Early Retirement Planning - All feedback welcome

[sv2007]

From the IRS:

https://www.irs.gov/taxtopics/tc558.html

Search for "substantially equal periodic payments"

[Petunia 100]

The last couple years have been bad, but below is the 5 year return for the funds in my 401k.

Large Cap Index Fund 11.06%
Small-Mid Cap Index Fund 8.44%
International Index Fund -0.05%
Bond Index Fund 3.54%

For many years, I have read many articles about how International funds should be part of a retirement portfolio. The International Index fund I have been in has been a dog. That is one that I struggle with regarding whether I should reduce that allocation.

The Fidelity Freedom 2050 Fund has a 5 year return of 5.97%.

It's not that your international fund is a dog; it's that international stocks have not done well in the last several years.

[corn18]

Tom

I have 32 funds available in my 401k, 9 of which are Target date funds. The only Index funds are the 4 I am currently in. The remainder are actively managed funds with expense ratios ranging from .22% to .89%. The Index Funds I am in consistently beat the comparable actively managed funds.

If you desire simplicity, target date funds are not a bad option. As long as the ER is under .4%, they can be a good tradeoff for pure index funds. The extra ER cost is the price of convenience because the target date fund will automatically adjust your AA as you approach the target date. Just make sure you like the AA they use. They tend to be a little bit conservative for my taste (my target date fund would be 2025 and it is 50/50), but I have a very nice pension with COLA so that allows me to accept a little more risk at age 50 than I might otherwise accept. I really should be closer to 65/35 or even 70/30 with the pension, but I like 60/40 for now.

[Jluke]

It's not that your international fund is a dog; it's that international stocks have not done well in the last several years.

The (foolish?) optimist might say that you are getting a good deal on the international funds now if you believe they can turn positive in the future.

Otherwise you're playing with a falling knife...

[parafly]

Your thinking is correct to use taxable accounts as a bridge to your retirement accounts until you reach age 59 1/2.

Your individual investments are ultimately up to you. Have you ever looked into dividend aristocrats? Having a dividend income during your retirement bridge years may work very well for you. You can built up a portfolio of individual stocks or choose from a large number of available ETFs.

[TexasHusker]

The last couple years have been bad, but below is the 5 year return for the funds in my 401k.

Large Cap Index Fund 11.06%
Small-Mid Cap Index Fund 8.44%
International Index Fund -0.05%
Bond Index Fund 3.54%

For many years, I have read many articles about how International funds should be part of a retirement portfolio. The International Index fund I have been in has been a dog. That is one that I struggle with regarding whether I should reduce that allocation.

The Fidelity Freedom 2050 Fund has a 5 year return of 5.97%.

So assuming you have equal amounts in the 401K fund, your average annual return is in the 5.75% range, correct?

[DaveInPgh]

So assuming you have equal amounts in the 401K fund, your average annual return is in the 5.75% range, correct?

No, the allocation is split as followed:

S&P 500 50%
Russell 2500 20%
MSCI All Country World Index 20%
Barclays Capital US Aggregate Index 10%

The administrator only provides access for a rolling 2 year period, so I don't have my personal 5 year return readily available.

[DaveInPgh]

If you desire simplicity, target date funds are not a bad option. As long as the ER is under .4%, they can be a good tradeoff for pure index funds. The extra ER cost is the price of convenience because the target date fund will automatically adjust your AA as you approach the target date. Just make sure you like the AA they use. They tend to be a little bit conservative for my taste (my target date fund would be 2025 and it is 50/50), but I have a very nice pension with COLA so that allows me to accept a little more risk at age 50 than I might otherwise accept. I really should be closer to 65/35 or even 70/30 with the pension, but I like 60/40 for now.

I do have a Target date fund in our Roths, and chose 2050 because of my aggressive goal and wanting something heavy in stocks. I really like staying with the Index funds in the 401k accounts since there are no fees.

[DaveInPgh]

Your thinking is correct to use taxable accounts as a bridge to your retirement accounts until you reach age 59 1/2.

Your individual investments are ultimately up to you. Have you ever looked into dividend aristocrats? Having a dividend income during your retirement bridge years may work very well for you. You can built up a portfolio of individual stocks or choose from a large number of available ETFs.

Thanks for the reply. Not familiar with dividend aristocrats. I will look into them as an option for the taxable account.

[TexasHusker]

No, the allocation is split as followed:

S&P 500 50%
Russell 2500 20%
MSCI All Country World Index 20%
Barclays Capital US Aggregate Index 10%

The administrator only provides access for a rolling 2 year period, so I don't have my personal 5 year return readily available.

So what sort of nest egg is your goal to retire on, and what is your expected rate of return in retirement? Depending on your income needs of course / as well as your total nest egg, it seems that you will need to look elsewhere to beef up returns and reduce risk. And if it was me I'd proceed with that plan now, rather than then.

[DaveInPgh]

So assuming you have equal amounts in the 401K fund, your average annual return is in the 5.75% range, correct?

The spreadsheet I use to calculate my 401k return only has historical data dating back to 5/15/12. I calculated my 4YR return at 4.80%.

[DaveInPgh]

So what sort of nest egg is your goal to retire on, and what is your expected rate of return in retirement? Depending on your income needs of course / as well as your total nest egg, it seems that you will need to look elsewhere to beef up returns and reduce risk. And if it was me I'd proceed with that plan now, rather than then.

The goal is 1.5 million. My calculations are based on a 7% rate or return prior to retirement and 5% during retirement.

[feh]

The goal is 1.5 million. My calculations are based on a 7% rate or return prior to retirement and 5% during retirement.

In real dollars, or nominal?

If real, those numbers are somewhat optimistic. Better to be conservative when projecting future gains.

[corn18]

I use 6% nominal and 4% real returns for my retirement planning (so 2% inflation).

[DaveInPgh]

In real dollars, or nominal?

If real, those numbers are somewhat optimistic. Better to be conservative when projecting future gains.

Nominal and using 3% for inflation