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Where should I invest my new money?
Old 06-07-2007, 12:58 PM   #1
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Where should I invest my new money?

Im 42.
Wife is 38.

We will retire when I hit 50. I will have a pension. She will have one but wont be able to draw it until she is 50 ( so 4 years later).

We max out our 457b's. We have taxable accounts as well but arent currently adding to them. We have small Roths that we arent currently adding to.

We will need to draw from our investments immediatley upon retirement to cover the 4 year gap until her pension kicks in. I have run FireCalc and I know approx how much our income will be in retirement. We will try to keep our income consistent before and after her pension kicks in which means we will be drawign quite a bit more from investments the 1st 4 years than we will after that point.

Ok, so on to the question: Where should we invest new money?

We have about $1000 / month in new money to start investing. Our choices would be any combination of Roth, taxable accounts or 401k. We dont currently have any money in 401ks because our 457b plan is much better and I only a few days ago did I realize that we can contribute the max to both. The 457b plan allow us to withdraw any amount of money any time we want regardless of age with no penalty. Of course the 401k will have penalties before age 55. Same thing with the Roth unless we do SEPPs (which I dont want to mess with).

If we put the new money in the taxable accounts we will have full access to it, but lose the tax deferral of the 401k and the tax free Roth growth.

We could put the new money in the 401k and Roth but then there would be very little money in the taxable accounts.

I guess I know I should put the money in the 401k and / or Roth but have a hangup about not having full access to the money immediately. I guess I shouldnt worry about that since the 457b accounts will have enough money to cover what we need to draw anyway right?
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Old 06-07-2007, 01:09 PM   #2
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If you put your money in the Roth you can pull it out at any time (up to your contribution amount). It's already been taxed so you definitely have "full access" to the contribution amount, at least.
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Old 06-07-2007, 03:42 PM   #3
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I'd max out Roths for both of you. Besides having access to the principal in an emergency, as GB has pointed out, you can make this "later money". Invest it more aggressively and wait until you're 59.5 (or later) to withdraw the principal and gains tax free.

We're in about the same boat...a little older...we're withdrawing now from taxable accounts, contributing to the Roths, and carrying rollover IRA's.

When we hit 59.5 I can decide which pool to withdraw from, based on taxation and income requirements.
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Old 06-07-2007, 03:52 PM   #4
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Also a WI grunt.....I max out my 457 plan and and roth and then hit the taxable with what is left...and I do dividend paying stocks and/or index funds there....you could take out 10-15k/yr (standard deduction, exemptions, etc.) tax free from the 457 until the pension kicks in at 55 or even wait latter to get a higher pension....I believe that you have to have to be taking a pension under the WI system before you can use the leave conversion for health care premiums (if that is still there when you get there)....so makes the most sense to take at 55...

I believe the current system allows for you to stay on group health insurance with 20 years of service (although you pay the entire premium). Are you planning on that....We should really lobby for a HSA option...
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Old 06-07-2007, 06:22 PM   #5
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Whats "WI"?
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Old 06-08-2007, 01:52 PM   #6
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Wisconsin??
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Old 06-08-2007, 03:35 PM   #7
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Quote:
Originally Posted by cute fuzzy bunny View Post
I'd max out Roths for both of you. Besides having access to the principal in an emergency, as GB has pointed out, you can make this "later money". Invest it more aggressively and wait until you're 59.5 (or later) to withdraw the principal and gains tax free.
I like the bunny more and more every day !

Great advice, especially the "more aggressive". You don't want be 100% into CDs or other "traditional" mutual funds at your age. Look into sector mutual funds, especially commercial real estate, petroleum, etc. for at least 60% of this money

I find the Yahoo Finance Mutual Fund Screener an incredible free tool !
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Old 06-08-2007, 03:57 PM   #8
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Im not sure why you said youre "also" a WI grunt. I dont live in Wisconsin.

Anyway, I do agree and have decided to max out the Roths. In fact I dumped some money in my Roth last night and used it to buy IWM (Russell 2000 ETF) at the open of the market. I wanted some more small cap exposure anyway and this looked like a good time to do it.
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