Retiring in 3 year
Hi,
I retire at 62 in three years. I want to manage my own money. I want to keep it really simple. I have $800,000 in a pre tax 401 acct in a 2030 target date fund. I also have $250,000 in a Roth $100,000 HYS. Although I will continue to work for three years, here soon I want to roll over the pre tax 401 ($800,000 into an IRA so I can have more investing options instead of the 2030 fund. Not too many options in my 401k Im considering 70-VTI and 30- total bond. Straight out of the book. Question 1. Is anyone really doing that? Keeping most of their money in VTI and bonds? Question 2. for the remaining 3 working years would it be smarter to put my contributions in the ROTH or consider saving on taxes and put into the the pre tax 401k? leaving my ROTH at $250,000. Just curious to your thoughts.
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Hello aaZamora,
Sounds very simple to me. Nice and neat and tidy in my opinion. 😊And congrats on the savings!! But yes, would be helpful to know what you’d need (or want) for an income stream in retirement. We (spouse and I) have just hit 60 also. Beginning of last year we signed up with an Abundo planner for some guidance. We had the simple 70/30 split, and the only thing she suggested was to have some international to the mix. So in the stock portion we now have 70% VTSAX, and 30% VTIAX. We like to keep it simple too. While we have a Roth, we are only shoveling into the 401k. The Roth is 100% stock right now, but that’s part of the whole picture plan of our 70/30 tolerance level. The other thing we did do first off, was go in to see what expense ratios we were paying in the 401 and switch to the lowest cost alternatives. (depending on who holds your target date fund and if you’d want to switch out of that.)
We live a simple life, out in the country, don’t require a large income stream, and are planning to cut the string at the end of this year. Having our planner in the back ground has been relieving, I have to say, tho shelling out the monthly cost was a jump for me. I soon realized, the yearly expense of it was so much lower then I’d pay anywhere else, and it doesn’t rise or fall like when an advisor is clipping you 1% off the top of everything.
Anyway, starting to babble here. Just want to say congrats! Sounds like you’ve done awesome in the savings. You’ve accumulated a good chunk more than we did! I’d look at retirement like, NOW, if we were where you are 😊
Figure out your spending desires and you might be there!
You missed the key element in your plan, what are your planned expenses? and what are your goals in retirement?
Agree with Robert that it is worth meeting with someone just to help aim a trajectory. Suggest HelloNecturine for hourly advice only.
For the three years until you can rollover the 401k, your goal should be minimizing risk. But still ties to how close to FI number you are. also what is your Roth in?
The Roth you could diversify to other assets if you follow risk parity (gold, long term treasury) and as for cash, that’s a lot of cash to hold if still working three more years.
The main thing is get out of that target date fund, high fees and low performance. Splitting to a 60/40 VTI total bond would get you there with a 1% less fee.
I agree with others that a financial consultation is worth doing. I use Planvision for my second set of eyes and boglehead-friendly philosophy. A few hundred dollars for the first year and literally $8/month if you want to continue after the first year. They'll have you enter all your resources and spending plans in their software and help you come up with a plan.
I retired 2 years ago and had the same questions. You are wise to be thinking of this now. Good news is that you have great options. I am in the process of moving money from some of my 401ks which have only a few options and am moving them to IRAs. Assuming you move to an IRA with the same tax treatment (i.e. pre-tax to pre-tax), there are no tax impacts. One thing to consider is that when you hit RMD, 401K are looked at individually, so an RMD must be taken from each 401K. With IRAs, they are looked at in total and the RMD can be taken any one or more accounts.
During the last few years of employment, I chose to contribute only to a Roth 401K to diversify the tax options with retirement funds. The Roth is only a small portion of my total portfolio, but does provide more flexibility. Paying the tax upfront is not to be taken lightly. It does hurt the pocket book, so look closely at this. There are some good ChooseFI and Mile High Fi podcasts on this topic covering the options. There is no single answer. It is whether you want to take the tax hit now or take the tax hit later.
As the others have mentioned, figuring out your expenses are key to determining when to retire and what to invest in. Since you are only 59, I would challenge you to think about how long you plan to live (I know that's a rough though) but assuming you are going to live to 79, you have 20 years of investing to go. With that long of a timeframe, I would follow the simple path to wealth book ideas and just stick with VTI (or vtsax as mentioned in the book) along with only keeping a couple years of expenses in a bond fund so you can follow the 4% rule (note that new research does have this number being higher).
you have not explained when and how you will use this money: How much of it you will be spending and when?
Personally If I were expecting to be pulling 4% from it right out the gate, I would feel there is too much sequence of returns risk in the 70/30 mix you have proposed. I would go to portfoliocharts.com to get some ideas of other portfolios that offer smaller max drawdowns, shorter drawdown duration, higher safe withdrawal rates and less sequence of returns risk.
I understand you want to keep it simple but you can get a whole lot more and better diversification with a 4-6 fund portfolio. If you can manage 2 funds, you can manage 4-6.
Congrats on approaching retirement! 70/30 VTI/bonds is exactly what I plan to do closer to retirement. But I'm 40 and in a weird quasi retirement right now (own my own business, so sometimes I'm drawing down already). Right now, since I'm not near what I consider to be "true retirement," I have almost no bonds.
Roth vs. pre-tax depends on what tax bracket you're in now vs. what you'll be in after retirement. If you don't own your own business, have real estate, etc. other stuff that might cause "income" of any kind in retirement, then you might be in the highest tax bracket you'll ever be in right now. In which case, contributing to pre-tax makes more sense for you right now. But if you are going to have income from other sources in retirement (your own biz, for example), then it's possible your highest tax bracket years are in the future, in which case you might find the roth more attractive right now. Just depends when you want to pay taxes, and what bracket you'll be in then vs now.
I'm not a financial or tax advisor. 🙂 Consulting with a advisor for a fee (not one who will take a % of your portfolio) might be beneficial while you're at this pivot point!
You have a lot going on. You might find it worthwhile to consult with an hourly financial planner, someone who can help you make sure that you are on the right trajectory and help construct a plan for you to execute yourself as a DIYer.
You give some numbers, but not really enough numbers for the complete picture. Here are some additional numbers that would be needed to help get to some useful answers to your questions?