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Cash balance retirement account

Submitted by tberg@kerrsurge... on 1 January 2007 - 7:12pm

My company funds a cash balance retirement account. The yield is indexed from t-bills, I believe. The rate of return is actually quite low. Where would be the best place to put this? The other part of my retirement account has my 401k and Roth IRA. Lumping the cash balance in the retirement would give it a much higher rate of return than it should have. The cash balance is around $4k a year, with the 401k and Roth IRA around $18k per year, so the cash balance is not insigificant.

Should I just create a portfolio for the Monte Carlo simulation that has the weighted yield, i.e. it would include a cash % equivalent to my cash balance retirement account?

Is there a way to do this without running a Monte Carlo? I am just learning and it will take awhile to get confidence to try the MC.

Thanks,

Chris

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Submitted by Laurence Kotlikoff on 3 January 2007 - 1:33am.
1

Hi, I think the best way to handle this is to simply treat the receipt of income in the future from this plan as a taxable special receipt. For example, if you are 46 and you are going to leave the firm at 64 and take the cash balance in a lump sum, do a calculation to determine how much the cash balance at age 64 will be and enter that amount as a special expenditure occuring in the year you are 64. best, Larry

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