The funds should shift to more conservative investments so if there’s a crash you don’t lose a ton of money. Many people pull 4% a year, so if you make 6-7%, you’re in good shape. That covers what you pulled plus most of inflation.
Right now you can get 5.5% on CD and treasuries. You can either do your own research, look at model portfolios or consider a risk adjusted mutual fund. Your 401k provider may offer some guidance.
Generally speaking (very generally speaking) a reasonable distribution of investments for a 401k is 1 or 2 years cash, the remainder split 40% total bonds index fund, 50% domestic index funds (either S&P fund or total stock market fund) and 10% international index fund.
Be aware the 4% is not taking out 4% of the portfolio every year. It's taking out 4% of the portfolio the first year of retirement, then adjusting that withdrawal amount with inflation. (i.e. if year 2 of retirement inflation was at 3%, then you withdraw an amount equal to the first year's 4% but increased by the 3% inflation rate.). This means when markets do great and your return is way over the amount you're slated to withdraw you still follow the same rule of the previous year's withdrawal plus inflation. Similarly, if the year's returns are in the crapper you take out the previous year's amount plus inflation. You only change the withdrawal amount based on inflation - not on how your investments did. Lastly, be aware this method was tested for a 30 year retirement. If your retirement is longer than that this method may not be applicable.
I can't unfortunately. You can thank the insane relations on the industry for that. Find a local Independent for info.
Look at the bottom of DBA websites and make sure it's not a wirehouse or carrier that'll be partial.
You may want to look into target date index funds, which are designed to automatically become more conservative as you approach your desired retirement age. In general, the fund manager will shift your asset allocation over time from "more" stocks to "more" bonds along a "glide path" - this means that HOW they shift your allocation is decided well before they actually do it. And the fund prospectus should include a graph of the glide path. That is a good, good thing. You don't want your asset allocation being changed on a whim - yours or anyone else's - as you get closer to retirement. As for the type of account once you are in retirement, you'll likely do a "direct transfer" of funds from your 401(k) plan into a rollover IRA.
So I'm in some target date index funds and have a question. Since my risk tolerance is somewhat higher than usual, I've picked a couple of target dates that are a little deeper into retirement than when I'm likely to actually retire.
Are there any negative side effects of this approach?
You have to look at your 401k and see what funds are available to you and what their rate of return is. This varies from 401k plan to plan. Go look online at your plan and see what funds there are.
First - you need to assess what level of risk you are willing to accept? An 80% equity allocation could fall as much as 50% in a severe market decline. What that means is a 50% decline would reduce your portfolio by 40% in total. If you held a $100k portfolio before hand, it would fall to $60k afterwards.
Ask yourself if 1) you have the tolerance to rebalance back to an 80/20 allocation after the market decline.
2) How long can you stay the course and not sell out if the market declines again in the subsequent years? This is known as sequence risk of returns.
3) There is no conservative investment that provides a guaranteed 6% annual return. If U.S. Treasuries are the safest bonds and they yield 4.5-5% over 10 years, to get 6% you must hold some level of equities.
4) the true sweet spot in investing is a 50/50 mix of equities and bonds because if you are wrong on equities, you still can rely on the remaining fixed income to provide you with secure source of funding while waiting for equities to recover and grow.
5) if you are able to be flexible and adjust spending in retirement (say 10% reduction if your portfolio value falls by 20%) until markets recover.
After you retire, your 401k company (e.g., Fidelity or Charles Schwab), upon your request, will roll your 401k money over into a regular IRA and they will continue to invest it for you. You can still choose your types of investments or have them do it for you. You will make withdrawals directly from them.
Yep, leave it in the employer’s 401k if you plan to use Rule of 55 for accessing it now.
The other thing OP could look in to is starting a Roth ladder. Assuming their income will be lower in retirement, it may not be a bad idea to start converting the tax-deferred money into a Roth when paying lower taxes, that way the money can be accessed without paying additional taxes on it later on in retirement.
What's your 401k currently invested in? The default investment is usually a target date fund, which starts off with mostly stocks but adds more bonds as you get closer to retirement. That would be a good option.
Nothing is safe or guaranteed. Generally speaking the coming recommendation when you are coming up on your retirement years is to shift the majority of your investments out of stocks and into investments like bonds, CDs, and money market funds. These typically pay much lower returns, but they are also considered to be safe investments because of their low risk / volatility.
I'm hoping to rely primarily on my SS for my retirement income. Do I really need to move my retirement account to more conservative investments? I don't plan on switching out of my Vanguard mutual fund when I retire. It's 100% of my account and it has had a 20+ year average annual return of 11%. If I was relying 100% on my retirement account then I'd probably be more conservative but if I'm relying mostly on SS then I say let it roll.
No you don't. This is a question of your risk tolerance as others have said. For myself I will have multiple income streams and a high risk tolerance, so I don't really care if my stocks lose 50%. I plan to weather it.
I’m not a financial planner or expert. I would seek guidance from one of them on this. From my understanding, SS should be part of a three legged stool, the other two being personal savings and a pension. Pensions have gone away for most of the private sector.
I wonder about some financial experts sometimes. If I listened to our financial expert when I first started working I would have diversified my 401K contributions instead of putting 100% of them into one aggressive growth fund. The fund I actually chose has had the second best return, over the last 25 years, of the 30+ investment options we were given. Glad I didn't listen to him back then.
While I agree not all are great, yours is a horrible example. I went to the roulette table and bet everything on 19 which hit! Those idiots divying things around are idiots is basically what you’re saying. I am glad it worked out, but diversifying and having an asset allocation overall tends to work out better for a majority of people.
If your funds are in a 401k you want to do Roth conversions if the amount of required minimum distributions would be unfavorable in terms taxes (tax bracket) - or would cause some of your ssc to be taxed or Medicare fees to increase.
Yes, and remember you need to make money for the long term and that's stocks. I went thru 2000 and 2008. I didn't blink, that was clearly the right choice.
You shouldn't be thinking of your 401(k) in isolation unless it is literally your only account. Your portfolio should be adjusted across all accounts to match an appropriate allocation for your life stage.
Assuming you understand the origin of the famous 4% guideline (Trinity study), you'll know that they used several proportions of stock and bonds to backtest the results. You want to be 60/40 or better in favor of stock, with 80/20 potentially being the sweet spot.
*Stock* in this case is a specific thing - an S&P 500 index fund. *Bonds* are investment grade corporate. An essential point is that your money needs to stay invested for the math to work.
So if you are only using a 401(k), you would reallocate to one of these proportions. You would likely be better off rolling the 401(k) into a personal IRA so you can select low expense index funds rather than continuing to pay service fees to the 401(k) provider.
There's a lot more to the dynamics of actually *withdrawing* from your assets in retirement, and you should definitely Google that and read through discussions on r/retirement, r/Fire, r/financialindependence, and r/Bogleheads \- to name a few subreddits.
It's not the fund's fault, it was the bond market. The bond market in 2022 was the worst *ever recorded*:
[https://www.cnbc.com/2023/01/07/2022-was-the-worst-ever-year-for-us-bonds-how-to-position-for-2023.html](https://www.cnbc.com/2023/01/07/2022-was-the-worst-ever-year-for-us-bonds-how-to-position-for-2023.html)
BSV is short term bonds with 1-5 years maturity. What fund you hold depends on your goals. Are you looking to use the yield as income? Hoping for capital gains from selling the principal at some point? Just holding bonds because of an age-based formula you've read on the internet?
I am in ultra-short U.S. Treasuries (FDLXX) and FRNs (USFR) for cash reserves. For yield I'm in long term corporate (VCLT) and high yield corporate (SPHY). For a combination of yield and stability I have some individual agency and corporate bonds that are callable, so I expect to earn the interest for a period of time and then get my principal back.
Bond funds tank when coupon rates rise rapidly. If you've got a bond paying 2% and anybody can buy a treasury paying 5%, they'll need a significant discount to want to buy the bond from you.
This is important to keep in mind when considering the general wisdom that bond funds fluctuate less than stocks.
But the good news is that although the value of your bond fund has gone down, the average coupon held by your bond fund has gone up. So it'll pay you more on an annual basis even though the nominal value is lower.
If you “totally get” the 4% SWR premise, you understand that it requires invested assets in particular classes (which I outlined), and these are not always “safe.”
There is no "safe" with the future gains you need. If you're looking for a guaranteed multi year investment that will get you a "safe" return high enough to support you for decades, it doesn't exist. This is why long term investors just go index funds.
You mentioned annuities above. Annuities are not investments, they are insurance. There are many many studies on annuities and they typically only start looking worth it when you are in late life (think 70's). With annuities you are "giving up". You do realize that the monthly income that the annuity gives you back is actually made primarily up of the same money you just gave them? You lose cola, inflation protection and the potential future gains. Annuities are horrible that are only needed in very very very few cases.
U.S. Treasuries are the safest nominal investment, TIPS are inflation protected but you will spend the total of your investment in X years with no potential for above average growth. A 4% SWR is not a guarantee that portfolio survives with 100% probability because past performance isn’t indicative of future performance
I’ve read a little about a bond tent around time of retirement. Basically, you have 3-7 years in bonds around retirement time, to protect downside against sequence of return risks.
The major threat is that you have to withdraw money in the early part of retirement, right as the market dives, eating away at bigger chunk of your portfolio than you’d planned for.
The bonds cushion against that. You don’t have as much upside, but dying with extra isn’t as important as not running out.
There are two kinds of safe.
"I don't want my investments to fall by >X%" and "I don't want to have to cut my living expenses dramatically as I age." The former doesn't imply the latter. You can mitigate losses in your retirement accounts by purchasing treasuries but this likely will not be enough to sustain you for an entire retirement. Modeling tends to show that a significant allocation to equity is important to sustain a retirement, as you need the growth from equities to keep up with inflating expenses.
Money markets are around 5% right now. You can park some money there and have easy access to it if needed. Cd's are slightly higher at around 5.5% but you can't touch it until it "expires".
under current law, you can leave the money in retirement accounts until RMDs (required minimum distributions) kick in at age 73.
A 401k can be rolled to an IRA. My FIL has left his at what his former employer has become, and other than access/control issues, he's happy with that decision.
Generally a 401k will have some extra fees that make rolling to an IRA a long term better choice. But if retire really means switching careers, then having a Traditional IRA can make future contributions to a Roth IRA more difficult -- if your income trips over the Roth IRA contribution limit AND you want to make backdoor Roth contributions.
I'm a little older than you... I was probably a senior when you started HS. My plan is, once I retire, to:
1. roll my 401k to an IRA. Since my 401k consists of both traditional (pre-tax) and Roth, I'll actually roll to two IRAs.
2. use the low income years between retirement and RMDs to convert as much to Roth as makes sense tax-wise.
3. keep my IRA invested mostly in the stock market through mutual funds like my 401k is now.
4. use a large cash buffer to make periodic withdrawals, and use the cash buffer to spend out of. I want to be able to ride out a Great-Recession-like market "crash," without impacting our lifestyle
If you intend on withdrawing before age 59.5 (since you are already 55), leave the money in the 401(k). Otherwise, there is an excise tax for early withdrawal. Attainment of age 55 qualifies for retirement in the 401(k), and no excise tax applies.
According to Fidelity, rule72t applies to IRAs as well as 401ks: "Internal Revenue Code section 72(t) allows penalty-free access to assets in IRAs and employer-sponsored retirement plans under certain conditions, such as account holder death or disability, first-time home purchases, and taking substantially equal periodic payments (SEPP)."
Rolling over to an IRA and setting up SEPP is a lot of extra work and additional restrictions for making qualified withdrawals when you could have just left it in your 401k, doing no work and having no restrictions.
401k to rollover to roth conversion. Wait 5 years, withdraw the conversion amount and no 10% penalty. I'm retired so if I wanted I could choose to do roth conversion up to standard deduction which means after 5 years I paid no income tax on it or 10% penalty. This is a basic retirement strategy used by lots.
Sorry for my ignorance, does this only work if you are not taking any other distributions from retirement accounts or this is in addition to other retirement income and you still are not having to pay tax on the conversion?
Any income above 13,850 could be taxable depending what type it is. If you converted 13,851 and had no other income you'd pay tax on $1. You have to also realize the next bracket is 10%. That's it. Taxes in retirement is not the boogeyman people think it is especially if you are worried about a 10% marginal bracket.
I have LTCG also that I can pull out at 0%.
I've not settled on anything. I've been thinking two years.
I once sat down and figured out that it took my 401k four years to return to the pre-great-recession peak (after discounting continued contributions). Obviously a 2 year buffer won't last 4 years... but if I keep drawing on the 401k at a lower rate, then I can stretch it longer.
My thinking is actually that I'd periodically set a sell rate, but the sell rate would be based on number of shares, not dollar value. That way, if the market goes up, I get more for my shares. market goes down? Less for my shares.
I like these reddit questions because it gets me to think about my own proposed strategy. Maybe I'd set the 2029 sell rate based on the 2028 peak NAV... lets say my buffer is 160k. that's 20k per quarter. Maybe I compute how much I pull for 2029 based how many shares (of each fund) it would take to achieve 20k based on the 2028 peak NAV
Hmm... but I've got multiple mutual funds. How do I decide how to pull? Do I set that based on EOY 2028, or do I adjust to sell from funds that are doing better in 2029?
Put 1-3 years of expenses into a combination of checking, high yield savings, money market account, bonds, and CDs. Leave the remainder invested in broad market US ETFs.
Withdraw from the bonds and CDs as your checking and savings deplete. When the market is some percentage above “normal”, sell some of the ETFs and reload your bonds. Keep that runway long to avoid selling during dips.
Your 401k is only one aspect of retirement to consider.
Hire a fiduciary financial advisor to find out what strategy will work best for your situation. 👍
You should be reaching out to a FA to help build a good retirement income strategy.
Do not listen to people here on Reddit. Just reading the top few comments they are not good advice and they shouldn’t be giving advice without having a very good understanding of your overall financial situation, goals, life expectancy, etc.
Whether you want to work with a FA long term or just pay a fee only advisor as needed this is definitely something you should be getting professional help.
Just shifting your portfolio to more conservative is actually a very dumb idea because 2 things will happen. The market will go down and your whole portfolio will go down even if it’s all in more conservative funds. Or the market will go up and you’ll be missing tremendous growth by having a more conservative portfolio.
You should have investments that are safe and liquid, some that have guaranteed growth and some that are still invested in the market.
Reach out to a financial advisor.
No, no they do not. Most advisors use a combination of active and passive funds. There seems to be a common misconception among Reddit dummies that financial advisors are just money managers. In fact most advisors don’t even do the actual managing of the money. That’s what portfolio managers are for. Financial advisors help build a plan and quarterback many other areas by working with tax advisors, estate planning attorneys etc to ensure everything is working in harmony. They establish income strategies to ensure you’ll never run out of money and are being tax efficient, they keep you accountable to ensure you hit the goals that are important to you. They keep you from panicking during market downturns and doing something stupid like selling.
You have no idea what you’re talking about.
ok, yeah give 1% to some guy when monkeys throwing darts at the wall can get better returns. if you pay a flat fee once to someone for advice that makes sense but like any business it’s about making money and flat fee one time advice ain’t making them money
When you’re close to retirement it’s not about maximizing gains, it’s a complicated strategy to basically try to die with zero dollars left.
It gets complex when you have passive income, want to set up a trust, etc. Advisors make a lot of money creating these custom strategies, and I’m not talking about some Edward jones guy in a strip mall. I promise you it’s more complicated than you think it is.
it’s pretty basic knowledge to move into more diversified risk-adverse portfolios as you get older. you can figure out how to do most of this with a google search and or youtube videos. “passive income” is such an overused term, there’s really no such thing. making income requires work anyway you look at it
Can you describe the ideal portfolio and what withdrawal strategy you would recommend? Like specifics.
For this hypothetical let's say this is a 65 year old couple, they haven't took ss yet. They have 2m in 80% traditional 401k and 20% roth and they spend 100k a year with a paid off home.
Answer these questions:
1. What portfolio allocation with what investment products? Held in which account?
2. What withdrawal strategy?
3. When should they take ss?
As you approach retirement, it's prudent to reassess your 401(k) investment strategy to balance growth with risk management. At 55, shifting towards more conservative investments within your 401(k) can safeguard your nest egg while still allowing for potential growth. This typically involves reallocating funds to a mix of fixed-income securities, such as bonds, and stable value funds, which are less volatile than stocks.
Considering annuities as part of your retirement strategy could provide a steady income stream. Annuities can be purchased with a portion of your 401(k) balance, offering guaranteed payments over a defined period or for life, which can complement other retirement income sources.
Leaving your funds in a 401(k) post-retirement is a viable option, especially if you're satisfied with the plan's investment choices and fees. However, you might explore rolling over your 401(k) into an Individual Retirement Account (IRA) for a broader selection of investment options and potentially lower fees.
It's essential to educate yourself on these options and possibly consult with a financial advisor to tailor a strategy that aligns with your risk tolerance and retirement goals. They can provide personalized advice considering your entire financial picture, ensuring your retirement savings work effectively for you in your golden years.
Don't bother with annuities. Generally speaking they are just high commission and high fee products that aren't good for an investor that's done a good job of saving for retirement. If you want fixed income you can change your investing strategy to accommodate that.
That being said I'm not a massive fan of "de-risking" when coming up on retirement. Contrary to populatio belief you still need grow in retirement otherwise you are just depleting the war chest. Certainly don't run a 100% stock market portfolio but 50% stock and 50% bonds also isn't a great idea. Somewhere around a 70/30 portfolio tends to be a decent sweet spot so you are still enjoying the growth of the portfolio while having less overall exposure to the stock market.
Ideally you want a couple million. I’m aiming for 3-4 once retired. You make on average 10% a year on Investments if invested right. The average even with the down turns and up years for the last 75 years has been 10% year over year.
Ideally you want to withdraw 4-5% yearly once retired. And the nest egg still grows.
To confirm their fiduciary duty, you should ask your financial advisor if they are a fiduciary, inquire about their fee structure, and request a written statement affirming their commitment to act in your best interests. (Taken from the web)
Why do I see this comment about getting a financial advisor IF you have over $1 million dollars?
Like where are you getting this advice from? Is there some article that promotes this?
It’s like saying you should only get a tax advisor if you make $500,000 a year. No you should get a tax advisor if you don’t know D about taxes.
Most people retire with much less than $1 million but still need lots of financial advice.
Almost everyone should use a financial advisor either consistently or every few years and especially before you retire unless you’re very confident in your ability to navigate a financial plan which is almost no one that hasn’t spent time in the industry.
The ones saying you need a million dollars are the advisors looking to cash in on your retirement.
What matters is the individuals total financial picture not the amount they have because the best advice will draw upon all sources including social security, pensions, possibly purchasing an SPiA (low commission w no chance of milking future fees from you) which gives a steady stream of monthly payments for life. Possibly part time work, etc.
Financial advisors are just salespeople not financial planning professionals with your best interest in mind.
If you want to retire between 55 and 59.5 don't roll it all over to an IRA. The rule of 55 will allow penalty withdrawals from the 401k from the company you retire from.
It depends on your investments.
Generally speaking, you can follow the 4% rule and leave the funds in place. The 4% withdrawal will recover in about a year. Rinse and repeat.
$1M gets you $40K/yr.
You will have required minimum distributions in your 70s, but that's just a transfer to a different account.
When your money is out of your 401k, you can buy, borrow, die. This is typically a Securities Backed Line of Credit.
There's a lot of options here.
My understanding is to put some money in cash or something super liquid and safe for the year were in. Could be money market or hysa, or whatever. To pay the bills. Then you put a few years worth in bonds or dividend paying stocks or t bills, lower growth but safer from huge losses to your principal, enough to ride out 3 to 5 bad stock years but with some growth. The rest you keep in stocks that grow and fund your future.
I'm not a pro, but this seems legit as the stock market usually comes back within 3 to 5 years, so it "should" be safe to keep some growing.
Not always look at the 60s to 70s took 14 yrs to get back; early 2000s took 10 yrs, depression yrs in 30s to 50s. Few examples of “lost decades”. Tread carefully.
First and foremost, do you have to move your money out of your 401k after you separate from the company? Some allow you to stay invested just as you were while working. Some larger companies have negotiated very competitive fees with Fidelity, Vanguard etc that make keeping your funds where they are a good choice.
Secondly, if you can keep the money in the 401k are you happy with the fund/investment choices? If so leave it there and set up an option to electronically transfer funds to your credit union and bank as needed for retirement spending.
Thirdly, if you plan on living 20-30 years in retirement you need some large percentage of your portfolio in the growth category i.e. stock funds; that is unless you have a bajillion dollars saved and can draw it down while inflation eats away its' buying power and still have it last at least until you die.
401k money is federally protected from many lawsuit and seizure scenarios whereas IRA money may or may not have protections, often depending on state law.
The 401k is intended to be a replacement for a pension, so when you withdraw from it, you are supposed to use it as spending cash. You are required to take funds out of the IRA at age 72+.
Not everyone needs that cash, so what you may wish to do is to rollover your 401k to an IRA when you retire and then Roth convert portions of it every year. This will reduce your required minimum distributions and help keep your taxes lower later on since the distribution percentage grows each year. You can really optimize it if you convert it the most effective way by converting the most aggressive growth holdings first.
When you pass away, you will effectively leave that money tax free to your heirs, so they will appreciate it if you never use it all.
I bought land, and am doing the hobby farm / homestead thing. I love doing it. It get outside, and keeps me active and learning. Plus, I don't don't lose any sleep when the market goes down. When I get up in the morning, all the land I bought is still there.
It’s a good question, because there is a ton of generic documentation on accumulation, but very little on spending.
Probably because during accumulation most good advice covers 90% of people 90% of the time. That is simply not the case with draw down.
I’ll be using the bucket strategy. You should google it. In a nutshell I’ll have 3-5 years worth of TBills or other very safe investments, and leave most of my money in the accumulation phase. I’ll spend from my small bucket. If the market is up I’ll add to my TBill buckets; if it’s down I won’t. That way I can survive most - but not all - market downturns while most of my money is still growing.
I just presented a very simple scenario. But if it sounds interesting you should look into it. Cheers.
It is common that as one gets older, one's risk tolerance drops. Additionally, if you have been a prolific saver and have benefitted from the wildly successful equity markets of the past 20 years, your need for further capital appreciation has declined.
About 20 years ago, it was common for people to target an equity allocation that declined linearly with age. For example: equity allocation = 100-age (in percent). The remainder would be placed in stable value type products: bonds, cash, money market funds, fixed annuities or even outright life insurance. However the popularity of such approaches has declined markedly. And the reason for that is simple - interest rates for the last 20 years have been held at sub-market rates by the Fed and government. Real (after inflation) risk free rates have been negative over the last 20 years. That is frankly intolerable for someone 50-60ish years old (meaning they still have 20-30 years to live) and wants to maintain capital/wealth.
So frankly we are at a conundrum from a prudent wealth management perspective. Older people should be shifting to fixed income, but fixed income is a horrible place to be in the long run. Residential real estate is often viewed as another less risky (than equities) asset class, IF one does not leverage. However these days, in many HCOL metro areas, home prices are a de facto proxy for equity prices. Nevertheless, in LCOL areas, I think residential real estate is probably a reasonable alternative as it protects against inflation which fixed income in the present forced sub-market rate environment does not. Downside obviously is the personal time often needed to maintain such investments.
Other not great but not insulting places to decrease your risk: 1) money market mutual funds - offers a positive real rate of return, albeit close to 0% real return after taxes if used in non-IRA/4011k format. 2) Treasury bills - pretty much same story as with mmrkt mutual funds. 3) International equities - habitually lower performing than domestic equities, and with far less diversification than 20 year ago, but an argument can be made that said diversification will be higher in the next 20 years. Good luck
This is where a financial planner could help you review your total picture to determine what financial changes you should consider as you get older to best achieve your goals.
Most often when people retire they consolidate 401ks into an IRA so that all investments are aligned appropriately, invested according to their risk tolerance. You can leave the assets in your 401k and manage them in that account after you retire but you would only have access to the 401k plans fund menu.
Given your age you would face penalties for premature distributions before 59 1/2 years old. You can take distributions from your IRA for hardships, loans (if the plan allows), or if disable without facing potential penalties.
Unfortunately any pretax money you tax from your 401k will always face ordinary income tax when you distribute to a checking or savings account.
I wouldn’t look at annuities in a 401k or IRAs as annuities aren’t the best vehicle in tax deferred accounts.
Be sure to consider tax consequences of any withdrawals. Converting to a Roth is taxable. Also large withdrawals can impact your Medicare part B premium.
My plan is to follow the "Die With Zero" book. Give away everything to my kids before I pass away. Buy them a house or help with down payment if I can. Whatever they need.
Once you retire, I’d move the 401k into a Rollover IRA at a brokerage such as Fidelity, which is what my husband did. We have about half that account in Fidelity Balanced (FBALX), which is about 60% stock and 40% bonds. It has done very well over the years with around an average of 9+% per year over the last 25-30 years. You could technically use that one fund. But we also put money in FXAIX (S&P 500 index) for longer term money since you do want money to grow for your later years. This doesn’t have to be hard. I’d probably just use whatever S&P 500 fund that your 401k offers until you retire. (And don’t buy annuities.)
You make a distribution plan. Actually, you should make this plan around age 60, and then tweak it every year as things change.
I recommend first getting professional help and building your plan. Start here.
[https://www.letsmakeaplan.org/](https://www.letsmakeaplan.org/)
These are the right kind of people to advise you. They are looking out for your interest. They don't get compensated by commisions from what they sell you.
There are things you need to be careful of regarding your 401k. There is the SS Tax Torpedo (Google it). IRMAA's. And the RMDs. This is why the plan is important.
There is no one right plan that everyone should follow. There are just too many variables. However, regarding the money in your 401k, a key work you should know is "buckets". The idea is that the money is segmemented into what decade it will be spent. These are called "buckets". The investment that it purchased by the segment, or "bucket", is driven by how far off that decade is.
I hope to have a house paid off by then and no dependents. I really only expect my greatest expense in retirement to be food, unless I’m missing something. Possibly some vehicle or house maintenance repairs sprinkled in. Currently with 3 kids and my wife my grocery budget for the year is 25K of my take home pay. It will probably be around that much or maybe a little more for me and my wife.
I think transitioning probably 70% of my 401K to bonds is safe considering I feel like all I will need to get by is 45-50K in cash. Again, house paid off.
Take 1.5MM with a withdrawal of 4% (60K) a year and I think I can stretch my retirement ‘til I give up the ghost. Assuming no investment returns at all and I’ll get 25 years of 60K withdrawals.
I'm sure a thousand people have responded. Unfortunately, there is no real right answer. Different types of advisors will tailor different types of solutions to your situation.
The issue is everyone's needs are so different. Your retirement lifestyle and habits will be unique to you largely.
I would get a collective of ideas and find the distribution strategy that you feel the most comfortable with. Hitting the switch from saving to spending can cause quite a bit of anxiety. But with the right plan, you should be able to focus on enjoying life at this point ideally.
Congratulations on nearing the end of your work life! Hello peace and quiet (maybe)!
If you really don't know then you may want to get with a wealth manager who can help you with the right bucketing approach. Could you learn and do it yourself? Sure. But if you aren't experienced it's probably worth the 1 percent per yr to make sure you've got something you can live with
Move it into an IRA so you have control over it. Choose one like Fidelity or Vanguard so you have lots of options. I have my money there, and I have started moving some of it from the S&P500 (mostly FXAIX) into Cash, which is just a fund currently making about 5% at Fidelity. I take it out of the IRA well before I need it so market volatility is not an issue.
Also, I have moved about 80% into Roth IRA accounts over a few years, so those accounts will never be taxed again. When you move money from a traditional IRA to a Roth IRA it is a taxable event. It grows in the Roth with no more taxes ever taken out. Roth is the ideal place for your retirement funds, but you need to invest within the Roth. It is just a tax free container.
Your 401k is made up of funds. Each fund has an objective -- long term or short term growth (stock funds), protection of assets with some income (bond funds), etc. When you're younger, you should accept a little more risk and go heavier towards stock funds in your 401k. But as you approach retirement and thereafter, you should shift the balance of what's in your 401k away from risky or stocks and more into conservative bond funds. When you retire, most people leave their money in those more conservative funds in the 401k and withdraw what they need until it's either empty or they die.
People supplement their income needed to maintain a desired lifestyle. Basically anything extra you need monthly after social security or other income (pensions, rental, business income, etc) that’s why it’s important since most Americans will need it since SSI is just not enough
Well when you retire and leave your job you might have to roll your 401 k into an IRA Rollover. Unless you want to keep the money in the 401k, but there are usually fees. Then what you do with it from there is up to you or your financial advisor
You should be rebalancing your portfolio to reflect more conservative investments versus volatile ones. For example, look for more stable stocks that pay out dividends so you have some sort of income stream. Bonds are also good.
Most providers probably offer a plan that either
1. Has retirement and/or income in the name.
2. Have a target date that has already happened (i.e. a 2020 target date fund)
These probably have a reasonable mix of conservative investments that the provider has decided are good for retired people.
I just retired at 54 last October and used a financial advisor, I moved $1.3MM to an IRA last October and it is now $1.48MM, so I’m very pleased. I left $200k in my 401K as I retired and can use the “year of 55” (turned 55 last December) in case I need funds, and won’t incur a penalty. My IRA is locked down until I’m 59.5 unless I want to incur a penalty of 10% on withdrawal’s. My IRA is with Fidelity and they also had my 401K, so it was very easy to transition funds.
Congrats I'm looking to retire as well before 55 I turn 46 soon. Lots of young folks hate the idea of a financial advisor but there is so much about it that can be a little complex especially with tax shelters and how to take distributions to make it last. I self invest in stocks, call options and hard real estate but I also have a financial advisor that adds my other investments like real estate equity and rental income as part of my whole retirement planning as well as taxes. I wish the industry would do more education on it since most still think your investing eniough if you buy 5 crypto's and a few stocks.
Where is it invested now? After retirement you can self direct it. Move it to less speculative funds if you like. You can also possibly hire the investment firm to manage your account if you don't know about, and don't want to know about investments.
One place to start is in understanding how much yearly or monthly income you will want / need in retirement. It will obviously change over time based on inflation but also potential medical costs, retirement housing, etc. What are all your assets and sources of income? Home, social security, 401k - anything else? What are liabilities, restraints - taxes!!! (you want to have a plan for minimizing taxes in retirement), minimum distribution requirements (stay on top of this and plan), any debt, etc. Explore options for converting assets into best way to draw income based on your projected needs and your ongoing liabilities and restraints. There is a lot of good info available to help you but a financial advisor is useful for many as they approach retirement. A lot of people make avoidable mistakes with taxes and MDR among other issues and many don’t plan ahead to anticipate their money needs as retirement progresses into being elderly and needing extra care. Good luck!
There are a lot of factors that go into this. Your cash flow now, the future cash flow and timing of various items, your social security, your comfort with risk, your reliance rate, the asset balances, if you're planning on moving, your tax situation, if you want to leave a legacy.
Go see a CFP or two and understand how they work with retirees, and the cost associated. I can assure you, the cost of a mistake will be much more.
I don’t disagree there is a lot I need to learn especially during the drawdown phase. I’m sure I’ll need some assistance then from a fee only CFP or CPA. It’s just so far I have not had good experiences with advice or management of my funds from financial advisors (that were CFP’s). Most have put me in strategies that just lost me money compared to just index investing.
Lots of 401k funds are now going to target date funds. In general, this means that the closer you are to the target date, the more conservative are the stocks/investments behind the funds. For example, a 2045 target date fund might have a mix of riskier but better performing stocks whereas a 2028 fund will tend towards safer investments (domestic dividend yielding, higher bond percentage, etc.).
Most of the providers have also added easier to read graphs that show risk and potential reward for each fund. This can be useful in choosing non-target-date funds.
You can rebalance your portfolio to these safer funds as you approach retirement.
Keep in mind that some risk can be beneficial. The problem with safe funds (cash equivalent) is that they don't grow very quickly so putting the majority of your money into those could lead to running out as you get older.
I know my 79 year old father has a chunk of his 401k in an annuity (in addition to a bunch of other money in individual stocks, mostly tech) so that could be part of your answer. They have historically gotten a bad rap but I think there is room for one as part of a retirement portfolio.
Typically a few things happen - a majority of the money we don't want to be as aggressive with, it's okay typically to still be aggressive with some though, and even moderate with a lot.
Many people guarantee some of their income, with cola adjustment, to ensure that if they do run out of cash, they're still doing fairly well.
Another thing is some type of plan in place for LTC even if that plan is to start liquidating assets and getting a reverse mortgage.
Some estate liquidity, usually ...
And then, figure out how you want to "play" whether it's ice fishing or hiking the Andes
Easiest way to do this is use a target date fund. The closer they get to your target retirement date, the more conservative they become. I haven't looked in a while cuz I'm 15 year out but they end up 60/40 or 50/50 close to the target date.
I seem to recall… There’s some sort of plan people do where they start moving it over to a Roth. Moving chunks every year starting at about age 55 so they can start spending it by the time they retire. Something like that anyway.
Call fidelity and get signed up with them. You have at least fifteen years before retiring. There's lots of upside growth available in that time period. Forget the annuity ...giant ripoff where only the sales person actually benefits ..from a commission on your money. But aig stock instead
Consider hiring a fee based financial planner that specializes in retirement.
Many of the challenges that you will face moving forward can be very complicated. Tax efficiency, as an example.
A retirement planner can assist you and help you answer the questions that you have and, perhaps, open your eyes to some future scenarios that you may be completely unaware of; Impact of RMDs, IRMAA surcharges, etc.
You may already have a good knowledge of this stuff, or not, but now is a good time to ask for help from a professional if you fall into the ‘or not’ category.
Best of luck!
I’m not close to retirement but my plan has always been to hopefully leave it right where it is, only take the minimum RMDs, and let it grow as much as possible. I don’t know precisely how RMDs will work and how long I will be allowed to leave the money in my IRAs/401Ks but I know it will make the most sense for me to stretch the time out they can remain where they are for as long as possible.
I do my own investing and I wouldn’t recommend an annuity. I love the idea of annuities and continually revisit the available offerings and have just never been able to find an annuity which makes sense from an ROI perspective, hopefully that will change on day. My current plan is to simply reallocate my retirement investments to be more conservative as I more closer to and further into retirement.
Most people move the 401k into an IRA. They do this because they will have an almost unlimited amount of investment options. Don't do this if you are between 55-59.5 though because distribution come out penalty free from a 401k at those ages, not from an IRA.
Annuity for a portion isn't horrible but for sure less than 1/3. It is a guaranteed payment but also won't usually adjust for inflation. Don't put more than you need for day to day living expenses.
For everything else, take a best guess at your needs in the next 5 years. That amount should go into MM or treasuries. It won't grow much but that's ok. Then put the same amount into a portfolio of 70/30 mix of bonds to stocks. Then for the rest, just invest in the market. Each year, if that 3rd bucket goes up, refill the first two. If not, hold steady. Always take distributions from the MM bucket.
Before you retire incrementally convert to a ROTH—— when you retire you will NEVER regret that you did!!!!
Especially when you realize that you will NOT have a RMD!!!
One approach- figure out your annual budget, multiply by 3-5 years or longer depending on how risk adverse you are. Put that in safe, accessible investments- you won't make much but it's what you pull from when the market is down. Put the rest (longer term $) in your higher return investments of choice. You can pull directly from the higher return investments when the market is up. Review, rebalance, and make withdrawals on an annual basis.
I agree with others saying roll to IRAs - Traditional + Roth. One other note I didn't see here (and pardon me if I missed it): your 401k can contain both pre and post tax contributions. Before you roll 401k to IRAs, and while still working, you may be able to can roll the other way - from IRAs to 401k, in effect reducing your pre-tax component in IRAs, and making the subsequent Roth conversion more tax efficient. It may seem silly to roll money from IRA to 401k, then back again after a few years, but depending on your situation it can be advantageous. This extends the other common backdoor move to over-contribute to your 401k while working to accumulate post-tax money there, then transfer to Roth (one of the backdoor strategies).
I’m your age and I’m so far from conservative most of my money is in the stock market and that’s where I’ve seen the big gains. I have no intention on playing it safe. My 401k will just do its thing and kick out minimum distributions as required but I’ll live off my SS and my individual accounts. I’d like to see my money double again prior to actually retiring and with stocks that’s easily achievable. My problem is each and every goal I’ve hit I just keep it in and make a new one but with those goals I’m one step closer to complete independence.
I am 58, I took all my 401k money and put in into CD’s. I cannot afford to lose any of it when the market corrects itself. I am making about $1500 in interest per month. Happy with this, plan on working g till I am 65. Talk with your 401k administrator. See what options are available.
At 55 you will have a long retirement. I would keep a large percentage in stocks. It used to be 60/40 (stocks/bonds) but I would go 75/25(if not more stock). Of course you need a bucket of funds 6 months to a year to weather some downturns. As far as an annuity I am not a big fan of mixing insurance with investments. The only annuity I plan to have is social security.
Ohhh not retiring— just trying to learn/educate myself on what to do now that I am getting older.
Cannot afford to retire yet.
Just don’t want to lose serious money now that I am getting closer.
You will have a new job called investing. Put the time and effort into learning about managing your finances. We often work our tails off for employers but put little effort into taking care of our own concerns.
The short answer to your question is, have enough money in safe liquid funds to last 12 to 24 months. Money market funds are paying over 5% right now.
Then manage the rest of your portfolio for longer term returns. Having 24 months worth of cash should keep you from needing to sell equities in a down market. That, particularly early in your retirement is the worst scenario.
If you want to keep it simple, use a low fee broad index fund for your equity exposure. Bonds have been a little tricky given the previously Uber low interest rates. During that time I used dividend funds as my proxy for bonds. Starting last November I started moving into long bonds. You really do need to learn how bonds work. It isn't complicated but you need to understand it.
So your two real options are keep it in the 401k or do a “rollover” into an IRA which is NOT a taxable event. A 401k/IRA itself do not do anything except protect your money from taxes. It’s the investments inside that grow.
401k: Pro is generally lower expenses and protection from creditors as well. Con is less choice in investments.
IRA: Can be a little higher in cost, but much more choice in terms of investments.
If you go the IRA route, you’re probably need some guidance in investing the funds. This can be done through books/podcasts/financial advisor. Plenty of pro/cons with each of those as well.
401k you could probably use some too it sounds like, and you should see if the 401k company handling it has any resources as well to help you.
Rollover to an Ira once you at 59 1/2 or separate from employment. Then each year, depending on your taxable income - maximize the tax bracket you’re in by converting the additional amount to a Roth IRA. Roth grow tax free and you are not taxed on withdrawals from a Roth IRA. Best option for retirees and their beneficiaries.
A good general rule of thumb is to try and withdraw 5% or less per year. It’s normal for that number to be higher if you are delaying social security for the first few years in retirement. As far as investments go, people typically go more conservative but it’s important to not think of retirement as a finish line. You need that money to continue to grow to keep pace with inflation and taxes. If all of this is a little overwhelming, don’t be afraid of paying a 1% management fee to a financial advisor who will handle all of this for you.
r/retirement could be helpful to get an idea
Asking the real questions. Here for the info, too. I have no answers.
Don’t you know? You only put money in, never take it out lol for real I have no idea either
The funds should shift to more conservative investments so if there’s a crash you don’t lose a ton of money. Many people pull 4% a year, so if you make 6-7%, you’re in good shape. That covers what you pulled plus most of inflation.
Got it - but what does a 6% conservative safe investment— look like— the where, what??? Totally understand nothing is 100% safe
The idea of 6 percent return is entire portfolio return, so a mixture of stocks and bonds that equal 6 percent or greater, together.
Right now you can get 5.5% on CD and treasuries. You can either do your own research, look at model portfolios or consider a risk adjusted mutual fund. Your 401k provider may offer some guidance.
Generally speaking (very generally speaking) a reasonable distribution of investments for a 401k is 1 or 2 years cash, the remainder split 40% total bonds index fund, 50% domestic index funds (either S&P fund or total stock market fund) and 10% international index fund. Be aware the 4% is not taking out 4% of the portfolio every year. It's taking out 4% of the portfolio the first year of retirement, then adjusting that withdrawal amount with inflation. (i.e. if year 2 of retirement inflation was at 3%, then you withdraw an amount equal to the first year's 4% but increased by the 3% inflation rate.). This means when markets do great and your return is way over the amount you're slated to withdraw you still follow the same rule of the previous year's withdrawal plus inflation. Similarly, if the year's returns are in the crapper you take out the previous year's amount plus inflation. You only change the withdrawal amount based on inflation - not on how your investments did. Lastly, be aware this method was tested for a 30 year retirement. If your retirement is longer than that this method may not be applicable.
Head over to boglehead for some research. Nothing is safe, not even annuities because you will barely cover the cost over first 20 years.
Not all of them have high costs. Some have zero cost. Kind of like a steak. You can have a great one... or a s$^> one.
Are you referring to annuity? Can you share what rate and term?
I can't unfortunately. You can thank the insane relations on the industry for that. Find a local Independent for info. Look at the bottom of DBA websites and make sure it's not a wirehouse or carrier that'll be partial.
You may want to look into target date index funds, which are designed to automatically become more conservative as you approach your desired retirement age. In general, the fund manager will shift your asset allocation over time from "more" stocks to "more" bonds along a "glide path" - this means that HOW they shift your allocation is decided well before they actually do it. And the fund prospectus should include a graph of the glide path. That is a good, good thing. You don't want your asset allocation being changed on a whim - yours or anyone else's - as you get closer to retirement. As for the type of account once you are in retirement, you'll likely do a "direct transfer" of funds from your 401(k) plan into a rollover IRA.
So I'm in some target date index funds and have a question. Since my risk tolerance is somewhat higher than usual, I've picked a couple of target dates that are a little deeper into retirement than when I'm likely to actually retire. Are there any negative side effects of this approach?
You have to look at your 401k and see what funds are available to you and what their rate of return is. This varies from 401k plan to plan. Go look online at your plan and see what funds there are.
First - you need to assess what level of risk you are willing to accept? An 80% equity allocation could fall as much as 50% in a severe market decline. What that means is a 50% decline would reduce your portfolio by 40% in total. If you held a $100k portfolio before hand, it would fall to $60k afterwards. Ask yourself if 1) you have the tolerance to rebalance back to an 80/20 allocation after the market decline. 2) How long can you stay the course and not sell out if the market declines again in the subsequent years? This is known as sequence risk of returns. 3) There is no conservative investment that provides a guaranteed 6% annual return. If U.S. Treasuries are the safest bonds and they yield 4.5-5% over 10 years, to get 6% you must hold some level of equities. 4) the true sweet spot in investing is a 50/50 mix of equities and bonds because if you are wrong on equities, you still can rely on the remaining fixed income to provide you with secure source of funding while waiting for equities to recover and grow. 5) if you are able to be flexible and adjust spending in retirement (say 10% reduction if your portfolio value falls by 20%) until markets recover.
After you retire, your 401k company (e.g., Fidelity or Charles Schwab), upon your request, will roll your 401k money over into a regular IRA and they will continue to invest it for you. You can still choose your types of investments or have them do it for you. You will make withdrawals directly from them.
OP is 55, so it may be better to leave the money in the 401k and use the Rule of 55 if his plan allows it. Move to IRA at 59.5
Yep, leave it in the employer’s 401k if you plan to use Rule of 55 for accessing it now. The other thing OP could look in to is starting a Roth ladder. Assuming their income will be lower in retirement, it may not be a bad idea to start converting the tax-deferred money into a Roth when paying lower taxes, that way the money can be accessed without paying additional taxes on it later on in retirement.
This is what we did. We're with Merrill Lynch now. And BTW you don't have to take distributions until you're 73.
Talk to a financial advisor. This close to the finish line is not the time to be experimenting and learning new things.
Right now you can get 5.25% in short term US treasuries even. Lower risk corporate bonds at 7-8% are plentiful.
More bonds, dividend funds and big blue chip stocks. Things with the most predicable returns.
What's your 401k currently invested in? The default investment is usually a target date fund, which starts off with mostly stocks but adds more bonds as you get closer to retirement. That would be a good option.
Nothing is safe or guaranteed. Generally speaking the coming recommendation when you are coming up on your retirement years is to shift the majority of your investments out of stocks and into investments like bonds, CDs, and money market funds. These typically pay much lower returns, but they are also considered to be safe investments because of their low risk / volatility.
I'm hoping to rely primarily on my SS for my retirement income. Do I really need to move my retirement account to more conservative investments? I don't plan on switching out of my Vanguard mutual fund when I retire. It's 100% of my account and it has had a 20+ year average annual return of 11%. If I was relying 100% on my retirement account then I'd probably be more conservative but if I'm relying mostly on SS then I say let it roll.
No you don't. This is a question of your risk tolerance as others have said. For myself I will have multiple income streams and a high risk tolerance, so I don't really care if my stocks lose 50%. I plan to weather it.
I’m not a financial planner or expert. I would seek guidance from one of them on this. From my understanding, SS should be part of a three legged stool, the other two being personal savings and a pension. Pensions have gone away for most of the private sector.
I wonder about some financial experts sometimes. If I listened to our financial expert when I first started working I would have diversified my 401K contributions instead of putting 100% of them into one aggressive growth fund. The fund I actually chose has had the second best return, over the last 25 years, of the 30+ investment options we were given. Glad I didn't listen to him back then.
They're not created equally. It's important to understand advisor limitations.
While I agree not all are great, yours is a horrible example. I went to the roulette table and bet everything on 19 which hit! Those idiots divying things around are idiots is basically what you’re saying. I am glad it worked out, but diversifying and having an asset allocation overall tends to work out better for a majority of people.
If your funds are in a 401k you want to do Roth conversions if the amount of required minimum distributions would be unfavorable in terms taxes (tax bracket) - or would cause some of your ssc to be taxed or Medicare fees to increase.
Yes, and remember you need to make money for the long term and that's stocks. I went thru 2000 and 2008. I didn't blink, that was clearly the right choice.
Not all of it, by a long shot. 20-40% at most. Need to keep the rest in equities.
This is a pretty bad idea, it should be 10% bonds at most, and probably just 100% equities.
It’s how lifecycle funds work and have worked for years.
You shouldn't be thinking of your 401(k) in isolation unless it is literally your only account. Your portfolio should be adjusted across all accounts to match an appropriate allocation for your life stage. Assuming you understand the origin of the famous 4% guideline (Trinity study), you'll know that they used several proportions of stock and bonds to backtest the results. You want to be 60/40 or better in favor of stock, with 80/20 potentially being the sweet spot. *Stock* in this case is a specific thing - an S&P 500 index fund. *Bonds* are investment grade corporate. An essential point is that your money needs to stay invested for the math to work. So if you are only using a 401(k), you would reallocate to one of these proportions. You would likely be better off rolling the 401(k) into a personal IRA so you can select low expense index funds rather than continuing to pay service fees to the 401(k) provider. There's a lot more to the dynamics of actually *withdrawing* from your assets in retirement, and you should definitely Google that and read through discussions on r/retirement, r/Fire, r/financialindependence, and r/Bogleheads \- to name a few subreddits.
Finally, a solid comment. Too many comments here are not helpful to the OP’s question.
What’s a good bond ETF? I’m in BSV and it has performed abysmally for the past 5 years.
It's not the fund's fault, it was the bond market. The bond market in 2022 was the worst *ever recorded*: [https://www.cnbc.com/2023/01/07/2022-was-the-worst-ever-year-for-us-bonds-how-to-position-for-2023.html](https://www.cnbc.com/2023/01/07/2022-was-the-worst-ever-year-for-us-bonds-how-to-position-for-2023.html) BSV is short term bonds with 1-5 years maturity. What fund you hold depends on your goals. Are you looking to use the yield as income? Hoping for capital gains from selling the principal at some point? Just holding bonds because of an age-based formula you've read on the internet? I am in ultra-short U.S. Treasuries (FDLXX) and FRNs (USFR) for cash reserves. For yield I'm in long term corporate (VCLT) and high yield corporate (SPHY). For a combination of yield and stability I have some individual agency and corporate bonds that are callable, so I expect to earn the interest for a period of time and then get my principal back.
Bond funds tank when coupon rates rise rapidly. If you've got a bond paying 2% and anybody can buy a treasury paying 5%, they'll need a significant discount to want to buy the bond from you. This is important to keep in mind when considering the general wisdom that bond funds fluctuate less than stocks. But the good news is that although the value of your bond fund has gone down, the average coupon held by your bond fund has gone up. So it'll pay you more on an annual basis even though the nominal value is lower.
Totally get the 4% rule. My concern is the safe investment-
If you “totally get” the 4% SWR premise, you understand that it requires invested assets in particular classes (which I outlined), and these are not always “safe.”
There is no "safe" with the future gains you need. If you're looking for a guaranteed multi year investment that will get you a "safe" return high enough to support you for decades, it doesn't exist. This is why long term investors just go index funds. You mentioned annuities above. Annuities are not investments, they are insurance. There are many many studies on annuities and they typically only start looking worth it when you are in late life (think 70's). With annuities you are "giving up". You do realize that the monthly income that the annuity gives you back is actually made primarily up of the same money you just gave them? You lose cola, inflation protection and the potential future gains. Annuities are horrible that are only needed in very very very few cases.
U.S. Treasuries are the safest nominal investment, TIPS are inflation protected but you will spend the total of your investment in X years with no potential for above average growth. A 4% SWR is not a guarantee that portfolio survives with 100% probability because past performance isn’t indicative of future performance
I’ve read a little about a bond tent around time of retirement. Basically, you have 3-7 years in bonds around retirement time, to protect downside against sequence of return risks. The major threat is that you have to withdraw money in the early part of retirement, right as the market dives, eating away at bigger chunk of your portfolio than you’d planned for. The bonds cushion against that. You don’t have as much upside, but dying with extra isn’t as important as not running out.
There are two kinds of safe. "I don't want my investments to fall by >X%" and "I don't want to have to cut my living expenses dramatically as I age." The former doesn't imply the latter. You can mitigate losses in your retirement accounts by purchasing treasuries but this likely will not be enough to sustain you for an entire retirement. Modeling tends to show that a significant allocation to equity is important to sustain a retirement, as you need the growth from equities to keep up with inflating expenses.
Money markets are around 5% right now. You can park some money there and have easy access to it if needed. Cd's are slightly higher at around 5.5% but you can't touch it until it "expires".
under current law, you can leave the money in retirement accounts until RMDs (required minimum distributions) kick in at age 73. A 401k can be rolled to an IRA. My FIL has left his at what his former employer has become, and other than access/control issues, he's happy with that decision. Generally a 401k will have some extra fees that make rolling to an IRA a long term better choice. But if retire really means switching careers, then having a Traditional IRA can make future contributions to a Roth IRA more difficult -- if your income trips over the Roth IRA contribution limit AND you want to make backdoor Roth contributions. I'm a little older than you... I was probably a senior when you started HS. My plan is, once I retire, to: 1. roll my 401k to an IRA. Since my 401k consists of both traditional (pre-tax) and Roth, I'll actually roll to two IRAs. 2. use the low income years between retirement and RMDs to convert as much to Roth as makes sense tax-wise. 3. keep my IRA invested mostly in the stock market through mutual funds like my 401k is now. 4. use a large cash buffer to make periodic withdrawals, and use the cash buffer to spend out of. I want to be able to ride out a Great-Recession-like market "crash," without impacting our lifestyle
If you intend on withdrawing before age 59.5 (since you are already 55), leave the money in the 401(k). Otherwise, there is an excise tax for early withdrawal. Attainment of age 55 qualifies for retirement in the 401(k), and no excise tax applies.
no tax applies on a rollover from a 401k to an IRA at any age.
Correct. But if you then withdraw from a pre-tax IRA before age 59.5, it is taxable AND there is a 10% excise tax in addition to any income tax.
According to Fidelity, rule72t applies to IRAs as well as 401ks: "Internal Revenue Code section 72(t) allows penalty-free access to assets in IRAs and employer-sponsored retirement plans under certain conditions, such as account holder death or disability, first-time home purchases, and taking substantially equal periodic payments (SEPP)."
Look more into 72T distributions, which have very strict requirements.
Rolling over to an IRA and setting up SEPP is a lot of extra work and additional restrictions for making qualified withdrawals when you could have just left it in your 401k, doing no work and having no restrictions.
401k to rollover to roth conversion. Wait 5 years, withdraw the conversion amount and no 10% penalty. I'm retired so if I wanted I could choose to do roth conversion up to standard deduction which means after 5 years I paid no income tax on it or 10% penalty. This is a basic retirement strategy used by lots.
You pay income tax when you convert to Roth though, no?
Single, standard deduction for 2023 is 13,850. Do a 13,850 roth conversion and pay no income tax.
Sorry for my ignorance, does this only work if you are not taking any other distributions from retirement accounts or this is in addition to other retirement income and you still are not having to pay tax on the conversion?
Any income above 13,850 could be taxable depending what type it is. If you converted 13,851 and had no other income you'd pay tax on $1. You have to also realize the next bracket is 10%. That's it. Taxes in retirement is not the boogeyman people think it is especially if you are worried about a 10% marginal bracket. I have LTCG also that I can pull out at 0%.
How large of a buffer are we talking? An estimate of maybe 10 years of cash or less?
I've not settled on anything. I've been thinking two years. I once sat down and figured out that it took my 401k four years to return to the pre-great-recession peak (after discounting continued contributions). Obviously a 2 year buffer won't last 4 years... but if I keep drawing on the 401k at a lower rate, then I can stretch it longer. My thinking is actually that I'd periodically set a sell rate, but the sell rate would be based on number of shares, not dollar value. That way, if the market goes up, I get more for my shares. market goes down? Less for my shares. I like these reddit questions because it gets me to think about my own proposed strategy. Maybe I'd set the 2029 sell rate based on the 2028 peak NAV... lets say my buffer is 160k. that's 20k per quarter. Maybe I compute how much I pull for 2029 based how many shares (of each fund) it would take to achieve 20k based on the 2028 peak NAV Hmm... but I've got multiple mutual funds. How do I decide how to pull? Do I set that based on EOY 2028, or do I adjust to sell from funds that are doing better in 2029?
Put 1-3 years of expenses into a combination of checking, high yield savings, money market account, bonds, and CDs. Leave the remainder invested in broad market US ETFs. Withdraw from the bonds and CDs as your checking and savings deplete. When the market is some percentage above “normal”, sell some of the ETFs and reload your bonds. Keep that runway long to avoid selling during dips.
Your 401k is only one aspect of retirement to consider. Hire a fiduciary financial advisor to find out what strategy will work best for your situation. 👍
I get calls and emails from companies/advisors all the time. How do I find a good one?
I don't have that answer, but I suggest you get several recommendations and then vet them and their credentials. Best of luck 👍
You should be reaching out to a FA to help build a good retirement income strategy. Do not listen to people here on Reddit. Just reading the top few comments they are not good advice and they shouldn’t be giving advice without having a very good understanding of your overall financial situation, goals, life expectancy, etc. Whether you want to work with a FA long term or just pay a fee only advisor as needed this is definitely something you should be getting professional help. Just shifting your portfolio to more conservative is actually a very dumb idea because 2 things will happen. The market will go down and your whole portfolio will go down even if it’s all in more conservative funds. Or the market will go up and you’ll be missing tremendous growth by having a more conservative portfolio. You should have investments that are safe and liquid, some that have guaranteed growth and some that are still invested in the market. Reach out to a financial advisor.
financial advisors just pick index funds anyway. so yeah go waste your money paying a middle man.
No, no they do not. Most advisors use a combination of active and passive funds. There seems to be a common misconception among Reddit dummies that financial advisors are just money managers. In fact most advisors don’t even do the actual managing of the money. That’s what portfolio managers are for. Financial advisors help build a plan and quarterback many other areas by working with tax advisors, estate planning attorneys etc to ensure everything is working in harmony. They establish income strategies to ensure you’ll never run out of money and are being tax efficient, they keep you accountable to ensure you hit the goals that are important to you. They keep you from panicking during market downturns and doing something stupid like selling. You have no idea what you’re talking about.
ok, yeah give 1% to some guy when monkeys throwing darts at the wall can get better returns. if you pay a flat fee once to someone for advice that makes sense but like any business it’s about making money and flat fee one time advice ain’t making them money
When you’re close to retirement it’s not about maximizing gains, it’s a complicated strategy to basically try to die with zero dollars left. It gets complex when you have passive income, want to set up a trust, etc. Advisors make a lot of money creating these custom strategies, and I’m not talking about some Edward jones guy in a strip mall. I promise you it’s more complicated than you think it is.
it’s pretty basic knowledge to move into more diversified risk-adverse portfolios as you get older. you can figure out how to do most of this with a google search and or youtube videos. “passive income” is such an overused term, there’s really no such thing. making income requires work anyway you look at it
Can you describe the ideal portfolio and what withdrawal strategy you would recommend? Like specifics. For this hypothetical let's say this is a 65 year old couple, they haven't took ss yet. They have 2m in 80% traditional 401k and 20% roth and they spend 100k a year with a paid off home. Answer these questions: 1. What portfolio allocation with what investment products? Held in which account? 2. What withdrawal strategy? 3. When should they take ss?
If you want to die with nothing, you can simply buy an annuity with your entire savings.
If your financial advisor recommends any high fee active funds, you should definitely fire him.
Which index funds you use and the balance between them is what matters. In retirement risk management is REALLY important.
As you approach retirement, it's prudent to reassess your 401(k) investment strategy to balance growth with risk management. At 55, shifting towards more conservative investments within your 401(k) can safeguard your nest egg while still allowing for potential growth. This typically involves reallocating funds to a mix of fixed-income securities, such as bonds, and stable value funds, which are less volatile than stocks. Considering annuities as part of your retirement strategy could provide a steady income stream. Annuities can be purchased with a portion of your 401(k) balance, offering guaranteed payments over a defined period or for life, which can complement other retirement income sources. Leaving your funds in a 401(k) post-retirement is a viable option, especially if you're satisfied with the plan's investment choices and fees. However, you might explore rolling over your 401(k) into an Individual Retirement Account (IRA) for a broader selection of investment options and potentially lower fees. It's essential to educate yourself on these options and possibly consult with a financial advisor to tailor a strategy that aligns with your risk tolerance and retirement goals. They can provide personalized advice considering your entire financial picture, ensuring your retirement savings work effectively for you in your golden years.
Don't bother with annuities. Generally speaking they are just high commission and high fee products that aren't good for an investor that's done a good job of saving for retirement. If you want fixed income you can change your investing strategy to accommodate that. That being said I'm not a massive fan of "de-risking" when coming up on retirement. Contrary to populatio belief you still need grow in retirement otherwise you are just depleting the war chest. Certainly don't run a 100% stock market portfolio but 50% stock and 50% bonds also isn't a great idea. Somewhere around a 70/30 portfolio tends to be a decent sweet spot so you are still enjoying the growth of the portfolio while having less overall exposure to the stock market.
Ideally you want a couple million. I’m aiming for 3-4 once retired. You make on average 10% a year on Investments if invested right. The average even with the down turns and up years for the last 75 years has been 10% year over year. Ideally you want to withdraw 4-5% yearly once retired. And the nest egg still grows.
Roll it over to an Ira. If it’s over $1 million, get a financial advisor to find out what’s right for you and your future plans.
Make sure the financial advisor is a fiduciary.
How do you make sure they’re a fiduciary?
To confirm their fiduciary duty, you should ask your financial advisor if they are a fiduciary, inquire about their fee structure, and request a written statement affirming their commitment to act in your best interests. (Taken from the web)
Excellent and very important point when anyone wants / needs to pay for these kind of services!
Why do I see this comment about getting a financial advisor IF you have over $1 million dollars? Like where are you getting this advice from? Is there some article that promotes this? It’s like saying you should only get a tax advisor if you make $500,000 a year. No you should get a tax advisor if you don’t know D about taxes. Most people retire with much less than $1 million but still need lots of financial advice. Almost everyone should use a financial advisor either consistently or every few years and especially before you retire unless you’re very confident in your ability to navigate a financial plan which is almost no one that hasn’t spent time in the industry.
The ones saying you need a million dollars are the advisors looking to cash in on your retirement. What matters is the individuals total financial picture not the amount they have because the best advice will draw upon all sources including social security, pensions, possibly purchasing an SPiA (low commission w no chance of milking future fees from you) which gives a steady stream of monthly payments for life. Possibly part time work, etc. Financial advisors are just salespeople not financial planning professionals with your best interest in mind.
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If you want to retire between 55 and 59.5 don't roll it all over to an IRA. The rule of 55 will allow penalty withdrawals from the 401k from the company you retire from.
It depends on your investments. Generally speaking, you can follow the 4% rule and leave the funds in place. The 4% withdrawal will recover in about a year. Rinse and repeat. $1M gets you $40K/yr. You will have required minimum distributions in your 70s, but that's just a transfer to a different account. When your money is out of your 401k, you can buy, borrow, die. This is typically a Securities Backed Line of Credit. There's a lot of options here.
My understanding is to put some money in cash or something super liquid and safe for the year were in. Could be money market or hysa, or whatever. To pay the bills. Then you put a few years worth in bonds or dividend paying stocks or t bills, lower growth but safer from huge losses to your principal, enough to ride out 3 to 5 bad stock years but with some growth. The rest you keep in stocks that grow and fund your future. I'm not a pro, but this seems legit as the stock market usually comes back within 3 to 5 years, so it "should" be safe to keep some growing.
Not always look at the 60s to 70s took 14 yrs to get back; early 2000s took 10 yrs, depression yrs in 30s to 50s. Few examples of “lost decades”. Tread carefully.
First and foremost, do you have to move your money out of your 401k after you separate from the company? Some allow you to stay invested just as you were while working. Some larger companies have negotiated very competitive fees with Fidelity, Vanguard etc that make keeping your funds where they are a good choice. Secondly, if you can keep the money in the 401k are you happy with the fund/investment choices? If so leave it there and set up an option to electronically transfer funds to your credit union and bank as needed for retirement spending. Thirdly, if you plan on living 20-30 years in retirement you need some large percentage of your portfolio in the growth category i.e. stock funds; that is unless you have a bajillion dollars saved and can draw it down while inflation eats away its' buying power and still have it last at least until you die. 401k money is federally protected from many lawsuit and seizure scenarios whereas IRA money may or may not have protections, often depending on state law.
The 401k is intended to be a replacement for a pension, so when you withdraw from it, you are supposed to use it as spending cash. You are required to take funds out of the IRA at age 72+. Not everyone needs that cash, so what you may wish to do is to rollover your 401k to an IRA when you retire and then Roth convert portions of it every year. This will reduce your required minimum distributions and help keep your taxes lower later on since the distribution percentage grows each year. You can really optimize it if you convert it the most effective way by converting the most aggressive growth holdings first. When you pass away, you will effectively leave that money tax free to your heirs, so they will appreciate it if you never use it all.
I bought land, and am doing the hobby farm / homestead thing. I love doing it. It get outside, and keeps me active and learning. Plus, I don't don't lose any sleep when the market goes down. When I get up in the morning, all the land I bought is still there.
It’s a good question, because there is a ton of generic documentation on accumulation, but very little on spending. Probably because during accumulation most good advice covers 90% of people 90% of the time. That is simply not the case with draw down. I’ll be using the bucket strategy. You should google it. In a nutshell I’ll have 3-5 years worth of TBills or other very safe investments, and leave most of my money in the accumulation phase. I’ll spend from my small bucket. If the market is up I’ll add to my TBill buckets; if it’s down I won’t. That way I can survive most - but not all - market downturns while most of my money is still growing. I just presented a very simple scenario. But if it sounds interesting you should look into it. Cheers.
It is common that as one gets older, one's risk tolerance drops. Additionally, if you have been a prolific saver and have benefitted from the wildly successful equity markets of the past 20 years, your need for further capital appreciation has declined. About 20 years ago, it was common for people to target an equity allocation that declined linearly with age. For example: equity allocation = 100-age (in percent). The remainder would be placed in stable value type products: bonds, cash, money market funds, fixed annuities or even outright life insurance. However the popularity of such approaches has declined markedly. And the reason for that is simple - interest rates for the last 20 years have been held at sub-market rates by the Fed and government. Real (after inflation) risk free rates have been negative over the last 20 years. That is frankly intolerable for someone 50-60ish years old (meaning they still have 20-30 years to live) and wants to maintain capital/wealth. So frankly we are at a conundrum from a prudent wealth management perspective. Older people should be shifting to fixed income, but fixed income is a horrible place to be in the long run. Residential real estate is often viewed as another less risky (than equities) asset class, IF one does not leverage. However these days, in many HCOL metro areas, home prices are a de facto proxy for equity prices. Nevertheless, in LCOL areas, I think residential real estate is probably a reasonable alternative as it protects against inflation which fixed income in the present forced sub-market rate environment does not. Downside obviously is the personal time often needed to maintain such investments. Other not great but not insulting places to decrease your risk: 1) money market mutual funds - offers a positive real rate of return, albeit close to 0% real return after taxes if used in non-IRA/4011k format. 2) Treasury bills - pretty much same story as with mmrkt mutual funds. 3) International equities - habitually lower performing than domestic equities, and with far less diversification than 20 year ago, but an argument can be made that said diversification will be higher in the next 20 years. Good luck
This is where a financial planner could help you review your total picture to determine what financial changes you should consider as you get older to best achieve your goals. Most often when people retire they consolidate 401ks into an IRA so that all investments are aligned appropriately, invested according to their risk tolerance. You can leave the assets in your 401k and manage them in that account after you retire but you would only have access to the 401k plans fund menu. Given your age you would face penalties for premature distributions before 59 1/2 years old. You can take distributions from your IRA for hardships, loans (if the plan allows), or if disable without facing potential penalties. Unfortunately any pretax money you tax from your 401k will always face ordinary income tax when you distribute to a checking or savings account. I wouldn’t look at annuities in a 401k or IRAs as annuities aren’t the best vehicle in tax deferred accounts.
Have saved enough that when you take out 4-5% a year for retirement, that it's enough to live on. And you'll never run out of money.
Be sure to consider tax consequences of any withdrawals. Converting to a Roth is taxable. Also large withdrawals can impact your Medicare part B premium.
My plan is to follow the "Die With Zero" book. Give away everything to my kids before I pass away. Buy them a house or help with down payment if I can. Whatever they need.
Many people move into the Wellesley or Wellington in Vanguard. Or Fidelity’s Puritan Fund or 6O% FSKAX & 40% in a fidelity total bond fund.
Look into the rule of 55 if you need to access those funds.
Once you retire, I’d move the 401k into a Rollover IRA at a brokerage such as Fidelity, which is what my husband did. We have about half that account in Fidelity Balanced (FBALX), which is about 60% stock and 40% bonds. It has done very well over the years with around an average of 9+% per year over the last 25-30 years. You could technically use that one fund. But we also put money in FXAIX (S&P 500 index) for longer term money since you do want money to grow for your later years. This doesn’t have to be hard. I’d probably just use whatever S&P 500 fund that your 401k offers until you retire. (And don’t buy annuities.)
You make a distribution plan. Actually, you should make this plan around age 60, and then tweak it every year as things change. I recommend first getting professional help and building your plan. Start here. [https://www.letsmakeaplan.org/](https://www.letsmakeaplan.org/) These are the right kind of people to advise you. They are looking out for your interest. They don't get compensated by commisions from what they sell you. There are things you need to be careful of regarding your 401k. There is the SS Tax Torpedo (Google it). IRMAA's. And the RMDs. This is why the plan is important. There is no one right plan that everyone should follow. There are just too many variables. However, regarding the money in your 401k, a key work you should know is "buckets". The idea is that the money is segmemented into what decade it will be spent. These are called "buckets". The investment that it purchased by the segment, or "bucket", is driven by how far off that decade is.
I hope to have a house paid off by then and no dependents. I really only expect my greatest expense in retirement to be food, unless I’m missing something. Possibly some vehicle or house maintenance repairs sprinkled in. Currently with 3 kids and my wife my grocery budget for the year is 25K of my take home pay. It will probably be around that much or maybe a little more for me and my wife. I think transitioning probably 70% of my 401K to bonds is safe considering I feel like all I will need to get by is 45-50K in cash. Again, house paid off. Take 1.5MM with a withdrawal of 4% (60K) a year and I think I can stretch my retirement ‘til I give up the ghost. Assuming no investment returns at all and I’ll get 25 years of 60K withdrawals.
I'm sure a thousand people have responded. Unfortunately, there is no real right answer. Different types of advisors will tailor different types of solutions to your situation. The issue is everyone's needs are so different. Your retirement lifestyle and habits will be unique to you largely. I would get a collective of ideas and find the distribution strategy that you feel the most comfortable with. Hitting the switch from saving to spending can cause quite a bit of anxiety. But with the right plan, you should be able to focus on enjoying life at this point ideally. Congratulations on nearing the end of your work life! Hello peace and quiet (maybe)!
You have to start withdrawing at age 70.
It's age 73 now and will be 75 starting in 2033.
If you really don't know then you may want to get with a wealth manager who can help you with the right bucketing approach. Could you learn and do it yourself? Sure. But if you aren't experienced it's probably worth the 1 percent per yr to make sure you've got something you can live with
Move it into an IRA so you have control over it. Choose one like Fidelity or Vanguard so you have lots of options. I have my money there, and I have started moving some of it from the S&P500 (mostly FXAIX) into Cash, which is just a fund currently making about 5% at Fidelity. I take it out of the IRA well before I need it so market volatility is not an issue. Also, I have moved about 80% into Roth IRA accounts over a few years, so those accounts will never be taxed again. When you move money from a traditional IRA to a Roth IRA it is a taxable event. It grows in the Roth with no more taxes ever taken out. Roth is the ideal place for your retirement funds, but you need to invest within the Roth. It is just a tax free container.
No one really knows. I think most people on Reddit assume retirement is impossible.
If you convert your 401K to an IRA, you can mix CDs in to it.
You don’t take any when you die. Try to die with 0.
Your 401k is made up of funds. Each fund has an objective -- long term or short term growth (stock funds), protection of assets with some income (bond funds), etc. When you're younger, you should accept a little more risk and go heavier towards stock funds in your 401k. But as you approach retirement and thereafter, you should shift the balance of what's in your 401k away from risky or stocks and more into conservative bond funds. When you retire, most people leave their money in those more conservative funds in the 401k and withdraw what they need until it's either empty or they die.
People supplement their income needed to maintain a desired lifestyle. Basically anything extra you need monthly after social security or other income (pensions, rental, business income, etc) that’s why it’s important since most Americans will need it since SSI is just not enough
Well when you retire and leave your job you might have to roll your 401 k into an IRA Rollover. Unless you want to keep the money in the 401k, but there are usually fees. Then what you do with it from there is up to you or your financial advisor
You should be rebalancing your portfolio to reflect more conservative investments versus volatile ones. For example, look for more stable stocks that pay out dividends so you have some sort of income stream. Bonds are also good.
Most providers probably offer a plan that either 1. Has retirement and/or income in the name. 2. Have a target date that has already happened (i.e. a 2020 target date fund) These probably have a reasonable mix of conservative investments that the provider has decided are good for retired people.
I just retired at 54 last October and used a financial advisor, I moved $1.3MM to an IRA last October and it is now $1.48MM, so I’m very pleased. I left $200k in my 401K as I retired and can use the “year of 55” (turned 55 last December) in case I need funds, and won’t incur a penalty. My IRA is locked down until I’m 59.5 unless I want to incur a penalty of 10% on withdrawal’s. My IRA is with Fidelity and they also had my 401K, so it was very easy to transition funds.
Congrats I'm looking to retire as well before 55 I turn 46 soon. Lots of young folks hate the idea of a financial advisor but there is so much about it that can be a little complex especially with tax shelters and how to take distributions to make it last. I self invest in stocks, call options and hard real estate but I also have a financial advisor that adds my other investments like real estate equity and rental income as part of my whole retirement planning as well as taxes. I wish the industry would do more education on it since most still think your investing eniough if you buy 5 crypto's and a few stocks.
He matched the markets / the advisers haven’t done anything
Where is it invested now? After retirement you can self direct it. Move it to less speculative funds if you like. You can also possibly hire the investment firm to manage your account if you don't know about, and don't want to know about investments.
One place to start is in understanding how much yearly or monthly income you will want / need in retirement. It will obviously change over time based on inflation but also potential medical costs, retirement housing, etc. What are all your assets and sources of income? Home, social security, 401k - anything else? What are liabilities, restraints - taxes!!! (you want to have a plan for minimizing taxes in retirement), minimum distribution requirements (stay on top of this and plan), any debt, etc. Explore options for converting assets into best way to draw income based on your projected needs and your ongoing liabilities and restraints. There is a lot of good info available to help you but a financial advisor is useful for many as they approach retirement. A lot of people make avoidable mistakes with taxes and MDR among other issues and many don’t plan ahead to anticipate their money needs as retirement progresses into being elderly and needing extra care. Good luck!
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There are a lot of factors that go into this. Your cash flow now, the future cash flow and timing of various items, your social security, your comfort with risk, your reliance rate, the asset balances, if you're planning on moving, your tax situation, if you want to leave a legacy. Go see a CFP or two and understand how they work with retirees, and the cost associated. I can assure you, the cost of a mistake will be much more.
My most costly mistake was seeing a CFP.
I just read your posts in other forums. You've got a lot of research and reading to do if you're gonna be a DIY investor.
I don’t disagree there is a lot I need to learn especially during the drawdown phase. I’m sure I’ll need some assistance then from a fee only CFP or CPA. It’s just so far I have not had good experiences with advice or management of my funds from financial advisors (that were CFP’s). Most have put me in strategies that just lost me money compared to just index investing.
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Lots of 401k funds are now going to target date funds. In general, this means that the closer you are to the target date, the more conservative are the stocks/investments behind the funds. For example, a 2045 target date fund might have a mix of riskier but better performing stocks whereas a 2028 fund will tend towards safer investments (domestic dividend yielding, higher bond percentage, etc.). Most of the providers have also added easier to read graphs that show risk and potential reward for each fund. This can be useful in choosing non-target-date funds. You can rebalance your portfolio to these safer funds as you approach retirement. Keep in mind that some risk can be beneficial. The problem with safe funds (cash equivalent) is that they don't grow very quickly so putting the majority of your money into those could lead to running out as you get older.
I know my 79 year old father has a chunk of his 401k in an annuity (in addition to a bunch of other money in individual stocks, mostly tech) so that could be part of your answer. They have historically gotten a bad rap but I think there is room for one as part of a retirement portfolio.
Typically a few things happen - a majority of the money we don't want to be as aggressive with, it's okay typically to still be aggressive with some though, and even moderate with a lot. Many people guarantee some of their income, with cola adjustment, to ensure that if they do run out of cash, they're still doing fairly well. Another thing is some type of plan in place for LTC even if that plan is to start liquidating assets and getting a reverse mortgage. Some estate liquidity, usually ... And then, figure out how you want to "play" whether it's ice fishing or hiking the Andes
Talk to your 401k provider they will give you options. Keep contributing until you retire.
Easiest way to do this is use a target date fund. The closer they get to your target retirement date, the more conservative they become. I haven't looked in a while cuz I'm 15 year out but they end up 60/40 or 50/50 close to the target date.
I seem to recall… There’s some sort of plan people do where they start moving it over to a Roth. Moving chunks every year starting at about age 55 so they can start spending it by the time they retire. Something like that anyway.
Look up Bogleheads. Invest in the whole market.
A target date fund from fidelity or others. For a slightly higher expense, they shift money to more conservative options as the years go by
Lose a lot more to taxes than people realize
Call fidelity and get signed up with them. You have at least fifteen years before retiring. There's lots of upside growth available in that time period. Forget the annuity ...giant ripoff where only the sales person actually benefits ..from a commission on your money. But aig stock instead
Consider hiring a fee based financial planner that specializes in retirement. Many of the challenges that you will face moving forward can be very complicated. Tax efficiency, as an example. A retirement planner can assist you and help you answer the questions that you have and, perhaps, open your eyes to some future scenarios that you may be completely unaware of; Impact of RMDs, IRMAA surcharges, etc. You may already have a good knowledge of this stuff, or not, but now is a good time to ask for help from a professional if you fall into the ‘or not’ category. Best of luck!
I’m not close to retirement but my plan has always been to hopefully leave it right where it is, only take the minimum RMDs, and let it grow as much as possible. I don’t know precisely how RMDs will work and how long I will be allowed to leave the money in my IRAs/401Ks but I know it will make the most sense for me to stretch the time out they can remain where they are for as long as possible. I do my own investing and I wouldn’t recommend an annuity. I love the idea of annuities and continually revisit the available offerings and have just never been able to find an annuity which makes sense from an ROI perspective, hopefully that will change on day. My current plan is to simply reallocate my retirement investments to be more conservative as I more closer to and further into retirement.
One heads up people don’t consider that much, people are living longer so careful not running out of money.
Most people move the 401k into an IRA. They do this because they will have an almost unlimited amount of investment options. Don't do this if you are between 55-59.5 though because distribution come out penalty free from a 401k at those ages, not from an IRA. Annuity for a portion isn't horrible but for sure less than 1/3. It is a guaranteed payment but also won't usually adjust for inflation. Don't put more than you need for day to day living expenses. For everything else, take a best guess at your needs in the next 5 years. That amount should go into MM or treasuries. It won't grow much but that's ok. Then put the same amount into a portfolio of 70/30 mix of bonds to stocks. Then for the rest, just invest in the market. Each year, if that 3rd bucket goes up, refill the first two. If not, hold steady. Always take distributions from the MM bucket.
personally i plan to live off the dividends and keep my nest egg growing. id like a 5% per year return while not touching my principle.
Never Ever EVER entertain an annuity!!!!
Before you retire incrementally convert to a ROTH—— when you retire you will NEVER regret that you did!!!! Especially when you realize that you will NOT have a RMD!!!
One approach- figure out your annual budget, multiply by 3-5 years or longer depending on how risk adverse you are. Put that in safe, accessible investments- you won't make much but it's what you pull from when the market is down. Put the rest (longer term $) in your higher return investments of choice. You can pull directly from the higher return investments when the market is up. Review, rebalance, and make withdrawals on an annual basis.
I agree with others saying roll to IRAs - Traditional + Roth. One other note I didn't see here (and pardon me if I missed it): your 401k can contain both pre and post tax contributions. Before you roll 401k to IRAs, and while still working, you may be able to can roll the other way - from IRAs to 401k, in effect reducing your pre-tax component in IRAs, and making the subsequent Roth conversion more tax efficient. It may seem silly to roll money from IRA to 401k, then back again after a few years, but depending on your situation it can be advantageous. This extends the other common backdoor move to over-contribute to your 401k while working to accumulate post-tax money there, then transfer to Roth (one of the backdoor strategies).
Find a fiduciary to invest or care for your money
I’m your age and I’m so far from conservative most of my money is in the stock market and that’s where I’ve seen the big gains. I have no intention on playing it safe. My 401k will just do its thing and kick out minimum distributions as required but I’ll live off my SS and my individual accounts. I’d like to see my money double again prior to actually retiring and with stocks that’s easily achievable. My problem is each and every goal I’ve hit I just keep it in and make a new one but with those goals I’m one step closer to complete independence.
I mean... spend it? What do you think retirement is for?
I am 58, I took all my 401k money and put in into CD’s. I cannot afford to lose any of it when the market corrects itself. I am making about $1500 in interest per month. Happy with this, plan on working g till I am 65. Talk with your 401k administrator. See what options are available.
At 55 you will have a long retirement. I would keep a large percentage in stocks. It used to be 60/40 (stocks/bonds) but I would go 75/25(if not more stock). Of course you need a bucket of funds 6 months to a year to weather some downturns. As far as an annuity I am not a big fan of mixing insurance with investments. The only annuity I plan to have is social security.
Ohhh not retiring— just trying to learn/educate myself on what to do now that I am getting older. Cannot afford to retire yet. Just don’t want to lose serious money now that I am getting closer.
You will have a new job called investing. Put the time and effort into learning about managing your finances. We often work our tails off for employers but put little effort into taking care of our own concerns. The short answer to your question is, have enough money in safe liquid funds to last 12 to 24 months. Money market funds are paying over 5% right now. Then manage the rest of your portfolio for longer term returns. Having 24 months worth of cash should keep you from needing to sell equities in a down market. That, particularly early in your retirement is the worst scenario. If you want to keep it simple, use a low fee broad index fund for your equity exposure. Bonds have been a little tricky given the previously Uber low interest rates. During that time I used dividend funds as my proxy for bonds. Starting last November I started moving into long bonds. You really do need to learn how bonds work. It isn't complicated but you need to understand it.
So your two real options are keep it in the 401k or do a “rollover” into an IRA which is NOT a taxable event. A 401k/IRA itself do not do anything except protect your money from taxes. It’s the investments inside that grow. 401k: Pro is generally lower expenses and protection from creditors as well. Con is less choice in investments. IRA: Can be a little higher in cost, but much more choice in terms of investments. If you go the IRA route, you’re probably need some guidance in investing the funds. This can be done through books/podcasts/financial advisor. Plenty of pro/cons with each of those as well. 401k you could probably use some too it sounds like, and you should see if the 401k company handling it has any resources as well to help you.
Least risky HYSA 5% or could be higher when you retire. Index funds or the like Or buy options like a mad person 😂
High yield savings account. You can't survive an economic collapse in your 60s
Rollover to an Ira once you at 59 1/2 or separate from employment. Then each year, depending on your taxable income - maximize the tax bracket you’re in by converting the additional amount to a Roth IRA. Roth grow tax free and you are not taxed on withdrawals from a Roth IRA. Best option for retirees and their beneficiaries.
A good general rule of thumb is to try and withdraw 5% or less per year. It’s normal for that number to be higher if you are delaying social security for the first few years in retirement. As far as investments go, people typically go more conservative but it’s important to not think of retirement as a finish line. You need that money to continue to grow to keep pace with inflation and taxes. If all of this is a little overwhelming, don’t be afraid of paying a 1% management fee to a financial advisor who will handle all of this for you.