@Denise: If you don't have any chronic health issues, we generally start with $7500/year to cover the cost of Medicare, the supplemental plan, co-pays and dental
Denise. Keep in mind that you will be covered my Medicare starting at your age 65, so if you retire before this you will need to bridge that gap. Once you are in medicare, you may need to look at what the current cost is for some of the supplemental plans available. You can do so at Medicare.gov and add the amount of one of the supplements to your retirement budget keeping in mind that is 18 years that cost will increase because of inflation
Denise, even now you can research items such as what your possible Medicare and Medigap coverage will cost, what your annual deductible/maximum out of pocket costs could be, and the cost of things that your insurance won't cover (vision, dental, hearing issues). And Maryan is right, chronic health issues can have a big impact on your future health care spending. That way you can tweak that estimate.
Good point Michael, Funding health insurance between retirement and age 65 is a big ticket "goal item" for my clients who want to retire early.
@Denise: We use a 6% inflation factor for health care costs. Also, you may be able to find a Medicare insurance broker who can help you determine the best supplemental plan when the time comes.
NotMarriedYet. One thing often overlooked are beneficiary designations on life insurance and/or retirement plans. Sometimes the former spouse is named even though the person remarried. Also, wills and estate pans should be revisited
Good point Michael! insurance policies, retirement accounts are not covered by Wills but by designated beneficiaries
@wreckon95: Why ETFs? Does your 401(K) offer low-cost index funds?
@wreckon95 - I wouldn't necessarily save outside the 401k just to get access to ETF's. They are great low cost investment vehicles, but not magical! If you are maxing out your 401k, then yes by all means start saving outside and use ETF's.
Wrekon95, an ETF trades like a stock so you can buy one at any brokerage. I suggest you use a discount brokerage and not a full service one.
Wreckon95 In most cases, you should max out on your current retirement plan before committing money to other investments. If you have maxed, then you are on the right track, Vanguard and T Rowe are two great low-cost families, with excellent historical performance. Some of Vanguard funds are less expensive than some ETFs!
@wreckon95: If you are below the income limits, you could set up a Roth IRA and use index funds in that, or ETFs
Taxpayer. You bring up an excellent more broad point about the benefit of "asset location" i.e., using tax efficient investments in a taxable (non-retirement) account. Having said this, there are a whole host of available ETFs, but do your research, because some "managed" ETFs are not as tax efficient as some "index" ETFS
Taxpayer, you are right that ETFs often have fewer "uncontrolled" tax consequences that mutual funds. Just ask anyone who had a huge mutual fund capital gain distribution this year (and there were some doozies). You may want to look at small and mid cap ETFs as those companies often pay out less in dividends. For instance VOT, Vanguard Mid-Cap Growth ETF only has a 12 month yield of .81%. It also has very low expenses of .09%. That said, this type of ETF should only be used as part of an overall diversification strategy.
Taxpayer, Bobbie brings up a good point, "growth" investments, tend to be a little more tax efficient than "value" investments. A good starting point is to look at the yield.
Honestly Bob, we take a Total Return approach and don't use ETFs. SWe use asset-class based funds and allocate, depending on the client's needs and risk tolerance, enough to fixed income and cash for 2 years of needs. Kind of a bucket approach
Bob, we believe you can generate your own income by simply leaving an certain amount in cash, (i.e., if you need $5,000 a month, leave $60,000 in cash) but then increasing your risk/return a little by accounting for the lack or return provided by cash. A product like the one you mention you mention seems a little gimmicky.
Maryann, I LOVE having 2-3 years of cash needs (total need less expected portfolio income = cash need) on hand for retirees. At the end of the year, if the market is doing well, we replenish the amount spent during the year. If the market isn't doing well, we just wait knowing that we don't HAVE to sell to cover current needs.
Bob, Maryan and I are on the same page
@Bob Buckley - someone else may correct me here, but I think you're going to get heavy exposure to financial companies in many preferred stock ETF's including the ones you mentioned. Not necessarily a bad thing but something to be aware of.
Bob, one of the things we are using now is BKLN / PowerShares Senior Loan ETF. Now, this is risky just like high yield bonds but you do get paid for taking risk as the current 12 months yield is 4.09%. They are short term notes so they should be less sensitive to rises in interest rates than high yield bonds. They also have a lower default rate and a higher recovery rate that most high yield funds. That said, this should only be a small satellite holding....a way to diversify your fixed income.
Max, in most maxing out first is preferable. But if you want to "diversify" you my consider also having an IRA. Look at the investment options in your TSP vs. something you can do on your own. If the TSP inv. options are limited, then it may be something to consider.
@Maxing out TSP - Your TSP and a traditional IRA are very similar in terms of how they are structured and taxed, so you're not getting any great benefit to having an IRA (other than investment options as Michael correctly mentioned). I would suggest maxing out the TSP in most cases.
Max, I agree with Michael. Also, consider whether you plan to keep working for the Federal Government until you retire and check out whether that account could be rolled into an IRA if/when you leave/retire
Maxing out TSP - contributing to your TSP certainly helps in terms of getting current tax reductions and saving for your future financial independence is certainly an excellent step. Whether or not you want to save in additional retirement vehicles depends on a few other things. Since you have an employer plan you can only contribute to after tax IRAs (either a regular non deductible IRA or a Roth IRA, depending on your income). But, other needs should be funded as well -such as a liquidity (emergency) fund. And I do believe in diversifying savings - for example, setting up a long term investment portfolio outside of your retirement plans, that can be used for more flexibility in the future. You can do the research, or a financial planner can help you to set up a tax efficient portfolio.
Max, Michael is correct that if your plan doesn't offer things like commodities, high yield, emerging markets, and other investments that are suitable satellites in a well diversified portfolio, then having an IRA or taxable account where you can purchase them is a good idea.
30%! Let's all give How Much I Should Put Away a big cheer!
How Much..., If you can "afford" 30% then go for it. You should max out if 30% does not get you there. This is a great idea. Save until it hurts is a good motto.
Yes, a Big Cheer indeed! I would point out that it's good to save on the taxable side, with tax-efficient investments, as well, so that your Required Minimum Distributions, starting at age 70, don't push you into a higher tax bracket
How much...30% is an ambitious savings plan! Putting it all in your TSP certainly acts as an incentive to leave it there (unseen is unspent). You might want to consider diversifying some of your savings into non retirement accounts IF you can...agreeing with Maryan.
How much, if your salary allows and you are maxing out, you may also consider a Roth IRA. A Roth allows you to "diversify" your tax burden since Roth distributions are tax-free.
You know, the wonderful thing about working with a planner is that you don't have to guess as to whether you are saving enough. Sometimes I can tell clients that they can meet all of their goals AND save less, leaving more current income for current fun.