Zan, you are correct in your thinking about financing early retirement. There are withdrawals available in equal installments as early as age 55. But, since you have time to plan, I would begin thinking of building up your taxable assets.
Zam - Gotcha. Well you will have the ability to take distributions from your 401k at 55 if you do it right. Otherwise, yes, putting money in a taxable account to bridge that gap might be necessary.
Zam - Sorry, I only feel qualified to answer a question you didn't really ask. I'd suggest that 12 month of emergency reserve might be excessive. Is your job particularly volatile? In most cases, I'd suggest a 6 mo reserve gets the job done. Concerning the $100k invested in preferred stocks and exchanged traded debt, I'm not much of an expert in these areas but I'd suggest both tools can be part of a diversified portfolio -- just keep your allocation between asset categories appropriate.
I agree with your thinking on paring back and taking some profits. You are never wrong selling with a profit. Maybe shifting to shorter maturity bonds in a managed fund, vanguard and PIMCO are two good companies
No such thing as a dumb question!
Here is a question from Autumn: My hubby and I have two baby girls, very little savings and less than $10k in retirement each. I know - yikes. We're trying to get on a better plan - and part of that was that we just purchased a whole life insurance policy, to double as life insurance for the girls in case something happened to us, and also as a type of savings account. We were told the insurance company paid dividends into the account and that we could access the "cash value" of the plan down the road if we needed to, to buy a house or whatever. Now come to realize that that money would be loaned to us at an 8% rate - essentially they're loaning us our OWN money at a really high rate. Did we get sold a bill of goods? How do you feel about whole life policies for someone in our age bracket and situation? The monthly cost eats up about half of monthly budget for savings between retirement, college and life insurance. We want to make sure we;re putting our money in the right places. Would you recommend canceling the policy, getting cheap term life insurance and putting our money into IRA's or mutual funds instead? Thank you for your help!!
Gwen, it is always a good idea to explore all of your options. I have been in this business for 28 years and still feel as though I am learning, so going into investments or being a landlord may not earn you any money at all, so that is another advantage of working for a steady income. Good luck no matter what your path.
Gwen - That is a pretty broad question. If you are looking at becoming self-employed, you might speak to your accountant about the tax implications of doing so. Additionally, while self-employed individuals don't get a retirement account match from an employer, they may have the ability to contribute more to a retirement account geared specifically for self-employed people (such as a SEP or a solo 401k) than can be contributed to a 401(k).
Just got this in: If I work for myself and collect a 1099, can I contribute to a Roth IRA since the money isn't post tax?
Autumn, you are very smart to look at the small print in your policy. I recommend applying for term insurance at selectquote.com. Do not surrender the whole life policy until your are approved for the term. I also would invest the difference for the things you mentioned in your email to Lon.
My understanding is that any "earned income" qualifies for ROTH contribution. Earned income can be 1099 or W-2
Autumn - I'm certainly a fan of the "buy term and invest the difference" strategy. However, you now need to look at the whole life policy and determine whether it is worth cancelling the policy (it probably is). As you might imagine, this is a pretty complex subject, so I'd encourage you to go to www.NAPFA.org and find a fee-only financial planner in your area who can examine your options. Fee-only is critical here so you can get advice in your best interest.
Most certainly -- 1099 income can be used for Roth contributions. It can also be used for great retirement accounts like SEPs and Solo 401ks.
Zam - Cool. I think you are on a good path.
Here's a question we see a lot from our social media users: When you leave a job, what options do you have for your 401(k) with that company? Which option is the best?
When leaving a job with a 401k, you can either leave the funds in the 401k as is, you can roll it into an individual retirement account (IRA), or you can frequently move the funds into the 401k with a new employer. Evaluate the investment options in your 401k plan. Are there plenty of tools to diversify? Are the investment options inexpensive and high performing? If so, there may not be a need to move the funds. However, in most cases there are more investment options available within an IRA, where you can surely build a diversified, high-performance/low-cost portfolio.
You can leave it there, move it to an IRA or see if you can transfer it to your new company. You need to look at the options available with all three ideas. Do the have large fees, good investments to choose from? In NC, there is the Bailey act which means that any 401(k) or 457 plan's withdrawals are not taxed by the state. So look at all options, the IRA is the most flexible.
And, it looks like that's all we have time for today!
Thanks Deborah, thanks Rebecca, and thanks Kiplinger. Thanks for all the questions as well.
Gwen, roll the funds into an IRA first, then convert the IRA funds to Roth funds.
A big thank you to Debbie, Lon and Pat for taking the time to be with us today. We got some great questions answered.
Thanks again everyone. Lon Jefferies of Net Worth Advisory Group in SLC, UT, signing off.
Be sure to join us again for next month's chat, Thursday, August 15. See you then!