Right now I’m reading Yes, You Can Still Retirement Comfortably! by Ben Stein and Phil Demuth, at the recommendation of my friend Trip of Musing Money. So far it’s pretty good. I’m not quite done, but as part of the book it gives you a step-by-step procedure to estimate the nest egg that you’ll need when you reach your desired retirement age. It’s all based on historical market returns and life expectancy charts which I’ll leave to those who buy the book, but here are the rough results for my wife and I together:

1) Estimate Post-Retirement Income Needed. A suggested estimate is 80% of your (expected) final salary when you retire. I’m going to estimate this at 80% of $120,000, or $96,000.
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This last week I maxed out the 2006 Roth IRAs for both my wife and I, a $4,000 contribution for each. I kept it simple and bought Vanguard’s Target Retirement 2045 Fund (VTIVX) for both, tilting our retirement portfolio asset allocation more towards 90% equities.

My new goal is to get $50,000 in total assets at Vanguard. I am at about $37,000 right now. The reason is that once I get to that level Vanguard will waive the $10 annual fee for each IRA mutual fund with less than $5,000 in it. I can then buy lots of specific funds separately and fine-tune my desired asset allocation. I may open up a taxable account and/or a SEP IRA with them to achieve this. Does this make me a Boglehead?

Just to be clear, I only trade individual stocks on my Play Money portfolio. All our retirements funds are going to stay in low-cost index funds. Currently everything is in two funds – Vanguard Target Retirement 2035 (VTTHX) and Vanguard Target Retirement 2045 (VTIVX).

According to Vanguard.com, VTTHX has a year-to-date (YTD) return of 6.82%, and VTIVX has a year-to-date return of 7.54%. Not a bad year, their S&P 500 index fund only has a YTD return of 5.93%. The international diversification of this fund of funds has helped this year, with the Vanguard Pacific Stock Index Fund (VPACX) returning 22.28% YTD. I’ve already got my $8,000 ($4,000 x 2) ready to invest in our Roth IRAs in January.

Talking with my parents about their retirement plans has been very enlightening. I found out that my dad fully intends on working until he is at least 70 years old. I guess it’s not a total surprise, he is a bit of a workaholic, likes his job, and I don’t think he would handle retirement very well. He already gets 8 weeks of vacation a year, which is plenty for him. My mom could probably retire today, but she’d be bored out of her mind as well without grandkids or something to keep her busy. They both travel around the globe for almost a month a year so they are content.

This has gotten me to think – instead of all this focus on saving money, maxing out your 401k, workworkwork for 20 years, all so you can “screw it!” at age 50, I should really focus instead of finding a career path that I really enjoy and wouldn’t mind doing even when I’m 70.
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So I gave my mom a call today to ask her some questions about her 401k portfolio. Here’s a summarized transcript:

Me: I looked at your 401k statement.
Mom: Good!
Me: What kind of other retirements assets you and Dad have?
Mom: Umm… I think I have a Rollover IRA too.
Me: Did you roll it over into your IRA or 401k?
Mom: Umm… I don’t know.
Me: I saw a line on your 401k statement that said “Rollover Amount: XXX”
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After my parents learned of my interest in personal finance topics over Thanksgiving, my mom just sent me her last 401k statement and asked me what I thought. She is 55, and works for a small firm and therefore her 401k is serviced by a small company with limited fund choices. I won’t reveal total amounts, but here is the breakdown:

Dodge & Cox Income Fund (DODIX) [Bonds]- 26%
Amer Funds Washington Mutual (RWMEX) [Lg Cap Value]- 18%
American Funds Growth Fund (RGAEX) [Lg Cap Growth] – 18%
Royce Total Return (RYTRX) [Sm Cap Value]- 9%
Columbia Acorn (LACAX) [Sm Cap Growth]- 9%
Amer Funds EuroPacific Growth (REREX) [Lg Cap Int’l]- 13%
AIM Real Estate (IARAX) [Real Estate]- 7%
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So my $16,000 401k rollover check made it to Vanguard safely via good ole’ First Class mail. Now all our retirement investments are at Vanguard. Here is the breakdown:

Vanguard Target Retirement 2035 (VTTHX) – $14,748
Vanguard Target Retirement 2045 (VTTHX) – $23,516

According to the current information at Vanguard.com, based on the weighting of each of the two funds of funds, our asset allocation is currently as follows:
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My $16,000 401k rollover check arrived today in a nice plain envelope. It’s actually the biggest check I’ve seen. Do you write a check when you buy a house? I guess the money gets zapped straight from your mortgage lender bank to the seller’s bank? Anyways, I thought I’d scan it for fun before I send it on to Vanguard.

(See my 401k rollover decision process. [link fixed])

(Want to catch up? Continued from Parts One, Two, & Three)

Ok, last part, I promise. After doing a lot of research, mostly on ETFs, I’ve decided to choose option #1 and roll my 401k over to Vanguard and stick it in one fund, their Vanguard Target 2045 Fund (VTIVX). Here are my reasons:

1) It’s already my desired asset allocation, and if I split it up into multiple funds I’d be buying basically the same funds anyways, and paying more in fees.
2) After rolling it over to a Traditional IRA, I plan on converting to a Roth IRA gradually as the income limits allow. If I bought ETFs I’d have to pay commissions to buy each year as I fund my IRA, and again to sell when converting to Roth.
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(Continued from Should I roll over my 401k? Part 2 – Maybe Rollover into Fidelity?)

I believe in the power of low-cost investing in well-managed index funds, as proposed by books such as Random Walk Down Wall Street and Four Pillars of Investing. So here’s what I’m considering if I roll over my 401k to a Vanguard IRA. I would probably merge it will my existing Traditional IRA there, leaving me with a balance of around just over $20k.

Option #1: One Fund
Right now my IRAs only hold one fund: Vanguard Target Retirement 2035 (VTTHX), and my wife’s hold the Retirement 2045 Fund (VTIVX). I did this do get a balance of about 85% stocks, 15% bonds. I feel I should be closer to 90% stocks, so I could put everything in the Traditional IRA into the 2045 fund. That would leave me with the following allocation:
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(Continued from Should I roll over my 401k? Part 1 – Stay put with old 401k?)

I just had a couple of very nice conversations with the customer service reps at Fidelity and Vanguard about rolling over my 401k into an IRA. I’ve always liked dealing with both these solid companies, they have short phone hold times even on their main lines (unlike E-Trade, which sucks), courteous people (again, unlike E-Trade), and they even speak intelligible English (unlike Dell)!

I cleared up some things with Fidelity first. I couple of commenters on my last post suggested simply rolling over my Fidelity 401k directly to a Fidelity IRA, so I explored that a bit. Here are my findings:
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So it’s time to decide whether I should keep my 401k money at the original manager Fidelity, or roll it over to join my IRAs at Vanguard. I have enough in there to be allowedto leave it indefinitely. I’m not considering any other options as I’ve already chosen Vanguard as my retirement broker. Here are the funds I have in my Fidelity 401k right now, with expense ratios (e.r.):

40% in S&P 500 Index Fund (like FSMKX), e.r.=0.10%
20% in Spartan Extended Market Index Fund (FSEMX), e.r.=0.10%
20% in Spartan International Index Fund (FSIIX), e.r.=0.10%
20% in PIMCO Total Return Admin Fund (PTRAX), e.r.=0.68%
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