New guy with questions

[Pale Rider]

Hello everyone. I've enjoyed reading this forum and decided to jump in.

I am 34 and my wife is 33. We do not have any children and it will likely stay that way. We have always lived well below our means and thus I think we have done a good job of saving. The only debt we have is our house, which we hope to have paid off in the next 9 months (before my wife’s next birthday … yeehah).

I have recently read several books about simplifying and retiring early. After much number crunching and contemplation, I think we could safely retire in the next 5 years if we choose. I need to do more investigation on the health care front if we get more serious. I have Type 1 diabetes, so I think health insurance will be a problem for me. I am not worrying about it too much yet, because I am seriously contemplated teaching math once I leave my engineering job which I may do as early as next year.

I was hoping to get some feedback on a couple of questions I have:

1) Currently we have about 70% of our savings is in 401k’s, Roth IRA’s, and an annuity. If one plans to retire early, is it best to keep funding these accounts or start funding non-retirement accounts? From what I’ve read, it looks like you can take early withdrawals from these account with no penalty if done right.
2) I just finished reading Your Money or Your Life. In this book, that I guess many on this forum have read, the authors recommend putting all of your money into 30yr U.S. treasury bonds for true financial independence. This is very conservative. Are there better “safe” investment choices. I know there are endless choices, but I am curious to hear some opinions.
3) Concerning my diabetes, is anyone else in a similar situation? If so, what do you do about health insurance?

Thanks for your time. Any feedback will be much appreciated.

 

[SteveR]

Welcome Pale Rider. Nice to have you here.

Short answer.

Roth.

Longer answer will come from the other folks here soon enough.

Everything in 30 year bond?
Not for me but if you don't mind the lousy rates right now, the lack of inflation protection and the lack of growth over time then they may work for you.

Diversification is your financial insurance policy.

Good luck and welcome.

 

[yakers]

"Your Money Or Your Life" is a great book--except for the part about investments. For the long term you would need something in equities to help keep up with inflation. If you want to keep it simple get a Vanguard or maybe Fidelity lifestyle or target retirement.

If you like managing your investments then there are no limits to the options. IMHO Dominguez was not served by his over reliance on treasury bonds.

 

[Nords]

Welcome to the board, Rider.

1) Currently we have about 70% of our savings is in 401k’s, Roth IRA’s, and an annuity. If one plans to retire early, is it best to keep funding these accounts or start funding non-retirement accounts? From what I’ve read, it looks like you can take early withdrawals from these account with no penalty if done right.

What Steve said. A low-cost tax-deferred investment beats a taxable account every time and there are ways to withdraw some money penalty-free. Your Roth probably costs less than your 401(k) but a 401(k) match is usually a better deal.

So conventional wisdom is to fund the 401(k) to the top of the match and then dump the rest in the Roth. If you're looking for more after the Roth then you could consider after-tax contributions to a really great 401(k), but most of them are higher expenses than a cheap (taxable) index fund.

2) I just finished reading Your Money or Your Life. In this book, that I guess many on this forum have read, the authors recommend putting all of your money into 30yr U.S. treasury bonds for true financial independence. This is very conservative. Are there better “safe” investment choices. I know there are endless choices, but I am curious to hear some opinions.

Joe's life was steadily eroded by inflation. It didn't end well and one concern was that he didn't take care of his health (checkups, diagnostic exams) due to expense concerns.

Terhorsts retired with an all-CD portfolio in 1985 but quickly shifted to equities.

Kaderlis started with equities, rode the 90s until they dropped, stepped aside for a couple years, and are back in the market again.

Your best investment is educating yourself about asset allocation, and Bernstein's "Four Pillars" book is a very good primer.

As much as annuities are oversold, yours provides a measure of guaranteed monthly cash flow that allows you to invest more of your portfolio in equities. The trick is to beat inflation without having volatility keep you awake at night.

 

[jaimee]

Hi,

I have been doing some reseach on insurance for pre-existing conditions myself. If you are working with a company and are taking advantage of their group insurance you may be able to buy continued insurance under the same provider as an individual. Do expect rates to be high though.
I found a lot of great information on the following site: http://www.healthinsuranceinfo.net
You should look for your state guide and do additional research from that point on. Good luck.
-Jaime

 

[Pale Rider]

Thanks for the responses. It is good to hear confirmation that 30yr treasury bonds are not necessarily the best investment. I will check out Bernstein's book on asset allocation.

Thanks Jaime for the link. I will give it a look.