401K Planning?
 

So what does everyone use to plane their 401k?

I skipped the standard target funds they offer and transferred over to NetBenefits inside of Fidelity which lets you select your own stock and ETF allocations. Mixture of standard and Roth contributions, re-balanced monthly as needed. A lot will depend on your age and what your risk tolerance is.

S&P500 100% don't overthink it

If you want a financial planner use a fee based one of your own choosing.

How do you do that? I don't know what I'm doing and don't want to bother with it.

edit, I wrote it all out but since you don't want to bother you should probably just pay someone thousands a year to make a few clicks lol

meanwhile Fidelity is $150/million invested

John Oliver did an episode on how even pros/brokers have a hard time beating the S&P 500. That 1% over decades that people pay for fees in other funds adds up with compounding interest.

Is there an option to do that with our 401k?

Exactly.

People will spend far more time doing research on a car purchase than their potential $10m retirement nestegg.

Are the target funds tied to this?

Follow up question: For American's 401k with Fidelity, do contributions amounts exceeding personal annual contribution limits automatically get rolled back to the employee as income?

no. Target date funds are a mix of different products. Our 401k allows you to pick whatever fund you want, outside of fidelity. Target date funds have higher costs associated with them.

And yes. Paid as extra income

yes, it’s incredibly easy.

As Base said target dates are something different. They are what fund managers have deemed "appropriate" levels of "risk" for an individual.

Unless you are within five years of retirement, I find holding bonds pointless. Target date funds have a sliding scale for bond allocation that changes depending on the year. The generic guidance from the finance profession is some calculation of your age to bond %.

Now, keep in mind when rates increase, bond prices decline. So during a period of perpetually falling interest rates, that thought process made sense. Retiree in the 80s? Full on 100% bonds was making money not only in their rates but also increasing prices because they held higher rate bonds when rates were falling.

How much sense does it make to own any bonds when rates are effectively at 0%-3% for years? People were setting themselves up for failure, and financial planners did nothing to help but put their clients in bonds...while getting paid to **** up. I mean anyone who was even mildly financially literate could see this coming.

Q3 Bond Market Meltdown: Why and What's Next? Charles Schwab

My reasoning for staying 100% equities until five years prior to retirement is if you go back in history, the market was almost if not more than recovered from a selloff in that time frame. So you're made whole, before retiring anyway. Which was the point of bonds...

As far as investment choice of S&P500 vs total market etc, that is personal preference. Personally, I prefer to stick with what has generally worked. If you go back to when Fidelity started their total market fund in 2011, and compare to S&P500, the Total market is +262% and S&P is +278%.

This is also just me, but I don't foresee another 2008 ever happening again as long as the USD is the world's currency. The US Government will not allow it (see Covid response). Now, if the USD tanks, hopefully you also own RE (and some guns/ammo to defend it!). But, everyone in the country will be in the same place and we'll all be ****ed. So we've got that going for us, which is nice.

whats about that guy who had that newsletter?

As mentioned the target date funds have a larger mix of assets which might be a positive but their fees are orders of magnitude higher than the index funds. For the younger pilots just starting who can expect to have $10M balances those fees will become absolutely egregious.

My personal preference is to use valuations to reduce stock exposure during bubbles but in any case the low cost index funds will outperform the target date funds.

Why are the target date funds the default option? Because they make more money for the administrator. Buy a yacht for yourself if you wish but don't buy one for finance folks.

Post of the decade for anyone under age 45. 👍👍👍

Thank you for the background. This is insightful.

Thank you. Mind if I DM you?

inside Netbenefits is the s&p500 index labeled something else? Not FXAIX? Only see 3 large cap index funds? Or is it in a total different spot in net benefits?

thanks for the info.

Yeah you have to buy/transfer to brokerage link (should be at bottom of list). You can do up to 95% IIRC. Then inside brokerage link you can buy FXAIX and setup for auto purchse. Careful with brokerage link it allows the purchase of any stock, I highly recommend you don't FOMO and just stick to SP500 solely in retirement account.

The other 5% in AA 401k base account I think I did target date or something or maybe small cap but it really doesn't matter.

If you run into problems call Fidelity they are really good.

Feel free anytime

“US Large Cap Stock Index Fund” is the plan fund set up to track the S&P 500.

Do you know the specific fee difference between the two, the target date fun fees vs their index funds at fidelity?

.17 vs . 01. Sounds like nothing but the lost returns compound every year.

The next question is if you get anything for your money. The target date funds lag the S&P500 index by 50%. But that's ok if they protect you during drawdowns. Oops, they don't do that either because of the correlation between stock and bond fund returns.

In short, like most Wall Street innovations they don't do what they claim but they do generate more fees. Too lazy to watch your portfolio? Then buy some index funds and turn on automatic rebalancing.

But being too lazy to manage your money is just like being too lazy to bid. If you choose that route don't whine when it doesn't turn out like you hoped.

I do 50% US Large Cap Stk & 50% US Large Cap Growth . 30+ years before retirement, I refuse to pay a high expense ratio for a lower annual return (historically).

A couple hours of reading and you'll be much smarter. It's about 3 hrs (?). Add another hour if you start flipping back and forth comparing different charts/timeframes in the book.

You can choose how often you evaluate your distribution. Some review/rebalance on a 6 or 12 month basis, some rebalance on a 5%/20% imbalance limit. The book explains this - younger might be 80/20 stock/bonds. If the 80/20 split reaches a 5% change (75/25 or 85/15) they rebalance. Within each stock/bond you'll have 7-12 (?) funds. If those get out of whack by 20% amongst their own group (ie stock funds vs other stock funds, bond funds vs bond funds) the high fund (up by 20%) is rebalanced among the lower than expected funds. The book/video explains the concept.

Plus a 1:03 video of the author speaking to Google employees who just became millionaires -

https://www.amazon.com/Smartest-Investment-Book-Youll-Ever/dp/0399535993/ref=pd_lpo_sccl_2/140-3762055-8667720?pd_rd_w=zCncx&content-id=amzn1.sym.116f529c-aa4d-4763-b2b6-4d614ec7dc00&pf_rd_p=116f529c-aa4d-4763-b2b6-4d614ec7dc00&pf_rd_r=FASRAN7FW2KTQ0KGX0KZ&pd_rd_wg =PYsvM&pd_rd_r=4d974e06-3436-483b-9072-bf1e79bb9868&pd_rd_i=0399535993&psc=1


https://www.youtube.com/watch?v=Y0LSG2omvEg

Do you guys know if there is a difference in fees or taxes etc between using the "US Large Cap Stock Index Fund" from Fidelity to follow the S&P for my 401k (from the same selection where it has the "Target Date" options) vs doing the above mentioned brokerage method and then buying FXAIX or maybe VOO ETF that way?

Thanks!

You can look up all the fees on the fidelity website, or vanguard, or google, etc. Or call fidelity. They’re incredibly easy to work with and speak English as a first language.

Is there a point where you should stop paying into your ROTH IRA, or does it always make sense to max it our no matter how much you make?

Roth accounts make the most sense for very low and very high earners. With low income, you are paying very little or zero tax so the money is basically tax-free going in and out. At some point as income increases, traditional IRAs become non-deductible so they are taxed BOTH going in and out, basically giving you a normal brokerage account. If you are over the traditional income limit a Roth becomes the most tax-efficient method for withdrawal. Eventually you will hit the Roth income limit in which case you will need to ‘backdoor’ to get the tax benefit. In general high earners should be maxing their Roth IRA even as their income grows.

Note that the above is in reference to IRAs. The calculus for 401(k) is a little bit different but there are proper strategies for those allocations as well.

TLDR: Most of the time it’s best to max out the Roth, however sometimes prioritizing the traditional may make more sense, but the criteria may be subjective.

its all just a guess on what future tax rates will be and what tax bucket you will be in in retirement. It is easier to pass along a ROTH to your heirs when you die though.

Spend a few minutes and watch this:

https://youtu.be/lkOQNPIsO-Q?si=XmCWPzrx3PWbm8r_&t=1

A quick DC question from someone considering AA. Which wages does the DC apply to? 16% of total earned income, or are there exceptions? Couldn't find an answer by searching. Thanks

it’s 17% as of Jan 1, 2024 and 18% as of Jan 1, 2025.

applies to all normal wages. Does not include per diem, reimbursements, special bonuses (some bonuses have been included. Some have been excluded).

I believe 18% is 2026..

No, it's 16% now, 17% in '24 and 18% in '25.

section 5.F.8.c

In the event United Airlines enters into an agreement with its pilots on the basis of the United July 2023 AIP prior to January 1, 2024 which includes increases to Non-Elective Employer Contributions to their 401(k), which go into effect prior to May 2 of each year, then the May 2 increase dates for 2024 and 2026 above shall be amended to read “Effective January 1, 2024, the Non-Elective Employer Contribution shall increase to seventeen percent (17%) of an eligible pilot’s Eligible Compensation. Effective January 1, 2026, the Non-Elective Employer Contribution shall increase to eighteen percent (18%) of an eligible pilot’s Eligible Compensation.

Color me stupid.

Out of curiosity, have you read Solin's 401k book? If so, how does it compare/complement the above?

Yes. He's got several books on retirement. I think I read the brown cover one. It links directly to the Solin 'Authors at Google' presentation. There's an AA pilot group that is for the asset allocation investors. Google 'AA pasive investing group. They'll vet you if you want to join.

I think it's this one. Brown cover rings a bell.

https://www.amazon.com/Smartest-Inve...99535993&psc=1

If not it's this one -

https://www.amazon.com/Smartest-Reti.../dp/0399536345