self-managed 401k

[abw]

On Monday, I logged on to see how much I'd lost on my 401k. I went through the free on-line adviser, which suggested I increase my contribution and change my risk strategy from conservative to balanced. I followed that advice, then the market kept tanking and I got cold feet and decreased my contribution to what it was before, but the guy I talked to at the firm sort of talked me down, saying I'd increased my portfolio at bargain prices and to sit tight. This is my question. I don't want to micromanage and keep changing my mix and such. What is the guideline for making these sorts of changes? In other words, how often should I go back and consult the on-line adviser? Or should it be not a timeframe issue but more tied to what's happening in real life? tia

[jIM_Ohio]

Your last sentence had your answer.

Let your life determine changes
and let your financial plan determine how much to put in.

You should be putting in 15% of your gross pay. If this is a solo 401k because you are self employed, consider that in good years you can contribute up to 40k per year I think (15k normal and 25k match). Check with IRS on that- never dealt directly with a solo 401k before.

T Rowe Price also has a comparison of savings plan info (whether to do a SEP IRA vs a solo 401k vs other choices) and the costs. If your "advisor" is taking a percent each time you contribute, that might be another reason the account value is down.

[abw]

To clarify, I work for a big corporation, which matches my contribution up to a certain percentage (3%, I think). My account is with T Rowe Price. They have a partnership with Morningstar, which is free unless you sign up for their managed service. As my post implies, my account is self-managed. I'm contributing 10%; they suggested I contribute 12%. I plan to do that, but I'm inclined to wait until things seem to be close to bottoming out. I'm about 10 years away from retirement, have a 15yo (impending college costs), and an unemployed husband. We also plan to buy a home shortly after he gets a job, hopefully in the spring of next year. So with all those factors, I'm not convinced of the wisdom of having so much tied up in a 401k. When dh is employed, he expects to make about 3 times what I do.

[jIM_Ohio]

Originally Posted by abw

To clarify, I work for a big corporation, which matches my contribution up to a certain percentage (3%, I think). My account is with T Rowe Price. They have a partnership with Morningstar, which is free unless you sign up for their managed service. As my post implies, my account is self-managed. I'm contributing 10%; they suggested I contribute 12%. I plan to do that, but I'm inclined to wait until things seem to be close to bottoming out. I'm about 10 years away from retirement, have a 15yo (impending college costs), and an unemployed husband. We also plan to buy a home shortly after he gets a job, hopefully in the spring of next year. So with all those factors, I'm not convinced of the wisdom of having so much tied up in a 401k. When dh is employed, he expects to make about 3 times what I do.

Self managed means you picked your own funds? No issue there.

Now is the time to be contributiing to 401k- 12% is better than 10%, the more the better. It is not often things are 40% off in retail and you have the opportunity to buy equities at 40% off right now.

Regardless of home situation, spouse's work situation or any other event which may or may not happen in 6-24 months, your savings, retirement and financial plan needs to deal with here and now.

You should be spending less than you earn.
20% of your gross pay should be contributed to savings. IN your situation I would look for 15% to go to retirement plan and 5% to go into a savings account for emergencies and house down payment.

Waiting for a spouse to get employment to change the plan will make this more difficult because the 20%, 15% and 5% numbers then become much larger.

A 2% increase in 401k contributions will barely change take home pay (because of taxes), and puts you much closer to retiring at a normal or early age.

If you have 10 years to retirement, you will probably see the contributions you make the next 3 years be a significant portion of what allows retirement in 10 years (because it is probable that within 7 years, this money has grown 50% or similar based on past drops like the one which just occured).

10 years to go, I would expect you have at least 12X expenses already set aside (meaning if you spend 50k per year you should have 600k saved).

[abw]

Thanks for all this info. Although our savings is not up to your expectations (primarily due to a failed business and several serious and expensive medical issues), we have almost no debt and husband's employment prospects look very promising. I feel much more positive about increasing my contribution, though, thanks to your explanation and will do so as soon as I can. Thanks again.

[jIM_Ohio]

On second thougt, one edit- the marker 12 years our is probably 10X or 9X expenses in retirement accounts. You want 12X about 9 years out, or maybe 7 years out.

Because market just took a 40% drop, it is highly probable that portfolio might double twice in 10 years. Meaning 6X goes to 12X in 4 years, then 12X goes to 25X in 6 years.