This is my first post. I have been reading so many wonderful posts and replies that have been really helpful. THANKS to ALL!!
I guess my situation is that I am working toward a somewhat early retirement extreme.
I am 48 years old and single (no kids either). I own my home outright. (paid off mortgage very early) No car payments, credit card debt or really any debt. I have always been frugal and spend money wisely. I would love to escape the 9 to 5 grind. I would be happy not working or just working part time, but there are always health benefits to consider.
I lost my job recently, but I am now working again full time at just under $40,000.00 per year. (pay cut)
I could probably live on 15,000.00 per year comfortably. I would rather not have the best of everything and would rather do without the latest gadgets, fancy meals, new cars, paying for services for things I can do myself and so on. I would rather live simply (but comfortable) without having to work endlessly to pay for items that are not really needed.
I am saving like mad, since Sept of 2010, I have saved at least $17,000.00 from my pay. I plan on keeping this savings rate going.
I suppose that I will need to work at least another 5 years, but probably 7 to 10 years before I can pull the plug?
I have about 50,000.00 each in an IRA and a ROTH IRA. I have about 112,000.00 sitting in a money market account. My credit union has a 2.30 CD for 3 years. I am tempted to do open the CD with the 112,000.00, but wonder if there is something more suitable or would offer a nicer return with low risk? I am not very savvy with investing and I think that I would be interested in a safe, slow but steady way to invest. I have a terrible feeling that we are due for another market "correction", so I keep putting it off. Does anybody have any suggestions or comments for investment ideas or as far as where I stand?
Thanks for any help!!
I am on the right track, but......
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Freedom_2018
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http://www.treasurydirect.gov/news/pres ... atespr.htm
Beats your (and my) Credit Union
I have a similar dilemma : where to park the money
Beats your (and my) Credit Union
I have a similar dilemma : where to park the money
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George the original one
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You are looking good, keep it up and you'll be free!
Seconding what George said, the risk of inflation is far too high to justify the measly CD rates now...
I agree with you that the market is looking prime to crash again.
I have my money in the permanent portfolio and would recommend it above anything else I have found so far... We have a thread in here on it, and the crawlingroad blog and forum is probably the best single resource on it.
Bogle allocation of 65% stock and 35% bond is much more popular than PP. But I find it much riskier.
Seconding what George said, the risk of inflation is far too high to justify the measly CD rates now...
I agree with you that the market is looking prime to crash again.
I have my money in the permanent portfolio and would recommend it above anything else I have found so far... We have a thread in here on it, and the crawlingroad blog and forum is probably the best single resource on it.
Bogle allocation of 65% stock and 35% bond is much more popular than PP. But I find it much riskier.
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jacob
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$15,000/yr means needing market invested assets on the order of $375,000 to $500,000. If you have $162,000 and you save 12/9*17,000 = 22,666/year, you are a decade off.
From an investment perspective, the only reason to hold cash is if you're speculating in or hedging a market drop. You definitely need to work on either learning how to invest or getting the right emotional attitude towards it (these are the two things needed, intellectual and emotional). I might even go so far as to call it a duty for those who hold substantial amounts of money. It is also worthwhile: The case can be made that most people don't have enough money saved to worry about investing and thus should just go with a fund of some sort. However, your assets is your leverage on your knowledge. So if you can add 1% at your level, that's $1600/year and that could be a pretty good return on your time, whereas for an average person with only $20k saved, that would be $200/year and probably not worth it.
Maybe there's also a way to drive your costs lower. Using your numbers, for each $1000/year outlay you can substitute with something else (garden, diy, mechanics, ... ) you can retire 1-1.5 years earlier.
From an investment perspective, the only reason to hold cash is if you're speculating in or hedging a market drop. You definitely need to work on either learning how to invest or getting the right emotional attitude towards it (these are the two things needed, intellectual and emotional). I might even go so far as to call it a duty for those who hold substantial amounts of money. It is also worthwhile: The case can be made that most people don't have enough money saved to worry about investing and thus should just go with a fund of some sort. However, your assets is your leverage on your knowledge. So if you can add 1% at your level, that's $1600/year and that could be a pretty good return on your time, whereas for an average person with only $20k saved, that would be $200/year and probably not worth it.
Maybe there's also a way to drive your costs lower. Using your numbers, for each $1000/year outlay you can substitute with something else (garden, diy, mechanics, ... ) you can retire 1-1.5 years earlier.
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George the original one
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Correct me if I make a mistake in this summary:
$50k in IRA, can't touch until age 59.5
$50k in Roth IRA, can withdraw donations anytime
$112k in cash, taxable account
_____
$212k total
$15k per year desired income
So total needs to be $375k to meet 4% SWR, so you need to save $163k more, which is about 8-10 years worth of saving at your current rate (target may rise with inflation).
But being a bit more aggressive with your investing will get you there sooner as 8-10 years is within the timeframe that compound interest begins making a difference.
Here's what I'd suggest, considering that you're very risk averse:
- Leave $2k in your checking account
- Put $15k into the CD
- Buy $5k worth of savings bonds or T-bills
- Put the remaining $90k into a DOW index fund so that you're getting at least average market performance with some dividend income. If you want to wait a month because you feel like the market is going to correct, do so, but don't wait any longer than that.
That gives you 1.5 years of cash reserves, average 2.7% yield on the DOW index stocks (14% higher than the CD), and a chance to participate in stock market returns of the largest companies.
If you were willing to pick a select basket of dividend growth stocks, you'd outstrip inflation and potentially generate an average yield above 4%. Doing so would mean you'd need to shift your focus from the value of the portfolio over to the income of the portfolio; not everyone is comfortable doing so.
$50k in IRA, can't touch until age 59.5
$50k in Roth IRA, can withdraw donations anytime
$112k in cash, taxable account
_____
$212k total
$15k per year desired income
So total needs to be $375k to meet 4% SWR, so you need to save $163k more, which is about 8-10 years worth of saving at your current rate (target may rise with inflation).
But being a bit more aggressive with your investing will get you there sooner as 8-10 years is within the timeframe that compound interest begins making a difference.
Here's what I'd suggest, considering that you're very risk averse:
- Leave $2k in your checking account
- Put $15k into the CD
- Buy $5k worth of savings bonds or T-bills
- Put the remaining $90k into a DOW index fund so that you're getting at least average market performance with some dividend income. If you want to wait a month because you feel like the market is going to correct, do so, but don't wait any longer than that.
That gives you 1.5 years of cash reserves, average 2.7% yield on the DOW index stocks (14% higher than the CD), and a chance to participate in stock market returns of the largest companies.
If you were willing to pick a select basket of dividend growth stocks, you'd outstrip inflation and potentially generate an average yield above 4%. Doing so would mean you'd need to shift your focus from the value of the portfolio over to the income of the portfolio; not everyone is comfortable doing so.
As an example, realize that if you were to put your $112k into a 2.3% CD for 10 years, and if inflation is 3.6% for the same ten years, at the end of it all you'd have around $93,000 in purchasing power-- after inflation and federal taxes (I didn't factor in state taxes).
Another thing to consider with the CD is that the earnings are taxed as income, not capital gains-- so you're paying more in tax on your earnings, compared to many other investments. If your goal is to hold some portion of your money in a CD, you may be able to get around this problem by holding the CD in your Roth account.
I understand that the CD seems safe. No one wants to lose a lot of money. If you are very risk averse there are instruments such as stable value funds that might seem appealing to you. You also might consider holding TIPS in your retirement account.
Another thing to consider with the CD is that the earnings are taxed as income, not capital gains-- so you're paying more in tax on your earnings, compared to many other investments. If your goal is to hold some portion of your money in a CD, you may be able to get around this problem by holding the CD in your Roth account.
I understand that the CD seems safe. No one wants to lose a lot of money. If you are very risk averse there are instruments such as stable value funds that might seem appealing to you. You also might consider holding TIPS in your retirement account.
@B: Some people, myself included, think that the market is too high and none of the underlying problems from the 08 crash have been fixed... I do not think the doubling of the stock markets in the last 2 years is in touch with reality.
I'm certainly not sure if and/or when but a double dip, with new lows, seems like a possibility... What event would start it I don't know.
I think equities, and even commodities, might nose dive again and the USD will have one final surge...
But I really don't know, that's why I am happy to hedge my bets in the permanent portfolio! ;0
25% cash (60% USD), 25% gold (25% SLV), 25% LT bonds, 25% equities (SPY, VTI & 25% international)
I'm certainly not sure if and/or when but a double dip, with new lows, seems like a possibility... What event would start it I don't know.
I think equities, and even commodities, might nose dive again and the USD will have one final surge...
But I really don't know, that's why I am happy to hedge my bets in the permanent portfolio! ;0
25% cash (60% USD), 25% gold (25% SLV), 25% LT bonds, 25% equities (SPY, VTI & 25% international)
Thanks so much for the replies to everyone here! Yes, I was thinking that putting everything in a CD is really not that beneficial at all. (but did not realize how poor of a choice it was)
@George the master: Yes, you did summarize my situation correctly and thanks for spelling out a detailed game plan. I am going to look into these and other suggestions made here.
(thanks again to everyone)
I am still concerned with the timing, as the market seems to be or is artificially high right now. I realize that I really have to to take some risk to get a better return but, things are very unstable right now.
@George the master: Yes, you did summarize my situation correctly and thanks for spelling out a detailed game plan. I am going to look into these and other suggestions made here.
(thanks again to everyone)
I am still concerned with the timing, as the market seems to be or is artificially high right now. I realize that I really have to to take some risk to get a better return but, things are very unstable right now.