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Everything posted by EdLaFave

  1. I’m too lazy to type much, but I got Vanguard and Fidelity added to my wife’s district. Nobody helped me and I wasn’t even an employee. This is achievable. I can help.
  2. I’m confused because I don’t know what an aggregator is and I don’t know what GWN stands for. Didn’t take the time to google, sorry. I’m also confused by you saying that you already have a SB account, but SB isn’t an approved vendor. It would seem you couldn’t have the former without the latter. Aspire is an entirely different vendor that is separate from SB.
  3. Thanks. I’m trying to find time to improve the software, the two big ones: 1. Model social security and possibly pensions. 2. Instead of just calculating a specific outcome if you follow a specific strategy, I want to determine the best outcome by having the software examine a variety of different strategies (take SS early, go beyond the 0% bracket on Roth conversions, etc). ...I haven’t gotten into the Mega Backdoor Roth. My software models Roth conversions. I personally only fully understand the regular Backdoor Roth, I haven’t had the energy to learn the Mega Backdoor Roth yet (maybe never will).
  4. ...a few additional details after looking through the data more: In those first 40 years, thanks to Tax Gain Harvesting, you were able to erase $735,849 worth of capital gains from our taxable account. That represents $1,827,414.26 worth of sales/income. In those first 34 years, thanks to Roth Conversions, we were able to move $290,164.81 from our Traditional account to our Roth account without paying any tax. This demonstrates the immense value of Traditional investing. RMDs generated very little tax, which once again demonstrates the immense value of Traditional investing. $567,206.40 worth of RMDs were issued. $21,130.83 worth of tax was paid, effective rate is 3.7% Two years RMDs didn't generate any tax thanks to the standard deduction. Fourteen years RMDs pushed us into the 10% bracket. Tweleve years RMDs pushed us barely into the 12% bracket. I'm not breaking news, but that Taxable account is a huge tax drag! By our late 70s (just a few years after we started paying taxes for the first time), most of our yearly tax bill is caused by the dividends being produced. By the end we've paid $108,400 due to qualified dividends and $30,235 due to unqualified dividends...that represents 87% of all the taxes we paid! Obviously the ever increasing dividends are expensive, but they have secondary effects. It lessens our ability to perform Roth conversions, which means our RMDs are larger, which means we pay more tax. It also lessens our ability to Tax Gain Harvest (which didn't hurt us much in this hypothetical run). All of that is to say, the taxable account may (in truth) account for more than 87% of the taxes we paid if you include the secondary effects.
  5. I've continued to study how one might minimize taxes in retirement (Part 1 and Part 2). I'm writing software to model the strategies I've previously laid out and eventually to optimize them. The software isn't as sophisticated as it'll eventually be, but it just provided its first bit of interesting data. Suppose the following: You retire at 37 years old on Jan 1. You'll die at 100 years old on Dec 31. You're single. You've got $1,144,198.89 (77.37% taxable, 18.15% traditional, and 4.48% roth) You spend $35,000 per year on living expenses. You follow the basic steps I previously described (no fancy optimizations). Notable results (bugs are possible, I still need to test the software, hopefully this data isn’t errroneous): The first 34 years (without RMDs) are very good to you. You don't pay a single cent in taxes thanks to the 0% capital gains rate! Your balance is now $2,884,664.16 (52.85% taxable, 10.67% traditional, and 36.48% roth). That balance is quite nice to look at, but notice how much the Roth account grew thanks to Roth conversions. Now you're 71 and the next next 30 years (with RMDs) are pretty good to you too. You pay taxes every year. The first 2 years your RMDs are below the standard deduction, but the unqualified dividends from your taxable account push you into taxable territory. You continue to enjoy the 0% capital gains bracket though so no taxes on qualified dividends and you keep Tax Gain Harvesting. You pay less than $500 in tax each year. The next 4 years your RMDs exceed the standard deduction, but you continue to enjoy the benefits of the 0% capital gains bracket. You pay less than $800 in tax each year. Thanks to increasing RMDs and increasing dividends from your taxable account, you're no longer able to take advantage of the 0% capital gains bracket (Tax Gain Harvesting has come to an end after 40 years, not a bad run). The next 2 years your Ordinary Income (RMDs and unqualified dividends) keeps you in the 10% tax bracket. The next 22 years your Ordinary Income (RMDs and unqualified dividends) keeps you in the 12% tax bracket. By the time you're 81 years old your taxable account is a runaway train and you're paying more tax due to qualified dividends than ordinary income (RMDs + unqualified dividends). When everything is said and done: Your portfolio is worth $9,763,150.34 (52.13% taxable, 1.28% traditional, and 46.59% roth), basically the traditional's decrease became the roth's gain. You avoided taxes entirely for the first 34 years. You paid $159,766.00 in taxes during the final 30 years. Taxes started at just $399/year but grew to $12,372/year. Taxes averaged $5,325.53 in those final 30 years. Tax growth was mostly driven by the ever increasing dividends thrown off by the taxable account and not by the fact that the RMDs tended to increase year over year. Since our ordinary taxes eventually bumped into the 12% range, it may be worth experimenting with doing Roth conversions in the 10% bracket in the years when we're leading up to the 12% bracket...that may prevent us from reaching the 12% bracket and that might increase the value of our accounts? This is where a simulation is helpful. 100% of capital gains tax was due to dividends...I'd have to look closer to see if any taxable sales (i.e. the tax gain harvesting) was used to pay bills, but we certainly didn't have to sell taxable shares that would be taxed in order to pay bills. We never had to tap into the Roth Account at all. A few notes on the particulars of the software (some of which introduce small/negligible inaccuracies) that was used to calculate these results: It uses inflation adjusted dollars (2018 dollars). It pretends RMDs are issued on Jan 1. It pretends that dividends are issued all at once on Jan 1. 1.93% of initial taxable balance are dividends. 83.85% of dividends are qualified. It attempts to Tax Gain Harvest right after those dividends are issued. It assumes living expense will remain constant at $35,000 every year. It pays all of the living expenses for the year right on Jan 1 after Tax Gain Harvesting. It pays the tax bill right on Jan 1 even though it isn't due until April of the following year. It reinvests the surplus in the taxable account right away (on Jan 1). It assumes a steady 5% real return every single year. It models RMDs. It does Roth Conversions every year as long as doing so doesn’t generate any taxes. It assumes the tax code never changes (2018 tax code). It does not include social security or pensions yet.
  6. I really don't like the sound of that. I hope he is ok.
  7. Now this is the classic Security Benefit experience that I’ve gotten used to! I can’t give you definitive answers, but I suspect you could rollover to NEA DirectInvest and they’d make you pay the surrender fees. The difference in fees between Vanguard and NEA DirectInvest is quite small. If it were me I’d choose whatever route is easier. Vanguard may even be preferable if you want an all-in-one fund because NEA DirectInvest doesn’t offer a reasonably priced one while Vanguard does.
  8. Some of them do. That is a totally valid reason to switch. One or two basis points (0.01%) isn’t a huge deal, but it is something. I’ll be lazy for a bit. I’ll hope Vanguard lowers the Mutual Fund shares. I’ll also continue to monitor the 0% funds from Fidelity.
  9. @krow36, If you @ somebody then I think they get an email too, no?
  10. My laziness meant that I didn’t want to take the time to learn about spread/bid/whatever. Mutual funds just seemed easier...never invest in something you don’t understand. My conservative nature sent me towards mutual funds because I think they can be converted to ETFs, but not the other way around. As long as you buy and hold instead of day trading ETFs then it really doesn’t matter.
  11. @allegory, if you’re still around, how did things work out?
  12. You didn’t specifically ask, but I always feel obligated to point this out. My local state university (which I graduated from) charges about $6,300 for a year of graduate school. If you were to get a 4 year (undergrad) computer science degree from them, you’d start off earning 75k or so and you’d max out around 150k (not sure about a graduate degree, probably not much more, maybe 2k). So I encourage everybody to look at the finances behind education and a 24k loan for a year of graduate school seems like a lot. I’ve never sought to borrow money from my retirement account, but I’ve read that it’s a terrible idea. You’d have to do the research to see how cheaply you could borrow the money from every option available. I suspect this equation also depends on personal information like your credit score and income. I also want to point out that when I went to school, I was able to get relatively low interest rate loans and I believe some of them didn’t begin charging interest at all until 6 months after I graduated. I tend to have quite a few socialistic tendencies, but I too believe in the principle that an individual should make sure their retirement is completely secure before they start funding other people’s expenses. This is a value judgement so reasonable people will disagree.
  13. MNGopher is right, they lowered fees by finally providing access to Admiral shares, which I guess became a moot point shortly later when Admiral shares were effectively merged with Investor shares (the lower fee of Admiral shares + the lower minimum investment of Investor shares). Andrey, I don’t know what deal your employer may have worked out with Vanguard before this change. However, I do know that before there was a $60 annual fee, Vanguard charged an annual fee per fund that you owned. I think it was $15 per fund. Charging this fee is entirely legal. While I’d like to eliminate fees entirely, it is important to realize Vanguard has arguably the best 403b in the industry, with Fidelity being their only competition (and likely the winner). Even Fidelity charges an annual fee. You’re lucky to have access to Vanguard.
  14. I’ll also be irritated if, relative to the equivalent ETF, I have to pay an extra 0.01% for VTSAX and an extra 0.02% for VTIAX. The fact that Fidelity is offering a total market domestic and international for 0%...well, that’s just salt in the wound.
  15. Get the union to let you write a recurring column. That will let you tackle specific things in manageable chunks and anybody in advertising will tell you that you need to reach a person several times before they’ll act on it.
  16. My initial thoughts subject to change over time: If it were me, I’d start the article with an info graphic that shows what percentage of real profits each vendor is expected to consume over Y years (not sure what Y should be). ...hey @Dan Otter, is their chance you could ease up on the censors for the board? I can’t use the variable “ex” and plenty of other terms like exploít The second section would quickly explain how (using the best vendor) to build a fully diversified portfolio that returns what the market returns. I might include a link to a website with more detailed information and my personal contact info. The third section would explain that folks from the bad plans like to imply that they’re financial advisors endorsed by the principal, district, and/or state, but in reality they’re sales reps with no obligation to act in your best interest. In fact, the incentive structure encourages them to act against your interests because they make more money that way. Then I’d directly refute the claim that they can predict the market, outperform the market, and protect you from downturns...I’d probably include a chart from Bogle that shows how these funds fail the market over time. Thats probably enough to use up most folks attention span. ...any math, numbers, stats should be shown in graphics, tables, etc. Paragraphs should be dedicated to more abstract concepts.
  17. Talk about bringing an old thread back to life! I don’t believe income is a factor in eligibility for any employer sponsored plans (401k, 403b, 457b, etc). Roth Conversions aren’t subject to income restrictions. Your post was vague and I could probably give you a better response if you were more explicit about your circumstances and what you’re trying to accomplish. For instance if you have ordinary taxable income in the 200k range (one time event?) then you almost certainly don’t want to do a Roth Conversion.
  18. I second everything krow said. I also want to encourage you to reform your district’s 403b/457b program. I was able to get Fidelity and Vanguard added to my district and I hope to eventually get rid of the predatory vendors. I’m happy to help you figure out how to do this if you’re so inclined.
  19. I’m pretty sure that as part of my employment termination package, I had to sign an NDA. So let’s just say I continue to hold the opinion that US corporations believe they’re in a zero sum game against their employees. At the time my portfolio was in the very lowest range where retirement could be contemplated. I was certainly emotional, but my reasoning was still entirely sound. I had an intense desire to say goodbye to US work culture forever. A couple business days later I was lucky enough to get a great job offer that would require me to start working within a few weeks. I just relaxed as much as possible and let things take their natural course and during that time my emotions subsided. For a variety of reasons I decided I didn’t want to retire just yet, and I’m happy I didn’t miss out on my current job because of an early decision influenced by emotion.
  20. That’s a great way to get rid of inappropriate investments that have racked up large gains! A 6% effective tax rate is very workable! I suppose these pensions are going to limit a lot of educators. That’s a pretty healthy income . Oddly enough, I hope not to join you in that 😀. Who knows what’ll happen with this tax code. I’m not as knowledgeable on the Republican rewrite as I’d like to be, but I’m under the impression that the tax cuts for businesses are permanent and the tax cuts for individuals are set to expire sometime within ten years of when the legislation began? Speaking selfishly, I’m not terribly worried about the tax code, but health care has me quite concerned. It would be a relief to join the rest of the industrialized world before I get too much older!
  21. I don't have time to read up on Act 5, but if you MUST have four vendors then I'd do everything you can to make sure only the best vendors are selected. I documented and ranked the best vendors I've found in the state of Florida (which is a good proxy for the nation) here. Fidelity Vanguard Security Benefit's NEA DirectInvest Aspire PlanMember DirectInvest The problem is that both Security Benefit and PlanMember have predatory plans that they push hard. If you could find a fourth vendor local to your area that could be added to Fidelity, Vanguard, and Aspire, then you might be able to entirely eliminate predatory vendors from your district. I'd use this opportunity to nip this in the bud before folks like AXA can establish a foothold and sink their teeth into people.
  22. That's exactly what I was going to say! Still, my portfolio is at an all time high in terms of profit and balance...I'm going to really enjoy this before the next downturn 🙂
  23. I guess we're putting aside structural reform, like convincing the state legislature to reform the industry itself, and focusing on helping teachers navigate the system as it is today. Under those constraints I think the solution is to copy a lot of what the sales reps do. Find people who are trusted and respected by the staff and get those people to put in face time with every teacher who is willing to listen. Do the hard work of relationship building, face to face! Dan and others have already put the resources online...you need to bring them into the fold and hold their hands. It really shouldn't be that hard. I got a good chunk of my previous office pushing for reform because the cheapest index funds they had access to were 0.33%. I left before things were sorted out, but I just got news that they're getting really low cost index funds now. I'm not even particularly personable...you just need people who really care!
  24. I'm not sure exactly how Morningstar does things---I think they adjust for expense ratios, but not for loads. Don't trust me though...I'm sure their methodology is buried somewhere on their website. Since you're asking questions about expenses, I figured I'd start by cutting right to the chase...you're going to want to purchase total market index funds that have minimal expenses (no loads and rock bottom expense ratios). I understand that you're trying to look at past performance as a way of assessing the quality of a fund and its likelihood to perform well in the future. That is an entirely natural instinct, but in this particular domain, this form of analysis isn't helpful (actually it is more likely to lead to you selecting a fund that will under-perform in the coming years). This is the bottom line...the data shows that roughly 1/3 of funds will beat in the market in any given year, but that it is exceedingly rare for a fund to consistently outperform the market year after year. A few funds have consistently outperformed the market, but it is my opinion that they were probably just lucky. If millions of people flip a coin over and over again, you're going to find some folks who flipped heads every time, but it doesn't mean they were skillful. Regardless if it is luck or skill, I know for a fact that I have no way of differentiating the lucky ones from the skillful ones, which means I'm far more lucky to pick a lucky one whose luck is set to run out. This reality was best illustrated in 2005 when John Bogle reviewed the performance of the 355 mutual funds that existed in 1970 only to find: 223 funds (62.8%) were closed before 2005. 60 funds (16.9%) lagged the market by 1% or more. 48 funds (13.5%) were within +/- 1% of the market. 15 funds (4.2%) beat the market by 1-2%. 9 funds (2.5%) beat the market by 2% or more. Now you may be tempted to conclude that the roughly 10% of funds that beat the market over those 35 years MUST be skillful. Well, when you look into the data you'll find that quite of those funds owe their overperformance to a period of early dominance and they've now underperformed for more than a decade. It's my opinion that if you could take time to infinity, rather than 35 years, you'd find that nobody could beat the market. ...I suppose all of that is to say, past performance doesn't predict future performance. I've got an Investing 101 page that links to a spreadsheet I use to see how loads and expense ratios affect returns. Others have slightly different opinions, but in my view the best way to understand fees is to ask yourself what percentage of your inflation adjust profit has the fee taken away from you. For example, suppose: Inflation is 3%. Your portfolio would have returned 6% in the absence of fees. The fees actually consumed 1.5% of your investment. Well, after inflation your return is down to 3% and if you lose another 1.5% to fees, then fees have consumed 50% of your real returns. That's a big deal! So in your particular case, you've got a 0.72% annual fee and a 5.75% sales load. Let's assume 3% inflation, 6% annual returns, and a one time annual investment at the start of each year. You can probably see that if your real return is only 3% and the sales load alone is almost double that, then for the first few years your wealth is actually going to shrink! In fact, five years have to pass before you break into positive territory: After 5 years the fees consume 90.44% of real returns. After 10 years the fees consume 61.75% of real returns. After 15 years the fees consume 51.6% of real returns. After 20 years the fees consume 46.76% of real returns. After 25 years the fees consume 44.19% of real returns. After 30 years the fees consume 42.8% of real returns. After 35 years the fees consume 42.11% of real returns. After 40 years the fees consume 41.87% of real returns. Compare that to an index fund that charges 0.04% per year and doesn't have a sales load: After 5 years the fees consume 1.39% of real returns. After 10 years the fees consume 1.46% of real returns. After 15 years the fees consume 1.53% of real returns. After 20 years the fees consume 1.6% of real returns. After 25 years the fees consume 1.68% of real returns. After 30 years the fees consume 1.76% of real returns. After 35 years the fees consume 1.85% of real returns. After 40 years the fees consume 1.94% of real returns.
  25. I didn't know financial therapist was a job until now. Maybe I need to get into it? I was first drawn to financial issues because understanding people is complicated by the fact that talk is so cheap---people lie constantly to both themselves and to each other. In a lot of ways, finances forces people to quantify what they truly value and to what degree. I'm also fascinated with the American relationship to money, which I generally regard as unhealthy. In my view, we don't treat money as a way to maximize happiness. Instead, we treat money as if it were happiness and end up treating human beings (and ourselves) as if we were objects and a means to acquire money. The psychology behind money is endlessly interesting to me. I for one am interested to see what direction you choose and why! Take your time, there is no rush. During my most recent job switch, I went through quite a range of emotions and thoughts about what I'd do before things settled into place for me...it took maybe 4 weeks for the mental volatility to settle down.
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