tlpitch
New Member
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Joined: 17 Sep 2012
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| 401k Planning |
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I have a question regarding recommended solutions to a 401k question.
My wife's retirement account is a traditional 401k and over the past 12 months has returned a stunning 35%.
My retirement is slightly different, I have one traditional 401k and a Roth 401k. The Roth is funded by me, and the traditional is funded by the company's match to my Roth contributions. My return is about 15%.
I am contributing a greater percentage and greater dollar amount to my retirement accounts than my wife.
If you were in my situation would you consider reducing my contributions and increasing my wife's by the same dollar amount? I know we won't always see 35% and maybe one day she'd make less than my account but over the past 6 months her's has seriously outperformed my account.
Thoughts/suggestions?
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Sat Dec 14, 2013 6:33 pm |
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jscottfinancial
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Joined: 17 Dec 2013
Location: Boston
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| Re: 401k Planning |
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Hi.
The risk in this type of question is that you might find yourself chasing returns when you do not intend to. Consider this scenario:
You increase your wife's contributions and lower yours and next year you see a higher return in your account vs. your wife's. What do you do then? How do you know that the company stock or investment that is in your wife's account will continue to perform.
A quote that I heard over 15yrs ago and one that I still live by is "It's time in the market, not timing the market that creates successful investing". Especially true for individual investors.
My advice (going to sound boring...but tried and true) is to re-think the real question. What is your goal in retirement? Think about how much income you need in retirement and then develop a savings goal (401k, IRA, other) that will help you to achieve that goal. Next, consider the investments you might select within the 401k, IRA, etc.. that meet your risk tolerance. For example, as you point out, earning 35% is unrealistic and historically over the long haul you should expected closer to the 10% (+/-). Run your retirement needs against your current savings assumptions against a 10% growth rate and you might find that anything higher is gravy. Take a look online for a retirement savings calculator as well.
Just a few tips! Good Luck.
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Tue Dec 17, 2013 7:29 pm |
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Wino
Senior Member
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Joined: 03 Aug 2012
Location: Dubai
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We know nothing about your investments other than last year's returns as a percentage. There is no way anyone could make a valid suggestion or offer an opinion on your specific questions/statements.
I will caution one thing: Most people tend to put money into the market when it is high, because "it's doing well!" (Buy high). In addition, many people tend to move their money to safer investments (bonds or money markets) when the market falls, because they're "protecting the principle." (Sell low).
The way to come out ahead is to buy low and sell high, but the opposite often happens because people invest emotionally and not financially. Oldguy recently stated (paraphrased and with much poetic license) that if historical trends continue, the S&P500 will likely be over 20K in 2043. If the present 1800 goes through 1200 on its way to 20,000, it won't really make a difference when you pull out the money in 2043, unless you panic and "save your principle" at 1200, and lose the gains until "it's doing well again" when you get back in.
I suggest you heed what JSF said and come up with a long-term plan that you stick to.
One last statement: If the average return is 10% and you just had 35% returns, mathematically, you can expect about a 15% decline next year. I am NOT saying it will happen. I am just pointing out some possible mathematics. This paragraph is merely to get you thinking about the "other side of the coin."
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Wed Dec 18, 2013 1:35 am |
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