What to do with 401(k) Rollover?

[DustyMom]

I am struggling a bit with asset allocation for my planned 401(k) rollover.

· I have just retired at age 54 (3 weeks now!)
· DH will retire in 18 months at age 57
· EXCLUDING my 401(k), asset allocation is 60% equity/40% fixed income & cash
· Current 401(k) with ex-employer is in a 2015 Target Date Fund, plan to move into an existing rollover IRA
· Was thinking I should just invest it 60/40 to match the rest of the portfolio

However,
· By age 70 (in about 15 years), all of our guaranteed income sources will have kicked in (4 pensions, 2 SS)
· About 70% of those amounts are COLA'd
· I cannot really conceive of needing (and probably not even wanting) more than what will be provided in those 6 income streams
· It seems like we could feel free to use up most of the nest egg in the next 15 years (probably won’t, but it’s a nice thought)

On the one hand, so many sources of guaranteed income seems to indicate we can take more risk with our portfolio. On the other, if we want to use it up in the next 15 years, that would indicate a shorter investing horizon/less risk, would it not?

I just can't decide which way to go here - more to equities or less?

I'm not asking you to pick my AA, just advise on what I should be considering when I make this decision. As always, many thanks.

[travelover]

Our pensions / SS more than cover our expenses, but I don't know how much our end of life costs will be, so I have an aggressive (70/30) asset allocation to ensure ample cash to cover that.

[user5027]

One thing to consider is that one of you may pass away before the other and what income the survivor will have and how the tax brackets change going from Married Joint to Single.

[MBSC]

Quote:

Originally Posted by DustyMom · EXCLUDING my 401(k), asset allocation is 60% equity/40% fixed income & cash

I try to keep tax efficient equities in taxable accounts and fixed income in tax advantaged accounts to the extent possible for my overall AA.

Quote:

Originally Posted by DustyMom -I cannot really conceive of needing (and probably not even wanting) more than what will be provided in those 6 income streams · It seems like we could feel free to use up most of the nest egg in the next 15 years (probably won’t, but it’s a nice thought).

Do you have LTC/STC coverage? This could be used to self-fund LTC/STC costs. Will the income stream cover infrequent expenses after the next 15 years such as new cars, roof, HVAC, dental work, and handicap accessible retrofits?

[Big_Hitter]

why do you want to roll over your 401k?

[DustyMom]

Some follow-up questions and/or responses:


MBSC:
Due to the relative sizes of our taxable and tax-deferred accounts, we must have equities in the tax-deferred as well as fixed income. That will be true of my rollover IRA as well. Also, the guaranteed income streams will be more than we currently spend (in comparable dollars) and we plan to down-size to a lower cost area, so I feel pretty confident that they will be enough for unexpected expenses as well as regular living expenses in our senior years. We will be self-funding LTC, so I will have to make sure not to spend the entire nest egg before age 70. How should this impact my AA decision?


Big_Hitter:
I have several reasons for wanting to rollover the 401(k). One, no compelling reason to leave it with employer (expense-wise or fund choice-wise). Two, easier book-keeping to consolidate with an already existing IRA. Three, broker holding my existing IRA is offering cash bonus!

[wmc1000]

Given your young ages, I would be more heavily weighted - maybe 70/30 or even 80/20 for funds which you will not need prior to guaranteed streams kicking in

[RetireAge50]

We are in a similar situation. Pensions and social security more than cover our needs after age 65. Until then using IRA and 401k money.

No real wisdom from me though. Planning to adjust income every year based on the new portfolio balance. Starting with 70% stock, 25% bonds, and 5% cash.

I'm thinking I would rather have a chance at some upside especially since I'm not worried about starving after age 65.

[Big_Hitter]

Quote:

Originally Posted by DustyMom Big_Hitter: I have several reasons for wanting to rollover the 401(k). One, no compelling reason to leave it with employer (expense-wise or fund choice-wise). Two, easier book-keeping to consolidate with an already existing IRA. Three, broker holding my existing IRA is offering cash bonus!

your broker will likely put you in retail funds that have higher expenses. institutional funds generally have lower expenses. your broker will also charge you a fee to manage it

[pb4uski]

I would keep with 60/40 overall or more aggressive if you wish. I am 100% domestic and international equities in taxable accounts so I can take advantage of 0% tax rate for qualified dividends and LTCG and fully use the foreign tax credit. Before Roth conversions, our federal tax bill is zero for the last 4 years since RE.

We do Roth conversions to the top of the 15% tax bracket and typically pay 10% of the amount converted in taxes since some is covered by deductions and exemptions, some at 10% and some at 15%.

We'll keep doing this until we hit FRA or perhaps even until 70 (for me as the higher earner).

[DustyMom]

Thanks to all who replied.

I am now thinking I will probably go all equity in the rollover, which will still only give me something between 60-70% equity overall. I'm researching REITs (currently own none) and dividend paying stocks - if anyone wants to throw out any ideas there, I'm all ears! I believe REITs would still be considered part of my equity allocation, correct? As I am only 54, we won't be touching this account for at least 5 years.

Once I get this settled to my satisfaction, I will be starting to investigate how Roth conversions work - topic for another thread.

[user5027]

REITs would be part of equity allocation.

For your ears, I keep it simple with a Boglehead three fund portfolio.

[pb4uski]

No need to REITs for me... total stock market already includes 2-4% real estate, plus my personal holdings... enough for me.

[Independent]

Since much of this is "extra" money, you aren't going to starve even if you make the "wrong" decision.

I'd think about where this money is going to go. Do I want to spend it on expensive travel? Do I want to leave it for the kids or charity?

In the second case, it seems I'd use a heavy equity allocation for money that could easily sit around for 40 years.
In the first, it's a trade off between being relatively certain of my travel budget, or being less certain, but with more potential upside.

[unno2002]

When I retired, at the first possible moment I rolled my 401k type account to what amounts to a "real estate" IRA type account. The account owns fully paid for rental homes. Since we do not need the money yet, the rents accumulate in the account, and when there is enough, we make an upgrade to a property.

A specific example is in FEB 2013, one such account bought a 2 bedroom, 1 bath, 1 car garage brick home for $77,500, which is being rented out at $805/month.