Barry B, first of all, be sure that some of your savings account continues to serve as a liquidity fund (I hate to call it an emergency fund, but that is one of its functions); I would suggest you leave enough cash to cover to 3 to 6 months of your basic living expenses. At that point, the rest can be invested for longer time periods. If you want additional retirement savings, the 457 plan is a great option that will defer (not avoid) taxes on current income, but contributions will affect your current cash flow. As far as funds go, I can't make specific recommendations but try the Vanguard and T. Rowe Price Web sites, which have tons of good information on investing, the nature of investment risk, and of course, low cost funds.
I'd like to welcome Chad Germann to the chat room
Chad, here's a question for you from Kenneth
Kenneth, low duration bond funds do help protect principle but they do not provide much protection against inflation. Even a small allocation to REITS and large cap stocks can make sense at age 85. Without knowing your situation it is difficult to advise, so please look for a good fee only advisor in your neighborhood.
Francine, here's one from Martha
Francine, here's another question from Glenn
Glenn, REITS are actually alternative investments that don't fall into either the stock or bond category. Bonds can be a riskier investment than most people realize if interest rates go up, thus you might want to consider using part of the money that you have in bonds toward a REIT investment. However, without a LOT more detail, I cannot recommend this to you. Perhaps you should meet with a fee-only financial planner who can analyze your whole picture and give you a specific recommendation. Lastly, you are very welcome. It's my pleasure to be able to share some knowledge. :)
Glenn, Yes REITs are classified under the stock portion. I typically will use 5-10% in REITs depending upon risk tolerance and the return we are targeting.
Chad. Here's another one for you from RetireYoung
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.
Thanks, Pat. When you're ready, here's one from Carolyn
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.
Francine, here's another question from Luis
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