Retirement savings ....Yikes !

[dave1949]

Also - avoid commissions and taxes (legally, of course).
What would be the best way to do this?

Buy no load mutual funds from a low cost source like Vanguard, Fidelity or T Rowe Price. If you buy index funds as opposed to a managed fund your costs will be lower and results about the same - maybe better.

For bonds, you can use tax exempt municipal bonds, though they generally pay a little lower rate. Stock long term gains and dividends are taxed at maximum 15%. less in lower tax brackets. See link.

No Capital Gains Taxes Due For Some Investors | Bankrate.com

You can buy municipal bonds at Fidelity.com once you have an account set up there. Actually, you can do all your banking at Fidelity if you wish, including debit cards, auto deposits, etc.

I have found municipal bonds at Fidelity, but it takes some time and research. The fee is not large. I really prefer buying actual bonds over investing in a traded bond fund. If you buy a municipal bond issued by your state, for education, highways, airports, water districts, etc., the interest on those bonds is usually income tax-free at the state and federal level.

If you go muni bond shopping, watch the early re-callable dates. Many are being called before maturity; good for your state to move from 5% to 3% interest, bad for you because no matter what you paid for the bond, when it is recalled, you get the face value. Bonds paying ~4% and up are selling at a premium because they are a good alternative to fixed income CD's that are paying nothing. So, a $1,000 bond may cost you $1,075 plus the sales fee, for example. The $75 is what you stand to lose if the bond is recalled. If the recall happens before you've earned $75 in interest, you have a net loss, plus the fee to purchase.

 

[DABSGT]

[QUOTE="grsthegreat

My luck, 1 day before retirement, the govt will seize 90% of all invested money. Would be my luck[/QUOTE]

I guess it is better one day before than one day after! Would really stink left with nothing with no job. Sounds like you have my luck.

Sent from my iPad using TractorByNet

 

[newbury]

If you do plan on leaving something to your heirs, which I do, in investment terms you should be following a plan suitable to their age, not yours.

My wife inherited from her family, and that provides a safety buffer that is nice to have. We've never spent it though. My goal is to add to it and pay it forward to our two kids who are 34 and 39 now. I'm sure I could fritter it away on expensive stuff, but I would never feel like I earned it.

It won't be enough to make them "sitting pretty", but if it works out it will be some nice padding.

SWMBO's family is in the tradition of "pass it down and add to it for the next generation" which I'm trying to adhere to.

My father often accused me of hurting Lincoln. Because if I got two pennies together I'd hold them so tight Lincoln couldn't breath.

When we retired I made a conscious effort to NOT care about what we spent to avoid arguments, didn't quite work but our bank balances are climbing still.

I'm grateful that SWMBO agrees with me and seems to enjoy living a life like we are on a limited Walmart budget, while stashing the $$ away in land and home improvements.

And hopefully it will be passed down and added to for future generations.

 

[ultrarunner]

I worked in a specialty auto store as a teen... lots of the guys would bring in their classics for work...

Many were very willing to give advice and most said Real Estate... and their only regret was not starting earlier.

Bought my first home at 22 with money I had saved and sold my restored car... property was a dump, scheduled for condemnation on a 25 x 100 city lot and 700 square feet... I paid cash for it and started to make repairs...

Later I found another home in a little better neighborhood and decided to keep the first one and rent it... in 29 years... I have only rented to two families...

Always thought I would have to fend for myself... no one in my family ever had a pension and no ever retired... just slowed down.

Looking back... I should have gone into local law enforcement as 12 from my High School Class did... great benefits, retired at 51-52 with lifetime medical and pension as much as 180k... one now went to work for another agency bringing in 120k to add to his 180k pension... and I'm still clearing toilets and fixing stoves...

That said, Real Estate has been good... a lot of work with the return being equity...

I would have loved to maximize a 401k... shorty after I started working... the benefits disappeared one by one... profit share, 401k match, stock options... etc... I stopped contributing the day the match stopped.

 

[npalen]

Probably needs clarified regarding the 4% rule for withdrawing from the nest egg at retirement. Is that 4% of the remaining balance each year or a dollar amount equal to 4% the starting year?

 

[daugen]

Probably needs clarified regarding the 4% rule for withdrawing from the nest egg at retirement. Is that 4% of the remaining balance each year or a dollar amount equal to 4% the starting year?

remaining balance. And if the market truly craps out, again, for several years, you might ratchet it back to 3% just to be conservative. And if you grow your portfolio ten percent in one year, say a real bull market, then take out five or six percent; that's the time to take that nice cruise. The percentage amount is not fixed in stone, you have to reevaluate each year how to proceed. Most of us need what we pull out to live on, but just keep an eye on your portfolio values, rebalance when needed and also keep your net worth in mind.

If you have kids, the whole ballgame changes. For those of us without kids, it's much simpler. But likely a bit lonelier long term...
And if you don't have long term care insurance, which is getting seriously expensive, you literally have to think about/plan on where you are going to find $500K-$1M to pay for ten years of nursing home care. My grandmother lasted nine years totally gaga.

I put in my forty and was lucky to "get out". Thankfully my wife bought all the disability insurance she could qualify for when she was maxxing her income working seventy hours a week as a nurse, so when she became sick, all that nontaxable disability payments have helped us enormously to get by. I would still be working if she didn't have that coverage.

Between health insurance and all the other insurances, we paid out more than $30K for insurance last year. But then I'm a retired insurance guy so this is how I'm wired. But not having to worry about money, and being able to focus on other parts of living is really a good thing. And not easy to accomplish, unless you inherit a lot of money. And then, please, invest it, don't spend it.... said the grasshopper to the ant.

 

[daugen]

I just read this in Morningstar and thought it would help this thread. The most often checked out mutual funds are also the ones that
will work very well for retirement accounts, in the right mix:

Popular Fund Quotes


PIMCO Total Return 30 fixed income

Vanguard Dividend Growth 20 equity with dividend income focus

Vanguard Wellington 20 "conservative allocation" about 70/30

Vanguard Wellesley Income 20 Very conservative, income oriented, 30/70

Fidelity Contrafund 10 equity


*for "educational purposes" I added percentage amounts and descriptions to each fund, guestimating this will total about
70% fixed income/30% equity. That's my comfort level in retirement, analogous to doing 60 in the right lane, five over...
You don't want to overdrive your car... but you also need to keep your foot down on the accelerator; geezering around with 2% CD's is NOT going to get the job done.

 

[keegs]

If you have a super simple investments like Wellington or Wellesley or a Target Retirement Fund, you just sell as much as you need once a year or quarterly as desired to pay your 'salary". If you have separate stocks and bonds, you need to re-balance yearly to keep the stocks/bonds allocation constant. Sell the one that is too high to get back in balance, then sell from both to get your full yearly "salary". Reinvest dividends.

You should keep bonds in a tax advantaged account like an IRA or 401(k) to the extent that you can for tax efficiency. Remember that capital gains and dividends are taxed at a lower rate, so stocks should fill a taxable account to the extent that you can.

Up to you - some do it yearly, some quarterly. You need to pay estimated taxes quarterly.

That's why you saved grandpa's pistol. :laughing:

But seriously, you can purchase a SPIA (Single Premium Immediate Annuity). You give a pile of cash to an insurance company and they pay you a monthly amount for as long as you live. Right now with interest rates so low, it's not a good time to buy a SPIA. Also, if you want to leave an inheritance, it is not a good idea. But it is one way to make sure that you never run out of money.

Thanks T. There's some who advocate a plan that stages bond assests exclusively for distribution. So as you draw down on the bond asset you replace it with earnings from your stock portfolio over a longer period of time.... I guess the idea here being, you're likly not to take as big a hit drawing from a bond portfolio in a volatile market.

I've considered the SPIA as a way to offset the financial impact of my dealth or the Mrs. We both have small pensions that don't have a survivor benefit. We have no children or relatives with assets. This is it for us.

Another decision is whether to get some kind of LT care insurance. I think the feds, through Medicare, were trying to partner with insurance companies to come up with something but I don't think it's gotten very far. I think some insurance companies are getting out of this market as well.

It's not going to be your father's retirement....lots to consider and manage.

 

[Travelover]

Probably needs clarified regarding the 4% rule for withdrawing from the nest egg at retirement. Is that 4% of the remaining balance each year or a dollar amount equal to 4% the starting year?

The original study by William Bengen that came up with the 4% rule suggested that you take 4% of your portfolio in the first year and then increase the subsequent year withdrawals by the rate of inflation. So by example with 3% inflation you might withdraw $100,000 the first year, $103,000 the second year, $106,000 the third year....etc.

Of course in a long downturn, most of us would probably back off. Safe withdrawal rate is no exact science because there are so many variables.

Here is an excellent discussion on the subject: Safe Withdrawal Rates - Bogleheads

 

[Travelover]

Thanks T. There's some who advocate a plan that stages bond assests exclusively for distribution. So as you draw down on the bond asset you replace it with earnings from your stock portfolio over a longer period of time.... I guess the idea here being, you're likely not to take as big a hit drawing from a bond portfolio in a volatile market.

Right, there are a number of different ways to go about it, some using "buckets" of investments for different stages of retirement. To me the important thing is to keep an eye on allocations between stocks and bonds and to not sell stocks in a downturn, in fact you should really buy. A target or balanced fund will do this automatically for you, which takes some of the gut wrenching out of it.

I've considered the SPIA as a way to offset the financial impact of my death or the Mrs. We both have small pensions that don't have a survivor benefit. We have no children or relatives with assets. This is it for us.

I'm in the same boat. When I go, I told the Mrs. to put it all in Wellesley and withdraw 4% or less.

Another decision is whether to get some kind of LT care insurance. I think the feds, through Medicare, were trying to partner with insurance companies to come up with something but I don't think it's gotten very far. I think some insurance companies are getting out of this market as well.

This is a tough nut. I know people that took out LTC insurance at an early age to get it cheap and now the rates are sky high. If you drop it, you lose your discount from starting early, but if you keep paying you wonder if you'd be better off self insuring. I plan to self insure, based on average stays before death, the size of my stash and ongoing pensions and SS.

I think you are right that a national insurance policy with everyone in it would be more affordable. The people that tend to take LTC insurance out are inherently higher risk due to self selection. Medicaid is the fallback, but it can bankrupt the remaining partner before it kicks in.

It's not going to be your father's retirement....lots to consider and manage.

My father's retirement was an early death like many of his generation. That's why I left at 54.