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asset allocation

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  • Drop it into MD Drop it into MD 
    Participant
    Status: Physician
    Posts: 440
    Joined: 09/20/2018

    I view my allocation across all my retirement accounts because they are all working towards the same goal.  However, I realized that is not exactly true.  I have a 457b that I plan to draw down first to fund my early retirement if  I so decide. I may need it 5-10 years prior to my other accounts.  At this point having more then 20 years to go before I would consider even an early retirement it probably does not make a difference.  But as I get closer should I differentiate the account accordingly?  Or do I have my thinking wrong and they really are for the same goal?

    The reason I ask is the options are very limited in my 457.  It actually carries higher risk then my other accounts because I use it for my small cap exposure because that is one of the few good funds that meet my needs.  The cheapest bond fund has an ER of over 1 if you count the management fees!

    Help me think this one through folks!

    Thanks.

    #157952 Reply
    Lithium Lithium 
    Participant
    Status: Physician
    Posts: 1221
    Joined: 02/15/2016

    As long as money is fungible, this isn’t really a problem.  Anything you withdraw from your 457b can be neutralized by changing your allocation in your remaining buckets.

    If you draw down small cap funds from your 457b, you can just exchange investments in your other retirement accounts for small cap funds.  For example, if you withdraw $5,000 in small cap from your 457b but really want to draw down bonds, you can go into your 401k and exchange $5,000 of bonds there for $5,000 of small cap on the same day you withdraw from the 457b.  Then you’ve in essence drawn down bonds rather than small cap.

    The only issue is that if you get to the point where the vast majority of your remaining assets are in a taxable account, you can’t easily change the investments there without likely incurring major tax penalties.

    #157954 Reply
    Liked by Nburk09, wonka31
    Avatar Peds 
    Moderator
    Status: Physician
    Posts: 4671
    Joined: 01/08/2016

    I view my allocation across all my retirement accounts because they are all working towards the same goal.  However, I realized that is not exactly true.  I have a 457b that I plan to draw down first to fund my early retirement if  I so decide. I may need it 5-10 years prior to my other accounts.  At this point having more then 20 years to go before I would consider even an early retirement it probably does not make a difference.  But as I get closer should I differentiate the account accordingly?  Or do I have my thinking wrong and they really are for the same goal?

    The reason I ask is the options are very limited in my 457.  It actually carries higher risk then my other accounts because I use it for my small cap exposure because that is one of the few good funds that meet my needs.  The cheapest bond fund has an ER of over 1 if you count the management fees!

    Help me think this one through folks!

    Thanks.

    Click to expand…

    early retirement and retirement are the same goals. they require a pot of money to draw down from. therefore your AA should be viewed across all accounts in that pot.

     

    aka, no that doesnt change anything. you should re-evaluate your AA as you approach draw-down, like everyone else.

    #157992 Reply
    Avatar Nburk09 
    Participant
    Status: Pharmacist
    Posts: 17
    Joined: 10/12/2018

    I agree with Peds and lithium, I would treat everything as one AA since all your accounts are presumably working towards the same goal. The withdrawal strategies will vary when you get to retirement but the AA should be all-inclusive. Fund choices should come down to what’s available in a specific account at a reasonable ER and tax efficiency, with perhaps a small caveat to putting more aggressive funds in Roth to grow that space since contributions are limited for most people.

    #157996 Reply
    Drop it into MD Drop it into MD 
    Participant
    Status: Physician
    Posts: 440
    Joined: 09/20/2018

    It is funny how you can get off track with your thinking and it not quite make sense.  Thanks for clarification on this.  I agree with all your advice.

    #158002 Reply

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