I recently lost my job, very unexpectedly, but fortunately found a new good job very quickly. Here’s my question: I’m 62, plan to work for at least 5-7 years more as long as I’m enjoying it. However, my 401K investments for my recently departed company have stopped, with the separation. I am not eligible to start contributing to my new company’s 401K (who, BTW, have a better match in spite of being much smaller) for 6 months.
So, at my age, I don’t want to just stop contributing to my retirement funds for 6 months. But what would be the best options for that 6 months. Keep sending money to my Fidelity 401K even though there’s no match? Or diversify into something different for 6 months? Ideas?
For 6 months it’s not going to make too much difference whatever you do. Maybe a Roth IRA for a different tax treatment from your pre-tax 401ks? I’d be tempted to stick with the old 401k for simplicity personally. Good luck with the new job and the house move.
Your best bet is to move your 401k to a rollover IRA. This lets you contribute and invest in anything. That may sound daunting if you don’t know a lot about investing, but there are less management fees than a 401k and you have direct easy control of your investments going forward.
That being said, at this very second I would park it all in money markets or ultra short funds because we are going to hit a recession/correction any time now and you should try to insulate from that loss.
I don’t know about those six months, but will you keep the money in the 401k where it’s at right now? What are the fees like at the old 401k? Will you move what’s in the old plan to the new plan at some point or somewhere else?
When I got let go from a big company a few years ago, I decided to let mine remain in the big company’s 401k, even though I can no longer contribute to it. They have good funds that don’t have big fees. I was at that company for about 10 years, and I’d put all the money (smallish amount) I’d had from previous jobs into that 401k, so it’s where the bulk of my retirement investments are. I’ve worked at other places that weren’t as big and have moved from those smaller companies 401ks to an IRA at Fidelity with just an index fund. At my current job, I can contribute to the their 401k and get a nice match. At some point I will have to figure out how to move from my current position of accumulate funds to a retirements position of live off proceeds of funds. I have no idea how to do that, but at 57 it’s one of the things I have to figure out soon. I love these threads and wish you luck at the new job.
If I was that close to retirement I would definitely be thinking about making sure my 401k was properly balanced for my age. Given I agree with Vesper on a possible violent market correction I would really, really be making sure this was the case right now.
This is very good advice, which I agree with - I always roll over my 401k from past employers into a self-directed IRA. The good part about that is that you’re in complete control. This also helps you consolidate your retirement funds so you don’t have multiple 401k from old employers hanging around. Plus, unless you have a super progressive employer, you can beat the fees you’re paying in the 401k by investing through your IRA.
I strongly disagree with this. This is a form of timing the market. And while there very well may be a recession coming up, nobody can predict when it will occur, how long it will last, and when the recovery will take place. Study after study has shown that “time in the market” beats “timing the market.”
You can say “well, I have a lot of money and I don’t want to invest it all at once”… if your 401k was invested in stocks you’re just maintaining that investment. So that argument only applies if your 401 was all in money market funds or the like. However, if you’re really really anxious about buying a bunch of stocks at one time, you could consider investing it over time - say 3 to 6 months. Purchase 1/3 of whatever you’re going to buy now, 1/3 in 2 months, and 1/3 in 4 months…That lets you ease into it (it’s still market timing, though).
For the next 6 months you can contribute to your IRA and when the 401k from your new job kicks in, change to that (so you get the match, of course). That’s not hard, it just takes a little determination to make sure you contribute!
There will certainly be a recession sometime, maybe sometime soon, but what you need to do to prepare for it is not borrow money you don’t need, don’t buy crap you don’t need, invest in solid stuff, and don’t panic when things go down. Keep investing when things are bad so that when prices go down you achieve good dollar-cost averaging. Then when the recovery occurs you’ll look smart. Don’t panic!
I strongly second @Charlatan’s advice. As well as the above point that your investments should be balanced for your planned retirement time; if that’s in five years, it should probably be weighted away from stocks, towards bonds and other things that will be less volatile.
Some good ideas here regarding the IRA. And money market funds are pretty much a waste right now. You better thinking a little more long term with some conservative mutual funds. And investing bit by bit is a strategy I have heard recommended before.
I definitely wouldn’t try to predict the market, but so close to retirement age I would certainly start moving away from stocks. You don’t want to start taking money out until 67, ideally, which gives you a couple of years after the seemingly inevitable 2020/2021 recession for the market to recover.
I’d second that. Even if the market/political/economic climate isn’t what it is (which is enough for me to reallocate even though I’m further from retirement) you don’t want to take the risk. There were a lot of people that had to put off retirement 10+ years ago because their investment profile didn’t align with their needs and risk.
Yeah, a big market crash is very scary at this age. For a lot of years I put most of my 401K into a S&P 500 index fund. When I was much younger, I got bumped to first class on a business trip and sat next to a guy who managed retirement funds for Merrill Lynch. He told me, at my age (I was probably early 30s then) if I put all of my 401K in an S&P index fund and didn’t touch it until retirement, no matter what the economy did, I would be better off than just about anything else an average person could do because, he said, even though people like him may manage a fund that beats the index for a few years, over the long run the S&P index beats everything. The key being over the long run.
Some years ago I got adventurous and greedy and split my 401K into 4 funds, evenly, one of them the index fund, the other 3 more aggressive. Don’t remember details but along the lines of a good Morningstar rated small, mid, and large cap fund. Good times until the recession.
About 2 years ago I realized I had to start moving some part into safer stuff - which I hated, because I want it to grow for my retirement and retirement scares the crap out of me, the thought that this is it: this is all the money you will have for the rest of your life. Then my brother, 5 years younger. told me he took the option of letting Fidelity (we both had Fidelity for our 401K) manage it for him and he was very pleased for the return vs. the cost. I did the calculation on what they charged, saw that my account could bounce up and down that much in a month, and let them do it. They did a very extensive interview, looked at my other sources of retirement income (I have a small pension from a global company I left in 2004 back when pensions were a thing) and my risk tolerance and planned retirement age, and they moved my money into a much more balanced and planned portfolio. Of course a decent chunk (but not half) is in safe stuff like bonds. They do a routine adjustment every quarter, and they don’t chase rumors etc. (though if they have info in between on something that seems fairly certain they will make occasional small changes during a quarter.) How are they doing versus what I would have made on my own? No way to tell but I have to believe they are better than me kinda randomly putting it into 4 funds.
Jeff, how does Fidelity charge you for this service. Is it a percentage of your portfolio or like per trade kind of thing? What you’re saying sounds good, but I have always been leary about working with brokers who get a commision on every trade.
Sounds like my thinking is out of line with the rest of the group about 401ks. I will have to look at the fees I’m getting charged in my 401k from my former employer and see if what I am charged for the funds in my IRA is less expensive. I talked to a dude at the 401k for one of other jobs and he advised me to leave it where it was, which I thought was surprising because I expected him to suggest I move it, so he could collect his fee.
@TimElhajj, I have yet to participate in a 401k that didn’t have higher fees than I could achieve in my IRA. That’s why I always roll the funds out of my 401k into my IRA when I switch jobs. Most work 401k are pretty bad. And it’s pretty rare that I find a fund I like in my 401k (in fact, my current job’s 401k doesn’t even have a S&P500 fund!!! I asked about getting one at a presentation and they gave me a bunch of crap about how their active management could react to market changes faster than blah blah blah… they just want frickin’ management fees).
Managing the IRA is pretty easy - I’m using the three-fund portfolio (https://www.bogleheads.org/wiki/Three-fund_portfolio) that I researched at Bogleheads. I’m investing in no-commission ETFs through TD Ameritrade - they mirror the vanguard mutual funds. Since they are ETFs there’s no minimum investment (they trade like stocks). And since these are on a no-commission list for TD Ameritrade, I don’t pay any commission when purchasing them. So my fees are super low.
I personally don’t feel like management fees are worth it. I don’t think the value added is there, and it’s a drain on your portfolio. But if someone feels like they need management, I say go for it.
One good financial tool I use is Personal Capital (https://www.personalcapital.com/) - it’s a free app that can track your finances. It’s free because the people who sponsor it want to manage your money, so you get nag alerts in the app every now and then. But it’s a pretty full-featured app in and of itself, and you don’t need to interact with the Personal Finance people to get value from the app. I think it’s available on the web too. One thing they do is analyze your retirement allocation and fees and tell you where you could be doing better.
Last point: if someone feels like they need advice for their retirement portfolio, I suggest the way to do it is to find a fee-based adviser. Meet with them. Since they’re fee-based, they don’t get paid to sell you specific products (like commission based advisers do). You meet, go over our situation, plans, goals, etc. They give you a list of recommendations. You pay them for their time, and you move on. I feel like you get a much more honest assessment of what you should do when you use a fee-based adviser.
If you’re close to retirement age this is absolutely what you wanna do. Since I’m retiring in about 18 months, I have moved to 60% bonds in my portfolio. When I retire I am aiming to have a bond allocation of around 70%. Ramping up that much helps prevent retirement date risk (a crash happening the couple of years before you retire) and sequence of returns risk (a crash happening right after you retire that wrecks your portfolio so your retirement will suck.
Management fees are absolutely not worth it, and will cost you a TON of money in the long run, if you’re managed earlier on in your career. Index everything until your 50s, then start moving into bonds. Keep everything in low expense funds, my highest expense is 0.11%. Never pay anyone a single dollar to manage your money for you.
Accountants and (legal) tax avoidance, on the other hand, are very much worth the money.
Regarding moving out of the market now, that depends on your age. If you’re in your late 50s or older then sure, move into bonds. Otherwise keep everything indexed. The market will recover after that recession.
@Charlatan thank you so much for spelling this out for me. I spent the morning at the bogleheads three fund page and downloaded the prospectuses for the relevant funds at Fidelity. I think it’s a good strategy. I feel a little chagrined that I’m so out of the loop as far as the conventional wisdom around 401ks. When I lost the job at that company, I felt so bereft that tinkering with my 401k was the last thing I wanted to do. I don’t know why, but I always feel such dread when it comes to working with my investments. I must be getting past that, though, because I totally follow that page (who is bogleheads – why such a weird sounding name?).
I will have to check in about the app next. I just had a long conversation with my wife about what I intend to do with the investments. After I move the 401k, I want to rebalance both our accounts, so it’s one strategy that spans multiple accounts. A tool that shows it all might be just the ticket.
I am 57 and all the strategies about investing say you have to start thinking about the end game in your 50s, but I started save late so I’m pretty much thinking that 60 is the new 50 (at least for me). I expect (hope?) to work another 10+ years. I think part of why I feel such anxiety and dread is because none of my brothers and sisters have anything to do with investing. They all have jobs with pensions or no money. My oldest brother is a pretty successful small business guy, but even he is not a good one to ask about finances. One time I was feeling stressed about my mortgage and my plan to use the equity in my house to fund college for my kids, and I asked him his approach to taking on debt. He said he doesn’t carry any debt. He pays cash for everything. If he wants to buy a house, he sells the house he’s living in. I can’t even wrap my head around living that way.
Jack Bogle, founder of Vanguard, popularized (invented?) the idea that you should just invest in an index fund and you’ll outperform anything actively managed over the long term.
Oh, snap. I thought it sounded familiar. I think I have a book he wrote around here somewhere. I have yet to read it. For the $64k question: is there a Jack Bogle bobblehead available for purchase?
Hey, that three-fund portfolio made a lot of sense to me. I just moved my funds from the 401k to my rollover IRA and it wasn’t that hard at all. I appreciate that page you linked had a few funds listed from Fidelity, which just made it that much easier to follow through. The fees on my 401k didn’t seem that much higher, but maybe I don’t have a good sense for what “high fees” might be.
The only cock up I had was with how I did the math for figuring out the distribution. I took that Vanguard quiz and was trying to achieve an 80/20 spit between stock and bond funds. I did the math wrong and ended up with 2% in bonds. At Fidelity, if you try to make a subsequent trade to the same fund to fix things up, it gives you a warning about trading the same fund in less than 30 days. So it’s a little more aggressive than I intended, but easy enough to fix. Fortunately I didn’t make the same mistake when I moved the bulk of the money into the rollover account, but only in a smaller value roth account.
A completely unrelated question (I"m replying to @Charlatan, but really this question is for anyone who might have an opinion) – how important are accurate cost basis values? How do you get these numbers? I moved funds from one brokerage to another a long time ago and I see the cost basis values didn’t move with the funds. I sort of know what “cost basis” is – it’s the amount of money you spent on the fund. I think it’s used to calculate how much profit you make from a fund for tax purposes, especially when you sell it. These values are in a roth fund (which I think means it went in taxed and so it won’t get taxed again). Is it important that I track these values down?
