New here. Help me start my retirement planning.

[GoRed]

Hello, I am a 35 year old working for a large corporation. I am married with two young children. I was enthusiastic about my job early in my career, enjoyed my job, couldn't believe I was getting paid to do what I loved, etc. I was looked forward to working pretty much till I was eligible for SS but the recent changes in, not only my company, but in the entire US economy (globalization) has changed my outlook. Greed and self-preservation seems to be the order of the day.

So I've gone online reading articles and using calculators. I've also just recently found this forum, which looks like a great resource.

I am now seriously thinking about what it would take for FI (not necessarily ER. I'll cross that bridge when I get there.) I'm thinking that, based on my wife and I's current spending habits, one million will do the trick. The catch of course, would be inflation and health insurance since we won't have any sort of pension or health insurance from our current megacorp job.

I never thought much about investments but my wife is very thrifty and she, god bless her, influenced me to cut down on my spending habits since we were married 10 years ago. As a result, without any planning, we paid off our mortgage and have ~150k in aftertax savings and 70k in the beforetax savings. No credit cards or loans.

Her thriftiness also makes her very adverse to any sort of risk. She grew up in poverty and knows the value of money. It didn't help that we dabbled in stocks at the wrong time (99-00) and without any real skill or patient. So about 95% of our money is in CDs. I never understood why treasury bonds which have lower interest would be preferable.

We've been saving ~30k a year since we married but I'm thinking we can up that to 40k or even 50k on years we don't take that big vacation. Our goal is to reach that million by the time we're 45. To reach that goal, based on some of the online calculators I've used I'll need 7-8% annual interest. So obviously CDs won't cut it, and based on what I've been reading isn't a good idea anyway due to inflation.

So my first question for the forum is how should I balance my portifolio to have a high probability of getting that 8% goal without adding too much risk? Specific fund

My second question is about health insurance. What are my options at 45 and beyond if I do decide to retire?

Third question. Is there a resource out there on the web that can help a newbie start my retirement planning. For example I have no idea what an ETF or numerous other acronyms that are used in this forum are.

Thanks in advance for any help you can provide,
John

 

[TromboneAl]

Here's a good resource: www.fundadvice.com

 

[Martha]

The health insurance marketplace has been in turmoil for a number of years now, with insurance costs and general health care costs far out pacing inflation. Therefore, it is hard to predict what the market is going to look like 5 or 10 years from now.

Currently, if you are in very good health, health insurance on the individual market is pretty affordable. However, individual states are the primary regulators of the health insurance market so there is considerable variety in what is available in different states. If you have any health issues, insurance can be very very expensive or even unavailable, depending on your individual situation. If you do have health issues, you will have the most rights when you are coming off of a group plan and federal law requires states to have a plan available for you to purchase at that time. However, that plan may not be affordable.

Georgetown University has a guide which provides information on your health insurance rights in your state at Health Insurance Consumer Guides. It also has a booklet on shopping for individual health insurance: http://www.healthinsuranceinfo.net/nefe/Understand_Private_Health_Insurance.pdf

 

[GoRed]

Thank you TromboneAl and Martha. Those links will be very helpful.

Martha,
Once I get into a healthcare plan are they guaranteed will I be covered until I die. My wife and I are healthy right now but if in the future I get cancer, for example, would the healthcare company be able to drop coverage on me? Are the rates fixed or do they go up as I get older?

 

[Martha]

GoRed, currently under federal law health insurance purchased on the individual market (except temporary insurance) is guaranteed renewable so the insurance company can't cut you off just because you have big claims. However, the insurance company can drop the particular plan for everyone. They can also raise the rates for everyone. Most states allow rates to increase based on age. Some states allow (or more specifically, don't disallow) rates to increase based on your health status. However, currently this does not seem to be a common occurance but may be an increasing practice.

 

[Gumby]

A very simple solution would be the following

50% Vanguard Total Stock Market Index - VTSMX
25% Vanguard Total International Index - VGTSX
20% Vanguard Total Bond Market Index - VBMFX
5% Vanguard REIT Index - VFINX

This should put you on the efficient frontier, with low expenses and the ability to sleep at night. No need to follow the "market". The bond exposure dampens volatility. As you know, inflation is the stealthy portfolio killer. You need exposure to the stock market to keep up.

Just my $0.02

 

[Nords]

Third question. Is there a resource out there on the web that can help a newbie start my retirement planning. For example I have no idea what an ETF or numerous other acronyms that are used in this forum are.

For specific vocabulary & acronyms there's Investopedia.com and its dictionary of investing terms.

For the actual concepts I'd recommend starting with "The Boglehead's Guide to Investing" and if you're still hungry then upping the ante to William Bernstein's "The Four Pillars of Investing"... if you have to have a website then you could try the CoffeeHouse Investor or Bernstein's EfficientFrontier.com.

 

[Doubledoc]

GoRed,

Welcome to the forum. I spend a lot of time on Morningstar.com - check out their courses (numbered like college courses) for a really solid foundation in investing and asset allocation. Once you've completed the courses they have a very nice asset allocator that allows you to bin things by asset class and style depending on your objectives.

Once you know the asset classes and allocations, you can use their fund/etf screener to find low expense ratio funds and etfs.

I personally focus on etfs that meet a particular need (core holding for large cap value for example) with at least average or above average performance and expense ratios below .5%. Everything I've read says that asset allocation (diversification) and expense control determine most of the success of a portfolio, and I've been pretty successful so far with relatively little volatility.

I'm still a year or two away from ER but my wife's planning to retire this summer (she's 45 and I'm 40), so I've just started looking at the health insurance issue. Check out ehealthinsurance.com for a great first look at the options and estimated costs of private health care.

 

[GoRed]

Thank you all. Great information. Looks like I have some reading to do. I'll go back to lurking and once I am better informed I'll be back.

 

[Ed_The_Gypsy]

(Psst! Gumby! VFINX is the S&P500 index fund. VGSIX is the REIT index fund. Down a whole bunch lately. I would rate it a good buy!)

GoRed, T-Al's link to fundadvice is a very good one. it has a LOT of good articles. Just don't go for the market-timing idea.

You are indeed fortunate to have such a disciplined wife.

You both need to understand that the biggest risk is inflation, not market risk. See also The Coffeehouse Investor

Go for it!

 

[Gumby]

Ed:

Right you are. Mea culpa. I should know better, since I own it.

Gumby