401K changes, LifePath and options

[steady saver]

Lots happening and I'll post some of the upcoming retirement story later. But for now, I have some questions.

I was already planning to revisit our 401K selections at about the time that I received a notice stating that the bulk of our options were going away and leaving me with 10 core options plus a LifePath fund. Incidentally our current six selections are ones that I wanted to rethink anyway; I had decided I really wanted to simplify to hold total market index funds. I definitely don't want the LifePath 2025 fund they're automatically set to funnel me into as it is too conservative for my taste (and what happens in 2025?...)

In my current options there is a U.S. Equity Index Fund, a U.S. Debt Index Fund, and an International Index fund but I don't know that it's a "total" international index fund.

(I still am trying to educate myself about bonds, bond funds, treasury funds and buying treasuries direct).

Now for my question. As I move into considering my options, would these three options seem to fit the bill or would I be better off to simply rollover to an IRA once DH retires and then go with the Vanguard index options? (I am happy to say that retirement is coming in a little over 2 months!!!)

We are at Fidelity and I'm thinking VTI, an international fund like VTWAX? And then to decide about a bond index fund or a treasury fund/treasury...

Thanks for your thoughts.

 

[Mark1]

Hi Steady, although there is nothing wrong with Vanguard, I vote for just leaving the money within the Megacorp Provident account for now. The main reason for staying put is that you have much better creditor protection within a 401K verses an IRA, and you still have plenty of extremely low cost options. Sure hundreds of fund options are going away, but they were the high cost non-index options anyway. Also, if you really like any of those options you can still buy most through Brokerage link.

To answer your 2025 question, it just goes into the Lifepath retirement fund in 2025. No big deal, but if it is too conservative for you that is definitely a reason not to go that route.

Some day I will again have some of my bond investments back in the US Debt Index fund, but right now I'm staying very short term (Thrift fund), as I don't really want to own any longer term bonds due to current interest rates.

 

[OldShooter]

Unless you are worried about creditor protection, I would suggest moving the account. I say this on the general principal that more flexibility and more control is better. And certainly you will have more investment options.

Re LifePath 2025 (or any target date fund), there is no reason that the date on the fund has to be the same as your planned retirement date. Want more aggressive? Select a later date. Less aggressive, select an earlier date. Personally I don't like target date funds because it is impossible to benchmark the equity and bond portions separately except where they are index funds. Also, you have to be very careful to look in the box to see what you own. Example Bad Things, here: (Reuters report on Fidelity) https://www.reuters.com/article/us-...ers-on-risky-path-to-retirement-idUSKBN1GH1SI

Re VTWAX, about 90% of our equity investments are in that fund. It is worldwide cap weighted with something over 8,000 stocks. It is "pure" in the sense that there are no sector biases and no country biases. In the long run I think that is the way to go, but critics will correctly point out that a heavily home country/US biased portfolio has handily beat VTWAX over the last decade. The decade before that, though, went the other way around. Here is guru Ken French's discussion on country bias: https://famafrench.dimensional.com/videos/home-bias.aspx

Re bonds, I am not a bond guy. 90% of our fixed income is in TIPS on the belief that high inflation is the only serious threat to our retirement. The ER bond guys will probably be along shortly to comment, though.

Re buying Treasuries direct, any broker will do it for you. It's as easy to park money in t-bills, notes, or bonds as it is to buy a bond fund. I have never looked hard at treasurydirect.gov but my impression is that its only value is for people making small purchases, like I-bonds. I will probably get flamed for that comment, though.

 

[TechLead]

Unless you are worried about creditor protection, I would suggest moving the account.

Too late to build Asset Protection into your portfolio when you *start* worrying about creditor related problems.

That is how law works so that people can't hide money when they get hit by lawsuit.

+1 to @Mark1

 

[OldShooter]

Too late to build Asset Protection into your portfolio when you *start* worrying about creditor related problems. ...

My thought was that the OP may not be worried at all. We are not. In addition to not having any creditors, we also have enough insurance that we are not worried about lawsuits. Certainly there are pathological cases we could be paranoid about, but we aren't. YMMV.

 

[TechLead]

My thought was that the OP may not be worried at all. We are not. In addition to not having any creditors, we also have enough insurance that we are not worried about lawsuits. Certainly there are pathological cases we could be paranoid about, but we aren't. YMMV.

So let's say if your Net Worth is 3 million and you have 3 million dollar Umbrella Policy that does not mean your 3 million dollars are safe from creditors.

You can't have enough insurance.

 

[OldShooter]

So let's say if your Net Worth is 3 million and you have 3 million dollar Umbrella Policy that does not mean your 3 million dollars are safe from creditors. You can't have enough insurance.

As I said, YMMV. I am not worried about fringe cases like yours or, for that matter, getting struck by lightning. Actually, falling in the bathtub is probably a higher probability than our getting hit by a big lawsuit.

I will give you an interesting anecdote, though. When I was flying I found that the highest insurance that was sold was $1M. AT Oshkosh, I talked to Jim Lauerman, who at that time was head underwriter for Avenco. He later became president. Avemco is AFIK the share leader in light aircraft insurance. Anyway, he said that in his career he had never seen a trial where the jury awarded more than the insurance limit. He said there seems to be a feeling in juries that sticking it to the insurance company is just fine, but going beyond the limit and after the defendant's assets was somehow foul play.

But what you think and what I think are irrelevant. The OP will make his own decision.

 

[TechLead]

As I said, YMMV. I am not worried about fringe cases like yours or, for that matter, getting struck by lightning. Actually, falling in the bathtub is probably a higher probability than our getting hit by a big lawsuit.

I will give you an interesting anecdote, though. When I was flying I found that the highest insurance that was sold was $1M. AT Oshkosh, I talked to Jim Lauerman, who at that time was head underwriter for Avenco. He later became president. Avemco is AFIK the share leader in light aircraft insurance. Anyway, he said that in his career he had never seen a trial where the jury awarded more than the insurance limit. He said there seems to be a feeling in juries that sticking it to the insurance company is just fine, but going beyond the limit and after the defendant's assets was somehow foul play.

But what you think and what I think are irrelevant. The OP will make his own decision.

Well I have several million dollar Umbrella Policy. It was not difficult to buy.

Probability of lawsuit goes exponetially up with Net Worth. I got your point though.

If I can have Asset Protection at no cost I take it. So I prefer 401k over IRA.

 

[OldShooter]

Well I have several million dollar Umbrella Policy. It was not difficult to buy. ...

I don't even remember what our umbrella limit is. That's how concerned I am.

Probability of lawsuit goes exponetially up with Net Worth.

Link or citation to support this assertion?

If I can have Asset Protection at no cost I take it. So I prefer 401k over IRA.

Fine. Your choice. For the OP, though, there is a cost in convenience, flexibility, and available investment options if he sticks with the 401K. Small cost admittedly. He will decide.

I have no interest in arguing with you about our different views of this risk. You can stop any time.

 

[TechLead]

Link or citation to support this assertion?

For example:

http://www.bairdfinancialadvisor.co...geting the Rich Liability Lawsuits 032012.pdf

You can google such things easily.

 

[OldShooter]

For example:

http://www.bairdfinancialadvisor.co...geting the Rich Liability Lawsuits 032012.pdf

You can google such things easily.

Funny, really. Did you read it? It's a sales piece by some anonymous insurance salespeope who surveyed some unknown sample set at some unknown time and found that the individuals they surveyed were worried about getting sued. Like you are, I guess. No facts there to support your assertion. Even their half-dozen anecdotes are presented without context, without any indication of the time period they span, and without any indication that the awards were against individuals, HNW or not.

I'm done now. You can have the last word if you like. We've wasted enough of the OP's time.

 

[tulak]

IRA protections depend on state law. If you live in the right state, you may have the same protection as a 401k.

OP, it looks like you live in Texas, so it looks like an IRA is protected:

http://moranknobel.com/news/State_Laws_Protecting_IRAs.pdf

Of course, I’d double check to make sure.

 

[steady saver]

Thank you all for your thoughts.

Yes, I had already looked up the where Texas law stood on IRA protection so I wasn't too concerned about that. I should've included that in my query.

The irony is that I want very few choices but I'm just not convinced that my 401K has what I want. I'm wondering if staying with the 401K is easier from a bookkeeping/accounting standpoint but other than that, we have most of the rest of our money at Fidelity anyway. And it does bug me not to have other options if I wanted them. What can I say?

I am wanting to go super simple so I will look consider those basic types of index funds I'm considering then evaluate if my 401K offers that or if it makes more sense to open the IRA. I've never had an IRA before.

I do keep a few individual stocks "for fun" and will continue to do that. But I want the bulk of our portfolio to be super simple. Even with my stocks, I'm pretty much a "buy it and forget it" kind of investor. I probably should part with those at some time but not ready to right now...especially with the tax consequences of a retiring year.

I value all of your input. Thanks so much for taking the time to answer. I do appreciate it.

 

[tulak]

When I left my last job, I took my moderately sized 401k and rolled it over to an IRA at Vanguard.

The fund options in the 401k were ok, but for me, it’s easier to have a greater selection of funds. I only track a few asset classes and it makes my bookkeeping easier.

I always thought I would eventually consolidate at one company, either Vanguard or Fidelity, but I ended up with accounts at both. Mostly because my current 401k is at Fidelity, but I also enjoy other benefits at Fidelity, so I’ll probably keep both indefinitely.

My advice: do whatever is easiest for you.

You might also consider what might be easier for your spouse or heirs (sorry, I don’t recall if you mentioned a spouse) once you’re not around or if somebody else has to help manage your assets.

 

[target2019]

I just started the process of moving one 401K (I have two) to a rollover IRA at Schwab. The primary reason is to consolidate and simplify. I hold 2 funds in the 401K, a 50/50 balanced fund (RLBGX) and an int'l fund (RNWGX).

It will take some time for the rollover check to arrive, send it on to Schwab, and re-invest. So I've been researching my options today. I've considered two funds or ETFs, but at this time I've decided on one fund, which would be RLBGX (50/50) or VWINX (Wellesley 35/65) or VGSTX (Vanguard 60/40).

Vanguard was an option for the transfer, but I prefer to spread money between two accounts (Vanguard and Schwab).

This may be of interest to you, steady saver. Maybe think out of the box for a while, and find a one-fund approach. In my case i'll pay $49.95 for the trade, but it gets me to a low expense ratio, and it is entirely hands-off for re-balancing. If I go with two investments (stock/bond) then I will need to re-balance in the future.

 

[OldShooter]

... In my case i'll pay $49.95 for the trade, but it gets me to a low expense ratio, and it is entirely hands-off for re-balancing. If I go with two investments (stock/bond) then I will need to re-balance in the future.

Since you're moving this asset to Schwab, I'd ask the rep for a free trade. You'll probably get it.

It's probably also worth asking what bennies you get with your new account $ total. At either $100K or $250K (I don't remember) you get a named individual as your rep. I use my guy once or twice a year to answer a question or to unsnarl some red tape. He also has access and can run portfolio analysis tools for you. I don't know if he can include outside assets in the analysis but it's worth asking. He or she/of course. PC.