Feedback/Advice: Retirement Planning and overall Portfolio

[FinNewb]

All…as the title of the thread states, I was hoping to have some of you chime in with your expertise on basically how my current plan / portfolio is looking and more importantly what I can do differently to ensure that we reach our goals of a successful retirement. I am still learning about the subject matter and there is a lot I still need to learn. I will be picking up the Bogleheads Guide to Investing from my library sometime this week (just waiting on it to be returned). We currently follow advice from Ramsey on debt consolidation and investing advice and from what I have read throughout various forums a lot of folks do not like his investing advice. Basically we are following his “baby steps” and have everything accounted for at this point. I will list what we are currently doing below and also questions that I have concerning future moves:

Savings/Debt/Etc:

EFund: 50K (about 6-8 mnths of house and utilities)
House Fund: 50K (aggressively saving to pay off house early/at this point on a 4-5 year plan)
Debt: Mortgage (260K) 25yr term at 4.875%
Tax Filing Status: Married Filing Jointly / No Children Presently (One on the way)
Marginal tax rate (I think): 28% (not sure how to determine this)
Age: 35 yrs (Me) / 35 yrs (Wife)

Investments/Retirement Planning Portfolio:

(Me): No 401K or 403B / State Pension Plan
Roth IRA: Only been contributing for the last few years/maxed out each year (10K total)
(Roth) Asset Allocation = Blackrock Global / % of Account 50.19
Blackrock EQTY Dividend / & of Account 29.82
Pimco Total Return FD / % of Account 19.98
FIA Card SVS NA Rasp / % of Account 0.01
Asset Class = 65.96% Equity / 34.03% Fixed Income / 0.01% Cash

(Wife):
401K thru Employer: 250K (Company matches up to 5% / Contributing 10%)

Current allocation/investment:
25% VANG EXT MKT IDX IP
25% STABLE VALUE FUND
20% MFS INTL GRTH
17% COM STK FUND
13% VANG INST INDEX PLUS

Pension Plan thru Employer: 50K

Current allocation/investment:
60% INTEREST CREDIT 10YR
11% COM STK FUND
10% VANG EXT MKT IDX IP
8% BLACKROCK EQ DIVD
7%MFS INTL GRTH
4% STABLE VALUE FUND

Contributions/Allocations of both 401K and Pension are way off as of now (after doing some studying and research I have a new plan). I was thinking about going for simplicity and go with an allocation of 50% US Stocks, 20% Int'l, and 30% Bonds and changing our contributions to the following for both 401K and Pension: (I can list other investment choices later on if someone is interested).

50% VANG INST INDEX PLUS
20% VANG TOT INTL STK IP
30% VANG TOT BOND MKT IP

Roth IRA: Only been contributing for the last few years/maxed out each year (10K total)
(Roth) Asset Allocation = Blackrock Global / % of Account 50.19
Blackrock EQTY Dividend / & of Account 29.82
Pimco Total Return FD / % of Account 19.98
FIA Card SVS NA Rasp / % of Account 0.01
Asset Class = 65.96% Equity / 34.03% Fixed Income / 0.01% Cash

Ok, well I guess that kind of covers where we are currently. Now on to where we want to be. I am not sure how much we will need to retire or even how you would go about calculating that? Also, I am not educated enough to figure out the differences of IRA accounts…basically between TIRA’s and Roth’s. All I know is what I have been told is that Roth’s are better because you don’t have to pay taxes when you start withdrawing from them…I think? Basically how do I know whether we should be contributing to a Roth versus a TIRA (or vice versa)? Other questions…..

1. Asset Allocation: I have learned that you are supposed to look at your entire portfolio as a whole and go with that allocation for everything and not just one piece. Not sure how I can accomplish that with our entire portfolio at this point…..matter of fact…I am not really sure what AA I am currently at so I can effectively make changes? I know what I plan on doing for the 401K / Pension stuff but not sure about our Roth accounts?

2. Again with AA: Not sure whether we should play it safe and go with a 60% Stocks / 40% Bonds or since we are still relatively young…roll the dice and go with a 70/30 plan? I believe when we were speaking with the rep when setting up our Roth accounts, we decided on a 65/35 plan. I think it would be good to get some Int’l funds in there as well?

3. I will be receiving some “rollover” money from an investment that I made about 5 years ago due to some other circumstances. Basically I rolled over a 401K from an old job (about 40K) and invested in a company and they are “cashing” it out and I need to find something to do with the money (it just about doubled in value so about 70-80K). Since we already have Roth accounts and contribute the max each year, I was going to call Vanguard (seemed to receive a lot of positive reviews from different research outlets) and discuss with them about opening up a TIRA account and dumping the money into that? Any comments on whether that is wise, or if I should be doing something else with money….buying bonds, etc? Don’t know…not really educated enough at this point to make a decision.

Thanks for any assistance that you can provide. Please feel free to dissect and provide constructive feedback on anything that you see would hinder us from our pursuit on retiring “comfortably” down the road.

[FinNewb]

It looks like you are doing a pretty good job. Congratulations!

Thanks for the feedback...I appreciate it!

Some people don't agree with Dave Ramsey's plan, but my wife and have been on it for 6 years and have been quite successful.

Good to know someone has been following the advice for longer than us and can validate...Thanks!

Why do you have 6-8 months expenses in your EF? I think 6 months would be a good amount, however, I would wait until after the baby arrives and baby and mom are fine before I get it down to 6 months.

We have 6-8 months (would even like a full year to be honest) just because my wife is the primary breadwinner of the family and her job can be somewhat volatile at times. So basically with our current expenses it would be pretty tough for me to handle everything for an extended period of time until she would be able to find another job.

Why don't you refinance your mortgage? It seems like you could get a much lower rate and lock in a 15 year fixed rate. You should be able to get that at around 3%.

We refi'd about a year or two ago and dropped the term to 25 yr and the rate of 4.875. Of course you know refi costs $ so we figured since we are steadily moving toward paying if off in the next 4-5 years it really was not that big of a deal to hassle with it.

According to Dave Ramsey's Baby Steps, Baby Step 6 is to invest 15% of your gross income into your retirement accounts. It looks like your wife should invest 10% into her 401k and 5% into her Roth. You should start by investing into your Roth until it is maxed out. Then invest in a regular IRA until you have invested a total (Roth and regular IRA)15% of your gross income.

Yeah, I am fairly confident we are contributing 15% or even 20% total from our "combined" income into our retirement accounts as a whole (401K, Roth's, HouseFund). We are including the house fund because that is a primary goal until it's paid for.

When your child arrives, start investing into a college fund.

Will do...already looking into 529s or whatever plan will give us the overall and complete control of the fund. That way we decide (not the child) if we want to use the money for whatever the further education is at that point (college, tech school, etc).

Get the house paid off as quickly as possible. That will free up extra cash to invest, spend and give to charities.

Trying to...believe me...we are dumping as much money as possible (other than fulfilling our other retirement responsibilities). Hopefully in 4-5 years it will be a reality and not a pipe dream

It looks to me like you have a fairly good idea as to how to diversify your investments. Be sure to have some invested in Foreign or World Mutual Funds.

Yeah, I planned on having my wife change her 401K and Pension to reflect more in Int'l Funds...maybe 20% or so.

[FinNewb]

It looks to me like you have things pretty much under control. Keep up the good work!

Thanks...we are def going to keep it up! I think we have made the transition to that "sort" of lifestyle and it's not just a temporary change.

Dave's plan works, like I said, my wife and I have been on it for 6 years. This Friday we are going to pay off our house. We will have paid off about $111,000 in debt (including the house) cash flowed for her to go back to college to get a Bachelor's Degree (she all ready had an Associate's Degree) and paid cash for a car to replace the fleeced car we got out of. All total it was about $125,000.

Beginning with our March budget, we will be on Baby Step 7. WOO HOO!

Big, big congrats on getting your debt and most of all your house paid for. Wow, what a feeling that must be. I wish you nothing but continued success in your future savings and plannings

If there is anyone else that is willing to contribute to the conversation please do so as well.

[Goldy]

There are less expensive ways to refinance. Check out zillow.com and head to the mortgage area. Last I saw there were a few different companies offering 15yr refi at 3% for fees of $1 including appraisal. I used them in 2012 and am very happy.

[scfr]

Run your current holdings through the Morningstar X-Ray to get your current asset allocation:
Instant X-Ray Stock Fund Investment Portfolio Holdings Free Analysis Research Tool - Morningstar

[kv968]

Roth IRA: Only been contributing for the last few years/maxed out each year (10K total)
(Roth) Asset Allocation = Blackrock Global / % of Account 50.19
Blackrock EQTY Dividend / & of Account 29.82
Pimco Total Return FD / % of Account 19.98
FIA Card SVS NA Rasp / % of Account 0.01
Asset Class = 65.96% Equity / 34.03% Fixed Income / 0.01% Cash

Who do you your have Roth through (e.g. brokerage account, bank, mutual fund family, etc...), do you use an advisor and what are the ticker symbols for your holdings?

The reason I ask is because the Blackrock funds you've listed have share classes (i.e. A, B, C, etc...) and you may be paying an upfront load and/or have high expense ratios on them when you really don't have to be paying that much.

[FinNewb]

There are less expensive ways to refinance. Check out zillow.com and head to the mortgage area. Last I saw there were a few different companies offering 15yr refi at 3% for fees of $1 including appraisal. I used them in 2012 and am very happy.

I may look into that...thanks for the heads up

[FinNewb]

Who do you your have Roth through (e.g. brokerage account, bank, mutual fund family, etc...), do you use an advisor and what are the ticker symbols for your holdings?

The reason I ask is because the Blackrock funds you've listed have share classes (i.e. A, B, C, etc...) and you may be paying an upfront load and/or have high expense ratios on them when you really don't have to be paying that much.

Our Roth accounts are through Merrill Lynch. I am not a 100% what the ticker symbols are for the holdings. I will have to look on my paperwork or online to get that info and post back.

Thanks for your response!

Edit: Just found the stock ticker symbols...(I think):

MALOX Blackrock Global, MADVX Blackrock Equity Dividend, PTTAX Pimco Total Return FD, IIAXX FIA Card Svs

[humandraydel]

All I know is what I have been told is that Roth’s are better because you don’t have to pay taxes when you start withdrawing from them…I think? Basically how do I know whether we should be contributing to a Roth versus a TIRA (or vice versa)? Other questions…..




Thanks for any assistance that you can provide. Please feel free to dissect and provide constructive feedback on anything that you see would hinder us from our pursuit on retiring “comfortably” down the road.

You're doing fine - keep up the pace and you'll retire comfortably. That being said, you asked a lot of questions and I get the feeling you don't quite feel comfortable with your lack of knowledge. I'll try to help.

Roth vs Traditional: The rule of thumb is: if your tax rate now is more than it will be in retirement, then traditional is the best option; if your tax rate now is lower than in retirement, a Roth is the best option. Obviously, no one knows for sure, so I recommend having investments in both as a form of tax diversification. Incidentally, this can also reduce the tax rate you pay in retirement if withdraws are taken intelligently.

Asset allocation: Just add up all your accounts for a total. Then add up all your accounts in different categories (stocks, bonds, international). Category total divided by entire total is your allocation for that category. For your purposes, it doesn't matter which accounts the assets are in. Assuming a $100k portfolio, if $30k is in a Roth with 100% bonds, and $70k is in a 401k with 100% stocks, the allocation is still 70/30 stocks/bonds.

Which brings me to your asset allocation - you are young, and a 70/30 split is not unreasonable. I am 31 and I am 95% stocks, 5% bonds. I'll probably stay that way for another 10 years.

As for your rollover - absolutely roll over into a traditional IRA with Vanguard. Then, invest it however you need to meet your asset allocation plan. You can buy low cost stock and bond ETFs with Vanguard. Which brings me to my next point - have you checked the ER (expense ratio) on the Blackrock and PIMCO funds? You could probably invest in similar, but lower cost funds (or ETFs) with other companies such as Vanguard and Fidelity.

One last thought - how much interest are your EF and house payoff fund earning? You might be able to earn more interest on that money.