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Looking to get into Admiral shares rather than just sticking with the Target 2055 fund: Not sure about the REIT and bond allocations but figured I should have some in my retirement portfolio. I'm 28 and have a higher risk tolerance, if that makes a difference.
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Apr 2, 2015 21:40
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The difference between Investor and Admiral shares is a few bucks a year until your portfolio is huge. Let's say $333,333, for example. $333,333 is also how big your portfolio needs to be if you want the smallest holding (International Bond at 3%) to be $10,000/Admiral eligible. Until your portfolio gets big and fat, your allocation matters a TON more than shaving a few bucks off. Skip lunch one day a year and you've paid yourself the difference.
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Apr 2, 2015 21:45
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fruition posted:Looking to get into Admiral shares rather than just sticking with the Target 2055 fund: I'm curious, why the emphasis on growth stocks over the rest of the market?
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Apr 2, 2015 21:54
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GoGoGadgetChris posted:The difference between Investor and Admiral shares is a few bucks a year until your portfolio is huge. Let's say $333,333, for example. Ah drat, you're right, I forgot about the $10k limit on the Admiral shares when I chose the bond funds. So if my portfolio is ~$180k it's not worth the trouble to get into Admiral funds right now? warderenator posted:I'm curious, why the emphasis on growth stocks over the rest of the market? I suppose I was thinking they'd have the potential for higher risk/reward, but I need to remember this is for my retirement 40 years from now. Thanks for bringing me down out of the clouds.
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Apr 2, 2015 22:30
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fruition posted:Ah drat, you're right, I forgot about the $10k limit on the Admiral shares when I chose the bond funds. So if my portfolio is ~$180k it's not worth the trouble to get into Admiral funds right now? I would make the change if I were you. You'll probably save $100-$150 a year in fees, but more importantly you add flexibility to your portfolio to do things like: - Invest the most tax efficient part of your holdings in a taxable account - Balance your overall portfolio weighting with other accounts, where a good option in every category might not be available - Come up with your own personal portfolio weighting instead of using Vanguards There are a few downsides too, but most of the downsides can be resolved by rebalancing everything manually once a year. The only thing I would be concerned about before doing it is... if you are the type of person that can watch international stocks lose 20% while US stocks go up 10% in a year, and react in a bad way like by reducing your international stock allocation because you are chasing performance, then you might have to stick with target date funds.
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Apr 2, 2015 22:40
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I totally read your table wrong, by the way. I assumed you were sacrificing diversification for the sake of getting Admiral funds, but you're not. Your $180,000 portfolio will allow you to get Admiral shares of at least a few of your core holdings. May as well get Admiral shares of what you can and Investor for the rest. The difference isn't huge; dropping your ENTIRE portfolio from 0.2% to 0.1% would shave $180 a year, but chances are that the reduction will be much smaller for your primary holdings. And like the other dude just said, make sure you're disciplined to stay the course! You can do a lot more than $180 in damage by buying high and selling low.
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Apr 2, 2015 23:11
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Another option is mostly Admiral's with ETF's to pick up the slack. I do ETF's as my balance is pretty low and I have to balance against my 401k which only has VINIX in it.
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Apr 3, 2015 03:49
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fruition posted:I suppose I was thinking they'd have the potential for higher risk/reward, but I need to remember this is for my retirement 40 years from now. Thanks for bringing me down out of the clouds. Over long periods of time back testing shows that a value strategy has out performed a growth strategy. Actually, this is one of the main findings of the Fama-French 3 factors (or later 4 factors) research paper. Value also typically has lower volatility (beta, or risk) than growth. Recently growth has out performed value and it could continue to do so for some time (1984-1999 was a big period for growth stocks) but historically there has always been a 'correction' and value has surged ahead (extend the time line to 1984-2003). Efficient frontier theory also suggests that in some cases reducing volatility of your portfolio also increases return over long time horizons so it's not as simple as more risk = more reward. You have to consider the down turns which are going to inevitably happen. e: 1972 - 2014 graphs and results of returns of 10k invested in large cap value vs large cap growth vs total us market. e2: The hard part with using a strong value strategy is the long periods of under performance. Many people can not sit tight and watch a bull market return 2-3% more for four or five or more years without changing their asset allocation to chase winners. This is, of course, the worst possible thing to do (selling low and buying high) so you also have to consider your personal psychology when making these kind of long term decisions. Murgos fucked around with this message at 14:31 on Apr 3, 2015 |
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Apr 3, 2015 14:18
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How much does receiving a pension alter retirement savings percentages? It's hard to estimate what my monthly pension will be, as I won't be retiring for another 30 or so years. The formula for the pension is: 1% x Average Final Compensation x Service Credit Years Average final compensation = a monthly average of the compensation you earned over your 60 consecutive highest-paid service credit months. I'll be moving school districts this summer and at the time of hire is the only time EVER you can change your retirement contribution to the 401(a). I currently put in 10% gross, and then have a Roth I put $100/mo in. Seem reasonable?
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Apr 3, 2015 17:01
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Really quick projection: If you assume 1) you'll work 30 years 2) your non-pension investments will grow at 4% per year 3) you contribute $1200/yr to an IRA and 4) you use a draw-down rate of 4%/yr in retirement, you'll end up with approximately 50% of your last working year's income in retirement in today's dollars. Assuming 7% investment growth will net you ~63% of your last working year's income in today's dollars. 7% grown minus 3%/yr inflation will put you back at 50%. This was a very basic back of the envelope estimate. If it were me, I'd try to save more. I also have a work sponsored pension plan along with a 401k but I try to save enough to be comfortable while ignoring the pension and social security. Any pension/SS income I get in retirement will be considered a bonus.
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Apr 3, 2015 17:25
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spinst posted:How much does receiving a pension alter retirement savings percentages? I think that the general consensus is that it doesn't and you shouldn't count on that pension. However, I have seen arguments for using projected pension account (and Social Security) monies in lieu of a portion of the fixed income allocation of your whole retirement portfolio, I.e. use a higher stock allocation than you normally would. I've also seen (more conservative) arguments that you should ignore pensions and SS altogether when planning for retirement and just treat them as a happy bonus if/when they materialize. My wife is due a pension and I guess I treat it (and my SS) in the later camp of I'll believe it when I see it and so have a pretty high savings rate in addition to those (guaranteed) streams. If you want to go the other way you can calculate SS and pension monies using future worth value calculations and treat them as an annuity you are purchasing now that will come due in X years. For example If you log in the Social Security website you can see a projection of what SS benefit you will get when you retire. You can then go to bankrate.com and see how much it would cost to buy an annuity today that would pay the exact same amount starting at the exact same time in the future and then portion out your asset allocation accordingly.
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Apr 3, 2015 17:47
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Saint Fu posted:Really quick projection: If you assume 1) you'll work 30 years 2) your non-pension investments will grow at 4% per year 3) you contribute $1200/yr to an IRA and 4) you use a draw-down rate of 4%/yr in retirement, you'll end up with approximately 50% of your last working year's income in retirement in today's dollars. Assuming 7% investment growth will net you ~63% of your last working year's income in today's dollars. 7% grown minus 3%/yr inflation will put you back at 50%. Yeah it also helps to have other types of retirement savings since due to things like a budget crunch pension plans could get their benefits altered.
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Apr 3, 2015 18:03
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Our company is moving from Fidelity Freedom to Fidelity Freedom K funds. The only difference seems to be a lower expense ratio (like moving from Investor to Admiral). Someone in the office is freaking out that, because his shares that were purchased many years ago are going to be sold to buy the same balance in K funds, his cost basis is going to get all screwed up and he'll owe money in taxes. He writes, "A stock purchased for $1 a year ago, that might be worth $1.50 now - and would be worth $30 in 20 years - could not be used to purchase a different stock at $1.50 that is only worth $15 in 20 years" Is there any validity to his concern? I thought the only thing that mattered would be our 401k funds would technically be out of the market for a day or two while the trade was executed.
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Apr 3, 2015 20:51
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This is inside his 401(k)? No, he's an idiot. Transactions within that shelter have no tax consequences at all, and the different classes are still owners of exactly the same mix contained in that mutual fund. The only difference is a lower fee. Also the whole point of a mutual fund, especially an index mutual fund, is to ride the tide of the entire market, not just "a stock."
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Apr 3, 2015 20:58
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GoGoGadgetChris posted:Our company is moving from Fidelity Freedom to Fidelity Freedom K funds. The only difference seems to be a lower expense ratio (like moving from Investor to Admiral). For 401k any sort of changes that happen don't matter since the 401k is tax free during the accumulation/contribution period. You only get taxed during withdrawals at the ordinary income rate. etalian fucked around with this message at 04:10 on Apr 4, 2015 |
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Apr 3, 2015 21:34
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Thanks for the explanation. I knew this didn't matter (except for the better) but wasn't sure how to explain it to Dude. Figured out what he was so worried about. He thought that this reset some sort of magical "compound interest clock" and was comparing Year 20 to Year 21 values on a retirement calculator. No wonder he thought he was losing money; he was telling the calculator to ignore a year of performance. GoGoGadgetChris fucked around with this message at 22:52 on Apr 3, 2015 |
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Apr 3, 2015 22:06
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Murgos posted:Solid advice. Thanks to all for the helpful responses, I will make the changes to the table and go with the sage advice I've received. Thank you!
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Apr 3, 2015 23:03
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Murgos posted:I think that the general consensus is that it doesn't and you shouldn't count on that pension. I would say it depends on if you can see the pension financials.
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Apr 4, 2015 03:33
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Cheers: My pension fund is the best of any public pension in my state Jeers: That's not really saying a whole lot 
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Apr 4, 2015 06:09
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Radbot posted:Thanks for finding that. Definitely doesn't seem worth it at this point. $100 for depositing $10,000 or more into a new Schwab account: http://content.schwab.com/web/retail/cc/referral/index.html The T&C also seem to indicate the 1 year clawback period is for taxable accounts only.
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Apr 4, 2015 13:12
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pig slut lisa posted:Cheers: My pension fund is the best of any public pension in my state I tend to be skeptical of the fundedness of DB plans especially once you start using actuarial metrics. They're so dependent on assumptions about inflation, lifespan, expected return e.g., IMRF is targeting 7.5% l/t etc. Not to mention that the market's been on an upswing for over 5 years so you see that skew filtering through to smoothed actuarial accounting measures which typically have a 5 year corridor. Just look at CalPERS and how their funded status has swung violently over the years.
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Apr 4, 2015 13:46
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Who wants to help me decide how to invest a large sum of cash? Or to be more accurate, one large sum of cash and one hopefully large future sum of cash. Before I was born my father started an Oppenheimer fund for me (Global Fund A) with a small sum of money and he just basically left it alone since then. A quarter-century later, I've now got enough money that I can use it to pay for an advanced nursing degree and that's hopefully what I'll be doing with it next year. At this point I'd like to diversity if I can. I've got this one lump sum in an Oppenheimer Global Fund but I'd like to split it up into three or four different funds just to hedge my bets. I wont need to take any money out for a solid year but I will need to withdraw a little from each account to hopefully pay for tuition in a year. So it needs to be a set of funds from which I can actually remove money on an annual or bi-annual basis. Other than the fact that I know I like index mutual funds and don't really want to get into stocks or bonds directly, I basically don't know what I'm doing. I don't know whether to stick with Oppenheimer or split it up between different companies and funds. I'd like to stay away from any risky investments as well, though a little risk is okay. I just can't afford to really lose any sizable portion. Any advice would be appreciated. So I'm going to work for a year, apply to this degree program, and then continue to work full time for two years as I complete the first year of the program part time. During this time I'm going to be trying to save up some money so that for the last two years of my program (the most difficult years) my husband and I will be able to afford for me to go to school full time and not work. Ideally I'll save up $1k a month or roughly that. I'm not sure where to put that money while I'm accumulating it. I can definitely stick it in our savings account but I'd rather it do a little work for me over those three years if possible. Right now I have a Betterment account that I'm using essentially as an holding area for money that I want to save in the short term. My husband and I are moving into a rental house so I've saved up some money in my Betterment to buy the furniture we'll need. I'm not sure I want to stash roughly $30k in my Betterment account though so any suggestions here would be great too. Again it would need to be a fund where it was easy to remove my money on a bi-annual basis.
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Apr 4, 2015 15:36
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pig slut lisa posted:Cheers: My pension fund is the best of any public pension in my state Mine's #2! Lord.
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Apr 4, 2015 16:54
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JibbaJabberwocky posted:My husband and I are moving into a rental house so I've saved up some money in my Betterment to buy the furniture we'll need. I'm not sure I want to stash roughly $30k in my Betterment account though so any suggestions here would be great too. Again it would need to be a fund where it was easy to remove my money on a bi-annual basis. Some things to note: -Diversifying into multiple funds means you will take a capital gain tax hit since you will need to sell the mutual fund Of course if you are joint filing and have lower income due to one income earner being in school the taxes wouldn't be that high:  -Leave the money in the fund, just sell small portions as required to pay for your short term expenses like school. -Next next decide what amount of money you are comfortable locking away in long term investments, Betterment already offers a solid diversified investment plan and also charges less management fees the more you invest -Alternatively the mutual fund is already diversified, only big downside is the high expensive ration of 1.13% 
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Apr 4, 2015 18:05
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etalian posted:Some things to note: Let me see if I understand capital gain tax. It's related to the amount of money you make. Since I doubt my husband and I will top $74k in income this upcoming year even with both of us working, doesn't it mean that I can completely cash out my mutual fund without paying taxes on it? Or does the amount in the mutual fund factor into our joint income? However since I want to be spending everything in that fund within the next five years, you think it's a better idea to leave it where it is as it's a diverse mutual fund and just sell small portions of the fund at a time? I may be wrong but I think an expense ratio of 1.13% is relatively low? When the average is something like 1.5%? You're also saying that betterment is a good bet for a place to sequester roughly $36k over three years. I already know it's easy to move funds back and forth in that account but I've been using it to stash a lot less money and I wasn't sure if it was a safe place to keep such a large sum. Would it be a better idea to simply put it away into a savings account or is Betterment the more logical choice? I've heard that its a better idea to put money into savings if you're going to be using it in the short term but I'm about 6% up on my betterment account right now and feeling pretty good about it.
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Apr 4, 2015 18:54
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JibbaJabberwocky posted:Let me see if I understand capital gain tax. It's related to the amount of money you make. Since I doubt my husband and I will top $74k in income this upcoming year even with both of us working, doesn't it mean that I can completely cash out my mutual fund without paying taxes on it? Or does the amount in the mutual fund factor into our joint income? However since I want to be spending everything in that fund within the next five years, you think it's a better idea to leave it where it is as it's a diverse mutual fund and just sell small portions of the fund at a time? I may be wrong but I think an expense ratio of 1.13% is relatively low? When the average is something like 1.5%? The Oppenheimer fund is already diversified in terms of stock allocation, so the main thing you would gain by changing investments would be a lower expense ratio. In terms of expense ratio 0.5% or less is what I consider to be low expense ratio, while 1% is a ripoff. For a $100,000 investment you would lose $1000 each year from the expense ratio, for large investments it becomes a big problem. For the betterment question, most people in this forum recommend savings account if you have short term needs, while stocks/bonds only make sense for a >5 year "longer" investment window or if you have extra fun money you want to stash away in a investment account assuming you max out all your retirement contributions. etalian fucked around with this message at 20:32 on Apr 4, 2015 |
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Apr 4, 2015 19:19
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etalian posted:For the betterment question, most people in this forum recommend savings account if you have short term needs, while stocks/bonds only make sense for a >5 year "longer" investment window or if you have extra funny money you want to stash away in a investment account assuming you max out all your retirement contributions. Seconding this. JibbaJabberwocky posted:... I've now got enough money that I can use it to pay for an advanced nursing degree and that's hopefully what I'll be doing with it next year. ... I wont need to take any money out for a solid year but I will need to withdraw a little from each account to hopefully pay for tuition in a year. ... I'd like to stay away from any risky investments as well, though a little risk is okay. I just can't afford to really lose any sizable portion. Keeping all the money in a fund invested in stocks is very risky. If there is a bear market you could lose half your money, and then you won't be able to afford the degree. The simplest and safest thing to do is to sell it and put the money in a bank account. If you want more risk and you want to do something more complicated, you could use an extremely conservative portfolio of almost entirely cash or short term bonds, with only a tiny amount in the stock market. So either way you should start selling the stock fund, and moving the money into a safer place. Use accounts at whatever banks or brokerages are convenient to you.
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Apr 4, 2015 19:58
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warderenator posted:Keeping all the money in a fund invested in stocks is very risky. If there is a bear market you could lose half your money, and then you won't be able to afford the degree. The simplest and safest thing to do is to sell it and put the money in a bank account. If you want more risk and you want to do something more complicated, you could use an extremely conservative portfolio of almost entirely cash or short term bonds, with only a tiny amount in the stock market. So either way you should start selling the stock fund, and moving the money into a safer place. Use accounts at whatever banks or brokerages are convenient to you. etalian posted:For the betterment question, most people in this forum recommend savings account if you have short term needs, while stocks/bonds only make sense for a >5 year "longer" investment window or if you have extra fun money you want to stash away in a investment account assuming you max out all your retirement contributions. I'm going to talk with my husband's parents and mine but I'm the sort of person who wants to keep my money safe. As it is, I have just enough in my Oppenheimer to get my degree and want to protect that money. If I do remove it all now and put it into savings, will I have to pay any taxes on it? As of this fiscal year my parents are still claiming me as a dependent. Next fiscal year, my husband and I will be filing jointly. I'm almost positive we wont meet the $74k limit which means we'd have absolutely no capitol gains tax to pay on the money from the mutual fund, no matter how much it is. Someone tell me if that's right.
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Apr 4, 2015 21:48
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The capital gains will count as income towards the 75k tax bracket cutoff.
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Apr 4, 2015 23:26
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Jobert posted:The capital gains will count as income towards the 75k tax bracket cutoff. Poop. So that means I have to make sure I only withdraw out enough each fiscal year that it wont send us over that limit? I guess that means I'll have to slowly withdraw it over several years and place it into savings. That's tremendously unfortunate.
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Apr 5, 2015 00:14
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On the one hand, the odds that the market underperforms by >15% are low, so I would agree that your best bet is to withdraw whatever gets you up to the $74.9k threshold this year, and then play it by ear next year. On the other hand, humans are loss averse, and you will be more unhappy if you wait to get a 0% withdraw and the fund loses 15% than you would be happy to book the gains today and just pay the 15% taxes. Human nature is a wrench! In summation - the mathematically correct answer is what you said: withdraw enough each year to stay under $74.9k and get it out at 0%. The behavioral economically/psychologically correct answer is to lock in your gains (or: lock in your lack of losses), pay the pittance of 15% (a very low tax bracket) and 100% with certainty know you have the money to pay your tuition. Only you know what level of risk is acceptable for you ,and it is totally acceptable to accept lower returns in exchange for peace of mind.
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Apr 5, 2015 00:40
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And remember, you only have to pay tax on the amount over $75k income. If you make $65k as normal income and you sell your investments for $30k, $10k of which is gains, you're at $75k so you avoid the taxes on those gains.
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Apr 5, 2015 15:39
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Saint Fu posted:And remember, you only have to pay tax on the amount over $75k income. If you make $65k as normal income and you sell your investments for $30k, $10k of which is gains, you're at $75k so you avoid the taxes on those gains. If so, in my situation, my parents have been filing me under as a dependent as they've been paying my way through school. I'll graduate this year and begin working in June (when I pass the NCLEX). Since I'm only working 1/2 of the year in 2015, my husband and I should be well below the amount where the actual gains would put us over the threshold. This works if we file jointly this year but as my parents have paid for me roughly half the year, I think they'll want to claim me as a dependent (even though I should make more in salary than they'll claim me for). If this happens, I'll have to file as married filing separately. Unless it's possible for someone to claim a person as a dependent for only half a year. Otherwise if this happens then I wont meet the requirements to withdraw it all this year. However I can still get a sizable portion of it out if only the gains counts towards my tax limit. edit: Nevermind, I think my mom might be confused. She cannot claim me as a dependent for 2015 because I'll make too much money. Which means my husband and I can file jointly and I can withdraw the entire mutual fund to savings whenever I drat well please. JibbaJabberwocky fucked around with this message at 20:59 on Apr 5, 2015 |
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Apr 5, 2015 20:51
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JibbaJabberwocky posted:Does this mean that the initial investment doesn't count as gains and therefore also doesn't count as income? The main thing that matters in stocks in the net capital gain for the sale. As always consult a CPA before making big tax decisions.
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Apr 6, 2015 15:21
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JibbaJabberwocky posted:Does this mean that the initial investment doesn't count as gains and therefore also doesn't count as income? Yes, only gains are taxed, but since the investment is so old, most the total is probably gains. So if the initial investment was $10k and it's worth $100k, you will be taxed on the $90k in gains. That said, I don't know anything about dependents and you should consult an accountant. My guess is that it will be much more beneficial for you to claim yourself, but that's just a hunch. If you were to run the numbers yourself, your parents probably won't listen, however if an accountant says that you should claim yourself, they may listen.
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Apr 6, 2015 16:20
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Couldn't there also be an issue if her parents mark her as a dependent on their taxes, but she files separately and says she cannot be claimed as a dependent on anyone else's taxes? You'd want to make sure to clear that up with them. Then again, I may be extrapolating cases of /r/personalfinance stories where people screw ex-wives/ex-husbands out of deductions or refunds by falsely claiming their non-custody children as dependents when the other parent actually provides all the care.
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Apr 6, 2015 16:43
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District Selectman posted:Yes, only gains are taxed, but since the investment is so old, most the total is probably gains. So if the initial investment was $10k and it's worth $100k, you will be taxed on the $90k in gains. As far as the IRS's website goes, I don't qualify as a dependent child anymore because I became too old this year and I don't qualify as a dependent relative because I'll make too much money. I explained it to my mother last night but they have a financial adviser and will ask him. I'll also probably get in touch with him regarding the mutual fund. SpelledBackwards posted:Couldn't there also be an issue if her parents mark her as a dependent on their taxes, but she files separately and says she cannot be claimed as a dependent on anyone else's taxes? You'd want to make sure to clear that up with them. Then again, I may be extrapolating cases of /r/personalfinance stories where people screw ex-wives/ex-husbands out of deductions or refunds by falsely claiming their non-custody children as dependents when the other parent actually provides all the care.
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Apr 6, 2015 17:32
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I've been contributing to my Roth 401k for over 5 years now. I'm well under 59.5 years old. Can I make a withdrawal from my account up to how much I have contributed in total without penalty? I've already paid taxes on the money when I put it in, so it would make sense if I could. I'm looking to make a down payment on a house in the future and I'm wondering if I can count on that money as being liquid enough. Edit: Also I've been with the same employer the whole time. durk onion fucked around with this message at 20:47 on Apr 6, 2015 |
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Apr 6, 2015 20:43
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durk onion posted:I've been contributing to my Roth 401k for over 5 years now. I'm well under 59.5 years old. Can I make a withdrawal from my account up to how much I have contributed in total without penalty? I've already paid taxes on the money when I put it in, so it would make sense if I could. Yes, but it's a stupid idea, as you will lose out on returns that are rightly owed to Future You.
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Apr 6, 2015 22:00
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It'll also depend on if your employer's 401k system allows it.
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Apr 6, 2015 22:03
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