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Old 06-14-2011, 09:19 PM   #1
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Looking for advice

I'm 41 and always dreamed of early retirement. Just curious whether I'm doing everything I can to get to my goal. The following are my savings:

ROTH IRA: $20k

Deferred comp(457 plan): $100k

Savings account: $50k

Home: paid off, valued $150k

Mutual funds: $100k

Savings bond: $75k

I contribute the maximum to the 457 plan and I also contribute the maximum to my children's state tax exempt college funds. Is my porfolio diverse enough? Thank you for your advice.
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Old 06-15-2011, 06:23 AM   #2
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Is your portfolio well diversified? I dunno, you haven't told us what is in it!

A general rule of thumb is "your age in bonds", some say 120 minus your age in stocks - by those measures at 41 you should have 60 to 80% in equities and the remainder in fixed income. You should own broad based index funds such as Total Stock Market and Total International - if your savings plan at work only offers S&P 500 as a decent (low cost) option you need to buy some mid cap and small cap elsewhere...

My goal was to have my first million in net worth by age 40, didn't quite make it, took me until age 43. By that measure you are a bit behind where I was at your age but maybe you aren't expecting to retire on as much income as I planned for.

Which brings me to: A large determinant of "am I on track" is your spending needs in retirement on which you are also silent...
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Old 06-15-2011, 05:31 PM   #3
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Welcome Sam. As Chemist suggests, you need to know/estimate your spending needs in retirement. Armed with that information, you can use FIREcalc (link at the bottom of the page) to see where you stand.
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Old 06-19-2011, 11:30 PM   #4
Confused about dryer sheets
 
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Below are the break down of my total assets:

1) Deferred compensation (457 plan)
11.0% - stability of principal (Connecticut stable value fund)
5.0% - vanguard target retire 2035
0.6% - Hartford capital apprec- large cap value
2.1% - american funds growth
2.5% - JPMorgan Midcap
0.6% - american funds europacific

2) 36.8% - savings account/certificate of deposit

3) 13.8% - us savings bond

4) roth ira
2.8% - t rowe price capital appreciation
2.8% - vanguard global equity fund

5) mutual funds
6.8% - vanguard global equital fund
8.1% - vanguard retirement 2045 fund
7.1% - vanguard windsor II fund 100.0%

Again, I'm just curious whether my investments are diverse. I figure that I'll have a better handle on how much I need for retirement when I'm closer to retirement age. In the meantime, I'm saving as much as I can.
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Old 06-20-2011, 02:02 AM   #5
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If you are really trying to retire early I think you need more equities for an early retirement. You have saved almost $350K a good amount and paid off house is certainly a plus. However, as Chemist suggested it may not be enough for an early retirement but certainly you are in fine shape for a traditional retirement.

Eyeballing your list of funds and assets you have about 30% equities and 70%. From a diversity you are probably fine roughly 1/3 international and decent mix of mostly good funds. If I include the bonds in your target retirement funds, plus CD, saving bonds, you have roughly 200K in fixed income. Now given current interest rates, over the next 15 years you'll be lucky to make 4-5% on these investments and very well may have hard time keeping up with inflation. Assuming you are looking at early retirement as say age 55-56. Your fixed income portions will be worth $350-$400K in today's dollars.

If you (and me) are fortunate the 145K equity may grow at rate of 10% (in line with historical equity gains) at which point your equity position might be worth as much as $600K. So your total assets would be $950K to $1 million Using a 3% inflation rate that amount is only worth $600-$650K in today's dollars. Obviously if we have another decade like the last one stocks won't return nearly this amount of money.

I encourage to use FIRECalc to investigate some possibilities as well as understand the impact of additional 15 years of saving might have. Now how much you need to spend in retirement is up to you and again FIRECalc is great tool.

My gut instinct is that you'll need either step up your saving rate, or take more risks in your portfolio, or possibly both. Of course another perfectly viable option is to plan on working longer. .
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Old 06-20-2011, 07:51 AM   #6
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Quote:
Originally Posted by samsam View Post
I'm 41 and always dreamed of early retirement. Just curious whether I'm doing everything I can to get to my goal. The following are my savings:

ROTH IRA: $20k

Deferred comp(457 plan): $100k

Savings account: $50k

Home: paid off, valued $150k

Mutual funds: $100k

Savings bond: $75k

I contribute the maximum to the 457 plan and I also contribute the maximum to my children's state tax exempt college funds. Is my porfolio diverse enough? Thank you for your advice.
The accounts your money is in matter less than 2 factors not specifically mentioned:

1) When do you WANT or EXPECT to retire
2) How much risk are you willing to take to accomplish #1?

risk in this sense is probably going to be expressed as % stocks-%bonds-%cash.

Some on this board retired early using 40% stocks and 60% bonds
others on this board have retired early using close to 100% stocks
there are probably some which retired with 100% cash and bonds

The difference in the 3 situations is how much money was saved- a person with 100% bonds and cash will need to save more than a person investing in 100% stocks.

The person with 100% stocks will probably need money to last longer, and the high stock allocation is a way to accomplish that.
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Old 06-20-2011, 08:58 PM   #7
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Get thee over to Bogleheads Investing Advice and Info and read a lot there. Then ask the same question there, but use their requested format.
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Old 06-20-2011, 09:09 PM   #8
Confused about dryer sheets
 
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You guys all have valid points which I actually have thought about. I looked into saving more but I don't think I want to sacrifice my quality of life any more.

Worse case, I'll work till 60 to have sufficient funds to retire.

It did occur to me to take more risks but I have had a bad couple of runs with the stock market. Looking at my options, I'll just have to suck it up and start taking more risks or no early retirement.

Examining my assets again, I have close to $650k. I'll also get a pension(30% of my income ) if I retire at 60. The pension is wiped out with penalties if I try to retire at 55. I might be able to leave at 55 and start collecting at 60 without incurring the penalties.

Thanks for all the good advice. Any recommendations on whether annuities are worthwhile for early retirement?
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Old 06-21-2011, 03:16 AM   #9
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Originally Posted by samsam View Post

Thanks for all the good advice. Any recommendations on whether annuities are worthwhile for early retirement?
The short answer is no. The longer answer is it depends on your health, age expectancy and especially now days the interest rates. Generally speaking annuities make more sense for older poorer folks without kids who are trying to make sure the maintain a minimum standard of living, and less sense for the opposite type of people. Before I signed up for annuity I really want to take a look at delaying Social Security since it is generally more cost effective than an annuity.

Having a reasonable (sounds like Federal?) pension available at age 60 frees you to take more chances. If you have good run with the market or real estate, or whatever you like, but with current interest rates it isn't a safe investment like CDs, than you quit at 55. If that doesn't work out than a secure pension at 60 and savings followed by SS lets you stop working pretty early.
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