Organizing investment assets

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Hello to the forum,
I have been lurking for several months and finally built up the courage to post. It has been very refreshing following the forum and the members interactions. My career's embarrassingly never involved being financially savvy. At 54 I have a handful of Years Ahead of me earning near 200K annually. My debts are comprised of monthly living expenses (6-7K) for a family of four (stay home wife, kids 12 & 17). Recently was looking to fund Roth's this year though discovered I exceed the income levels. Some reading points to a self directed IRA in order to open a back-door Roth. I am still trying to research this. After a handful of years paying off debt to be able to invest, I find my self paralyzed by my frustrating analytical nature. I have a bad habit of focusing on one major thing at a time. I would be interested in any input to help get me focused in a sound direction to maximize assets going forward. I desire to be actively involved and learn as well change habits to maximize what I can. Thank you for your time.

400K home (paid for)
70K   company stock (award)
50K   bank savings

237K in company 401K split as below. Contribution=15%.

114K  Vang Rus 1000 Val (49%)
62K    Vang Rus 2000 GR (26%)
60K   Company stock        (25%)


 

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You have badly undersaved. What else do you have?
- Company pension? (How much?)
- Social Security? (Worth?)
- Disability insurance? (What does it cover?)
- College plans for kids and how to fund?

IMO, how much you can save probably trumps what container/account you do it in. You're going to need closer to 2 million if you want to spend 7k/month in retirement, Do you have any specific questions?

8hygro said:   Hello to the forum,
I have been lurking for several months and finally built up the courage to post. It has been very refreshing following the forum and the members interactions. My career's embarrassingly never involved being financially savvy. At 54 I have a handful of Years Ahead of me earning near 200K annually. My debts are comprised of monthly living expenses (6-7K) for a family of four (stay home wife, kids 12 & 17). Recently was looking to fund Roth's this year though discovered I exceed the income levels. Some reading points to a self directed IRA in order to open a back-door Roth. I am still trying to research this. After a handful of years paying off debt to be able to invest, I find my self paralyzed by my frustrating analytical nature. I have a bad habit of focusing on one major thing at a time. I would be interested in any input to help get me focused in a sound direction to maximize assets going forward. I desire to be actively involved and learn as well change habits to maximize what I can. Thank you for your time.

400K home (paid for)
70K   company stock (award)
50K   bank savings

237K in company 401K split as below. Contribution=15%.

114K  Vang Rus 1000 Val (49%)
62K    Vang Rus 2000 GR (26%)
60K   Company stock        (25%)


 

  

i would first focus on doing something with the single most concentrated asset - $70K company stock.  That's too much into 1 single company and that can easily take a big hit.   If possible either sell big part of it, and put it on mutual fund.  If you can't see if you can buy option or something else to protect it.

I would also look into putting some part of the money into other asset types like bonds fund may be around 10% to 20%, some real estate funds like 5%.

Also don't get too caught up with strategies like backdoor roth etc - they'll have much less impact vs. how you allocate stock/bond and other asset type.  Not saying not to read up on them - but no reason to get too crazy about it.  Roth has contribution limit .. so not going to have huge impact.
 

TravelerMSY said:   IMO, how much you can save probably trumps what container/account you do it in. You're going to need closer to 2 million if you want to spend 7k/month in retirement, Do you have any specific questions?
  Don't forget SS.  If he's been working for a long time earning decent wages like he does now, he's probably in line for full Social Security which is $3k/month or something and maybe extra 50% more for his wife too.  Of course that won't kick in before 66ish at full benefits, but if so, it should cover much of their monthly budget requirement.  In addition, in another 10 years when he reaches full retirement age, the kids will be in and possible out of college so household expenses will only be covering two instead of four people.  

I think he should keep saving in retirement accounts like his 401k and maybe a traditional-to-backdoor-Roth IRA.  This will keep most of his assets in his house and retirement accounts, which may help for financial aid for college.  

In terms of specific investment advice, I would consider cutting back on the company stock.  If it's up (like most of the market), he may have a taxable capital gain if he sells the taxable / award holding.   Easier might be to sell the part held in the 401k - that reduces exposure and won't result in taxes due.  The choice of Vanguard funds is a bit odd, holding both small cap growth and value (normally you would just hold small cap blend, and then more of whichever you want, if you want to lean one way or the other tactically).  Personally I think a S&P500 fund is fine, but you can pick up extra expected returns by taking more risk in the small cap value space.  Generally I don't like small growth stocks due to the bad selection bias caused by the best public small growing companies either going private or the best private ones staying private longer before IPOing as midcaps so the ones you get here are not so hot on average.  Those are marginal points however, and buying pretty much any Vanguard stock fund is going to get you decent and cheap equity exposure. 

Thank you for your input to all who replied. While outside the context of this post, I have had some life changing health issues in the last few years that were financially draining considering lost work time and resources used. I have not always made the kind of money I do now but am currently in a fairly healthy and stable state. My wife has worked off and on through our 20 year marriage, home schooling our kids the last few years. I have certainly learned that things can change in an instant, and try daily to remind myself to be appreciative of what I do have.

Ellory...$250/mo company pension at retirement age from an old employer. Currently managed in an annuity. Don't have S.S. figures in front of me but have always worked and made 50K-90K annual until last 7-8 years bumping from 120K to current 240K. No college financial plans for kids. There strong performers...

TravelerMSY...I fully expect to spend less in retirement. My question would be...what would you do given my circumstances? I am strong willed with a very supportive wife. I can follow a plan and am willing to change habits. I am very aware it is the eleventh hour. Thank you

prozario...I have been leery of selling my personal stocks awards because of the tax exposure. I'm unaware of a way around it though. Are you saying I may be able to have it rolled into a mutual fund?

xerty...I sincerely hope things come together as you describe, Thank you for the comforting thoughts! are talking possibly rolling over the company stock portion of the 401K into an IRA? I do have that option with my in house 401K...just unsure how to go about it. Would you then re-in allot into a market fund?

8hygro said:   xerty...I sincerely hope things come together as you describe, Thank you for the comforting thoughts! are talking possibly rolling over the company stock portion of the 401K into an IRA? I do have that option with my in house 401K...just unsure how to go about it. Would you then re-in allot into a market fund?
  Assuming you can (not sure if you have minimum holding periods on the 401k company stock, like if you get it as part of a match or something), I was suggesting you sell the company stock in the 401k and buy stock index funds instead.  

With "earning near 200K annually" and contributing max to the 401k, your AGI should be 184k. Your spouse should qualify for a full deduction on an IRA. Make sure you contribute the max. (5.5k; 6.5 if over 50) for your wife and get a full deduction. At your income level and given your relatively low retirement savings, an IRA deduction now would be very useful.

You said you contribute 15% to your 401k. With a 200k income, that would put you over the 24k (including 6k catch up contribution) limit, unless the 15% includes employer contribution?

In general, max. out your 401k, IRA (for both) and decrease exposure to company stock.

xerty...thanks for the clarification. My company uses Fidelity and I have access to add a self directed BrokerageLink to the 401K. Would any pretax funds moved from the 401K be considered an IRA? Just reading the online overview, I do not see "IRA" actually noted in the literature.

fwuser12...I just recently started my contributions at 15%. As you stated, I will need to watch and adjust to stay within limits. Thanks for your input.

Your company should allow you to max your 401K
College funds for kids?
Disability insurance?
Check the SS web site for a rough estimate that you will get

8hygro said:   Thank you for your input to all who replied. While outside the context of this post, I have had some life changing health issues in the last few years that were financially draining considering lost work time and resources used. I have not always made the kind of money I do now but am currently in a fairly healthy and stable state. My wife has worked off and on through our 20 year marriage, home schooling our kids the last few years. I have certainly learned that things can change in an instant, and try daily to remind myself to be appreciative of what I do have.

Ellory...$250/mo company pension at retirement age from an old employer. Currently managed in an annuity. Don't have S.S. figures in front of me but have always worked and made 50K-90K annual until last 7-8 years bumping from 120K to current 240K. No college financial plans for kids. There strong performers...

TravelerMSY...I fully expect to spend less in retirement. My question would be...what would you do given my circumstances? I am strong willed with a very supportive wife. I can follow a plan and am willing to change habits. I am very aware it is the eleventh hour. Thank you

prozario...I have been leery of selling my personal stocks awards because of the tax exposure. I'm unaware of a way around it though. Are you saying I may be able to have it rolled into a mutual fund?

xerty...I sincerely hope things come together as you describe, Thank you for the comforting thoughts! are talking possibly rolling over the company stock portion of the 401K into an IRA? I do have that option with my in house 401K...just unsure how to go about it. Would you then re-in allot into a market fund?

  
no you can't roll into mutual fund without tax consequence.  But you have company stock in 401K - obviously you can sell easily without any taxes and simply buy a another fund.  You need to see all your money, regardless of which accounts (401K vs. not) as one big portfolio - so doesn't matter if you sell part of it from 401K or taxable account.  If tax is a concern, obviously sell the ones in 401K account - wont have any tax consequence.

In a taxable account ... you can try selling a small amount each year.   

I had Lehman borhters stock before the bush era mkt crash.  I switched company and told the investment advisor to sell all of my Lehman stock and buy mutual fund.  That was around $60K worth back in 2001-2002. I already had to pay taxes as income when i got the stocks - so i just had to  pay taxes on more upto the amount it gained when i sold it.  I lucked out, but many kept their stock (worth much more) - all ended up to 0.  Now - those are extreme situation, but could happen.   Basically idea is to try to mitigate concentrated position if possible.
 

you have monthly living expenses of $6-7k a month yet you have a paid off house?

that seems pretty high with out a mortgage, what are u spending it on?

ellory...Currently no earmarked college funds. I do have a work provided disability policy (60% of income) and separate 500,000 term life insurance policy I pay. The SS website was not cooperating this morning.

prozario...thanks for the input. I am reading everything and taking notes. Very appreciative of the shared personal experience/opinion.

UncleJr...Correct, no mortgage. 6-7K is on the high side but reflective of existing short term events. On line school curriculum with dual enrollment, math tutor, piano, guitar, martial arts, gym membership. We eat very healthy which has become a family activity with meal preparations, shopping, etc. Tough to post such personal decisions, not trying to defend them. Naturally, I hope the kids will benefit from the basic principles and health. It is however under scrutiny. After analyzing last years months to months, 5K/mo should easily be doable. After a couple months well decide what else has to give for the next goal. Thanks for the push!

I don't have anything to add, other than to try to save more. If you can save another 15% a year in addition to your current 401(k) contributions, you'll be in good shape to retire in your 60s. You can model this with various retirement calculators on the web, using assumptions about savings rate, spend rate and investment returns.

i can also recommend rhe Bogleheads forums for advice. It's more tailored to this kind of stuff.

I also wouldn't stress about it too much. Plenty of people are retired right now with less money than you have now.

TravelerMSY...Thank you for the advice. The stress part is tough no doubt. I now consider this a challenge. I intend to put a respectable effort forth from this point forward.

Just want to say thanks again to the forum members for their time and hospitality, I am humbled.

If anyone could offer up some fund selection advice, I would be most appreciative. Also looking for any 2016 catch-up contributions I can take advantage of. I feel like I need to do some re-allocation and re-balancing from feedback. I have followed a portfolio outline from another forum I am not really receiving any feedback on. I am not really up to speed trying be technical in this arena and no doubt it shows. Thanks four your time.

Current retirement Accounts

Taxable
14% cash
19% company stock

401K
32% Vanguard Rus 1000 Val TR (E/R 0.0202%)
18% Vanguard Rus 2000 GR TR (E/R 0.0304%)
17% company stock
Match: yes

Contributions

New annual Contributions
$18K 401K. Starts again Jan. 2017. Match: yes
$25K taxable

Available Funds
BTC Lifepath 2030 (STLDX) (.08)
BTC Lifepath 2040 (STLEX) (.08)
BTC Lifepath 2050 (STLFX) (.09)
BTC LifePath 2060 (.08)
BTC LifePath RET (STLAX) (.08)
FID Contrafund Pool (FCNTX) (.43)
FID Growth Co Pool (FDGRX) (.43)
Vanguard Rus 1000 GR (VRGWX) (.021)
Vanguard Rus 1000 VaL  (VRVIX) (.020)
Vanguard S&P 500 IDX (VFINX) (.011)
Artisan Mid Cap (ARTQX) (.050)
DFA SM/MD Cap Val (DISVX) (.25)
Vanguard Rus 2000GR (VRTGX) (.03)
Russell INTL Growth (VWIGX) (.57)
Russell INTL Value (VTRIX) (.57)
PIM ALL A  ALL  Auth l (PAUIX) (1.93)
PIM INFL RESP MA IS (PIRMX) (1.14)
PIMCO Total Return (PTTRX) (.27)
Vanguard ST BD IDX IS PL (VBIPX) (.04)
BTC SHRT-TERM INV (.04)
BrokerageLink 

 

8hygro said:   If anyone could offer up some fund selection advice or strategic options for some 2016 catch-up, I would be most appreciative. I have followed a portfolio outline from another forum I am not really receiving much feedback on. I am not really up to speed trying be technical in this arena and no doubt others see that. Thanks four your time.

Current retirement Accounts

Taxable
14% cash
19% company stock

401K
32% Vanguard Rus 1000 Val TR (E/R 0.0202%)
18% Vanguard Rus 2000 GR TR (E/R 0.0304%)
17% company stock
Match: yes

Contributions

New annual Contributions
$18K His 401K. Starts again Jan. 2017. Match: yes
$25K taxable

Available Funds
BTC Lifepath 2030 (STLDX) (.08)
BTC Lifepath 2040 (STLEX) (.08)
BTC Lifepath 2050 (STLFX) (.09)
BTC LifePath 2060 (.08)
BTC LifePath RET (STLAX) (.08)
FID Contrafund Pool (FCNTX) (.43)
FID Growth Co Pool (FDGRX) (.43)
Vanguard Rus 1000 GR (VRGWX) (.021)
Vanguard Rus 1000 VaL  (VRVIX) (.020)
Vanguard S&P 500 IDX (VFINX) (.011)
Artisan Mid Cap (ARTQX) (.050)
DFA SM/MD Cap Val (DISVX) (.25)
Vanguard Rus 2000GR (VRTGX) (.03)
Russell INTL Growth (VWIGX) (.57)
Russell INTL Value (VTRIX) (.57)
PIM ALL A  ALL  Auth l (PAUIX) (1.93)
PIM INFL RESP MA IS (PIRMX) (1.14)
PIMCO Total Return (PTTRX) (.27)
Vanguard ST BD IDX IS PL (VBIPX) (.04)
BTC SHRT-TERM INV (.04)
BrokerageLink 

 

With 36% of your portfolio in a single stock, a priority should be diversifying out of that. I would read up on lazy portfolios on Bogleheads and use that to help guide your allocations. At your age, you should start lowering your exposure to equities depending on when you want to retire.

Options:

1) Put your funds in BTC Lifepath 2040 and be done with it.
2) One lazy portfolio option:
40% - Vanguard S&P 500 IDX
20% - Russell INTL Value (VTRIX)
40% - Vanguard ST BD IDX IS PL (VBIPX)

There are tons more, but those would likely be fine. BTW - you may want to lower the bond fund percentage a bit (to 25% or 30%) based on current bond valuations.

 

BostonOne...Thank you for your time. I certainly do intend to "exchange out" of my company stock in the 401K. Naturally, I need to re-allocate the value. I cannot see retiring inside the next 12-14 years, though I likely will not make the income I am currently.



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