so overwhelmed by this whole process. Help!

[Aquafit2]

Hello,

I have been a lurker for a while now. I would love to get some advise.

I am a 47 yo SAHM
My DH is 52

We have 2 sons in college with a monthly expense to us of $1800 for their support. One is almost done and the other is a sophomore. We have a daughter that is a sophomore in high school. We currently live in Florida but we have no family on this side of the U.S. so we would like to retire out west. Arizona, Utah, or Nevada.

We are spending about $150K a year right now but that will drop after we get the boys off the payroll.

DH would like to retire in the summer of 2017. We are both scared to death to lose that steady income stream and worried about the future of health care/cost. Not to mention everyone he tells this too tells him he's crazy to walk away from his income.

Here is our financial scenario...

Right now we have...

Cash $738K
Stocks $834K
Traditional IRA $151K
403 (b) $265K

We also have a Senior Executive Retirement Plan that should be worth approximately 1.5 M by 2017. We can’t touch that until DH is 62.

We are planning to add at least another $400K to our cash by 2017.

SO first of all....I know we have way too much cash just sitting there and we want to invest in some dividend earning stocks. We were thinking T, PG, Merck, GE, MCD, MSFT. SO how much do you leave in cash?

So do you think we are going to be able to make our goal of retiring in 2017?

Thank you, in advance for your expertise.

Ellen

[ziggy29]

Quote:

Originally Posted by Aquafit2 We have 2 sons in college with a monthly expense to us of $1800 for their support. ... We are spending about $150K a year right now but that will drop after we get the boys off the payroll. DH would like to retire in the summer of 2017. ... Right now we have... Cash $738K Stocks $834K Traditional IRA $151K 403 (b) $265K We also have a Senior Executive Retirement Plan that should be worth approximately 1.5 M by 2017. We can’t touch that until DH is 62. We are planning to add at least another $400K to our cash by 2017. ... So do you think we are going to be able to make our goal of retiring in 2017?

What's not said here is: What do expect your living expenses to be in 2017?

Also: Is that $1.5M (in 2017) retirement plan a defined benefit, a defined contribution, an annuity? And when will he be 62? (Is that in 2017?)

You already have about $2M put away now. The historical wisdom was that you could safely take about 4% from that in the first year and adjust for inflation, but most people feel uncomfortable with that now. So even at 3% this would generate about $60K at current market values, and that doesn't include the "executive retirement plan" or planned additions to your savings/investments in the next 4 years.

[Aquafit2]

His retirement benefit is a lump sum and it's already taxed. He will not be 62 until 2022. As far as future living expenses. I am clueless. I don't have any idea how much we will need.

[Gumby]

Quote:

Originally Posted by Aquafit2 As far as future living expenses. I am clueless. I don't have any idea how much we will need.

A good way to get a better handle on this is to closely track your actual expenses now. Then you can make predictions about which spending items or categories will change in retirement, and by how much.

[REWahoo]

Quote:

Originally Posted by Aquafit2 As far as future living expenses. I am clueless. I don't have any idea how much we will need.

Until you get some sort of handle on expected expenses in retirement you'll never be able to get an answer to your "can we retire in 2017" question. Follow Gumby's advice and start tracking your current spending now so that you can determine a baseline.

[David1961]

Quote:

Originally Posted by Gumby A good way to get a better handle on this is to closely track your actual expenses now. Then you can make predictions about which spending items or categories will change in retirement, and by how much.

+1. You need to get a handle on what your expenses are now so you can estimate what they will be in the future.

[Aquafit2]

Ok, I am going to work on the future living expenses.

What should I do with all the cash we have? How much should I leave in cash?

[kgtest]

Quote:

Originally Posted by Aquafit2 Ok, I am going to work on the future living expenses. What should I do with all the cash we have? How much should I leave in cash?

Not that I would want to if I could, but I am curious how one racks up $150k/year in living expenses. Imagine if you could live off of $30k/yr. like me and my wife. We are only 31 and do not have any children though.

[ERD50]

Quote:

Originally Posted by Aquafit2 ... What should I do with all the cash we have? How much should I leave in cash?

You didn't say how the IRA and 403b are invested, but the rest says you are ~ 50/50 stocks/cash, and that isn't really a problem. Might even be a good thing, depending what you think of stock evaluations now. Typical, the non-stock portion is in bonds, but bonds could be a problem right now with these low rates.

You could look through the threads on that, seems like many are sticking with 1 or 2 year CDs.

-ERD50

[daylatedollarshort]

Aquafit2, As others have noted your living expenses in retirement are really key. If you expect to live another 45 years, then if you have 45 years worth of living expenses saved up after accounting for Social Security and pensions, that is a pretty safe nest egg to plan on.

With annual expenses of $150K, you'd generally need about $6.75M in total retirement funding to cover 45 years. With annual expenses of $100K, that drops to $4.5M. With annual expenses of $30K, that number drops to $1.35M, and for higher earners most or all of that might be covered by Social Security benefits alone.

Since your husband wants to work for maybe another 4 years, but you might have 45 years of retirement ahead of you, planned retirement expenses are now getting to be a larger impact item than savings. Every 10K in annual expenses moves your nest egg number up or down by $450K.

[Katsmeow]

On living expenses - track your expenses now and estimate how they will change when retired. Some may go down (expenses associated with your kids, work related expenses such as commuting costs) but others may go up (hobbies you want to spend more time on). You may or may not want to make a project to try to cut expenses when your lifestyle changes.

On what to do with your cash - I am more alarmed with you talking about buying specific stocks. Is all of your money in "stocks" in individual stocks? Many people here are more inclined to invest in index funds rather than individual stocks (although there are exceptions). I personally don't invest in individual stocks. As to what to do with the cash, the first thing is to work on establishing an asset allocation and then you figure out what to buy to meet that asset allocation. I don't know if you have done any reading on investing but that might be worthwhile. There are some threads suggesting books. The William Bernstein books are good. Also I thought the Bogleheads guide to investing (might not be the exact title but close) was a good overview.

[2B]

If I'm reading your post right, you should have over $4MM by 2017. I don't see any problems with that as a retirement date. You can factor in any SS or other penisions at FireCalc which is a pretty conservative financial calculator. ORP is also good and popular with people here.

Without the steady income, you won't be able to spend as sloppily as you are now. I second the suggestions of tracking expenses and doing a budget. Quicken works well for me. You didn't mention any college money for your daughter. Unless she's planning to enter a convent when graduating from HS, you need to include her in your early retirement budget.

I have given up on individual stocks. Like many here I'm an index investor. To see what this is, I suggest you read Andrew Hallam's Millionaire Teacher. It's an easy read for the beginning investor. William Bernstein's Investor Manifesto is about as complicated as necessary and it's a little more indepth.

You need to develop an asset allocation. I'm close to retirement (a chronic OMY-er) and I have 40% in equities and 60% in laddered CDs. Others are more aggressive with their equities allocation. We all have to make our own decision on this but ask yourself what you will do when 2008 is repeated again (and it will). Since the CDs are requarly maturing, I only have an emergeny fund (in cash) equal to 1 years living expenses and that's probably more than I need.

[target2019]

First rule of investing club is, "do no harm."

You state that desired retirement is about 4 years off. You are concerned about holding so much cash, but will increase the cash by 50% over the next four years.

You would have done better by investing some of that cash all along. And now you want to get into the stock market for purpose of dividend investing.

You are motivated at this time, and it sounds like you are receptive to starting a plan.

As has been pointed out, some things are missing. What is the amount of money you will need in retirement? Then look at how to allocate your investments to provide the income to support your long retirement.

Start entering things into Quickbooks, or even just a spreadsheet. Develop an understanding of how money flows in, sits somewhere, and then flows out.

One thing that most have on their minds is the healthcare insurance thing. How will you handle that? It will be a significant portion of your outflow.

Good luck, and enjoy the experience. One thing you do not want to do is go for advice, and not be able to understand the real picture that a potential investment advisor is showing you.

[Midpack]

Quote:

Originally Posted by Aquafit2 Ok, I am going to work on the future living expenses. What should I do with all the cash we have? How much should I leave in cash?

Like others have said, you must get a handle on expenses first and foremost. FIRECALC will solve for expenses if you like, IOW you can back into expenses and then you can decide if you can live with that annual income level. Just for fun I entered (took less than 2 minutes):

• Current assets $1.988M
• Savings $100K/yr for 4 years
• Retiring 2017
• Plan length 40 years, DH age 96, DW 91
• Portfolio 50/50 stock/fixed income
• Spending constant dollar/inflation adjusted
• And entered the $1.5M as a pension (converted using a non-COLAd 100% joint survivor annuity quote)

The results looked pretty good to me, and that's without Soc Sec. But with so many unknowns, I hesitate to post results...maybe you might try FIRECALC. It's free, and you don't have to sign up/login, though donations are welcomed.

You really need to educate yourself and/or work with someone who can advise you, most of us here prefer DIY investing - "it's not rocket science." Advisors cost money, often a considerable cost.

You should NOT do anything until you're comfortable you understand "the whole process," making decisions from an "overwhelmed" state is a very bad idea IMO - but you have lots of time to get comfortable. It does not have to be overwhelming at all...

[Aquafit2]

Thank you all for your words of wisdom. I am going to buy a few books and start reading. I am also going to start tracking our expenses.

You have all given me lots to think about!

Ellen

[kgtest]

Quote:

Originally Posted by Aquafit2 Thank you all for your words of wisdom. I am going to buy a few books and start reading. I am also going to start tracking our expenses. You have all given me lots to think about! Ellen

An excellent place to start Ellen! That's how I began getting seriously motivated about my financial future...I read some books based on feedback from the members on this forum here who did it right!

I look forward to hearing about your continued steps towards progress! Don't be a stranger to the forums!

[Amethyst]

Hi Ellen,

Don't feel like you need to defend your living expense needs. Just because some people can live happily on $35K/year, doesn't mean everyone can. Everyone is different in that respect.

Also, when you are tracking your living expenses, remember to include income taxes as an expense. Someone with $35K/year who pays little or no tax on it, is just as well off as someone with a higher income, but who only takes home $35K after taxes.

Good luck!

Amethyst

Quote:

Originally Posted by Aquafit2 Thank you all for your words of wisdom. I am going to buy a few books and start reading. I am also going to start tracking our expenses. You have all given me lots to think about! Ellen

[MBAustin]

I'll echo all of the advice you have already received.

To move the cash into something more suitable to support your retirement income needs, an easy way is to use Target Retirement funds from a low-cost provider - we use Vanguard (which you will find is quite popular in this neighborhood), but Fidelity and TRowePrice also have pretty consistently good offerings.

I'd put that near the top of your list to look into.

[Aquafit2]

Thank you again for all the wonderful tips.

I have so much to learn.

I do feel like I should explain our annual expenses.... we feel like we have been very blessed and give about 70K to charity every year. Of course that would drop down with retirement income. :-)

[jollystomper]

Quote:

Originally Posted by Aquafit2 Thank you again for all the wonderful tips. I have so much to learn. I do feel like I should explain our annual expenses.... we feel like we have been very blessed and give about 70K to charity every year. Of course that would drop down with retirement income. :-)

Good for you! We are in a somewhat similar state - giving a good percentage to charities while we can, knowing that it will be reduced when I stop working. We find it actually has helped us in keeping our expenses down and planning for retirement.

My general observation is that you have enough socked away not to rush into things. Taking the time to read some books and do some research, as you mentioned you planned to do, is a good plan.

A key thing to assess is how much putting some of that cash into investments will impact your ability to sleep at night. Look at what is happening to the market in the last few weeks. Is that something that would get you nervous and regretting that you invested, or cause you to try to wait and "time things?" Or can you smile and laugh and not worry about it, taking a longer term view? Assessing your capacity for added risk is going to be very important.