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401k Allocation

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  • 401k Allocation

    Hi- Wondering if anyone might have advice for 401k allocation. I am 58 and plan to retire in 18 months. I have a pension and health insurance which will handle day to day expenses for the foreseeable future but will rely on 401k money for major expenses such as home remodel, travel, etc. Current allocations are; 38% large cap stocks, 30% bonds, 23% international stocks, 5% small and mid cap stocks, 2% individual stocks and 2% cash. Any remixing advised? I'm not generally afraid of risk but don't want to behave foolishly either. I also feel like the market is very high at the moment so have some bias toward bonds/safety.

  • #2
    I am 59 and on the same retirement time frame.  If you have paid health insurance and a pension that is enough to live on then you are golden.  Your allocation looks ok to me.  I suppose with a fallback pension you could argue that you really don't need bonds at all.  For tax planning purposes are you thinking of a roth conversion in the next 10 years? I plan to keep at least 2 years living expenses in cash/short term bond fund in case of market declines but with a pension that would not be necessary for you.


    • #3
      Thank you for the input. Really a good point about not worrying about bonds if the pension will cover all expenses. Warren Buffet said all your money should be in stocks except what you need for the next twelve months. I really like the idea of that but not quite brave enough to go there. At least not today. Thanks once again.

      I'm finally beginning to understand some of this stuff, I rebalanced into the market two days after BrExit. Finally got one right after 30+ years. Just rebalanced back out.


      • #4
        If you can live comfortably on your pension, then you can just stop reinvesting your dividends and interest payments and use that money for those extra expenses, and leave the rest of the money alone.  I agree with hatton1 that you really don't need bonds, since you have enough income already from your pension.  You don't need the bonds to provide your guaranteed living expenses, since your pension does that.

        Also, if your pension will be steady over the years, or if it goes up with inflation, then you have an opportunity now to convert some of your 401k to a Roth, because your tax bracket will go up when you turn 70 1/2 and add RMDs to your pension.  Since your income now is lower than it will be later, so this is probably a good time to roll some of that money that you don't need into a Roth.

        That might benefit your heirs if their tax bracket will be higher than yours when they inherit, but not if their bracket will be lower when they inherit than yours is now.