Kyle, some people find it useful to set up special savings accounts for particular goals or for "big bills" that come only 1-2 times a year, in addition to having an emergency fund. It's a good way to manage your cash flow, which is really the key to successful money management. Many online savings accounts allow you to divide up accounts for particular goals.
Kyle, I would recommend building up that savings account for the forseeable future. If you find a steady job and have surplus cash flow to save, the Roth IRA is an excellent vehicle. You don't want to set the habit of tapping into your Roth for living expenses so err on the side of building your emergency for a little while.
Here's a question from Craig:
I also agree with Delia's "bucketing" strategy; I find it far too easy to tap a general savings account that is available for all needs.
Craig: The fee-0nly RIA may not be a member of NAPFA. Advisors join NAPFA as members. An RIA/CFP can work with you if in another state. He/she may or may not wish to do that, as states have different RIA registration requirements.
Craig, not all fee only advisers choose to be NAPFA members. NAPFA members are committed to the financial planning process and provide fairly comprehensive services; RIAs are investment advisers and may or may not offer financial planning as well (the offer of financial planning is a requirement for NAPFA membership). An out of state adviser can take you as a client, as long as they meet your state's requirement for registration - and most states have a "de minimis" rule which allows an out of state advisor to take a certain (low) number of clients in that state without registering as an adviser in that state.
Checkman, that's not a "no brainer" so here are some things to consider: a pension at least guarantees you a certain amount of income - but it does not go up by inflation, and it goes away at your death (unless you have a spouse who can continue the benefit) - so, for example your kids won't get the balance. Taking the lump sum (and rolling it into an IRA) then means that you are responsible for investing it for the long term - and you have more flexibility with occasional withdrawals if needed from time to time. So, you might want to consider leaving some of the money in the pension, and investing the rest - to have some guaranteed income, and also a pool of money that will keep up with inflation and can be passed to heirs or your spouse.
Checkman: Usually it's better to take the pension instead of a lump sum. If you take the lump sum decide whether you will invest, not spend immediately the money. Will your investment do better than the pension over time.
Checkman, I agree with Katherine. I've seen too many clients blow through a lump sum if they can't control their spending, or because of emergency needs.
Checkman: Can you buy an annuity in the private marketplace with a higher payout than the pension? You can check that by getting quotes for immediate annuities. If not, will the pension be subject to the credit of your employer? Are you OK with that? If the answer is "maybe", a compromise is to take the lump sum and leave it very conservatively invested. You can always buy an annuity or a series of annuities over time.
Tannon: You are pretty diversified with those funds. I do find some folks just like to follow and buy certain stocks; if you feel you want to have a stock fund it certainly is ok. You will have to watch the stocks closer than the mutual funds and that's what many people don't want to be bothered with.
Tannon: if you want to buy individual stocks, you might put them in a separate account and consider them to be your "science experiment." I feel that adding individual stocks to a mutual fund portfolio adds concentration, not diversification, so be careful out there!
Tannon, It sounds like you have a great start. You have your stock exposure through funds, there is no need to buy individual stocks as an investment strategy. The Total Stock Market funds generally are dominated by Large Cap stocks. Over time, you can consider adding US and Intl. Small Cap companies. Within bonds, it would be wise to dradually diversify into Intl Bonds and TIPS over time. Vanguard is the king of low-cost investing and now has funds in all the areas I mentioned. There are lots of other options as well.
Just want to make sure everyone saw checkman's follow up below
Tannon: Before you add an international bond fund to the mix look at the break out of types of bonds in the total bond fund. It's possible you already hold international bonds.
Here's another from wreckon:
Checkman, check out the expense ratios at Vanguard. They are as low as is available but give you an idea of what is possible.
Checkman, Adam makes a good point. But actively managed funds will be more expensive than index funds such as many of those at Vanguard.
Though that is an option I wouldn't necessarily recommend it. You could increase your contribution to the Roth 401k.
Wreckon, consider this: are you willing to pay taxes out of current resources to cover the income tax on the conversion? And the conversion will increase your taxable income for that year.
Judi, we have a real dilemma due to our current economic situation: the rates on "safe" savings (liquid and insured) are practically zero right now. To do even slightly better (such as , in a short term bond fund) requires taking more risk than you would want to incur for liquid savings. If and when interest rates rise, you are better off in your low paying liquid account, as the rate will go up but your balance won't be affected. A bond fund will likely experience a decrease in value if interest rates go up rapidly. So, we just have to hang in there and live with these low returns.
Adam had to duck out. Pat, Katherine or Delia, any thoughts for Judi?
You could look at www.bankrate.com to see if there are higher yielding savings accounts.
Judi, I agree with Pat. There are other online FDIC-insured savings accounts that pay up to 0.90%, but that's the best you're going to find right now. Try Barclays savings US or Sallie Mae.
Pebble, I prefer to roll over the 401k so you can have more investment options with lower fees. Remember that there are expenses involved in a 401k that employers often pass along to their employees.