Little bit of background: I'm 34 in an academic attending gig, making about $330k per annum. I've been maxing out my 401k, but now I also have the choice of maxing out my 457(b) at $18.5k. Usually, that's a no-brainer as it will help lower my taxable income (and I don't have a lot of other things that help lower my taxable income, besides a modest mortgage), but I'm concerned that the market is over-valued and it may not be wise to be so heavily invested in it. Granted I won't be taking it out for another 30+ years. Any thoughts? Should I just do half of $18.5k?
seeking 457(b) financial advice
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Saving for retirement, and how riskily you invest those savings, are not the same thing.
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You should absolutely use all of your tax advantaged space. Max the $18.5K contribution. As noted by fakin' the funk, how that money is invested is an entirely different issue.
You should decide what asset allocation fits your investment goals, risk tolerance, and personal need to take risk. If you're 34 years old and plan on working for another 20 or 30 years, your asset allocation should probably be something in the neighborhood of 70-80% equity and 20-30% fixed income. But this is an individual question with many personal variables. You have choices in how those 457(b) savings will be invested - it doesn't all have to be in the stock market, and it shouldn't be.
Read these first:
Getting started - Bogleheads
At least the first 10 or so chapters of Ferri's book All About Asset Allocation - it's a $15 ebook, worth it
You should decide what asset allocation fits your investment goals, risk tolerance, and personal need to take risk. If you're 34 years old and plan on working for another 20 or 30 years, your asset allocation should probably be something in the neighborhood of 70-80% equity and 20-30% fixed income. But this is an individual question with many personal variables. You have choices in how those 457(b) savings will be invested - it doesn't all have to be in the stock market, and it shouldn't be.
Read these first:
Getting started - Bogleheads
At least the first 10 or so chapters of Ferri's book All About Asset Allocation - it's a $15 ebook, worth it
Not all 457(b) are treated the same.
If you are a government (state or local) employee with 457b. You are good to go cause you have a lot more options what to do with the money
But if you work for a non profit non government hospital that offers 457b. Be careful. You may not be able to roll that money over without tax consequences.
If you are a government (state or local) employee with 457b. You are good to go cause you have a lot more options what to do with the money
But if you work for a non profit non government hospital that offers 457b. Be careful. You may not be able to roll that money over without tax consequences.
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I would argue a couple things. As long as your investment horizon is long term, there is never a bad time to invest. Timing the market is a losers game. In ten years, you have wished you did invest. I believe in a well diversified portfolio, but I'm basically 100% equities. The equities have better long term track records, and the growth will offset the volatility.
As to a 457(b), you do have to realize a couple things. First, it's a non-qualified retirement, which means if your next job doesn't have a 457 (b), you can't roll it to an IRA. Second, its deferred compensation, which means your company simply hasn't paid you yet. Its not yours. If you company goes broke, theoretically you could lose it. I think this is very unlikely, but it is possible. If the world comes to an end, I would pull this money and pay the taxes.
As to a 457(b), you do have to realize a couple things. First, it's a non-qualified retirement, which means if your next job doesn't have a 457 (b), you can't roll it to an IRA. Second, its deferred compensation, which means your company simply hasn't paid you yet. Its not yours. If you company goes broke, theoretically you could lose it. I think this is very unlikely, but it is possible. If the world comes to an end, I would pull this money and pay the taxes.
That's a very enlightening thought! If I think the market is over-valued, then perhaps I should look into "safe stocks" or bonds or other lower-risk options within the 457(b). Given the obvious tax advantage, it would certainly be foolish to bypass this opportunity. It's a state university system's so I'll have to see how many options they have and take it from there--I'm sure there will be something that's categorized as "low risk" and perhaps I can just click on that option while this market is still drunk on the trump tax bonanza.
Yes, I've definitely had to think long and hard about the consequences of investing in a 457(b), especially if I quit the job or if the world comes to an end and this entire university/hospital system tanks...after looking at the 2016 elections and re-examining human history, anything can happen. Let me know if (or should I say when) you see any warning signs.
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deleted50478
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But isn't it their (as in the university's) money that's with the financial institution and it's the university that pays you out in retirement from your 457?
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deleted50478
Yeah that’s right. I looked into it more and sounds like it’s required to be owned by your employer to be able to defer income tax. My mistake.
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What you're talking about here is market timing. It will almost certainly end with a poorer than necessary outcome. Here's the simple answer:
1. Maximize contributions to tax advantaged accounts, whatever kind is available to you. Save more in taxable accounts, as you are able to.
2. Choose an asset allocation based on your goals, the risk you can tolerate, and the risk you need to meet your goals. If you don't know exactly what this means, spend the $15 on Ferri's ebook and use the next hour or two to read the first few chapters. It'll be higher yield time than this thread. 🙂
3. Stop messing with it, quit reading financial news, quit watching finance TV shows. It's all **** and lies and bluster and ****. All of it.
None of this has anything to do with current market valuations. When you're looking at a multi decade time scale, you either believe that the world economy is going to continue to grow, or you don't.
If you do, it's irrational to sit on the sidelines a while waiting for the right moment to time your entry. It's just lost time.
If you don't, you should be asking about gold and lead and heirloom seeds on another forum.
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I'm just gonna point out that you're brand new to investing but you think you know more than the markets. You don't. Good luck trying to time the markets though.
Yes, I'm brand new! Not really trying to time it the way people who buy/sell stocks constantly do. Just trying to see what others would do in a similar situations and learn pros/cons of each. But yes, it is hard for me to ignore what most are saying about the market and comment on those general/broad trends. Back to Ferri's.
this.
Non governmental 457 b is a terrible product. Its really not your money, per se. It belongs to the institution and it is subject to their creditors.
Also, you cannot roll over 457b to a 401k or an IRA. It can only be rolled over to a 457b at an institution that accepts it. Otherwise you leave it with your employer after you left them, and essentially give up control.
I ran into this situation where I deferred my taxes for the last three years, thinking 457b was a great product, but after learning about it in detail, I took a distribution this year because the top tax rate was lowered - actually my accountant advised me to cash it out, pay ordinary income tax and invest the rest in a taxable account.
Exactly.
Its very possible to lose your money in 457b with hospitals merging left and right. In fact this is exactly why I took a distribution because my small, struggling community based hospital was bought out by a big hospital corporation which did not offer 457B, and I just had a 'gut feeling' that I may lose control of this money so I took it out, put money away for taxes and invested the rest in taxable account.
Hi everyone,
I inherited a 457b -deferred taxes from my mom. I'm 21 and don't know anything about retirement funds. I have an account, but I never sent in paperwork for it. I haven't touched the account or spoken to any representatives.
Is there something I'm supposed to do?
Is it possible to continue adding funds to this account when I'm older, have a job and are not in school?
I inherited a 457b -deferred taxes from my mom. I'm 21 and don't know anything about retirement funds. I have an account, but I never sent in paperwork for it. I haven't touched the account or spoken to any representatives.
Is there something I'm supposed to do?
Is it possible to continue adding funds to this account when I'm older, have a job and are not in school?
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THIS!!! in a previous finance thread, I boasted about how i'm going to time the market. 2 years later, all my assets are still sitting in cash and i've missed out on 2 years of growth.
(before yall laugh at me, the actual nominal amount lost is negligible after an attending salary. The fun I got was worth more to me than the EV lost)
You don't have to have it in stock at all. If i'm not mistaken, you can have your 457(b) in all cash.
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THIS!!! in a previous finance thread, I boasted about how i'm going to time the market. 2 years later, all my assets are still sitting in cash and i've missed out on 2 years of growth.
(before yall laugh at me, the actual nominal amount lost is negligible after an attending salary. The fun I got was worth more to me than the EV lost)
You don't have to have it in stock at all. If i'm not mistaken, you can have your 457(b) in all cash.
You should have listened to that guy who was talking about buying chipotle stock before. 250 a year and a half ago, now its almost 600
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pssshhhh that's nothing compared to bitcoins.
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can someone go into more detail about why non profit 457b is not a good deal? isn't worst case scenario you cash out? it's not like if you quit they'll take back the money. dont you have the option of taking it out?? i mean of course the longer you have it the better. what if you dont cash out, does it stay there in the account until you cash out ? would that still grow tax deferred..?
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deleted547339
The problem with non governmental 457bs is ownership. Technically, you own your 403b, 401k, governmental 457bs and HSA. The nongovt 457b is technically just deferred compensation. If the company goes under, that is an asset of the company subject to creditors. It’s very rare, but if the company folds, you blow up.
Also, there are various options to cash it out. Some require distribution over a truncated period which can drive up your tax bill as opposed to keeping it on the front end over years and putting it in tax efficient funds.
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You are going to need to contact the plan administrators to find out the distribution rules. Since it is a 457, and not an IRA, I don't believe there will be a stretch option. So, you can't take RMDs based off your life expectancy. You can't add funds to the inherited 457 or blend it in with your own existing IRA or 401k. If the plan allows, you might be able to roll it in to a new IRA. You should start by contacting the plan administrators to find out the rules
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4 Ways to Accelerate the Power of Compound Interest | The White Coat Investor - Investing & Personal Finance for Doctors
A particularly salient quote from this:
"Consider this: from 1998 to 2017 the stock market generated a 7.2% annualized return. If you missed the 20 best days of those 20 years, your return would have been only 1.15%."
It is somewhat sensationalized, but it highlights the risks of trying to time the market.
A particularly salient quote from this:
"Consider this: from 1998 to 2017 the stock market generated a 7.2% annualized return. If you missed the 20 best days of those 20 years, your return would have been only 1.15%."
It is somewhat sensationalized, but it highlights the risks of trying to time the market.
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I believe one should know what they are doing. I also agree timing the market as a full time Anesthesiologist without outside help is a fool's game.
But your example is overtly biased. What if you had missed the worst 20 days of those 20 years? (i actually don't know the answer, but i'd imagine it would shoot up your average return).
The idea of timing the market is adding volatility but at an increase in EV. If one feels like there is an edge, and is risk tolerant. Timing the market isn't necessarily a -EV play.
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Short answer
457(b) at state institution = good
457(b) at private non-profit = maybe ok; look into the fine print; could risk losing it all if your hospital merges or goes bankrupt
If you are putting in 19k into a 457(b), your immediate savings will be your current marginal tax rate - your marginal tax rate when you are retired. At 330k, the marginal federal rate is 35% if single. Most likely you'll have less income in retirement than while you are working. If you live in a place with state or local income tax, you can avoid that all together by moving to a no income tax state in retirement.
If you might quit your job before retirement, you need to look into the plan rules. The options are
1. keep it in the plan (good if you like the investments and costs, good if you don't have a 457(b) at your new place to roll into nor want it in your IRA).
Some plans may not let you continue in the plan if you aren't working there.
2. roll it into a 457(b) at your new place (good if you have one and like the investment choices)
3. roll it into a traditional IRA (good if you like having complete control over your investments but bad if you want to do backdoor Roth)
4. take a distribution (bad because have to immediately pay income tax on the amount but not as bad because it's not subject to 10% penalty for early withdrawal like other retirement plans)
http://www.doctorindebt.com/physicians-invest-457b-plan/
CDC Federal Credit Union - Deferred Compensation: Governmental 457 Plan Rollovers
457(b) at state institution = good
457(b) at private non-profit = maybe ok; look into the fine print; could risk losing it all if your hospital merges or goes bankrupt
If you are putting in 19k into a 457(b), your immediate savings will be your current marginal tax rate - your marginal tax rate when you are retired. At 330k, the marginal federal rate is 35% if single. Most likely you'll have less income in retirement than while you are working. If you live in a place with state or local income tax, you can avoid that all together by moving to a no income tax state in retirement.
If you might quit your job before retirement, you need to look into the plan rules. The options are
1. keep it in the plan (good if you like the investments and costs, good if you don't have a 457(b) at your new place to roll into nor want it in your IRA).
Some plans may not let you continue in the plan if you aren't working there.
2. roll it into a 457(b) at your new place (good if you have one and like the investment choices)
3. roll it into a traditional IRA (good if you like having complete control over your investments but bad if you want to do backdoor Roth)
4. take a distribution (bad because have to immediately pay income tax on the amount but not as bad because it's not subject to 10% penalty for early withdrawal like other retirement plans)
http://www.doctorindebt.com/physicians-invest-457b-plan/
CDC Federal Credit Union - Deferred Compensation: Governmental 457 Plan Rollovers
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Don’t time the market. Tweak around the edges. As I have posted before once you have a decent portfolio, like $800-1 mil, why go all equities? I advocate for a portfolio with some cash/bonds/CDs to take advantage of huge market volatility.
For example, market drops 10-12 percent over 60 days. Why not buy more equity with your reserves? As the market goes lower you move up to 100. As the market bounces back up you put the new money back into cash/CDs/Bonds.
This 80/20 portfolio should allow excellent returns with less volatility than 100 percent equities all the time.
Now, at this point in my Career I’m 53-60/40-47 for equities vs non equities. I don’t time the market but respond to major volatility swings. With so much fast money and computers out there I think the idea of rebalancing once per year is antiquated. Instead, I like to think of my plan as a 60 day rebalance plan allowing me to participate in these major market swings
The recession is coming. But, is it 12 months or 24 months from now? I don’t know but the market is now past my fair value estimate so I’m cautious about adding to my equity positions. However, if we retest 10 percent lower from here I’d be adding some again. If we retest the December lows I’d be adding a lot more The key to this rebalance plan is to use the new-monthly money to facilitate your allocation plan.
I never time the bottom correctly. That’s not feasabile. But buying equities when they are on sale is a viable plan.
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You say don't time the market, but what you just described is, in fact, timing the market. You are taking about rapidly changing your asset allocation back and forth based on perceived market highs and lows. Why not just stick to an asset allocation and periodically (maybe once or twice a year) rebalance back into that allocation. Then, as your need for risk changes, for example, as you are getting older or mnearing retirement (Where Sequence of Return Risk enters), change your asset allocation.
I'm currently in an 80/20 split because I haven't really been an investor through an actual bear market. I would like to think I would not panic and hit the sell button on the equities, but still I remain cautious. WCI has it right when he says develop a Written Investing Plan and stick to it. Every couple of years you can reassess, but you should be able to stick to the plan despite market conditions
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deleted50478
If there’s a 20% drop in the S&P would you stay 80/20? If you don’t plan to use the 20% to buy cheap stock in the future, why not just go 100% now. Sure there’s less volatility at 80/20 but your savings will be worth less in 30 years at 80/20 than they would be 100%. How much loss in potential gains should you endure because volatility is supposedly a problem for the typical upper middle class retirement investor?
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I don't consider what he is talking about to be purely timing the market in the warning sense. If I understand him correctly he is talking about changing his future allocations of contributions based on large market trends. While this is by an absolute definition timing the market, I think more of the warnings are in regards to moving assets. Such as if I feel a drop is coming I go into my portfolio and exchange a % of my equities for bonds or cash, whereas I believe he is talking about allocating incoming money more towards or away from equities based on trends, which I would view as a much less radical variant of timing the market.
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Yes! That's the whole point. If you're 80/20 and the stock market drops 20%, now your assets are sitting at 76/24.
At that time, you can rebalance by selling a portion of your bonds and buy some stocks to get back to 80/20.
Or you can just put all of your new contributions to equity, to gradually nudge things back toward 80/20.
Or you can do nothing, because 76/24 may not be outside the rebalancing tolerances you decided on when you chose 80/20 as your target. Because of course you chose those tolerances when you chose 80/20, and you wrote it down, right?
The specific point of choosing an asset allocation is so you DON'T make gut feeling decisions in the midst of a market change. You do what your plan and the plan's math tells you to do.
Anything else is active investing. If that's what you want to do, ok. But the odds of doing it in a way that outperforms a passive strategy are heavily stacked against you. And there's no point in selecting an asset allocation of 80/20 or 60/40 or 100/0 if you are just going to get skittish and change things up in the middle of large market swings.
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deleted50478
So why 80/20? Why not 95/5? Anything less than 100/0 provides a lesser return over 30 years and rebalancing 76/24 won’t be profitable enough to make up for the 20-24% of your money that provides minimal returns. Sure if you are retired it might be (but still probably isn’t really) worthwhile to own significant bond investments, but if you are under 50 I don’t think the math adds up.
Plus, you can benefit from rebalancing a 100/0 portfolio by rebalancing between different sectors of stock investments and US vs international.
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You should choose 80/20 vs 95/5 vs 100/0 vs whatever else based on
1 - your investment horizon
2 - willingness to accept risk/volatility
3 - need to accept risk to meet goals
Long term, there may be a rebalancing benefit such that 80/20 or 90/10 will outperform 100/0. The return curve is not linear and proportional to your % in equities.
Rebalancing between different sectors of equities is not likely to be as successful because all equities are generally highly correlated, especially in times of large corrections.
If you have an hour, read the first 5 or 10 chapters of Ferri's book All About Asset Allocation. You can get the ebook for $10 or so.
1 - your investment horizon
2 - willingness to accept risk/volatility
3 - need to accept risk to meet goals
Long term, there may be a rebalancing benefit such that 80/20 or 90/10 will outperform 100/0. The return curve is not linear and proportional to your % in equities.
Rebalancing between different sectors of equities is not likely to be as successful because all equities are generally highly correlated, especially in times of large corrections.
If you have an hour, read the first 5 or 10 chapters of Ferri's book All About Asset Allocation. You can get the ebook for $10 or so.
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Also, there's a major flaw in the thinking of people who are 100/0 but then play timing games waiting to buy stocks when they're down - they're not really 100/0 if they have cash laying around that's available to invest.
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Please notice the 80/20 allocation almost matched the performance of the S and P 500 but with less volatility/risk:
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This is from the white coat investor. At this point in my career the chart below shows why 60/40 (55-45 with some tweaking) is my preferred allocation. However, If I was younger I'd likely go 80/20 at some point even if I started out at 90/10 or 100% equities.
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SPX= S and P 500
AGG= Aggregate Bond Index
LV= Low volatility stocks
80/20= 80% low volatility stocks and 20% bonds
https://seekingalpha.com/article/4240599-new-60-40
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Here is a quote from the article:
"These days, many worrywarts are warning of a stock market collapse and a bond bear market. And certainly, there can be periods where 'nothing works' for investors in real dollar terms - see stagflation. But what's an investor to do, stop investing? Well, that investor is then no longer an investor. If one leaves the market waiting for that market correction, well, good luck to ya. Market timing is tricky business. Stock markets and bond markets have a mind of their own. All said, if the recent raging bull market has allowed you to reach your goals, congratulations, you might not want to let greed rule the day. And certainly, and as always, today is a good day to assess your financial situation and risk tolerance level. It may be time to rebalance or create a portfolio that allows the potential to invest within your time horizon and risk tolerance level."
"These days, many worrywarts are warning of a stock market collapse and a bond bear market. And certainly, there can be periods where 'nothing works' for investors in real dollar terms - see stagflation. But what's an investor to do, stop investing? Well, that investor is then no longer an investor. If one leaves the market waiting for that market correction, well, good luck to ya. Market timing is tricky business. Stock markets and bond markets have a mind of their own. All said, if the recent raging bull market has allowed you to reach your goals, congratulations, you might not want to let greed rule the day. And certainly, and as always, today is a good day to assess your financial situation and risk tolerance level. It may be time to rebalance or create a portfolio that allows the potential to invest within your time horizon and risk tolerance level."
The purpose of the bonds (or whatever else is in the 20%) is to help steady your nerve during big downturns and avoid making behavioral mistakes. The last thing you want to do is be 100/0 and then in the middle of a big downturn panic and start selling. That 20% smooths things out and helps make sure you don't bail on your strategy at the worst time.
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That guy is killing it. Too bad for me for not listening. But the fat lady hasn't sung yet.
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Excellent. I scored at "above average risk tolerance" which means I will be sticking with my allocation plans.
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At current valuations I can't see 100% equities with new money. For those who have zero cash/CDs/Bonds now is a good time to set some aside for when the market pulls back from here. I'm not advocating a deviation from your 80% equities but for those with 100% exposure perhaps the new money could be more conservative at these valuations.
Or, look at emerging markets where valuations are lower than the USA. I keep a diversified portfolio which includes EM, Developed counties outside the USA, etc.
Or, look at emerging markets where valuations are lower than the USA. I keep a diversified portfolio which includes EM, Developed counties outside the USA, etc.
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deleted162650
What’s the SDN investor brain trust’s take on the Vanguard Target Retirement funds?
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Overall, they are excellent one stop shopping, no brainer picks.
Why Vanguard Target Date Funds Are the Best in the Business -- The Motley Fool
The bottom line on Vanguard's target date funds
If you're looking for a one-stop retirement savings option, a target date fund is a smart way to get one. Vanguard's options are easy to understand and have the lowest costs in the industry, making them excellent choices for investors who want to put their retirement savings on autopilot.
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I’m 33. Currently 100/0.
65 US/35 Int’l with emerging market sprinkled in.
Probably staying put but have thought of adding bonds to new contributions.
65 US/35 Int’l with emerging market sprinkled in.
Probably staying put but have thought of adding bonds to new contributions.
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deleted126335
Agree. If you put in the time to learn about the finer points of investing, e.g., Asset location, tax loss harvesting by specific share ID and flipping highly correlated assets, value tilting, and have the discipline to execute come hell or high water you can probably do better by about 0.5% per year for an equal amount of risk.
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deleted162650
Thx. Makes me feel better being 100% VFFVX.
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deleted126335
Solid choice. My kids' Roth IRAs are in the 2060 target fund.
hard to go wrong with a low cost fund with something close to what you want for asset allocation appropriately shifting to less equities as you near retirement. I mean is it possible to improve upon? Maybe, but likely not by much.
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