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Can_I_Retire_Now 07-31-2014 01:12 PM

3 Years from Retirement and Don't Know What to Do with 401K
 
I am about 3 to 3.5 years from retirement. I'm not well heeled in investment strategy and don't have a sizable retirement nest egg as some of you do here. Plus, I simply don't know anything about investing, but I feel I need to do something soon.

My current situation is this..

Current holdings is $500K. Half of that is in company stock (ESOP) and the other half is 401K. Home will be payed off in 2 years or less. One son left to finish college, which should be next summer. Wife still works, although what she brings home does little more than pay for tuition for our son and fuel my addiction to working on cars). She is 8 years younger than I, so I would expect her to continue to work when I retire, but possibly at 1/2 time instead of full time - so expect 1K from her for monthly income at that time which could be used for medical insurance..

Expenses should be low for us given that all debts will be paid off and I can start drawing on SS at 63, plus maybe 4% drawdown of whatever I have in my retirement nest egg.

The issue is my current 401K account. I am 100% in stock funds and have been since 2009. The market has been good as of late but now since I'm 3+ years out from retiring, I'm concerned I'm too aggressive in the market - but I don't know what to do. (portfolio mix is 25% international, 25% growth, 25% growth and income, and I can't remember what the other 25% is - stupid me :()

My asset allocation is probably wrong, so what are your recommendations? I do have the option of paying our 401K administrators a yearly fee to manage my 401K, but last time I did this when I had an IRA with Fidelity, all they did was lose me money during the 2007-2008 crisis.

I'm not savvy with investing. Lord knows I've tried to get interested, but I just don't seem to have the desire to be an informed investor. Am I doomed?

REWahoo 07-31-2014 01:18 PM

If you are unwilling to educate yourself on investing you might do less damage to your retirement savings paying someone like Rick Ferri to manage your money for you: Low Fee Investment Manager, Low Cost Investment Advisor | Portfolio Solutions

kaudrey 07-31-2014 01:19 PM

Does your 401K offer a Target Date Fund? This fund will be a mix of stocks and bonds based on expected retirement date. They are usually named by year - i.e. "Target Date Fund 2020" or something. The closer you are to the date, the higher the level of bonds. Something that is targeted for 2020 for you would probably be adequate - and easy for you to manage, as it is just one fund.

2B 07-31-2014 01:29 PM

I suggest you read Millionaire Teacher by Andrew Hallam. This simple book will give you a good, basic description of index investing. My DW read this and afterwards she claimed to understand what I had been trying to pound into her for years. She had also been not interested.

If you go with a FA, you will be reducing your spendable income by about 25%. Learn to do it yourself and get your SO involved.

With you being so close to retirement, I would suggest you put some fixed income into your AA. We can go into another 2008 at any time.

Can_I_Retire_Now 07-31-2014 01:51 PM

Yes - I think we have Target Date Funds as an option. I don't know anything about them. Thanks for the tip - I'll look into them.

In reference to 2B - what is "FA"?

Thanks for the book suggestion. I'll pick it up on Amazon....

Animorph 07-31-2014 01:51 PM

You can do fine investing on your own, but you would have lost money in 2008 also. You just won't be paying so much for the that privilege.

I like staying all equities until retirement. You just have to remain flexible. If you hit a bear market, you'll have to keep working another few years. But if things go well, you might retire earlier than planned.

If you are firm on a retirement date, then you might start moving into bonds. Your first few years of retirement expenses are going to be short-term money. That should probably not be in stocks.

I like all equities myself, but I wouldn't recommend that to many people. A typical retirement portfolio would be 40% to 60% equities and the rest in bonds. A target date retirement fund with a date slightly in the future should have something around that, though they can get pretty conservative. You can buy one with a later date to get more equities.

If you have a stable value fund available in your 401k that might be a better choice than a regular bond fund at this time, depending on its yield.

MRG 07-31-2014 02:43 PM

Quote:

Originally Posted by Can_I_Retire_Now (Post 1477450)
Yes - I think we have Target Date Funds as an option. I don't know anything about them. Thanks for the tip - I'll look into them.

In reference to 2B - what is "FA"?

Thanks for the book suggestion. I'll pick it up on Amazon....

FA -financial advisor (some may use words with other stronger meanings)

Useful acronyms:
https://www.early-retirement.org/foru...ad.php?t=34884

Do you feel ok about having 50% in company stock? There may be ways(NUA) to benefit from that stock. It's just a lot of concentration, what happens if your C level execs do something wrong, are you willing to chance your future?




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FedExCourier 07-31-2014 03:11 PM

Diversify everything in your 401k. You seem to be quite over weighted in ESOP. Target Date Funds can be great if you really aren't interested or motivated to educate yourself on investing. Plus the Target Date Funds are usually very inexpensive. One more good book is by Bernstein, " The Four Pillars of Investing".

travelover 07-31-2014 03:32 PM

I'd get rid of the company stock and put it into a stock index fund, if nothing else. Think ENRON.

MBAustin 07-31-2014 04:43 PM

Quote:

Originally Posted by travelover (Post 1477499)
I'd get rid of the company stock and put it into a stock index fund, if nothing else. Think ENRON.

+1. If your company stock is up, this would be an excellent time to sell some or all of your ESOP and move that money into index funds. Of course, you need to be ready for the tax bite on that.

Can_I_Retire_Now 07-31-2014 05:56 PM

Quote:

Originally Posted by travelover (Post 1477499)
I'd get rid of the company stock and put it into a stock index fund, if nothing else. Think ENRON.

Our company stock is private. It can only be held by its employees. Its not sold on the open market. The stock has done well over its 25 year span. Right now I'm averaging 8%. Company is very ethical in its business practices, so for the moment, I feel safe having 40% of my money there. I'm hoping some big defense contractor will come and buy us out so the stock will go upů.

Lots of good advice here. Thank you all. I've got alot to think about and you're helping me to take a closer look at my portfolio.

mathjak107 08-02-2014 04:45 AM

i tend to march to my own drummer and as usual my views may go against the grain .

i would avoid a target date fund. why on earth anyone would want to have their money invested without regard for anything else going on around them just escapes me.

can you imagine the logic in 2008-2009 after stocks fell 50% that your fund is selling stocks at a loss and buying bonds because you grew older the last few years? does that sound logical to anyone here?

you want to take advantage of the fall , not sell in to it.

on the other hand loading up with bonds because you are older will be a recipe for disaster not if rates rise but when.

while target date funds sounded good as a concept they basically imploded based on that concept.

i am now one year away from retiring fully.

i have used the fidelity insight newsletter for decades to keep me from myself and at this point i have 2/3's in the income and capital preservation model and 1/3 in the growth and income model.

i am about 38% equities over all. once i retire i will use the rising glide path idea and add about 1% a year more into the growth and income model.

Ready 08-02-2014 07:54 AM

Welcome to the forum. You are getting some good advice and a variety of opinions on this thread, which is always good.

For me personally, I would be very uncomfortable being 3 years from retirement and having 100% of my money in stocks. I would also be uncomfortable having half of my savings in company stock, but it sounds like you may not have any choice with that.

You say you are going to begin collecting social security at 63. That may be fine, but do you understand how much you are giving up by collecting early? Have you looked closely at your annual expenses and the income you will get from social security to make sure you have enough to live on?

If you're willing to read a book or two on basic investing concepts, you may be able to make your own decisions just fine. If not, perhaps a low cost fee only financial advisor may be the right solution. However, without reading the books to gain a basic understanding of how investing works, you will never know whether your FA is giving you good advice or not. So I would strongly encourage you to do the reading.

Walt34 08-02-2014 09:18 PM

Suggested books:

Millionaire Teacher by Andrew Hallam, already mentioned

How a Second Grader Beat Wall Street, by Alan S. Roth

Your Money & Your Brain by Jason Zweig

Why Smart People Make big Money Mistakes by Gary Belsky & Thomas Lilovich

The Investor's Manifesto Preparing for Prosperity, Armageddon, and Everything in Between by William J. Bernstein

Predictably Irrational by Dan Ariely

The Little Book of Common Sense Investing by John C. Bogle

Thinking, Fast and Slow, by Daniel Kahneman

A Random Walk Down Wall Street by Burton G. Malkiel

Read these, nay, study them, and you will know what to do. Yes, it will take effort on your part. No one will tell you this is easy from the start. But after you have educated yourself? Yes, then it is easy.

No one cares more about your money than you do. It will, after all, dictate what your standard of living will be for the rest of your life. Worth taking the time to read a few books.

mathjak107 08-03-2014 02:35 AM

Quote:

Originally Posted by mathjak107 (Post 1478104)
i tend to march to my own drummer and as usual my views may go against the grain .

i would avoid a target date fund. why on earth anyone would want to have their money invested without regard for anything else going on around them just escapes me.

can you imagine the logic in 2008-2009 after stocks fell 50% that your fund is selling stocks at a loss and buying bonds because you grew older the last few years? does that sound logical to anyone here?

you want to take advantage of the fall , not sell in to it.

on the other hand loading up with bonds because you are older will be a recipe for disaster not if rates rise but when.

while target date funds sounded good as a concept they basically imploded based on that concept.

i am now one year away from retiring fully.

i have used the fidelity insight newsletter for decades to keep me from myself and at this point i have 2/3's in the income and capital preservation model and 1/3 in the growth and income model.

i am about 38% equities over all. once i retire i will use the rising glide path idea and add about 1% a year more into the growth and income model.



in case anyone wasn't aware vanguard target date funds reset their allocations every day.

they either use incoming money to reset or they buy and sell to reset so it is a daily thing.

so even though in a downturn they would actually be buying equities and resetting daily , that is a good thing but there is a 2nd moving target that is working to reduce them.

while it isn't published ,vanguard admits they reset daily but they will not say when or how often they reduce equities to get that downward glide path. it is that selling for that glide path reduction that would not make sense during certain market conditions but is done anyway regardless.


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