Market timing and taking RMDs

[target2019]

Found my full color printout of the investment options. The options you list are all in the separate account. That is a group annuity contract with Principal Life Insurance Company. There are limits which are explained in a footnote A, which you should be able to find on the site somewhere

My company's agreement has the fund choices you selected, and some additional ones, like American Funds Balanced R3 Fund (0.94% expense ratio!).

I would streamline the number of investments to eliminate overlap. But you first need to decide on an AA.

My opinion is, the Stable Value fund is something to avoid in this case. There is really nothing bond-like worth having, so you're stuck with that Core Plus Bond if you want fixed income.

I would consolidate the other equity classes to just S&P500, Mid Cap, and Small Cap 600.

You have one international equity offering. Take it or leave it.

Put stable value into Core Plus Bond.
Put Lifetime 2030 into S&P600.
etc.
See the before and after below.
I put the 2030 into S&P600, but you could find a better split for that.

Then you can tune future contributions to achieve a glide path. Or not.

If there is a Roth, also take that into account when figuring the Asset Allocation.

What is her age?

[pb4uski]

Quote:

Originally Posted by Goldenmom While I have you wonderful early retirement members assembled here, I'd like to ask another question about our daughter's investments. She works as a physical therapist and her 401(k) at work is with Principal Financial Group. Her portfolio at Principal is confusing, but even I can tell that the fund expenses are high. They do offer an S&P 500 index fund but it only had a Morningstar rating of 3 stars. She'd like me to manage this account for her, but after looking at her portfolio and doing a little online research, I'm afraid this task is beyond my skill set. I am only familiar with Vanguard funds and am afraid she may need a fee-only fiduciary to help her find the best fund options. Do any of you know a forum or site that discusses how to design a low-cost index portfolio using Principal Group funds? I'm willing to educate myself if I can find some helpful resources. Vanguard says she cannot transfer her 401(k) while she is still contributing to it. Can any of you offer some advice for how I can help her? What would you do if she were your daughter? She has about 350K in her 401K. Has anyone seen a thread on Principal Group at any of the other forums? Thanks in advance.

Well, that is quite a nice nestegg that she has saved. I think the first thing that you/she needs to do is to determine what her overall AA target is for, first, all her funds and second, for the 401k.

Assuming that the 401k is the bulk of her savings, I would focus on the S&P index funds since they have the lowest ERs.

Also, does her 401k have a match? And how much is she saving towards retirement? In the 401k she should at least maximize the match, but if what she is saving in total less what she would need to save in the 401k is less than $5,500 and she qualifies for a deductible IRA then I would shift to splitting the savings between the 401k (up to the match) and put the excess in a deductible IRA where she'll have better investment options.

[target2019]

Based on that complete list, be sure to use the S&P 500, S&P 400, S&P 600.

[Goldenmom]

Target2019, I don't really understand about the separate account except that you are saying it is an annuity. Does this mean that she can exchange funds (sub accounts), but may not be able to rollover some of funds to Vanguard? In other words, is her money locked in an annuity for a period of years and subject to surrender charge?

My daughter and I were both suckered into variable annuities at Ameriprise. She has liquidated hers without penalty, but I will have to withdraw mine over the next 5 years to move the balance of my VA to Vanguard without penalty. Thanks for all of your help with her 401(K). I would like to greatly simplify her portfolio and lower expenses as much as possible. What would you do with her target date fund? I will make a chart tomorrow for her to show her how to exchange each of the funds. I think she has a transfer limit of some kind so we will need to see what restrictions apply. I'd appreciate knowing how you would exchange or eliminate each one. I had the same idea about the stable value fund and using the 3 index funds and was glad I was on the right track about those. Still need ideas on AA for a 48 yr old.

Thanks again,
Goldenmom

[target2019]

Quote:

Originally Posted by Goldenmom Target2019, I don't really understand about the separate account except that you are saying it is an annuity. Does this mean that she can exchange funds (sub accounts), but may not be able to rollover some of funds to Vanguard? In other words, is her money locked in an annuity for a period of years and subject to surrender charge? My daughter and I were both suckered into variable annuities at Ameriprise. She has liquidated hers without penalty, but I will have to withdraw mine over the next 5 years to move the balance of my VA to Vanguard without penalty. Thanks for all of your help with her 401(K). I would like to greatly simplify her portfolio and lower expenses as much as possible. What would you do with her target date fund? I will make a chart tomorrow for her to show her how to exchange each of the funds. I think she has a transfer limit of some kind so we will need to see what restrictions apply. I'd appreciate knowing how you would exchange or eliminate each one. I had the same idea about the stable value fund and using the 3 index funds and was glad I was on the right track about those. Still need ideas on AA for a 48 yr old. Thanks again, Goldenmom

1) Principal's language is "group annuity contract." I see the footnote A in your PDF. When you login, and click that footnote, you'll see this language and a long explanation.
2) In my case, I just came into a job where principal is available. Since my timeline is very short, and I don't need the diversification, I picked one fund outside of the separate account, and will go forward. Your daughter has a different horizon at 48 years young. She needs the diversification you are seeking.
3) Stable value is a loser. ,9 expense ratio and returned .5% performance?
4) Look at the chart I posted. It shows you what I would do.
5) First thing is decide an asset allocation for 48 year old. You can go to Vanguard, Fidelity, etc. and find an allocation. Maybe:
https://personal.vanguard.com/us/fun...recommendation

[pb4uski]

Goldenmom,

Many insurers who administer 401ks do so under a group annuity contract since they are not mutual fund companies. The insurer has separate accounts that issue these group annuity contracts to the 401ks and each separate account has "subaccounts" which is functionally equivalent to a mutual fund. That is what you are seeing on the list. This group annuity contract is not anything bad or anything like the VA you and your DD had or other bad individual annuities we are all too familiar with, but is simply a form that insurers commonly use to sell 401ks to employers.

Quote:

Most retirement plans are held either at a mutual fund company or within a group variable annuity contract at a life insurance company. Retirement plan assets are held in a group variable annuity contract because the program administrator is a life insurance company that sells annuities, as opposed to a mutual fund company. The differences between plans held at a mutual fund or a life insurance/annuity company may be virtually indistinguishable. The investment options available for employees to invest in are held in the group annuity contract. The distinctions between investment options in an annuity contract and a mutual fund arrangement are slight. Mutual fund arrangements allow for employees to make contributions directly to the mutual fund, while investments in these same mutual funds or similar investments are made through a group annuity contract in separate accounts. Participants then hold units in that separate account. The separate account is “separate” from the general assets of the insurance company, so there is no credit risk in the event that the insurer becomes insolvent.

[target2019]

There is usually a period during which you can't get all of your money out. For example, spouse's annuity contract with Equitable had a 7 or 8-year term. After the term, and you sever from company, you can rollover.

To know the limitations, read the contract, and call the company to clarify anything not understood.

My experience with a couple of support calls to Principal has not been very good. You need to read and understand the contract.

[pb4uski]

NO!!!!!

This is a totally different thing. It operates identically to a conventional 401k.... it is just that the form is a bit different because the issuer is an insurance company rather than a mutual fund.

I'll bet that the spouse contract that you are referring to was not a group annuity in a 401k but was some kind of individual annuity contract.

[target2019]

Quote:

Originally Posted by pb4uski NO!!!!! This is a totally different thing. It operates identically to a conventional 401k.... it is just that the form is a bit different because the issuer is an insurance company rather than a mutual fund. I'll bet that the spouse contract that you are referring to was not a group annuity in a 401k but was some kind of individual annuity contract.

Spouse has a TSA - 403(b). Deferred Annuity Contract. Thanks for the explanation.

I came across an article that explains why Prinicpal e/r's are lower than you'd expect.

https://mutualfundreform.com/princip...to-lower-fees/

[Goldenmom]

I made a chart so our daughter, Cheryl, would have a "cheat sheet" when she calls Principal Group to change her sub-accounts. I'd like advice on which sub-accounts she should hold or exchange into another sub-account. PG offers 3 index funds in her plan: LargeCap S&P 500 Index, MidCap S&P 400 Index, SmallCap S&P 600 Index. She's terribly busy with patients & paperwork & it's hard for her to make calls during the business day. It has literally taken 2 months for her to liquidate her variable annuity at Ameriprise & transfer the funds to Vanguard. At least those funds were out from under penalty & were invested yesterday in the Vanguard Target Date 2035 fund. She has no investment education or interest in investing & wants me to manage all her accounts. Please look at my attached chart & make suggestions similar to those made by target2019. I'd like to know what do with each of the funds she holds. She'll drive down today to notarize a Vanguard agent authorization & we can go over it then. Do you know if she can rollover any of her Principal Group 401(k) funds to her Vanguard IRA (which contains only her target date fund) while keeping her Principal Group account active at work? She will need to keep contributing to it each month from employment income. Thanks so much for any and all help! I will use your responses to fill in the rest of her chart.

[samclem]

Three comments:
1) Aside from the expenses of the individual funds (which are about double what she'd pay at Vanguard, Fidelity Spartan, etc for index funds), is there a way to get insight into the other fees she may be paying in this 401K?

2) Getting the funds out: Has she got the ability to do an in-service transfer of these 401K funds to her IRA? That could save her some significant fees >and< give her more control/investment choices. There are some negatives (decreased legal protections in some cases/states, sometimes less ability to take withdrawals penalty-free at age 55, etc) but overall, most people choose to roll their money into an IRA vs keeping it an employer's 401K, and that's a good choice.

3) Reading this . . . .

Quote:

Originally Posted by Goldenmom She's terribly busy with patients & paperwork & it's hard for her to make calls during the business day. It has literally taken 2 months for her to liquidate her variable annuity at Ameriprise & transfer the funds to Vanguard. . . . She has no investment education or interest in investing & wants me to manage all her accounts.

makes me think she's an ideal client for a set-and-forget-no-need-to-rebalance-this-or-even-think-about-it low-cost balanced fund. If the fees are about the same for Principal's 2035 TGT Date fund, and if the allocation is close to appropriate, why not just use that single fund? Nobody is going to want to mess around with tweaking her allocations, nobody is going to do a better job of it than the robots who automatically rebalance it, there are no tax loss harvesting considerations in this 401K. Who knows what >additional< tweaks the advisor at that 401K may try to slip in over the years (higher cost funds, etc),and that wolf's job is made much easier if her daughter has to individually defend every part a 7 fund asset allocation (Goldenmom won't always be there). This is a case where KISS is really important--not just easy, but likely more profitable. This needs to be on autopilot for many reasons.

[Goldenmom]

Cheryl is 48, and has about 20 years until retirement. We'd like to have advice about a reasonable AA for her Principal Group 401(k). Thanks!

[Goldenmom]

target2019, I'm studying your "after" chart. Is the 5% mid cap you have listed the MidCap S&P 400 Index? She has 2 mid-cap funds in her current holdings neither of which is listed as an index fund. Does that 16K go into MidCap S&P 400 Index? I need to really simplify this for her as she has limited time for phone calls between patients and is lucky if she gets lunch. Thanks!

[samclem]

Quote:

Originally Posted by Goldenmom Cheryl is 48, and has about 20 years until retirement. We'd like to have advice about a reasonable AA for her Principal Group 401(k). Thanks!

I've got almost no info on what she's got available. The PDFs you sent show what she owns, I can't open the footnotes to it. I don't have access to info on other fees she is paying, and the cost of ALL options under the plan.

Likely best option: If she can get the money out and into an IRA somewhere with reasonable cost funds, that would be an option worth exploring right off the bat.

Second best option: If she's got a single target-date fund or other balanced stock/bond fund available with fees that aren't totally crazy, that would be an OK option.

Third option: After you've examined and rejected the above two options: If you have to make up your own allocation of funds within her 401k, use low-cost index funds to build it. And keep it very simple, plan to rebalance it just once per year. Does she have NO bond index funds available to her in this 401K? The allocation Target2019 offered in his spreadsheet looks as good as any, but look for a cheap bond index option. As far as mechanics. why not make this simple and have her sell all of her present holdings and put the money into a money market fund, stable value fund, etc AFTER MAKING SURE THERE'S NO LOAD. After it's all been dumped in there, she can then parse it out as needed according to the allocations you recommend. Yes, it is two steps, but that's it for a year.

[Goldenmom]

pb4uski,
I will inquire about the 401(k) match, and the amount being saved towards retirement and report back. Thanks for these excellent questions.

What is a good AA for a 48 yr. old? Ours is 50/50 and we are 66 and 70, but we still have some earned income and are still contributing to a solo 401(k).

Should hers be 70/30, 80/20, or even more aggressive? She has the Principal Group 401(k), a Vanguard Target Date 2035 fund valued at about 67K, will have no pension, and has no Roth. I am encouraging her to make efficient use of her HSA but she hasn't done that yet. Thanks!

Goldenmom

[Goldenmom]

pb4uski,
Could the deductible IRA be moved to Vanguard if she qualifies for it? I'm much more familiar with Vanguard funds and their fees are lower.

[target2019]

Quote:

Originally Posted by Goldenmom target2019, I'm studying your "after" chart. Is the 5% mid cap you have listed the MidCap S&P 400 Index? She has 2 mid-cap funds in her current holdings neither of which is listed as an index fund. Does that 16K go into MidCap S&P 400 Index? I need to really simplify this for her as she has limited time for phone calls between patients and is lucky if she gets lunch. Thanks!

Exactly, GM.
In the list, S&P 500, S&P 400, S&P 600. They all have e/r .31%.

But, you need to change how future contributions will go in. If you do not do this, and wait for the change to be effective, you will end up with more confusion as new contributions go where you do not wish.

1. Help daughter decide AA, first. She currently has 35% in bond fund and stable value. 35% is a good choice. 65% in equities sounds reasonable. But she must make decision. Of course you can help with that.
2. Future contributions into 5 funds - bond, 500, 400, 600, int'l: 20%, 20%, 20%, 20%, 20%. I like simplicity. Later, you can adjust the percentages for new contributions. This is simple to do in the Principal web site I use. Probably same for hers.
3. Once you know the new contributions are going into the five funds, she can go in and make changes. For example she can move 100% of the Stable Value fund into the Core Plus Bond fund.
4. I would go slow, and make sure it is right. That is just me, make smaller moves so I don't confuse myself. Next, move the Growth I into S&P500.
5. Continue with simple moves. I just logged in, and to be honest, in this area it is confusing, and I was straining to understand all of their 'helpful' tools.
6. Find out how many transfers she is limited to, and for what period.

Also, find out if she can do a deductible traditional IRA in addition to 401K.

Look at Roth IRA with Vanguard also.

To answer question from another poster about Target fund: they are all .90% E/R. If you decide to use that, you will give up more than .50% yearly. Sounds small but over 20 year period it is quite a bit. But it is a solution that some would take.

BTW, there are additional fees, and I think they are about 7 bps.

[Goldenmom]

samclem, I'm going to find out about the in-service transfer of at least some of her funds to her Vanguard IRA. (I've read that PG has a reputation for very poor customer service so this may be a long-term project.) She has $16,593 in the PG Lifetime 2030 fund now. They also offer a 2040 Lifetime if that is a better choice for her. They don't list a 2035 Lifetime like the one she has at Vanguard. She is very vulnerable to being taken advantage of since she doesn't want to learn about her investments. Do you recommend that she fold ALL of her sub-acccounts into the 2030 Lifetime account? I appreciate all of the options and ideas this group is providing.

[samclem]

Quote:

Originally Posted by Goldenmom pb4uski, Could the deductible IRA be moved to Vanguard if she qualifies for it? I'm much more familiar with Vanguard funds and there fees are lower.

If her 401K plan allows for in-service transfers, she can set up a "traditional IRA" (tIRA) at Vanguard and transfer the funds from her 401K to that account. She doesn't need aby special qualifications to set up an IRA at Vanguard. Anything she rolls over from her 401K will remain tax-deferred, just like her 401K is. There are some differences in the legal protections offered to IRAs compared to 401Ks (in the case of bankruptcy, etc) and these vary by state. But it's often a good idea to transfer funds out of an employer's 401K and into an IRA as soon as possible.

In addition to this, she can also make future contributions to a tIRA from her earnings at work. Depending on her income, these may or may not be tax deductible (it phases out at higher income levels). Making deductions that are NOT tax deductible can lead to a bookkeeping headache that lasts for years, and I would personally not do it.

[Goldenmom]

samclem,
Fee for Principal Group 2030 is 0.88%. Where should her new contributions go?