Retire young, Vanguard.com has several calculators you can use. Regarding the part-time income you really only need to be concerned with how much you plan on withdrawing upon early retirement. And how much you will need to withdraw once you are fully retired. Typically if your portfolio is earning a modest 7% then a safe withdrawal rate is 3.5% As you get older this % can increase slightly.
Carolyn, that's not an easy question to answer. I'm glad to see that your husband is maxing out his 401k. Given your age, you have a long time to add to that investment as you go along - congratulations on starting to consider this issue at this point. The answer to your question hinges on several variables - mostly having to do with the standard of living that you would like to have now, and once you achieve financial independence. For example, if you have children, do you want to help them with college (i.e. putting money away in a 529 plan)? When do you want to retire? Do you want to downsize your home or move? You might want to look at the retirement calculator on the Vanguard Web site to get at least a basic answer. I would highly recommend working with a fee only advisor to get you started on a long term road map that is tailored to your particular situation!
Steve, here's a question from Willie
Willie: That's a bit hard to answer without knowing a lot more about your situation. But assuming this money is just the portion of your overall asset allocation that you want to invest in dividend-paying stocks, I would lean towards the ETF or a well-managed mutual fund investing in dividend-paying stocks unless you have extensive experience in selecting and investing in individual securities.
Luis, I would need to know more about your situation to answer this. Do you have a business established for your freelancing? If you have one, there are other options available for investment vehicles that are not available to individuals and where you could contribute more than the limit imposed on IRA's. Such things as Solo 401k plans could be considered in this case.
We have a follow-up for you from Luis
Luis, are you actually an employee who gets a W-2 at this time of year or do these people pay you using a 1099?
Luis, then you ARE an employee. Your company does not offer any retirement plans?
Luis: Do you receive a W-2 or a 1099 from your employer? If a 1099, then you would seem to be self-employed for the purpose of taking advantage of the additional retirement savings vehicles previously suggested.
Luis, Thanks for your response. As I understand it, you probably get multiple W-2's each year. I understand your limitations as you are not able to invest in the retirement plans of these companies. That's why I suggest starting your own firm and having these companies pay your firm rather than you. But, the big downside to that is that you are probably increasing your liability over that of an employee by doing this and should have appropriate insurance in place. Since this is more of a legal issue, I strongly suggest discussing your situation with an attorney as we are definitely venturing out of my area of expertise. Best of luck to you!
Luis, to clairify further, I'm not making a specific suggestion about starting your own firm but just wanted to point out that this would offer you more investment options. Again, a lawyer would be the best one to help you here.
No problem, Luis. Best of luck to you!!
Thanks, Francine. Here's another question for you from curtis jennings
Curtis, some of what you wrote is unclear but I'll try to answer you generally. I think that you have $130,000 in cash and some stock that, if sold, will result in around $12,000 in capital gains (assume long term) that you will need to pay. Also, I don't know how much money you have in these stocks. Assuming that you have no other investments but are able to make ends meet without accessing this money, there is no need to start spending it. If you feel that you'd like to sell some of the stock, I suggest that you meet with your accountant or a fee-only financial planner to determine the effect that selling some or all of the stock will have on your taxes, if you can cover the taxes on the sale, if the gains would be taxes at the long term (lower) or short term rate (higher), etc. I hope that this helps you a little.
And Chad, when you're ready, you can take this one from Arkin
Arkin, Rentals would take the place of REITS if you were looking at typical asset allocation models. Rentals can be great income supplements if you don't mind working the business (managing rentals should always be considered a business) and if they are generating significant cash flow.
Arkin, A fee only adviser would be able to help you plan out your retirement income, ie. how much from rentals and how much from your remaining portfolio.
Pat, you can take this one from Davis
Davis, congratulations on your intention to start out. First place to start would be your employer's retirement plan, if it's available. I would recommend contributing the maximum to this plan, whether or not the employer matches. If there is no employer plan, or you are self employed, there are other options. Second priority is to establish an emergency/liquidity fund equal to about 6 months of your normal expenses (not counting things like vacations). Finally, start a regular investment plan, perhaps with a good low cost mutual fund company such as Vanguard or T. Rowe Price. How much? Well, commit to a monthly dollar amount that won't impact your lifestyle (although it should hurt a bit - you will get used to it!), and set it aside FIRST, before pay your other monthly bills and carry on your normal spending (also known as "paying yourself first"). This should get you off to a good start!
Steve, you can take this one from Jacob
Jacob, I am a fan of the Roth too. If you are maxing your 401k and IRA then you may want to build up additional savings in a taxable investment account. This money could be used for anything since it is not tied up in a retirement account. That way you would have money for a house, car, emergency, or retirement.
JacobC: Congratulations on what you're doing, and for how far you've already come. I'm a big fan of Roths, both IRAs and 401(k), so I would suggest that you continue doing what you're doing. I would also do in a Roth rather than a merely tax-DEFERRED account any further retirement plan investing. As to whether to contribute even more to the Roth 401(k), however, that depends on whether you have an adequate emergency fund, and a fund for future car, house, etc purchases. If not, I think I might want to build those up first rather than tying everything up in a retirement plan.
Pat, here's another question for you from MM
MM, I"m not sure what you are referring to, but the usual reason that the Net Asset Value (NAV) of a fund goes down is because up to the date of the distribution, the distributions that have been made by the fund's holdings are held by the fund and are part of the calculation of the fund's NAV; after distribution, the NAV falls by the amount of the distribution per share. The NAV of a mutual fund is not the same as the value of a stock and those post distribution declines do not have the same significance as a drop in the price of a stock (although stock prices are a factor in a fund's NAV, in the long run). Mutual funds do not "go under," or if they do (due to administrative reasons) your investments are not going to disappear. A mutual fund is a way to pool ownership of stocks or bonds with multiple investors - if a mutual fund fails, the holdings are usually "adopted" by another fund family; those holdings belong to you and all of the other shareholders, not to the fund, and are not available to creditors. I hope my answer addressed your question.
Chad, when you're ready, here's one from Peter
Peter, What we do at our office is rebalance whenever a category is 5% overweight. Then we buy which ever category is underweight. Very similar to what to stated.
Peter, Fair values can be subjective, so you typically want to have a plan for what should be invested in each category. Then it is easily noticeable when a category becomes overweight and needs attention.
Chad, we have a follow-up for you from Peter