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Seeking guidance on 401k rollover to Vanguard, please!
Old 03-14-2007, 01:34 PM   #1
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Seeking guidance on 401k rollover to Vanguard, please!

I am so very happy to have found this board -- I am learning more than you can possibly imagine from reading all the posts! Now, I am reaching out for some specific advice.....

I am recently retired (age 56) and receive a pension that covers about 72% of our current household expenses -- which will decrease once we sell the McMansion and move to a smaller residence somewhere. DH (age 60) is self-employed and is subsidizing the rest of the monthly budget. He plans to continue working for 3-5 years; and he does not plan to draw SS until fully retired. I really haven't run the numbers yet to decide when to draw SS and have not included it in any of my calculations.

In addition to hubby's SEP that he manages and is pleased with, I have a total of about $500k in a combination of an employer-sponsored 401(k) at Merrill Lynch (about $410k, which I'd prefer to move as the investment options are very limited now that I'm a retiree); I also have a lump sum pension distribution(~$85k)from another past employer that is available for rollover (or I can take this piece as a $410/mo pension -- no thanks); and a small IRA (~$10k) at a local bank. Although I have been a pretty active -- and reasonably successful -- trader in my 401(k), I would like to consolidate my investments in one place and not spend so much time managing them myself.

Based on the FIRECalc, I'd like to draw 3% to 3.5% annually from the portfolio beginning in 2011; I can stomach a reasonable level of risk in the portfolio in exchange for a higher return -- minimum 8 to 10%/annually; want to minimize fees, loads, etc. (Also, we have about one year's total budget set aside in cash & other highly liquid investments. And DH's SEP is considered emergency or "toy box" funds for future travel, etc.)

As an aside, I did talk to the local bank holding the small IRA about what they could do for me -- as they claimed that they could provide flexibility and customer service equal to or superior to any other investment opportunity. Their "financial specialist" tried to talk me into a Pacific Life variable annunity -- "to protect my portfolio" -- when I stopped laughing, she then tried to interest me in three Franklin Templeton Funds...the Franklin Income Fund (4.25% front load), the Templeton Growth Fund (5.75% front load) and the Mutual Shares Fund (5.25% front load). I asked her if she had much success getting suckers clients to invest in these "opportunities" and she responded that they were very popular, particularly among women! I was beyond angry, to say the least. This is sad...but I digress.

I have been following the threads on Vanguard Funds here on the board and have done some research on their site. I'm thinking of moving the 401(k), rollover pension distribution and IRA into some combination of Vanguard Funds that will approximate 60%-65% stocks and 35%-40% bonds. I'm looking at the Total Bond Market Index Admiral; Total Stock Market Index Admiral; Diversified Equity Inv; and Total International Stock Index - with about 40% in the Bond index and about 20% in each of the other three.

Does this make sense? What am I missing? Should I be looking at something else? Thoughtful insights will be greatly appreciated!

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Re: Seeking guidance on 401k rollover to Vanguard, please!
Old 03-14-2007, 02:33 PM   #2
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Re: Seeking guidance on 401k rollover to Vanguard, please!

Plan looks good from here.

Question: Why have the Total Stock Market Index and and Diversified Equity?

According to M* VTSAX and VDEQX have the same average mkt cap, same p/e, p/b, dividend yield, and are invested in more or less the same sectors. Hence, as a result of investing in numerous Vanguard actively managed funds, VDEQX is simply a closet index fund, but costs a whole lot more [0.43% vs. 0.09%].

- Alec
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Re: Seeking guidance on 401k rollover to Vanguard, please!
Old 03-14-2007, 02:42 PM   #3
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Re: Seeking guidance on 401k rollover to Vanguard, please!

Oops, I missed that! My brain is getting a little fried looking at all the options, I guess. Thanks for the catch!

Anything else I should be looking at?

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Re: Seeking guidance on 401k rollover to Vanguard, please!
Old 03-14-2007, 05:07 PM   #4
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Re: Seeking guidance on 401k rollover to Vanguard, please!

I just rolled lump sum pension and 401k to Vanguard. Pretty easy actually. Just have rollover account established with VG and submit proper paperwork to your current plan administrator for the transfer.

One suggestion, rather than directing the rollover to a number of VG funds on receipt of the transfer; set up your VG rollover account that will receive the funds as a money market account. Let your funds come in and then distribute as you wish from there, according to your preferences. Makes things a lot simpler and eliminates the potential for errors.

As far as your VG portfolio, good start. It really depends on if you want to tilt your portfolio in a particular direction. My preference is a tilt to value, small cap and intl. To do that, I short growth and mid caps. Just boils down to preference.

Easy
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Re: Seeking guidance on 401k rollover to Vanguard, please!
Old 03-14-2007, 05:46 PM   #5
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Re: Seeking guidance on 401k rollover to Vanguard, please!

Quote:
Originally Posted by Easy
One suggestion, rather than directing the rollover to a number of VG funds on receipt of the transfer; set up your VG rollover account that will receive the funds as a money market account. Let your funds come in and then distribute as you wish from there, according to your preferences. Makes things a lot simpler and eliminates the potential for errors.

Easy
I just rolled my MegCorp lump sum back in January and Vanguard actually recommended the roll to Money Market then to the funds I wanted after the dust settled. Just as "Easy" said, just setup roll over account and inform current holder where to roll it.

Because of fairly heavy small cap and emerging market funds I hold outside of VG I did
Vanguard Developed Markets Index Fund
Vanguard Total Bond Market Index Fund Admiral Shares
Vanguard Total Stock Market Index Fund Admiral Shares

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Re: Seeking guidance on 401k rollover to Vanguard, please!
Old 03-14-2007, 06:09 PM   #6
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Re: Seeking guidance on 401k rollover to Vanguard, please!

Thanks! Great suggestions -- I was wondering how the "mechanics" of this would work. The money market idea makes a lot of sense.

Another question: are you familiar with any of the LifeStrategy Funds? They seem to mimic the allocation I'm seeking, with a lower fee. Why not go that route?
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Re: Seeking guidance on 401k rollover to Vanguard, please!
Old 03-14-2007, 07:47 PM   #7
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Re: Seeking guidance on 401k rollover to Vanguard, please!

Quote:
Originally Posted by Achiever51
Thanks! Great suggestions -- I was wondering how the "mechanics" of this would work. The money market idea makes a lot of sense.

Another question: are you familiar with any of the LifeStrategy Funds? They seem to mimic the allocation I'm seeking, with a lower fee. Why not go that route?
You can certainly initially put the money in a MM and then distribute it, however you might get caught in the "is now a good time to invest in XYZ fund" syndrome. When I rolled over my old 401(k), I just rolled the money into the fund(s) I wanted. But more of a personal choice.

The life strategy funds [which include Total stock Market fund, Total Bond Market fund, and Total Int'l] cost roughly 0.26%. If you were to use the Admiral shares of TSM, TBM, and combine those w/ Total Int'l, your expense ratio would be around 0.14%, or half of the life strategy funds. On $500K, that's giving up around $600/year in free money.

If your pension is fixed, and doesn't received a cost of living adjustment, you may want to consider adding inflation protected bonds [for example, Vanguar'd admiral TIPS fund VAIPX ] in addition to the nominal bonds in the TBM fund. Though, you may not want to get all that complicated.

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Re: Seeking guidance on 401k rollover to Vanguard, please!
Old 03-15-2007, 10:30 AM   #8
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Re: Seeking guidance on 401k rollover to Vanguard, please!

Thanks! As my MegaCorp pension is indeed fixed, I'm gonna need all the protection I can get for the future! I will definitely look into the indexed bond funds for a portion of the portfolio.

And no, I'm not willing to give up even $600 of my hard earned portfolio!
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