got approved for a Roth IRA account with Vanguard in late December, and today, I put the full $5,500 into their Target Retirement 2050 fund (VFIFX).
As I understand it, this still falls under the 2017 tax year since it's before April 17th, 2018. If I wish to go ahead and contribute $5,500 for the 2018 tax year, can I go ahead and do that right now, or is there some other step that I need to do first in order to differentiate that this next $5500 is for the next tax year rather than the current tax year?
When I contribute at fidelity I can specifically choose what tax year I want to contribute to. I would assume vanguard can do something similar.
Yeah, you pick which year it goes toward. Unless you have filed your taxes or already maxed out 2017, no reason not to put it toward that first.
And you don't really have to do anything special to do another contribution for 2018. Just select 2018 when it gives you the option. It probably won't let you do anything with 2017 anyway if you already maxed it out, IIRC it just shows that you already put in $5500 and makes you select 2018 instead.
This what?
We had a good year on the stock market. We will probably have good and bad years in the future.
People have been predicting a crash/correction ever since the recovery. Ignore the noise and stay the course.
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If you're an expert, then start a business in hedge fund management. Maybe your active investment skills are better than the market's.
You will find out a lot of financial managers are closet market indexers.
OP
OP
Yep, also got my $5500 into my TFSA already. Off to a good start although we bought about 2k worth of speakers in a somewhat well-considered decision on the last day of December (good sales!). We also have some vacation bookings to make so January/February are probably going to end up being pretty weak in terms of savings.
Can someone help me understand the HSA eligibility requirements? I have an HRA plan with with a deductible of $4,000 and an annual out of pocket maximum of $5,000.
I understand the deductible requirement, but I don't follow the out-of-pocket limit. For example, 2018 is $6,650. Are you eligible for an HSA if your out-of-pocket maximum is less than that (i.e. $5,000) or are they saying it needs to be greater than $6,650
https://tax.thomsonreuters.com/chec...-deductibles-and-hdhp-out-of-pocket-maximums/
I understand the deductible requirement, but I don't follow the out-of-pocket limit. For example, 2018 is $6,650. Are you eligible for an HSA if your out-of-pocket maximum is less than that (i.e. $5,000) or are they saying it needs to be greater than $6,650
https://tax.thomsonreuters.com/chec...-deductibles-and-hdhp-out-of-pocket-maximums/
Does anyone have any experiences with a "Reverse Rollover" with Vanguard?
My salary by the end of this year will likely be above the max limit for a Roth IRA. I have a "Rollover IRA" with vanguard that has money from my previous employer's 403b.
I'd like to perform a backdoor Roth IRA. But to do that without paying the Pro-Rata tax, Id have to rollover my "Rollover IRA" in to my 403b with my new employer.
Is the process straightforward? Has anyone done it before with Vanguard? My previous rollover from my old 401k to my Rollover IRA was trustee to trustee so it shouldn't count towards my one rollover per year limit right?
My salary by the end of this year will likely be above the max limit for a Roth IRA. I have a "Rollover IRA" with vanguard that has money from my previous employer's 403b.
I'd like to perform a backdoor Roth IRA. But to do that without paying the Pro-Rata tax, Id have to rollover my "Rollover IRA" in to my 403b with my new employer.
Is the process straightforward? Has anyone done it before with Vanguard? My previous rollover from my old 401k to my Rollover IRA was trustee to trustee so it shouldn't count towards my one rollover per year limit right?
You can qualify for an HSA if you have a high deductible health plan (HDHP). You have to have the latter first. If your employer offers a HDHP, then you sign up for that, then ask them about enrolling into an HSA. $6,650 is what is considered the maximum out-of-pocket expenses in HDHPs. Your $4000 and $5000 numbers seem to qualify as a HDHP, so ask your HR people if there is an HSA you can switch to.
Great, thanks for the information! HSAs seem like great retirement vehicles.
At what age would you all suggest adjusting investment allocation towards bonds? I'll be turning 30 this year, and all of my investments since I got started at about age 25 have been in stocks (specifically, a total market index fund, FSTVX, for the majority if my investments), but lately I've been wondering if I should adjust my allocations so that a smaller proportion (10%, maybe) of that goes towards a bond fund. If the bottom dropped out of the market right now I wouldn't be too concerned because I don't have any plans of touching that money for a long time (I'd like to retire at 60), but it seems that taking on too much risk, even at my age, is frowned upon.
Honestly I wouldn't start worrying about it for at least another 10 years.
OP
OP
Yeah, it's not about a specific age, it's about how far you are from retirement. My estimated retirement age is about 45. With my current requirement for retirement funds, Mint is projecting more like 42 but I would probably delay that anyway. So I'd probably start getting into bonds sometime in my mid-to-late thirties. If you're planning on 60 then you certainly don't need bonds since you're the same age as I am. Maybe start shifting at around the 45-48 range if that makes you comfortable? Otherwise you're going to be throwing away potentially hundreds of thousands of dollars in gains.
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Depends on age, but generally people think you will retire when age penalties don't exist for retirement accounts.
If you need a number, you need to start thinking about your asset allocation % and stick to it no matter what happens. Do not let your emotions on stock market performance change your goals.
I usually like to say don't think about bonds until you're age 40. If you're extremely risk averse, then you can use your age as a % guide. However, this advice usually depends on how much you've invested. If your portfolio is very low, then it doesn't make sense to own bonds from start.
If you're still unsure, 60/40 is a decent allocation for many people. See Vanguard's Wellington active managed fund (now 65/35).
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I'm almost 30 and I have 10% in bonds, but that's just because I'm a worrier. I know that I don't need it (we have enough investments and I'll get a government pension at 52, so I'm far from being at risk), but it makes me feel safer. Do what feels good to you. But it's true, you definitely don't need bonds right now, unless you think it could help you not sell when the market goes down.
I read an article (which I can't find now - sorry) that recommended the following for bonds based on a retirement age of 65.
Edit: this might help also: https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocations
- Start with 10% in bonds and gradually increase bond allocation until you get to around age 50. Aim for an allocation of 30% in bonds at 50.
- Increase to 35% at age 55.
- Increase to 40% at age 60 and into your early retirement years.
Edit: this might help also: https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocations
So $20,000 is about to fall into my lap (selling property given to my brother and me 25 years ago) and I've decided I should put it all towards my retirement. However I am mostly clueless about this sort of thing. The little research I did pointed me towards something like an IRA and then contributing an additional $5,000 a year to it. Is there a better course to maximize my retirement though? Not sure if it's relevant but I currently have a 401k which I contribute the maximum of which my work will match.
You can put it back into Real Estate investments:
Vanguard REIT ETF (VNQ)
assuming you won't need the cash short term and your a younger investor, but I would suggest maximizing your 401k and IRA first:
Vanguard IRAs
Not really. Just stick it in your IRA and make sure what you are invested in is low-cost mutual funds like the Total US Stock Market Index fund, etc.
You could invest the 14.5k in a taxable account and just sell 5.5k every year to stick in your IRA. That, of course, is a more riskier strategy, but you could always invest that in a less volatile fund than stocks.
Can anyone say a little more about backdoor Roth IRAs? Been doing a bunch of reading but haven't been able to find the answer so far to my question. I think I should be doing one but I'm still a little unclear. I didn't contribute for 2017 but my understanding is that I can contribute to last year up until taxes are due, but the conversion would have to happen this year. Does that mean, if I also contribute to an IRA for 2018, can I convert both of those amounts through a backdoor Roth in 2018?
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Why not contribute directly to Roth IRA? Why through a conversion?
You should still be able to contribute to either until April for previous year.
As for a Traditional to Roth conversion, I previously incorrectly stated there is a limit once per year. Unless I'm incorrectly reading terms again, there is actually no limit. One limit per year applies to rollover accounts (converting 401K to traditional).
Conversions should be taxed at current year.
You should still be able to contribute to either until April for previous year.
As for a Traditional to Roth conversion, I previously incorrectly stated there is a limit once per year. Unless I'm incorrectly reading terms again, there is actually no limit. One limit per year applies to rollover accounts (converting 401K to traditional).
Conversions should be taxed at current year.
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Target fund is usually comprised of an active managed fund of index funds using the three fund portfolio format. It is one of the easiest ways to invest for people who don't want to tinker or think that much about adjusting percentages.
One key factor to be aware as a passive investor is costs (expense ratios).
What are the expense ratios on funds available to you?
Three fund portfolio: https://www.bogleheads.org/wiki/Three-fund_portfolio
One key factor to be aware as a passive investor is costs (expense ratios).
What are the expense ratios on funds available to you?
Three fund portfolio: https://www.bogleheads.org/wiki/Three-fund_portfolio
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Thank you, I think that answered my question. I have a Roth IRA with Fidelity already so at this point I guess I can just contact them about the logistics.
You only need to do a backdoor Roth if you're above the income limit. If it's just a question of timing you should be fine to contribute now for 2017.
watching this thread for when i need to buckle down and absorb some knowledge! Thank you so much!!!
Well yes! i have a 401k atm, i was in a roth prior for few years. but im at work and there is so much information i dont want to skim it. i really want to study the info and then start to ask questions, etc. :)
Can I just open a Traditional IRA right now with Vanguard and then go back and rollover my 401K into it in a couple weeks?
I was originally going to rollover my 401K at the same time I open an IRA, but I'm hearing it may take a couple weeks for my 401K bank to send Vanguard the check to deposit, so I was wondering if there there was any harm or penalty with getting a jump on things and opening up the IRA with $1000 right now and then rollover my 401K into the same account in a week or two?
Can I do that now and set up my account and portfolio ahead of the rollover? Or should I just do it all at once? Or can I not do that at all for some reason?
Just curious. I don't have anything set up at Vanguard at the moment.
I was originally going to rollover my 401K at the same time I open an IRA, but I'm hearing it may take a couple weeks for my 401K bank to send Vanguard the check to deposit, so I was wondering if there there was any harm or penalty with getting a jump on things and opening up the IRA with $1000 right now and then rollover my 401K into the same account in a week or two?
Can I do that now and set up my account and portfolio ahead of the rollover? Or should I just do it all at once? Or can I not do that at all for some reason?
Just curious. I don't have anything set up at Vanguard at the moment.
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Call Vanguard.
I think a direct rollover requires some coordination (401K to existing traditional IRA directly).
Combining a rollover + traditional account is easier although I think a one year limit applies, which you would used up for this year for initiating a rollover, so you may have to wait until next year. Not sure on this, so I could be talking completely out of my ass.
I think a direct rollover requires some coordination (401K to existing traditional IRA directly).
Combining a rollover + traditional account is easier although I think a one year limit applies, which you would used up for this year for initiating a rollover, so you may have to wait until next year. Not sure on this, so I could be talking completely out of my ass.